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SPPrí T TTFNTTON dírected to the cautíonary notíce on thís page that pub-
armím fíí íhbcí oí thc ureau do not have the force and effect
of Treasury Decísíons and that they are appíícabíe oníy to facts presented ín the pubííshed case
Treasury Department : : : : : ureau of Internaí Revenue
Internaí Revenue uííetín
Cumuíatíve uííetín 19 0-1
NU RY- UN 19 0
IN T IS ISSU
íntroductory Notes
Contents
Ruííngs Nos. 13267-133 1 € ”
Ta Court of thc Uníted States, The 1-
Income Taí € ”
Part 1 (Internaí Revenue Code) 9-12
Part II (Revenue ct of 193 and príor Revenue
cts). 129-131
state and Gíft Ta es 133
mpíoyment Ta es 13 -139
Mísceííaneous Ta es € ”
císe Ta es, Stamp Ta es, etc 1 1-1 7
Mísceííaneous Ruííngs 1 9-2 7
Legísíatíon 2 9-293
Inde 29 -30
The ruííngs reported ín the Internaí Revenue uííetín are (or the ínformatíon of ta payers and (heír counseí as
stowíng (he trenu of offícíaí opíníon ín the admínístratíon of the ureau of Internaí Revenue; the ruííngs other than
Treasury Decísíons have none of the force or effect of Treasury Decísíons and do not commít the Department to
awry ínterpretatíon of the íaw whích has not been formaííy approved and promuígated by thc Secretary of the
Treasury. ach ruííng embodíes (he admínístratíve appíícatíon of (he íaw and Treasury Decísíons to the entíre
atatc of facts upon whích a partícuíar case rests. It ís especíaííy to be no(ed thaí (he same resuít wííí not neces-
sarííy be reached ín another case uníess níí the materíaí facts arc ídentícaí wíth those of the reported case. s ít ís
svet aíways feasíbíe to pubíísh a compíete statement of the facts underíyíng each ruííng, there can be no assurance
that amy new case ís ídentícaí wíth the reported case. s bearíng out thís dístínctíon, ít may be observed (hat the
ruííng pubííshed from (íme to tíme may appear to reverse ruííngs prevíousíy pubííshed.
Off ccrs of (he ureau of Internaí Revenue are especíaííy cautíoned agaínst reachíng a concíusíon ín any casts
averrry on the basís of símííaríty to a pubííshed ruííng, and shouíd base theír |udgment on thc appíícatíon of aíí
certrceot provísíons of the íaw and Treasury Decísíons to aíí the facts ín each case. These ruííngs shouíd be used
bb aíde ín studyíng the tew and íts formaí constructíon as made ín the reguíatíons and Treasury Decísíons pre-
víoas y íssued.
In addítíon to pubííshíng aíí Internaí Revenue Treasury Decísíons, ít ís the poíícy of the ureau of Internaí
Revenue to pubíísh aíí ruííngs and decísíons, íncíudíng opíníons of (he Chíef Counseí for (he ureau of Internaí
cvenne, whích, because they announce a ruííng or decísíon upon a noveí questíon or upon a questíon ín regard
to whích there e ísts no prevíousíy pubííshed ruííng or decísíon, or for other reasons, are of such ímportance as
to be of generaí ínterest. It ís aíso the poíícy of the ureau to pubíísh aíí ruííngs or decísíons whích revoke,
modífy amend, or affect ín any manner whatever any pubííshed ruííng or decísíon. In many ínstances opíníon
of thc Chíef Counseí for the ureau of Internaí Revenue are not of generaí ínterest because they announce no
Dew ruííng or new constructíon of the revenue íaws but símpíy appíy ruííngs aíready made pubííc to certaín
sítuatíons of fact whích are wíthout specíaí sígnífícance. It ís not thc poíícy of the ureau to pubíísh such opíníons.
Therefore, the numbers assígned to the pubííshed opíníons of the Chíef Counseí for the ureau of Internaí
cvenne arc not consecutíve. No unpubííshed ruííng or decísíon wíU be cíted or reííed upon by any offícer or
empíoyee of the ureau of Internaí Revennc as a precedent ín the dísposítíon of other cases. Uníess otherwíse
specífícaííy índícated, aíí pubííshed ruííng and decísíons have receíved the consíderatíon and approvaí of the
Chíef Counseí for the ureau of I
UNIT D ST T S GO RNM NT PRINTING OFFIC : W S INGTON : 19 0
For saíe by Superíntendent of Documents, C. S. Government Prínt/ínf, Offíce, Washíngton. 2 , L . C,
See back of títíe for príces
LI R RY
UNI RSITY OF C LIFORNI
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The Internaí Revenue uííetín servíce consísts of buííetíns íssued
every other week and semíannuaí cumuíatíve buííetíns.
The buííetíns contaín the ruííngs and decísíons whích are made
pubííc and aíí Treasury Department decísíons (known as Treasury
Decísíons) pertaíníng to Internaí Revenue matters. The semíannuaí
cumuíatíve buííetíns contaín aíí ruííngs and decísíons (íncíudíng
Treasury Decísíons) pubííshed duríng the prevíous 6 months.
The compíete uííetín servíce may be obtaíned, on a subscríptíon
basís, from the Superíntendent of Documents, Government Príntíng
Offíce, Washíngton 2 , D. C, for 2. 0 per year; foreígn, 3.7 . Síngíe
copíes of the uííetín, 10 cents each.
Certaín íssues of cumuíatíve buííetíns are out of prínt and are,
therefore, not avaííabíe. Persons desíríng avaííabíe cumuíatíve buííe-
tíns may obtaín them from the Superíntendent of Documents at príces
as foííows:
Year
Fírst 6 months
Cumuíatíve uííetín
Second 6 months
1920
2
0. 2
3
0. 30
192
II-1
. 3
I1-2
. 0
1929
III-1
. 0
III-2
.
1930
I -1
. 0
I -2
. 0
1932 - -
I-1
. 30
1936
-1
.
-2
.
1939
1939-1 € ”
1939-2
. 60
Part 1
. 0
€ ”
Part 2
L 00
19 0
19 0-1
. 30
19 0-2
. 60
19 1-1
.
19 1-2
. 60
19 2
19 2-1
. 0
19 2-2
. 60
19 3 2
1. 2
19
2. 2
19 2
L 0
19 6
19 6-1
. 0
19 6-2
.7
19 7-1
. 0
19 7-2
.7
19 -1
. 7
19 -2
L 00
19 9-1
. 7
19 9-2
.7
19 0-1
.7
19 0-1
.7
€ Contaíns oníy íneomc ta ruííncs.
1 ouse, Senate, and conference reports on revenue bííís enacted as the ct of October 3,
1913, the ct of October 22, 191 , and tho Revenue cts of 191 to 193 , íncíusíve, and on
amendments to such cts.
a Prínted ín one voíume.
Persons desíríngto obtaín the servíce ín dígest form may do so at
príces as foííows: Dígest No. 19 (íncome ta ruííngs onív, príí, 1919,
to December, 1921, íncíusíve), 0 cents; Dígest No. 13 (1922-2 ), 60
cents; Dígest No. 22 (192 -27), 3 cents; and Dígest (íncome ta
ruííngs oníy, príí, 1919, to December, 1930, íncíusíve), 1. 0.
íí ínquíríes ín regard to these pubíícatíons and subscríptíons shouíd
be sent to the Superíntendent of Documents, Government Príntíng
Offíce, Washíngton 2 , D. C.
(íí)
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INTRODUCTORY NOT S
Internaí Revenue Cumuíatíve uííetín 19 0-1, ín addítíon to aíí
decísíons of the Treasury Department (caííed Treasury Decísíons)
pertaíníng to Internaí Revenue matters, contaíns opíníons of the Chíef
Counseí for the ureau of Internaí Revenue, ruííngs and decísíons
pertaíníng to íncome, estate, gíft, saíes, e cess profíts, empíoyment,
socíaí securíty, and mísceííaneous ta es, and íegísíatíon affectíng the
revenue statutes, as índícated on the títíe page of thís uííetín, pub-
ííshed ín uííetíns 1 to 13, íncíusíve, for the períod anuary 1 to une
30, 19 0. It aíso contaíns a cumuíatíve ííst of announcements reíat-
íng to decísíons of The Ta Court of the Uníted States, pubííshed
ín the Internaí Revenue uííetín Servíce from anuary 1 to une 30,
19 0.
Income ta ruííngs are prínted ín two parts. The ruííngs under
the Internaí Revenue Code are prínted as Part I, the íaw headíngs
correspondíng wíth the sectíons of the Code, as amended, and the
reguíatíons headíngs correspondíng wíth the sectíon headíngs of Regu-
íatíons 111 or 103. Ruííngs under the Revenue ct of 193 and príor
revenue acts are prínted as Part II, the íaw headíngs correspondíng
wíth the sectíon headíngs of those revenue acts and the reguíatíons
headíngs correspondíng wíth the artícíe headíngs of the appíícabíe
reguíatíons.
Ruííngs under Títíes III and I of the Socíaí Securíty ct and
under Subchapters and C, Chapter 9, of the Internaí Revenue Code
ín force príor to anuary 1, 19 0, are pubííshed under artícíe headíngs
of Reguíatíons 91 and 90, respectíveíy; ruííngs under Subchapters
and C, Chapter 9, of the Code ín force on or after anuary 1, 19 0, are
pubííshed under the sectíon headíngs of Reguíatíons 106 and 107,
respectíveíy; ruííngs under the Carríers Ta íng ct of 1937 and under
Subchapter , Chapter 9, of the Code for períods príor to anuary 1,
19 9, are pubííshed under the artícíe headíngs of Reguíatíons 100, and
ruííngs under Subchapter , Chapter 9, of the Code for períods subse-
quent to December 31, 19 , wííí be pubííshed under the sectíon head-
íngs of Reguíatíons 11 .
R I TIONS
The foííowíng abbrevíatíons are used throughout the uííetín.
, , C, etc. € ” The names of índívíduaís.
. R. M. € ” Commíttee on ppeaís and Revíew memorandum.
. R. R. € ” Commíttee on ppeaís and Revíew recommendatíon.
. T. € ” ícohoí Ta Unít.
. T. . € ” oard of Ta ppeaís.
C. . € ” Cumuíatíve uííetín.
Ct. D. € ” Court decísíon.
C. S. T € ” Capítaí Stock Ta Dívísíon.
C. T. € ” Ta es on mpíoyment by Carríers.
D- C. € ” Treasury Department círcuíar.
m. T. € ” Ta es ímposed by the Socíaí Securíty ct, the Carríers Ta íng ct of
1937, and Subchapters , and C of the Internaí Revenue Code.
1 . P. C. € ” cess Profíts Ta Councíí ruííng or memorandum.
. T. € ” state and Gíft Ta Dívísíon.
(ín)
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I
G. C. M. € ” Generaí Counseí s, ssístant Generaí Counseí s, or Chíef Counseí s
memorandum.
I. It. . € ” Internaí Revenue uííetín.
I. R. C. € ” Internaí Revenue Code.
I. T. € ” Income Ta Unít.
M, N, , Y, Z, etc. € ” The names of corporatíons, píaces, or busínesses, accordíng
to conte t.
Mím. € ” Mímeographed íetter.
MS. or M. T. € ” Mísceííaneous Dívísíon.
O. or L. O. € ” Soíícítor s íaw opíníon.
O. D. € ” Offíce decísíon.
Op. . G. € ” Opíníon of the ttorney Generaí.
P. T. € ” Processíng Ta Dívísíon.
S. T. € ” Saíes Ta Dívísíon.
Síí. € ” Sííver Ta Dívísíon.
S. M. € ” Soíícítor s memorandum.
Soí. Op. € ” Soíícítor s opíníon.
S. R. € ” Soíícítor s recommendatíon.
S. S. T. € ” Ta es on mpíoyment by others than carríers.
T. € ” Tobacco Dívísíon.
T. . M. € ” dvísory Ta oard memorandum.
T. . R. € ” dvísory Ta oard recommendatíon.
T. C € ” Ta Court of the Uníted States.
T. D. € ” Treasury Decísíon.
and y are used to represent certaín numbers, and when used wíth the word
doííars represent sums of money.
NNOUNC M NT R L TING TO D CISIONS OF T T COURT OF T UNIT D
ST T S
In order that ta payers and the generaí pubííc may be ínformed
whether the Commíssíoner has acquíesced ín a decísíon of The Ta
Court of the Uníted States dísaííowíng a defícíency ín ta determíned
by the Commíssíoner to be due. announcement wííí be made ín the
Internaí Revenue uííetín at the earííest practícabíe date. Notíce
that the Commíssíoner has acquíesced or nonacquíesced ín a decísíon
of the Ta Court reíates oníy to the íssue or íssues decíded adverseíy
to the Government. Decísíons so acquíesced ín shouíd be reííed upon
by offícers and empíoyees of the ureau of Internaí Revenue as
precedents ín the dísposítíon of other cases.
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CUMUL TI CONT NTS
Ruííng
Treasury Decísíons:
767
76
76
770
771
772
773
77
77
776
777
77
779
7 0
7 1
Court decísíons:
1726
1727
172
1729
1730
1731
Chíef Counseí s memoranda:
26 19.__
20 .
Uníted States Ta Court:
60
3033
337111.:
921ííí
9212.
11 19
12120..
Ruííng No.
19 0-2-13276
19 0-2-13277
19 0-1-13293
19 0- -13303
19 0- -13307
19 0- -13301
19 0- -1330
19 0- -1330
19 0- -13306
19 0-6-13316
19 0-7-13326
19 0-7-13327
19 0- -133 0
19 0- -13337
19 0- -1333
19 0- -13336
19 0- -13339
19 0-10-133
19 0-10-133
19 0-10-133 6
19 0-10-133 7
19 0-12-13371
19 0-12-13372
19 0-12-13373
19 0-12-1337
19 0-13-133 2
19 0-1-13271
19 0-3-132 1
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122 9.
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12261.
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1671 -
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19 0-9-133
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CONT NTS OF CUMUL TI ULL TINS (I. T.) 1 TO ; S. T. FOR 1920 ND 1921: INT RN L
R NU 1-1.1-2, II-í, II-2, UI-1, III-2. I -1.1 -2, -í. -2, I-1, I-2. II-I. TI-2, III-1, III-2.
1 -I. I -2, -í. -2, I-1. I-2. II-1, II-2. III-1. III-2. I -1. I -2. -1, -2, 1937-1, 1937-2.
1S3S-1. 193S-2, 1939-1 (P RT 1 ND P RT 2). 1939-2, 19 0-1. 19 0-2. 19 1-1, 19 1-2. 19 2-1. 19 2-2; N-
NU L ULL TINS FOR 19 3. 19 , ND 19 ; S MI NNU L ULL TINS 19 6-1. 19 6-2, 19(7-1.
19 7-2. 19 -1. 19 -2. 19 9-1, 19 9-2, ND 1960-1.
Cumuíatíve uííetín
Ruííng Nos.
Income Taí:
December, 1919 (No. 1)
anuary- une, 1920 (No. S)...
uíy-December, 1620 (No. 3).
anuary- une, 1921 (No. )...
uíy-December, 1921 (No. 6).
SíbTír
1920 (S. T. 1-20)
anuary- une, 1921.
uíy-December, 1921
Internaí Revenue uííetín;
anuary- une, 1922 (No. 1-1)
uíy-December. 1922 (No. 1-2)
anuary- une, 1923 (No. II-í)
uíy-December. 1923 (No. II-2)
anuary- une, 192 (No. 1II-1)
uíy-December, 192 (No. III-2)
anuary- une, 192 (No. I -1)
uíy-December. 192 (No. I -2)
anuary- une. 1926 (No. -í)
uíy-December, 1926 (No. -2)
anuary- une, 1927 (No. I-1)
uíy-December, 1927 (No. I-2)
anuary- une, 192 (No. II-1)
uíy-December, 192 (No. II-2)
anuary- une, 1929 (No. III-1)
uíy-December, 1929 (No. III-2)
anuary- une, 1930 (No. I -1)
uíy-December. 1630 (No. I -2)
anuary- une, 1931 (No. -í) _
uív-Dcccmbcr. 1931 (No. -2)
anuary- une, 1932 (No. I-1)
uíy-December. 1932 (No. I-2)
anuary- une, 1933 (No. II-1)
uíy-December. 1933 (No. II-2)
anuary- une, 193 (No. III-1)
uíy-December. 193 (No. III-2)
anuary- une, 193 (No. I -1)
níy-Decembcr. 193 (No. I -2)
anuary- une, 1936 (No. -1)
uíy-December, 1936 (No. -2)
anuary- une, 1937 (1937-1)
uíy-December. 1937 (1937-2)
anuary- une, 193 (193 -1)
uíy-December. 193 (193 -2)
anuary- une, 1939 (1939-1 € ” Part 1 and Part 2).
uíy-December, 1939 (1939-2)
anuary- une, 19 0 (19 0-1)
níy-Deeember. 19 0 (19 0-2)
anuary- une. 19 1 (19 1-1)
uíy-December, 19 1 (19 1-2)
anuary- une. 19 2 (19 2-1)
uíy-December. 19 2 (19 2-2)
anuary-December, 19 3 (12 months)
anuary-December, 19 (12 mouths)
anuary-December, 19 (12 months)
anuary- une, 19 0 (19 6-1)
uíy-December. 19 6 (19 6-2)....
ínuary- une, 19 7 (19 7-1)
uíy-December. 19 7 O M)....
anuary- une, 19 (19 -1)
uíy-December, 19 (19 -2).
anuarv- une. 19 9 (19 9-1)...
níy-Deeember. 19 9 (19 9-2)
19 0 (19 0-1)
1-66
6 6-1033
103 -136
1369-1710
1711-1990
1-112
113-26
266-3 6
1-3 1
3S -66
666-9 6
9 7-1276
1277-16 1
16 2-19 9
19 0-22 1
22 2-2 23
2 2 -2 13
2 1 -3026
3027-3291
3292-3 7
3 -37
37 - 0 2
0 3- 2
2 9- S7
W 6 3
6 - 7
s ..-.12(
12 - 33
339- 31
.-,32-.W,I
962-6262
6263-6 1
6 S2-6 71
6S72-7221
722 -7 63
7 6 -7
7SN -M í
1 0- 9
I60-WU2
793-911
0119-9 2
9 2 -96
P6 -9S96 €
9 97-10126
10127-1030
1 30 -10
10 111 1(1761
10762-100 3
109 -1113S
11139-11302
11303-11 90
11 91-11916
11917-12200
12201-12332
12333-12 6
12 66-12 0
12 1-12721
12722-12 1
12. 2-1299
129 9-13119
13120-13266
13207-133
( II)
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Internaí Revenue uííetín
Cumuíatíve
NU RY- UN 19 0
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2
cquíescences € ” Contínued
Ta payer
Camp, . Gordon
Camp, Tííííc ., estate of
Cítízens Natíonaí ank of Washíngton, The, successor
trustee
Cooper Foundatíon
Cooper, Staníey M., asserted transferee of The Steu-
ben víííc rídge Co
D
Daíías Downtown Deveíopment Co. (díssoíved)1
Daíías Natíonaí ank, índependent e ecutor and
trustee of estate of Ivor íízabeth O Connor
Morgan 1
Daíías Natíonaí ank, trustee of trust under wííí of
ames Charíes O Connor 1
Deíchamps, . F
Deíchamps, O.
Depue, dna ., e ecutrí of estate of Frederíck .
Depue
Depue, Frederíck ., estate of
– :
mpíre Trust Co., trustee of Natíonaí Securítíes
Seríes € ” Industríaí Stocks Seríes, Natíonaí Securí-
tíes and Research Corporatíon
mpíre Trust Co., trustee of Natíonaí Securítíes
Seríes € ” Low-Príced ond Seríes, Natíonaí Secu-
rítíes and Research Corporatíon
mpíre Trust Co., trustee of Natíonaí Securítíes
Seríes € ” Preferred Stock Seríes, Natíonaí Securítíes
and Research Corporatíon
mpíre Trust Co., trustee of Natíonaí Securítíes
Seríes € ” Stock Seríes, Natíonaí Securítíes and
Research Corporatíon
F. P. . Notehoíders Corporatíon -
Farnham Manufacturíng Co., successor by merger
to Paragon Research, Inc
Farry, Neíson
Farry, eíma R
Fírst Natíonaí ank of Daíías, trustee of Cecíí .
eatíng Trust 1
Gage rothers Co
Gíenshaw Gíass Co., Inc
Gíobe Mortgage Co. (formeríy Securítíes Mortgage
Co.)
Grace, Nora, Trust under deed of trust dated príí ,
1930, by oseph P. Grace
Grace et aí., ospeh P., trustees of Nora Grace Trust
under deed of trust dated príí , 1930, by oseph
P. Grace
Docket No.
oíume
122 9
12262
1219
1 09
9210
1061
16 6
16 67
12613
12612
16621
16621
19617
19020
1961
10019
2 C
10299
1010
20069
16100
20070
16S29
17273
1 9 6
1 0
22202
1 329
1 329
1 Nonacnuíoscenco pubííshed ín Cumuíatíve uííetín 10 9-1, pare . wíthdrawn.
s Nonacr|uíescence pubííshed íu Cumuíatíve uííetín 19 , page , w tíídrawn.
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cquíescences € ” Contínued
Greer et u ., Míííard M
Gussow, ahn Co., Inc
II
armon, W. F
ííton et u ., Conrad N
opkíns Trust, Mary
untíneton Natíonaí ank of Coíumbus, Ohío, The 1
uth, oseph G
uth, P. mery
vman, S. ., asserted transferee of The Steubcnvíííe
rídge Co
efferson et u ., Fíoyd Y_
uníor Míss Co
ahn, . M., estate of 1
awncer Co., The
eatíng Trust, Cecíí . ..
eíham, Grace .
íng, íízabeth rant
Lab states Inc
Lang, Otto ., estate of
Lang, W. ., índependent e ecutor of estate of Otto
. Lang
Lcedy Co., Inc. (Deíaware), W. ., transferee
Lecdy-Gíover, Inc. (Deíaware), transferee
Lccdy-Gíover Reaíty Insurance Co., Inc
M
Mar , mííy
Matuszewskí, Zygmunt
McCarty, ustín
McDermott, rthur -
McDonaíd, Charíes Conway -
McDonaíd, dward
McDonaíd, . Nesbít...
Mc unkín Trust, Mína G. and Fred, r.
McRcynoíds, . O., estate of .
Meador, arry L.
Míddíebrook, r., oseph
Míms oteí Corporatíon
Mon|ar, ugh
Moore, ííís M. --
Morgan, Ivor íízabeth O Connor, estate of .
Morrís, ohn
Murphy, era Rose
Murphy, Warren L T.
10 0
16970
17 0
1 2 7
12 1
17736
122
122 3
920
1
1 99
1671
16619
16 29
333
12 1
1 9
1673
1673
1 92
1 91
1 90
19736
21199
16616
1 3
122
12121
12120
1666
1622
16729
13 79
19327
110 0
11102
9
16 6
19779
20702
20701
1 1
13
13
13
13
13
11
11
11
13
1 1
12
13
12
13
13
13
12
12
13
13
13
13
13
12
13
11
1 1
1 1
12
12
12
13
13
13
13
12
13
1 1
1
136
0
373
623
9 2
760
7 9
7 9
7 9
1092
1
11
336
11
9
712
11
11
11
9
9
9
1099
73
11
6
7 9
7 9
7 9
11
11
11
3
901
7
9
11
1020
162
162
1 state ta decísíon.
oraíescence reíates oníy to the íssue whether a specífíc devíse to Maríon County Federatíon of Women s
,0s 1 deductíbíe for estate ta purposes.
| Nonaequícsecnec pubííshed ín Cumuíatíve uííetín 19 9-1, pace , wíthdrawn.
cquíescence reíates oníy to the íssue whether stock íssued ín consíderatíon of canceííatíon of notes
cqu
reduced
pubííshed ín Cumuíatíve uííetín 1019-1, page C, wíthdrawn.
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cquíescbnces € ” Contínued
Ta payer
N
Natíonaí Securítíes Seríes € ” Industríaí Stocks Seríes,
Natíonaí Securítíes and Resear h Corporatíon
Natíonaí Securítíes Seríes € ” Low-Príced ond Seríes,
Natíonaí Securítíes and Research Corporatíon
Natíonaí Securítíes Seríes € ” Preferred Stock Seríes,
Natíonaí Securítíes and Research Corporatíon
Natíonaí Securítíes Seríes € ” Stock Seríes, Natíonaí Se-
curítíes and Research Corporatíon
Neaí, George I., estate of, asserted transferee of The
Steubenvíííe rídge Co
Neaí, r., et aí., George I., e ecutors of estate of
George I. Neaí, asserted transferee of The Steuben-
víííe rídge Co
Neííí, Leíía .1
New ngíand Líme Co
O Connor, ames Charíes, trust under wííí of2
Ogden, ohn G
Oííver Iron Míníng Co
Overton, r., . .2
Overton, r., et aí., . W., ííquídatíng trustee of
Daíías Downtown Deveíopment Co. (dísso.ved|2
Patíno, Crístína do ourbon
Porter Co., Inc., . W., and subsídíary
Putnam, Samueí ., estate of
Putnam, r., Samueí
Putnam, r., Samueí ., e ecutor of estate of Samueí
. Putnam
R
Repubííc Natíonaí ank of Daíías, trustee of Mína G.
Mc unkín nnd Fred Mc.Iunkín, r., trust under wííí
of Fred Mc unkín 2
Roosoveít oteí Co
S
Schnítzer, Sam
Schumacher, Cíífford M
Schumacher, Lydía M
Seay, Charíes .2
Seay, George .2
Seay, ohn M. _
Seay, Pauííne . € ” --
Seay et aí., Pauííne ., trustees of Pauííne .
Trust under wííí of Dcro . Seay.2. € ”
Seay Trust, Pauííne .
Seay
Docket No.
19617
19620
1961
19619
9211
9211
33
1 0
16 67
1 627
12S 6
16617
1661
16 26
17773
12192
12193
1219
12192
12193
1666
13030
1 20
20703
2070
16773
1677
16772
16771
167 0
167 0
oíume Page
cquíescence reíates oníy to the íssue whether stock íssued ín consíderatíon of canceííatíon of notes
reduced the operatíng defícít.
1 Nonacquícscenco pubííshed ín Cumuíatíve uííetín 19 9-1, pace G, wíthdrawn.
1 cquíescence reíates oníy to the íssue whether faííure to tííe a tímeíy íncome ía return for 19 was due
to reasonabíe cntí se.
cquíescence reíates oníy to the íssue ínvoívíng the deductíbíííty of an addítíon to a reserve for bad
debts.
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cquíescences € ” Contínued
Ta payer
Sníte, Fred .í
Snítc, Lorctto M.1
Specíaíty ngíneeríng Co
Stannv et aí., Norbert F., trustees of . L. Wíegand
Trust No. 1
Stanny ct aí., Norbert F., trustees of . L. Wíegand
Trust No. 2
Stannv et aí., Norbert F., trustees of . L. Uíegand
Trust No. 3
Stanny et aí., Norbert F., trustees of . L. Wíegand
Trust No.
Steubenvíííe rídge Co., The
Stífeí, Nícoíaus Co., Inc
Taít, mííy St. ., estate of
Tennessee, íabama Georgía Raííway Co
Te as ank Trust Co. of Daíías
Thayer et us., dward C
Tompkíns, Ray ., estate of3
Tompkíns, Steíía, e ecutrí of estate of Ray
Tompkíns s
Tourteíot et u ., Fred I
Trust under wííí of ames Charíes O Connor
oíckeníng Inc.
M.
W
Wegeforth, Lííííe S.s
Weíí Cíothíng Co -- –
Weísberg et aí., íe , trustees of estate of .
ahn
Weíís Fargo ank Uníon Trust Co., trustee of Mary
. opkíns Trust
West Penn Raííways Co
Wíegand, . P
Wíegand, dwín L
Wíegand Trust No. 1, . L
Wíegand Trust No. 2, . L
Wíegand Trust No. 3, . L
Wíegand Trust No. , . L
Wííson, C. Dudíey, estate of3 --
Wííson et aí.. era Spencer, e ecutors of estate of C.
Dudíey Wííson1 €
Wítcheíí, Frank O.
Wítcheíí, Frank O., índependent e ecutor of estate of
Moíííe I. Wítcheíí
Wíttheíí, Moíííe I., estate of
Woíf, arry ., estate of
Woíf, Monte L., e ecutor of estate of arry . Woíf..
Woodhuíí, mma
Docket No.
oport
oíume
Page
12767
10
23
1276
10
23
1 133
12
1173
10 1
1
136
10 2
1
136
10 3
1
136
10
1
136
9212
11
7 9
1 91
13
7
1630
11
731
11 19
13
6
1061
12
11
176 2
12
79
2072
13
10
2072
13
10
11123
1
136
16 67
12
11
17 9
13
723
60
13
9
1331
13
73
1671
12
11
12 1
13
9 2
1226
11
7 9
10 39
1
136
10 36
1
136
10 1
1
136
10 2
1
136
10 13
1
136
10
1
136
19 02
13
69
19 02
13
69
10731
12
11
16732
12
11
16732
12
11
1 209
13
3
1 209
13
3
12232
11
7 9
N.í
acquíescence pubííshed In Cumuíatíve uííetín 19 -2, paee , wíthdrawn.
I onactmícsccncc pubííshed In Cumuíatíve uííetín 19 9-1, page 6, wíthdrawn.
( stat ta decísíon.
Nonaequíescenec pubííshed In Cumuíatíve uííetín 19 9-1, page 7, wíthdrawn.
uíCSC(.nce reíntcs oníy to the íssue whether stock Issued ín consíderatíon ot canceííatíon ot notes ro-
u (í the opera tíne dc/ícít.
€ ž í / Wtao-ncc reíates to aíí íssues e cept that ínvoívíng the íncíusí|n ín gross estate, under the provísíons
113- 100611 (c) and (d) ot the Internaí Revenue Code, ot the vaíue of two trusts created by decedent In
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cqt|íepcbnces € ” Contínued
Ta payor
Docket No.
oíume Page
Woods, L. F., ancíííary admínístrator of estate of
mííy St. . Taít -
Wozencraft, Mary íctoría McRcynoíds
Wozencraft, Mary íctoría McReynoíds, índependent
e ecutrí and soíe heír of estate of . O. Mc-
Reynoíds 1
Wríght, Robert Mc - -
Wurtsbaugh, . T., transferee
Y
Yost, Margueríte M
Yost, Waíter M - -
1630
1760
1622
121 3
121
1 321
12260
12261
12
11
11
7 9
13
10 9
11
7 9
11
7 9
1 Nonacquíescence pubííshed ín Cumuíatíve uííetín 10 9-1, page 7, wíthdrawn.
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The Commíssíoner does NOT acquíesce ín the foííowíng decísíons:
Ta payer
Docket No.
oíume Page
eícher, arríet .1
írch Ranch Oíí Co.
íí
Carman, Wííííam
Chandíer, Marían Otís
Chandíer, Norman
Chandíer, Phíííp
Crowe, Constance Chandíer.
G
Garíand, eíen Chandíer
Goodan, May Chandíer
II
ogg, Thomas
opkíns, Lydía
untíngton Natíonaí ank of Coíumbus, Ohío, The 2 3.
eíham, Grace .

Lansíng Communíty oteí Corporatíon.
M
Marshaíí, íder W
Marshaíí et u ., íder W
Moore, Lítís M.1
Myers, dward C.
Neííí, Leíía .
Nubar, Zareh.
N
Patíno, Críst ína de ourbon
Pearson, eíen íesí
Pearson, r., . Charíes
Porter Co., Inc., . W., and subsídíary _
9
720
1679C
3036
3037
303
303 )
30 0
3033
17903
12 17
17730
333
17760
23 32
23 33
9
0037
33
99
16 26
20 1
20 13
17773
It
Rosckrans et u ., ohn N 67
1 onocquícaccnce reíates oníy to the íssue whether operatíng defícíts as of March 1,1013, must be restored
ín determíníng earníngs or profíts accumuíated after February 2 ,1913.
1 state ta decísíon.
1 Nonacquíesccncc reíates oníy to the íssue concerníng the vaíuatíon of the íífe estate of decedent s wídow.
cquíescence pubííshed ín Cumuíatíve uííetín 19 6-1, page 3, as ít reíates to the íssue whether the
raymmts ínvoíved were ta abíe as gaín from the saíe of property, wíthdrawn.
onacquíescencc reíates oníy to the íssue concerníng the cost basís of stock soíd ín 19 .
1 Nonacquícscence reíates oníy to the íssue ínvoívíng the ta abíííty of gaín reaíízed from the saíe of petí-
|w|er s own stock to íts stockhoíders and empíoyees, whích stock had been acquíred and heíd ín íts
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Non acquíescence s € ” Contínued
Ta payer
S
Sa ton, ugene F., estate of
Sa ton, Martha P., índívíduaííy and as soíe e ecutrí ,
of the íast wííí and testament of ugene F. Sa ton 11
Spreckeís, doíph
Spreckeís, Dorothy C
Spreckcís-Rosekrans Investment Co
Staníey Co. of meríca
T
Theurkauf, dward -
W
Wegeforth, Lííííe S.s
Wííííamson, Ruth C-- -- -
Wííson, C. Dudíey, estate of
Wííson et aí era Spencer, e ecutors of estate of
C. Dudíey Wííson 1
Docket No.
16 2
16 2
62
629
677
1 760
1 7 9
60
30 1
19 02
19 02
oíume Pago
1 state ta decísíon.
– cquíescence pubííshed ín Cumuíatíve uííetín 19 9-2, page 3, wíthdrawn.
Nonacquíescence reíates oníy to the íssue whether operatíng defícíts as of March 1,1913, must be restored
ín determíníng earníngs or profíts accumuíated after February 2 .1913.
Nonacquíescence reíates oníy to the íssue ínvoívíng the íncíusíon ín gross estate, under the provísíons of
scctíof ííí (c) and (d) of the Internaí Revenue Code, of the vaíue of two trusts created by decedent ín 1937.
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INCOM T RULINGS. € ” P RT I
INT RN L R NU COD
C PT R 1. € ” INCOM T
SU C PT R . € ” G N R L PRO ISIONS
P RT II. € ” COMPUT TION OF N T INCOM
S CTION 22(a). € ” GROSS INCOM : G N R L
D FINITION
Sectíon 29.22 (a)-í: What íncíuded ín gross 19 0-1-13267
íncome. L T. 39 7
INT RN L R NU COD
The faír market vaíue of prízes receíved by an índívíduaí takíng
part ín a contest ís íncíudíbíe ín gross íncome for Federaí íncome
ta purposes.
dvíce ís requested reíatíve to the ta abíííty, for Federaí íncome
ta purposes, of the vaíue of prízes awarded ín connectíon wíth a
ta payer s partícípatíon ín a radío quíz contest. In the case under
consíderatíon, the ta payer, as a resuít of answeríng the príncípaí
questíon correctíy, was awarded varíous prízes consístíng of merchan-
díse.
It ís the posítíon of the ureau that where an índívíduaí takes part
ín a contest, compííes wíth the condítíons thereof, and as a resuít wíns
a príze, he deríves ta abíe íncome, for Federaí íncome ta purposes,
to the e tent of the faír market vaíue of the príze on the date ít ís
acquíred by hím. (See L T. 16 1, C. . II-í, (1923), and I. T. 1667,
C. . -í, 3 (1923); see aíso I. T. 39C0, C. . 19 9-2, 13.) The
faír market vaíue of the merchandíse receíved by the ta payer ín the
ínstant case ís, therefore, íncíudíbíe ín hís gross íncome for Federaí
íncome ta purposes.
Sectíon 29.22 (a)-1: What íncíuded ín gross 19 0-7-1: 32
íncome. Míní. G 90
dward C. Myers v. Commíssíoner (6 T. C. 2 )
Treasury Department,
Offíce of Commíssíoner of Internaí Revf.nue,
Washíngton 2 , D. C, March 20, 10 0.
Coííectors of Internaí Revenue, Internaí Revenue gents ín Charge,
and Others Concerned:
1. The Ta Court of the Uníted States heíd ín dward C. Myers v.
Commíssíoner (6 T. C. 2 ) that under the terms of the e cíusíve
íícense agreement between the pet ítíoner and the . F. Goodrích Rub-
ber Co. the petítíoner soíd hís ínventíon to Goodrích. The Coínmís-
93 0 € ” 0 2
(0)
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29.22(a)- .
10
síoner s acquíescence C. . 19 6-1, 3 ín the Myers decísíon was pub-
ííshed ín Internaí Revenue uííetín No. 12 dated une 17,19 6.
2. Further consíderatíon has been gíven to the questíon as to whether
the decísíon ín the Myers case shouíd be accepted as a precedent ín the
determínatíon of íncome ta ííabííítíes of other ta payers wíth respect
to contracts contaíníng essentíaííy the same provísíons.
3. The e cíusíve íícense agreement consídered ín the Myers case pro-
víded, among other tíííngs, that the íícensor ís to receíve from the
íícensee, ín return for the e cíusíve ríght to manufacture, use, and seíí
the patented artícíe, annuaí payments equaí to percent of the seíííng
príce of the artícíes manufactured and soíd, such annuaí payments,
however, not to be íess than a specífíed mínímum annuaí amount.
. The ureau has reached the concíusíon that where the owner of
a patent enters ínto an agreement whereby, ín consíderatíon of the as-
sígnment of the patent, or the íícense of the e cíusíve ríght to make,
use, and seíí a patented artícíe, the assígnee or íícensee agrees to pay
to the assígnor or íícensor an amount measured by a fí ed percentage
of the seíííng príce of the artícíe so manufactured and soíd, or amounts
per unít based upon uníts manufactured or soíd, or any other method
measured by productíon, saíe, or use eíther by assígnee or íícensee, or
amounts payabíe períodícaííy over a períod generaííy cotermínous
wíth the transferee s use of the patent, such agreement, for íncome ta
purposes, ís to be regarded as provídíng for the payment of royaítíes
ta abíe as ordínary íncome.
. cquíescence ín the decísíon of The Ta Court of the Uníted
States ín dward C. Myers v. Commíssíoner (6 T. C. 2 ), as ít re-
íates to the íssue whether the payments ínvoíved thereín were ta -
abíe as gaín from the saíe of property, ís hereby wíthdrawn and non-
acquíescence substítuted.
6. It ís heíd, under authoríty contaíned ín sectíon 3791(b) of the
Internaí Revenue Code, that thís ruííng shaíí not be appííed wíth re-
spect to royaítíes receíved from such e cíusíve íícense agreements for
ta abíe years begínníng príor to une 1,19 0.
7. Inquíríes regardíng thís mímeograph shouíd refer to íts number
and the symboís IT: IM.
Geo. . Schoeneman,
pproved March 20, 19 0. Commíssíoner.
Thomas . Lynch,
ctíng Secretary of the Treasury.
Sectíon 29.22(a)-í: What íncíuded ín gross 19 0- -13331
íncome. I. T. 003
INT RN L R NU COD
ssígnments of ín-oíí payment ríghts
dvíce has been requested wíth respect to the phrase short-ííved
ín-oíí payment ríghts, as used ín G. C. M. 2 9 (C. . 19 6-1, 66)
and I. T. 393 (C. . 19 9-1, 39).
G. C. M. 2 9, supra, e presses the opíníon that consíderatíon re-
ceíved for the assígnment of a short-ííved ín-oíí payment ríght carved
out of any type of depíetabíe ínterest ín oíí and gas ín píace ís
ordínary íncome to the assígnor uníess such consíderatíon ís píedged
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11
19.22(a)- .
for use ín further deveíopment. s a precautíon, pendíng further
consíderatíon of the feasíbíííty of dístínguíshíng between short-ííved
and íong-ííved ín-oíí payment ríghts, the statement was made ín
G. C. M. 2 9 that: No opíníon ís e pressed wíth respect to the
status of ín-oíí payment ríghts e tendíng over a substantíaí portíon of
the íífe of the depíetabíe economíc ínterests from whích such ríghts
are carved.
fter carefuí study and consíderabíe e períence wíth the appííca-
tíon of G. C. M. 2 9, supra, ít ís now concíuded that there ís no
íegaí or practícaí basís for dístínguíshíng between short-ííved and
íong-ííved ín-oíí payment ríghts. It ís, therefore, the present posí-
tíon of the ureau that the assígnment of any ín-oíí payment ríght
(not píedged for deveíopment), whích e tends over a períod íess
than the íífe of the depíetabíe property ínterest from whích ít ís
carved, ís essentíaííy the assígnment of e pected íncome from such
property ínterest. Therefore, the assígnment for a consíderatíon of
any such ín-oíí payment ríght resuíts ín the receípt o ordínary íncome
by the assígnor whích ís ta abíe to hím when receíved or accrued, de-
pendíng upon the method of accountíng empíoyed by hím. Where
the assígnment of the ín-oíí payment ríght ís donatíve, the transactíon
ís consídered as an assígnment of future íncome whích ís ta abíe to
the donor at such tíme as the íncome from the assígned payment ríght
aríses.
Notwíthstandíng the foregoíng, G. C. M. 2 9, supra, and I. T.
393 , svpra, do not appíy where the assígned ín-oíí payment ríght
constítutes the entíre depíetabíe ínterest of the assígnor ín the property
or a fractíon e tendíng over the entíre íífe of the property.
Sectíon 19.22(a)-í: What íncíuded ín gross, 19 0-9-133
íncome. I. T. 007
INT RN L R NU COD
Dívídends payabíe on or before December 31, 19 0, to stock-
hoíders of record on November 27, 19 0, whích dívídends were re-
ceíved and dístríbuted on December 31, 19 0, by the e ecutor of an
estate ín process of admínístratíon to a charítabíe foundatíon pur-
suant to an assígnment on December 30, 19 0, by the íífe íncome
benefícíary of the resíduary estate are íncíudíbíe ín the beuefícíary s
gross íncome for Federaí íncome ta purposes.
dvíce ís requested wíth respect to the treatment for Federaí íncome
ta purposes of dívídends receíved on December 31, 19 0, by the e ec-
utor of an estate ín process of admínístratíon, whích dívídends were,
pursuant to an assígnment on December 30, 19 0, by the íífe íncome
benefícíary of the resíduary estate, dístríbuted to a charítabíe foun-
datíon on December 31,19 0.
The resídue of the estate of a decedent who díed on November 2,
19 0, was bequeathed to a trustee to pay the íncome to the ta payer
for íífe and at her death to deííver the resídue to a foundatíon to be
organízed. On November 27, 19 0, dívídends were decíared on cer-
taín stock owned by the estate, payabíe on or before December 31,
19 0, to stockhoíders of record on November 27,19 0. The dívídends
were receíved by the e ecutor of the estate on December 31,19 0. On
December 30,19 0, whííe the estate was ín process of admínístratíon,
the ta payer assígned aíí he ríght, títíe, and ínterest ín the bequest
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19.22(a)- .
12
made to her, nameíy, her íífe ínterest ín the resíduary estate, to an
e ístíng ta -e empt charítabíe foundatíon. On December 31, 19 0,
the e ecutor dístríbuted the dívídend íncome to whích the ta payer
wouíd otherwíse have been entítíed to the e empt foundatíon named
ín the ta payer s assígnment.
It ís the ta payer s contentíon that the dívídends dístríbuted to
the assígnee are not ta abíe to her under the príncípíe of the decí-
síon ín dward T. íaír v. Commíssíoner (300 U. S. ; Ct. D. 120 ,
C. . 1937-1,17 ) whereín ít was heíd that certaín íncome was ta abíe
to the ta payer s chíídren, and not to the ta payer-assígnor. In that
case, the ta payer, a íífe íncome benefícíary of a testamentary trust,
ín 1923 and íater years assígned to certaín of hís chíídren specífíed
amounts of the íncome whích he was then or míght thereafter be en-
títíed to receíve duríng hís íífetíme, and the íncome was accordíngíy
dístríbuted by the trustees dírectíy to the assígnees. íthough ít ís
not specífíed ín the opíníon whether any of the dístríbuted íncome was
produced, í. e., had arísen as íncome, before assígnment of the ríght
to receíve ít, presumabíy oníy íncome whích was produced or arose as
such after the assígnment was ínvoíved sínce the Court saíd, ínter
aíía, that The one who ís to receíve the íncome as the owner of the
benefícíaí ínterest ís to pay the ta . That the Court consíders the
decísíon appíícabíe oníy to íncome produced or arísíng as such after
assígnment of the íncome-producíng res ís confírmed by íts statement
ín eíveríng v. Pauí R. G. orst (311 U. S. 112; Ct. D. 1 72, C. .
19 0-2, 206) that the íncome of the trust was regarded as no more
the íncome of the donor than wouíd be the rent from a íease or a crop
raísed on a farm after the íeasehoíd or the farm had been gíven away.
Itaíícs suppííed.
decísíon whích, íf foííowed, wouíd be of consíderabíe pertínence
here ín favor of the ta payer ís Frankíín . Matchette v. eíveríng
( 1 Fed. (2d) 73, reversíng 32 . T. . 9, certíorarí deníed, 29 U. S.
677). In that case, dívídends were decíared by a hoteí corporatíon
on anuary 23,1923, payabíe on February 10,1923, to stockhoíders of
record on anuary 26,1923. On February 3, 1923, the ta payer, who
was a stockhoíder of record on anuary 26,1923, subscríbed for 11,19
shares of a totaí íssue of 11,20 shares ín an ínvestment corporatíon
whích he organízed, agreeíng to pay therefor by seíííng, assígníng,
transferríng, and settíng over to such corporatíon hís shares ín the
hoteí corporatíon together wíth any dívídends whích may be paíd
hereafter upon saíd stock príor to the certífícates therefor beíng trans-
ferred upon the books of saíd compan|-, whích book transfer occurred
on February 13,1923, the books havíng been cíosed therefor from an-
uary 26 (e -dívídend date) to February 10 (payment date). On
February 10,1923, the hoteí corporatíon maííed a check ín the amount
of 127, 00 for dívídends to the ta payer (as stockhoíder of record
on anuary 26) whích he receíved not íater than February 12 and
whích he deposíted to hís order on February 16. On February 20,
1923, he íssued and deíívered to the ínvestment corporatíon hís certí-
fíed check for the amount of such dívídends. The Uníted States
oard of Ta ppeaís heíd that the dívídends were ta abíe to the
ta payer, but the Uníted States Círcuít Court of ppeaís for the
Second Círcuít reversed that decísíon. It ís the opíníon of thís offíce
that the decísíon of the círcuít court ís ínconsístent wíth the decísíon
of the Uníted States Supreme Court ín the orst case, supra, whereín
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13 29.22(a)-í.
the Court saíd, ínter aíía: The power to díspose of íncome ís the
equívaíent of ownershíp of ít. The e ercíse of that power to procure
the payment of íncome to another ís the en|oyment and hence the
reaíízatíon of the íncome by hím who e ercíses ít. Therefore, the
decísíon of the círcuít court ín the Matchette case wííí not be foííowed
by the ureau ín thís and símííar cases.
The decísíons ín Commíssíoner v. merícan Líght Tractíon Co.
(1 6 Fed. (2d) 39 ; Ct. D. 167 , C. . 19 6-2,13 ) and Tar Products
Corporatíons. Commíssíoner (130 Fed. (2d) 66) are not appíícabíe to
the ínstant case because they reíate to the questíon when dívídends
become ta abíe as íncome, rather than the questíon (here presented)
who ís the owner of the íncome.
In víew of the foregoíng, ít ís heíd that the dívídends whích were
dístríbuted by the e ecutor of the estate pursuant to the assígnment by
the íífe íncome benefícíary are íncíudíbíe ín the benefícíary s gross
íncome for Federaí íncome ta purposes.
19 0-10-133 2
I. T. 009
INT RN L R NU COD
Ta abíííty to the íessor of vaíue of ímprovements píaced upon reaí
property by a íessee.
dvíce ís requested as to the ta abíííty, for Federaí íncome ta pur-
oses, of the vaíue of ímprovements píaced upon reaí property by a
essee under the círcumstances hereínafter set forth.
Under the terms of a -year íease of an 0-acre tract of íand, the
íessee ís not requíred to pay rent, but, ín ííeu thereof, he agrees to ínstaíí
on the premíses a compíete írrígatíon system. The íessee further
agrees to cíear and íeveí the íand, díg dítches, drííí a weíí, ínstaíí a
pump wíth motor and bríng eíectrícíty thereto, spread gypsum on the
íand, píant aífaífa on a certaín part thereof, and pay certaín ta es,
aíí ímprovements to become the property of the íessor at the termína-
tíon of the íease.
Under sectíon 22(a) of the Internaí Revenue Code, rent ís specífí-
caííy íncíuded ín the term gross íncome. Sectíon 22(b) (11) of the
Code provídes as foííows:
(b) cíusíons from Gross Income. € ” The foííowíng ítems shaíí not be
íncíuded ín gross íncome and shaíí be e ínpt from ta atíon under thís chapter
Chapter 1 of the Code :
€ €
(11) Improvements by íessee on íessor s property. € ” Income, other
than rent, deríved by a íessor of reaí property upon the termínatíon of a
íease, representíng the vaíue of sue h property attríbutabíe to buíídíngs erected
or other ímprovements made by the íessee. Itaíícs suppííed.
Sectíon 29.22(b) (íí)-í of Reguíatíons 111 provídes ín part as
foííows:
Sec. 29.22(b) (íí)-í. cíusíon from Gross Income of Lessor of Reaí Prop-
erty of aíue of Improvements rected by Lessee. € ” Income deríved by a íessor
of reaí property upon the termínatíon, through forfeíture or otherwíse, of the
íease of such property and attríbutabíe to buíídíngs erected or other ímprove-
Sectíon 29.22(a)-í: What íncíuded ín gross
íncome.
( íso Sectíon 22 (b), Sectíon 29.22 (b) (11)-1;
Sectíon 2, Sectíon 29. 2-1.)
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29.22(a)-2.
1
meríts made by the íessee upon the íeased property Is e cíuded from gross Income.
owever, where the facts díscíose that such buíídíngs or ímprovements represent
In whoíe or ín part a ííquídatíon ín kínd of íease rentaís, the e cíusíon from gross
íncome shaíí not appíy to the e tent that such buíídíngs or ímprovements rep-
resent such ííquídatíon. The e cíusíon appííes oníy wíth respect to the íncome
reaíízed by the íessor upon the termínatíon of the íease and has no appíícatíon
to íncome, íf any, ín the form of rent, whích may be deríved by a íessor duríng
the períod of the íease and attríbutabíe to buíídíngs erected or other ímprovements
made by the íessee. It has no appíícatíon to íncome whích may be reaíízed by
the íessor upon the termínatíon of the íease but not attríbutabíe to the vaíue of
such buíídíngs or ímprovements. Neíther does ít appíy to íncome deríved by
the íessor subsequent to the termínatíon of the íease íncídent to the ownershíp
of such buíídíngs or ímprovements.
The above-stated provísíons of the reguíatíons show that sectíon
22(b) (11) of the Internaí Revenue Code does not appíy to íncome
receíved other than upon termínatíon of a íease, or to íncome whích
represents, ín whoíe or ín part, a ííquídatíon ín kínd of íease rentaís.
Sectíon 22(b) (11) of the Code, added by sectíon 11 (a) of the Revenue
ct of 19 2, was apparentíy íntended to obvíate the effect of the de-
císíon of the Supreme Court of the Uníted States ín eíveríng v.
ruun (309 U. S. 61, Ct. D. 1 0, C. . 19 0-1, 112), whereín ít was
heíd, under the círcumstances stated, that upon termínatíon of a íease
ta abíe gaín was reaíízed by a íessor from ímprovements erected by
a íessee. (See ouse of Representatíves Report No. 2333, Seventy-
seventh Congress, second sessíon, C. . 19 2-2, 372, at page 2 , and
Senate Report No. 1031, Seventy-seventh Congress, second sessíon,
C. . 19 2-2, 0 , at page 0 .) There was no contentíon ín the ruun
case that the vaíue of the ímprovements constítuted rent. The ín-
stant case ís, therefore, governed by the íanguage used ín the opíníon
of the Supreme Court ín M. . íatt Co. v. Uníted States (30 U. S.
267, Ct. D. 1373, C. . 1939-1 (Part 1) 221), whereín the Court, ín
hoídíng that certaín ímprovements díd not resuít ín the reaíízatíon
of gaín to the íessor duríng the term of the íease (for the reason,
among others, that theír added vaíue couíd not be consídered as rent
accruíng over the term of the íease), índícated that whether the vaíue
of ímprovements erected by the íessee ís to be .deemed rent depends
upon the íntentíon of the partíes. In the opíníon of thís offíce, such an
íntentíon may be díscíosed eíther by the terms of the íease or the
surroundíng círcumstances.
In the ínstant case, the terms of the íease, under whích ít was agreed
that ín ííeu of rent certaín ímprovements of such a nature as to resuít
ín ímmedíate benefít to the íessor when compíeted or partíaííy com-
píeted wouíd be píaced upon the íand, índícate an íntentíon that the
addítíon of such ímprovements shouíd be deemed to be rent. ccord-
íngíy, ít ís heíd that íncome wííí resuít to the íessor to the e tent of the
faír market vaíue, sub|ect to the íease, of the ímprovements píaced
upon the íand ín any ta abíe year. (See W. M. Scott et u . v. Com-
míssíoner, 27 . T. . 9 1.)
Sectíon 29.22(a)-2: Compensatíon for personaí
servíces,
INT RN L R NU COD
Contríbutíons requíred of empíoyees under artícíe 9 of the New York
workmen s compensatíon íaw, assumed and paíd by empíoyers. (See
I. T. 010, page 30.)
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1
29.22(a)-3.
Sectíon 29.22(a)-3: Compensatíon paíd other 19 0-6-13311
than ín cash. Mím. 6 72
( íso Sectíon 1621 (a), Sectíon 0 .101, Reguía-
tíons 116.)
Ta abíííty of compensatíon paíd other than ín cash € ” Lívíng
quarters or mesíís furníshed empíoyees.
Mímeograph 023 (C. . 19 0-1, 1 ) and Mímeograph 6 7 (C. .
19 , 0) modífíed.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Yashíngton 2 , D. C, February 1 , 19 0.
Coííectors of Internaí Revenue, Internaí Revenue gents ín Charge,
and Others Concerned:
1. Sectíon 22(a) of the Internaí Revenue Code defínes gross íncome
as íncíudíng gaíns, profíts, and íncome deríved from saíaríes, wages,
or compensatíon for personaí servíce of whatever kínd and
ín whatever form paíd, Sectíon 29.22(a)-3 of Reguíatíons
111. reíatíng to compensatíon paíd other than ín cash, provídes ín part
as foííows:
If a person receíves as compensatíon for servíces rendered a saíary
and ín addítíon thereto íívíng quarters or meaís, the vaíue to such person of the
quarters and meaís so furníshed constítutes íncome sub|ect to ta . If, however,
íívíng quarters or meaís are furníshed to empíoyees for the conveníence of the
empíoyer, the vaíue thereof need not be computed and added to the compensatíon
otherwíse receíved by the empíoyees.
Símííar íanguage ís contaíned ín sectíon 0 .101 of Reguíatíons 116,
reíatíng to wages sub|ect to wíthhoídíng of íncome ta at the source.
2. The fírst sentence of the above-quoted reguíatíon adheres cíoseíy
to the defínítíon of gross íncome íncíuded ín sectíon 22(a) of the
Internaí Revenue Code and estabííshes the generaí ruíe that every
person receívíng íívíng quarters or meaís as compensatíon for servíces
rendered must íncíude ín gross íncome the vaíue to hím of such
quarters or meaís. The second sentence quoted above must be con-
strued ín the ííght of the fírst sentence to avoíd beíng ínconsístent
therewíth and to prevent víoíatíon of the statutory defínítíon of gross
íncome. The conveníence of the empíoyer ruíe ís símpíy an admín-
ístratíve test to be appííed oníy ín cases ín whích the compensatory
character of such benefíts ís not otherwíse determínabíe. It foííows
that the ruíe shouíd not be appííed ín any case ín whích ít ís evídent
from the other círcumstances ínvoíved that the receípt of quarters or
meaís bv the empíoyee represents compensatíon for servíces rendered.
Thís posítíon ís ín accord wíth I. T. 2692 (C. . II-1, 2 (1933))
and the decísíon of the Uníted States oard of Ta ppeaís (now
The Ta Court of the Uníted States) ín erman Martín v. Commís-
síoner ( . T. . 1 ).
3. For e ampíe, a State cívíí servíce empíoyee ís empíoyed at an
ínstítutíon ín whích the condítíons of empíoyment requíre hím to ííve
at the ínstítutíon and be avaííabíe for duty at any tíme. In connectíon
wíth hís empíoyment, he ís furníshed íívíng quarters and meaís.
Under the appíícabíe State statute, the cívíí servíce ruíes and reguía-
tíons of the State, or the índívíduaí contract of empíoyment, the vaíue
of the íívíng quarters and meaís ís consídered as part of the empíoyee s
compensatíon. Regardíess of whether íívíng quarters and meaís are
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29.22(a)-3.
If)
furníshed ín addítíon to the cash saíary, or the vaíue thereof ís de-
ducted from the totaí saíary, estabííshed for the partícuíar posítíon,
ít ís evídent that the íívíng quarters and rheaís are furníshed as com-
pensatíon for servíces rendered. Consequentíy, the vaíue of the íívíng
quarters and meaís ís íncíudíbíe ín hís gross íncome and ís sub|ect to
wíthhoídíng of íncome ta at the source by the empíoyer, notwíth-
standíng the fact that the empíoyee ís requíred to ííve at the ínstítutíon
and be avaííabíe for dutv at any tíme.
. Mímeograph 023 (C. . 19-10-1,1 ) and Mímeograph 6 7 (C. .
19 , 0) are hereby modífíed to the e tent they ímpíy that the con-
veníence of the empíoyer ruíe ís appíícabíe to sítuatíons ín whích ít
ís otherwíse evídent that íívíng quarters or meaís are furníshed to an
empíoyee as compensatíon for servíces rendered. Símííaríy, O. D. 26
(C. . 1.71 (1919)), O. D. 1 (C. . . (1921)). O. DT 91 (C. .
, (1921)), and I. T. 22 3 (C. . -í, 32 (1926)) shouíd not be
reííed upon as precedents ín any case ín whích íívíng quarters or meaís
are determíned to be compensatory wíthout reference to the conven-
íence of the empíoyer ruíe.
. Under the authoríty contaíned ín sectíon 3791(b) of the Internaí
Revenue Code, the provísíons of thís mímeograph wííí be appííed
wíthout retroactíve effect from anuary 1,19 9, ín cases ín whích íívíng
quarters or meaís are determíned to be compensatory wíthout reference
to the conveníence of the empíoyer ruíe, e cept that any ta es whích
have been wíthheíd or paíd on the vaíue of such íívíng quarters or
meaís wííí not be refunded.
6. Correspondence reíatíng to thís mímeograph shouíd refer to íts
number and the symboís IT: IM.
Geo. . Schoeneman,
Commíssíoner.
pproved February 1 , 19 0.
Thomas . Lynch,
ctíng Secretary of the 2 reasury.
Sectíon 29.22(a)-3: Compensatíon paíd other 19 0-0-13317
than ín cash. Míní. 6 77
( íso Sectíon 1 7, Sectíon 29.1 7-2; Sectíon
1622, Sectíon 0 .201, Reguíatíons 116.)
Incíusíon ín gross Income of premíums paíd by an empíoyer
for permanent forms of ínsurance on the ííves of hís empíoyees under
group-permanent íífe ínsurance poíícíes.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 2 , D. C, Febníary 23, 19 0.
Coííectors of Internaí Revenue, Internaí Revenue gents ín Charge,
Deads of Fíeíd Dívísíons of the Technícaí Staff, and Others Con-
cerned:
1. The ureau has receíved a number of ínquíríes as to whether the
provísíon ín sectíon 29.22(a)-3 of Reguíatíons 111 reíatíng to group
íífe ínsurance ís appíícabíe to permanent forms of ínsurance under
group ínsurance poíícíes generaííy known as group-permanent íífe
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17
29.22(a)-3.
ínsurance poíícíes. The purpose of thís mímeograph ís to state the
treatment to be accorded such ítems.
2. Sectíon 29.22 (a)-3, supra, provídes that Premíums paíd by an
empíoyer on poíícíes of group íífe ínsurance coveríng the ííves of hís
empíoyees, the benefícíaríes of whích are desígnated by the empíoyees,
are not íncome to the empíoyees. Thís ruíe had íts orígín ín Law
Opíníon 101 (C. . 2, (1920)) and fírst appeared ín artícíe 33 of
Reguíatíons (1920 ed.). So-caííed group-permanent íífe ínsurance
díffers from that consídered ín the cíted íaw opíníon ín that the per-
manent ínsurance provídes substantíaí economíc benefíts usuaííy ín-
cíudíng íncreasíng vaíues of paíd-up contínued ínsurance or other
benefíts for empíoyees. Thus, under permanent forms of ínsurance,
empíoyees are províded wíth somethíng more than current term ínsur-
ance whích does not have paíd-up or other substantíaí vaíues and
whích ís deaít wíth ín the above-quoted provísíon of the reguíatíons.
It wííí, therefore, be the posítíon of the ureau that premíums paíd
by an empíoyer for permanent forms of ínsurance on the ííves of hís
empíoyees under group-permanent íífe ínsurance poíícíes may not be
e cíuded from gross íncome under such provísíon, but constítute
addítíonaí íncome whích ís requíred to be íncíuded ín the gross íncome
of such empíoyees.
3. íí ínsurance províded on a typícaí íeveí premíum form ís con-
sídered a permanent form, and aíí of each premíum paíd wíth re-
spect to an empíoyee under such a form, íess any empíoyee contríbu-
tíons on account of the premíum, ís requíred to be íncíuded ín the ín-
come of the empíoyee for the year ín whích the premíum ís paíd.
. Where a portíon of the ínsurance ís províded by uníts of paíd-
up ínsurance on a typícaí síngíe premíum form or ís on a typícaí íeveí
premíum form and the baíance ís províded on a typícaí current term
form wíth separate premíums specífíed ín the poíícy for each
portíon, oníy the paíd-up or íeveí premíum ínsurance ís consídered a
permanent form, and aíí of each premíum paíd for paíd-up or íeveí
premíum ínsurance wíth respect to an empíoyee under such a pían, íess
anv empíoyee contríbutíons on account of such premíum, ís requíred
to be íncíuded ín the íncome of the empíoyee for the year ín whích the
premíum ís paíd. Thus, íf each premíum for paíd-up or íeveí pre-
míum ínsurance for an empíovee ís províded from empíoyee contríbu-
tíons on account of ít, no premíums are consídered paíd by the empíoyer
for a permanent form ot ínsurance under such a pían.
. Where a premíum for ínsurance wouíd be requíred to be íncíuded
ín the íncome of an empíoyee ín accordance wíth the foregoíng ruíes
but the ríght of the empíoyee to permanent ínsurance or equívaíent
benefíts, other than current term ínsurance, províded by the premíum ís
forfeítabíe ín case of subsequent separatíon from servíce, the ínsurance
ís not consídered a permanent form when the premíum ís paíd, and
nothíng ís requíred to be íncíuded ín the empíoyee s íncome on account
of the premíum payment. The vaíue of any permanent ínsurance or
equívaíent benefíts ín whích the ríght of an empíoyee changes from
forfeítabíe to nonforfeítabíe ín case of subsequent separatíon from
servíce ís consídered a premíum paíd for a permanent form of ínsur-
ance at the tíme of the change, and such vaíue, íess any empíoyee con-
tríbutíons on account of the change, ís requíred to be íncíuded ín hís
íncome for the year ín whích the change occurs.
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19.22(a)-21, Regs. 103.
1
6. s used above, a premíum wíth respect to an empíoyee ís the gross
premíum wíthout ad|ustment on account of any credíts such as díví-
dends whích are determíned wíth respect to the premíums under the
group poíícy as a whoíe or wíth respect to premíums other than that
partícuíar premíum.
7. Group-permanent íífe ínsurance premíums requíred to be íncíuded
ín the íncome of an empíoyee are sub|ect to wíthhoídíng under sectíon
1622(a) of the Internaí Revenue Code.
. Thís ruííng does not appíy to a premíum paíd by an empíoyees
trust e empt under sectíon 16 (a), as amended. So much of a pre-
míum so paíd as ís used for current íífe ínsurance protectíon for an
empíoyee and ís paíd from contríbutíons of the empíoyer or earníngs
thereon constítutes íncome to the empíoyee for the year when paíd and
must be reported on Form 1099, but no part of the premíum ís sub|ect
to wíthhoídíng. (See sectíons 29.16 -6 and 29.1 7-2 of Reguíatíons
111, as amended, and sectíon 0 .101 (í) of Reguíatíons 116, as
amended.)
9. Pursuant to authoríty contaíned ín sectíon 3791(b) of the Inter-
naí Revenue Code, paragraphs 1 through 7 of thís ruííng wííí not be
appííed to premíums due and paíd príor to uíy 1,19 0, ín accordance
wíth group-permanent íífe ínsurance poíícíes ín effect on the date of
approvaí hereof.
10. Correspondence from the foííowíng regardíng thís mímeograph
shouíd refer to íts number and to the symboís índícated: Coííectors of
ínternaí revenue, C: Coí; ínternaí revenue agents ín charge,
IT: IM; heads of fíeíd dívísíons of the Technícaí Staff, TS: RM.
Geo. . Schoeneman,
Commíssíoner.
pproved February 23, 19 0.
Thomas . Lynch,
ctíng Secretary of the Treasury.
Sectíon 29.22(a)- : Gross íncome from busíness.
INT RN L R NU COD
Dístríct of Coíumbía gross saíes ta coííected by vendor from pur-
chasers. (See I. T. 00 , page 3 ).
Sectíon 19.22 (a) -21, Reguíatíons 103: Gross 19 0-3-132 1
íncome of corporatíon ín ííquídatíon. Ct. D. 1727
íncome ta € ” ínternaí revenue code € ” decísíon op supreme court
1. Gkoss Income € ” Corporatíon ín Líquídatíon € ” Dístríbutíon op
ssets ín índ € ” Subsequent Saíe by Sharehoíders.
cíoseíy heíd corporatíon engaged In the busíness of generatíng
and dístríbutíng eíectríc power transferred íts transmíssíon and dís-
tríbutíon equípment to íts sharehoíders as a ííquídatíng dívídend ín
kínd. The remaíníng assets were soíd, and the corporatíon was dís-
soíved. The sharehoíders then e ecuted a saíe of the equípment to a
purchaser, the íatter havíng prevíousíy offered to buy such equíp-
ment from the corporatíon. The corporatíon had re|ected the offer
because of the heavy capítaí gaíns ta for whích ít wouíd have been
ííabíe.
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19
19.22(a)-21, Regs. 103.
eíd: Thís Court accepts the uítímate fíndíngs of fact of the tríaí
court based on adequate subsídíary .ndíngs, that the saíe was made
by the stockhoíders rather than by the corporatíon. The Govern-
ment s argument that the sharehoíders acted as a mere conduít for
a saíe must faíí before thís fíndíng. The subsídíary fíndíng that the
ma|or motíve of the sharehoíders was to reduce ta es does not bar
thís concíusíon. Whatever the motíve and however reíevant ít may
be In determíníng whether the transactíon was reaí or a sham, saíes
of physícaí propertíes by sharehoíders foííowíng a genuíne ííquída-
tíon dístríbutíon cannot be attríbuted to the corporatíon for ta
purposes.
2. Decísíon Dístínguíshed.
Court oídíng Co. v. Commíssíoner, 32 U. S. 331 (Ct. D. 1636, C. .
19 , ), dístínguíshed.
Supreme Court of the Uníted States
The Uníted States, petítíoner, v. Cumberíand Pubííc Servíce Co.
On wrít of certíorarí to the Court of Cíaíms
anuary 9, 19 0
OPINION
Mr. ustíce íack deíívered the opíníon of the Court.
corporatíon seíííng íts physícaí propertíes ís ta ed on capítaí gaíns resuítíng
from the saíe.1 There ís no corporate ta , however, on dístríbutíon of assets ín
kínd to sharehoíders as part of a genuíne ííquídatíon. The respondent corpora-
tíon transferred property to íts sharehoíders as a ííquídatíng dívídend ín kínd.
The sharehoíders transferred ít to a purchaser. The questíon ís whether, despíte
contrary fíndíngs by the Court of Cíaíms, thís record requíres a hoídíng that the
transactíon was ín fact a saíe by the corporatíon sub|ectíng the corporatíon to
a capítaí gaíns ta .
Detaíís of the transactíon are as foííows. The respondent, a cíoseíy heíd
corporatíon, was íong engaged ín the busíness of generatíng and dístríbutíng
eíectríc power ín three entucky countíes. In 1936 a íocaí cooperatíve began
to dístríbute Tennessee aííey uthoríty power ín the area served by respondent.
It soon became obvíous that respondent s Díeseí-generated power couíd not
compete wíth T power, whích respondent had been unabíe to obtaín. Re-
spondent s sharehoíders, reaíízíng that the corporatíon must get out of the power
busíness uníess ít obtaíned T power, accordíngíy offered to seíí aíí the cor-
porate stock to the cooperatíve, whích was receívíng such power. The cooperatíve
refused to buy the stock, but countered wíth an offer to buy from the corporatíon
íts transmíssíon and dístríbutíon equípment. The corporatíon re|ected the offer
because ít wouíd have been compeííed to pay a heavy capítaí gaíns ta . t the
same tíme the sharehoíders, desíríng to save payment of the corporate capítaí
gaíns ta , offered to acquíre the transmíssíon and dístríbutíon equípment and
then seíí to the cooperatíve. The cooperatíve accepted. The corporatíon trans-
ferred the transmíssíon and dístríbutíon systems to íts sharehoíders ín partíaí
ííquídatíon. The remaíníng assets were soíd and the corporatíon díssoíved. The
sharehoíders then e ecuted the prevíousíy contempíated saíe to the cooperatíve.
Upon thís saíe by the sharehoíders, the Commíssíoner assessed and coííected
a 17,000 ta from the corporatíon on the theory that the sharehoíders had been
used as a mere conduít for effectuatíng what was reaííy a corporate saíe. Re-
spondent corporatíon brought thís actíon to recover the amount of the ta . The
Conrt of Cíaíms found that the method by whích the stockhoíders dísposed of
the propertíes was avowedíy chosen ín order to reduce ta es, but that the
ííquídatíon and díssoíutíon genuíneíy ended the corporatíon s actívítíes and
e ístence. The court aíso found that at no tíme díd the corporatíon pían to make
the saíe ítseíf. ccordíngíy ít found as a fact that the saíe was made by the
sharehoíders rather than the corporatíon, and entered |udgment for respondent.
26 . S. G, sectíon 22(a) ; Treasury Refíatíons 103. sectíon 19.22(a)-í .
€ € |0 aín or oss S reaíízed by a corporatíon from the mere dístríbutíon of
Ur assets In kínd In partíaí or compíete ííquídatíon, however they may have apprecíated
or deprecíated In vaíue sínce theír acquísítíon € Treasury Reguíatíons 103,
sectíon 19.22 taí-21.
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19.22(a)-21, Regs. 103.
20
One udge díssented, beííevíng that our opíníon ín Court oídíng Co. v. Commís-
síoner, 32 O. S. 331 Ct. D. 1636, C. . 19 , , requíred a fíndíng that the
saíe had been made by the corporatíon. Certíorarí was granted to cíear up
doubts arísíng out of the Court oídíng Co. case.
Our Court oídíng Co. decísíon rested on fíndíngs of fact by the Ta Court
that a saíe had been made and gaíns reaíízed by the ta payer corporatíon. There
the corporatíon had negotíated for saíe of íts assets and had reached an oraí
agreement of saíe. When the ta consequences of the corporate saíe were
beíatedíy recognízed, the corporatíon purported to caíí off the saíe at the íast
mínute and dístríbuted the physícaí propertíes ín kínd to the stockhoíders. They
promptíy conveyed these propertíes to the same persons who had negotíated wíth
the corporatíon. The terms of purchase were substantíaííy those of the prevíous
oraí agreement. One thousand doííars aíready paíd to the corporatíon w s
appííed as part payment of the purchase príce. The Ta Court found that the
corporatíon never reaííy abandoned íts saíes negotíatíons, that ít never díd
díssoíve, and that the soíe purpose of the so-caííed ííquídatíon was to dísguíse
a corporate saíe through use of mere formaíísms ín order to avoíd ta ííabíííty.
The círcuít court of appeaís took a dífferent víew of the evídence. In thís court
the Government contended that whether a ííquídatíon dístríbutíon was genuíne
or mereíy a sham was tradítíonaííy a questíon of fact. We agreed wíth thís
contentíon, and reínstated the Ta Court s fíndíngs and |udgment. Díscussíng
the evídence whích supported the fíndíngs of fact, we went on to say that the
Incídence of ta atíon depends upon the substance of a transactíon regardíess
of mere formaíísms, and that ta es on a corporate saíe cannot be avoíded by
usíng the sharehoíders as a conduít through whích to pass títíe.
Thís íanguage does not mean that a corporatíon can be ta ed even when the
saíe has been made by íts stockhoíders foííowíng a genuíne ííquídatíon and dísso-
íutíon. Whííe the dístínctíon between saíes by a corporatíon as compared wíth
dístríbutíon ín kínd foííowed by sharehoíder saíes may be partícuíaríy shadowy
and artífícíaí when the corporatíon ís cíoseíy heíd, Congress has chosen to recog-
níze such a dístínctíon for ta purposes. The corporate ta ís thus aímed prí-
marííy at the profíts of a goíng concern. Thís ís true despíte the fact that gaíns
reaíízed from corporate saíes are ta ed, perhaps to prevent ta evasíons, even
where the cash proceeds are at once dístríbuted ín ííquídatíon. ut Congress
has ímposed no ta on ííquídatíng dístríbutíons ín kínd or on díssoíutíon, what-
ever may be the motíve for such ííquídatíon. Consequentíy, a corporatíon may
ííquídate or díssoíve wíthout sub|ectíng ítseíf to the corporate gaíns ta , even
though a prímary motíve ís to avoíd the burden of corporate ta atíon.
ere, on the basís of adequate subsídíary fíndíngs, the Court of Cíaíms has
found that the saíe ín questíon was made by the stockhoíders rather than the
corporatíon. The Government s argument that the sharehoíders acted as a mere
conduít for a saíe by respondent corporatíon must faíí before thís fíndíng. The
subsídíary fíndíng that a ma|or motíve of the sharehoíders was to reduce ta es
does not bar thís concíusíon. Whatever the motíve and however reíevant ít may
be ín determíníng whether the transactíon was reaí or a sham, saíes of physícaí
propertíes by sharehoíders foííowíng a genuíne ííquídatíon dístríbutíon cannot be
attríbuted to the corporatíon for ta purposes.
The oddítíes ín ta consequences that emerge from the ta provísíons here
controíííng appear to be ínherent ín the present ta pattern. For a corporatíon
ís ta ed íf ít seíís aíí íts physícaí propertíes and dístríbutes the cash proceeds
as ííquídatíng dívídends, yet ís not ta ed íf that property ís dístríbuted ín kínd
and ís then soíd by the sharehoíders. In both ínstances the ínterest of the
sharehoíders ín the busíness has been transferred to the purchaser. gaín, íf
these stockhoíders had succeeded ín theír orígínaí effort to seíí níí theír stock,
theír ínterest wouíd have been transferred to the purchasers |ust as effectíveíy.
Yet on such a transactíon the corporatíon wouíd have reaíízed no ta abíe gaín.
s What we saíd In the Court oídíng Co. case was an approvaí of the actíon of the Ta
Court ín íookíng beyond the papers e ecuted by the corporatíon and sharehoíders In order
to determíne whether the saíe there had actuaííy been made by the corporatíon. We were
but emphasízíng the estabííshed príncípíe that ín resoívíng such questíons as who made a
saíe, fact fíndíng tríbunaís ín ta críses can consíder motíves, íntent, and conduct ín addí-
tíon to what appears ín wrítten Instruments used by partíes to controí ríghts as among
themseíves. See. e. g., Iíeíveríng v. Cíífford, 309 D. S. 331, 333-337 Ct. D. 1 , C. .
19 0-1. 10 : Commíssíoner v. Totcer, 327 t . S. 2 0 Ct. D. 1670. C. . 19 6-1. 11 .
It has aíso been heíd that where corporate ííquídatíons are effected through trustees
or agents, gaíns from saíes are ta abíe to the corporatíon as though ít were a goíng
concern. See, e. g.. fírst at í ank of recícy, Coío., v. Uníted States, 0 Fecí. (2d)
93 , 9 1; Treasury Reguíatíons 103, sectíon 19.22(a)-21.
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21
I 22(b).
Congress havíng determíned that dífferent ta consequences shaíí fíow from
dífferent methods by whích the sharehoíders of a cíoseíy heíd corporatíon may
díspose of corporate property, we accept íts mandate. It ís for the tríaí court,
upon consíderatíon of an entíre transactíon, to determíne the factuaí category
In whích a partícuíar transactíon beíongs. ere as ín the Court oídíng Co.
case we accept the uítímate fíndíngs of fact of the tríaí tríbunaí. ccordíngíy
the |udgment of the Court of Cíaíms ís
ffírmed.
Sír. ustíce Doug as took no part ín the consíderatíon or decísíon of thís case.
S CTION 22(b). € ” GROSS INCOM : CLUSIONS
FROM GROSS INCOM 19 0-6-13312
I. T. 000
INT RN L R NU COD
n empíoyer s prívate pían for the payment of dísabíííty benefíts
to empíoyees pursuant to chapter 21, títíe 3 of the Revísed Statutes
f New ersey, as amended and suppíemented, ís a form of heaíth
nd accídent ínsurance whích meets the requírements of sectíon
-2íb) ( ) of the Internaí Revenue Code. mounts receíved by em-
píoyees under such a pían are e cíudabíe from gross íncome under
sectíon 22(b) ( ) of the Code and are not sub|ect to wíthhoídíng of
íncome ta at the source on wages under sectíon 1622 of the Code.
dvíce ís requested whether dísabíííty benefít payments receíved
by empíoyees under a prívate pían estabííshed by an empíoyer pur-
suant to chapter 21, títíe 3 of the Revísed Statutes of New ersey, as
amended and suppíemented, are e cíudabíe from gross íncome under
sectíon 22(b)( ) of the Internaí Revenue Code and whether such
payments are sub|ect to wíthhoídíng of íncome ta at the source on
wages under sectíon 1622 of the Code.
Príor to une 1,19 , chapter 21, títíe 3 of the Revísed Statutes of
New ersey províded for the payment of unempíoyment compensatíon
benefíts to those unempíoyed persons who were abíe to work and
avaííabíe for work. ffectíve une 1, 19 , the íaw was amended to
províde aíso for compensatíon to empíoyees ín cnse of dísabíííty due
to nonoccupatíonaí síckness or accídent as the resuít of whích they
are unavaííabíe or unabíe to work. mpíoyees may be covered by
the State pían or by prívate píans. The pertínent provísíons of the
ew ersey Revísed Statutes read as foííows:
3: 21-2 . Short Títíe.
Thís act shaíí be known and mn| be cíted as the Temporary Dísabíííty enefíts
Law.
3:21-26. Purtose.
€ € € €
The pubííc poíícy of thís State, aíready estabííshed, ís to protect empíoyees
agaínst the sufferíng and hardshíp generaííy caused by ínvoíuntary unempíoy-
ment. ut the unempíoyment compensatíon íaw provídes benefít payments to
repíace wage íoss caused by Invoíuntary unempíoyment oníy so íong as an Indí-
víduaí ís abíe to work, and ís avaííabíe for work, and faíís to províde any
protectíon agaínst wage íoss suffered because of ínabíííty to perform the dutíes
of a |ob ínterrupted by íííness. Nor ís there any other comprehensíve and
systematíc provísíon for the protectíon of workíng peopíe agaínst íoss of earníngs
une to nonoccupatíonaí síckness or accídent.
€ € € €
It has been found that e ístíng voíuntary píans for the payment of cash síck-
ness benefíts cover íess than one-haíf of the number of workíng peopíe of thís
State who are now covered by the unempíoyment compensatíon íaw, and that
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22(b).
22
even thís degree of voíuntary protectíon affords uneven, unequaí and sometímes
uncertaín protectíon among the varíous voíuntary benefít programs. It Is there-
fore desírabíe and necessary to fííí the gap ín e ístíng provísíons for protectíon
agaínst the íoss of earníngs caused by ínvoíuntary unempíoyment, by e tendíng
such protectíon to meet the hazard of earníngs íoss due to ínabíííty to work
caused by nonoccupatíonaí síckness or accídent.
The foregoíng facts and consíderatíons requíre that there be a uníform míní-
mum program provídíng ín a systematíc manner for the payment of reasonabíe
benefíts to repíace partíaííy such earníngs íoss and to meet the contínuíng need
for benefíts where an Indívíduaí becomes dísabíed duríng unempíoyment. In
order to maíntaín consumer purchasíng power, reííeve the seríous menace to
heaíth, moraís and weífare of the peopíe caused by ínsecuríty and the íoss of
earníngs, to reduce the necessíty for pubííc reííef of needy persons, and ín the
ínterest of the heaíth, weífare and securíty of the peopíe of thís State, such a
system, enacted under the poííce power, ís hereby estabííshed, requíríng the
payment of reasonabíe cash benefíts to eíígíbíe índívíduaís sufferíng accídent or
íííness whích ís not compensabíe under the workmen s compensatíon íaw.
3: 21-2 . Coverage.
íí covered índívíduaís shaíí be entítíed on and after anuary fírst, one thou-
sand níne hundred and forty-níne, to the benefíts províded under eíther a prívate
pían or the State pían of dísabíííty benefíts,
3:21-29. Compensabíe Dísabíííty.
Dísabíííty shaíí be compensabíe sub|ect to the íímítatíons of thís act, where a
covered índívíduaí suffers any accídent or síckness not arísíng out of and ín the
course of hís empíoyment or íf so arísíng not compensabíe under the workmen s
compensatíon íaw (títíe 3 of the Revísed Statutes), and resuítíng ín hís totaí
ínabíííty to perform the dutíes of hís empíoyment
3 : 21-32. stabííshment of Frívate Píans.
ny covered empíoyer may estabíísh a prívate pían for the payment of dísabíííty
benefíts ín ííeu of the benefíts of the State pían hereínafter estabííshed. enefíts
under such a prívate pían may be províded by a contract of ínsurance íssued by an
ínsurer duíy authorízed and admítted to do busíness ín thís State, or by an agree-
ment between the empíoyer and a uníon or assocíatíon representíng hís empíoyees,
or by a specífíc undertakíng by the empíoyer as a seíf-ínsurer. Sub|ect to the
ínsurance íaws of thís State, such a contract of ínsurance may be between the
ínsurer and the empíoyer; or may be between the ínsurer and two or more
empíoyers, actíng for the purpose through a nomínee, desígnee or trustee; or
may be between the ínsurer and the uníon or assocíatíon wíth whích the empíoyer
has an agreement wíth respect thereto.
Sectíon 22(b) ( ) of the Internaí Revenue Code provídes ín part as
as foííows:
(b) cursíons prom Gross Income. € ” The foííowíng ítems shaíí not be In-
cíuded ín gross íncome and shaíí be e empt from ta atíon under thís chapter
Chapter 1 of the Code :
€ € € € €
( ) Compensatíon for ín|uríes or síckness. € ” cept ín the case of
amounts attríbutabíe to (and not ín e cess of) deductíons aííowed under
sectíon 23( ) ín any príor ta abíe year, amounts receíved, through accídent
or heaíth ínsurance as compensatíon for personaí ín|uríes or
síckness
It ís heíd that an empíoyer s prívate pían for the payment of dís-
abíííty benefíts to empíoyees pursuant to chapter 21, títíe 3 of the
Revísed Statutes of New ersey, as amended and suppíemented, ís a
form of heaíth and accídent ínsurance whích meets the requírements
of sectíon 22(b) ( ) of the Internaí Revenue Code, supra. mounts
receíved by empíoyees under such a prívate pían are e cíudabíe from
gross íncome under sectíon 22(b) ( ) of the Code. Consequentíy, such
amounts are not sub|ect to wíthhoídíng of íncome ta at the source
on wages under sectíon 1C22 of the Code.
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23
22(b).
p
c
19 0-13-133 0
I. T. 01
INT RN L R NU COD
Unempíoyment compensatíon dísabíííty benefíts receíved by em-
píoyees pursuant to artícíe 10 of the Caíífornía Unempíoyment
Insurance ct, as amended, are e eíudíbíe from gross Income under
sectíon 22(b) ( ) of the Internaí Revenue Code.
dvíce ís requested whether amounts receíved by empíoyees as unem-
íoyment compensatíon dísabíííty benefíts pursuant to artícíe 10 of the
aíífornía Unempíoyment Insurance ct, as amended, are e ehídíbíe,
from gross íncome under sectíon 22(b) ( ) of the Internaí Revenue
Code.
The Caíífornía Unempíoyment Insurance ct (formeríy known as
the Unempíoyment Reserves ct), as orígínaííy enacted, províded
for the payment of unempíoyment compensatíon by the State to índí-
víduaís who were unempíoyed but abíe to work. ffectíve May 21,
19 6, the act was amended by the addítíon of artícíe 10 whích provídes
for compensatíon to empíoyees ín case of dísabíííty due to síckness or
accídent. The pertínent provísíons of the Caíífornía Unempíoyment
Insurance ct ( 19-19 Pocket Suppíement to Deeríng s Generaí Laws
of the State of Caíífornía, voíume 3) read as foííows:
Sectíon . Weekíy enefít mounts. € ” n Indívíduaí s weekíy benefít
amount shaíí be the amount appearíng ín Coíumn In tííe tabíe set forth ín
thís sectíon on the ííne of whích ín Coíumn of such tabíe there appears the wage
bracket contaíníng the amount of wages paíd to such índívíduaí for empíoyment
by empíoyers duríng the quarter of hís base períod In whích such wages were
the híghest.

mount of aaget ín Weekíy benefít
híghest quarter amount
7 .00- í 99.99 10
200.00- 219.09 11
220.00-. 239.99 12
2 0.0O- 2. 9.O9 1
S260.00-S270.00 1
2 0.00- 290.99 1
300.00- 310.99 16
320.00- 339.99 - 17
3 0.00- 3 9.90 IS
300.00-S379. )9 19
3S0.00- 19.99 20
20.00- 0.99 21
60.00-S 09.99 22
00.00- 39.00 23
0.00-S 79.99 2
0.00 and over 2
€ € € € € € €
Sec. íno. Purpose of rtícíe : Constructíon. € ” The purpose of thís artícíe
artícíe 10 of the Caíífornía Unempíoyment Insurance etí ís to compensate ín
Part for the wage íoss sustaíned by índívíduaís unempíoyed because of síckness or
In|ury and to reduce to a mínímum the sufferíng caused by unempíoyment resuít-
íng therefrom. € € €
€ € € € €
Sec 200. Payment of enefíts Generaííy : Manner of Payment : Mínors. € ”
Unempíoyment compensatíon dísabíííty benefíts shaíí be payabíe from the unem-
píoyment compensatíon dísabíííty benefít fund to índívíduaís who are eíígíbíe
to receíve such benefít payments under thís artícíe.
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22(b).
2
Sec. 203. Computatíon of enefíts. € ” The totaí amount of unempíoyment com-
pensatíon dísabíííty benefíts and the weekíy benefít amount payabíe to an eíígíbíe
índívíduaí under thís artícíe duríng any one benefít year shaíí be computed ín
accordance wíth the provísíons of sectíons 3 and of thís act
€ € € € € €
Sec. 300. Unempíoyment Compensatíon Dísabíííty Fond stabííshed:
dmínístratíon : Of What Fund to Consíst. € ” There ís hereby estabííshed as a
specíaí fund ín the State treasury, separate and apart from aíí other pubííc
moneys or funds of thís State, the unempíoyment compensatíon dísabíííty fund
(desígnated hereafter ín thís artícíe as the dísabíííty fund), the moneys and
assets of whích shaíí be heíd In trust by the State treasurer and admínístered
under the dírectíon of the commíssíon Caíífornía mpíoyment Stabííízatíon
Commíssíon e cíusíveíy for the purpose of thís artícíe.
€ € € € € € €
Sec. 0. ppíícatíon fob ppbovaí of oíuntaby Pían : Sep abate State-
ment of Unempíoyment Compensatíon Dísabíííty enefíts. € ” n empíoyer, a
ma|oríty of the empíoyees empíoyed ín thís State of an empíoyer, or both, may
appíy to the commíssíon for approvaí of a voíuntary pían for the payment of
dísabíííty benefíts to the empíoyees so eíectíng; the benefíts payabíe as ín-
demnífícatíon for íoss of wages under any voíuntary pían shaíí be separateíy
stated and desígnated ín the pían unempíoyment compensatíon dísabíííty bene-
fíts separate and dístínct from other benefíts, If any.
€ ™ € €
Sec. 1. pprovaí of oíuntary Pían : Condítíons Prerequísíte. € ” The com-
míssíon shaíí approve any voíuntary pían as to whích ít fínds that aíí of the
foííowíng e íst:
(a) Tííe ríghts afforded to the covered empíoyees are greater than those pro-
víded for ín Part 2 of thís artícíe.
(b) The pían has been made avaííabíe to aíí of the empíoyees of the empíoyer
empíoyed ín thís State e cept that íf the empíoyer maíntaíns more than one
dístínct separate estabííshment ín thís State the pían has been made avaííabíe
to aíí empíoyees of any such estabííshment and e cept that as to índívíduaís ín
partíaí or other forms of short tíme empíoyment and as to empíoyees not ín em-
píoyment the pían has been made avaííabíe to such of those índívíduaís or
empíoyees as the commíssíon shaíí prescríbe by authorízed reguíatíons.
(c) ma|oríty of the empíoyees of the empíoyer empíoyed ín thís State have
consented to the pían, e cept that íf the empíoyer maíntaíns more than one
dístínct, separate estabííshment ín thís State a ma|oríty of the empíoyees em-
píoyed at any such estabííshment have consented to the pían.
(d) If the pían provídes for ínsurance the form of the Insurance poíícíes to
be íssued have been approved by the ínsurance commíssíoner and are to be
íssued by an admítted dísabíííty ínsurer.
(e) The empíoyer has consented to the pían and has agreed to make the
payroíí deductíons requíred, íf any, and transmít the proceeds to the pían ínsurer,
íf any.
(f) The pían provídes for the íncíusíon of future empíoyees.
(g) The pían ís to be ín effect for a períod of not íess than 1 year and there-
after contínuousíy uníess the commíssíon fínds that the empíoyer or a ma|oríty
of hís empíoyees empíoyed ín thís State covered by such pían have gíven notíce
of the termínatíon of such pían. Such notíce shaíí be fííed ín wrítíng wíth the
commíssíon and, upon such fíííng, shaíí be effectíve at the date índícated thereín,
but ín any event not íess than 00 days from the tíme of the fíííng of such notíce.
(h) The approvaí of the pínn or píans wííí not resuít ín a substantíaí seíectíon
of rí.sks adverse to the dísabíííty fund.
€ € € €
Sec. . Líabíííty for Contríbutíons and íígíbíííty for enefíts Under
pproved Pían : Cessatíon of Coverage. € ” From and after the effectíve date on
whích dísabíííty benefíts become payabíe under sectíon 03 of thís act, neíther
an empíoyee nor hís empíoyer shaíí be ííabíe for the contríbutíons requíred by
sectíon , .2, or 00 of thís act wíth respect to wages paíd by the empíoyer
whííe the empíoyee ís covered by an approved voíuntary pían, and such an em-
píoyee shaíí not be entítíed to benefíts from the dísabíííty fund, e cept as pro-
víded In thís sectíon, for a dísabíííty whích commenced whííe he ís covered by
the voíuntary pían and e cept that authorízed reguíatíons shaíí be prescríbed to
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2.3
29.22(b)(1)- .
aííow benefíts to índívíduaís símuítaneousíy covered by one or more approved
voíuntary píans and the dísabíííty fund.
n empíoyee who has ceased to be covered by an approved voíuntary pían
shaíí, íf otherwíse eíígíbíe, thereupon ímmedíateíy become entítíed to benefíts
from the dísabíííty fund to the same e tent as though there had been no e emp-
tíon from contríbutíons as províded ín thís sectíon, e cept that ín computíng the
amount of benefíts to whích such an empíoyee may be entítíed from the dísabíííty
fund duríng the remaínder of a benefít year duríng a portíon of whích he receíved
benefíts under a voíuntary pían, the amount of aíí benefíts, at a weekíy rate not
e ceedíng the empíoyee s weekíy benefít rate pursuant to sectíon 203 of thís
act, paíd or to be paíd to the empíoyee under aíí approved voíuntary píans duríng
that benefít year, whether before or after cessatíon of coverage, shaíí be deducted
from the benefíts payabíe from the dísabíííty fund duríng that benefít year.
Sectíon 22(b) ( ) of the Internaí evenue Code provídes ín part as
foííows:
(b) cíusíons from Gross Income. € ” The foííowíng ítems shaíí not be ín-
cíuded ín gross íncome and shaíí be e empt from ta atíon under thís chapter
Chapter 1 of the Code :
€ € €
( ) Compensatíon for ín|uríes or síckness. € ” cept ín the case of
amounts attríbutabíe to (and not ín e cess of) deductíons aííowed under
sectíon 23( ) ín any príor ta abíe year, amounts receíved, through accídent
or heaíth ínsurance as compensatíon for personaí ín|uríes or
síckness
The State-admínístered pían ís defíníte both as to contríbutíons and
benefíts and ís a form of heaíth and accídent ínsurance whích meets
the requírements of sectíon 22(b) ( ) of the Internaí Revenue Code.
voíuntary pían, whích has been approved by the Caíífornía m-
píoyment Stabííízatíon Commíssíon, constítutes a contract of ínsur-
ance. Such a pían, adopted under the compuísíon of State íaw, ís a
contract between the empíoyer and hís empíoyees whích obíígates the
empíoyer to pay, and entítíes the empíoyees to receíve, fí ed amounts
of compensatíon for personaí ín|uríes or síckness for a fí ed períod.
The empíoyees ríghts to receíve benefít payments under a voíuntary
pían ín consíderatíon of theír empíoyment and the empíoyer s obííga-
tíon to pay the benefíts satísfy the requírements of contract. Further-
more, ít seems cíear that the contract ís one of ínsurance, as a voíuntary
pían assures and promíses each quaíífíed empíoyee a fí ed compensatíon
for a fí ed períod ín the event accídent or síckness renders hím unabíe
to work. Such assurance ís the basíc functíon of an ínsurance con-
tract. Therefore, such a pían aíso meets the requírements of sectíon
22(b)( ) of the Code.
In víew of the foregoíng, ít ís heíd that unempíoyment compensatíon
dísabíííty benefíts receíved by empíoyees pursuant to artícíe 10 of the
Caíífornía Unempíoyment Insurance ct, as amended, are e cíudíbíe
from gross íncome under sectíon 22(b)( ) of the Internaí evenue
Code.
Sectíon 29.22(b) (1)-1: Lífe ínsurance € ” mounts
paíd by reason of the death of the ínsured.
INT RN L R NU COD
mounts receíved as ínsurance by a benefícíary of an empíoyee under
a contract, heíd by a trust whích ís e empt under sectíon 1G (a). (See
I. T. 3993, page 7 .)
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29.22(d)-U
26
Sectíon 29.22(b) (2)-í: Lífe ínsurance € ” ndow-
ment contracts € ” mounts paíd other than by
reason of the death of the ínsured.
INT RN L R NU COD
Dístríbutíon of, or payments receíved pursuant to, an ínsurance con-
tract purchased for an empíoyee under .an empíoyees trust e empt
under sectíon 16 (a). (See Míní. 6 61, page 73.)
Sectíon 29.22(b) (2)-2: nnuítíes.
Dístríbutíon of, or payments receíved pursuant to, an annuíty con-
tract purchased tor an empíoyee under an empíoyees trust e empt
under sectíon 16 (a). (See Mím. 6 61, page 73.)
Sectíon 29.22(b) (2)- : mpíoyees annuítíes.
Dístríbutíon of, or payments receíved pursuant to, an annuíty con-
tract purchased for an empíoyee under an empíoyees trust e empt
under sectíon 16 (a). (See Mím. 6 61, page 73.)
Sectíon 29.22(b) (íí)-í: cíusíon from gross
íncome of íessor of reaí property of vaíue
of ímprovements erected by íessee.
aíue of ímprovements píaced upon reaí property by íessee. (See
L T. 009, page 13.)
S CTION 22(d). € ” GROSS INCOM : IN NTORI S € ”
L CTI M T OD
Príce Indíces for anuary, 19 0, pubííshed by the ureau of Labor
Statístícs under date of March 2,19 0, for use by department stores
empíoyíng the retaíí ínventory and eíectíve ínventory methods.
The foííowíng príce índíces for anuary, 19 0, pubííshed by the
ureau of Labor Statístícs for use by department stores empíoyíng the
retaíí ínventory and eíectíve ínventory methods, are accepted by the
ureau of Internaí Revenue pursuant to Treasury Decísíon 60
(C. . 19 -1, 16), approved March , 19 , and Mímeograph 62
(C. . 19 -1, 21), dated March 9, 19 , for appropríate appíícatíon
to ínventoríes for ta abíe years of 12 months ended on December 31,
19 9, and anuary 1,19 0.
ínternaí revenue code
INT RN L R NU COD
INT RN L R NU COD
Sectíon 29.22 (d)-í: Inventoríes under eíec-
tíve method.
INT RN L R NU COD
19 0-9-133 6
I. T. 00
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27
29.22 k)-í.
ureau of Labor Statístícs, department store ínventory príce índíces, oy
department groups
( anuary, 19 1 100
anuary,
Group
anuary,
19 9
anuary,
19 0
19 9, to
anuary,
19 0, per-
cent chanso
II. Shore
211.
19G. 2
1 0. 3
1 2.
1 9.
192.3
170.7
171.0
1 2.1
171. 2
191.3
191.
106.3
109.7
1 3.
1 .0
ICS. 13
1 .0
1 2 2
103.
-9.
-2.
-7.
-7. a
-3.3
- .0
-1.2
-7.3
.1
- .
III. .Ma|or appííances and eíectrícaí poods
Totaí. Groups I, II, III, I . , I , and
1 .7
177.2
1 2.3
17 .0
171.0
173.
Totaí. Groups I, II, and III
-3.0
- .
S CTION 22(k). € ” GROSS INCOM : LIMONY,
TC., INCOM
Sectíon 29.22(k)-í: íímony and separate maín- 19 0-6-13313
tenanee payments € ” Income to former wífe. I. T. 001
( íso Sectíon 23(u), Sectíon 29.23(u)-í.)
I T N L R NU COD
Premíums paíd by a husband on a íífe ínsurance poíícy absoíuteíy
assígned tc hís former wífe and wíth respect to whích she ís the
írrevocabíe benefícíary are íncíudíbíe ín the gross íncome of the wífe
under sectíon 22(k) of the Internaí Revenue Code and deductíbíe by
the husband under sectíon 23(u) of the Code. Premíums paíd by the
husband on a íífe ínsurance poíícy not assígned to the wííe and wíth
respect to whích she ís oníy the contíngent benefícíary are neíther
íncíudíbíe In the gross íncome of the wífe nor deductíbíe by the
husband.
dvíce ís requested whether premíums paíd by a husband on (1) a
íífe ínsurance poíícy assígned to hís former wífe and wíth respect to
– whích she ís the írrevocabíe benefícíary, and (2) a íífe ínsurance poíícy
not assígned to the wífe and wíth respect to whích she ís oníy the
contíngent benefícíary, are íncíudíbíe ín the gross íncome of the wífe
under sectíon 22 (k) of the Internaí Revenue Code and deductíbíe by
the husband under sectíon 23(h) of the Code.
In the ínstant case, the husband and hís former wífe entered ínto a
property settíement agreement whích provídes, ín addítíon to monthíy
pa ments for support of the wífe and support, maíntenance, and
educatíon of mínor chíídren, for the payment by the husband of
premíums on two íífe ínsurance poíícíes coveríng the husband s íífe.
One of the poíícíes ís assígned absoíuteíy to the wífe. She ís desígnated
as the írrevocabíe benefícíary of such poíícy and the chíídren as írrev-
ocabíe contíngent benefícíaríes. Wíthín a specífíed number of years
from the date of íssuance of such poíícy, the husband wííí e change ít
for a whoíe íífe or endowment poíícy and deííver the poíícy receíved
M e change to the wífe. Wíth respect to the other íífe ínsurance
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29.23(a)- .
2
poíícy, the husband, pursuant to the agreement wíth hís wífe, desíg-
nated the chíídren as benefícíaríes and the wífe as contíngent bene-
fícíary. Thís poíícy ís not assígned to the wífe, and íts possessíon and
controí are retaíned by the husband. The property settíement agree-
ment ín questíon was entered ínto as an íncídent to a dívorce actíon,
and the dívorce decree makes reference to and approves the terms of
the agreement.
It ís heíd that premíums paíd by the husband on the íífe ínsurance
poíícy absoíuteíy assígned to hís former wífe and wíth respect to whích
she ís the írrevocabíe benefícíary are íncíudíbíe ín the gross íncome of
the wífe under sectíon 22 (k) of the Internaí Revenue Code and deduct-
íbíe by the husband under sectíon 23(u) of the Code. (See níta
uínby Stewart v. Commíssíoner. 9 T. C. 19 , acquíescence, C. .
19 7-2, , and state of oíes C. Tíart et aí. v. Commíssíoner, 11 T. C.
16, acquíescence, C. . 19 9-1,2.) It ís heíd further that the premíums
paíd by the husband on the íífe ínsurance poíícy whích was not
assígned to the wífe and wíth respect to whích she ís oníy the con-
tíngent benefícíary are neíther íncíudíbíe ín the gross íncome of the
wífe nor deductíbíe by the husband.
S CTION 22(n). € ” GROSS INCOM : D FINITION OF
D UST D GROSS INCOM
Sectíon 29.22 (n)-í: d|usted gross íncome.
INT RN L R NU COD S
Dístríct of Coíumbía gross saíes and compensatíng-use ta es paíd
by vendors or purchasers ín connectíon wíth trade or busíness. (See
I. T. 00 , page 3 .)
S CTION 23(a). € ” D DUCTIONS FROM GROSS
INCOM : P NS S
Sectíon 29.23(a)-1: usíness e penses. 19 0-1-13269
L T.39
INT RN L R NU COD ND PRIOR R NU L WS
mounts e pended by nurses, raííway traínmen, nnd surgeons for
the purchase and maíntenance of dístínctíve types of uníforms whích
are not adaptabíe to ordínary wear, whích uníforms they are re-
quíred to wear whííe on duty, are deductíbíe as ordínary and neces-
sary busíness e penses under sectíon 23(a) (1) ( ) of the Internaí
Revenue Code.
O. D. 9 1 (C. . , 209 (1921)) revoked and I. T. 1 (C. . 1-2,
1 (1922)) modífíed.
Reconsíderatíon has been gíven to O. D. 9 1 (C. . , 209 (1921))
and I. T. 1 (C. . 1-2, 1 (1922)) ín the ííght of the decísíons ín
íeanor . Meíer v. Commíssíoner (2 T. C. , acquíescence, C. .
19 , ), eíen rusíto arsaghy v. Commíssíoner (2 T. C. ,
acquíescence, C. . 19 , 3), and Charíes Wíídman et u . v. Commís-
síoner (Ta Court memorandum opíníon, decísíon entered ugust 1 ,
19 6).
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29
29.23(a)- .
0. D. 9 1, supra, hoíds that e penses íncurred by a raííroad con-
ductor ín the purchase of uníforms whích hís empíoyer requíres hím
to wear duríng busíness hours are personaí e penses and are not aííow-
abíe deductíons ín computíng net íncome. I. T. 1 , supra, hoíds
ín part that amounts e pended for the purchase of uníforms by nurses,
raííway traínmen, and surgeons are personaí e penses whích are not
deductíbíe for Federaí íncome ta purposes.
It ís the present posítíon of the ureau that amounts e pended by
nurses, raííway traínmen, and surgeons for the purchase and maínte-
nance of dístínctíve types of uníforms whích are not adaptabíe to
ordínary wear, whích uníforms they are requíred to wear whííe on
duty, are deductíbíe as ordínary and necessary busíness e penses under
sectíon 23(a)(1)( ) of the Internaí Revenue Code. ccordíngíy,
0. D. 9 1, supra, ís revoked, and I. T. 1 , supra, ís modífíed.
Sectíon 29.23 (a)-í: usíness e penses. 19 0- -132 9
( íso Sectíon 2 , Sectíon 29.2 -1.) Mím. 6 63
Cost and maíntenance of uníforms and work cíothíng
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 2 , D. C, anuary 17,19 0.
Coííectors of Internaí Revenue, Internaí Revenue gents ín Charge,
and Others Concerned:
1. In víew of the trend of recent court decísíons aííowíng deductíons
for the cost and maíntenance of uníforms where (1) the uníforms
are specífícaííy requíred as a condítíon of empíoyment and (2) are
not of a type adaptabíe to generaí or contínued usage to the e tent
that they take the píace of ordínary cíothíng, the ureau has adopted
the posítíon that amounts e pended for the purchase and maíntenance
of poííce offícers uníforms constítute ordínary and necessary busíness
e penses under sectíon 23(a)(1)( ) of the Internaí Revenue Code.
s a resuít, the prevíous nonacquíescence (C. . 19 3, 27) ín the case
of Marcus O. enson et u . v. Commíssíoner (2 T. C. 12, affírmed,
1 6 Fed. (2d) 191) has been wíthdrawn and acquíescence (C. .
1) substítuted. (See aíso I. T. 397 , C. . 19 9-2,2 .)
2. The posítíon adopted by the ureau ín acquíescíng ín the enson
decísíon contempíates that the cost and maíntenance of uníforms are
generaííy aííowabíe deductíons íf the tests appííed by the Ta Court
ín determíníng theír deductíbíííty have been met.
3. ampíes of thís poíícy are recent ureau ruííngs whích have
been íssued sínce the acquíescence ín the enson decísíon and whích
hoíd that the deductíon ís aííowabíe ín the cases of poííce offícers
generaííy, fírc-men, íetter carríers, and streetcar, bus, and raííway men
who are requíred to wear dístínctíve types of uníforms whííe at work
but whích are not suítabíe for ordínary wear. In appíyíng the above-
stated generaí ruíe appearíng ín the foregoíng paragraph to other
types of uníforms, consíderatíon must be gíven to the partícuíar facts.
. For the deductíon to be aííowabíe, ít ís necessary that both of the
requíred tests be met. The fact that a uníform míght be requíred
as a condítíon of empíoyment ís not, of ítseíf, suffícíent to warrant the
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29.23 (a)-í.
30
aííowance of the deductíon, as ín the case of mííítary appareí whích
the Ta Court has heíd ís adaptabíe generaííy to contínued wear to the
e tent that ít repíaces reguíar cíothíng.
. s has been stated, ín order to determíne whether both of the
requíred tests have been met, consíderatíon must be gíven to the
partícuíar facts ín each case, and the occupatíon of the ta payer
ís not necessarííy controíííng. For e ampíe, the deductíon wííí not
be automatícaííy aííowabíe ín the case of a raííroad conductor s
uníform sínce thís offíce has been advísed that ín many ínstances
raííway passenger conductors do not purchase specíaí uníforms but
do purchase good quaííty taííored serge suíts and have reguíatíon goíd
snap-on buttons that fít over the reguíar suít buttons so that they
can be removed when the suít ís worn away from work. In thís event,
the deductíon ís not aííowabíe sínce the second requíred test, nameíy,
that the uníform ís not suítabíe for ordínary wear, has not been met.
6. Specíaí attentíon ís caííed to the fact that thís modífícatíon
of ureau poíícy respectíng the deductíon of the cost and maínte-
nance of uníforms of a dístínctíve type does not e tend to ordínary
work cíothíng the cost and maíntenance of whích represent non-
deductíbíe personaí e penses.
7. In víew of the foregoíng, O. D. 9 1 (C. . , 209 (1921)) has
been revoked, and I. T. 1 (C. . 1-2,1 (1922)) has been revoked
ínsofar as ít heíd that such e penses of nurses, raííway traínmen, and
surgeons are personaí and nondeductíbíe e penses. (See I. T. 39 ,
page 2 , thís uííetín.) ny ureau ínstructíons regardíng the de-
ductíbíííty of the cost and maíntenance of uníforms and work cíothíng
are modífíed to the e tent that they are ín confííct wíth the provísíons
of thís mímeograph.
Fred S. Martín,
ctíng Commíssíoner.
Sectíon 29.23(a)-í: usíness e penses. 19 0-11-13361
( íso Sectíon 22(a), Sectíon 29.22(a)-2; I. T. 010
Sectíon 1621(a), Sectíon 0 .101, Regu-
íatíons 116.)
INT RN L R NU COD
Contríbutíons made by empíoyers to a fund to províde for the pay-
ment of benefíts to empíoyees who are unabíe to work because of
ín|ury or síckness not arísíng out of and ín the course of empíoyment,
whích contríbutíons are made pursuant to artícíe 9 (known as the
dísabíííty benefíts íaw) of the New York workmen s compensatíon
íaw, constítute ordínary and necessary busíness e penses whích are
deductíbíe under sectíon 23(a) (1) ( ) of the Internaí Revenue Code.
Contríbutíons requíred of empíoyees under artícíe 9 of the New
York workmen s compensatíon íaw whích are assumed and paíd by
empíoyers are Incíudíbíe In the gross íncome of the empíoyees and
are sub|ect to wíthhoídíng of íncome ta at the source on wages
under sectíon 1622 of the Code. Such amounts constítute ordínary
and necessary busíness e penses to the empíoyers under sectíon
23(a) (1) ( ) of the Code.
dvíce ís requested as to the deductíbíííty, for Federaí íncome ta
purposes, of contríbutíons made by empíoyers to a fund to províde for
payment of nonoccupatíonaí dísabíííty benefíts to empíoyees, whích
contríbutíons are made pursuant to artícíe 9 (added by Laws of New
York, chapter 600, approved príí 13,19 9), known as the dísabíííty
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31
29.23(a)- .
benefíts íaw, of the New York workmen s compensatíon íaw. dvíce ís
aíso requested as to the deductíbíííty by empíoyers of contríbutíons
requíred of empíoyees whích are assumed and paíd by empíoyers and
the ta abíííty to the empíoyees of such contríbutíons.
The pertínent provísíons of artícíe 9 of the New York workmen s
compensatíon íaw read as foííows:
Sectíon 209. Contríbutíon of mpíoyees for Dísabíííty enefíts. € ” 1. very
empíoyee ín the empíoyment of a covered empíoyer shaíí, on and after anuary
fírst, níneteen hundred fífty, contríbute to the cost of provídíng dísabíííty benefíts
under thís artícíe, to the e tent and ín the manner hereín províded.
2. The specíaí contríbutíon of each such empíoyee to the accumuíatíon of
funds to províde benefíts for dísabíed unempíoyed shaíí be as províded ín sub-
dívísíon 1 of sectíon 21 .
3. The contríbutíon of each such empíoyee to the cost of dísabíííty benefíts
províded by thís artícíe shaíí be one-haíf of 1 per centum of the empíoyee s wages
paíd to hím on and after uíy fírst, níneteen hundred fífty, but not ín e cess of
30 cents per week.
. Notwíthstandíng any other provísíon of íaw, the empíoyer Is authorízed to
coííect from hís empíoyees the contríbutíon províded under subdívísíons 2 and
3. through payroíí deductíons. If the empíoyer shaíí not make deductíon for any
payroíí períod he may thereafter, íínt not íater than 1 month after payment of
wages, coííect such contríbutíon through payroíí deductíon.
. In coííectíng empíoyee contríbutíons through payroíí deductíons, the em-
píoyer shaíí act as the agent of hís empíoyees and shaíí use the contríbutíons
oníy to províde dísabíííty benefíts as requíred by thís artícíe.
Sec. 210. mpíoyer Contríbutíons. € ” 1. very covered empíoyer shaíí, on
and after anuary fírst, níneteen hundred fífty, contríbute the cost of provídíng
dísabíííty benefíts ín e cess of the contríbutíons coííected from hís empíoyees, to
the e tent and ín the manner províded ín thís artícíe.
2. The specíaí contríbutíon of each covered empíoyer to the accumuíatíon of
funds to províde benefíts for dísabíed unempíoyed shaíí be as províded ín sub-
dívísíon 1 of sectíon 21 .
3. The contríbutíon of every covered empíoyer to the cost of provídíng dís-
abíííty benefíts after une thírtíeth, níneteen hundred fífty, shaíí be the e cess of
such cost over the amount of the contríbutíons of hís empíoyees.
. No profít shaíí be deríved by any empíoyer or assocíatíon of empíoyers or of
empíoyees from provídíng payment of dísabíííty benefíts under thís artícíe. íí
funds representíng contríbutíons of empíoyers and empíoyees, and íncrements
thereon, heíd by empíoyers or assocíatíons of empíoyers or of empíoyees author-
ízed or permítted to pay benefíts under the provísíons of thís artícíe, and by
trustees payíng benefíts under píans or agreements meetíng the requírements
of sectíon 211, shaíí be trust funds and shaíí be e pended oníy to províde for the
payment of benefíts to empíoyees and for the costs of admínísteríng thís artícíe
and for the support of the fund estabííshed under sectíon 21 .
€ € € € €
Sec. 21 . Specíaí Fund for Dísabíííty enefíts. € ” There Is hereby created a
fund whích shaíí be known as the specíaí fund for dísabíííty benefíts to províde
for the payment of dísabíííty benefíts under sectíons 207 and 213 of thís artícíe.
1. For the purpose of accumuíatíng funds for payment of benefíts to the dís-
abíed unempíoyed, there ís hereby assessed a contríbutíon at the rate of two-tenths
of 1 per centum of the wages paíd duríng the períod from anuary fírst, níneteen
hundred fífty to une thírtíeth, níneteen hundred fífty íncíusíve, to empíoyees ín
the empíoyment of covered empíoyers on or after anuary fírst, níneteen hundred
fífty, but not ín e cess of 12 cents per week as to each such empíoyee, of whích
the empíoyee shaíí contríbute one-tenth of 1 per centum of hís wages but not ín
e cess of C cents per week, and the empíoyer shaíí make an equaí contríbutíon.
The contríbutíons of the empíoyee shaíí be deducted from hís wages ín the same
manner as províded ín sectíon 209.
It ís heíd that contríbutíons made by empíoyers to a fund to pro-
víde for the payment of benefíts to empíoyees who are unabíe to work
because of ín|ury or síckness not arísíng out of and ín the course of
empíoyment, whích contríbutíons are made pursuant to artícíe 9
(known as the dísabíííty benefíts íaw) of the New York workmen s
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29.23(a)- .
32
compensatíon íaw, constítute ordínary and necessary busíness e penses
whích are deductíbíe under sectíon 23(a) (1) ( ) of the Internaí
Revenue Code.
It ís heíd further that contríbutíons requíred of empíoyees under
artícíe 9 of the New York workmen s compensatíon íaw whích are
assumed and paíd by empíoyers are íncíudíbíe ín the gross íncome of
the empíoyees and are sub|ect to wíthhoídíng of íncome ta at the
source on wages under sectíon 1622 of the Code. Such amounts con-
stítute ordínary and necessary busíness e penses to the empíoyers
under sectíon 23(a) (1) ( ) of the Code.
Sectíon 29.23(a)-1: usíness e penses. 19 0-11-13362
I. T. 011
INT RN L R NU COD
Contríbutíons made by empíoyers under prívate píans estab-
ííshed pursuant to chapter 21, títíe 3 of the Revísed Statutes of
New ersey, as amended and suppíemented, to províde for pay-
ment of nonoccupatíonaí dísabíííty benefíts to empíoyees are de-
ductíbíe as ordínary and necessary busíness e penses under
sectíon 23(a) (1) ( ) of the Internaí Revenue Code.
dvíce ís requested as to the deductíbíííty, for Federaí íncome ta
purposes, of contríbutíons made by empíoyers under prívate píans
estabííshed pursuant to chapter 21, títíe 3 of the Revísed Statutes of
New ersey, as amended and suppíemented, to províde for payment
of nonoccupatíonaí dísabíííty benefíts to empíoyees.
Príor to une 1 19 , chapter 21, títíe 3 of the Revísed Statutes of
New ersey províded for the payment of unempíoyment compensa-
tíon benefíts to those unempíoyed persons who were abíe to work and
avaííabíe for work. ffectíve une 1, 19 , the íaw was amended to
províde aíso for compensatíon to empíoyees ín case of dísabíííty due
to nonoccupatíonaí síckness or accídent as the resuít of whích they are
unavaííabíe or unabíe to work. mpíoyees may be covered by the
State pían or by prívate píans. The pertínent provísíons of the New
ersey Revísed Statutes read as foííows:
3: 21-32. stabííshment of Prívate Píans.
ny covered empíoyer may estabíísh a prívate pían for the payment of dís-
abíííty benefíts ín ííeu of the benefíts of the State pían hereínafter estabííshed.
enefíts under such a prívate pían may be províded by a contract of ínsurance
íssued by an Insurer duíy authorízed and admítted to do busíness ín thís State,
or by an agreement between the empíoyer and a uníon or assocíatíon represent-
íng hís empíoyees, or by a specífíc undertakíng by the empíoyer as a seíf-ínsurer.
Sub|ect to the ínsurance íaws of thís State, such a contract of Insurance may be
between the ínsurer and the empíoyer; or may be between the ínsurer and two
or more empíoyers, actíng for the purpose through a nomínee, desígnee or trus-
tee ; or may be between the Insurer and the uníon or assocíatíon wíth whích
the empíoyer has an agreement wíth respect thereto. ach such prívate pían
shaíí be submítted ín detaíí to the commíssíon unempíoyment compensatíon com-
míssíon and shaíí be approved by the commíssíon
Sectíon 23(a)(1)( ) of the Internaí Revenue Code provídes ín part
that ín computíng net íncome there shaíí be aííowed as deductíons
aíí the ordínary and necessary e penses paíd or íncurred duríng the
ta abíe year ín carryíng on any trade or busíness.
It ís heíd that contríbutíons made by empíoyers under prívate píans
estabííshed pursuant to chapter 21, títíe 3 of the Revísed Statutes
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33
29.23(n)-2.
of New ersey, as amended and suppíemented, to províde for pay-
ment of nonoccupatíonaí dísabíííty benefíts to empíoyees are de-
ductíbíe as ordínary and necessary busíness e penses under
sectíon 23(a) (1) ( ) of the Internaí Revenue Code.
Sectíon 20.23(a)-í: usíness e penses.
INT RN L R NU COD
Dístríct of Coíumbía gross saíes ta paíd by purchasers wíth respect
to property purchased for use ín trade or busíness. (See I. T. 00 ,
page 3 .)
Sectíon 29.23(a)-í: usíness e penses.
INT RN L R NU COD
mounts deducted from empíoyees wages under artícíe 9 of the
New York workmen s compensatíon íaw for payment of dísabíííty
benefíts. (See I. T. 00 , page 7.)
Sectíon 29.23(a)-2: Traveííng e penses. 19 0-12-13366
I. T. 012
INT RN L R NU COD
ppíícatíon of the decísíon íu Commíssíoner v. dwín R. Motch, r.,
etu . (1 0 Fed. (2d) 9).
dvíce ís requested wíth respect to the appíícatíon of the decísíon
ín Commíssíoner v. dwín R. Motch, r., etu . (1 0 Fed. (2d) 9) ín-
sofar as ít hoíds that traveííng e penses ín e cess of per díem aííow-
ances, íncurred by mííítary and cívííían offícers and empíoyees of the
Uníted States ín the performance of theír offícíaí dutíes, arc not deduct-
íbíe under sectíon 23(a) (1) ( ) of the Internaí Revenue Code.
In Commíssíoner v. dwín R. Motch, r., et u ., supra, the court
heíd, ín effect, that the performance of servíces for the Uníted States
by mííítary and cívííían offícers and empíoyees of the Uníted States
does not constítute the carryíng cn of a trade or busíness wíthín the
scope of sectíon 23(a)(1)( ) of the Internaí Revenue Code, wíth
the resuít that such personneí may not under that decísíon deduct
traveííng e penses ín e cess of per díem aííowances.
The appeííate court apparentíy mísunderstood the Government s
posítíon as to the basís on whích reversaí was sought of the decísíon
ín dtcín R. Motch, r., et u . v. Commíssíoner (11 T. C. 777, non-
acquíescence, C. . 19 9-1, 6). It apparentíy overíooked sectíon
(d) of the Code whích provídes that the term trade or busí-
ness íncíudes the performance of the functíons of a pubííc offíce. In
Senate Report No. , Seventy-thírd Congress, second sessíon, page
29 (C. . 1939-1 (Part 2), 6 at 60 ), submítted to accompany the
Revenue ííí of 193 , the Commíttee on Fínance stated that sectíon
(d) was decíaratory of e ístíng íaw. It appears that mííítary and
cívííían offícers and empíoyees of the Government have generaííy
been regarded as engaged ín a trade or busíness wíthín the meaníng
of sectíon 23(a) (1) ( ) of the Code. (See Míchaeí F. McDonaíd v.
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29.23(a)-1 .
3
Commíssíoner, 323 U. S. 7, Ct. D. 1617, C. . 19 , 9 ; en|amín Míg-
gíns v. Commíssíoner, Ta Court memorandum opíníon, decísíon en-
tered anuary 31, 19 9; and the thírd sentence ín sectíon 29.2 1-1(2)
of Reguíatíons 111.) Furthermore, such offícers and empíoyees have
been aííowed to deduct the ordínary and necessary e penses íncurred
ín carryíng out theír offícíaí dutíes whether or not they receíved re-
ímbursement therefor. (See O. D. 310, C. . 1, 10 (1919); I. T.
1706, C. . II-2, 9 (1923); I. T. 3 7 , C. . 19 1-1, 207; D. C. ack-
ííng v. Commíssíoner, 9 . T. . 312, acquíescence, C. . II-1, 16
(192 ); Waíter F. rown v. Commíssíoner, 13 . T. . 32, acquí-
escence, C. . III-1, 6 (19291; and ohn . Ide v. Commíssíoner,
3 . T. . 799, acquíescence, C. . 19 1-1, 6.)
In víew of the foregoíng, the ureau wííí not foííow the decísíon
ín Commíssíoner v. dwín R. Motcíí, r., ct u ., supra, as a precedent
ínsofar as ít hoíds that traveííng e penses ín e cess of per díem aííow-
ances, íncurred by mííítary and cívííían offícers and empíoyees of the
Uníted States ín the performance of theír offícíaí dutíes, are not deduct-
íbíe under sectíon 23(a) (1) ( ) of the Internaí Revenue Code,
í
Sectíon 29.23(a)-1 : Nontrade or nonbusí- 19 0-1-1326
ness e penses. I. T. 39 9
INT RN L R NU COD
mounts equaí to dívídends, paíd by an ínvestor wíth respect to
stock borrowed to cover short saíes, and premíums paíd ín connectíon
wíth the acquísítíon of such stock, nre aííowabíe deductíons under
sectíon 23(a) (2) of the Internaí Revenue Code.
dvíce ís requested reíatíve to the deductíbíííty, under sectíon
23(a) (2) of the Internaí Revenue Code, of amounts equaí to dívídends
paíd by a ta payer wíth respect to stock borrowed to cover short saíes
and premíums paíd ín connectíon wíth the acquísítíon of such stock.
In the ínstant case, the ta payer was an ínvestor and not a trader ín
securítíes.
Sectíon 23(a) of the Internaí Revenue Code provídes ín part that
ín computíng net íncome there shaíí be aííowed as deductíons:
(2) Non-trade or non-busíness e penses. € ” In the case of an índívíd-
uaí, aíí the ordínary and necessary e penses paíd or íncurred duríng the
ta abíe year for the productíon or coííectíon of íncome, or for the manage-
ment, conservatíon, or maíntenance of property heíd for the productíon of
íncome.
In Norbert II. WíesUr v. Commíssíoner (6 T. C. 11 , affírmed, 161
Fed. (2d) 997, certíorarí deníed, 332 U. S. 2), ít was heíd that the
ta payer, who was engaged ín the busíness of tradíng ín securítíes,
was entítíed to deduct as busíness e penses amounts equívaíent to
dívídends paíd on account of stock borrowed to cover short saíes. The
ureau has acquíesced (C. . 19 -1,3) ín that decísíon. To the same
effect ís the decísíon ín F. . Wííson v. Commíssíoner (Ta Court
memorandum opíníon, decísíon entered uíy 2 , 19 6, affírmed, 163
Fed. (2d) 6 0, certíorarí deníed, 332 U. S. 2).
It ís beííeved that the deductíbíííty of amounts paíd ín connectíon
wíth stock borrowed to cover short saíes shouíd be determíned by the
same standards whether a ta payer ís a trader ín securítíes or ís
mereíy an ínvestor. If amounts so paíd by a trader ín securítíes are
deductíbíe as trade or busíness e penses, amounts paíd by an ínvestor
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3
29.23(c)- .
for the same purpose shouíd be deductíbíe as nontrade or nonbusíness
e penses.
In víew of the foregoíng, ít ís heíd that amounts equaí to dívídends
paíd by an ínvestor wíth respect to stock borrowed to cover short saíes
are aííowabíe deductíons under sectíon 23(a) (2) of the Internaí Reve-
nue Code. Premíums paíd by an ínvestor ín connectíon wíth the ac-
quísítíon of such stock are aíso deductíbíe under that sectíon of the
S CTION 23(c). € ” D DUCTIONS FROM GROSS
INCOM : T S G N R LLY
Sectío 29.23(c)-í: Ta es. 19 0- -13332
( íso Sectíon 22(a), Sectíon 29.22(a)- ; Sectíon I. T. 00
22(n). Sectíon 29.22(n)-í; Sectíon 23(a), Sec-
tíon 29.23 (a )-í; Sectíon 2 , Sectíon 29.2 -2.)
INT RN L R NU COD
Deductíbíííty for Federaí Income ta purposes of the gross saíes
ta and the coínpensatíng-use ta ímposed under Títíes I and II,
respectíveíy, of the Dístríct of Coíumbía Revenue ct of 19 9 (G3
Stat. 112).
dvíce ís requested as to the treatment for Federaí íncome ta pur-
poses of the gross saíes ta and the compensatíng-use ta ímposed
under Títíes I and II, respectíveíy, of the Dístríct of Coíumbía
Revenue ct of 19 9 (63 Stat. 112).
The pertínent provísíons of Títíes I and II of the Dístríct of
Coíumbía Revenue ct of 19 9 read ín part as foííows:
Sec. 12 . egínníng on and after the fírst day of the fírst month succeedíng
the sí tíeth day after the approvaí of thís ct, for the prívííege of seíííng certaín
tangíbíe personaí property at retaíí saíe and for the prívííege of seíííng certaín
seíected servíces defíned as saíes at retaíí ín thís títíe Títíe I of the ct , a
ta ís hereby ímposed upon aíí vendors at the rate of 2 per centum of the gross
receípts of any vendor from the saíe of such tangíbíe personaí property and
servíces.
Sec. 12G. Reímbursement for the ta Imposed upon the vendor shaíí be coí-
íected by the vendor from the purchaser on aíí saíes the gross receípts from
whích are sub|ect to the ta Imposed by thís títíe so far as ít can be done. It
shaíí be the duty of each purchaser ín the Dístríct to reímburse the vendor
€ for the ta ímposed by thís títíe. Such reímbursement of ta shaíí .
be a debt from the purchaser to the vendor and shaíí be recoverabíe at íaw ín
the same manner as other debts.
€ € € € € € €
Sec. 129. Upon each saíe of tangíbíe personaí property or servíces, the gross
receípts from whích are ta abíe under thís títíe, the reímbursement of ta to
be coííected by the vendor from the purchaser under the provísíons of thís títíe
shaíí be stated and charged separateíy from the saíes príce and shown separateíy
on any record thereof at the tíme the saíe ís made or evídence of saíe íssued
or empíoyed by the vendor.
€ € € €
Sec 212. egínníng on and after the fírst day of the fírst month succeedíng
the sí tíeth day after the approvaí of thís ct, there ís hereby ímposed and
there shaíí be paíd by every vendor engagíng ín busíness ín the Dístríct and by
every purchaser a ta on the use, storage, or consumptíon of any tangíbíe per-
sonaí property and servíces soíd or purchased at retaíí saíe. The ta hereby
ímposed shaíí be at the rate of 2 per centum of the saíes príce of the tangíbíe
personaí property or servíces rendered or soíd.
Sec. 213. very vendor engagíng ín busíness ín the Dístríct and makíng saíes
at retaíí shaíí, for the prívííege of makíng such saíes, pay to the coííector the
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29.23(c)- .
36
ta ímposed by thís títíe Títíe II of the ct . t the tíme of makíng such saíes
the vendor shaíí coííect the ta from the purchaser and gíve to the purchaser a
receípt therefor ín such form as prescríbed by the assessor. For the purpose
of uníformíty of ta coííectíon by the vendor engagíng ín busíness In the Dístríct
and for other purposes the provísíons of sectíons 126,127, 129, and 130 of Títíe I
of thís ct are hereby íncorporated ín and made appíícabíe to thís títíe.
Sec. 21 . very vendor or retaííer not engagíng ín busíness ín the Dístríct
who makes saíes at retaíí as defíned ín thís títíe, and who upon appíícatíon to
the coííector has been e pressíy authorízed to pay the ta Imposed by thís títíe,
shaíí, at the tíme of makíng such saíes, coííect the reímbursement of the ta
from the purchaser and gíve to the purchaser a receípt therefor ín such form as
prescríbed by the assessor. For the purpose of uníformíty of ta coííectíon by
the vendor or retaííer who has been e pressíy authorízed to pay the ta under
the provísíons of thís sectíon and for other purposes, the provísíons of sectíons
120, 127, 129, and 130 of Títíe I of thís ct are hereby íncorporated ín and made
appíícabíe to thís títíe. permít shaíí be íssued to such vendor or retaííer,
wíthout charge, to pay the ta and coííect reímbursement thereof as províded
hereín. Such permít may be revoked at any tíme by the coííector who shaíí
€ thereupon gíve notíce thereof to the vendor or retaííer.
Sec. 21 . If a purchaser has not reímbursed for the ta such vendors or
retaííers as are requíred or authorízed to pay the ta , as the case may be, such
purchaser shaíí fííe a return as hereínafter províded and pay to the coííector 2
per centum of the totaí saíes príces of property and servíces purchased at retaíí
saíe.
Sectíon 23(c)(1) of the Internaí Revenue Code provídes that ín
computíng net íncome there shaíí be aííowed as deductíons ta es paíd
or accrued wíthín the ta abíe year, wíth certaín e ceptíons not here
materíaí. In generaí, ta es are deductíbíe by the person upon whom
they are ímposed. (See sectíon 29.23(c)-í of Reguíatíons 111.)
owever, sectíon 23(c)(3) of the Code provídes for the deductíon
by purchasers of amounts representíng saíes ta es paíd by the pur-
chasers otherwíse than ín connectíon wíth trade or busíness. The
term saíes ta , as used ín sectíon 29.23(c)-í( ) of Reguíatíons 111
means a ta ímposed by any State, Terrítory, Dístríct, or possessíon
of the Uníted States, or any poíítícaí subdívísíon thereof upon persons
engaged ín seíííng tangíbíe personaí property at retaíí, whích ís
measured by the gross saíes príce or the gross receípts from the saíe,
or whích ís a stated sum per unít of such property soíd. The term
aíso íncíudes a ta ímposed by such authorítíes upon persons engaged
ín furníshíng servíces at retaíí, whích ís measured by the gross re-
ceípts for furníshíng such servíces.
The gross saíes ta ímposed by sectíon 12 of the Dístríct of Co-
€ íumbía Revenue ct of 19 9 ís specífícaííy ímposed upon aíí vendors
of tangíbíe personaí property and certaín stated servíces. The com-
pensatíng-use ta ímposed by sectíon 212 of the Dístríct of Coíumbía
Revenue ct of 19 9 ís ímposed upon purchasers at retaíí.
ccordíngíy, ít ís heíd that the gross saíes ta ímposed by sectíon
12 of the Dístríct of Coíumbía Revenue ct of 19 9 ís deductíbíe
by the vendor under sectíon 23(c) (1) of the Internaí Revenue Code.
If the vendor ís an índívíduaí, the deductíon must be taken ín arrív-
íng at ad|usted gross íncome. (See sectíon 22(n) (1) of the Code.)
In the case of aíí other vendors, the deductíon ís aííowabíe ín deter-
míníng net íncome. The gross saíes ta coííected by a vendor from
a purchaser must be íncíuded ín the vendor s gross íncome for Fed-
eraí íncome ta purposes. To the e tent that such ta ís paíd by the
purchaser, otherwíse than ín connectíon wíth hís trade or busíness,
ít ís deductíbíe by the purchaser under sectíon 23(c) (3) of the Code,
e cept ín the case of an índívíduaí who eíects to take the optíonaí
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37
20.23(f)- .
standard deductíon. Where the gross saíes ta ís paíd wíth respect
to property purchased for use ín the purchaser s trade or busíness, ít
ís deductíbíe by hím as a busíness e pense íf the cost of the property
acquíred ís properíy chargeabíe to e pense, or ít shouíd be treated
as a capítaí ítem -where the cost of the property ís properíy capítaí-
ízed. Where the purchaser ís an índívíduaí and the saíes ta ís
deductíbíe as a busíness e pense, the deductíon must be taken ín
arrívíng at hís ad|usted gross íncome. (See sectíon 22(n) (1) of the
Code.) In the case of purchasers (other than índívíduaís) engaged
ín trade or busíness, the deductíon ís aííowabíe as a busíness e pense
ín determíníng net íncome.
It ís aíso heíd that the compensatíng-use ta ímposed by sectíon
212 of the Dístríct, of Coíumbía Revenue ct of 19 9 ís deductíbíe
by the purchaser under sectíon 23(c) (1) of the Internaí Revenue Code,
e cept that ín the case of an índívíduaí who eíects the optíonaí stand-
ard deductíon, no deductíon ís aííowabíe under sectíon 23(c)(1) of
the Code íf the use ta ís not attríbutabíe to a trade or busíness carríed
on by hím. Where the compensatíng-use ta ís attríbutabíe to a trade
or busíness carríed on by an índívíduaí, the amount of such ta ís
deductíbíe as a ta from gross íncome ín computíng ad|usted gross
íncome. In the case of ta payers (other than índívíduaís) engaged
ín trade or busíness, the compensatíng-use ta ís deductíbíe as a ta
from gross íncome ín determíníng net íncome. The amount of com-
pensatíng-use ta coííected by a vendor from a purchaser shouíd not
be íncíuded ín the vendor s gross íncome, and no deductíon ís aííow-
abíe to the vendor wíth respect to the amount of such ta remítted
by hím to the Dístríct of Coíumbía.
Sectíon 29.23 (c)-í: Ta es.
INT RN L R NU COD
mounts deducted from empíoyees wages under artícíe 9 of the
New York workmen s compensatíon íaw for pa| ment of dísabíííty
benefíts. (See I. T. 00 , page 7.)
S CTION 23(e). € ” D DUCTIONS FROM GROSS INCOM :
LOSS S Y INDI IDU LS
Sectíon 29.23 (e) -1: Losses by índívíduaís.
INT RN L R NU COD
Geoíogícaí and geophysícaí e píoratíon costs. (See I. T. 006,
page .)
S CTION 23(f). € ” D DUCTIONS FROM GROSS INCOM :
LOSS S Y CORPOR TIONS
Sectíon 29.23(f)-í: Losses by corporatíons.
INT RN L R NU COD
Geoíogícaí and geophysícaí e píoratíon costs. (See I. T. 00G,
page .)
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29.23(í)-2.
3
S CTION 23(1). € ” D DUCTIONS FROM GROSS
INCOM : D PR CI TION
Sectíon 29.23 (1) -2: Deprecíabíe property. 19 0-12-13367
( íso Sectíon 113(a), Sectíon 29.113(a) ( )-í; Ct. D. 1731
Sectíon 71 , Sectíon 3 .71 -1, Reguíatíons
112.)
C SS PROFITS T € ” INT RN L R NU COD € ” D CISION OF SUPR M
COURT
1. quíty Invested Capítaí € ” Contríbutíons to Capítaí € ” Cash
and Property Contríbuted by Communíty Groups to Petí-
tíoner € ” Deductíons € ” Deprecíatíon € ” asís.
Certaín communíty groups paíd cash and transferred other prop-
erty to petítíoner company as an índucement to the íocatíon or e -
pansíon of íts factory operatíons ín the communítíes. Petítíoner
cíaímed and the Commíssíoner dísaííowed a deductíon from gross
íncome for deprecíatíon on the property contríbuted and on the fuíí
cost of property acquíred ín part wíth contríbuted cash or equívaíent
funds, and dísaííowed the íncíusíon of the totaí vaíue of the con-
tríbutíons ín petítíoner s equíty ínvested capítaí. eíd: The assets
transferred to petítíouer by the communíty groups represented
contríbutíons to capítaí wíthín the meaníng of sectíon 113(a)
( ) ( ) of the Internaí Revenue Code and requíred no reductíon
ín the deprecíatíon basís of the propertíes acquíred. They were
ííkewíse contríbutíons to capítaí for the purpose of computíng
ínvested capítaí credít. To the e tent that petítíoner acquíred the
property ínvoíved after December 31,1920, ít ís entítíed to deductíons
on account of deprecíatíon under sectíon 113(a)( )( ). It may
aíso íncíude the vaíue of contríbutíons from the communíty groups
ín equíty Invested capítaí under sectíon 71 (a) (1) and (2) of
the Code.
2. Case Dístínguíshed.
Detroít díson Co. v. Commíssíoner, 319 D. S. 9 (19 3) Ct. D.
1 2, C. . 19 3,1019 , dístínguíshed.
3. Decísíon Reversed.
Decísíon of Uníted States Court of ppeaís, íghth Círcuít (17
Fed. (2d) 30 (19 9)), affírmíng ín part decísíon of Uníted States
Ta Court (10 T. C. 291 (19 )), reversed.
Supreme Court of the Uníted States
rown Shoe Co., Inc., petítíoner, v. Commíssíoner of Internaí Revenue
On wrít of certíorarí to tíe Uníted States Court of ppeaís for the íghth Círcuít
May 1 , 19 0
opíníon
Mr. ustíce Cíark deíívered the opíníon of the Court
Thís proceedíng seeks redetermínatíon of petítíoner s e cess profíts ta , com-
puted by the ínvested capítaí method, for the físcaí years ended 19 2 and 19 3.1
The íssues aríse from the payment of cash and the transfer of other property to
petítíoner by certaín communíty groups as an índucement to the íocatíon or
e pansíon of petítíoner s factory operatíons ín the communítíes. Petítíoner
cíaímed, and the Commíssíoner dísaííowed, (1) a deductíon from gross íncome for
1 The ta ín controversy ís Imposed under the e cess profíts ta provísíons of the
Second Revenue ct of 19 0, Stat. 97 , 973, as amended; I. R. C sectíon 710 et seq.
The ta 1b íevíed upon e cess profíts net Income remaíníng after aííowance of a ,000
specífíc e emptíon and an e cess profíts credít representíng a normaí profít. The ct
permítted computatíon of the credít on the basí eíther of average íncome over a base
períod or of ínvested capítaí, whích Incíudes equíty ínvested capítaí and 60 percent
of borrowed capítaí. The e cess profíts ta provísíons of the ct were repeaíed ín 19 .
9 Stat. 6, G .
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39
29.23(0-2.
deprecíatíon on the property contríbuted and on the fuíí cost of property acquíred
ín part wíth contríbuted cash or equívaíent funds, and (2) íncíusíon of the totaí
vaíue of the contríbutíons ín petítíoner s equíty ínvested capítaí. The Ta Court
reversed the Commíssíoner s ruííng ín part. 10 T. C. 291 (19 ). The Court of
ppeaís for the íghth Círcuít heíd wíth the Commíssíoner on aíí Issues. 17 Fed.
(2d) 30 (19 9). We granted certíorarí, 33 U. S. 909 (19 0), ín víew of an as-
serted confííct between the decísíon beíow and that of the Court of ppeaís for the
Thírd Círcuít ín Commíssíoner v. Mc ay Products Corp., 17 Fed. (2d) 639 (19 9),
reversíng the Ta Court, 9 T. C. 10 2 (19 7).
Two questíons must be determíned: Fírst, whether petítíoner ín computíng
íts normaí-ta net íncome, whích ís ad|usted ín determíníng e cess profíts net
íncome, ís entítíed to deductíons for deprecíatíon wíth respect to property trans-
ferred to ít from communíty groups or acquíred wíth cash to the e tent receíved
from such groups. Petítíoner contends that the propertíes so acquíred were
deprecíabíe as gífts under sectíon 113(a)(2) of the Internaí Revenue Code
or as contríbutíons to capítaí under sectíon 113(a) ( ) ( ) or both; as to the
propertíes acquíred wíth cash ít contends aíternatíveíy that they had cost to
the ta payer under sectíon 113(a). Second, we must decíde whether ín com-
putíng petítíoner s ínvested capítaí credít the aggregate vaíue of the assets
transferred by the communíty groups may be íncíuded ín equíty ínvested capítaí
under sectíon 71 (a) of the Code eíther as a contríbutíon to capítaí or as
accumuíated earníngs and profíts.
Petítíoner ís a New ork corporatíon whích at aíí tímes materíaí conducted
manufacturíng operatíons ín a number of píants íocated ín Iííínoís, Indíana,
Míssourí and Tennessee. From 191 to 1939 petítíoner receíved ín 17 trans-
actíons an aggregate of , 9. ín cash and , 71. 6 ín buíídíngs from
varíous communíty groups ín 12 towns. cept ín one ínstance, each trans-
fer was pursuant to a wrítten contract between petítíoner and the respectíve
communíty group. The contracts were of three types: The fírst requíred petí-
tíoner to íocate, construct and equíp, or to eníarge a factory ín the communíty,
to operate the factory contínuousíy so íong as ít ís practícabíe ín the conduct
of íts busíness for at íeast a períod of 10 years, and to meet a mínímum payroíí,
ín consíderatíon of whích the communíty group agreed to transfer íand and cash
to be used for the payment of suítabíe factory buíídíng or buíídíngs ; ín one
ínstance e ístíng buíídíngs were aíso transferred and ín another ínstance oníy
buíídíngs and no cash sum. Under thís type of contract petítíoner was obíí-
gated ín tííe event of noncompííance to transfer the buíídíng back to the communíty
group or to repay the sum. Under a second type of agreement petítíoner ín
consíderatíon of a cash payment undertook to eníarge an e ístíng factory and
to operate ít for a períod of 10 years wíth a stípuíated mínímum addítíon to
personneí. thírd type of contract caííed oníy for the constructíon of an
addítíon to petítíoner s e ístíng factory ín consíderatíon of a cash sum. Con-
tracts of the íatter type were ín the nature of suppíementary agreements wíth
communíty groups and may have ínvoíved an obíígatíon on the part of petítíoner
to contínue operatíon of the addítíonaí píant facííítíes for the une píred remaín-
der of a períod not e ceedíng 10 years agreed upon ín an earííer contract. No
restríctíon was ímposed ín any ínstance as to the use whích petítíoner míght make
of the property contríbuted or acquíred wíth cash, or of the proceeds íf the
Sectíon 23(1) of the Code permíts a deductíon from cross Income for deprecíatíon of
property, and sectíon 23(n) provídes ínt the basís for deprecíatíon shaíí he as pro-
Tíded ín sectíon 11 . whích adopts the ad|usted basís províded ín sectíon 113(b) for
determíníng (raín. Thís subsectíon ín turn refers to sectíon 113(a) whích provídes that
the basís (unad|usted) shaíí be the cost of the property, wíth certaín – e ceptíons
Incíudíng the foííowíng: Sectíon 113(a)(2) provídes In reíevant part that If the prop-
erty was acquíred by gíft after December 31, 1920. the basís shaíí be the same as ít wouíd
be In the hands of the donor or the íast precedíng owner by whom ít was not acquíred
by gíft € : sectíon 113(a)( ) provídes that If the property was acquíred after
December 31, 1020, by a corporatíon € € € ( ) as paíd-ín surpíus or as a con-
tríbutíon to capítaí, then the basís shaíí be the same as ít wouíd be ín the hands of the
transferor € € €
€ Sectíon 71 (a) provídes reíevantíy:
€ € € The equíty ínvested capítaí for any day of any ta abíe year € € € shaíí
be the snm of the foííowíng amounts, reduced as províded ín subsectíon (b) € ”
(1 € € Money prevíousíy paíd ín for stock, or as paíd-ín surpíus, or as a
contríbutíon to capítaí;
(2) € € € Property (other than money) prevíousíy paíd ín (regardíess of the
tíme paíd In) for stock, or as paíd-ín surpíus, or as a contríbutíon to capítaí € :
( ) € € € The accumuíated earníngs and profíts as of the begínníng of such
ta abíe year € € €
The vaíue of the íand upon whích the buíídíngs were íocated was not íncíuded ín
petítíoner s books and Is unímportant for thís proceedíng.
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29.23(0-2.
0
property shouíd be dísposed of, after e píratíon of the requíred períod of opera-
tíon. The Ta Court assumed performance by petítíoner accordíng to the terms
of the agreements, and the court of appeaís díd not díffer. In the case of 11
contracts the stípuíated períod for performance had e píred príor to the ta -
abíe years ín questíon.
The síngíe transactíon whích was not based upon such contractuaí obíígatíons
Invoíved a 10,000 cash bonus paíd In 191 , accordíng to the mínutes of petítíoner s
board of dírectors, as a part of € € organízatíon e penses In startíng
the factory ín the partícuíar town.
The cash sums receíved by petítíoner from the groups were not earmarked for,
or heíd íntact and appííed agaínst, the píant acquísítíons ín the respectíve com-
munítíes but were deposíted ín petítíoner s generaí bank account from whích
were paíd generaí operatíng e penses and the cost of aíí assets acquíred, íncíudíng
factory buíídíngs and equípment In the towns ínvoíved. The cash payments were
debíted to cash account on the assets síde of petítíoner s íedger and were credíted
to earned surpíus eíther upon receípt or after havíng fírst been assígned to con-
tríbuted surpíus. The vaíues of the buíídíngs acquíred were set up ín a buíídíng
account on the assets síde and were credíted to surpíus. In every Instance the
cash receíved by petítíoner from a communíty group was íess than the amount
e pended by It for the acquísítíon or constructíon of the íocaí factory buíídíng
and equípment.
In computíng íts normaí ta net íncome for the ta abíe years ín controversy
petítíoner deducted deprecíatíon on the buíídíngs transferred by the communíty
groups and on the fuíí cost of the buíídíngs and equípment acquíred or eníarged
In the communítíes from whích It had receíved cash. Petítíoner aíso íncíuded
the totaí of 971,031:01 ín cash and other property ín íts equíty ínvested capítaí.
The Commíssíoner dísaííowed deprecíatíon deductíons wíth respect to the buííd-
íngs transferred (ín the vaíue of , 71. 0) and the propertíes acquíred wíth
cash to the e tent paíd to petítíoner by the groups (ín the vaíue of , 9. ).
In computíng the amount of deprecíatíon to be aííowed, the Commíssíoner de-
ducted that portíon of the cost of the buíídíngs, íand and machínery whích was
paíd wíth such contríbuted cash or equívaíent funds. The Commíssíoner ín
makíng such reductíons aííocated the cash contríbutíon to each Item, such as
buíídíngs, íand íf any had been purchased, and machínery ín the proportíon of
the totaí cost of such ítem to the totaí cost of the pro|ect. The Commíssíoner aíso
dísaííowed íncíusíon In equíty ínvested capítaí of the totaí assets transferred,
reducíng such capítaí as computed by petítíoner by 071,031.01.
The Ta Court reversed the Commíssíoner s dísaííowance of deprecíatíon wíth
respect to that portíon of the acquísítíons paíd for wíth cash. It concíuded
that these ítems had cost and therefore basís to petítíoner sínce they had
been paíd for from petítíoner s own unrestrícted funds ín whích the cash con-
tríbutíons had been deposíted wíthout earmarkíng; as to the buíídíngs transferred,
the court sustaíned the Commíssíoner on the ground that these transfers were
not gífts and therefore the transferor s bnsís was not avaííabíe to petítíoner. It
heíd that the petítíoner was In error In recordíng the contríbutíons ín equíty ín-
vested capítaí as contríbutíons to capítaí because oníy stockhoíders couíd make
such contríbutíons. The court of appeaís, reversíng the Ta Court as to the
aííowance of deprecíatíon deductíons wíth respect to property acquíred wíth
cash, heíd that to the e tent of the contríbutíons there was no cost to petítíoner.
We thínk the assets transferred to petítíoner by the communíty groups repre-
sented contríbutíons to capítaí wíthín the meaníng of sectíon 113(a)( )( )
oth courts beíow and the Commíssíoner have e pressíy assumed, as petítíoner asserts,
that the receípts of property and cash were not ta ed as íncome.
0 The Commíssíoner does not deny that such deductíons were dísaííowed for the fírst tíme
In 19 3, foííowíng the decísíon ín Detroít díson Co. . Commíssíoner, 319 D. S. 9 (19 3)
Ct. D. 1 2. C. . 19 3, 1019 .
The amount thus dísaííowed on account of deprecíatíon was 22, 72.60 for the físcaí
year ended 19 2 and 2 ,307.10 for the físcaí year ended 19 3. There was no determínatíon
by the Commíssíoner of a defícíency ín petítíoner s normaí ta for eíther year.
The Ta Court reííed at thís poínt upon Mc ay Products Corp., 9 T. C. 10 2 (19 7),
whích foííowed Frank oíton d Co., 10 . T. . 1317 (192 ) and . C. F. Gasoííne Co.,
6 . T. . 1337 (1927), decíded under earííer e cess profíts ta íaws, and Líberty Mírror
Works, 3 T. C. 101 (19 ), Invoívíng sectíon 71 . The opíníons In Frank oíton S Co.
and Líberty Mírror Works regarded LaReííe Iron Works v. Uníted States, 2 U. S. 377
(1921) T. D. 31 1, Ct. D. 12, C. . , 373 (1921) . as controíííng.
For thís resuít the court of appeaís cíted Detroít díson Co. v. Commíssíoner, 319
D. S. 9 (19 3) Ct. D. 1 2. C. . 19 3. 1019 ; Commíssíoner v. rundeí- rooks Con-
crete Corp., 1 2 Fed. (2d) 22 (C. . th Cír. 19 ) ; and Its own príor decísíon ín
C. L. Downey Co. v. Commíssíoner, 172 Fed. (2d) 10 (C. . th Cír. 19 9). In affírmíng
on the Invested capítaí íssue the court of appeaís reííed In part on La eííe Iron Works
v. Lníted States, note supía, and on the Detroít díson case.
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IS 29.23 (í)-2.
and requíred no reductíon ín the deprecíatíon basís of the propertíes acquíred.
The vaíues whích the ta payer receíved were addítíons to capítaí as that term
has commoníy been understood ín both busíness and accountíng practíce;u con-
formabíy wíth thís usage the pevtínent Treasury Reguíatíons have consístentíy
recognízed that contríbutíons to capítaí may orígínate wíth persons havíng no
propríetary ínterest ín the busíness.11 That thís ínterpretatíon Is ín harmony
wíth broad congressíonaí poíícy as to deprecíatíon deductíons was emphasízed by
the Thírd Círcuít when consíderíng the símííar sítuatíon presented In Commít-
tíoner v. Mc ay Product Corp., supra, 17 Fed. (2d) at 6 3:
€ the assets receíved € are beíng used by the ta payer ín the
operatíon of íts busíness. They wííí In tíme wear out, and íf the ta payer
Is to contínue ín busíness, the physícaí píant must eventuaííy be repíaced. Look-
íng as they do toward busíness contínuíty, the Internaí Revenue Code s deprecía-
tíon provísíons € ” and especíaííy those whích províde for a substítuted rather than
a cost basís € ” wouíd seem to envísíon aííowance of a deprecíatíon deductíon ín
sítuatíons ííke thís €
The Commíssíoner contends, however, that thís concíusíon was forecíosed by
Detroít díson Co. v. Commíssíoner, 319 U. S. 9 (19 3) Ct. D. 1 2, C. . 19 3,
1019 . That decísíon deníed íncíusíon In the base for deprecíatíon of eíectríc
power íínes the amount of payments receíved by the eíectríc company for con-
structíon of the ííne e tensíons to the premíses of appíícants for servíce. It
was heíd that to the e tent of such payments the eíectríc íínes díd not have
cost to the ta payer, and that such payments were neíther gífts nor contríbutíons
to the ta payer s capítaí. We do not consíder that case controíííng on the íssue
whether contríbutíons to capítaí are ínvoíved here. ecause In the Detroít
díson case The payments were to the customer the príce of the servíce, the
Court concíuded that ít overta es ímagínatíon to regard the farmers and other
customers who furníshed these funds as makers eíther of donatíons or contríbu-
tíons to the company. Sínce In thís case there are neíther customers nor pay-
ments for servíce, we may ínfer a dífferent purpose In the transactíons between
petítíoner and the communíty groups. The contríbutíons to petítíoner were
províded by cítízens of the respectíve communítíes who neíther songht nor couíd
have antícípated any dírect servíce or recompense whatever, theír oníy e pecta-
tíon beíng that such contríbutíons míght prove advantageous to the communíty
at íarge. Under these círcumstances the transfers manífested a defíníte purpose
to eníarge the workíng capítaí of the company.1
MSee O Meara, Contríbutíons to Capítaí by Non-sharehoíders, Ta L. Rev. 6 ,
72 (19 ).
No suggestíon Is made by the Commíssíoner that becaose the transfers were the sub|ect
of contract they were not contríbutíons wíthín the statute.
u See, e. g.. Current Probíems In ccountíng € ” Proceedíngs of the ccountíng Instítute
20 (19 1) (Revísed Statement by merícan ccountíng ssocíatíon of ccountíng Prín-
cípíes underíyíng Corporate Fínancíaí Statements) : Guthmann and Dougaíí, Corporate
Fínancíaí Poíícy 2 (19 0): arvey. Some Indícía of Capítaí Transfers under the
Federaí Income Ta Laws, 37 Mích. L. Rev. 7 , 7 7 n. 6 (1939) : Marpíe, Capítaí Surpíus
and Corporate Net Worth 12, 136-137 (1936). Cf. Magííí, Ta abíe Income 3 9 (2d ed.
19 ) ; 1 Mertens. Law of Federaí Income Ta atíon sectíon .1 (19 2) ; Te as cf Pao.
R. Co. v. Uníted States, 2 6 U. S. 2 , 2 9 (1932) Ct. D. 9 . C. . I-1, 203 (1932) ;
Lukes ros. . . Co., Inc., 2 . T. . 139 . 1 01 (19 0), afTd 126 Fed. (2d) 72 , 727
(C. . th Cír. 19 2) : eíveríng v. Cíaíborne- nnapoíís Ferry Co., 93 Fed. (2d) 7 ,
76 (C. . th Cír. 193 ) Ct. D. 1339, C. . 193 -1. 26 .
Treas. Reg. 6, art. 113(a )-í: Treas. Reg. 9 , art. 113(a) ( )-í: Treas. Reg.
101. art. 113(a) ( )-í; Treas. Reg. 103, sectíon 19.113(a) ( )-í; and Treas. Reg. Iíí,
sectíon 29.113(a) ( )-í have read In part: In respect of property acquíred by a cor-
poratíon after December 31, 1920. from a sharehoíder as paíd-ín surpíus, or rom any
person as a contríbutíon to capítaí, the basís of the property In the hands of the corpora-
tíon Is the basís whích the property wouíd have had In the hands of the transferor If the
transfer had not been made. € € The provísíon of sectíon 113(a)( )( ), Revenue
ct of 1932, In whích the term contríbutíon to capítaí fírst appeared ín Federaí revenue
íegísíatíon, was reenacted wíthout change In the ct of 193 and, foííowíng the above
Interpretatíon ín the reguíatíons, In the cts of 1936 and 193 and In the Internaí
Revenue Code.
Commíssíoner . rundeí- rooks Concrete Corp., 1 2 Fed. (2d) 22 (C. . th Cír.,
19 ), reííed upon by the court beíow. Invoíved oníy the Issue whether the fuíí cost of a
concrete mí íng píant, the constructíon of whích was fínanced In part by payments from a
nearby suppííer of a raw materíaí used ín mí íng concrete, was deprecíabíe to the ta -
payer; there was no contríbutíon to capítaí Issue, the oníy questíon beíng one of cost
basís. owever, the payments In that case were made ín consíderatíon of servíce
rendered. The constructíon of the concrete píant dírectíy benefíted the suppííer of raw
materíaís by Insuríng the use of Its soíe product by the ta payer; the suppííer was aíso
served through a busíness affíííatíon wíth the parent of the whoííy owned ta payer ín
the form of an e cíusíve marketíng arrangement whích saved the suppííer the e pense of a
saíes organízatíon. See rundeí-ítrooka Concrete Corp. v. Commíssíoner, 129 Fed. (2d)
762 (C. . th Cír. 19 2).
93 0 € ” 0 1
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29.23(nO-í.
2
The assets transferred by the communíty groups are ííkewíse contríbutíons to
petítíoner s capítaí for the purpose of computíng Its Invested capítaí credít.1
Cf. I. R. C. sectíon 72 . Precíseíy the same Interpretatíon has been píaced by the
reíevant Treasury Reguíatíons upon the term contríbutíon to capítaí appear-
íng ín sectíon 71 (a) as upon the ííke e pressíon ín the íncome ta provísíons.
That the e cess profíts ta provísíon characterízes capítaí contríbutíons as beíng
ínvested and paíd ín does not índícate, as the Commíssíoner urges, that the
concept of capítaí ís the constrícted one of íegaí capítaí or capítaí orígínatíng
wíth persons havíng a propríetary ínterest ín the busíness; we thínk ínstead
that the ta payer s ínvestment íncíudes certaín vaíues whích are properíy treated
as hís ínvestment, cf. Iíeísínger v. Commíssíoner, 1 Fed. (2d) 7 , 77- 7
(C. . 2d Cír. 19 ), though not havíng cost to the ta payer. Cf. I. R. C. sectíon
723. It wouíd have been an oddíty for Congress to make the íncíusíon of actuaí
capítaí contríbutíons ín equíty ínvested capítaí turn upon whether the transferor
owned or faííed to own one or two shares of stock ín the corporatíon at the tíme
of the transfer.1
The decísíon of thís Court In La eííe Iron Works v. Uníted States, 2 6 U. S.
377 (1921) T. D. 31 1, Ct. D. 12, C. . , 373 (1921) , ís not to the contrary.
That case was decíded under the e cess profíts ta íaw of 1917 ín whích ínvested
capítaí was defíned as (1) ctuaí cash paíd In, (2) the nctuaí cash vaíue
of tangíbíe property paíd ín other than cash, for stock or shares at
the tíme of such payment € € and (3) paíd ín or earned surpíus and un-
dívíded profíts used or empíoyed ín the busíness € The Court heíd
that neíther unearned apprecíatíon ín vaíue of the ta payer s ore íands nor the
surrender of oíd stock ín e change for new íssues based upon that vaíue, couíd
be regarded as the actuaí cash vaíue of tangíbíe property paíd In other than
cash or as paíd ín or earned surpíus and undívíded profíts. The íncíudabíííty
of contríbutíons by outsíders ín ínvested capítaí was not passed upon.
To the e tent that petítíoner acquíred property ínvoíved In thís controversy
after December 31, 1920, ít ís entítíed to deductíons on account of deprecíatíon
under sectíon 113(a) ( ) ( ). It aíso may íncíude the vaíue of the contríbutíons
from communíty groups ín equíty ínvested capítaí under sectíon 71 (a) (1) and
(2). The |udgment of the court of appeaís ís reversed and the case remanded
wíth dírectíons to remand to the Ta Court for further proceedíngs ín conformíty
wíth thís opíníon.
Reversed.
Mr. ustíce íack agrees wíth the court of appeaís and wouíd affírm íts udg-
ment.
S CTION 23(m). € ” D DUCTIONS FROM GROSS
INCOM : D PL TION
Sectíon 29.23 (m)-í: Depíetíon of mínes, oíí and 19 0- -13297
pas weíís| other naturaí deposíts, and tímber; G. C. M. 26290
deprecíatíon of ímprovements,
INT RN L R NU COD
Deductíons for depíetíon under sectíon 23(m) of the Internaí Rev-
enue Code ín the case of stríppíng contractors ín coaí mínes.
n opíníon ís requested whether contractors who have undertaken
to remove overburden and míne coaí pursuant to so-caííed stríppíng
See rewster. The Federaí cess Profíts Ta , 110-111 (19 1).
Trens. Reg. 109, sectíon 30.71 -1; Treas. Re . 112, sectíon 3 .71 -1.
The Commíssíoner agrees that the term contríbutíon to capítaí ís used wíth the same
meaníng ín sectíons 113(a) (S) ( ) and 71 (a).
Sec 2 Montgomery s Federaí Ta es € ” Corporatíons and Partnershíps € ” 19 6- 7, p. 72.
In Southern Pac. Co. v. dícards, 7 Fed. (2d) 91 (S. D. N. Y. 1932). the court heíd
that a capítaí donatíon orígínatíng wíth a non-stockhoíder was Incíudabíe In Invested
capítaí as paíd ín surpíus under the 1917 ct. owever, contríbutíons to capítaí
account from outsíders are often thought of as contríbuted or donated capítaí surpíus
rntíícr than as paíd-ín surpíus, see e. g., oagíand, Corporatíon Fínance (3d ed.
19 7) ; we thínk ínt for thís reason among others Congress added the term contríbutíon
to capítaí to the e cess profíts ta provísíons of the 19 0 ct, as ít had to the Revenue
cts (sectíon 113(a)( )) sínce 1932, to índícate that contríbutíons from outsíders ín-
tended ns addítíons to capítaí shouíd be íncíuded ín the computatíon. See S. Rept. Nq.
60 . 72d Cong., 1st sess. 27-2 (1032) ; . R. Rept No. 1 92, 72d Cong., 1st ess. 13
/ í rtnn
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29.23(m)-I.
contracts have acquíred a depíetabíe economíc ínterest ín the míneraí
ín píace.
Subsequent to deveíopment of the steam shoveí and other heavy
e cavatíng machínery, ít was found that coaí whích díd not ííe at too
great a depth couíd be economícaííy míned by removíng the overíyíng
earth or strata, usuaííy desígnated as overburden. The companíes
whích fírst míned coaí by thís method operated ín those parts of the
country, príncípaííy the Míddíe West, ín whích the surface of the
íand ís comparatíveíy íeveí and the coaí ííes at a faíríy uníform dístance
beneath the surface. These companíes bought theír own stríppíng
machínery. In the mountaínous coaí fíeíds of the ast there are few
íarge areas whích can be míned by removíng the overburden, and the
cwner or íessee of the property docs not ordínarííy buy the necessary
stríppíng equípment. ccordíngíy, ín the case of smaíí tracts of coaí
íand from whícíí the míneraí cannot be economícaííy removed by
underground míníng, as weíí as ín sítuatíons ín whích a frínge of coaí
near the surface cannot be satísfactorííy e tracted by underground
methods, the contractor who owns stríppíng equípment has soíved a
probíem of the índustry.
The deductíon for depíetíon ís a statutory prívííege províded for
by sectíons 23(m) and 11 (b) of the Internaí Revenue Code. The
Supreme Court of the Uníted States has stated that such aeduetíon
ís not to be regarded as a specíaí bonus for enterpríse and wííííngness
to assume rísks but ís based on the concept that part of the amount
reaíízed from the e tractíon and marketíng of míneraí represents
compensatíon for capítaí consumed ín the productíon and saíe of a
wastíng asset. (See Uníted States v. Lítdey, 27 U. S. 29 , T. D. 0 6,
C. . T-2, 1 7 (1927).) (See aíso eíveríng v. ankUne Oíí Co.,
303 U. S. 362, Ct. D. 1323, C. . 193 -1, 306. and /. Steve nderson
et aí. v. dveríng, 310 U. S. 0 , Ct. D. 1 6. C. . 19 0-1,10 .) The
deductíon ís not dependent upon the partícuíar íegaí form of the ta -
payer s ínterest, and, regardíess of technícaí ownershíp of the ore before
severance, a ta payer may by contract acquíre a vaíuabíe property
ínterest ín the míneraí whích ís capabíe of reaíízatíon as gross íncome
by e ercíse of ríghts heíd under the agreement. (See Lynch v. íworth-
Stephens Co., 267 U. S. 36 , T. D. 3690, C. . I -1, 162 (192 ), ínvoív-
íng a íessee.) Reíteratíng and eníargíng upon thís concept, ín . G.
Paímer v. ender (2 7 U. S. 1, Ct. D. 6 1, C. . I1-1,23 (1933)),
sustaíníng a cíaím for depíetíon by a íessor of oíí propertíes, the Court
saíd that the deductíon ís neíther restrícted to cases of any partícuíar
cíass nor made dependent upon ownershíp or any other partícuíar
form of íegaí ínterest ín the míneraí content of the íand, and that the
formaí attríbutes of ínstruments between the partíes or the descríptíve
termínoíogy whích may be appííed to them by the íocaí íaw are írreíe-
vant It ís enough, ít was stated, íf by vírtue of the transactíon the
ta payer has retaíned a ríght to share ín the míneraí produced. If
so, he has an economíc ínterest ín the míneraí ín píace whích ís
depíeted by productíon. Statements of the Court ín . O. Paímer v.
ender, supra, and subsequentíy ín . Steve nderson et aí. v. eíver-
íng, supra, írby Petroíeum Co. v. Commíssíoner (326 U. S. 99,
Ct D. 166 , C. . 19 6-1, 69), and urton-Sutton OU Co., Inc., v.
Commíssíoner (32 U. S. 2 , Ct. D. 167 , C. . 19 6-1, 237) aíso show
that the íanguage of the statute ís broad enough to províde at íeast
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29.23(m)-í.

for every case ín whích the ta payer has acquíred by ínvestment any
ínterest ín míneraí ín píace, and has secured by any form of íegaí
reíatíonshíp íncome deríved from the e tractíon of the míneraí to
whích he must íook soíeíy for the return of hís capítaí. (See sectíon
29.23(m)-í, Reguíatíons 111.) Furthermore, the deductíon for depíe-
tíon must be equítabíy apportíoned on the basís of the reíatíve economíc
ínterests of each of the partíes sharíng ín the productíon of the mín-
eraí, and a ríght to share ín the proceeds from saíe of the míneraí foí-
íowíng e tractíon ís anaíogous to a ríght to share ín the míneraí ítseíf.
(See eíveríng v. Twín eíí Oíí Syndícate, 293 U. S 312, Ct. D. 90 ,
C. . I -1,2 3 (193 ); € /. Steve nderson et aí. v. eíveríng, supra/
írby Petroíeum Co. v. Commíssíoner, supra; urton-Sutton Oíí Co.,
Inc., v. Commíssíoner, supra.)
The foregoíng príncípíes are appíícabíe not oníy to míneraí ríghts
reserved by grantors, but to such ríghts acquíred by grantees. Sínce a
stípuíatíon reservíng míneraí payments or the proceeds therefrom to
one aíready havíng a ríght to e tract the míneraí and thus possessíng
a capítaí ínterest thereín ínvoíves the retentíon of a depíetabíe eco-
nomíc ínterest, ít foííows that where by agreement between the partíes
such a capítaí ínterest ís acquíred, the recípíent may ííkewíse obtaín a
depíetabíe economíc ínterest ín the míneraí ín píace. (See G. C. M.
ís supported by Caroííne C. Spaídíng v. Commíssíoner (3 . T. .
132, appeaí dísmíssed, 100 Fed. (2d) 1020); by Caroííne C. Spaídíng v.
Uníted States (17 Fed. Supp. 9 7, affírmed, 97 Fed. (2d) 697, certío-
rarí deníed, 30 U. S. 61 ), and by T. W. Lee et aí. v. Commíssíoner ( 2
. T. . 1217, affírmed, 126 Fed. (2d) 2 ). Wíth respect to míníng,
as stated ín G. C. M. 22730, supra, the same basíc príncípíes appíy as ín
the case of oíí, ííke íssues aríse ín the decísíons, and such decísíons have
been cíted ínterchangeabíy by the courts ín the evoíutíon of the ruíes
of íaw appíícabíe to both índustríes. (See North Range Míníng Co. v.
Commíssíoner, 6 . T. . 296, acquíescence, C. . 19 2-1, 13, and
astern Coaí Corporatíon v. Yoke. 67 Fed. Supp. 166.) In the íatter
case, quotíng dírectíy from G. C. M. 22730, supra, and wíth manífest
approvaí of íts appíícatíon to coaí míníng, the court stated:
It thus appears that the controíííng cases regard capítaíízed deveíopment costs
as representíng ínvestments returnabíe through the depíctíon aííowances, whether
the totaí deveíopment ínvestment ís made by a íandowner tcho eíects to deveíop
the property hímseíf and take aíí the oíí or míneraí or ís shared by a number of
ínvestors ícho, by contractuaí arrangement. , between themseíves, agree to dívíde
the resuítíng oíí or míneraí product or the proceeds from the saíe of such product.
If the íatter, the dívísíon of oíí, or the gross íncome therefrom, determínes the
economíc ownershíp of oíí or míneraí ín píace as weíí as the gross íncome and
attendíng depíetíon aííowance. Under thís test, the form of the contracts
dívídíng the product or the gross íncome therefrom, or the íegaí phraseoíogy or
devíces utííízed to accompíísh the dívísíon, are ímmateríaí. Itaíícs suppííed.
It ís aíso to be noted that ín astern Coaí Corporatíon v. Yoke, supra,
the posítíon was taken by the court that the ríght of a contractor to a
specífíed amount per ton of míneraí produced may constítute a ríght
to share ín productíon whích marks ownershíp of a depíetabíe economíc
ínterest ín the míneraí ín píace.
For the purpose of facííítatíng consíderatíon of the questíon here
ínvoíved, a number of stríppíng contracts whích ít ís understood are
typícaí of those used ín the coaí índustry have been e amíned. For
22730, C. . 19 1-1, 21 .)
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29.23(m)-í.
conveníence, the partíes to such contracts wííí be hereínafter referred
to as the coaí company and the contractor, respectíveíy. In víew of
the contents of the contracts e amíned, ít ís the opíníon of thís offíce
that, dependent upon theír ríghts ín respect of the propertíes ínvoíved,
stríppíng contractors may be properíy regarded as entítíed to the de-
ductíon for depíetíon ín aíí respects as ín the case of other míneraí
propertíes. The fact that some of the contracts bear aspects of
agency or empíoyment, or that ostensíbíy the contractor may not ac-
quíre íegaí títíe to the míneraí, does not controí. (See Caroííne G.
Spaídíng v. Commíssíoner, supra; Caroííne C. Spaídíng v. Uníted
States, supra; T. W. Lee et aí. v. Commíssíoner, supra; North Range
Míníng Co. v. Commíssíoner, supra; and astern Goaí Corporatíon v.
Yoke, supra.) The círcumstance that stríppíng contractors at tímes
engage ín road buíídíng or other forms of actívíty aíso appears to be
ímmateríaí.
It ís not the víew of thís offíce, however, that the deductíon for
depíetíon ís to be granted ín every case. On the contrary, ít seems
cíear that the aííowance ís warranted oníy where, under the agreement
between the partíes, the stríppíng contractor obtaíns a capítaí ínterest
ín the míneraí ín píace and must íook to severance and saíe of the
míneraí for the return of capítaí consumed ín that process. (See
G. C. M. 22730, supra.) In thís respect, ít ís noted that ín some
ínstances contracts may be canceíed by the coaí company at wííí.
Under such círcumstances, ít wouíd appear that the contractor receíves
no bíndíng ríght to e tract the míneraí and thus faíís to obtaín a
capítaí ínterest thereín. Lackíng such an ínterest ín the míneraí, ít
foííows that the contractor cannot properíy cíaím a deductíon for
depíetíon.
In the opíníon of thís offíce, a contract whích ís termínabíe by the
coaí company at wííí, and whích thus faíís to vest ín the contractor the
requísíte capítaí ínterest ín the míneraí ín píace, ís one ín whích the
coaí company has an absoíute ríght to canceí at any tíme wíthout
cause or condítíon. For e ampíe, some of the contracts e amíned
reserve to the coaí company the ríght at íts díscretíon, wíthout íía-
bíííty for damage or íoss to the contractor, to termínate entíreíy aíí
or any part of the work to be done under the contract. It ís aíso the
víew of thís offíce that a contract whích may be arbítrarííy termínated
by the coaí company upon nomínaí notíce shouíd be regarded as one
whích may be canceíed at wííí. In determíníng what ís nomínaí
notíce, the essentíaí factor to be consídered ís whether, as a resuít of
the ríght of the coaí company to íssue such a notíce, the contractor ís
íeft wíthout a ríght to possessíon and e píoítatíon of the property for
a períod of tíme suffícíent to permít e tractíon by hím of a substantíaí
portíon of the míneraí deposít. In thís respect, ít wouíd ordínarííy
seem proper to concíude that a contract whích cannot be arbítrarííy
termínated by the coaí company wíthín íess than 1 year ís not sub|ect
to canceííatíon on nomínaí notíce. Where, however, the contract
may be arbítrarííy termínated by the coaí company wíthín a períod
of íess than 1 year, determínatíon of the questíon whether ít shouíd be
regarded as one whích may be canceíed upon nomínaí notíce wííí
depend upon the facts and círcumstances of the partícuíar case. Fac-
tors to be consídered ín makíng such a determínatíon íncíude the síze
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29.23(u)-í.
3
of the míneraí deposít, the probabíe tíme requíred for íts e tractíon,
the amount of e pense ííkeíy to be íncurred by the contractor ín opera-
tíons preíímínary to removaí of any substantíaí part of the míneraí,
and the amount of equípment to be removed from the property by the
contractor upon termínatíon of the contract.
One of the contracts e amíned shows that the coaí company reserves
the ríght, wíthout payment of damages, to suspend work índefíníteíy
at any tíme or from tíme to tíme; under another contract, the coaí
company ís gíven the ríght, upon days notíce to the contractor and
wíthout payment of damages, to suspend work for an índefíníte
períod; and under a thírd contract the coaí company may suspend
operatíons duríng such tíme or tímes as the company operates at a íoss
because of the mínímum payabíe to the contractor. Sínce contracts of
thís character, despíte the power of índefíníte suspensíon províded for
thereín, do not, e cept under specífíc condítíons, appear to permít the
coaí company to dísmíss contractors absoíuteíy and substítute others
to e tract the míneraí, ít ís the opíníon of thís offíce that such contracts
shouíd not be cíassífíed as contracts whích may be canceíed at wííí.
It ís noted further that ín some of the contracts the contractor must
íook for hís compensatíon soíeíy to the e tractíon and saíe of the coaí,
that ín others hís compensatíon ís dependent partíy upon e tractíon
and saíe of the coaí and partíy upon removaí of the overburden and
other factors, and that ín stííí others the remuneratíon payabíe to the
contractor ís ín no way dependent upon e tractíon and saíe of the
míneraí. Where, under the tests hereínbefore descríbed, the contract
ís not termínabíe at the wííí of, or upon nomínaí notíce by, the coaí
company, ít ís the víew of thís offíce that íf the contractor must íook
for hís compensatíon soíeíy to the e tractíon and saíe of the míneraí,
he ís entítíed to the deductíon for depíetíon. Where the contract ís
not termínabíe at the wííí of, or upon nomínaí notíce by, the coaí com-
pany, ít ís aíso the opíníon of thís offíce that íf the compensatíon of the
contractor ís deríved ín part from e tractíon and saíe of the coaí and
ín part from removaí of the overburden and other servíces, the deduc-
tíon for depíetíon ís aííowabíe ín respect of that portíon of such
compensatíon whích ís deríved from e tractíon and saíe of the coaí.
owever, ít ís cíear that where the compensatíon of the contractor ís
dependent entíreíy upon removaí of the overburden and other servíces,
no part of such compensatíon beíng deríved from e tractíon and saíe
of the coaí, the deductíon for depíetíon ís not aííowabíe.
CíI RI. S OLIP NT,
Chíef Counseí, ureau of Internaí Revenue.
S CTION 23(u). € ” D DUCTIONS FROM GROSS INCOM :
LIMONY, TC., P YM NTS
Sectíon 29.23(u)-1 : Períodíc aíímony payments.
INT RN L R NU COD
Lífe ínsurance premíums paíd by husband. (See I. T. 001,
page 27.)
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7
í 29.2 -1.
S CTION 2 . € ” IT MS NOT D DUCTI L
Sectíon 29.2 -1: Personaí and famííy e penses. 19 0- -13333
( íso Sectíon 23(a), Sectíon 29.23 (a)-1; Sectíon L T. 00
23(c), Sectíon 29.23(c)-í.)
INT RN L R NU COD
mounts deducted from empíoyees wages, pursuant to artícíe 9
(known as the dísabíííty benefíts íaw) of the New York workmen s
compensatíon íaw, to províde funds for the payment of benefíts
to empíoyees who are unabíe to work because of ín|ury or síckness
not arísíng out of and ín the course of empíoyment, do not constí-
tute ordínary and necessary busíness e penses under sectíon 23(a)
(1)( ) of the Internaí Revenue Code, nor ta es under sectíon
23(c) (1) of the Code. Such amounts constítute personaí e penses,
and they are not deductíbíe for Federaí Income ta purposes.
dvíce ís requested reíatíve to the deductíbíííty, for Federaí íncome
ta purposes, of amounts deducted from empíoyees wages pursuant
to artícíe 9 (added by Laws of New York, chapter 600, approved príí
13, 19 9), known as the dísabíííty benefíts íaw, of the New York
workmen s compensatíon íaw, whích amounts are used to províde
funds for the payment of benefíts to empíoyees who are unabíe to
work because of ín|ury or síckness not arísíng out of and ín the course
of empíoyment.
The pertínent provísíons of artícíe 9 of the New York workmen s
compensatíon íaw read as foííows:
Sectíon 201. Defínítíons. € ” s used ín thís artícíe:
€ € € € €
. Dísabíííty duríng enpíoyment means the ínabíííty of an empíoyee, as a
resuít of ín|ury or síckness not arísíng out of and ín the course of an empíoy-
ment, to perform the reguía;- dutíes of hís empíoyment or the dutíes of any other
empíoyment whích hís empkyer may offer hím at hís reguíar wages and whích
hís In|ury or síckness does not prevent hím from performíng. Dísabíííty dur-
íng unempíoyment means the ínabíííty of an empíoyee, as a resuít of ín|ury or
síckness not arísíng out of and ín the course of an empíoyment, to perform the _
dntíes of any empíoyment for whích he ís reasonabíy quaíífíed by traíníng and
e períence.
9. enefíts means the money aííowances duríng dísabíííty payabíe to an
empíoyee who ís eíígíbíe to receíve such benefíts, as províded ín thís artícíe.
€ € € €
Sec. 209. Contríbutíon of mpíoyees fob Dísabíííty enefíts. € ” 1. very
empíoyee ín the empíoyment of a covered empíoyer shaíí, on and after anuary
fírst, níneteen hundred fífty, contríbute to the cost of provídíng dísabíííty bene-
fíts under thís artícíe, to the e tent and ín the manner hereín províded.
2. The specíaí contríbutíon of each such empíoyee to the accumuíatíon of
funds to províde benefíts for dísabíed unempíoyed shaíí be as províded ín sub-
dívísíon 1 of sectíon 21 .
3. The contríbutíon of each such empíoyee to the cost of dísabíííty benefíts
províded by thís artícíe shaíí be one-haíf of 1 per centum of the empíoyee s
wages paíd to hím on and after uíy fírst, níneteen hundred fífty, but not ín
e.tcess of 30 cents per week.
. Notwíthstandíng any other provísíon of íaw, the empíoyer Is authorízed to
coííect from hís empíoyees the contríbutíon províded under subdívísíons 2 and
3, through payroíí deductíons. If the empíoyer shaíí not make deductíon
for any payroíí períod he may thereafter, but not íater than one month after
payment of wages, coííect such contríbutíon through payroíí deductíon.
. In coííectíng empíoyee contríbutíons through payroíí deductíons, the em-
píoyer shaíí act as the agent of hís empíoyees and shaíí use the contríbutíons oníy
to províde dísabíííty benefíts as requíred by thís artícíe. €
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29.2 -2.1

Sec. 21 . Specíaí Fund fob Dísabíííty enefíts. € ” There Is hereby created
a fund whích shaíí be known as the specíaí fund for dísabíííty benefíts to pro-
víde for the payment of dísabíííty benefíts under sectíons 207 and 213 of thís
artícíe.
1. For the purpose of accumuíatíng funds for payment of benefíts to the
dísabíed unempíoyed, there ís hereby assessed a contríbutíon at the rate of two-
tenths of 1 per centum of the wages paíd duríng the períod from anuary fírst,
níneteen hundred fífty to une thírtíeth, níneteen hundred fífty íncíusíve, to
empíoyees ín the empíoyment of covered empíoyers on or after anuary fírst, níne-
teen hundred fífty, but not ín e cess of 12 cents per week as to each such em-
píoyee, of whích the empíoyee shaíí contríbute one-tenth of 1 per centum of hís
wages but not ín e cess of 6 cents per week, and the empíoyer shaíí make nn
equaí contríbutíon. The contríbutíons of the empíoyee shaíí be deducted from
hís wages íu the same manner as províded ín sectíon 209. € €
Sectíon 23(a) (1) ( ) of the Internaí Revenue Code provídes ín part
that ín computíng net íncome there shaíí be aííowed as deductíons
aíí the ordínary and necessary e penses paíd or íncurred duríng the
ta abíe year ín carryíng on any trade or busíness. Sectíon 23(c) (1)
of the Code provídes that ín computíng net íncome there shaíí be
aííowed as deductíons ta es paíd or accrued wíthín the ta abíe year,
wíth certaín e ceptíons not here materíaí.
It ís heíd that the amounts deducted by the empíoyer from the wages
of empíoyees, pursuant to the provísíons of artícíe 9 of the New York
workmen s compensatíon íaw, do not constítute ordínary and necessary
busíness e penses wíthín the meaníng of sectíon 23(a) (1) ( ) of the
Internaí Revenue Code, nor ta es wíthín the meaníng of sectíon
23(c)(1) of the Code. Such contríbutíons constítute personaí e -
penses of the empíoyees, and are not deductíbíe ín computíng net
íncome for Federaí íncome ta purposes.
Sectíon 29.2 -1: Personaí and famííy e penses.
Uníforms and work cíothíng not specífícaííy requíred as a condítíon
of empíoyment or whích take the píace of ordínary cíothíng. (See
Mím. 0 63, page 29.)
Geoíogícaí and geophysícaí e píoratíon costs constítute capítaí
e pendítures and are not deductíbíe as busíness e penses under
sectíon 23(a) (1) ( ) of the Internaí Revenue Code. If a property
ís acquíred or retaíned on the basís of geoíogícaí and/or geo-
physícaí data obtaíned from an e píoratíon pro|ect, the cost of the
pro|ect shouíd be capítaíízed as a part of the cost of the property
acquíred or retaíned. If no property ís acquíred or retaíned on the
basís of such data, the cost of the pro|ect ís deductíbíe as a íoss
under sectíon 23 (e) or (f) of the Code.
dvíce ís requested whether, for Federaí íncome ta purposes,
geoíogícaí and geophysícaí e píoratíon costs constítute capítaí e -
pendítures or ordínary and necessary busíness e penses.
It has been heíd that e píoratíon costs are capítaí e pendítures
and are not deductíbíe as busíness e penses under sectíon 23 (a) (1) ( )
INT RN L- R NU COD
Sectíon 29.2 -2: Capítaí e pendítures.
( íso Sectíon 23(e), Sectíon 29.23(e)-í;
Sectíon 23(f), Sectíon 29.23(f)- .)
19 0- -1333
I. T. 006
INT RN L R NU COD
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9
29.2 -2.
of the Internaí Revenue Code and correspondíng provísíons of príor
revenue íaws. (See The Louísíana Land and píoratíon Co. v.
Commíssíoner, 1 T. C. 07, affírmed on other íssues, 161 Fed. (2d)
2; Sehermerhom Oíí Corf oratíon et aí. v. Commíssíoner, 6 . T. .
1 1; Ríaíto Míníng Corporatíon v. Commíssíoner, 2 . T. . 9 0;
0. . Cotton v. Commíssíoner, 2 . T. . 66; Parker Graveí Co.,
Inc., v. Commíssíoner ,21 . T. . 1; C. M. Nusbaum v. Commíssíoner,
10 . T. . 66 ; and Seíetha O. Thompson v. Commíssíoner, 9 . T. .
13 2.) Such costs are íncurred for the purpose of obtaíníng and
accumuíatíng data whích wííí serve as a basís for the acquísítíon or
retentíon of property. In thís connectíon, the term property ís used
ín the sense of ínterest ín a míneraí property, as províded ín sectíon
29.23(m)-í(í) of Reguíatíons 111. ccordíngíy, íf property ís ac-
quíred or retaíned on the basís of data obtaíned from e píoratíon,
costs of e píoratíon attríbutabíe to that property shouíd be capítaíízed
as part of the cost of such property.
It ís customary ín the search for míneraí-producíng propertíes for
an e píorer to conduct hís e píoratíon program by pro|ects, each
pro|ect coveríng oníy that terrítory whích he has determíned by
anaíysís of certaín varíabíes, víz, the síze and topography of the area
to be e píored, e ístíng ínformatíon wíth respect to that area and
nearby areas, and the quantíty of equípment, men, and money avaíí-
abíe, can be e píored advantageousíy as a síngíe íntegrated operatíon.
fter determínatíon of íts area, eacíí pro|ect usuaííy begíns wíth a
reconnaíssance-type survey coveríng the entíre area. The purpose
of thís reíatíveíy íne pensíve survey ís to íocate those portíons of the
pro|ect area whích have the greatest promíse, thus enabííng the e -
píorer to most effectíveíy concentrate the use of hís money and equíp-
ment and the efforts of hís men ín those portíons of the area. ach
such separabíe, noncontíguous portíon of the pro|ect area, ídentífíed
by the reconnaíssance-type survey as possessíng suffícíent míneraí-
producíng potentíaí to merít further e píoratíon, ís an area of ínterest.
Where an e píoratíon pro|ect ís conducted wíthout a preíímínary re-
connaíssance-type survey, the pro|ect area and the area of ínterest
are coe tensíve.
When the areas of ínterest ín an orígínaí pro|ect area have been
íocated by the reconnaíssance-type survey, for the purposes of aíío-
catíng and capítaíízíng costs of further e píoratory operatíons, the
orígínaí pro|ect ís consídered subdívíded ínto as many smaííer pro| cts
as there are areas of ínterest. Sínce each area of ínterest thereafter
constítutes a separate pro|ect, further e píoratory operatíons con-
ducted wíth respect to one area of ínterest are compíeteíy índependent
of those conducted wíth respect to a dífferent area of ínterest aíso
wíthín the orígínaí pro|ect area.
y further e píoratory operatíons (detaííed surveys) conducted
wíth respect to each area of ínterest, the e píorer seeks to ascertaín the
presence or absence of a míneraí deposít ín that area of ínterest. For
that purpose, he empíoys such geoíogícaí and geophysícaí e píoratíon
methods as wííí obtaín subsurface data suffícíentíy accurate to afford
a basís for a decísíon to acquíre or retaín propertíes wíthín or ad|acent
to a partícuíar area of ínterest, or to abandon the entíre area of
ínterest as unworthy of deveíopment by míne or weíí.
If, from the data obtaíned from the reconnaíssance-type survey, oníy
one area of ínterest ís íocated or ídentífíed wíthín the orígínaí pro|ect
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29. 1-3.
0
area, the entíre cost of the reconnaíssance-type survey must be aíío-
cated to that one area of ínterest. If two or more areas of ínterest are
íocated or ídentífíed wíthín the orígínaí pro|ect area, the entíre cost of
the reconnaíssance-type survey must be aííocated equaííy among the
varíous areas of ínterest. Dependíng upon the fínaí dísposítíon of
the area of ínterest to whích ít ís aííocated, each aííocated part of the
cost of the reconnaíssance-type survey wííí be treated as a capítaí e -
pendíture under sectíon 2 (a) (2) of the Internaí Revenue Code or as
a íoss under sectíon 23 (e) or (f) of the Code. If, from the data ob-
taíned by the reconnaíssance-type survey, no areas of ínterest are
íocated or ídentífíed wíthín an orígínaí pro|ect area, the entíre cost of
the reconnaíssance-type survey may be deducted as a íoss under sectíon
23 (e) or (f) of the Code for the year of abandonment of that
partícuíar pro|ect.
Where a detaííed (íntensíve) survey ís conducted wíth respect to a
partícuíar area of ínterest, íf a property ís acquíred or retaíned wíthín
or ad|acent to that area on the basís of the data so obtaíned, the entíre
cost of that detaííed survey píus that portíon of the cost of the prevíous
reconnaíssance-type survey aííocated to such area must be capítaíízed
as a part of the cost of the property so acquíred or retaíned. Where
more than one property ís so acquíred or retaíned wíthín or ad|acent to
an area of ínterest, ít ís proper to aííocate, on an acreage basís, the
entíre cost of the detaííed survey píus that portíon of the cost of the
prevíous reconnaíssance-type survey aííocated to such area among the
propertíes so acquíred or retaíned. Where, on the basís of data ob-
taíned from e píoratíon conducted wíth respect to an area of ínterest,
no property ís acquíred or retaíned wíthín or ad|acent to that area,
the costs of e píoratíon, íncíudíng that portíon of the cost of the
reconnaíssance-type survey aííocated to that area of ínterest, may be
deducted as a íoss for the year ín whích that area of ínterest ís
abandoned as a potentíaí source of míneraí productíon.
Sectíon 29.2-1-2: Capítaí e pendítures.
INT RN L R NU COD
Dístríct of Coíumbía gross saíes ta paíd by purchasers wíth respect
to property purchased for use ín trade or busíness. (See I. T. 00 ,
page 3 .)
P RT I . € ” CCOUNTING P RIODS ND M T ODS OF CCOUNTING
S CTION 1. € ” G N R L RUL
Sectíon 29. 1-3: Methods of accountíng. 19 0-6-1331
( íso Sectíon 2, Sectíon 29. 2-1; Sectíon Mím. 6 7
3, Sectíon 29. 3-1.)
Treatment of bíocked foreígn Income for Federaí íncome ta pur-
poses.
Mímeograph 207 (C. . 19 2-1, ) modífíed.
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1
29. 1-3.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 2 , D. C, March 1,19 0.
Coííectors of Internaí Revenue, Internaí Revenue gents ín Charge
eads of Fíeíd Dívísíons of the Technícaí Staff, and Others Con-
cerned:
1. Numerous ínquíríes have been receíved by the ureau reíatíve to
the proper treatment for Federaí íncome ta purposes of íncome,
eíther ín currency or ín other property, arísíng ín countríes havíng
monetary or e change restríctíons. The e ístence of these restríc-
tíons often makes ít díffícuít for ta payers to ascertaín the vaíue, ín
terms of Uníted States doííars, of the bíocked íncome arísíng ín
countríes havíng such restríctíons.
2. For the purposes of thís mímeograph, the term deferabíe ín-
come ís used to descríbe íncome receíved by, credíted to the account
of, or accrued to a ta payer whích, owíng to monetary e change or
other restríctíons ímposed by a foreígn country, ís not readííy con-
vertíbíe ínto Uníted States doííars or ínto other money or property
whích ís readííy convertíbíe ínto Uníted States doííars. owever, ín-
come ceases to be deferabíe íncome when, to the e tent thereof, (a)
money or property ín such foreígn country ís readííy convertíbíe ínto
Uníted States doííars or ínto other money or property whích ís readííy
convertíbíe ínto Uníted States doííars; (b) notwíthstandíng the
e ístence of any íaws or reguíatíons forbíddíng the e change of money
or property ínto Uníted States doííars, conversíon ís actuaííy made
ínto Uníted States doííars or other money or property whích ís readííy ,
convertíbíe ínto Uníted States doííars; or (c) such íncome ís used for
nondeductíbíe personaí e penses, ís dísposed of by way of gíft, bequest,
devíse, or ínherítance, or by dívídend or other dístríbutíon, or, ín the
case of a resídent aííen, a ta payer termínates hís resídence ín the
Uníted States.
3. ta payer, whether índívíduaí, corporate, or other, may eíect
to use a method of accountíng (sectíons 1- 3, Internaí evenue Code)
ín whích the reportíng of deferabíe íncome as ta abíe íncome ís
deferred untíí the íncome ceases to be deferabíe íncome, at whích
tíme ít ís íncíudíbíe ín gross íncome.
. ta payer who eíects to use thís method of accountíng shaíí fííe
wíth hís Federaí íncome ta return a return headed Report of Defer-
abíe Foreígn Income, pursuant to Mímeograph No. 6 7 , usíng for
thís purpose a separate íncome ta form of the same type as that
wíth whích ít ís fííed. In such return, the ta payer shaíí decíare that
the deferabíe íncome wííí be íncíuded ín ta abíe íncome for the year
ín whích such íncome, to the e tent thereof, ceases to be deferabíe
íncome. In such return, the ta payer shaíí aíso decíare that he
waíves any ríght to cíaím that the deferabíe íncome, or any part
thereof, was íncíudíbíe ín hís gross íncome for any earííer year.
. íí ínformatíon requíred by the return of deferabíe íncome
shaíí be furníshed wíth such adaptatíon to the currency ínvoíved as
may be necessary. If deferabíe íncome ís receíved, credíted, or
accrued to the account of a ta payer ín more than one country, a sep-
arate return shaíí be fííed for each such country. In hís íncome ta
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29. 1-3.
2
return for the ta abíe year ín whích any deferabíe íncome ís íncíud-
íbíe ín ta abíe íncome under the method of accountíng províded for
hereín, the ta payer shaíí íncíude such íncome ín gross íncome and
cíaím the deductíons aííocabíe thereto (as províded ín the subsequent
paragraphs hereof), the íncome thus reported, together wíth such
deductíons, to be verífíed agaínst the returns of deferabíe íncome
prevíousíy fííed.
6. Where the ta payer makes the eíectíon descríbed above, e penses
paíd or accrued or paíd or íncurred ín the currency of the country
ín whích there ís deferabíe íncome are not deductíbíe from the gross
íncome reported ín Uníted States doííars, e cept ín the manner and to
the e tent províded ín sectíon 29. 3-1 (a) of Reguíatíons 111. Thus,
such e penses wííí be deductíbíe ín any subsequent ta abíe year ín
the same proportíon as the deferabíe íncome ís íncíudíbíe ín ta abíe
íncome. The same treatment shaíí be accorded deprecíatíon, obso-
íescence, and depíetíon measured ín terms of such money. Símííaríy,
no credít may be taken for foreígn ta es paíd or accrued wíth respect
to deferabíe íncome e cept ín the manner and to the e tent províded
ín sectíon 29.131-6 of Reguíatíons 111.
7. (a) Under the method of accountíng set forth ín thís mímeo-
graph, the príncípíe ís to be appííed ín generaí that Uníted States
doííar íncome ís not to be burdened wíth costs and dírect e penses ín
Uníted States doííars to the e tent ínvoíved ín the productíon of de-
ferabíe íncome. In appíyíng thís príncípíe, costs ín Uníted States
doííars ínvoíved ín a transactíon any part of the proceeds of whích ís
íncíudíbíe ín deferabíe íncome shaíí, to the e tent not recovered ín
such transactíon, not be taken ínto account ín computíng gross íncome;
and when any part of such deferabíe íncome ceases to be defer-
abíe íncome, ín determíníng the amount of gross íncome to be re-
ported on account thereof, unrecovered costs ín Uníted States doííars
shaíí be appííed agaínst the amount reíeased to the e tent thereof.
The foregoíng ruíe as to costs appííes not oníy to the cost of goods
taken out of ínventory but aíso to the cost (or other basís) of other
assets soíd or e changed. Dírect e penses ín Uníted States doííars ín-
voíved ín a transactíon gívíng ríse to deferabíe íncome shaíí not be
deducted ín computíng net íncome untíí after recovery of costs, íf any,
and then may be deducted, but oníy ín the proportíon whích the part
of the proceeds íncíudíbíe ín gross íncome for the ta abíe year bears
to the proceeds from the transactíon ín e cess of the amount appííed
agaínst costs (or such e penses may, wíth the consent of the Commís-
síoner, be deducted to the e tent that such proceeds are íncíudíbíe ín
gross íncome). The above ruíes may be íííustrated by the e ampíe of a
Uníted States manufacturer whích soíd merchandíse for 2,000 uníts of
the money of a foreígn country. The cost of goods soíd was 700,
and dírect e penses attríbutabíe to the saíe were 100. The manufac-
turer was abíe to convert ínto Uníted States doííars ín the ta abíe year
of the saíe oníy 1, 00 uníts of the foreígn money at the rate of 0. 0
per unít ( 7 0). In such case oníy 0 ís requíred to be íncíuded ín
gross íncome ín such year cn account of the transactíon (the e cess of
7 0 over the cost of 700) and one-sí th of the dírect e penses of 100
ís deductíbíe ín such year (beíng the ratío of the 100 uníts of the foreígn
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3
29. 1-3.
money whích ís refíected ín the 0 gross íncome to the 600 uníts of
such money ín e cess of the 1, 00 uníts appííed agaínst cost).
(b) Notwíthstandíng the ruíes of subparagraph (a), where the
same costs and dírect e penses ín Uníted States doííars are appííed ín
foreígn operatíons ín more than one country (as, for e ampíe, ín the
case of an artícíe e híbíted or círcuíated ín varíous countríes), and
the ta payer ín keepíng íts books does not reguíaríy aííocate such
costs and e penses on a country-by-country basís under a recognízed
method, appíícatíon may be made by the ta payer to the Commíssíoner
for approvaí of an appropríate method for determíníng the e tent to
whích such costs and e penses shaíí be taken ínto account currentíy.
Such appíícatíon shaíí be made wíthín the tíme prescríbed for an ap-
píícatíon for change of accountíng method (see sectíon 29. 1-2 of
Reguíatíons 111), e cept that ín the case of ta abíe years begínníng
príor to anuary 1, 19 0, such appíícatíon may be made on or before
the date of the fírst eíectíon under thís mímeograph (see paragraphs
and 9 of thís mímeograph). Where other specíaí círcumstances
e íst, ruííngs may be made upon request, addressed to the Commís-
síoner, as to the appíícatíon of the method of accountíng prescríbed
ín thís mímeograph.
(c) If and when ít becomes apparent that any foreígn hoídíngs
whích refíect the receípt of deferabíe íncome are substantíaííy worth-
íess, the takíng ínto account for ta purposes of costs and dírect e -
penses pertaíníng thereto and descríbed ín thís paragraph shaíí no
íonger be deferred.
(d) Nothíng contaíned ín thís mímeograph shaíí be construed as
passíng on the questíon of whether e pendítures attríbutabíe to foreígn
operatíons constítute ordínary and necessary busíness e penses.
. Where the ta payer adopts the method of accountíng províded
for by thís mímeograph, íosses shaíí aíso be taken ínto account under
the ruíes for deferment str ted hereín.
9. The provísíons of thís mímeograph wííí be appíícabíe to aíí open
ta abíe years. The ta payer shaíí desígnate the fírst open ta abíe
year for whích the method of accountíng províded hereín shaíí be
used. If such fírst ta abíe year ís a príor ta abíe year, the report
(prescríbed ín paragraph number , above) for such year and for each
of the ínterveníng ta abíe years ín order shaíí be fííed wíth the ta -
payer s íncome ta return when the eíectíon ís made as províded ín such
paragraph .
10. ta payer who adopts such method of accountíng shaíí, before
makíng any change or varíatíon thereín, secure the consent of the
Commíssíoner.
11. Mímeograph 297 (C. . 19 2-1, ) ís modífíed to accord
herewíth.
12. Correspondence and ínquíríes from the foííowíng regardíng thís
mímeograph shouíd refer to íts number and to the symboís índícated:
Coííectors of ínternaí revenue, C: Coí; ínternaí revenue agents ín
charge, IT: IM; heads of fíeíd dívísíons of the Technícaí Staff,
TS: RM.
G O. . SC O N M N,
Commíssíoner.
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29. 2-1.

Sectíon 29. 1-3: Methods of accountíng. 19 0- -1333
( íso Sectíon 2, Sectíon 29. 2-1; Sectíon Mím. 6 9
3, Sectíon 29. 3-1.)
mendment of Mímeograph 6 7 (page 0, tííís uííetín), reíatíng
to treatment of bíocked foreígn íncome for Federaí íncome ta
purposes.
Treasuky Department,
Offíce of Commíssíoner or Internaí Revenue,
Washíngton 2 , D. C, March 27,19 0.
Coííector s of Internaí Revenue, Internaí Revenue gents ín Charge,
eads of Fíeíd Dívísíons of the Technícaí Staff, and Others
Concerned:
1. Paragraph 7( ) of Mímeograph 6 7 (page 0, thís uííetín),
dated March 1,19 0, ís amended to read as foííows:
(6) (1) Where the same costs and dírect e penses ín Uníted States doííars are
appííed ín foreígn operatíons ín more than one country (as, for e ampíe, ín the
case of an artícíe e híbíted or círcuíated ín varíous countríes), and the ta payer
ín keepíng íts books does not reguíaríy aííocate such costs and e penses on a
country-by-country basís under a recognízed method, the ta payer shouíd, ín
an reports of deferabíe foreígn íncome fííed ín accordance wíth the provísíons
of paragraph , make such aííocatíon. The method of aííocatíon wííí be sub|ect
to verífícatíon and approvaí by the Commíssíoner upon e amínatíon of the returns
and reports of deferabíe foreígn íncome for the ta abíe years ínvoíved.
(2) Where specíaí círcumstances e íst, ruííngs may be made upon request,
addressed to the Commíssíoner, as to the appíícatíon of the method of accountíng
prescríbed ín thís mímeograph.
Fred S. Martín,
ctíng Commíssíoner.
S CTION 2. € ” P RIOD IN W IC IT MS OF GROSS
INCOM INCLUD D
Sectíon 29. 2-1: When íncíuded ín gross íncome.
INT RN L R NC COD
íocked foreígn íncome. (See Mím. 6 7 , page 0.)
Sectíon 29. 2-1: When íncíuded ín gross íncome.
INT RN L R NU COD
íocked foreígn íncome. Mímeograph 6 7 (page 0, thís uííetín)
amended. (See Mím. 6 9 , above.)
Sectíon 29. 2-1: When íncíuded ín gross íncome.
INT RN L R NU COD
aíue of ímprovements píaced upon reaí property by íessee. (See
I. T. 009, page 13.)
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29. 3-2.
S CTION 3. € ” P RIOD FOR W IC D DUCTIONS
ND CR DITS T N
Sectíon 29. 3-1: Paíd or íncurred and paíd
or accrued.
INT RN L R NU COD
penses attríbutabíe to bíocked foreígn íncome. (See Míní. 6 7 ,
page 0.)
Sectíon 29. 3-1: Paíd or íncurred and paíd
or accrued.
INT RN L R NU COD
penses attríbutabíe to bíocked foreígn íncome. Mímeograph
6 7 (page 0, thís uííetín) amended. (See Mím. 6 9 , page .)
Sectíon 29. 3-2: When charges deductíbíe. 19 0- -13290
. I. T. 399
INT RN L R NU COD
Where íand has been soíd to the State of Míchígan for deíínquent
ta es, a íoss sustaíned by a property owuer who faíís to redeem such
íand and does not e ercíse hís ríght to repurchase under the scav-
enger saíe provísíons of Míchígan íaw ís deductíbíe, for Federaí
íncome ta purposes, for the year ín whích such ríght to repurchase
termínates.
I. T. 3 0 (C. . 10 1-1, 2 1) revoked.
Reconsíderatíon has been gíven to the íssue ínvoíved ín I. T. 3 0
(C. . 19 1-1, 2 1) ín the ííght of the decí síons ín Mícheíson Land C
ome Co. v. Commíssíoner (Ta Court memorandum opíníon, decí-
síon entered ugust 31, 19 9) and F. P. . Notehoíders Corporatíon
v. Commíssíoner ( T. C. 72, acquíescence, page 2, thís uííetín;
affírmed, 1 7 Fed. (2d) 9 2).
In I. T. 3 0, supra, ít was heíd that where a property owner sustaíns
a íoss by reason of faííure to redeem íand soíd to the State of Míchígan
for deíínquent ta es, hís íoss ís deductíbíe, for Federaí íncome ta pur-
poses, for the ta abíe year duríng whích the 1 -month períod for
redemptíon e píres. In the Mícheíson case, supra, the Ta Court,
foííowíng íts prevíous decísíon ín the F. P. . Notehoíders case, supra,
heíd ín effect that the tíme for deductíon of íoss was not the year ín
whích the 1 -month redemptíon períod e píred but was the year ín
whích the ríght to repurchase under the scavenger saíe provísíons
of Míchígan íaw (see Mích. Stat. nn. (19 7 Cum. Supp.), sectíon
7.9 7) was termínated. The decísíon ín the Mícheíson case ís, there-
fore, ín dírect confííct wíth the concíusíon stated ín I. T. 3 0, supra.
In víew of the foregoíng, ít ís heíd that where íand has been soíd
to the State of Míchígan for deíínquent ta es, a íoss sustaíned by a
property owner who faíís to redeem such íand and does not e ercíse
hís ríght to repurchase under the scavenger saíe provísíons of Mích-
ígan Taw ís deductíbíe, for Federaí íncome ta purposes, for the year
ín whích the ríght to repurchase termínates. ccordíngíy, I. T. 3 0,
supra, ís revoked.
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29. 3-2.
0
G. C. M. 19367 (C. . 1937-2, 11 ) ís not affected by the above-
stated concíusíon. The opíníon e pressed ín that memorandum es-
tabííshes a generaí ruíe wíth respect to mortgage forecíosures, whereas
the ínstant íssue reíates to ta saíes of íand to the State of Míchígan.
P T . € ” R TURNS ND P YM NT OF T
S CTION 3. € ” TIM ND PL C FOR FILING
R TURNS
Sectíon 29. 3-2: tensíons of tíme for fíííng 19 0-7-13322
returns. Mím. 6 2
tensíon of tíme for fíííng íncome ta returns of íífe Insurance
companíes for the caíendar year 1919.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 2 , D. C, March 6,19 0.
Coííectors of Internaí Revenue, Internaí Revenue gents ín Charge,
and Others Concerned:
1. . . Res. 371, whích was passed by the ouse of Representatíves
on anuary 26, 19 0, and was referred to the Senate Commíttee on
Fínance on anuary 30, 19 0, proposes an amendment to the formuía
used ín computíng the reserve and other poíícy ííabíííty credít of íífe
ínsurance companíes for a ta abíe year begínníng ín 19 7, 19 , and
19 9.
2. In víew of such proposed íegísíatíon, a generaí e tensíon of tíme
ís hereby granted to aíí íífe ínsurance companíes, as defíned ín sectíon
201(b) of the Internaí Revenue Code, to and íncíudíng May 1 , 19 0,
for fíííng íncome ta returns for the caíendar year 19 9. Thís e ten-
síon of tíme ís granted under the authoríty of sectíon 3(a) (2) of the
Code.
3. Correspondence ín regard to thís mímeograph shouíd refer to íts
number and the symboís IT: IM.
Geo. . Scííoeneman,
Commíssíoner.
Sectíon 29. 3-2: tensíons of tíme for fíííng 19 0-11-13363
returns. Mím. 6 03
( íso Sectíon 6, Sectíon 29. 0-2.)
tensíon of tíme for fííín íncome ta returns of íífe ínsurance
companíes for the caíendar year 19 9.
Mímeograph C S2 (above) superseded.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 2 , D. C, May ,19 0.
Coííectors of Internaí Revenue, Internaí Revenue gents ín Charge,
and Others Concerned:
1. . . Res. 371, whích proposes an amendment to the formuía used
ín computíng the reserve and other poíícy ííabíííty credít of íífe ínsur-
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7
29.109-1.
ance companíes, was passed by the ouse of Representatíves on anu-
ary 26, 19 0, was amended and passed by the Senate on príí 13,
19 0, and was sent to conference on príí 17, 19 0, for consíderatíon
of Senate amendments. The |oínt resoíutíon, as amended, provídes
a specíaí ruíe wíth respect to ta abíe years begínníng ín 19 9 and 19 0.
2. In víew of such proposed íegísíatíon, a generaí e tensíon of tíme
ís hereby granted to aíí íífe ínsurance companíes, as defíned ín sectíon
201(b) of the Internaí Revenue Code, to and íncíudíng uíy 1 , 19 0,
for the fíííng of íncome ta returns and payment of the ta for the
caíendar year 19 9. Thís e tensíon of tíme ís granted under the
authoríty of sectíons 3(a) (2) and 6(c) (1) of the Internaí Revenue
Code.
3. Thís mímeograph supersedes Mímeograph 6 2 (page 6, thís
uííetín) whích granted a generaí e tensíon of tíme for the fíííng of
íncome ta returns by íífe ínsurance companíes to and íncíudíng May
1 , 19 0.
. Correspondence ín regard to thís mímeograph shouíd refer to
íts number and the symboís IT: IM.
Geo. . Scííoeneman,
Commíssíoner.
S CTION 6. € ” P YM NT OF T
Sectíon 29. 6-2: tensíon of tíme for payment
of the ta or ínstaííment thereof.
INT RN L R NU COD
Lífe ínsurance companíes for 19 9. (See Mím. 6 03, page 6.)
SU C PT R C € ” SUPPL M NT L PRO ISIONS
SUPPL M NT . € ” R T S OF T
S CTION 109. € ” W ST RN MISP R TR D
CORPOR TIONS
Sectíon 29.109-1: Western emísphere trade 19 0-1-13270
corporatíons. I. T. 3990
INT RN L R NU COD
domestíc corporatíon aíí of the busíness of whích ís done ín
ermuda cannot quaíífy as a Western emísphere trade corpora-
tíon for the purpose of sectíon 109 of the Internaí Revenue Code.
dvíce ís requested whether a domestíc corporatíon aíí of the busí-
ness of whích ís done ín ermuda can quaíífy as a Western emí-
sphere trade corporatíon under sectíon 109 of the Internaí Revenue
domestíc corporatíon whích quaíífíes as a Western emísphere
trade corporatíon under the provísíons of sectíon 109 of the Internaí
Revenue Code ís e empt from the surta ímposed by sectíon 1 (b) of
the Code on corporatíons generaííy. Sectíon 109 of the Code provídes
ín part as foííows:
93 0 € ” 0
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29.117-1.

S C. 109. W ST RN MISP R TR D CORPOR TIONS.
For the purposes of thís chapter Chapter 1 of the Code , the term Western
emísphere trade corporatíon means a domestíc corporatíon aíí of whose busí-
ness ís done ín any country or countríes ín North, Centraí, or South meríca,
or In the West Indíes, or ín Newfoundíand € €
Inasmuch as sectíon 109 of the Code, ín defíníng the term Western
emísphere trade corporatíon, specífícaííy desígnates the geographí-
caí areas ín whích busíness ís to be carríed on, aíí other geographícaí
areas are necessarííy e cíuded. dmíttedíy, ermuda ís wíthín the
geographícaí íímíts of the Western emísphere, but ít ís not part of
contínentaí North, Centraí, or South meríca, nor ís ít part of the
West Indíes or of Newfoundíand.
It ís heíd that a domestíc corporatíon aíí of the busíness of whích
ís done ín ermuda cannot quaíífy as a Western emísphere trade
corporatíon for the purpose of sectíon 109 of the Internaí Revenue
Code.
SUPPL M NT . € ” COMPUT TION OF N T INCOM
S CTION 113(a). € ” D UST D SIS FOR D T RMINING
G IN OR LOSS: SIS (UN D UST D) OF PROP RTY
Sectíon 29.113(a) ( )-í: Property acquíred by
a corporatíon after December 31,1920.
INT RN L R NU COD
Property receíved as índucement to operate ín the communíty. (See
Ct. D. 1731, page 3 .)
S CTION 117. € ” C PIT L G INS ND LOSS S
Sectíon 29.117-1: Meaníng of terms. 19 0-10-133 3
G. C. M. 26379
INT RN L revenue code and príor revenue íaws
The saíe of a partnershíp ínterest ís a saíe of a capítaí asset whích
ís sub|ect to the provísíons of sectíon 117 of the Internaí Revenue
Code.
G. C. M. 10092 (C. . I-1,11 (1932)) revoked.
n opíníon ís requested whether, for Federaí íncome ta purposes,
the ureau shouíd contínue to treat a saíe of a partnershíp ínterest as
a saíe of the seíííng partner s undívíded ínterest ín each specífíc part-
nershíp asset.
The overwheímíng weíght of authoríty ís contrary to the posítíon
heretofore taken by the ureau, víz, that the saíe of a partnershíp
ínterest ís a saíe of the seíííng partner s undívíded ínterest ín each
specífíc partnershíp asset. (See dam essíer, r., v. Uníted States,
12 Fed. (2d) 1 2; Commíssíoner v. Morrís Shapíro, 12 Fed. (2d)
32; George 27. Thorníey et u . v. Commíssíoner, 1 7 Fed. (2d) 16;
Commíssíoner v. state of Daníeí Gartííng et at., 170 Fed. (2d) 73;
Commíssíoner v. íían S. Lehman, 16 Fed. (2d) 3 3, certíorarí de-
níed, 33 U. S. 19; Commíssíoner v. 27. R. Smíth, 173 Fed. (2d) 70,
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29.122-2.
certíorarí derííed, October 10, 19 9; L. F. Long v. Commíssíoner, 173
Fed. (2d) 71, certíorarí deníed, October 10, 19 9; Ma Shapíro v.
Uníted States, 3 Fed. Supp. 37 ; contra: Cíty ank Farmers Trust
Co. et aí. ousman Wííí) v. Uníted Síates, 7 Fed. Supp. 9 .) See
aíso Robert . Ford et aí. v. Commíssíoner (6 T. C 99, acquíescence,
C. 13.19 G-2,2) whereín the court (consístent wíth the víews e pressed
ín the above-cíted cases that a partnershíp ínterest ís a capítaí asset
and that gaín or íoss reaíízed upon the saíe of such an ínterest ís capítaí
gaín or íoss) heíd that the basís for computíng gaín or íoss on an asset
purchased by a partnershíp and soíd after the retírement of one of the
partners was the orígínaí cost of such asset when acquíred by the fírm.
It ís accordíngíy the opíníon of thís offíce that the saíe of a partner-
shíp ínterest shouíd be treated as the saíe of a capítaí asset under the
provísíons of sectíon 117 of the Internaí Revenue Code. The appííca-
tíon of thís ruíe shouíd, of course, be íímíted to those cases ín whích the
transactíon ín substance and effect, as dístínguíshed from form and
appearance, ís essentíaííy the saíe of a partnershíp ínterest. (See
state of erbert . atch et aí. v. Commíssíoner, 1 T. C. 2 1.) For
e ampíe, payments made to a retíríng partner whích represent hís
dístríbutíve share of earníngs for past servíces shouíd be treated as
ordínary íncome rather than the proceeds deríved from a saíe of hís
ínterest. (See eíveríng v. eber Smíth, 90 Fed. (2d) 90; Ct. D.
1297, C. . 193 -1, 277; Ríchard S. Doyíe v. Commíssíoner, 102 Fed.
(2d) 0; ames Wesíey Mc fee et v . v. Commíssíoner, 9 T. C. 720.)
See aíso Commíssíoner v. George Whítney et aí. (169 Fed. (2d) 62;
Ct. D. 1719, C. . 19 9-1,70, certíorarí deníed, 33 U. S. 92) whereín
the court-heíd that sectíon 2 (b) (1) ( ) of the Internaí Revenue Code
precíuded the índívíduaí partners from deductíng capítaí íosses resuít-
íng from theír saíe of the partnershíp property to a corporatíon more
than a ma|oríty of the stock of whích was owned by them.
G. C. M. 10092 (C. . I-1,11 (1932)) ís hereby revoked. Other
opíníons of thís offíce to the e tent ínconsístent wíth the víew that a
partnershíp ínterest ís a capítaí asset are modífíed to conform herewíth.
Charíes Oííphant,
Chíef Counseí, ureau of Internaí Revenue.
S CTION 122. € ” N T OP R TING LOSS
D DUCTION
Sectíon 29.122-2: Computatíon of net operat- 19 0-3-132 6
íng íoss ín case of corporatíon. Ct. D. 172
INCOM T € ” INT RN L R NU COD € ” D CISION OF SUrR M COURT
1. Gnoss Income € ” Deductíons € ” Net Operatínq Losses € ” Carry-
over € ” Computatíon To e Made Under Statute ín ffect
Duríng Tear of Loss.
Id. 19 1 petítíoner corporatíon sustaíned a íoss resuítíng from the
worthíessness of the stock of a whoííy owned suhsídíary. Thís íoss
was a íong-term capítaí íoss under sectíon 23(g) of the Internaí ííevc-
nue Code, the íaw appíícabíe ín 19 1. Petítíoner contends that
aíthough íts íoss was Incurred ín 19 1, determínatíon of the amount
of net operatíng íoss was postponed untíí 19 2, when ít sought to
carry over and deduct such net operatíng íoss, and that the 19 2
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S 29.122-2.
CO
statute, whích amended sectíon 23(g) of the Code to make such a
íoss as that suffered by petítíoner an ordínary rather than a capítaí
íoss, therefore governs that determínatíon. eíd: In the computa-
tíon of net operatíng íoss, the governíng statutes are those ín effect
duríng the ta abíe year when the transactíon occurred. The amount
of net operatíng íoss whích may be utííízed as a carry-over or carry-
back and the e tent to whích ít may be used as an offset to net
íncome ín another year depend upon the íaw of the year ín whích the
carry ís effectíve, whííe the net operatíng íoss deductíon whích may
be taken ín any one year depends upon the íaw ín effect duríng that
year.
2. Decísíon ffíbmed.
Decísíon of the Uníted States Court of ppeaís, Sí th Círcuít (170
Fed. (2d) 1001 (19 )), affírmíng decísíon of the Ta Court (9 T. C.
31 ), affírmed.
SíTP M COU T OF í UNIT D ST T S
Reo Motors, Inc., petítíoner, v. Commíssíoner of Internaí Revenue
On wrít of certíorarí to the Uníted States Court of ppeaís for the Sí th Círcuít
anuary 9, 19 0
OPINION
Mr. Chíef ustíce ínson deíívered the opíníon of the Court
n asserted confííct between the decísíon beíow and that of the Court of
ppeaís for the Fífth Círcuít ín Commíssíoner v. Moore, Inc., 1 1 Fed. (2d) 27,
made thís an appropríate case for our revíew on wrít of certíorarí.1 recítaí
of the facts must precede defínítíon of the íssue.
Petítíoner ís a Míchígan corporatíon engaged ín the manufacture of motor
vehícíes. On February 1, 19 1, Reo Saíes Corp., a whoííy owned subsídíary,
was díssoíved and aíí of íts assets, sub|ect to aíí íts ííabííítíes, were transferred
to petítíoner. t the date of díssoíutíon, Reo Saíes was Indebted to petítíoner
ín an amount greater than the vaíue of íts net assets. Consequentíy, íts stock,
whích had an ad|usted basís ín petítíoner s hands of 1, 1,902.79, was worthíess.
Thís íoss was a íong-term capítaí íoss under the íaw appíícabíe ín 19 1. It
was so cíaímed by petítíoner and aííowed by the Commíssíoner.
Petítíoner reaíízed no gaíns from the saíe or e change of capítaí assets ín
19 1. Its gross íncome amounted to 2, 73,239. 9, whííe aííowabíe deductíons
under Chapter 1 of the Internaí Revenue Code, e cíusíve of the capítaí íoss
on Reo Saíes stock, amounted to ,f2 21 ,727.0 . Wíth the Reo Saíes stock íoss
íncíuded, petítíoner s aííowabíe deductíons e ceeded íts gross íncome by
1,19 ,309.9 .
Under the ta íaws appíícabíe ín 19 1, petítíoner s capítaí íoss on Reo Saíes
stock couíd not have been utííízed as a net operatíng íoss to be carríed over to
subsequent years. Sectíon 122(a) of the Code defínes net operatíng íoss as
the e cess of the deductíons aííowed by thís chapter over the gross íncome,
wíth the e ceptíons and íímítatíons províded ín subsectíon (d). The e cep-
tíons outííned ín sectíon 122(d) íncíuded the foííowíng, whích ís pertínent here:
( ) Long-term captaí gaíns and íong-term capítaí íosses shaíí be taken
ínto account wíthout regard to the provísíons of sectíon 117(b). s so
computed the amount deductíbíe on account of íons-term capítaí íosses shaíí
not e ceed the amount íncíudíbíe on account of íong-term capítaí gaíns, and
the amount deductíbíe on account of short-term capítaí íosses shaíí not
e ceed the amount íncíudíbíe on account of short-term capítaí gaíns;

1 337 U. S. 923.
1 Sectíon 23(s) of the Internaí Revenue Coííe, 26 D. S. C. sectíon 23(g).
Sectíon 122 (a) was amended by sectíon 10 (e) (3) of the Revenue ct of 19 2 to read
€ w|th the e ceptíons, addítíons, and íímítatíons províded In subsectíon (d).
Sectíon 122(d) ( ) was amended by sectíon 1 0(e) of the Revenue ct of 19 2 to read
as foííows:
( ) Gaíns and íosses from saíes or e changes of capítaí assets shaíí be taken Into
account wíthout regard to the provísíons of sectíon 117(b). s so computed the amount
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29.122-2.
Sínce petítíoner reaíízed no íong-term capítaí gaíns ín 19 1, íts íong-term capítaí
íoss on the eo Saíes stock couíd not enter ínto the computatíon of net operatíng
íoss.
In the Revenue ct of 19 2, sectíon 23(g) of the Code, whích defínes capítaí
íosses, was amended by addíng subsectíon ( ). Thís amendment had the prac-
tícaí effect of makíng íosses such as that suffered by petítíoner In the díssoíutíon
of Reo Saíes Corp. ordínary rather than capítaí íosses. Under 19 2 íaw, there-
fore, the e ceptíon set out ín sectíon 122(d) ( ) ís ínappíícabíe, and a íoss of
thís kínd may enter ínto the computatíon of net operatíng íoss.
It ís petítíoner s contentíon, refíected ín íts 19 2 íncome ta returns, that aí-
though íts íoss ín the ííquídatíon of Reo Saíes Corp. was íncurred ín 19 1,
determínatíon of the amount of net operatíng íoss was postponed untíí 19 2, when
ít sought to carry over and deduct such net operatíng íoss, and that the 19 2
statutes therefore govern that determínatíon. Sínce, under the 19 2 statutes,
íts íoss on Reo Saíes stock was an ordínary íoss, ít cíaíms the ríght to íncíude
that íoss ín the computatíon of net operatíng íoss for carry-over and deductíon
from gross íncome ín 19 2. Whííe sectíon 101 of the Revenue ct of 19 2 pro-
vídes that cept as otherwíse e pressíy províded, the amendments made by
thís títíe shaíí be appíícabíe oníy wíth respect to ta abíe years begínníng after
December 31,19 1. petítíoner contends that thís símpíy means that such amend-
ments shaíí be appíícabíe oníy ín computíng ía ííabíííty for ta years after
December 31, 19 1.
The íssue ís, therefore, whether, ín the computatíon of net operatíng íoss, the
governíng statutes are those ín effect duríng the year when the transactíon
occurred (19 1), or whether the statutes ín effect duríng the year when the net
operatíng íoss deductíon ís taken (19 2) are controíííng. The Commíssíoner s
dísaííowance of petítíoner s net operatíng íoss deductíon ín 19 2 was upheíd
hy the Ta Court, 9 T. C. 31 . and the court of appeaís affírmed, 170 Fed. (2d)
1001.
We thínk that a net operatíng íoss must be computed on the basís of the ta
íaws appíícabíe to the year ín whích the íoss was suffered. What petítíoner seeks
here ís not the kínd of reííef whích the statute was desígned to grant It asks
that the carry-over sectíon be used as a vehícíe by whích ít may take advantage
of changes ín the ta íaws ín years after the ta abíe event has occurred. We
fínd nothíng ín the íanguage or íegísíatíve hístory of the statutes to |ustífy such
an ínterpretatíon.
The scheme of the statute ís thís: Sectíon 23(s) of the Code permíts as a
deductíon from gross íncome the net operatíng íoss deductíon computed under
sectíon 122. The amount of that deductíon ís determíned ín three separate
steps. Fírst, the net operatíng íoss ís determíned. Sectíon 122(a) provídes
the defínítíon and method of computatíon of net operatíng íoss, specífícaííy pro-
vídíng that the e ceptíons and íímítatíons of sectíon 122(d) are appíícabíe ín íts
computatíon. Second, net operatíng íoss havíng been determíned, the amount
and e tent to whích ít may be utííízed ns a carry-over ís set out ín sectíon
122(b)(2), and as a carry-back ín sectíon 122(b)(1). Fínaííy, the amount
deductíbíe on nccount of such íosses shaíí not e ceed the amount Incíudíbíe on account
ofsueíí gaíns.
It was thís amendment that was ínvoíved ín Commíssíoner . ííoore, 1 1 Fed. (2d) 27.
In 1S 1 Moore bad a íong-term capítaí íoss of 17,02 and short-term capítaí gaíns of
2, . Under sectíon 122(d)( ) as It stood In 19 1 (see te t, supra). Inns-term capítaí
íosses couíd not be deducted from short-term capítaí saíns ín computíng net operatíng
íosses, whííe under the 10 2 amendment the dístínctíon between Ions and short-term
ranítaí íosses was wíthdrawn. Ta payer therefore had no net operatíng íoss ín 19 1, but
naííer the 19 2 statute he wouíd have had such a íoss to the e tent of hís short-term capítaí
Wín of 2, . The Court of ppeaís for the Fífth Círcuít approved such an offset ín
the computatíon of net operatíng íoss to be carríed over to 19 2 and deducted ín that year,
that decísíon ís obvíousíy Inconsístent wíth the víew we take of the statute and must
be dísapproved.
Subsectíon ( ). whích was added by sectíon 123(a)(1) of the Revenue ct of 19 2,
Provídes that for the purpose of determíníng capítaí íosses, stock ín a corporatíon affíííated
Wtn the ta payer shaíí not be deemed n capítaí asset. ffíííatíon ís defíned ín terms
taat cíearíy comprehend petítíoner s ownershíp of Reo Saíes Corp.
See n. R. Rept. No. 3 , 76th Cong.. 1st sess. (1939) C. . 1939-2, 0 ; S. Rept.
. 1631. 77th Cong.. 2d sess. (19 2) C. . 19 2-2. 0 .
– (a) Defínítíon of Net Operatíng Loss. € ” s used
€ ” ed In thís sectíon, the term net
operatíng íoss means the e cess of the deductíons aííowed bv thís chapter over the gross
a|ara16 Wítb thC e ccPtíons and íímítatíons províded In subsectíon (d). See note 3,
(2) Net operatíng íoss carry-over. € ” If for any ta abíe year the ta payer has a
ft operatíng íoss, such net operatíng íoss sííaíí be a net operatíng íoss carrv-ove r for each
the two succeedíng ta abíe years, e cept that the carry over ín the case of the second
succeedíng ta abíe year shaíí be the e cess, íf any, of the amount of bucIí net operatíng
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29.122-2.
62
whích may actuaííy be deducted from gross Income under sectíon 23(s) Is com-
puted under the terms of sectíon 122(c) That sectíon provídes for the aggre-
gatíon of permíssíbíe carry-overs and carry-backs and the appíícatíon of certaín
ad|ustments thereto.
The startíng poínt ís thus the determínatíon of net operatíng íoss under sec-
tíon 122(a). We may poínt bríefíy to severaí círcumstances whích, we thínk,
requíre a hoídíng that net operatíng íoss must be computed soíeíy wíth reference
to the statutes ín effect duríng the year when the íoss occurred.
Fírst, under petítíoner s theory, the net operatíng íoss sustaíned In any gíven
year wouíd not be a fí ed amount but wouíd vary from year to year dependíng
upon changes ín the ta íaws. ut sectíon 122(a) defínes net operatíng íoss as
the e cess of the deductíons aííowed by thís chapter over the gross íncome.
Cíearíy, determínatíon of the amount of gross íncome and of aííowabíe deductíons
for any gíven year must depend upon the ta statutes ín effect duríng that year.
If, as petítíoner contends, 19 2 íaw governs aíthough the íoss occurred In 19 1,
ít ís díffícuít to see why the whoíe of íts 19 1 operatíons, and pot mereíy the Reo
Saíes ííquídatíon, shouíd not be recomputed on the basís of the íncome and
deductíon provísíons appíícabíe ín 19 2. Petítíoner does not suggest such a
recomputatíon, ín spíte of the fact that the terms ín whích net operatíng íoss Is
defíned € ” gross Income and deductíons aííowed by thís chapter € ” are equaííy
appíícabíe ín the computatíon of íncome ta es generaííy. nd even íf a dístínc-
tíon couíd be drawn, so far as appíícabíe íaw ís concerned, between computatíon
of net operatíng íoss and computatíon of ordínary ta ííabíííty, we shouíd thínk
It straíned and anomaíous to read sectíon 122(a) as defíníng net operatíng íoss
ín thís case as the e cess of the deductíons aííowed for 19 2 íncomes over the
gross íncome earned ín 19 1 but computed accordíng to 19 2 íaw.
Furthermore, the íanguage of sectíon 122(b) negatíves the contentíon that net
operatíng íoss for any gíven year ís not a fí ed amount but varíes dependíng upon
the íaw ín effect duríng the year when the deductíon Is taken. Sectíon 122(b) (2),
for e ampíe, states that íf for any ta abíe year the ta payer has a net operatíng
íoss, such net operatíng íoss shaíí be a carry-over for the two succeedíng
years. Under petítíoner s ínterpretatíon, such net operatíng íoss for any
ta abíe year may be dífferent amounts at dífferent tímes. nd, as ín thís case,
what was no net operatíng íoss at aíí for the year when the event occurred be-
comes a íoss for that year through subsequent changes ín the statutes. Símííaríy,
ín some cases In whích the ta payer bad net Income for the year under con-
troíííng íaw, subsequent changes ín the íaw míght produce a net operatíng íoss
for that year íf petítíoner s constructíon of the statute prevaííed. We fínd no
warrant for the víew that Congress Intended that a statute desígned to equnííze
ta burdens shouíd be used to produce net íosses where none had prevíousíy
e ísted.
We aíso agree wíth the court beíow that the words of sectíon 101 of the Revenue
ct of 19 2, whích states that the amendments enacted thereín shaíí be appíí-
cabíe oníy wíth respect to ta abíe years begínníng after December 31, 19 1,
cannot be read to mean shaíí be appíícabíe oníy ín computíng ta ííabíííty for
ta abíe years begínníng after December 31. 19 1. To appíy sectíon 23(g) ( )
to estabíísh a net operatíng íoss ís cíearíy to appíy the 19 2 amendment wíth
respect to 19 1, contrary to the statute.
Petítíoner fínds comfort ín the fact that the 192 ,1926, 192 , and 1932 Revenue
cts, whích permítted the carry-over of net íoss from an earííer year, e pressíy
províded that such net íoss shouíd be computed under the íaw ín effect duríng
the earííer períod, whííe the present Code contaíns no such provísíon. Two
observatíons may be made: fírst, that ín revívíng carry-overs ín 1939 after a
íoss over the net íncome for the ínterveníng ta abíe year computed ín snch
a way that the carry-over must be used to offset certaín nonta abíe, as weíí as ta abíe.
Income. Sectíon 122(b) (1) Is símííar In íanguage and theory.
(c) mount or Net Opebatínq Loss Deductíon. € ” The amount of the net operatíng
íoss deductíon shaíí be the aggregate of the net operatíng íoss carry-overs and of the net
operatíng íoss carry-backs to the ta abíe year reduced by the amount, íf any, by whích
the net Income (computed wíth the e ceptíons and íímítatíons províded ín Rubsectíon (d)
(1) (2) (3) and ( )) e ceeds, € € € In the case of a corporatíon, the normaí-ta
net íncome (computed wíthout such deductíon and wíthout the credít províded In sectíon
26(e)): € € €
In commentíng upon a símííar possíbíííty ín connectíon wíth the net íoss provísíons
of the Revenue ct of 192 , the ouse Commíttee on Ways and Means stated: If capítaí
íosses were aííowed as a deductíon ín computíng the net íoss, ít wouíd resuít In the
anomaíous sítuatíon of a ta payer payíng a ta In one year but at the same tíme havíng
a net íoss whích he couíd carry over as a deductíon ín computíng the ta for the subse-
quent year. . R. Rept. No. 179, G th Cong., ístsess. (192 ) C. . 1939-1 (Part 2), 2 1 .
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29.131-1.
7-year íapse, Congress patterned the new statute generaííy on the príor practíce
wíthout any suggestíon of change ín thís partícuíar; and second, that whííe
such e press provísíons were appropríate ín Revenue cts príor to the Code, when
the íaw of a príor year was of no effect when superseded by a new ct uníess
specífícaííy made appíícabíe, the present Code has contínuous appíícatíon, and
íncorporatíon of prevíous statutes ís unnecessary. Instead, the oíd provísíons
remaín ín effect for príor years, and generaí provísíons, such as sectíon 101 of
the 1I 2 ct, gíve amendments prospectíve appíícatíon oníy, uníess otherwíse
specífícaííy províded.
The resuít ís that net operatíng íoss must be computed soíeíy on the basís
of the statutes ín effect duríng the ta abíe year when the íoss was íncurred.
Oníy íf such a íoss e ísts under those statutes wííí a ta payer have anythíng
that may be carríed over or back. Sectíon 122 (a) and (d). The amount of
net operatíng íoss whích may be utííízed ns a carry-over or carry-back and the
e tent to whích ít may be used as an offset to net íncome ín another yenr depend
upon the íaw of the year ín whích the carry ís effectíve, sectíon 122(b), whííe
the net operatíng íoss deductíon whích may be taken ín any one year depsnds
upon the íaw ín effect duríng that year. Sectíons 23(s) and 122(c).
Wíth respect to petítíoner s other contentíons, ít ís suffícíent to say that they
ígnore the tríchotomy píaíníy estabííshed wíth respect to sectíon 122: determína-
tíon of net operatíng íoss; determínatíon of the amount and e tent of carry-over
and carry-back ; and determínatíon of net operatíng íoss deductíon. The decísíon
of the court of appeaís ís
ffírmed.
Mr. ustíce Dougías took no part ín the consíderatíon or decísíon of thís case.
SUPPL M NT C € ” CR DITS G INST T
S CTION 131. € ” T S OF FOR IGN COUNTRI S ND
POSS SSIONS OF UNIT D ST T S
Sectíon 29.131-1: naíysís of credít for 19 0- -1329
ta es. I. T. 3997
INT RN L R NU COD
The ta ímposed on transportatíon companíes by the Domínícan
Repubííc pursuant to artícíe 1, sectíon 1, chapter I of Income Ta
Law No. 1027 dated February 11, 19 9, on net íncome determíned as
províded ín artícíe 11, sectíon 2, chapter I of such íaw, constítutes
an íncome ta whích ís aííowabíe ns a credít agaínst Uníted States
íncome ta to the e tent províded by sectíon 131 of the Internaí
Revenue Code.
dvíce ís requested whether the ta ímposed on transportatíon com-
paníes bv the Domínícan Repubííc pursuant to artícíe 1, sectíon 1,
chapter I of Income Ta Law No. 1927 dated February 11, 19 9, on
net íncome determíned as províded ín artícíe 11, sectíon 2, chapter I of
such íaw, constítutes an íncome ta whích ís aííowabíe as a credít
agaínst Uníted States íncome ta .
The above-cíted provísíons of Domínícan íaw read ín part as foííows:
sncr. 1. n annuaí ta ís estabííshed on the net Income obtaíned In the
Domínícan Repubííc of any naturaí or |urídícaí person, natíonaí or foreígn,
whether or not domícííed ín the country. €
Petítíoner reííes, ínter aíía, npon some íanguage ín the report of the Senate Fínance
SoFW S /Lt € ž ne € ž Itfí nue í of 1 2- s- cft- No. 1631, 77th Cong.. 2d sess., pp. 122.
í.r .íC- - 19 ,2-2. í 0 - PP- 6, 7 . ut that portíon of the report Is not concerned
un computatíon of net operatíng íoss but wíth estabííshment of carry back provísíons
na amendment of the carry-over sectíon. Its references are to the íaw appíícabíe In
Determíníng the amount and e tent of the carry-over and carry back (sectíon 122(b)).
not to that appíícabíe In determíníng net operatíng íoss (sectíon 122 (a) and (d)).
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29,131-1.
6
bt. 11. For the purpose of thís íaw, companíes not estabííshed ín the Repubííc
whích are engaged ín the busíness of transportatíon between natíonaí terrítory
and foreígn countríes shaíí be consídered as obtaíníng net íncome from Domínícan
sources equaí to 6 percent of the gross amount of freíght from passenger fares
and cargo reíated to such transportatíon, uníess there be proof to the contrary.
If by thís proof ít Is estabííshed that net íncome ís greater or íess than 6 percent
Indícated, the ta shaíí appíy to the íncome actuaííy obtaíned.
Sectíon 131 of the Internaí Revenue Code provídes ín part as foííows:
(a) ííowance of Credít. € ” If the ta payer chooses to have the benefíts of
thís sectíon, the ta ímposed by tííís chanter Chapter 1 of the Code , e cept the
ta ímposed under sectíon 102, shaíí be credíted wíth:
(1) Cítízens and domestíc corporatíons. € ” In the case of € € a
domestíc corporatíon, the amount of any íncome ta es paíd or
accrued duríng the ta abíe year to any foreígn country € €
In order for a ta paíd to a foreígn country to be aííowabíe as a
credít agaínst Uníted States íncome ta under sectíon 131 of the In-
ternaí Revenue Code, supra, ít must be shown that the ta ímposed by
the foreígn íaw ís a ta on íncome wíthín the Uníted States concept
or ís a ta ímposed ín ííeu of an íncome ta .
It ís heíd that the ta ímposed on transportatíon companíes by the
Domínícan Repubííc pursuant to artícíe 1, sectíon 1, chapter I of
Income Ta Law No. 1927 dated February 11, 19 9, on net íncome
determíned as províded ín artícíe 11, sectíon 2, chapter I of such íaw,
constítutes an íncome ta whích ís aííowabíe as a credít agaínst Uníted
States íncome ta to the e tent províded by sectíon 131 of the Internaí
Revenue Code.
The ta es on dívídends ímposed by the Repubííc of Cuba pursuant
to subparapraph (3), taríff second, artícíe III, chapter sí th of the
mergency Ta Law of anuary 29, 1931. and artícíe , sectíon sec-
ond, chapter thírd of Resoíutíon-Law No. 1 dated December 31, 19 1,
as such íaws were amended by Generaí Ta Law No. 7 dated príí ,
19 3, as weíí as the surta ímposed by sectíon 1, artícíe fírst of the
mergency Ta Law of September , 19 1, quaíífy as íncome ta es
whích are aííowabíe, to the e tent províded by sectíon 131 of the
Internaí Revenue Code, as credíts agaínst Uníted States íncome ta .
dvíce ís requested whether the ta es on dívídends ímposed by the
Repubííc of Cuba pursuant to subparagraph (3), taríff second, artícíe
III, chapter sí th of the mergency Ta Law of anuary 29, 1931,
and artícíe , sectíon second, chapter thírd of Resoíutíon-Law No. 1
dated December 31,19 1, as such íaws were amended by Generaí Ta
Law No. 7 dated príí ,19 3, as weíí as the surta ímposed by sectíon
1, artícíe fírst of the mergency Ta Law of September ,19 1, quaíífy
as íncome ta es aííowabíe, under sectíon 131 of the Internaí Revenue
Code, as credíts agaínst Uníted States íncome ta .
ccordíng to submítted e cerpts (transíated) of Cuban íaw, taríff
second, artícíe III, chapter sí th (Generaí Ta on Profíts) of the
mergency Ta Law of anuary 29,1931, provídes ín part as foííows:
There wííí be paíd:
€ € € € € €
(3) Pour percent on dívídends on stock of corporatíons of aíí kínds
and of sííent partnershíps the ínvestment ín whích Is represented by shares of
stock, and those of íímíted ííabíííty, íf any.
19 0- -13299
I. T. 399
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6
29.131-1.
Thís statute was amended by Generaí Ta Law No. 7 dated príí ,
19 3, to províde for an íncrease ín the rate of ta on dívídends from
percent to percent.
rtícíe , sectíon second, chapter thírd of Resoíutíon-Law No. 1,
dated December 31,19 1, provídes as foííows:
ta ís estabííshed on the íncome from aíí kínds of saíaríes, wages, compen-
satíon and pensíons, honoraríums, fees or emoíuments, or from personaí or reaí
property, securítíes, stocks, bonds, obíígatíons, títuíos (another word for se-
curítíes) of aíí kínds, dívídends, ínterest, proceeds and any other kínd of per-
sonaí revenue comíng from símííar or anaíogous sources
Thís statute was amended by Generaí Ta Law No. 7 dated príí ,
19 3, to províde for an íncrease ín the graduated rates of ta on
dívídends.
Sectíon 1, artícíe fírst of the mergency Ta Law (Law No. 2 ) of
September ,19 1, provídes ín part as foííows:
surta ís estabííshed, up to twenty per centum (20 ), e ígíbíe begínníng
from the effectíve date of thís íaw and untíí the new Generaí udgets of the
Natíon, approved by Congress, become effectíve, on aíí taríffs, scaíes and amounts
of the ta es and contríbutíons of the Natíon now ín force.
Sectíon 131 of the Internaí Revenue Code provídes ín part as
foííows:
(a) ííowance of Credít. € ” If the ta payer chooses to have the benefíts of thís
sectíon, the ta ímposed by thís chapter Chapter 1 of the Code , e cept the ta
ímposed under sectíon 1C2, shaíí be credíted wíth:
(1) Cítízens and domestíc corporatíons. € ” In the case of a
domestíc corporatíon, the amount of any íncome ta es paíd or ac-
crued duríng the ta ubíe year to any foreígn country
It ís heíd that the ta es ímposed on dívídends by the above-cíted
Cuban statutes quaíífy as íncome ta es whích are aííowabíe, under
sectíon 131 of the Internaí Revenue Code, as credíts agaínst Uníted
States íncome ta . (See I. T. 3 6 , C. . 19 2-2,13 .)
The ta es ímposed under artícíes 96 and 07 of razííían Income
Ta Law No. 17 dated March 13, 19 2, as amended, revísed, and
consoíídated by Decree Law No. S of September 23, 19 3, and Law
No. 1 of November 23, 19 7, faíí wíthín the Uníted States concept
of íncome ta es and are aííowabíe as a credít agaínst Uníted States
íncome ta under sectíon 131(a) of the Internaí ítevenue Code,
sub|ect to the íímítatíons contaíned ín sectíon 131(b) of the Code.
dvíce ís requested whether the ta es ímposed under artícíes 96
and 97 of razííían Income Ta Law No. 17 dated March 13, 19 2,
as amended, revísed, and consoíídated by Decree Law No. of Sep-
tember 23,19 3, and Law No. 1 of November 2 ,19 7, are aííowabíe
as a credít agaínst Uníted States íncome ta .
The reguíatíons (Decree No. 2 ,239 of December 22,19 7) reíatíng
to the above-cíted provísíons of razííían íaw read as foííows:
rtícíe 90. The foííowíng are sub|ect to wíthhoídíng of the ta at the source:
1. t the rate of C percent; Interest of bearer securítíes of federaí, state, or
munícípaí pubííc debts, e cept those whích e pressíy en|oy federaí físcaí
19 0-12-1336
I. T. 013
ímmuníty;
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29.131-1.
66
2. t the rate of 1 percent:
(a) Dívídends of bearer shares and any bonuses attríbuted to them;
(b) enefíts and any other earníngs on bearer securítíes caííed benefícíary
shares or founder shares;
(c) dvantages receíved by the príncípaís and partners of fírms or com-
paníes, wíth the íncreased vaíuatíon of theír assets, ín the case of íncor-
poratíon or organízatíon of a new company;
(d) The vaíue of new shares and the benefíts ín addítíon to dívídends
dístríbuted to the hoíders of bearer shares, ín the eases:
I. Of utííízatíon of any funds, Incíudíng those of amortízatíon, de-
precíatíon, and reappraísaí of assets;
II. Of íncrease of capítaí, wíth resources taken from any funds;
III. Of íncreased vaíuatíon of the assets or the saíe of part of them,
wíthout the reductíon of capítaí;
(e) The ínterest of debentures or of other bearer obíígatíons derívíng
from íoans ín or out of the country, by natíonaí companíes or foreígn com-
paníes whích operate ín the natíonaí terrítory;
(f) Profíts ín e cess of 1,000 cruzeíros, derívíng from cash prízes, obtaíned
ín a íottery, drawíngs of any kínd or sportíng contests; íncíudíng those of
the turf, whích aíso íncíude bettíngs.
Soíe Paragbaph. The rates to whích thís artícíe refers shaíí faíí on the gross
earníngs.
rt. 97. Income receíved by the foííowíng shaíí be sub|ect to the wíthhoídíng
of the ta at the rate of 1 percent:
(a) Indívíduaís or corporate bodíes resídíng or domícííed abroad;
(6) Resídents of the country who were absent abroad for more than 12
months, e cept those referred to ín artícíe 73;
(c) Resídents abroad who remaín ín razííían terrítory for íess than 12
months.
€ € € €
3. The rate referred to In thís artícíe wííí faíí on the gross earníngs, uníess
they are deríved from reaí property, ín whích case ít wííí be aííowabíe to deduct,
íf proved, the e penses províded for ín artícíe 16.
Sectíon 131 of the Internaí Revenue Code provídes ín part as
foííows:
(a) ííowance of Credít. € ” If the ta payer chooses to have the benefíts of
thís sectíon, the ta ímposed by thís chapter Chapter 1 of the Code , e cept
the ta ímposed under sectíon 102, shaíí be credíted wíth:
(1) Cítízens and domestíc corporatíons. € ” In the case of a cítízen of
the Uníted States and of a domestíc corporatíon, the amount of any
íncome € ta es paíd or accrued duríng the ta abíe year to any
foreígn country
In order for a ta paíd to a foreígn country to be aííowabíe as
a credít agaínst Uníted States íncome ta under sectíon 131 of the
Internaí Revenue Code, supra, ít must be shown that the ta ímposed
by the foreígn íaw ís a ta on íncome wíthín the Uníted States con-
cept, as dístínguíshed from a ta on gross receípts, or ís a ta paíd
ín ííeu of an íncome ta .
razíí ímposes ta es on índívíduaís and corporatíons on a basís
whích faíís wíthín the Uníted States concept of ta es on íncome. The
provísíons ín artícíes 96 and 97, supra, that the rates províded thereín
shaíí faíí on gross earníngs, e cept ín the case of earníngs deríved from
reaí property, assume the aspects of sectíons 211 and 231 of the Inter-
naí Revenue Code wíth respect to the ta atíon of gross íncome of
nonresídent aííen índívíduaís and nonresídent foreígn corporatíons.
ccordíngíy, ít ís heíd that the ta es ímposed under artícíes 96
and 97 of razííían Income Ta Law No. 17 dated March 13, 19-12,
as amended, revísed, and consoíídated by Decree Law No. of
September 23, 19 3, and Law No. 1 of November 2 , 19 7, faíí
wíthín the Uníted States concept of íncome ta es and are aííowabíe
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67
29.131-1.
as a credít agaínst Uníted States íncome ta under sectíon 131(a)
of the Internaí Revenue Code, sub|ect to the íímítatíons contaíned
ín sectíon 131 (b) of the Code.
The ta ímposed under artícíe G3 of the Locaí Ta Law of
apan (Law No. 110 of uíy 7, 19 , and Law No. 200 of uíy 30,
10 , as amended by Law No. 2 3 of December 1 , 19 ) faíís
wíthín the Uníted States concept of an íncome ta and ís aííowabíe
as a credít agaínst Uníted States íncome ta under sectíon 131(a)
of the Internaí Revenue Code, sub|ect to the íímítatíons contaíned
ín sectíon 131(b) of the Code.
dvíce ís requested whether the ta ímposed under artícíe 63 of
the Locaí Ta Law of apan (Law No. 110 of uíy 7, 19 , and
Law No. 200 of uíy 30, 19 , as amended by Law No. 2 3 of De-
cember 1 , 19 ) quaíífíes as an íncome ta whích may be aííowed
as a credít agaínst Uníted States íncome ta .
The pertínent provísíons of the above-cíted íaw read ín part as
foííows:
btícíe 63. nterpríse ta shaíí be ímposed on enterpríse conducted by |urís-
tíc persons (e cíudíng |urístíc persons under artícíe 3 of the Cívíí Code (Law
No. 0, 1 90)) and the fírst and second categoríes of enterpríse conducted by
índívíduaís on the basís of the saíd |urístíc persons and índívíduaís by the Do,
urban or ruraí prefecture concerned, ín whích the píace of enterpríse e ísts.
€ € € €
sr. 0 . The íncome mentíoned ín artícíe 03, paragraph 1 shaíí be the íncome
of every busíness físcaí year and ííquídated íncome ín a |urístíc person, and shaíí
be the íncome of busíness ín the precedíng year ín an índívíduaí.
€ € € € € €
The íncome of each busíness year of a |urístíc person shaíí be ín accordance
wíth the amount obtaíned by deductíng from the totaí profíts the totaí íosses
of each busíness year.
€ € €
The íncome of an índívíduaí shaíí be the amount obtaíned by subtractíng the
necessary e penses from the totaí íncome ín the precedíng year or the períod
between anuary 1st of the precedíng year to the date of aboíítíon of the
enterpríse.
€ € € € € € €
m. CT. The standard ímposítíon rate of enterpríse ta shaíí be 7. percent
for the enterpríse conducted by |urístíc persons (e cíudíng specíaí |urístíc
persons) or the fírst category enterpríse conducted by índívíduaís and per-
cent for the enterpríse conducted by specíaí |urístíc person and second cate-
gory enterpríse conducted by Indívíduaís
Sectíon 131 of the Internaí Revenue Code provídes ín part as
foííows:
(a) ííowance of Credít. € ” If the ta payer chooses to have the benefíts
of thís sectíon, the ta ímposed by thís chapter Chapter 1 of the Code ,
e cept the ta ímposed under sectíon 102, shaíí be credíted wíth:
(1) Cítízens and domestíc corporatíons. € ” In the case of a cítízen of
the Uníted States and of a domestíc corporatíon, the amount of any
íncome ta es paíd or accrued duríng the ta abíe year to any
foreígn country €
In order for a ta paíd to a foreígn country to be aííowabíe as
a credít agaínst Uníted States íncome ta under sectíon 131 of the
19 0-12-13369
I. T. 01
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29.131-2.
6
Internaí Revenue Code, supra, ít must be shown that the ta ím-
posed by the foreígn íaw ís a ta on íncome wíthín the Uníted
States concept or ís a ta paíd ín ííeu of an íncome ta .
It ís heíd that the enterpríse ta ímposed under artícíe 63 of the
Locaí Ta Law of apan (Law No. 110 of uíy 7, 19 , and Law
No. 200 of uíy 30, 19 , as amended by Law No. 2 3 of December
1 ,19 ) faíís wíthín the Uníted States concept of an íncome ta and
ís aííowabíe as a credít agaínst Uníted States íncome ta under
sectíon 131(a) of the Internaí Revenue Code, sub|ect to the íímí-
tatíons contaíned ín sectíon 131(b) of the Code.
Sectíon- 29.131-2: Meaníng of terms, 19 0-7-13323
I. T. 002
INT RN L R NU COD
The ta paíd pursuant to Domínícan Repubííc Law No. 9 2 of
ugust 30, 19 , on sugar produced and soíd for e port ís, to the
e tent províded ín Domínícan Law No. 1937 of February 26, 19 9,
but not ín e cess of Domínícan íncome ta ííabíííty under Law No.
1927 of February 11, 19 9, a ta paíd ín ííeu of an íncome ta wíthín
the meaníng of sectíon 131(h) of the Internaí Revenue Code.
dvíce ís requested whether the ta paíd to the Domínícan Repubííc
on sugar produced and soíd for e port, pursuant to Domínícan Law
No. 9 2 of ugust 30, 19 , ís a ta ímposed ín ííeu of an íncome ta
wíthín the meaníng of sectíon 131(h) of the Internaí Revenue Code.
Domínícan Law No. 9 2 of ugust 30, 19 , ímposes a ta on raw
and refíned sugars, sírups, and other products contaíníng ííquíd sugar
whích are produced and soíd for e port, the ta beíng based upon
e port príce. Símííar products produced for consumptíon wíthín the
Domínícan Repubííc are specífícaííy e empt from the ta . The ta
must be paíd monthíy wíthín 10 days foííowíng the month of
productíon.
rtícíe 1 of chapter 1 of Domínícan Law No. 1927 dated February
11, 19 9, provídes ín part as foííows:
rtícíe 1. n annuaí ta ís estabííshed on the net Income obtaíned ín the
Domínícan Repubííc of any naturaí or |urídícaí person, natíonaí or foreígn,
whether or not domícííed ín the country. € €
Domínícan Law No. 1937 of February 2G, 19 9, provídes ín part that
the Natíonaí Congress, on behaíf of the Repubííc € ”
Consíderíng : That the ta on the productíon of crude and ordínary sugar
ímposed ín accordance wíth Law No. 9 2 ís actuaííy a ta on the
profíts deríved from the índustríaí operatíon of sugar;
as nacted the Foííowíng Law :
Sot.e rtícíe. € ” s of the date of the promuígatíon of the Income Ta Law
No. 1927 dated February 11,19 9, payments made ín compííance wíth Law No. 9 2
wííí be consídered as payments on account of the ta estabííshed by
thís íaw. Nevertheíess, payments made ín compííance wíth thís íast íaw wííí
be fínaí and no refund or credít of the baíance wííí be made íf thís payment was
greater than the íncome ta whích shouíd have been paíd.
Sectíon 131 of the Internaí Revenue Code provídes ín part as
foííows:
(a) ííowance of Credít. € ” If tíe ta payer chooses to have the benefíts of
thís sectíon, the ta ímposed by thís chapter Chapter 1 of the Code , e cept the
ta ímposed under sectíon 102, shaíí be credíted wíth:
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09
29.1 7-2.
(1) Cítízens and domestíc corporatíons. € ” In the case of a cítízen of
the Uníted States and of a domestíc corporatíon, the amount of any íncome,
war-profíts, and e cess-profíts ta es paíd or accrued duríng the ta abíe
year to any foreígn country

(h) Credít for Ta es ín Líeu of Income, tc., Ta es. € ” For the purposes of
thís sectíon and sectíon 23(c)(1), the term íncome, war-profíts, and e cess-
profíts ta es shaíí íncíude a ta paíd ín ííeu of a ta upon íncome, war-profíts,
or e cess-profíts otherwíse generaííy ímposed by any foreígn country
In víew of the fact that Law No. 1937 provídes that the ta ímposed
on the productíon of crude and ordínary sugar ín accordance wíth
Law No. 9 2 ís actuaííy a ta ton the profíts deríved from the índus-
tríaí operatíon of sugar, ít ís heíd that the ta paíd under Law No.
9 2 ís, to the e tent províded ín Law No. 1937, but not ín e cess of
the íncome ta ííabíííty ímposed by Law No. 1927, a ta paíd ín ííeu
of an íncome ta wíthín the meaníng of sectíon 131 (h) of the Internaí
Revenue Code.
SUPPL M NT D. € ” R TURNS ND P YM NT OF T
S CTION 1 1. € ” CONSOLID T D R TURNS
Sectíon 23.11, Reguíatíons 10 : Consoíídated 19 0-3-132 2
returns for subsequent 3|ears. I. T. 3992
INT RN L R NU COD
Fíííng of consoíídated Federaí íncome ta returns for físcaí years
endíng ín 19. 0 by affíííated corporatíons whích fííed such returns for
físcaí years ended ín 19 9.
dvíce ís requested whether, under the provísíons of cíause (2) of
sectíon 23.11(a) of Reguíatíons 10 , affíííated corporatíons whích
fííed consoíídated Federaí íncome ta returns for físcaí years ended
ín 19 9 may eíect to fííe separate Federaí íncome ta returns for físcaí
years endíng ín 19 0.
It ís heíd that the condítíons stated ín cíause (2) of sectíon 23.11 (a)
of Reguíatíons 10 for the aííowance of a new eíectíon do not e íst
wíth respect to físcaí years endíng ín 19 0. ccordíngíy, affíííated
corporatíons whích fííed consoíídated Federaí íncome ta returns for
físcaí years ended ín 19 9 wííí not be permítted to fííe separate Federaí
íncome ta returns for físcaí years endíng ín 19 0 uníess one of the
other condítíons províded ín sectíon 23.11(a) of Reguíatíons 10 ís
met, or uníess a subsequent change ín the íaw or reguíatíons shouíd
gíve ríse to an occasíon for an eíectíon for such years.
S CTION 1 7. € ” INFORM TION T SOURC
Sectíon 29.1 7-2: Return of ínformatíon as
to payments to empíoyees.
INT RN L R NU COD
Premíums paíd by e empt empíoyees trust for current íífe ínsur-
ance protectíon. (See Míní. G 77, page 1G.)
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S 29.162-1.1
70
SUPPL M NT ST T S ND TRUSTS
S CTION 162. € ” N T INCOM
Sectíon 29.162-1: Income of estates and 19 0-6-1331
trusts. Ct. D. 1730
INCOM T € ” INT RN L R NU COD € ” D CISION OF SUPR M COURT
1. Trust Income € ” Net Income € ” Charítabíe Contríbutíon Perma-
nentíy Set síde From Capítaí Gaíns € ” Percentage Taken
Into ccount ín Computatíon of Net Income.
Trustees who ín 19 permanentíy sot asíde a charítabíe contríbu-
tíon from gaíns reaíízed upon the dísposítíon of capítaí assets heíd
for more than 6 months were not entítíed, ín computíng the Federaí
Income ta of the trust, to deduct the fuíí amount of the contríbutíon
under sectíon 162(a) of the Internaí Revenue Code, where oníy one-
haíf of those gaíns was taken ínto account ín computíng net íncome
ín accordance wíth sectíon 117(b) of the Code. The words ín the
íatter sectíon whích state that oníy 0 percent of certaín recognízed
capítaí gaíns shaíí be taken Into account In computíng ™ € €
net íncome are treated as appíyíng to the entíre computatíon of the
ta , begínníng wíth the statement of the gross íncome of the trust
and concíudíng wíth íts ta abíe net Income. That percentage of
capítaí gaíns whích e pressíy ís not to be taken ínto account ín
computíng ta abíe net íncome Is treated as aíso e cíuded from
statutory gross íncome.
2. Decísíon Reversed.
Decísíon of the Uníted States Court of Cíaíms, 1 Fed. Supp. 717
(19 0), reversed.
Supreme Court of tde Uníted Statí:s
The Uníted Staíe of meríca, petítíoner, v. eíen W. enedíct and Frank .
Smíth, a Trustees, and Leíand . Stoíccíí and Uníted States Trust Co. of
Neíc York as Successor Trustees under the Wííí of ohn . ndrus, Deceased
On wrít of certíorarí to the Uníted States Court of Cíaíms
February 13, 10 0
opíníon
Mr. ustíce urton deíívered the opíníon of the Court.
The questíon presented ís whether trustees, who, ín 19 , permanentíy set
asíde a charítabíe contríbutíon from gaíns reaíízed upon the dísposítíon of
capítaí assets heíd for more than 6 months, were entítíed, ín computíng the
Federaí íncome ta of the trust, to deduct the fuíí amount of the contríbutíon,1
aíthough oníy haíf of those gaíns were taken ínto account ín computíng net
Income.2 For the reasons hereafter stated, our answer ís ín the negatíve.
S C. 162. N T INCOM .
The net íncome of the estate or trust shaíí be computed ín the same manner and on th
ame basís as ín the case of an índívíduaí, e cept that € ”
(a) There shaíí be aííowed as a deductíon (In ííeu of the deductíon for charítabíe, etc.,
contríbutíons authorízed ín sectíon 23(0)) any part of the gross íncome, I tthout íímíta-
tíon, whích pursuant to the terms of the wííí or deed creatíng the trust, ís duríng the ta -
abíe year paíd or permanentíy set asíde for tííe purposes and In the manner specífíed ín
sectíon 23(o), or ís to be used e cíusíveíy tor reíígíous, charítabíe, scíentífíc, ííternry, or
educatíonaí purposes, or for the preventíon of crueíty to chíídren or anímaís, or for the
estabííshment, acquísítíon, maíntenance or operatíon of a pubííc cemetery not operated for
profít; € € € ( mphasís suppííed.) 63 Stat 60, 26 U. S. C. sectíon 102(a).
S C. 117. C PIT L G INS ND LOSS S.
€ € € € € € €
(b) Percentage Taken Into ccount. € ” In the case of a ta payer, other than a cor-
poratíon, oníy the foííowíng percentages of the gaín or íoss recognízed upon the saíe or
e change of a capítaí asset haíí be taken ínto account In computíng net capítaí gaín, net
capítaí íoss, and net íncome :
1(10 per centum If the capítaí asset has been heíd for not more than 6 months:
0 per centum íf the capítaí nsset íías been heíd for more than 6 months. 3
Stat. 0- 1, as amended, 0 Stat. 3, 20 U. S. C. sectíon 117(b).
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71
29. If.2-1.
The respondents are trustees of a trust created by the wííí of ohn . ndrus.
The wííí dírects that the net íncome of the trust be dívíded ínto 100 parts,
to be paíd to certaín índívíduaí benefícíaríes and to the Surdna Foundatíon,
Inc., a charítabíe corporatíon. Pursuant to those terms the trustees perma-
nentíy set asíde for the Foundatíon 0 percent of the trust s net íncome for the
físcaí year ended príí 30,191 , the períod ínvoíved ín thís case.
In theír fíducíary ta return, the trustees reported ordínary net íncome of
2 0, 67.73, and deducted from ít. as a charítabíe contríbutíon, the 10S,2 .
( percent of that net íncome) whích they had set asíde for the Surdna Founda-
tíon. Thís was done under sectíon 102(a) of the Internaí Revenue Code The
trustees aíso reported gaíns of 00,37 .01 on the dísposítíon of capítaí assets
heíd for more than 6 months. Of these gaíns, they took ínto account oníy 0
percent, amountíng to 30,1 7.01, ín computíng the trust s ta abíe íncome.
Thís was done under sectíon 117(b). n uncontroverted deductíon of 329.60,
representíng the carry-over of a 19 2 íoss, reduced thís amount to 29, 7. 1.
From thís the trustees deducted percent, representíng a proportíonate share
of the trust s contríbutíon to the Surdna Foundatíon. Thís deductíon amounted
to 13, 3 . 3, íeavíng a ta abíe net íncome of 16, 21. , on whích a ta of
3, 0.3 was paíd, píus ínterest.
In 19 7 the trustees fííed a cíaím for a refund of ,1 7. 1. They based theír
cíaím upon a 19 0 decísíon of the Ta Court as to the 19 1 ta es of a nearíy
ídentícaí trust. ndrus Trust No. 1 v. Commíssíoner, 7 T. C. 73. On that
basís, the trustees cíaímed a deductíon from the aforesaíd 29, 7. 1, not oníy
of a proportíonate share of the contríbutíon whích the trust had set asíde from
capítaí gaíns, but of the entíre amount of that contríbutíon. Thís íncreased
that deductíon from 13, 3 . 3 ( percent of 29, 7. 1) to 27,16 .31 ( percent
of the totaí capítaí gaíns of 60,37 .01), and correspondíngíy reduced the trust s
ta abíe net íncome from 16, 21. to 2,6 9.10.
In uíy, 19 7, the Court of ppeaís for the Second Círcuít unanímousíy
reversed the Ta Court ín the case reíatíng to 10 1 ta es. Commíssíoner v.
Centraí anover Sank Co., 163 Fed. (2d) 20 Ct. D. 170 , C. . 19 S-2, 93 ,
certíorarí deníed, November, 19 7, 332 U. S. S30. The Commíssíoner, however,
took no actíon on the trustees cíaím for a refund reíatíng to 19 ta es, and,
ín 19 , the trustees fííed thís proceedíng for íts recovery through the Court
of Cíaíms. Wíth one |udge díssentíng, that court decíded ín theír favor. 112
Ct CI. 0, 1 Fed. Supp. 717. To resoíve the resuítíng confííct, we granted
certíorarí. 336 U. S. 966.
n íííustratíon based upon the facts ín the ínstant case wííí bríng the statutory
probíem ínto cíearer focus. trust reaíízes gaíns of 60,000 duríng the ta
year from the saíe of capítaí assets heíd for more than 6 months. From these
ít makes a charítabíe contríbutíon of 0 percent. Sectíon 162(a) of the Code
provídes that a trust may deduct any part of íts gross íncome whích ít con-
tríbutes to such a charíty as the one seíected. Sectíon 117(b) provídes that
oníy 0 percent of such gaíns shaíí be taken ínto account ín computíng net íncome.
The trustees contend that, for ta purposes, the entíre 00,000 ís gross
íncome, that from thís amount the 30,000 charítabíe contríbutíon may be
deducted under sectíon 162(a), and that the entíre remaíníng 30,000 ís to be
íeft out of account by force of sectíon 117(b), thereby íeavíng no ta abíe net
íncome, aíthough 30,000 goes to índívíduaí benefícíaríes. The Commíssíoner,
however, contends that oníy the 30,000 of the recognízed capítaí gaíns that ís
taken ínto account by force of sectíon 117(b) constítutes gross íncome,
and that necessarííy the other 30,000 that ís not to be taken ínto account for
ta purposes ís not gross íncome. egínníng, thus, wíth 30,000 of gross
íncome, the Commíssíoner aííows a deductíon from ít of that proportíonate
part of the charítabíe contríbutíon that ís attríbutabíe to the haíf of the recognízed
The wííí creatíng the trust contaíned no provísíon as to the kínd of íncome from whích
the charítabíe contríbutíons were to be set asíde, and ít ís not dísputed that the trustees
properíy set asíde the contríbutíons proportíonateíy from capítaí saíns and aíí other Income.
There ís nothíng to índícate that the trustees, ín settíng asíde the contríbutíon, attempted
to aííocate them to any partícuíar part or percentage of the cnpítaí gaíns. See eívcrína
T. ííss, 2D.3 D. S. 1 , 1 9-1 0 Ct. D. , C. . III-2, 101 (193 )1 ; drey v. Com-
míssíoner. 11 Fed. (2d) 1 3 (C. . 7th Cír., affírmíng 1 . T. . 23 ) : Scott v. Uníted
Mates, 111 ct. CI. 010. 01 -620, 7 Fed. Supp. 11, 1 - 10; Newbury v. Uníted States,
102 Ct. CI. 192, 7 Fed. Supp. 16 ; McUsncr v. Commíssíoner, T. C. 7 0 ; state of Traíser
v. Commíssíoner, 1 . T. . 22 ; Montgomery, Federaí Ta es, states. Trusts and Gífts
179 (19 -19 9) ; 2 Nossaman, Trust dmínístratíon and Ta atíon 11 -116 (19 ).
See note 1, supra.
– 1 See note 2, supra.
€ See note 1, supra.
See note 2, supra.
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29.162-1.
72
capítaí gaíns whích has been taken ínto account. That deductíon amounts
to 1 ,000, íeavíng a ta abíe net íncome of 1 ,000.
The narrow statutory questíon thus presented ís whether the entíre recognízed
capítaí gaíns or oníy that haíf taken ínto account under sectíon 117(b) shaíí
constítute gross íncome for ta purposes. Stated converseíy, the questíon
ís whether that haíf of a ta payer s recognízed capítaí gaíns that ís not taken
ínto account for ta purposes shaíí be íeft out of account by way of íts ínítíaí
e cíusíon from gross íncome, or by way of íts subsequent deductíon from gross
íncome. On thís precíse questíon the Code ís sííent. No provísíon of the
Code and nothíng ín the íegísíatíve hístory or admínístratíve practíce e pressíy
settíes the course to be foííowed. We, therefore, seek the purposes of the
appíícabíe sectíons of the Code and adopt that constructíon whích best gíves
effect to those purposes.
We fínd that the obvíous purpose of sectíon 162(a) ís to encourage the makíng
of charítabíe contríbutíons out of the gross íncome of a trust and, to that end,
ít compíeteíy e empts such contríbutíons from íncome ta , wíthout the íímíta-
tíons ímposed upon charítabíe contríbutíons made by índívíduaís or corporatíons.
Thís purpose ís served by each of the constructíons of the Code suggested by
the partíes. Under eíther method of computatíon the benefícíaríes of the
charítabíe contríbutíon wííí receíve ít ín fuíí and free of ta .
We then fínd that the effect of sectíon 117(b) ís to ta recognízed capítaí gaíns
ííke ordínary íncome, e cept that the ta on capítaí gaíns heíd for more than
6 months ís to be computed on 0 percent of the amount on whích ít wouíd be
computed íf those gaíns were ordínary íncome. The Commíssíoner s soíutíon
accompííshes precíseíy that resuít and thus serves that purpose. In the íííustra-
tíon, íf the gaíns were ordínary íncome, the amount sub|ect to ta , after the
deductíon of the charítabíe contríbutíon, wouíd be 30,000. s ít ís, the amount
sub|ect to ta ís 1 ,000. The trustees constructíon In the ínstant case wouíd
resuít ín ta íng the capítaí gaíns at substantíaííy íess than 0 percent of the
amount at whích they wouíd be ta ed íf they were ordínary íncome. To the
e tent that the amount sub|ect to ta goes beíow that percentage, ít faíís to gíve
effect to the purpose of sectíon 117(b). In the more e treme círcumstances
suggested by the íííustratíon, thís constructíon wouíd entíreíy eíímínate the ta .
We, therefore, approve that ínterpretatíon of sectíon 117(b) and the defínítíon
of statutory gross íncome adopted by the Commíssíoner. We treat the words In
sectíon 117(b), whích state that oníy 0 percent of certaín recognízed capítaí
gaíns shaíí be taken ínto account ín computíng € net íncome, as appíy-
íng to the entíre computatíon of the ta , begínníng wíth the statement of the gross
Income of the trust and concíudíng wíth íts ta abíe net íncome.10 We treat that
percentage of capítaí gaíns whích e pressíy ís not to be taken ínto account ín
computíng ta abíe net Income as aíso e cíuded from statutory gross íncome.
Uníted States . Píeasant , 30 U. S. 3 7. 303 TCt. T . 1379, C. . 1039-1 (Part 1), 239 ;
Oíd Coíony Trust Co. . Commíssíoner, 301 U. S. 379, 3 Ct. D. 1230, C. . 1037-1, 227 ;
cíveríng v. ííss. 203 U. S. 1 , 1 7.
When the words wíthout íímítatíon, ín sectíon 162(a), are read ín connectíon wíth
sectíon 23(o), 3 Stnt. 13-1 , as amended. 3 Stat. 0, and 6 Stat. 2 , 26 U. S. C.
sectíon 23(o), theír effect Is oníy to make ínappíícabíe the íímítatíon of 1 percent, under
sectíon 23(0), and any other statutory íímítatíon whích otherwíse míght appíy to charí-
tabíe contríbutíons made out of the cross íncome of an estate or trust. Grey v. Commís-
síoner, 1 . T. . 23 . 2 3, affd.. 11 Fed. (2d) 1 3. See aíso, Oíd Coíony Trust Co. v.
Commíssíoner, 301 U. S. 379. 3 2-3 ; Commíssíoner v. Centraí anover ank Co., 163
Fed. (2d) 20 , 211 (C. . 2d Cír.) ; Frank Trust of 1931 v. Commíssíoner, 1 Fed. (2d)
11, 13 (C. . 3d Cír.) ; Scott v. Uníted States. Iíí Ct. CI. 610, 61 -620, 7 Fed. Supp.
11, 1 -S10; Netcbury v. Uníted States. 102 Ct. CI. 192, 7 Fed. Supp. 16 . For the
comparabíe percent íímítatíon appíícabíe to charítabíe contríbutíons made by corpora-
tíons, see 3 Stnt. 1 -10, as amended, 0 Stat. 22. 20 U. S. C. sectíon 23(g).
€ See note 2, supra. The aíternatíve computatíon of the ta on cnpítaí gaíns províded by
sectíon 117(c) (2) of the Code ís consístent wíth thís resuít. 63 Stat. 61, as amended, 66
Stat. 3-S , 20 U. S. C. sectíon 117(c) (2).
€ It ís unnecessary to revíew the íntrícate arguments presented as to the termínoíogy
of the Code. They do not compeí the adoptíon of eíther ínterpretatíon or precíude the
concíusíon here reached. Thís ís not a case In whích the trust or the statute nas requíred
or even authorízed the trustees to earmark theír charítabíe contríbutíons as comíng from
anv partícuíar ítems of trust íncome, or from any partícuíar kínd of trust íncome. The
íssue does not ínvoíve any possíbíe aííocatíon of a charítabíe deductíon to ordínary Income
rather than to capítaí gaíns.
For the requírement that, under sectíon 102(a), each contríbutíon In order to be deduct-
íbíe must be made or permanentíy set asíde pursuant to the terms of the wííí or deed creat-
íng the trust, and aíso must be from a part of the gross íncome of the trust, see Oíd Coíony
Trust Co. v. Commíssíoner, 301 U. S. 370; Front Trust of 1931 v. Commíssíoner, 1 Fed.
(2d) 11 (C. . 3d Cír.) ; Weííman v. Weích. 99 Fed. (2d) 7 (C. . 1st Cír.) ; state of
Tyíer v. Commíssíoner, 9 . T. . 2 , 202-203. _ , _
11 See Commí síoncr v. Centraí anover ank Co., 103 Fed. (2d) 20 , 210; Fran Trust
of 19S1 v. Commíssíoner, supra; Weííman v. Weích, supra; reen v. Commíssíoner, 7 T. C.
2C3, 277 ; Uaíoy v. Commíssíoner, . T. . 110 , 1107.
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73
29.16 -6.
ccordíngíy, the acceptance by the Commíssíoner of the orígínaí return 1b
approved and the udgment of the Court of Cíaíms ís
eversed.
Mr. ustíce íack and Mr. ustíce ackson are of the opíníon that the udg-
ment of the Court of Cíaíms shouíd be affírmed for the reasons whích It gave.
Mr. ustíce Doroí S took no part ín the consíderatíon or decísíon of thís case.
S CTION 16 . € ” MPLOY S TRUSTS
Sectíon 29.16 -6: Ta abíííty of benefícíary 19 0-3-132 3
under a trust whích meets the requírements Mím. 6 61
of sectíon 16 (a).
( íso Sectíon 22(b), Sectíons 29.22(b) (2)-í,
29.22(b) (2)-2, and 29.22(b) (2)- .)
mounts to be íncíuded ín íncome on account of dístríbutíon of
or payments under ínsurance or annuíty contracts purchased for
empíoyees under a trust e empt under sectíon 16 (a) of the Inter-
naí Revenue Code, as amended.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 2 , D. C, anuary ,19 0.
Coííectors of Internaí Revenue, Internaí Revenue gents ín Charge,
eads of Fíeíd Dívísíons, Technícaí Staff, and Others Concerned:
1. Sectíon 29.16 -6 of Reguíatíons 111, reíatíng to sectíon 16 (b) of
the Internaí Revenue Code, as amended, provídes ín part as foííows:
If a trust e empt under sectíon 16 (a) purchases an annuíty contract for an
empíoyee and dístríbutes ít to the empíoyee In a year for whích the trust ís
e empt, the contract contaíníng a cash surrender vaíue whích may be avaííabíe
to an empíoyee by surrenderíng the contract, such cash surrender vaíue wííí not
be consídered íncome to the empíoyee uníess and untíí the contract Is surrendered.
deferment for íncíusíon of the vaíue of the contract ín íncome ís
thus afforded where the contract ís an annuíty contract. símííar
deferment appííes ín case the contract purchased ís an ínsurance
contract but, íncídent to íts dístríbutíon, ít has been írrevocabíy con-
verted ínto an annuíty contract or íts entíre vaíue has been írrevocabíy
settíed under an agreement essentíaííy ííke an annuíty contract.
2. If a trust e empt under sectíon 16 (a) of the Code dístríbutes
an ínsurance contract to an empíoyee so that part or aíí of íts then
vaíue couíd be appííed to contínue ínsurance for hím under such a
contract, the vaíue so appíícabíe then íoses íts prevíous status as an
accumuíatíon to secure deferred benefíts under a pensíon or profít-
sharíng pían, as to whích íncíusíon ín íncome has been deferred, and
becomes a dístríbutíon of the trust whích must be íncíuded ín the
íncome of the empíoyee for the year ín whích the contract ís dís-
tríbuted, as províded ín sectíon 16 (b) of the Code, whether or not
such vaíue couíd then be obtaíned ín cash by surrender of the contract.
In generaí, the amount of such dístríbutíon ís consídered to be the
entíre net vaíue of the contract at the tíme ít ís dístríbuted. Thís net
vaíue shouíd, however, be reduced by any portíon thereof whích couíd
not, under any círcumstances, be used for contínued ínsurance of an
amount payabíe under an ínsurance contract ín event of death before
maturíty of the contract. Thus, íf the contract dístríbuted ís a typí-
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29.16 -6.
7
caí endowment or íncome endowment ínsurance poíícy (often caííed
retírement endowment or retírement íncome poíícy) and ít couíd
be contínued ín fuíí force after ít ís dístríbuted, the amount of the
dístríbutíon ís consídered to be the then entíre vaíue of the contract
reduced by any e cess thereof over the then vaíue of term ínsurance
from that tíme to the maturíty date for the amount (or íncreasíng
amounts) whích wouíd be payabíe ín event of death of the ínsured íf
the contract were so contínued, províded no more vaíuabíe ínsurance
couíd be obtaíned by conversíon of the contract after íts dístríbutíon.
If such a contract ís dístríbuted and, íncídent to íts dístríbutíon, ít
ís converted ínto a typícaí reduced paíd up endowment or íncome en-
dowment ínsurance form, the amount of the dístríbutíon ís consídered
to be the then entíre vaíue of the contract reduced by the e cess
thereof over the then vaíue of term ínsurance from that tíme to the
maturíty date for the amount (or íncreasíng amounts) whích wouíd
be payabíe under such form ín event of death of the ínsured, províded
no more vaíuabíe form of ínsurance couíd be obtaíned by conversíon
or reínstatement of the contract after íts dístríbutíon. These ruíes
appíy regardíess of whether the amount payabíe ín event of death
e ceeds the reserve under the contract at the tíme ít ís dístríbuted or
subsequent thereto. For the purpose of the reductíons mentíoned
above, the amount of term ínsurance ís undímíníshed by any reserve,
and íts vaíue shouíd be determíned on a basís consístent wítíí the
basís of the e tended term provísíon ín the contract or, íf there ís no
such provísíon, ít shouíd be based on mortaííty and ínterest rates
whích are reasonabíy consístent wíth the gross premíums under the
contract. In any case, the amount of dístríbutíon shouíd be reduced
by any príor contríbutíons of the empíoyee appíícabíe thereto (e cíu-
síve of contríbutíons appíícabíe to príor ínsurance protectíon).
3. mounts receíved by an empíoyee from payment of the cash
surrender vaíue, maturíty vaíue, íncome, ínstaííments, dívídends, or
ínterest under an ínsurance or annuíty contract whích ís purchased,
heíd, or dístríbuted by a trust e empt under sectíon 16 (a) of the
Code, or under an agreement for settíement of such a contract, and
amounts receíved by the benefícíary of a deceased retíred empíoyee
from sucíí payments are to be íncíuded ín the íncome of the empíoyee
or benefícíary as províded ín sectíons 10 (b) and 22(b)(2) of the
Code and the reíated sectíons of the reguíatíons. (See partícuíaríy
sectíons 29.1G -6, 29.22(b) (2)- , 29.22(b) (2)-2, and 29.22(b) (2)-í
of Reguíatíons 111.) For thís purpose, ín appíyíng the provísíons of
sectíon 22(b)(2) of the Code, any amount prevíousíy accounted for
as íncome by the empíoyee on account of ínsurance under the contract
ís to be treated as consíderatíon paíd by the empíoyee.
. Correspondence from the foííowíng regardíng thís mímeograph
shouíd refer to íts number and to the symboís índícated: Coííectors
of ínternaí revenue, C:Coí; ínternaí revenue agents ín charge,
IT: PS; heads of fíeíd dívísíons of the Technícaí Staff, TS: RM.
Geo. . Schoeneman,
Commíssíoner.
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7
29.16 -6.
Sectíon 29.16 -6: Ta abíííty of benefícíary 19 0-3-132
under a trust whích meets the requírements I. T, 3993
of sectíon 16 (a).
( íso Sectíon 22(b), Sectíon 29.22(b) (1)-1.)
INT RN L R NU COD
Where an empíoyee who ís ínsured under an ínsurance contract
heíd by a trust whích Is e empt under sectíon 16 (a) of the Internaí
Revenue Code díes before maturíty of the contract, amounts re-
ceíved by a benefícíary of the empíoyee whích are attríbutabíe to
the reserve under the contract at the tíme of death are requíred to
be íncíuded In the gross íncome of the benefícíary under sectíon
16 (b) of the Code. In generaí, amounts receíved by the benefícíary
whích are attríbutabíe to the e cess over the reserve at the tíme of
death are e cíudíbíe from gross íncome under sectíon 22(b) (1) of
the Code,
dvíce ís requested as to the amounts requíred to be íncíuded ín
gross íncome under the provísíons of sectíons 16 (b) and 22(b) (1)
of the Internaí Revenue Code and sectíon 29.16 -G of Reguíatíons 111
wíth respect to payments to the benefícíary of an empíoyee, pursuant
to an ínsurance contract purchased by a trust whích ís e empt under
sectíon 16 (a) of the Code, on account of the death of the empíoyee
before retírement and whííe the contract ís heíd by the trust. The
ínsurance contracts to whích consíderatíon has been gíven íncíude
typícaí whoíe íífe ínsurance poíícíes, typícaí endowment ínsurance
poíícíes, and typícaí retírement íncome endowment ínsurance poíícíes
(cften caííed retírement endowment or retírement íncome
poíícíes).
Wíth respect to each poíícy, there ís a reserve accumuíatíon under
the contract whích ís províded whoííy or partíy from empíoyer con-
tríbutíons and ís íntended to secure pensíon or other deferred benefíts
under a pensíon or profít-sharíng pían as to whích íncíusíon ín íncome
has been deferred. mounts receíved by the banefícíary of an em-
píoyee whích are attríbutabíe to the reserve under the contract at the
tíme of death constítute dístríbutíons of the trust whích are requíred
to be íncíuded ín the gross íncome of the benefícíary under sectíon
16 (b) of the Code. For thís purpose, any contríbutíons of the em;
píoyee toward the reserve accumuíatíon (e cíusíve of contríbutíons
toward ínsurance) are treated as consíderatíon paíd by the empíoyee.
In each case, the totaí amount payabíe under the contract on account
of the death of the empíoyee e ceeds the reserve, at íeast ín the earíy
contract years. The e cess ís often caííed current ínsurance pro-
tectíon, and the cost of such protectíon ís requíred to be íncíuded ín
the íncome of the empíoyee ín accordance wíth sectíon 29.16 -6 of
Reguíatíons 111. mounts receíved by the benefícíary whích are
attríbutabíe to such e cess at the tíme of death are e cíudíbíe from
gross íncome under sectíon 22(b) (1) of the Code e cept ín the case of
certaín transferees, as províded ín sectíon 29.22(b) (2)-3 of Reguía-
tíons 111, and ín the case of a spouse ..o whom the payments constítute
gross íncome under sectíon 22(k) of the Code. (See sectíon 29.22(b)
(1)-1 of Reguíatíons 111.)
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29.211-7.
76
SUPPL M NT . € ” NONR SID NT LI N INDI IDU LS
S CTION 211. € ” T ON NONR SID NT LI N
INDI IDU LS
Sectíon 29.211-7: Ta atíon of nonresídent 19 0-7-13326
aííen índívíduaís. T. D. 777
( íso Sectíon 231, Sectíon 29.231-1.)
TITL 26 € ” INT RN L R NU . € ” C PT R I, SU C PT R , P RT 7. € ”
T TION PURSU NT TO TR TI S € ” SU P RT € ” D NM R , T L T S
GINNING FT R D C M R 31, 19 7
Reguíatíons affectíng the ta atíon of nonresídent aííens who are
resídents of Denmark and of Danísh corporatíons under the íncome
ta conventíon between the Uníted States and the íngdom of
Denmark, procíaímed by the Presídent of the Uníted States on
December , 19 .
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton , D. C.
To Coííectors of Internaí Revenue and Others Concerned:
On October 13, 19 9, notíce of proposed ruíe makíng under the ín-
come ta conventíon between the Uníted States and the íngdom of
Denmark, procíaímed by the Presídent of the Uníted States on Decem-
ber , 19 , was pubííshed ín the Federaí Regíster (13 F. R. G22 ).
fter consíderatíon of aíí such reíevant matter as was presented by
ínterested persons regardíng the proposaí, the foííowíng reguíatíons
are adopted for the purposes of such conventíon.
Tabíe of Contents
Sectíon
7.9 0. Introductory.
7.9 1. ppíícabíe provísíons of the Internaí Revenue Code.
7.9 2. Scope of the conventíon.
7.9 3. Defínítíons.
7.9 . Scope of conventíon wíth respect to determínatíon of índustríaí or com-
mercíaí profíts.
7.9 . Controí of a domestíc enterpríse by a Danísh enterpríse.
7.9 G. Income from operatíon of shíps or aírcraft.
7.9 7. emptíon from, or reductíon ín rate of, Uníted States ta ín the case
of dívídends, ínterest, and royaítíes.
7.9 . Reaí property íncome, naturaí resource royaítíes.
7.9 9. Government wages, saíaríes, pensíons, and símííar remuneratíon.
7.900. Pensíons and íífe annuítíes.
7.9G1. Compensatíon for íabor or personaí servíces.
7.9G2. Students and apprentíces; remíttances.
7.963. ísítíng professors or teachers.
7.90 . Credít agaínst Uníted States ta ííabíííty for Danísh ta .
7.90 . Recíprocaí admínístratíve assístance.
7.960. Cíaíms ín cases of doubíe ta atíon.
Sectíon 7.9 0. Introductory. € ” The íncome ta conventíon between
the Uníted States and the íngdom of Denmark, sígned May 6,19 ,
procíaímed (wíth reservatíons thereto) by the Presídent of the Uníted
States on December , 19 , and effectíve for ta abíe years begínníng
on and after anuary 1, 19 (hereínafter referred to as the conven-
tíon) , provídes ín part as foííows:
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77
í 29.211-7.
rtícíe I
(1) The ta es referred to ín thís conventíon are:
(a) In the case of the Uníted States of meríca:
The Federaí Income ta , íncíudíng surta es:
(6) In the case of Denmark:
The natíonaí íncome ta , íncíudíng the war profíts ta .
The íntercommunaí íncome ta .
The communaí Income ta .
(2) The present conventíon shaíí aíso appíy to any other ta es of a sub-
tantínííy símííar character ímposed by eíther contractíng state subsequentíy to
the date of sígnature of the present conventíon.
rtící-e II
(1) s used ín thís conventíon :
(a) The term Uníted States means the Uníted States of meríca, and
when used ín a geographícaí sense íncíudes oníy the States, the Terrítoríes
of íaska and awaíí, and the Dístríct of Coíumbía.
(6) The term Denmark means the íngdom of Denmark: the proví-
síons of the conventíon shaíí not, however, e íend to the Faroe Isíands; nor
do they appíy to Greeníand.
(c) The term permanent estabííshment means a branch offíce, factory,
warehouse, or other fí ed píace of busíness, but does not Incíude the casuaí
and temporary use of mereíy storage facííítíes, nor does ít íncíude an agency
uníess the agent has and e ercíses a generaí authoríty to negotíate and con-
cíude contracts on behaíf of an enterpríse or has a stock of merchandíse
from whích he reguíaríy fííís orders on íts behaíf. n enterpríse of one of
the contractíng states shaíí not be deemed to have a permanent estabííshment
ía the other state mereíy because ít carríes on busíness deaííngs ín such
other state through a bona fíde commíssíon agent, broker, or custodían act-
íng ín the ordínary course of hís busíness as such. The fact that an enter-
príse of one of the contractíng states maíntaíns ín the other state a fí ed
píace of busíness e píosíveíy for the purchase of goods or merchandíse shaíí
not of ítseíf constítute such fí ed píace of busíness a permanent estabíísh-
ment of such enterpríse. The fact that a corporatíon of one contractíng
state has a subsídíary corporatíon whích ís a corporatíon of the other state
or whích ís engaged ín trade or busíness ín the other state shaíí not of ít-
seíf constítute that subsídíary corporatíon a permanent estabííshment of
íts parent corporatíon.
( f) The term enterpríse of one of the contractíng states means, as
the case may bp, Uníted States enterpríse or Danísh enterpríse.
(e) The term enterpríse íncíudes every form of undertakíng whether
carríed on by an índívíduaí, partn rshíp, corporatíon, or any other entíty.
(/) The term Uníted States enterpríse means an enterpríse carríed on
ín the Uníted States of meríca by a resídent of the Uníted States of mer-
íca or by a Uníted States corporatíon or other entíty; the term Uníted
States corporatíon or other entíty means a partnershíp, corporatíon, or
other entíty created or organízed ín the Uníted States of meríca or under
the íaw of the Uníted States of meríca or of any State or Terrítory of the
Uníted States of meríca.
(g) The term Danísh enterpríse means an enterpríse carríed on In Den-
mark by a resídent of Denmark or by a Danísh corporatíon or other entíty;
the term Danísh corporatíon or other entíty means a partnershíp, corpora-
tíon, or other entíty created or organízed ín Denmark or under D.íuísh íaws.
(ft) The term competent authorítíes means, ín the case of the Uníted
States, the Commíssíoner of Internaí Revenue or hís authorízed representa-
tíve; and ín the case of Denmark, the Chíef of the Ta atíon Department
of the Mínístry of Fínance (Generaídírekt ren for Skattevaesenet) or hís
authorízed representatíve.
(2) In the appíícatíon of the provísíons of the present conventíon by one of
the contractíng states any term not otherwíse defíned shaíí, uníess the conte t
otherwíse requíres, have the meaníng whích such term has under íts own ta íaws.
rtícíe III
(1) n enterpríse of one of the contractíng states shaíí not be sub|ect to ta a-
tíon ín the other contractíng state In respect of íts índustríaí and commercíaí
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29.211-7.
7
profíts uníess ít ís engaged ín trade or busíness ín such other state through a
permanent estabííshment sítuated thereín. If ít Is so engaged such other state
may ímpose íts ta upon the entíre íncome of such enterpríse from sources wíthín
such other state.
(2) In determíníng the índustríaí or commercíaí profíts from sources wíthín
the terrítory of one of the contractíng states of an enterpríse of the other con-
tractíng state, no profíts shaíí be deemed to aríse from the mere purchase of
goods or merchandíse wíthín the terrítory of the former contractíng state by such
enterpríse.
(3) Where an enterpríse of one of the contractíng states ís engaged ín trade
or busíness ín the terrítory of the other contractíng state through a permanent
estabííshment sítuated thereín, there shaíí be attríbuted to such permanent estab-
ííshment the índustríaí or commercíaí profíts whích ít míght be e pected to deríve
íf ít were an índependent enterpríse engaged ín the same or símííar actívítíes
under the same or símííar condítíons and deaííng at arm s íength wíth the
enterpríse of whích ít ís a permanent estabííshment and the profíts so attríbuted
shaíí, sub|ect to the íaw of such other contractíng state, be deemed to be íncome
from sources wíthín the terrítory of such other contractíng state.
utícíe I
Where an enterpríse of one of the contractíng states, by reason of íts partící-
patíon ín the management or the fínancíaí structure of an enterpríse of the other
contractíng state, makes wíth or ímposes on the íatter, ín theír commercíaí or
fínancíaí reíatíons, condítíons dífferent from those whích wouíd be made wíth an
índependent enterpríse, any profíts whích wouíd normaííy have accrued to one
of the enterpríses but by reason of those condítíons have not so accrued, may be
íncíuded ín the profíts of that enterpríse and ta ed accordíngíy.
rtícíe
(1) Income whích an enterpríse of one of the contractíng states deríves from
the operatíon of shíps or aírcraft regístered ín that state shaíí be e empt from
ta atíon ín the other contractíng state.
(2) The present conventíon shaíí not be deemed to affect the arrangement
between the Uníted States and Denmark provídíng for reííef from doubíe íncome
ta atíon on shíppíng profíts, effected by e changes of notes dated May 22, ugust 0
and 1S. October 2 , 2 , and 2 , and December and 6, ín the year 1922.
rtícíe I
(1) Dívídends shaíí be ta abíe oníy ín the contractíng state ín whích the
sharehoíder ís resídent or, íf the sharehoíder ís a corporatíon or other entíty,
ín the contractíng state ín whích such corporatíon or other entíty ís íncorporated
or organízed.
(2) ach of the contractíng states reserves, however, the ríght to coííect and
retaín the ta whích, under íts revenue íaws, ís deductíbíe at the source wíth
respect to such dívídends, but the ta shaíí not e ceed 1 percent of the amount
of dívídends deríved from sources wíthín such state by a resídent, corporatíon,
or other entíty of the other state, íf the recípíent has no permanent estabííshment
ín the contractíng state from whích the dívídends are deríved.
(3) It ís agreed, however, that the rate of dívídend ta at the source shaíí not
e ceed percent íf the sharehoíder ís a corporatíon controíííng, dírectíy or
índírectíy, at íeast 0 percent of the entíre votíng power ín the corporatíon payíng
the dívídend, and íf not more than 2 percent of the gross íncome of such payíng
corporatíon ís deríved from ínterest and dívídends, other than ínterest and
dívídends receíved from íts own subsídíary corporatíons. Such reductíon of the
rate to percent shaíí not appíy íf the reíatíonshíp of the two corporatíons has
been arranged or ís maíntaíned prímarííy wíth the íntentíon of securíng such
reduced rate.
rtícíe II
Interest on bonds, securítíes, notes, debentures, or on any other form of
índebtedness deríved from sources wíthín one of the contractíng states by a resí-
dent or corporatíon or other entíty of the other contractíng state not havíng a
permanent estabííshment ín the former state shaíí be e empt from ta by such
former state.
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20.211-7.
rtícíe III
Royaítíes and other amounts deríved as consíderatíon for the ríght to use copy-
ríghts, patents, desígns, secret processes r.nd formuías, trade-marks, and other
ííke property (íncíudíng rentaís and ííke payments ín respect of motíon pícture
fííms) deríved from sources wíthín one of the contractíng states by a resídent
or corporatíon or other entíty of the other contractíng state not havíng a perma-
nent estabííshment ín the former state shaíí be e empt from ta atíon ín such
former state.
htícíe I
(1) Income from reaí property (not íncíudíng ínterest deríved from mort-
gages and bonds secured by reaí property) and royaítíes ín respect of the opera-
tíon of mínes, quarríes, or other naturaí resources, shaíí be ta abíe oníy ín the
contractíng state ín whích such property, mínes, quarríes, or other naturaí
resources are sítuated.
(2) resídent or corporatíon of one of the contractíng states derívíng any
such íncome from sources wíthín the other contractíng state may, for any ta abíe
year, eíect to be sub|ect to the ta of such other contractíng state, on a net basís,
as íf suc-h resídent or corporatíon were engaged ín trade or busíness wíthín such
other contractíng state through a permanent estabííshment thereín duríng such
ta abíe year.
rtícíe
(1) Wages, saíaríes, and símííar compensatíon and pensíons paíd by one of
the contractíng states or by any other pubííc authoríty wíthín that state to índí-
víduaís resídíng ín the other state shaíí be ta abíe oníy ín the former state.
(2) Prívate pensíons and íífe annuítíes deríved from wíthín one of the con-
tractíng states and paíd to índívíduaís resídíng ín the other contractíng state
shaíí be e empt from ta atíon ín the former state.
(3) The term íífe annuítíes as used hereín means a stated sum payabíe
períodícaííy at stated tímes duríng íífe, or duríng a specífíed number of years,
under an obíígatíon to make the payments ín consíderatíon of a gross sum paíd
for such obíígatíon.
rtícíe I
(1) Compensatíon for íabor or personaí servíces, íncíudíng the practíce of the
ííberaí professíons, shaíí be ta abíe oníy ín the contractíng state ín whích such
servíces are rendered.
(2) The provísíons of paragraph (1) are, however, sub|ect to the foííowíng
e ceptíons:
(a) resídent of Denmark shaíí be e empt from Uníted States ta upon
compensatíon for íabor or personaí servíces íf he ís temporarííy present ín
the Uníted States for a períod or períods not e ceedíng a totaí of 90 days
duríng the ta abíe year and the compensatíon receíved for such servíces does
not e ceed 3,000 ín the aggregate. If, however, hís compensatíon ís receíved
for íabor or personaí servíces performed as an empíoyee of, or under contract
wíth, a resídent or corporatíon or other entíty of Denmark, he wííí be e empt
from Uníted States ta íf hís stay ín the Uníted States does not e ceed a
totaí of ISO days duríng the ta abíe year.
(6) The provísíons of paragraph (2) (a) of thís artícíe shaíí appíy, mutatís
mutandís, to a resídent of the Uníted States wíth respect to compensatíon
for personaí servíces otherwíse sub|ect to íncome ta ín Denmark.
(3) The provísíons of thís artícíe shaíí have no appíícatíon to the íncome to
whích rtícíe (í) reíates.
rtícíe II
Gaíns deríved ín one of the contractíng states from the saíe or e change of
capítaí assets by a resídent or corporatíon or other entíty of the other contractíng
state shaíí be e empt from ta atíon In the former state íf such resídent or corpo-
ratíon or other entíty ís not engaged ín trade or busíness ín such former state.
Thís artícíe deíeted by reservatíon, see Presídent s Procíamatíon hereínafter.
rtícíe III
Students or apprentíces, cítízens of one of the contractíng states, resídíng ín
the other contractíng state e cíusíveíy for purposes of study or for acquíríng
busíness e períence, shaíí not be ta abíe ín the íatter state ín respect of remít-
tances (other than theír own íncome) receíved by them from abroad for the
Furposcs of theír maíntenance or studíes.
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29.211-7.
SO
rtícíe I
professor or teacher, a resídent of one of the contractíng states, who tem-
porarííy vísíts the terrítory of the other contractíng state for the purpose of
teachíng for a períod not e ceedíng 2 years at a uníversíty, coííege, schooí, or
other educatíonaí ínstítutíon ín the other contractíng state, shaíí be e empted
ín such other contractíng state from ta on hís remuneratíon for such teachíng
for such períod.
rtícíe
It ís agreed that doubíe ta atíon shaíí be avoíded ín the foííowíng manner:
(a) The Uníted States ín determíníng the íncome ta es, íncíudíng sur-
ta es, of íts cítízens, resídents, or corporatíons may, regardíess of any other
provísíon of thís conventíon, íncíude ín the basís upon whích such ta es arc
ímposed aíí ítems of íncome ta abíe under the revenue íaws of the Uníted
States as íf thís conventíon had not come ínto effect. The Uníted States
shaíí, however, sub|ect to the provísíons of sectíon 131, Internaí Revenue
Code, deduct from íts ta es the amount of Danísh ta es specífíed ín rtícíe
I of thís conventíon.
(6) Denmark, ín determíníng íts ta es specífíed ín rtícíe I of thís con-
ventíon, may, regardíess of any other provísíon of thís conventíon, íncíude
ín the basís upon whích such ta es are ímposed aíí ítems of íncome sub|ect
to such ta es under the ta atíon íaws of Denmark. Denmark shaíí, how-
ever, deduct from the ta es so caícuíated the Uníted States ta on íncome
comíng wíthín the provísíons of rtícíes III, I , (í), III, and I of
thís conventíon and on earned íncome earned wíthín the Uníted States, but
ín an amount not e ceedíng that proportíon of the Danísh ta es whích such
íncome bears to the entíre íncome sub|ect to ta by Denmark. Denmark
wííí aíso aííow as a deductíon from íts ta es an amount equaí to 1 percent
( percent ín the case of dívídends covered by rtícíe I(3)) of the gross
amount of dívídends (reduced by the Uníted States ta appíícabíe to such
dívídends) from sources wíthín the Uníted States.
rtícíe I
(1) The cítízens of one of the contractíng states shaíí not, whííe resídent ín
the other contractíng state, be sub|ected thereín to other or more burdensome
ta es than are the cítízens of such other contractíng state resídíng ín íts terrí-
tory. s used ín thís paragraph,
(a) the term cítízens íncíudes níí íegaí persons, partnershíps, and
assocíatíons created or organízed under the íaws ín the respectíve contract-
íng states, and
(6) the term ta es means ta es of every kínd or descríptíon whether
natíonaí, Federaí, State, províncíaí, or munícípaí.
(2) It ís agreed that sectíon 2 , paragraph , of the Danísh íaw No. 391 of
uíy 12, 19 0, prescríbíng an addítíon of 0 percent of the capítaí íncrement ta
on corporatíons ín cases where more than 0 percent of the entíre stock capítaí
ís owned by a síngíe sharehoíder resídíng outsíde Denmark, shaíí not be appííca-
bíe when the sharehoíder ín questíon ís a resídent of the Uníted States or a
Uníted Staíes corporatíon or other entíty.
rtícíe II
The competent authorítíes of the contractíng states shaíí e change such ínfor-
matíon (beíng ínformatíon avaííabíe under the respectíve ta atíon íaws of the
contractíng states) as ís necessary for curryíng out the provísíons of the present
conventíon or for the preventíon of fraud or the admínístratíon of statutory
provísíons agaínst ta avoídance ín reíatíon to the ta es whích are the sub|ect
of the present conventíon. ny ínformatíon so e changed shaíí be treated as
secret and shaíí not bo díscíosed to any person other than those concerned wíth
the assessment and coííectíon of the ta es whích are the sub|ect of the present
conventíon. No ínformatíon shaíí be e changed whích wouíd díscíose any trade
secret or trade process.
rtícíe III
(1) The contractíng states undertake to íend assístance and support to each
other ín the coííectíon of the ta es whích are the sub|ect of the present conven-
tíon, together wíth ínterest, costs, and addítíons to the ta es.
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29.211-7.
(2) In the case of appíícatíon for enforcement of ta es, revenue cíaíms of each
of the contractíng states whích have been fínaííy determíned may be accepted
for enforcement by the other contractíng state and may be coííected ín that
state ín accordance wíth the íaws appíícabíe to the enforcement and coííectíon
of íts own ta es.
(3) ny appíícatíon shaíí íncíude a certífícatíon that under the íaws of the
state makíng the appíícatíon the ta es have been fínaííy determíned.
( ) The assístance províded for ín thís artícíe shaíí not be nccorded wíth
respect to the cítízens, corporatíons, or other entítíes of the state to whích
appíícatíon ís made, e cept as ís necessary to ínsure that the e emptíon or re-
duced rate of ta granted under the present conventíon to such cítízens, cor-
poratíons, or other entítíes shaíí not be en|oyed by persons not entítíed to such
benefíts.
utící|s I
The state to whích appíícatíon ís made for ínformatíon or assístance shaíí
compíy as soon as possíbíe wíth the request addressed to ít e cept that such
state may refuse to compíy wíth the request for reasons of pubííc poíícy or íf
compííance wouíd ínvoíve víoíatíon of a trade, busíness, índustríaí or profes-
síonaí secret, or trade process.
rtícíe
Where a ta payer shows proof that the actíon of the revenue authorítíes of
the contractíng states has resuíted ín doubíe ta atíon ín hís case ín respect of
any of the ta es to whích the present conventíon reíates, he shaíí be entítíed
to íodge a cíaím wíth the state of whích he ís a cítízen or, íf he ís not a cítízen
of eíther of the contractíng states, wíth the state of whích he Is a resídent, or,
íf the ta payer ís a corporatíon or other entíty, wíth the state ín whích ít ís cre-
ated or organízed. Shouíd the cíaím be upheíd, the competent authoríty of such
state may come to an agreement wíth the competent authoríty of the other state
wíth a víew to equítabíe avoídance of the doubíe ta atíon ín questíon.
rtícíe I
(1) The provísíons of thís conventíon shaíí not be construed to deny or affect
In any manner the ríght of dípíomatíc and consuíar offícers to other or addí-
tíonaí e emptíons now en|oyed or whích may hereafter be granted to such offí-
cers.
(2) The provísíons of the present conventíon shaíí not be construed to re-
stríct In any manner any e emptíon, deductíon, credít, or other aííowance ac-
corded by the íaws of one of the contractíng states ín the determínatíon of the
ta ímposed by such state.
(3) Shouíd any díffícuíty or doubt aríse as to the ínterpretatíon or appííca-
tíon of the present conventíon, or íts reíatíonshíp to conventíons between one
of the contractíng states and any other state, the competent authorítíes of the
contractíng states may settíe the questíon by mutuaí agreement.
rtícíe II
The competent authorítíes of the two contractíng states may prescríbe reguía-
tíons necessary to Interpret and carry out the provísíons of thís conventíon.
Wíth respect to the provísíons of thís conventíon reíatíng to e change of ín-
formatíon and mutuaí assístance ín the coííectíon of ta es, such authorítíes may,
by common agreement, prescríbe ruíes concerníng matters of procedure, forms
of appíícatíon and repííes thereto, conversíon of currency, dísposítíon of amounts
coííected, mínímum amounts sub|ect to coííectíon and reíated matters.
rtícíe III
(1) The present conventíon shaíí be ratífíed and the ínstruments of ratífíca-
tíon shaíí be e changed at Washíngton as soon as possíbíe.
(2) Upon the e change of ínstruments of ratífícatíon, the present conventíon
shaíí have effect
(o) ín the case of Uníted States ta , for the ta abíe years begínníng on
or after the 1st day of anuary of the year ín whích such e change takes
píace;
(6) ín the case of Danísh ta , for the ta abíe years begínníng on or
after the 1st day of príí of the year ín whích such e change takes píace.
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29.211-7.
2
(3) The present conventíon shaíí contínue effectíve for a períod of years and
índefíníteíy after that períod, but may be termínated by eíther of the contractíng
states at the end of the -year períod or at any tíme thereafter, províded that
at íeast 6 months príor notíce of termínatíon has been gíven and, ín such event,
the present conventíon shaíí cease to be effectíve
(a) as respects Uníted States ta , for the ta abíe years begínníng on or
after the 1st day of anuary ne t foííowíng the e píratíon of the 6-month
períod;
(6) as respects Danísh ta , for the ta abíe years begínníng on or after
the 1st day of príí ne t foííowíng the e píratíon of the 6-month períod.
Done at Washíngton, ín dupíícate. In the ngíísh and Danísh íanguages, the
two te ts havíng equaí authentícíty, thís 6th day of May, 19 .
For the Presídent of the Uníted States of meríca:
S L G. C. M RSII LL.
For ís Ma|esty the íng of Denmark:
seaí enrík auffmann.
Procíamatíon of the Presídent of the Uníted States
Dated December , 19

nd whereas the Senate of the Uníted States of meríca, by theír resoíutíon
of une 17,19 , two-thírds of the Senators present concurríng thereín, díd advíse
and consent to the ratífícatíon of the aforesaíd conventíon sub|ect to a reservatíon,
as foííows:
€ The Government of the Uníted States of meríca does not accept rtícíe
II of the conventíon reíatíng to gaíns from the saíe or e change of capítaí
assets.
nd whereas the te t of the aforesaíd reservatíon was communícated by the
Government of the Uníted States of meríca to the Government of Denmark
and thereafter the Government of Denmark gave notíce of Its acceptance
of the aforesaíd reservatíon;
nd whereas the aforesaíd conventíon was duíy ratífíed by the Presídent of
the Uníted States of meríca on November 2 ,19 , ín pursuance of the aforesaíd
advíce and consent of the Senate and sub|ect to the aforesaíd reservatíon, and
the saíd conventíon, wíth the e ceptíon of rtícíe II thereof, was duíy ratífíed
on the part of Denmark;
nd whereas the respectíve ínstruments of ratífícatíon of the aforesaíd con-
ventíon were duíy e changed at Washíngton on December 1, 19 , and a protocoí
of e change of ínstruments of ratífícatíon, In the ngíísh and Danísh íanguages,
was sígned on that date by the respectíve Píenípotentíaríes of the Uníted States
of meríca and Denmark, the ngíísh te t of whích protocoí reads ín part:
ít ís the understandíng of both Governments that rtícíe II of the conventíon
aforesaíd shaíí be deemed to be deíeted and of no effect, ;
€ € € € € € €
Sec. 7.9 1. ppíícabíe Provísíons of the Internaí Revenue
Code. € ” The Internaí Revenue Code provídes ín part as foííows:
C PT R I. € ” INCOM T
€ € € € €
S C. 22. GROSS INCOM .

(b) cíusíons from Gross Income. € ” The foííowíng ítems shaíí not be ín-
cíuded ín gross íncome and shaíí be e empt from ta atíon under thís chapter:
€ € € € € €
(7) Income e empt under treaty. € ” Income of any kínd, to the e tent
requíred by any treaty obíígatíon of the Uníted States;
€ € €
S C. 62. RUL S ND R GUL TIONS.
The Commíssíoner, wíth the approvaí of the Secretary, shaíí prescríbe and
pubíísh aíí needfuí ruíes and reguíatíons for the enforcement of thís chapter.
Pursuant to sectíon 62 of the Internaí Revenue Code, other proví-
síons of the ínternaí revenue íaws, and to rtícíe II of the con-
ventíon, the foííowíng reguíatíons, whích are desígnated as sectíons
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29.211-7.
7.9 0 to 7.966, are hereby prescríbed and aíí reguíatíons ínconsístent
herewíth are modífíed accordíngíy.
Sec. 7.9 2. Scope op the Conventíon. € ” The prímary purposes of
the conventíon, to be accompííshed on a recíprocaí basís, are to avoíd
doubíe ta atíon upon ma|or ítems of íncome deríved from sources ín
one country by persons resídent ín, or by corporatíons of, the other
country, and to províde for admínístratíve cooperatíon between the
competent ta authorítíes of the two countríes íookíng to the avoíd-
ance of doubíe ta atíon and físcaí evasíon.
The specífíc cíasses of íncome from sources wíthín the Uníted States
e empt under the conventíon from Uníted States ta for ta abíe
years begínníng on and after anuary 1,19 , are:
(a) Industríaí and commercíaí profíts of a Danísh enterpríse
havíng no permanent estabííshment ín the Uníted States ( rtícíe
I);
(o) Income deríved by a nonresídent aííen who ís a resídent of
Denmark, or by a Danísh corporatíon, from the operatíon of shíps
or aírcraft regístered ín Denmark ( rtícíe );
(c) Interest and royaítíes (íncíudíng motíon pícture fíím rent-
aís) deríved by a nonresídent aííen who ís a resídent of Denmark
or by a Danísh corporatíon íf such aííen or corporatíon has no
permanent estabíísííment ín the Uníted States ( rtícíes II and
vííí);
(d) Compensatíon and pensíons paíd by Denmark to aííens for
servíces rendered to Denmark ( rtícíe (í));
(e) Prívate pensíons and íífe annuítíes deríved by nonresídent
aííen índívíduaís resídíng ín Denmark ( rtícíe (2));
(/) Compensatíon, sub|ect to certaín íímítatíons, for personaí
servíces deríved by a nonresídent aííen who ís a resídent of Den-
mark ( rtícíe I);
(g) Remíttances from sources outsíde the Uníted States re-
ceíved ín the Uníted States by a Danísh cítízen who ís temporarííy
present ín the Uníted States for the purposes of study or for
acquíríng busíness e períence, such remíttances beíng for the
purpose of hís maíntenance or studíes ( rtícíe III);
( ) Remuneratíon deríved from teachíng ín the Uníted States
for a períod of not more than 2 years by a professor or teacher
who ís a resídent of Denmark but who ís temporarííy present ín
the Uníted States ( rtícíe I ).
The conventíon aíso reduces to 1 percent the rate of ta otherwíse
ímposed upon dívídends deríved by a nonresídent aííen who ís a resí-
dent of Denmark, or by a Danísh corporatíon, íf such aííen or corpora-
tíon has no permanent estabííshment ín the Uníted States ( rtícíe
s to e emptíon from wíthhoídíng of the ta at the source ín the
case of ínterest, royaítíes, pensíons, and íífe annuítíes, and reductíon
ín the rate of ta from 30 percent to 1 percent ín the case of dívídends,
see Treasury Decísíon 692 C. . 19 9-1, 10 , approved March ,
19 9 26 CFR 7.900 to 7.907, íncíusíve .
The conventíon does not affect the ííabíííty to Uníted States íncome
ta atíon of cítízens of Denmark who are resídents of the Uníted
States e cept that such índívíduaís are entítíed to the benefíts of
rtícíe (reíatíng to credít for Danísh íncome ta ), and of rtícíe
I (reíatíng to equaííty of ta atíon). cept as províded ín rtí-
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29.211-7.

cíe , reíatíng to the credít for íncome ta , the conventíon does
not affect ta atíon by the Uníted States of a cítízen of the Uníted
States or of a domestíc corporatíon, even though such cítízen ís resí-
dent ín Denmark and such corporatíon ís engaged ín trade or busíness
ín Denmark.
_ Sec. 7.9 3. Defí ítíons. € ” s used ín sectíons 7.9 0 to 7.966, íncíu-
síve, uníess the conte t otherwíse requíres, the terms defíned ín the
conventíon shaíí have the meaníngs so assígned to them. ny term
used ín sectíons 7.9 0 to 7.966, íncíusíve, whích ís not defíned ín the
conventíon but whích ís defíned ín the Internaí Revenue Code shaíí be
gíven the defínítíon contaíned thereín uníess the conte t otherwíse
requíres.
s used ín sectíons 7.9 0 to 7.966, íncíusíve:
(a) The term permanent estabííshment means a branch offíce,
factory, warehouse, or other fí ed píace of busíness, but does not ín-
cíude the casuaí and temporary use of mereíy storage facííítíes. The
fact that a Danísh corporatíon has a domestíc subsídíary corporatíon
or a foreígn subsídíary corporatíon havíng a branch ín the Uníted
States, does not of ítseíf constítute eíther subsídíary corporatíon a
permanent estabííshment of the parent Danísh enterpríse. The fact
that a Danísh enterpríse has busíness deaííngs ín the Uníted States
through a bona fíde commíssíon agent, broker, or custodían, actíng ín
the ordínary course of hís busíness as such, or maíntaíns ín the Uníted
States an offíce or other fí ed píace of busíness used e cíusíveíy for
the purchase of goods or merchandíse, does not mean that such Danísh
enterpríse has a permanent estabííshment ín the Uníted States. If,
however, a Danísíí enterpríse carríes on busíness ín the Uníted States
through an agent who has, and habítuaííy e ercíses, a generaí au-
thoríty to negotíate and concíude contracts on behaíf of such enterpríse
or íf ít has an agent who maíntaíns wíthín the Uníted States a stock
of merchandíse from whích he reguíaríy fííís orders on behaíf of hís
príncípaí, then such enterpríse shaíí be deemed to have a permanent
estabííshment ín the Uníted States. owever, an agent havíng power
to contract on behaíf of hís príncípaí but oníy at fí ed príces and
under condítíons determíned by the príncípaí does not necessarííy
constítute a permanent estabííshment of such príncípaí. The mere
fact that an agent (assumíng he has no generaí authoríty to contract
on behaíf of hís empíoyer or príncípaí) maíntaíns sampíes or occasíon-
aííy fííís orders from íncídentaí stocks of goods maíntaíned ín the
Uníted States wííí not constítute a permanent estabííshment wíthín
the Uníted States. The mere fact that saíesmen, empíoyees of a Dan-
ísh enterpríse, promote the saíe of theír empíoyers products ín the
Uníted States or that such enterpríse transacts busíness ín the Uníted
States by means of maíí order actívítíes, does not mean such enterpríse
has a permanent estabííshment thereín. The term permanent estab-
ííshment as used ín the conventíon ímpííes the actíve conduct thereín
of a busíness enterpríse. The mere ownershíp, for e ampíe, of tímber-
íands or a warehouse ín the Uníted States by a Danísh enterpríse does
not mean that such enterpríse has a permanent estabííshment thereín.
s to the effect of the maíntenance of a permanent estabííshment
wíthín the Uníted States upon e emptíon from Uníted States ta b
the case of ínterest and royaítíes and reductíon ín the rate of Unítcc:
States ta ín the case of dívídends, see sectíon 7.9 7.
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29.211-7.
(b) The term enterpríse means any commercíaí or índustríaí
undertakíng whether conducted by an índívíduaí, partnershíp, cor-
poratíon, or other entíty. It íncíudes such actívítíes as manufactur-
íng, merchandísíng, míníng, processíng, and bankíng. It does not
íncíude the rendítíon of personaí servíces. ence, a nonresídent aííen
who ís a resídent of Denmark and who renders personaí servíces ís not,
mereíy by reason of such servíces, engaged ín an enterpríse wíthín
the meaníng of the conventíon and hís ííabíííty to Uníted States ta ís
not affected by rtícíe I of the conventíon.
(c) The term Danísh enterpríse means an enterpríse carríed on
ín Denmark by a resídent of Denmark or by a Danísh corporatíon or
other entíty. The term Danísh corporatíon or other entíty means
a partnershíp, corporatíon, or other entíty created or organízed ín
Denmark or under the íaws of Denmark.
d) The term índustríaí or commercíaí profíts means profíts arís-
íng from índustríaí, commercíaí, mercantííe, manufacturíng, and ííke
actívítíes of a Danísh enterpríse as defíned ín thís sectíon. Such term
does not íncíude rentaís, royaítíes, ínterest, dívídends, fees, compensa-
tíon for personaí servíces, nor gaíns deríved from the saíe or e change
of capítaí assets. Such enumerated ítems of íncome are not governed
by the provísíons of rtícíe III of the conventíon.
Sec. 7.9 . Scope of Conventíon Wíth espect to Determína-
tíon of Industríaí or Commercíaí Profíts. € ” (a) Generaí. € ” rtícíe
III of the conventíon adopts the príncípíe that an enterpríse of one
of the contractíng states shaíí not be ta abíe by the other contractíng
state upon íts índustríaí or commercíaí profíts uníess ít has a perma-
nent estabííshment ín the íatter state. ence, a Danísh enterpríse ís
sub|ect to Uníted States ta upon íts índustríaí and commercíaí profíts
to the e tent of such profíts from sources wíthín the Uníted States oníy
íf ít has a permanent estabííshment wíthín the Uníted States. From
the standpoínt of Federaí íncome ta atíon, the artícíe has appíícatíon
oníy to a Danísh enterpríse and to the índustríaí and commercíaí ín-
come thereof from sources wíthín the Uníted States. It has no ap-
píícatíon, for e ampíe, to compensatíon for íabor or personaí servíces
performed ín the Uníted States nor to íncome deríved from reaí prop-
erty íocated ín the Uníted States, íncíudíng rentaís and royaítíes
therefrom, nor to gaíns from the saíe or dísposítíon of such prop-
erty, nor to ínterest, dívídends, royaítíes, other fí ed or determínabíe
annuaí or períodícaí íncome, and gaíns deríved from the saíe or e -
change of capítaí assets.
(b) No Uníted States permanent estabííshment. € ” nonresídent
aííen (íncíudíng a nonresídent aííen índívíduaí, fíducíary, and part-
nershíp) who ís a resídent of Denmark, or a Danísh corporatíon, car-
ryíng on an enterpríse ín Denmark and havíng no permanent estab-
ííshment ín the Uníted States, ís not for ta abíe years begínníng on or
after anuary 1, 19 , sub|ect to Uníted States íncome ta upon ín-
dustríaí or commercíaí profíts from sources wíthín the Uníted States.
For e ampíe, íf the Danísh enterpríse carríed on by such aííen or cor-
poratíon seíís, ín 19 , merchandíse, such as sííverware, daíry prod-
ucts, or ííquors through a bona fíde commíssíon agent or broker ín
the Uníted States actíng ín the ordínary course of hís busíness as such
a|rent or broker, the resuítíng profíts are, under the terms of rtícíe
I of the conventíon, e empt from Uníted States íncome ta . Líke-
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29.211-7.
SG
wíse no permanent estabííshment e ísts and no Uníted States íncome
ta attaches to such profíts íf such enterpríse, through íts saíes agents
ín the Uníted States, secures orders for íts products, the saíes beíng
made ín Denmark.
_ (c) Uníted States permanent estabííshment. € ” nonresídent aííen
(íncíudíng a nonresídent aííen índívíduaí, fíducíary, and partnershíp)
who ís a resídent of Denmark, or a Danísh corporatíon, whether or
not carryíng on a Danísh enterpríse, havíng a permanent estabíísh-
ment ín the Uníted States, ís sub|ect to ta upon índustríaí or com-
mercíaí profíts from sources wíthín the Unítea States to the same e -
tent as are nonresídent aííens and foreígn corporatíons engaged ín
trade or busíness thereín. In the determínatíon of the íncome ta abíe
to such aííen or foreígn corporatíon aíí índustríaí and commercíaí
profíts from sources wíthín the Uníted States shaíí be deemed to be
aííocabíe to the permanent estabííshment ín the Uníted States. ence,
for e ampíe, íf a Danísh enterpríse havíng a permanent estabíísh-
ment ín the Uníted States seíís ín the Uníted States, through a com-
míssíon agent thereín goods produced ín Denmark, the resuítíng prof-
íts deríved from Uníted States sources from such transactíons are aí-
íocabíe to such permanent estabííshment even though such transactíons
were carríed on índependentíy of such estabííshment. In determín-
íng índustríaí and commercíaí profíts no account shaíí be taken of the
mere purchase of merchandíse wíthín the Uníted States by the Dan-
ísh enterpríse. The índustríaí or commercíaí profíts of the perma-
nent estabííshment shaíí be determíned as íf the estabííshment were an
índependent enterpríse engaged ín the same or símííar actívítíes and
deaííng at arm s íength wíth the enterpríse of whích ít ís a permanent
estabííshment.
Sec. 7.9 . Controí of a Domestíc nterpríse by a Danísh nter-
príse. € ” rtícíe I of the conventíon provídes, ín effect, that íf a
Danísh corporatíon by reason of íts controí of a domestíc enterpríse
ímposes on such íatter enterpríse condítíons dífferent from those whích
wouíd resuít from normaí busíness reíatíons between índependent
enterpríses, the accounts between the enterpríses may be ad|usted so as
to ascertaín the true net íncome of each enterpríse. The purpose ís to
píace the controííed domestíc enterpríse on a ta paríty wíth an uncon-
troííed domestíc enterpríse by determíníng, accordíng to the standard
of an uncontroííed enterpríse, the true net íncome from the property
and busíness of the controííed enterpríse. The basíc ob|ectíve of the
artícíe ís that íf the accountíng records do not truíy refíect the net
íncome from the property and busíness of such domestíc enterpríse
the Commíssíoner of íternaí Revenue may íntervene and, by makíng
such dístríbutíons, apportíonments, or aííocatíons as he may deem
necessary of gross íncome or deductíons of any ítem or eíement affect-
íng net íncome as between such domestíc enterpríse and the Danísh
enterpríse by whích ít ís controííed or dírected, determíne the true
net íncome of the domestíc enterpríse. The provísíons of sectíon
29. -1, Reguíatíons 111 26 CFR 29. -1 , shaíí, ínsofar as appíí-
cabíe, be foííowed ín the determínatíon of the net íncome of the
domestíc busíness.
Sec. 7.9 G. Income From Operatíon of Shíps or írcraft. € ” The
íncome deríved from the operatíon of shíps or aírcraft regístered ín
Denmark by a nonresídent aííen who ís a resídent of Denmark, or by
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7
29.211-7.
a Danísh corporatíon, and carryíng on an enterpríse ín Denmark, ís,
for ta abíe years begínníng on or after anuary 1,19 , e empt from
Uníted States íncome ta under the provísíons of rtícíe of the
conventíon.
Sec. 7.9 7. emptíon From, on Reductíon ín Rate of, Uníted
States Ta ín the Case of Dívídends, Interest, and Royaítíes. € ” (a)
Dívídend . € ” (1) Generaí. € ” The ta ímposed by the Internaí Revenue
Code ín the case of dívídends receíved from sources wíthín the Uníted
States by (í) a nonresídent aííen (íncíudíng a nonresídent aííen índí-
víduaí, fíducíary, and partnershíp) who ís a resídent of Denmark, or
(íí) a Danísh corporatíon ís, for ta abíe years begínníng on and after
anuary 1,19 , íímíted to 1 percent under the provísíons of rtícíe
I (reíatíng to dívídends) íf such aííen or corporatíon, at no tíme
duríng the ta abíe year ín whích such dívídends were so deríved, had
a permanent estabííshment wíthín the Uníted States. Thus, íf a non-
resídent aííen who ís a resídent of Denmark, performs personaí serv-
íces wíthín the Uníted States duríng the caíendar year 19 but has
at no tíme duríng such year a permanent estabííshment wíthín the
Uníted States, he ís entítíed to the reduced rate of ta wíth respect
to such dívídends deríved ín that year from Uníted States sources, as
rovíded ín rtícíe I of the conventíon, even though by reason of
ís havíng rendered personaí servíces wíthín the Uníted States he ís
engaged ín trade or busíness thereín ín that year wíthín the meaníng
of sectíon 211 (b) of the Internaí Revenue Code. If, for e ampíe, ,
a nonresídent aííen who ís a resídent of Denmark, deríves ín 19 ,
,000 compensatíon for such personaí servíces and hís oníy other
íncome from sources wíthín the Uníted States consísts of dívídends,
the dívídends are sub|ect to ta at a rate not to e ceed 1 percent and
hís earned íncome ís sub|ect to normaí ta and surta wíthout takíng
the dívídends ínto account ín determíníng the ta on such earned
íncome.
(2) Dívídends paíd by a Uníted States subsídíary corporatíon. € ”
Under the provísíons of rtícíe I (3) of the conventíon, dívídends
paíd by a domestíc corporatíon to a Danísh corporatíon are sub|ect to
ta at the rate of oníy percent íf (í) such Danísh corporatíon con-
troís, dírectíy or índírectíy, at the tíme the dívídend ís paíd 9 percent
or more, of the votíng power ín such domestíc corporatíon, (íí) not
more than 2 percent of the gross íncome of the domestíc corporatíon
for the 3-year períod ímmedíateíy precedíng the ta abíe year ín whích
the dívídend ís paíd consísts of dívídends and ínterest (other than
dívídends and ínterest paíd to such domestíc corporatíon by íts own
subsídíary corporatíons, íf any), and (ííí) the reíatíonshíp between
such domestíc corporatíon and such Danísh corporatíon has not been
arranged or maíntaíned prímarííy wíth the íntentíon of securíng such
reduced rate of percent.
(b) Interest and royaítíes. € ” Interest, whether on bonds, securítíes,
notes, debentures, or any other form of índebtedness (íncíudíng ínter-
est on obíígatíons of the Uníted States and on obíígatíons of ínstru-
mentaíítíes of the Uníted States), and royaítíes for the ríght to use
copyríghts, patents, desígns, secret processes and formuíae, trade-
marks, and other anaíogous property, and royaítíes (íncíudíng rentaís
and ííke payments ín respect of motíon pícture fííms) receíved from
sources wíthín the Uníted States by (1) a nonresídent aííen (íncíudíng
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29.211-7.)
ss
a nonresídent aííen índívíduaí, fíducíary, and partnershíp) who ís a
resídent of Denmark, or (2) a Danísh corporatíon, are, for ta abíe
vears begínníng on and after anuary 1, 19 , e empt from Uníted
States ta under the provísíons of rtícíes II and III of the con-
ventíon íf such aííen or corporatíon at no tíme duríng the ta abíe year
ín whích such ínterest or royaíty was so deríved had a permanent es-
tabííshment sítuated wíthín the Uníted States.
Such ínterest and royaítíes are, therefore, not sub|ect to the wíth-
hoídíng provísíons of the Internaí Revenue Code.
(c) enefícíaríes of an estate or trust. € ” nonresídent aííen who ís
a resídent of Demnark and who ís a benefícíary of a domestíc estate
or trust shaíí be entítíed to the e emptíon, or reductíon ín the rate of
ta , as the case may be, províded ín rtícíes I, II, and III of
the conventíon wíth respect to dívídends, ínterest, and royaítíes to
the e tent that such ítem or ítems are íncíuded ín hís dístríbutíve share
of íncome of sucíí estate or trust íf he at no tíme duríng the ta abíe
year had a permanent estabííshment ín the Uníted States. In such
case such benefícíary must, ín order to be entítíed to the e emptíon
or reductíon ín the rate of ta e ecute Form 1001-D or Form 1001 -D
(modífíed to show dívídends where appíícabíe) and fííe such form
wíth the fíducíary of such estate or trust ín the Uníted States.
In any case ín whích dívídends, ínterests, or royaítíes are deríved
from Uníted States sources by a Danísh estate or trust, any benefícíary
of such estate or trust who ís not a resídent of Denmark, or who has a
permanent estabííshment ín the Uníted States, ís not entítíed to any
e emptíon under the conventíon wíth respect to such íncome íncíuded
ín hís dístríbutíve share of the íncome of the estate or trust.
Sec. 7.9 . Reaí Property Income, Naturaí Resource Royaí-
tíes. € ” Under rtícíe I of the conventíon, a nonresídent aííen (ín-
cíudíng a nonresídent aííen índívíduaí, fíducíary, and partnershíp)
who ís a resídent of Denmark, or a Danísh corporatíon, who deríves
from sources wíthín the Uníted States ín any ta abíe year begínníng
on or after anuary 1,19 , íncome from reaí property (not íncíudíng
ínterest deríved from mortgages or bonds secured by reaí property)
or royaítíes from the operatíon of mínes, quarríes, oíí weíís, or other
naturaí resources may, for such ta abíe year, eíect to be sub|ect to
Federaí íncome ta as íf such aííen or corporatíon were engaged ín
trade or busíness wíthín the Uníted States by reason of havíng a per-
manent estabííshment thereín duríng such ta abíe year. Such eíectíon
shaíí be made by so sígnífyíng on the return for such year. The eíec-
tíon so sígnífíed shaíí be írrevocabíe for the ta abíe year for whích
fruch eíectíon ís made. In such case a return may be fííed by the non-
resídent aííen or foreígn corporatíon even though the soíe íncome of
such aííen or corporatíon from sources wíthín the Uníted States ís
fí ed or determínabíe annuaí or períodícaí íncome upon whích the
t a has been fuííy satísfíed at the source and there e ísts no necessíty
for the fíííng of the return e cept for the purposes of securíng the
benefíts of rtícíe I of the conventíon. See sectíon 29.217-2, Regu-
íatíons 111 26 CFR 29.217-21.
Sec. 7.9 9. Government Wages, Saíaríes, Pensíons, and Símííar
Remuneratíon. € ” Under rtícíe (í) of the conventíon any wage,
saíary, símííar compensatíon, or pensíon paíd by the Government or
Denmark or by any other pubííc authoríty wíthín Denmark to an ín-
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S9
29.211-7.
dívíduaí ín the Uníted States ís e empt from Federaí íncome ta for
ta abíe years begínníng on and after anuary 1, 19 . y reason,
however, of the appíícatíon of rtícíe (a) of the conventíon, such
e emptíon does not appíy to recípíents of such íncome who are eíther
cítízens of the Uníted States or aííen resídents thereín. s to the
ta atíon generaííy of compensatíon of aííen empíoyees of foreígn gov-
ernments, see sectíon 116(h) of the Internaí Revenue Code and sectíon
29.116-2, Reguíatíons 111 26 CFR 29.116-2 .
Sec. 7.960. Pensíons and Lífe nnuítíes. € ” Under the provísíons
of rtícíe (2) of the conventíon, prívate pensíons, and íífe annuítíes
deríved from sources wíthín the Uníted States by nonresídent aííen
índívíduaís who are resídents of Denmark are e empt from Federaí
íncome ta for ta abíe years begínníng on and after anuary 1, 19 .
The term íífe annuítíes ís defíned ín rtícíe (3). The term prí-
vate pensíons does not íncíude pensíons or retíred pay paíd by the
Uníted States or by any State or Terrítory of the Uníted States; ít does
íncíude períodíc payments made ín consíderatíon for servíces rendered
or by way of compensatíon for ín|uríes receíved.
Sec. 7.961. Compensatíon for Labor or Personaí Servíces. € ”
rtícíe I of the conventíon adopts the príncípíe that compensatíon
for íabor or personaí servíces, íncíudíng the practíce of the ííberaí
professíons, ís sub|ect to ta oníy ín the contractíng state ín whích
such servíces are rendered. ence, ín generaí, such compensatíon de-
ríved by a nonresídent aííen índívíduaí resídíng ín Denmark for
servíces rendered ín the Uníted States ís sub|ect to Federaí íncome
ta . Under rtícíe I of the conventíon thís generaí ruíe ís sub|ect
to the foííowíng e ceptíons:
(a) Where such índívíduaí ís temporarííy pesent ín the Uníted
States for a períod or períods not e ceedíng a totaí of 90 days
duríng the ta abíe year, compensatíon receíved for íabor or per-
sonaí servíces wíthín the Uníted States duríng such year ís e empt
from Federaí íncome ta províded such compensatíon does not
e ceed 3,000 ín the aggregate.
(b) Where such índívíduaí ís temporarííy present ín the Uníted
States for a períod or períods not e ceedíng a totaí of 1 0 da S
duríng the ta abíe year, compensatíon for íabor or personaí
servíces wíthín the Uníted States duríng such year ís e empt
from Federaí íncome ta províded such compensatíon ís receíved
for servíces performed as a worker or empíoyee of, or under con-
tract wíth, a resídent or corporatíon of Denmark (even though
such resídent or corporatíon ís engaged ín trade or busíness ín the
Uníted States) whích resídent or corporatíon actuaííy bears the
e pense of such compensatíon and ís not reímbursed therefor by
another person.
s to the source of compensatíon for íabor or personaí servíces, see
sectíon 119(a)(3) of the Internaí Revenue Code.
Sec. 7.962. Students and pprentíces; Remíttances. € ” Under
rtícíe III of the conventíon, cítízens of Denmark who are tem-
porarííy present ín the Uníted States as students or apprentíces e -
cíusíveíy for the purposes of study or for acquíríng busíness e perí-
ence, are e empt for ta abíe years begínníng on or after anuary 1,
19 , from Federaí íncome ta upon amounts representíng remíttances
33 0 € ” 0 -7
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29.211-7.
from sources outsíde the Uníted States for the purposes of theír maín-
tenance or studíes.
Sec. 7.963. ísítíng Professors or Teachers. € ” Under rtícíe
I of the conventíon, an aííen who ís a resídent of Denmark but
who ís temporarííy present wíthín the Uníted States for the purpose
of teachíng, íecturíng, or ínstructíng at any uníversíty, coííege, schooí,
or other educatíonaí ínstítutíon, sítuated wíthín the Uníted States
ís, for a períod not e ceedíng 2 years from the date of hís arrívaí ín
the Uníted States, e empt for ta abíe years begínníng on or after
anuary 1, 19 , from Federaí íncome ta on remuneratíon receíved
for such servíces. It shaíí be deemed that such aííen comíng to the
Uníted States for the purposes índícated has, for a períod of not more
than 2 years ímmedíateíy succeedíng the date of hís arrívaí wíthín
the Uníted States for such purposes, the ta status of a nonresídent
aííen ín the absence of proof of hís íntentíon to remaín índefíníteíy
ín the Uníted States.
Sec. 7.96 . Credít gaínst Uníted States Ta Líabíííty for
Danísh Ta . € ” For the purpose of avoídance of doubíe ta atíon,
rtícíe provídes that, on the part of the Uníted States, there shaíí
be aííowed agaínst the Uníted States íncome ta a credít for the amount
of Danísh ta es descríbed ín rtícíe I of the conventíon ímposed on
íncome deríved from sources wíthín Denmark for ta abíe years be-
gínníng on and after anuary 1,19 . Such credít, however, ís sub|ect
to the íímítatíons províded ín sectíon 131 of the Internaí Revenue
Code (reíatíng to the credít for foreígn ta es). See sectíons 29.131-1
to 29.131-9 of Reguíatíons 111 26 CFR 29.131-1 to 29.131-9 .
Sec. 7.96 . Recíprocaí dmínístratíve ssístance. € ” (a) Gen-
eraí. € ” y rtícíe II of the conventíon, the Uníted States and Den-
mark adopt the príncípíe of e change of such ínformatíon as ís
necessary for carryíng out the provísíons of the conventíon or for the
preventíon of fraud or for the detectíon of practíces whích are aímed
at reductíon of the revenues of eíther country, but not íncíudíng ín-
formatíon whích wouíd díscíose a trade, busíness, índustríaí or pro-
fessíonaí secret, or trade process.
The ínformatíon and correspondence reíatíve to e change of ín-
formatíon may be transmítted dírectíy by the Commíssíoner of
Internaí Revenue to the Chíef of the Ta atíon Department of the
Mínístry of Fínance (Generaídírekt0ren for Skattevaesenet) of Dsn-
mark.
(b) Informatíon to be furníshed ín due course. € ” Pursuant to such
príncípíe, wíthhoídíng agents shaíí, ín the preparatíon of wíthhoídíng
returns, Form 10 2, report on such returns, for the caíendar year 19 9
and each subsequent caíendar year, ín addítíon to the ítems of íncome
upon whích ta has been wíthheíd at the source, those ítems of íncome
aíd to a nonresídent aííen índívíduaí resídent ín Denmark, or to a
anísh corporatíon, upon whích ta has not been wíthheíd at the
source. Such return shaíí show the same ínformatíon wíth respect to
such ítems of íncome upon whích ta has not been wíthheíd at the
source as ís shown wíth respect to ítems of íncome upon whích the
ta has been wíthheíd at the source.
In accordance wíth the provísíons of rtícíe II of the conven-
tíon, the Commíssíoner of Internaí Revenue wííí transmít to the Chíef
f the Ta atíon Department of the Mínístry of Fínance of Denmark,
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91
29.211-7.
as soon as practícabíe after the cíose of the caíendar year 19 9, and of
each caíendar year thereafter duríng whích the conventíon ís ín effect,
the foííowíng ínformatíon reíatíng to such caíendar year: the names
and addresses of aíí persons whose addresses are ín Denmark as dís-
cíosed on such wíthhoídíng return, Form 10 2, derívíng from sources
wíthín the Uníted States dívídends, ínterest (other than coupon bond
ínterest), rents, royaítíes, saíaríes, wages, pensíons, annuítíes, and
other fí ed or determínabíe annuaí or períodícaí profíts or íncome, and
the amount of such íncome wíth respect to such persons as díscíosed on
such return, together wíth ownershíp certífícate, Form 1001-D, fííed
ín connectíon wíth coupon bond ínterest. Such transmíssíon shaíí
constítute compííance wíth rtícíe II of the conventíon and of
sectíons 7.9 0 to 7.966 of these reguíatíons.
(c) Informatíon ín specífíc cases. € ” Under the provísíons and íímí-
tatíons of rtícíe II of the conventíon, and sub|ect to the proví-
síons of rtícíe I and rtícíe II of the conventíon, and upon
the request of the Chíef of the Ta atíon-Department of the Mínístry
of Fínance of Denmark, the Commíssíoner of Internaí Revenue shaíí
furnísh to the Chíef of the Ta atíon Department ínformatíon avaíí-
abíe to or obtaínabíe by the Commíssíoner of Internaí Revenue reía-
tíve to the ta ííabíííty of any person under the revenue íaws of Den-
mark ín any case ín whích such ínformatíon ís necessary to the ad-
mínístratíon of the provísíons of the conventíon or for the preventíon
of fraud or the admínístratíon of statutory provísíons agaínst ta
avoídance.
Sec. 7.966. Cíaíms ín Cases of Doubíe Ta atíon. € ” Under rtícíe
of the conventíon, where the actíon of the revenue authorítíes of
the contractíng states has resuíted ín doubíe ta atíon ín respect of any
of the ta es to whích the conventíon reíates, the ta payer ís entítíed
to íodge a cíaím wíth the country of whích he ís a cítízen or, íf he ís
not a cítízen of eíther country, wíth the country of whích he ís a resí-
dent, or íf the ta payer ís a corporatíon or other entíty, wíth the coun-
try ín whích ít ís created or organízed. rtícíe further provídes
that shouíd the cíaím be upheíd, the competent authoríty of the coun-
try wíth whích the cíaím ís íodged may come to an agreement wíth the
competent authoríty of the other country wíth a víew to equítabíe
avoídance of the doubíe ta atíon. Such a cíaím on behaíf of a
Uníted States cítízen or corporatíon or other entíty, or on behaíf of
a resídent of the Uníted States who ís not a Danísh cítízen, shaíí be
fííed wíth the Commíssíoner of Internaí Revenue, Washíngton 2 ,
D. C. The cíaím shouíd be set up ín the form of a íetter and shouíd
show fuííy aíí facts on the basís of whích the cíaímant aííeges that such
doubíe ta atíon has resuíted. If the Commíssíoner of Internaí Rev-
enue determínes that there ís an appropríate basís for the cíaím under
the conventíon, he wííí take the matter up wíth the Chíef of the Ta -
atíon Department of the Mínístry of Fínance of Denmark wíth a víew
to arrangíng an agreement of the character contempíated by rtícíe
.
Sínce the purpose of thís Treasury Decísíon ís to make effectíve the
provísíons of the íncome ta conventíon between the Uníted States
and the íngdom of Denmark, procíaímed by the Presídent of the
Uníted States on December ,19 , thís Treasury Decísíon ís not sub-
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29.211-7. 92
|ect to the effectíve date íímítatíon of sectíon (c) of the dmínís-
tratíve Procedure ct, approved une 11,19 .
(Thís Treasury Decísíon ís íssued under the authoríty of sectíon 62
of the Internaí Revenue Code ( 3 Stat. 32; 26 U. S. C. 62).)
Geo. . Scííoeneman,
Commíssíoner of Internaí Revenue.
pproved March 16, 19 0.
Thomas . Lynch,
ctíng Secretary of the Treasury.
(Fííed wíth the Dívísíon of the Federaí Regíster March 21, 19 0, : a. m.)
Sectíon 29.211-7: Ta atíon of nonresídent 19 0-7-íP 327
aííen índívíduaís. T. D. 77
( íso Sectíon 231, Sectíon 29.231-1.)
TITL 2 € ” INT RN L R NU : € ” C PT R I. SU C PT R . P RT 7. € ”
T TION PURSU NT TO TR TI S. € ” SU P RT € ” N T RL NDS, GINNING
NU RY 1, 19 7
Reguíatíons affectíng the ta atíon of nonresídent aííens who are
resídents of the Netheríands and of Netheríands corporatíons under
the íncome ta conventíon bstween the Uníted States and the
Netheríands, procíaímed by the Presídent of the Uníted States on
December , 19 .
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton, D. C.
To Coííectors of Internaí Revenue and Others Concerned:
On October 13, 19 9, notíce of proposed ruíe makíng under the
íncome ta conventíon between the Uníted States and the íngdom
of the Netheríands, procíaímed by the Presídent of the Uníted States
on December , 19 , was pubííshed ín the Federaí Regíster (13 F. R.
G220). fter consíderatíon of aíí such reíevant matter as was pre-
sented by ínterested persons regardíng the proposaí, the foííowíng
reguíatíons arc adopted for the purposes of such conventíon.
Sectíon Tabíe of Conte ts
7. 0. Introductory.
7.S 1. ppíícabíe provísíons of the Internaí Revenue Code.
7. 2. Scope of the conventíon.
7. 3. Defínítíons.
7. . Scope of conventíon wíth respect to determínatíon of Industríaí or com-
mercíaí profíts.
7. . Controí of a domestíc enterpríse by a Netheríands enterpríse.
7. 0. Income from operatíon of shíps and aírcraft.
7. 7. emptíon from, or reductíon ín rate of, Uníted States ta In the case of
dívídends, ínterest, and royaítíes.
7. . Government wages, saíaríes, pensíons, and símííar remuneratíon.
7. 9. Tensíons and íífe annuítíes.
7.S00. Compensatíon for íabor or personaí servíces.
7. 01. Dívídends and ínterest paíd by a Netheríands corporatíon.
7. 02. ísítíng professors or teachers.
7. 03. Remíttances.
7. . Naturaí resource royaítíes and reaí property rentaís.
7. 0 . Credít agaínst Uníted States ta ííabíííty for íncome ta paíd to the
Netheríands.
7. G6. d|ustment of ta ííabíííty of nonresídent aííens who are resídents of the
Netheríands and Netheríands corporatíons.
7.S07. Recíprocaí admínístratíve assístance.
7.SG . Cíaíms ín cases of doubíe ta atíon.
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29.211-7.
Sectíon 7. 0. Introductory. € ” The íncome ta conventíon between
the Uníted States and the íngdom of the Netheríands, sígned príí
29, 19 , procíaímed (wíth reservatíons thereto) by the Presídent of
the Uníted States on December , 19 , and effectíve on anuary 1,
19 7 (hereínafter referred to as the conventíon), provídes as foííows:
rtícíe I
(1) The ta es whích are the sub|ect of the present conventíon nre:
(a) In the case of the Uníted States:
The Federaí íncome ta es.
(6) In the case of the Netheríands:
(í) For the appíícatíon of the provísíons of the conventíon other than
rtícíe , the íncome ta and the Netheríands ta es credíted agaínst
ít, the corporatíon ta and the Netheríands ta es credíted agaínst ít,
the property ta , and the ta on fees of dírectors and managers of
corporatíons; and
(íí) For the appíícatíon of rtícíe to III íncíusíve (e cept
rtícíes I and II), the capítaí accretíons ta and the e traor-
dínary capítaí ta .
(2) The present conventíon shaíí appíy aíso to any other ta es of a sub-
stantíaííy símííar character ímposed by eíther contractíng state subsequentíy to
the date of sígnature of the present conventíon, or, by the government of any
overseas part of the íngdom (ín the case of the Netheríands) or overseas terrí-
tory (ín the case of the Uníted States) to whích the present conventíon ís
e tended under rtícíe II, subsequentíy to the date of the notífícatíon of
e tensíon.
(3) In the event of apprecíabíe changes ín the físcaí íaws of eíther of the
contractíng states the competent authorítíes of the contractíng states wííí
consuít together.
rtícíe II
(1) In the present conventíon, uníess the conte t otherwíse requíres:
(a) The term Uníted States means the Uníted States of meríca,
and when used ín a geographícaí sense means the States, the Terrítoríes
of íaska and of awaíí, and the Dístríct of Coíumbía.
(6) The term Netheríands means oníy the íngdom of the Netheríands
ín urope.
(c) The term Uníted States corporatíon means a corporatíon, assocía-
tíon, or other organízatíon or |urídícaí entíty created ín the Uníted States
or under the íaws of the Uníted States or of any State or Terrítory of
the Uníted States.
(d) The term Netheríands corporatíon means a corporatíon, assocía-
tíon, or other organízatíon or |urídícaí entíty created ín the Netheríands
or under the íaws of the Netheríands.
(e) The terms corporatíon of one contractíng state and corporatíon
of the other contractíng state mean a Uníted States corporatíon or a
Netheríands corporatíon, as the conte t requíres.
(/) The term Uníted States enterpríse means an índustríaí or com-
mercíaí enterpríse or undertakíng carríed on ín the Uníted States by a
cítízen or resídent of the Uníted States or by a Uníted States corporatíon.
(g) The term Netheríands enterpríse means an índustríaí or com-
mercíaí enterpríse or undertakíng carríed on ín the Netheríands by a
cítízen or resídent of the Netheríands or by a Netheríands corporatíon.
(ft) The terms enterpríse of one of the contractíng states and enter-
príse of the other contractíng state mean a Uníted States enterpríse or
a Netheríands enterpríse, as the conte t requíres.
(í) The term permanent estabííshment, when used wíth respect to an
enterpríse of one of the contractíng states, means a branch, factory, or other
fí ed píace of busíness, but does not íncíude an agency uníess the agent
has, and habítuaííy e ercíses, a generaí authoríty to negotíate and concíude
contracts on behaíf of such enterpríse or has a stock of merchandíse from
whích he reguíaríy fííís orders on behaíf of such enterpríse. n enterpríse
of one of the contractíng states shaíí not be deemed to have a permanent
estabííshment ín the other contractíng state mereíy because ít carríes on
busíness deaííngs ín such other contractíng state through a hona fíde
commíssíon agent, broker, or custodían actíng ín the ordínary course of
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29.211-7.
9
hís busíness as such. The fact that an enterpríse of one of tííe contractíng
States maíntaíns In the other contractíng state a fí ed píace of busíness
e cíusíveíy for the purchase of goods or merchandíse shaíí not of Itseíf
constítute such fí ed píace of busíness a permanent estabííshment of such
enterpríse. When a corporatíon of one contractíng state has a subsídíary
corporatíon whích ís a corporatíon of the other contractíng state or whích
ís engaged ín trade or busíuess ín such other contractíng state, such
subsídíary corporatíon shaíí not, mereíy because of that fact, be deemed to
be a permanent estabííshment of íts parent corporatíon.
(|) The term competent authoríty or competent authorítíes means,
ín the case of the Uníted States, the Commíssíoner of Internaí Revenue or hís
duíy authorízed representatíve ; ín the case of the Netheríands, the Díreeteur-
Generaaí der eíastíngen or hís duíy authorízed representatíve; and, ín
the case of any part or terrítory to whích provísíons of the present con-
ventíon are e tended under rtícíe II, the competent authoríty for the
admínístratíon ín such part or terrítory of the ta es to whích such
provísíons appíy.
(2) In the appíícatíon of the provísíons of the present conventíon by eíther
of the contractíng states, any term whích ís not defíned ín the present conventíon
shaíí, uníess the conte t otherwíse requíres, have the meaníng whích that term
has under the íaws of such contractíng state reíatíng to the ta es whích are
the sub|ect of the present conventíon.
rtícíe III
(1) n enterpríse of one of the contractíng states shaíí not be sub|ect to
ta atíon by the other contractíng state ín respect of íts índustríaí or commercíaí
profíts uníess ít ís engaged ín trade or busíness ín the other contractíng state
through a permanent estabííshment sítuated thereín. If ít ís so engaged the
other contractíng state may ímpose the ta oníy upon the íncome of such enter-
príse from sources wíthín such other state.
(2) Where an enterpríse of one of the contractíng states ís engaged ín trade
or busíness In the other contractíng state through a permanent estabííshment
sítuated thereín, there shaíí be attríbuted to such permanent estabííshment
the índustríaí or commercíaí profíts whích ít míght be e pected to deríve íf ít
were an índependent enterpríse engaged ín the same or símííar actívítíes under
the same or símííar condítíons and deaííng at arm s íength wíth the enterpríse
of whích It Is a permanent estabííshment, and the profíts so attríbuted shaíí,
sub|ect to the íaw of such other contractíng state, be deemed to be Income from
sources wíthín such other contractíng state.
(3) In determíníng the índustríaí or commercíaí profíts from Sources wíthín
one of the contractíng states of an enterpríse of the other contractíng state, no
profíts shaíí be deemed to aríse from the mere purchase of goods or merchandíse
wíthín the former contractíng state by such enterpríse.
( ) The competent authorítíes of the contractíng states may íay down ruíes
by agreement for the apportíonment of Industríaí or commercíaí profíts.
rtícíe I
Where an enterpríse of one of the contractíng states, by reason of Its partícípa-
tíon ín the management, controí, or capítaí of an enterpríse of the other contract-
íng state, makes wíth or ímposes on the íatter enterpríse, ín theír commercíaí or
fínancíaí reíatíons, condítíons dífferent from those whích wouíd be made wíth
an índependent enterpríse, any profíts whích wouíd, but for those condítíons,
have accrued to one of the enterpríses, may be íncíuded ín the ta abíe profíts
of that enterpríse.
rtícíe
Income of whatever nature deríved from reaí property and ínterest from mort-
gages secured by reaí property shaíí be ta abíe oníy ín the contractíng state In
whích the reaí property Is sítuated.
rtícíe I
(1) Income whích an enterpríse of one of the contractíng states deríves from
the operatíon of shíps or aírcraft regístered ín that state shaíí be ta abíe oníy ín
the state ín whích such shíps or aírcraft are regístered. Income deríved by
such an enterpríse from the operatíon of shíps or aírcraft not so regístered shaíí
be sub|ect to the provísíons of rtícíe III.
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29.211-7.
(2) The present conventíon shaíí be deemed to suspend, for the duratíon of
the conventíon as between the partíes to whích thís artícíe appííes, the provísíons
of the arrangement effected by e change of notes between the .Uníted States and
the Netheríands, dated September 13, October 19, and November 27, 1920, pro-
vídíng for reííef from doubíe íncome ta atíon on shíppíng profíts.
(3) In the event that the appíícatíon of thís artícíe ís e tended to the Nether-
íand Indíes ín accordance wíth rtícíe II, the e change of notes between
the Uníted States and the Netheríands, dated March , May 23, and November
,1939, reíatíng to the appíícatíons to the Netheríand Indíes of the arrangement
referred to ín paragraph (2) of thís artícíe, shaíí be deemed to be suspended for
so íong as thís artícíe contínues to be appíícabíe wíth respect to the Netheríand
Indíes.
rtícíe II
(1) The rate of Uníted States ta on dívídends deríved from a Uníted States
corporatíon by a resídent or corporatíon of the Netheríands not engaged ín trade
or busíness ín the Uníted States through a permanent estabííshment shaíí not
e ceed 1 percent: Províded that such rate of ta shaíí not e ceed percent íf
such Netheríands corporatíon controís, dírectíy or índírectíy, at íeast 9 percent
of the entíre votíng power ín the corporatíon payíng the dívídend, and not more
than 2 percent of the gross íncome of such payíng corporatíon ís deríved from
ínterest and dívídends, other than ínterest and dívídends from íts own subsídíary
corporatíon. Such reductíon of the rate to percent shaíí not appíy íf the reía-
tíonshíp of the two corporatíons has been arranged or ís maíntaíned prímarííy
wíth the íntentíon of securíng such reduced rate.
(2) Dívídends deríved from sources wíthín the Netheríands by a resídent
or corporatíon of the Uníted States not engaged ín trade or busíness ín the Nether-
íands through a permanent estabííshment shaíí be e empt from Netheríands ta .
(3) íther of the contractíng states may termínate thís artícíe, by gívíng wrít-
ten notíce of termínatíon to the other contractíng state through dípíomatíc
channeís, on or before the 30th day of une ín any year after the fírst year for
whích the present conventíon becomes effectíve. In such event thís artícíe
shaíí cease to be effectíve on and after the 1st day of anuary ín the year ne t
foííowíng that ín whích such notíce ís gíven.
rtícíe III
(1) Interest (on bonds, securítíes, notes, debentures, or on any other form of
índebtedness), other than ínterest referred to ín rtícíe of the present conven-
tíon, deríved from sources wíthín the Uníted States by a resídent or corporatíon
of the Netheríands not engaged ín trade or busíness ín the Uníted States through
a permanent estabííshment, shaíí be e empt from Uníted States ta ; but such
e emptíon shaíí not appíy to such ínterest paíd by a Uníted States corporatíon
to a Netheríands corporatíon controíííng, dírectíy or índírectíy, more than 0
percent of the entíre votíng power ín the payíng corporatíon.
(2) Interest (on bonds, securítíes, notes, debentures, or on any other form
of índebtedness), other than ínterest referred to ín rtícíe of the present
conventíon, deríved from sources wíthín the Netheríands by a resídent or
corporatíon of the Uníted States not engaged ín trade or busíness ín the Nether-
íands through a permanent estabííshment, shaíí be e empt from Netheríands
ta ; but such e emptíon shaíí not appíy to such ínterest paíd by a Netheríands
corporatíon to a Uníted States corporatíon controíííng, dírectíy or índírectíy,
more than 0 percent of the entíre votíng power ín the payíng corporatíon.
rtícíe I
Royaítíes for the ríght to use copyríghts, patents, desígns, secret processes
and formuíae, trade-marks, and other anaíogous property, and royaítíes, ín-
cíudíng rentaís, ín respect of motíon pícture fííms or for the use of índustríaí,
commercíaí, or scíentífíc equípment, deríved from sources wíthín one of the
contractíng states by a resídent or corporatíon of the other contractíng state
not engaged ín trade or busíness ín the former state through a permanent
estabííshment, shaíí be e empt from ta ímposed by the former state.
btícíe
resídent or corporatíon of one of the contractíng states, derívíng from
sources wíthín the other contractíng state royaítíes ín respect of the operatíon
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9G
of mínes, quarríes, or naturaí resources, or rentaís from reaí property, may
eíect for any ta abíe year to be sub|ect to the ta of such other contractíng
state, on a net basís, as íf such resídent or corporatíon were engaged ín trade
or busíness wíthín such other contractíng state through a permanent estabíísh-
ment thereín duríng such ta abíe year.
rtícíe I
resídent or corporatíon of one of the contractíng states not engaged In
trade or busíness ín the other contractíng state shaíí be e empt from ta In
such other state on gaíns from the saíe or e change of capítaí assets.
Thís artícíe deíeted by reservatíon ; see Presídent s Procíamatíon, hereínafter.
rtícíe II
Dívídends and Interest paíd by a Netheríands corporatíon shaíí be e empt
from Uníted States ta e cept where the recípíent ís a cítízen, resídent, or
corporatíon of the Uníted States.
rtícíe III
Netheríands corporatíon shaíí be e empt from Uníted States ta on
Its accumuíated or undístríbuted earníngs, profíts, íncome, or surpíus íf ít
can prove to the satísfactíon of the competent authorítíes of the Uníted States
that índívíduaís who are resídents of the Netheríands (other than cítízens of
the Uníted States) controí, dírectíy or índírectíy, throughout the íast haíf of the
ta abíe year, more than 0 percent of the entíre votíng power ín such
corporatíon.
Thís artícíe deíeted by reservatíon ; see Presídent s Procíamatíon, hereínafter.
rtícíe I
(1) The Uníted States íncome ta ííabíííty for any ta abíe year begínníng
príor to anuary 1, 1936, of any índívíduaí (other than a cítízen of the Uníted
States) resídent ín the Netheríands, or of any Netheríands corporatíon, re-
maíníng unpaíd on the effectíve date of the present conventíon, may be ad|usted
on a basís satísfactory to the Uníted States Commíssíoner of Internaí Revenue:
Províded that the amount to be paíd ín settíement of such ííabíííty shaíí not
e ceed the amount of the ííabíííty whích wouíd have been determíned íf € ”
(a) the Uníted States Revenue ct of 1936 (e cept ín the case of a
Netheríands corporatíon ín whích more than 0 percent of the entíre votíng
power was controííed, dírectíy or índírectíy, throughout the íatter haíf of
the ta abíe year, by cítízens or resídents of the Uníted States), and
(6) rtícíes II and III of the present conventíon had been ín effect
for such year. If the ta payer was not, wíthín the meaníng of such Revenue
ct, engaged ín trade or busíness ín the Uníted States and had no offíce
or píace of busíness thereín duríng the ta abíe year, the amount of ínterest
and penaítíes shaíí not e ceed 0 percent of the amount of the ta wíth
respect to whích such ínterest and penaítíes have been computed.
(2) The Uníted States íncome ta unpaíd on the effectíve date of the present
conventíon for any ta abíe year begínníng after December 31, 193 , and príor
to the effectíve date of the present conventíon ín the case of an índívíduaí
(other than a cítízen of the Uníted States) resídent of the Netheríands, or
In the case of any Netheríands corporatíon, shaíí be determíned as íf the pro-
vísíons of rtícíes II and III of the present conventíon had been ín effect
for such ta abíe year.
(3) The provísíons of paragraph (1) of thís artícíe shaíí not appíy € ”
(a) uníess the ta payer fííes wíth the Commíssíoner of Internaí Revenue
wíthín a períod of 2 years foííowíng the effectíve date of the present conven-
tíon a request that such ta ííabíííty be so ad|usted and furníshes such ín-
formatíon as the Commíssíoner may requíre; or
(6) ín any case ín whích the Commíssíoner ís satísfíed that any defícíency
ín ta ís due to fraud wíth íntent to evade the ta .
Thís artícíe modífíed by reservatíon; see Presídent s Procíamatíon, here-
ínafter.
rtícíe
(1) Wages, saíaríes and símííar compensatíon, and pensíons and íífe annuítíes,
paíd eíther dírectíy by, or from funds created by, one of the contractíng states
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29.211-7.
or the poíítícaí subdívísíons or terrítoríes thereof to índívíduaís ín the other
contractíng state shaíí be e empt from ta atíon ín the íatter state.
(2) Prívate pensíons and íífe annuítíes deríved from wíthín one of the con-
tractíng states and paíd to índívíduaís ín the other contractíng state shaíí be
e empt from ta atíon ín the former state.
(3) The term pensíons as used ín thís artícíe means períodíc payments made
In consíderatíon for servíces rendered or by way of compensatíon for ín|uríes
receíved.
( ) The term íífe annuítíes as used ín thís artícíe means a stated sum pay-
abíe períodícaííy at stated tímes duríng íífe, or duríng a specífíed number of
years, under an obíígatíon to make the payments ín return for adequate and fuíí
consíderatíon ín money or money s worth.
btícíe I
(1) resídent of the Netheríands shaíí be e empt from Uníted States ta upon
compensatíon for íabor or personaí servíces performed wíthín the Uníted States
íf he ís temporarííy present wíthín the Uníted States for a períod or períods not
e ceedíng a totaí of 1S3 days duríng the ta abíe year and hís compensatíon ís
receíved for íabor or personaí servíces performed as a worker or empíoyee of,
or under contract wíth, a resídent of the Netheríands, or a Netheríands corpora-
tíon, carryíng the actuaí burden of the remuneratíon.
(2) The provísíons of paragraph (1) of thís artícíe shaíí nppíy, mutatís
mutandís, to a resídent of the Uníted States derívíng compensatíon for íabor
or personaí servíces performed wíthín the Netheríands.
rtícíe II
Professors or teachers, resídents of one of the contractíng states, who, ín
accordance wíth agreements between the contractíng states or between teachíng
estabííshments ín the contractíng states for the e change of professors and
teachers, vísít the other contractíng state to teach, for a ma ímum períod of
2 years, ín a uníversíty, coííege, or other teachíng estabííshment ín such other
contractíng state, shaíí not be ta ed by such other state wíth respect to the
remuneratíon whích they receíve for such teachíng.
btícíe III
Students or busíness apprentíces of one contractíng state resídíng ín the other
contractíng state e cíusíveíy for purposes of study or for acquíríng busíness e -
períence shaíí not be ta abíe by the íatter state ín respect of remíttances re-
ceíved by them from abroad for the purpose of theír maíntenance or studíes.
btícíe I
(1) Notwíthstandíng any provísíons of the present conventíon (other than
paragraph (1) of rtícíe when appíícabíe ín the case of an índívíduaí who
ís deemed by each contractíng state to be a cítízen thereof), each of the two
contractíng states, ín determíníng the ta es, íncíudíng aíí surta es, of íts cítízens
or resídents or corporatíons, may íncíude ín the basís upon whích such ta es
are ímposed aíí ítems of íncome ta abíe under íts own revenue íaws as though
thís conventíon had not come ínto effect.
(2) s far as may be ín accordance wíth the provísíons of the Uníted States
Internaí Revenue Code, the Uníted States agrees to aííow as a deductíon from
the íncome ta es ímposed by the Uníted States the appropríate amount of ta es
paíd to the Netheríands, whether paíd dírectíy by the ta payer or by wíthhoídíng
at the source.
(3) s far as may be ín accordance wíth the provísíons of Netheríands íaw,
the Netheríands agrees to aííow a deductíon from Netheríands ta wíth respect
to íncome from sources wíthín the Uníted States, ín order to take ínto account
the Federaí íncome ta es paíd to the Uníted States, whether paíd dírectíy by the
ta payer or by wíthhoídíng at the source.
btícíe
(1) íí persons who íeft the Netheríands between príí 30, 1939, and Decem-
ber 31,19 , íncíusíve (other than persons who were cítízens of the Uníted States
at the tíme of íeavíng the Netheríands or Netheríands sub|ects who by reason
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29.211-7. .
9
of theír functíon as governmentaí offícíaís In estabííshed servíce resíde abroad
and the members of theír famííy íívíng wíth them), and who are deemed to be
ta payers under the provísíons of Netheríands íaw reíatíng to the capítaí
accretíons ta or the e traordínary capítaí tn , and who became resídents of
the Uníted States (accordíng to the íncome ta íaw of the Uníted States) duríng
that períod, and who díd not return to the Netheríands on or before December 31,
í ) .r). to resume resídence In the Netheríands (accordíng to the íncome ta íaw
of the Netheríands), shaíí be ta abíe by the Netheríands:
(a) under the íaw reíatíng to the capítaí accretíons ta , oníy ín respect
of accretíons arísíng from theír property sítuated ín the Netheríands (as
defíned ín that íaw ín the case of nonresídents) and from theír actívítíes ín
the Netheríands;
(6) under the íaw reíatíng to the e traordínary capítaí ta . oníy ín
respect of theír property sítuated ín the Netheríands (as defíned ín that
íaw ín the case of nonresídents).
(2) íí persons who íeft the Netheríands between príí 30,1939, and December
31, 19 , íncíusíve, and who were cítízens of the Uníted States at the tíme of
íeavíng the Netheríands, and who are deemed to be ta payers under the provísíons
of Netheríands íaw reíatíng to the capítaí accretíons ta or the e traordínary
capítaí ta , and who became resídents of the Uníted States (accordíng to the
íncome ta íaw of the Uníted States) on or before December 31, 19 , shaíí be
ta abíe by the Netheríands:
(a) under the íaw reíatíng to the capítaí accretíons ta , oníy In respect
of accretíons arísíng from theír property sítuated ín the Netheríands (as
defíned ín that íaw ín the case of nonresídents) and from theír actívítíes
In the Netheríands;
(6) under the íaw reíatíng to the e traordínary capítaí ta , oníy ín
respect of theír property sítuated ín the Netheríands (as defíned ín that
íaw ín the case of nonresídents).
(3) The provísíons of thís artícíe shaíí be deemed to be effectíve as though
the present conventíon had entered ínto force on the effectíve date of the Nether-
íands íaw reíatíng to the capítaí accretíons ta or the e traordínary capítaí ta ,
as the case may be.
rtícíe I
The competent authorítíes of the contractíng states shaíí e change such ínfor-
matíon (beíng ínformatíon whích such authorítíes have ín proper order at theír
dísposaí) as ís necessary for carryíng out the provísíons of the present conven-
tíon or for the preventíon of fraud or the admínístratíon of statutory provísíons
agaínst íegaí avoídance ín reíatíon to the ta es whích are the sub|ect of the
present conventíon. ny ínformatíon so e changed shaíí be treated as secret
and shaíí not be díscíosed to any person other than those concerned wíth the
assessment and coííectíon of the ta es whích are the sub|ect of the present
conventíon. No ínformatíon as aforesaíd shaíí be e changed whích wouíd dís-
cíose any trade, busíness, índustríaí or professíonaí secret, or trade process.
rtícíe II
(1) The contractíng states undertake to íend assístance and support to each
other In the coííectíon of the ta es whích are the sub|ect of the present conven-
tíon, together wíth ínterest, costs, and addítíons to the ta es and fínes not beíng
of a penaí character.
(2) In the case of appíícatíons for enforcement of ta es, revenue cíaíms of
each of the contractíng states whích have been fínaííy determíned may be ac-
cepted for enforcement by the other contractíng state and coííected ín that
state ín accordance wíth the íaws appíícabíe to the enforcement and coííectíon
of íts own ta es. The state to whích appíícatíon ís made shaíí not be requíred
to enforce e ecutory measures for whích there ís no provísíon ín the íaw of the
state makíng the appíícatíon.
(3) ny appíícatíon shaíí be accompaníed by documents estabííshíng that
under the íaws of the state makíng the appíícatíon the ta es have been fínaííy
determíned.
( ) The assístance províded for In thís artícíe shaíí not be accorded wíth
respect to the cítízens, corporatíons, or other entítíes of the state to whích appíí-
catíon ís made, e cept as ís necessary to Insure that the e emptíon or reduced
rate of ta granted under the conventíon to such cítízens, corporatíons, or other
entítíes shaíí not be en|oyed by persons not entítíed to such benefíts.
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29.211-7.
rtícíe III
(1) In no case shaíí the provísíons of rtícíes I and II be construed
so as to ímpose upon eíther of the contractíng states the obíígatíon € ”
(a) to carry out admínístratíve measures at varíance wíth the reguía-
tíons and practíce of eíther contractíng state, or
(6) to suppíy partícuíars whích are not procurabíe under íts own
íegísíatíon or that of the state makíng appíícatíon.
(2) The state to whích appíícatíon ís made for ínformatíon or assístance
shaíí compíy as soon as possíbíe wíth the request addressed to ít. Nevertheíess,
snch state may refuse to compíy wíth the request for reasons of pubííc poíícy
or íf compííance wouíd ínvoíve víoíatíon of a trade, busíness, índustríaí or pro-
fessíonaí secret, or trade process. In such case ít shaíí ínform, ns soon as possíbíe,
the state makíng the appíícatíon.
btícíe I
Where the actíon of the revenue authorítíes of the contractíng states has re-
suíted or wííí resuít ín doubíe ta atíon contrary to the provísíons of the present
conventíon, the ta payer shaíí be entítíed to íodge a cíaím wíth the state of whích
he ís a cítízen or sub|ect or, íf he ís not a cítízen or sub|ect of eíther of the con-
tractíng states, wíth the state of whích he ís a Resídent, or, íf the ta payer ís a
corporatíon, wíth the state ín whích ít ís created or organízed. Shouíd the
cíaím be upheíd, the competent authoríty of such state shaíí undertake to come
to an agreement wíth the competent authoríty of the other state wíth a víew
to equítabíe avoídance of the doubíe ta atíon ín questíon.
rtícíe
(1) The provísíons of the present conventíon shaíí not be construed to restríct
ín any manner any e emptíon, deductíon, credít or other aííowance accorded
í y the íaws of one of the contractíng states ín the determínatíon of the ta
ímposed by such state.
(2) Shouíd any díffícuíty or doubt aríse as to the ínterpretatíon or appíícatíon
of the present conventíon, the competent authorítíes of the contractíng states
shaíí undertake to settíe the questíon by mutuaí agreement.
(3) The cítízens or sub|ects of one of the contractíng states shaíí not, whííe
resídent In the other contractíng state, be sub|ected thereín to other or more
burdensome ta es than are the cítízens or sub|ects of such other contractíng state
resídíng ín íts terrítory. The term cítízens or sub|ects as used ín thís artícíe
íncíudes aíí íegaí persons, partnershíps, and assocíatíons derívíng theír status
from, or created or organízed under the íaws ín force ín, the respectíve contract-
íng states. In thís artícíe the word ta es means ta es of every kínd or de-
scríptíon whether Nntíonní, Federaí, State, províncíaí, or munícípaí.
btícíe I
(1) The authorítíes of each of the contractíng states, ín accordance wíth the
practíces of that state, may prescríbe reguíatíons necessary to carry out the pro-
vísíons of the present conventíon.
(2) Wíth respect to the provísíons of the present conventíon reíatíng to e -
change of ínformatíon and mutuaí assístance ín the coííectíon of ta es, the com-
petent authorítíes may, by common agreement, prescríbe ruíes concerníng mntters
of procedure, forms of appíícatíon and repííes thereto, conversíon of currency,
dísposítíon of amounts coííected, mínímum amounts sub|ect to coííectíon, and
reíated matters.
rtícíe II
(1) íther of the contractíng states may, at the tíme of e change of ínstru-
ments of ratífícatíon or thereafter whííe the present conventíon contínues ín force,
by a wrítten notífícatíon of e tensíon gíven to the other contractíng state through
dípíomatíc channeís, decíare the desíre of the government of any overseas part
of the íngdom (ín the case of the Netheríands) or overseas terrítory (ín
the case of the Uníted States), whích ímposes ta es substantíaííy símííar ín
character to those whích are the sub|ect of the present conventíon, that the
operatíon of the present conventíon, eíther ín whoíe or as to such provísíons
thereof as may be deemed to have spacíaí appíícatíon, shaíí e tend to such
part or terrítory.
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29.211-7.
100
(2) In the event that a notífícatíon ís gíven by one of the contractíng states
ín accordance wíth paragraph (1) of thís artícíe, the present conventíon, or
such provísíons thereof as may be spscífíed ín the notífícatíon, shaíí appíy to
any part or terrítory named ín such notífícatíon on and after the 1st day of
anuary foííowíng the date of a wrítten communícatíon through dípíomatíc
channeís addressed to such contractíng state by the other contractíng state,
after such actíon by the íatter state as may be necessary ín accordance wíth
íts own procedures, statíng that such notífícatíon ís accepted ín respect of such
part or terrítory. In the absence of such acceptance, none of the provísíons
of the present conventíon shaíí appíy to such part or terrítory.
(3) t any tíme after the e píratíon of 1 year from the effectíve date of an
e tensíon made by vírtue of paragraphs (1) and (2) of thís artícíe, eíther of
the contractíng states may, by a wrítten notíce of termínatíon gíven to the other
contractíng síate through dípíomatíc channeís, termínate the appíícatíon of the
present conventíon to any part or terrítory to whích the conventíon, or any
of íts provísíons, has been e tended. In that case, the present conventíon, or
the provísíons thereof specífíed ín the notíce of termínatíon, shaíí cease to be
appíícabíe to the part or terrítory named ín such notíce of termínatíon on and
after the 1st day of anuary foííowíng the e píratíon of a períod of 6 months
after the date of such notíce: Províded, however, that thís shaíí not affect the
contínued appíícatíon of the conventíon, or any of the provísíons thereof, to
the Uníted States, to the Netheríands, or to any part or terrítory (not named
ín the notíce of termínatíon) to whích the conventíon, or such provísíon thereof,
appííes.
( ) For the appíícatíon of the present conventíon In reíatíon to any part or
terrítory to whích ít ís e tended by notífícatíon gíven by the Uníted States or
the Netheríands, references to the Uníted States or to the Netheríands or to
one or the other contractíng state, as the case may be, shaíí be construed t rofer
to such part or terrítory.
rtícíe III
(1) The present conventíon shaíí be ratífíed and the ínstruments of ratífícatíon
shaíí be e changed at Washíngton as soon ns possíbíe.
(2) The present conventíon shaíí become effectíve on the 1st day of anuary
In the year íast precedíng the year ín whích the e change of ínstruments of ratí-
fícatíon takes píace. It shaíí contínue effectíve for a períod of years begínníng
wíth that date and índefíníteíy after that períod, but may bo termínated by eíther
of the contractíng states at the end of the -year períod or at any tíme thereafter,
províded that at íeast 6 months príor notíce of termínatíon has been gíven, the
termínatíon to become effectíve on the 1st day of anuary foííowíng the e píra-
tíon of the 6-month períod.
Done at Washíngton, ín dupíícate, ín the ngíísh and Dutch íanguages, the two
te ts havíng equaí authentícíty, thís 29th day of príí, 19 .
For the Government of the Uníted States of meríca :
G. C. Marshaíí, seaí
For the Government of the ; gííom of the Netheríands:
. N. an íeffens. seaí
PROCL M TION OF T PR SID NT OF T UNIT D ST T S
Dated December S, 19

nd whereas the Senate of the Uníted States of meríca, by theír resoíutíon of
une 17, 19 , two-thírds of the Senators present concurríng thereín, díd advíse
and consent to the ratífícatíon of the aforesaíd conventíon sub|ect to certaín
reservatíons, as foííows:
(1) The Government of the Uníted States of meríca does not accept
rtícíe I of the conventíon reíatíng to gaíns from the saíe or e change of
capítaí assets.
(2) The Government of the Uníted States of meríca does not accept
rtícíe III of the conventíon reíatíng to Uníted States ta atíon of the
undístríbuted earníngs, profíts, íncome, or surpíus of a Netheríands cor-
poratíon.
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29.211-7.
(3) The Government of the Uníted Stntos of meríca does not accept
rtícíe I of the conventíon reíatíng to settíement of unpaíd Uníted States
Income ta ííabíííty uníess there be eíímínated therefrom, (a) references
now appearíng thereín to rtícíe III, and (6) any íanguage whích míght
prevent the ta atíon by Uníted States of capítaí gaíns, íf any, ta abíe under
the revenue íaws of the Uníted States for the respectíve years ín whích such
gaíns were reaíízed.
€ € €
nd whereas the respectíve ínstruments of ratífícatíon of the aforesaíd con-
ventíon were duíy e changed at Washíngton on December 1, 10 S, and a protocoí
of e change of ínstruments of ratífícatíon, ín the ngíísh and Dutch íanguages,
was sígned on that date by the respectíve píenípotentíaríes of the Uníted States
of meríca aníí the íngdom of the Netheríands, the ngíísh te t of whích proto-
coí reads ín part as foííows:
The ratííícatíon by the Government of the Uníted States of meríca of
the conventíon aforesaíd recítes ín theír entírety the reservatíons contaíned
ín the resoíutíon of une 17, 10 S, of the Senate of the Uníted States of
meríca advísíng and consentíng to ratííícatíon of the conventíon aforesaíd,
the te ts of whích reservatíons were communícated by the Government of
the Uníted States of meríca to the Government of the íngdom of the
Netheríands. The Government of the íngdom of the Netheríands has ac-
cepted the reservatíons aforesaíd. ccordíngíy, ít ís the understandíng of
both Governments that rtícíe I and rtícíe III of the conventíon afore-
saíd shaíí be deemed to be deíeted and of no eff|et and further that, wíth
respect to rtícíe I , there shaíí be deemed to be deíeted therefrom and of
no effect (a) níí references thereín to rtícíe III and (6) any íanguage
whích míght prevent the ta atíon of capítaí gaíns, íf any, ta abíe under the
revenue íaws of eíther of the two Governments for the respectíve years ín
whích such gaíns were reaíízed. (
€ € € € € €
Sec. 7. 1. pfíícaí í.e Provísíons of the Internaí Revenue
Code. € ” The Internaí Revenue Code provídes ín part as foííows:
C PT R I € ” INCOM T
€ € €
S C. 22. GROSS INCOM .
€ € € € € €
(b) cíusíons from Gross Income. € ” The foííowíng ítems shaíí not be In-
cíuded ín gross íncome and shaíí be e empt from ta atíon under thís chapter:
€ €
(7) Income e empt under treaty. € ” Income of any kínd, to the e tent
requíred by any treaty obíígatíon of the Uníted Staíes;
€ € € € € €
S C. C2. RUL S ND R GUL TIONS.
The Commíssíoner, wíth the approvaí of the Secretary, shaíí prescríbe and
pubíísh aíí needfuí ruíes and reguíatíons for the enforcement of thís chapter.
Pursuant to sectíon 62 of the Internaí Revenue Code, other proví-
síons of the ínternaí revenue íaws, and to rtícíe I of the con-
ventíon, the foííowíng reguíatíons, whích are desígnated as sectíons
7. 0 to 7. 0 , are hereby prescríbed and aíí reguíatíons ínconsístent
herewíth are modífíed accordíngíy.
Sec. 7. 2. Scope of the Conventíon. € ” The prímary purposes of
the conventíon, to be accompííshed on a recíprocaí basís, are to avoíd
doubíe ta atíon upon ma|or ítems of íncome deríved from sources
ín one country by persons resídent ín, or by corporatíons of, the other
country, and to províde for admínístratíve cooperatíon between the
competent ta authorítíes of the two countríes íookíng to the avoídance
of doubíe ta atíon and the preventíon of físcaí evasíon.
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29.211-7.
102
The specífíc cíasses of íncome from sources wíthín the Uníted States
e empt under the conventíon from Uníted States ta where deríved
from such sources on or after anuary 1,19 7, are:
(a) Industríaí and commercíaí profíts of a Netheríands enter-
príse havíng no permanent estabííshment ín the Uníted States
( rtícíe III) ;
(b) Income deríved by a nonresídent aííen who ís a resídent
of the Netheríands, or by a Netheríands corporatíon, from the
operatíon of shíps or aírcraft regístered ín the Netheríands
( rtícíe I);
(c) Interest (other than ínterest from mortgage notes (not
íncíudíng bonds) secured by reaí property) and royaítíes (ín-
cíudíng fíím rentaís) deríved by a nonresídent aííen who ís a
resídent of the Netheríands or by a Netheríands corporatíon íf
such aííen or corporatíon has no permanent estabííshment ín the
Uníted States (but such e emptíon does not appíy to ínterest paíd
to a Netheríands corporatíon controíííng the corporatíon payíng
such ínterest) ( rtícíes III and I );
( í) Wages, saíaríes, compensatíon, pensíons, and íífe annuítíes
paíd by, or out of funds created by, the Netheríands to aííens
present ín the Uníted States ( rtícíe );
(e) Compensatíon, sub|ect to certaín íímítatíons, for personaí
servíces deríved by a nonresídent aííen who ís a resídent of the
Netheríands ( rtícíe I):
(/) Prívate pensíons and íífe annuítíes deríved by nonresídent
aííen índívíduaís resídíng ín the Netheríands ( rtícíe (2)) ;
(ff) Dívídends and ínterest paíd by a Netheríands corporatíon
to a nonresídent aííen or to a foreígn corporatíon ( rtícíe II);
(h) Remuneratíon deríved from teachíng ín the Uníted States,
under certaín condítíons, for a períod of not more than 2 years
by a professor or teacher who ís a resídent of the Netheríands
but who ís temporarííy present ín the Uníted States ( rtícíe
II);
(í) Remíttances from sources outsíde the Uníted States re-
ceíved ín the Uníted States by a nonresídent aííen índívíduaí who
ís resídent ín the Netheríands but who ís temporarííy present
ín the Uníted States for the purposes of study or for acquíríng
busíness e períence, such remíttances beíng for the purpose of
hís maíntenance or studíes ( rtícíe III).
The conventíon aíso reduces to 1 percent the rate of ta otherwíse
ímposed upon dívídends deríved by a nonresídent aííen who ís a res-
ídent of the Netheríands or by a Netheríands corporatíon íf such aííen
or corporatíon has no permanent estabííshment ín the Uníted States.
s to e emptíon from wíthhoídíng of the ta at the source ín the
case of ínterest, royaítíes, pensíons, and íífe annuítíes, and reductíon
ín the rate of ta from 30 percent to 1 percent ín the case of dívídends
see Treasury Decísíon 090 C. 1 . 1919-1, 92 , approved March 2,
19 9 26 CFR 7. 00 to 7. 10, íncíusíve .
The conventíon does not affect the ííabíííty to Uníted States íncome
ta atíon of sub|ects of the Netheríands who are resídents of the Uníted
States e cept that such índívíduaís are entítíed to the benefíts of rtícíe
I (reíatíng to credít for Netheríands íncome ta ), and of rtícíe
(reíatíng to equaííty of ta atíon). cept as províded ín
rtícíe I , reíatíng to the credít for íncome ta , the conventíon does
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103
29.211-7.
not affect ta atíon by the Uníted States of a cítízen of the Uníted States
or of a domestíc corporatíon, even though such cítízen ís resídent ín
the Netheríands and such corporatíon ís engaged ín trade or busíness
ín the Netheríands.
Sec. 7. 3. Defínítíons. € ” s used ín sectíons 7. 0 to 7. 6 , ín-
cíusíve, uníess the conte t otherwíse requíres the terms defíned ín the
conventíon shaíí have the meaníngs so assígned to them. ny term
used ín such sectíons whích ís not defíned ín the conventíon but whích
ís defíned ín the Internaí Revenue Code shaíí be gíven the defínítíon
contaíned thereín uníess the conte t otherwíse requíres.
s used ín sectíons 7. 0 to 7. 6 , íncíusíve:
(a) The term permanent estabííshment means a branch, factory,
or other fí ed píace of busíness. The fact that a Netheríands corpora-
tíon has a domestíc subsídíary corporatíon, or a foreígn subsídíary
corporatíon havíng a branch ín the Uníted States, does not of ítseíf
constítute eíther subsídíary corporatíon a permanent estabííshment of
the parent Netheríands enterpríse. The fact that a Netheríands enter-
príse has busíness deaííngs ín the Uníted States through a bona fíde
commíssíon agent, broker, or custodían, actíng ín the usuaí course
of hís busíness as such, or maíntaíns ín the Uníted States an offíce or
other fí ed píace of busíness used e cíusíveíy for the purchase of goods
or merchandíse, does not mean that such Netheríands enterpríse has a
permanent estabííshment ín the Uníted States. If, however, a Nether-
íands enterpríse carríes on busíness ín the Uníted States through an
agent who has, and habítuaííy e ercíses, a generaí authoríty to nego-
tíate and concíude contracts on behaíf of such enterpríse or íf ít has an
agent who maíntaíns wíthín the Uníted States a stock of merchandíse
from whích he reguíaríy fííís orders on behaíf of hís príncípaí, then
such enterpríse shaíí be deemed to have a permanent estabííshment ín
the Uníted States. owever, an agent havíng power to contract on
behaíf of hís príncípaí but oníy at fí ed príces and under condítíons
determíned by the príncípaí does not necessarííy constítute a perma-
nent estabííshment of such príncípaí. The mere fact that an agent
(assumíng he has no generaí authoríty to contract on behaíf of hís
empíoyer or príncípaí) maíntaíns sampíes or occasíonaííy fííís orders
from íncídentaí stocks of goods maíntaíned ín the Uníted States wííí
not constítute a permanent estabííshment wíthín the Uníted States.
The mere fact that saíesmen, empíoyees of a Netheríands enterpríse,
promote the saíe of theír empíoyer s products ín the Uníted States or
that such enterpríse transacts busíness ín the Uníted States by means
of maíí order actívítíes, does not mean such enterpríse has a permanent
estabííshment thereín. The term permanent estabííshment as used
ín the conventíon ímpííes the actíve conduct thereín of a busíness enter-
príse. The mere ownershíp, for e ampíe, of tímberíands or a ware-
house ín the Uníted States by a Netheríands enterpríse does not mean
that such enterpríse has a permanent estabííshment thereín. s to
the effect of the maíntenance of a permanent estabííshment wíthín the
Uníted States upon e emptíon from Uníted States ta ín the case of
ínterest and royaítíes and reductíon ín the rate of Uníted States ta
ín the case of dívídends, see sectíon 7. 7 of these reguíatíons.
(6) The term enterpríse means any commercíaí or índustríaí
undertakíng whether conducted by an índívíduaí, partnershíp, cor-
poratíon, or other entíty. It íncíudes such actívítíes as manufactur-
íng, merchandísíng, míníng, processíng, and bankíng. It does not
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í 29.211-7.
10
íncíude the rendítíon of personaí servíces. ence, a nonresídent aííen
yvho ís a resídent of the Netheríands and who renders personaí servíces
ís not, mereíy by reason of such servíces, engaged ín an enterpríse
wíthín the meaníng of the conventíon and hís ííabíííty to Uníted States
ta ís not affected by rtícíe III of the conventíon.
(c) The term Netheríands enterpríse means an enterpríse
carríed on ín the Netheríands by a cítízen or resídent of the Nether-
íands or by a Netheríands corporatíon. The term Netheríands
corporatíon means a corporatíon, assocíatíon, or other organízatíon or
|urídícaí entíty created ín or under the íaws of the Netheríands.
(d) The term índustríaí or commercíaí profíts means profíts
arísíng from índustríaí, commercíaí, mercantííe, manufacturíng, and
ííke actívítíes of a Netheríands enterpríse as defíned ín thís sectíon.
Such term does not íncíude rentaís, royaítíes, ínterest, dívídends, fees,
compensatíon for personaí servíces, nor gaíns deríved from the saíe or
e change of capítaí assets. Such enumerated ítems of íncome are
not governed by the provísíons of rtícíe III of the conventíon.
Sec. 7. . Scope of Conventíon Wíth Respect to Determínatíon
of Industríaí or Commercíaí Profíts. € ” (a) Generaí. € ” rtícíe III
of the conventíon adopts the príncípíe that an enterpríse of one of
the contractíng states shaíí not be ta abíe by the other contractíng
state upon íts índustríaí or commercíaí profíts uníess ít has a per-
manent estabííshment ín the íatter state. ence, a Netheríands enter-
príse ís sub|ect to Uníted States ta upon íts índustríaí and commercíaí
profíts to the e tent of such profíts from sources wíthín the Uníted
States oníy íf ít has a permanent estabííshment wíthín the Uníted
States. From the standpoínt of Federaí íncome ta atíon, the artícíe
has appíícatíon oníy to a Netheríands enterpríse and to the índustríaí
and commercíaí íncome thereof from sources wíthín the Uníted
States. It has no appíícatíon, for e ampíe, to compensatíon for
íabor or personaí servíces performed ín the Uníted States nor to
íncome deríved from reaí property íocated ín the Uníted States,
íncíudíng rentaís and royaítíes therefrom, nor to gaíns from the saíe
or dísposítíon of such property, nor to ínterest, dívídends, royaítíes,
other fí ed or determínabíe annuaí or períodícaí íncome, and gaíns
deríved from the saíe or e change of capítaí assets.
(b) No Uníted States permanent estabííshment. € ” nonresídent
aííen (íncíudíng a nonresídent aííen índívíduaí, fíducíary, and partner-
shíp) who ís a resídent or cítízen of the Netheríands or a Netheríands
corporatíon, carryíng on an enterpríse ín the Netheríands and havíng
no permanent estabííshment ín the Uníted States ís not, wíth respect
to íncome arísíng on or after anuary 1,19 7, sub|ect to Uníted States
íncome ta upon índustríaí or commercíaí profíts from sources wíthín
the Uníted States. For e ampíe, íf the Netheríands enterpríse
carríed on by such aííen or corporatíon seíís, ín 19 , merchandíse,
such as tuííp buíbs, te tííes, or ííquors, through a bona fíde commíssíon
agent or broker ín the Uníted States actíng ín the ordínary course of
hís busíness as such agent or broker, the resuítíng profíts are, under
the terms of rtícíe III of the conventíon, e empt from Uníted States
íncome ta . Líkewíse no permanent estabííshment e ísts and no
Uníted States íncome ta attaches to such profíts íf such enterpríse,
through íts saíes agents ín the Uníted States, secures orders for íts
products, the saíes beíng made ín the Netheríands.
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29.211-7.
(c) Uníted States permanent estabííshment. € ” nonresídent aííen
(íncíudíng a nonresídent aííen índívíduaí, fíducíary, and partnershíp)
who ís a resídent or cítízen of the Netheríands, or a Netheríands cor-
poratíon, whether or not carryíng on an enterpríse ín the Netheríands,
havíng a permanent estabííshment ín the Uníted States, ís sub|ect to
ta upon índustríaí or commercíaí profíts from sources wíthín the
Uníted States to the same e tent as are nonresídent aííens and foreígn
corporatíons engaged ín trade or busíness thereín. In the determína-
tíon of the íncome ta abíe to such aííen or foreígn corporatíon aíí
índustríaí and commercíaí profíts from sources wíthín the Uníted
States shaíí be deemed to be aííocabíe to the permanent estabííshment
ín the Uníted States. ence, for e ampíe, íf a Netheríands enterpríse
havíng a permanent estabííshment ín the Uníted States seíís ín the
Uníted States, through a commíssíon agent thereín goods produced
ín the Netheríands, the resuítíng profíts deríved from Uníted States
sources from such transactíons are aííocabíe to such permanent estab-
ííshment even though such transactíons were carríed on índependentíy
of such estabííshment. In determíníng índustríaí and commercíaí
profíts no account shaíí be taken of the mere purchase of merchandíse
wíthín the Uníted States by the Netheríands enterpríse. The índus-
tríaí or commercíaí profíts of the permanent estabííshment shaíí be
determíned as íf the estabííshment were an índependent enterpríse
engaged ín the same or símííar actívítíes and deaííng at arm s íength
wíth the enterpríse of whích ít ís a permanent estabííshment.
Sec. 7. . Controí of a Domestíc nterpríse by a Netheríands
nterpríse. € ” rtícíe I of the conventíon provídes, ín effect, that íf
a Netheríands corporatíon by reason of íts controí of a domestíc enter-
príse ímposes on such íatter enterpríse condítíons dífferent from those
whích wouíd resuít from normaí busíness reíatíons between índepend-
ent enterpríses, the accounts between the enterpríses may be ad|usted
so as to ascertaín the true net íncome of each enterpríse. The purpose
ís to píace the controííed domestíc enterpríse on a ta paríty wíth an
uncontroííed domestíc enterpríse by determíníng, accordíng to the
standard of an uncontroííed enterpríse, the true net íncome from the
property and busíness of the controííed enterpríse. The basíc ob-
|ectíve of the artícíe ís that íf the accountíng records do not truíy
refíect the net íncome from the property and busíness of such domestíc
enterpríse the Commíssíoner of Internaí Revenue may íntervene and,
by makíng such dístríbutíons, apportíonments, or aííocatíons as he
may deem necessary of gross íncome or deductíons of any ítem or
eíement affectíng net íncome as between such domestíc enterpríse and
the Netheríands enterpríse by whích ít ís controííed or dírected, de-
termíne the true net íncome of the domestíc enterpríse. The proví-
síons of sectíon 29. -1, Reguíatíons 111 2G CFR 29. -1 , shaíí,
ínsofar as appíícabíe, be foííowed ín the determínatíon of the net
íncome of the domestíc busíness.
Sec. 7. 6. Income from Operatíon of Shíps and írcraft. € ” The
íncome deríved from the operatíon of shíps or aírcraft regístered
ín the Netheríands by a nonresídent aííen who ís a resídent or cítízen
of the Netheríands, or by a Netheríands corporatíon, and carryíng on
an enterpríse ín the Netheríands, ís, wíth respect to such íncome de-
ríved on or after anuary 1, 19 7, e empt from Uníted States íncome
ta under the provísíons of rtícíe I of the conventíon. owever,
93 0 € ” 0
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29.211-7.
106
the profíts, íf any, deríved by such aííen or corporatíon from the
operatíon of shíps or aírcraft not so regístered are treated as are
índustríaí and commercíaí profíts generaííy. See rtícíe III of the
conventíon and sectíon 7. of these reguíatíons.
Sec. 7. 7. emptíon from, or Reductíon ín Rate of, Uníted
States Ta ín the Case of Dívídends, Interests, and Royamtes. € ”
(a) Dívídends. € ” (1) Generaí. € ” The ta ímposed by the Internaí
Revenue Code ín the case of dívídends receíved on or after anuary 1,
19 7, from sources wíthín the Uníted States by (í) a nonresídent aííen
(íncíudíng a nonresídent aííen índívíduaí, fíducíary, and partnershíp)
who ís a resídent of the Netheríands, or (íí) a Netheríands corpora-
tíon ís íímíted to 1 percent under the provísíons of rtícíe II (1)
(reíatíng to dívídends) íf such aííen or corporatíon, at no tíme duríng
the ta abíe year ín whích such dívídends were so deríved, was engaged
ín trade or busíness wíthín the Uníted States through a permanent
estabííshment thereín. Thus, íf a nonresídent aííen who ís a resí-
dent of the Netheríands, performs personaí servíces wíthín the Uníted
States duríng the caíendar year 19 and has no permanent estabíísh-
ment wíthín the Uníted States at any tíme duríng such year he ís
entítíed to the reduced rate of ta wíth respect to such dívídends
deríved by hím from Uníted States sources ín that year even though
by reason of hís havíng rendered personaí servíces wíthín the Uníted
States ííe ís engaged ín trade or busíness thereín ín that year wíthín
the meaníng of sectíon 211 (b) of the Internaí Revenue Code. If, for
e ampíe, , a nonresídent aííen who ís a resídent of the Netheríands,
deríves ín 19 , ,000 compensatíon for such personaí servíces and
hís oníy other íncome from sources wíthín the Uníted States consísts
of dívídends, the dívídends are sub|ect to ta at a rate not to e ceed 1
percent and hís earned íncome ís sub|ect to normaí ta and surta
wíthout takíng the dívídends ínto account ín determíníng the ta on
such earned íncome.
(2) Dívídends paíd by a Uníted States subsídíary corporatíon. € ”
Under the provísíons of rtícíe II (1) of the conventíon, dívídends
paíd by a domestíc corporatíon to a Netheríands corporatíon are
sub|ect to ta at the rate of oníy percent íf (í) such Netheríands
corporatíon controís, dírectíy or índírectíy, at the tíme the dívídend
ís paíd 9 percent or more of the votíng power ín such domestíc cor-
poratíon, (íí) not more than 2 percent of the gross íncome of the
domestíc corporatíon for the 3-year períod ímmedíateíy precedíng the
ta abíe year ín whích the dívídend ís paíd consísts of dívídends and
ínterest (other than dívídends and ínterest paíd to such domestíc
corporatíon by íts own subsídíary corporatíons, íf any), and (ííí)
the reíatíonshíp between such domestíc corporatíon and such Nether-
íands corporatíon has not been arranged or maíntaíned prímarííy
wíth the íntentíon of securíng such reduced rate of percent.
(b) Interest and royaítíes. € ” (1) Generaí. € ” Interest (other than
ínterest from mortgage notes (not íncíudíng bonds) secured by reaí
property and other than ínterest paíd by a subsídíary corporatíon
to íts Netheríands parent corporatíon, as e píaíned ín subparagraph
(2) of thís paragraph), whether on bonds, securítíes, notes, deben-
tures, or any other form of índebtedness (íncíudíng ínterest on obíí-
gatíons of the Uníted States and on obíígatíons oí ínstrumentaíítíes
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107
29.211-7.
of the Uníted States) and royaítíes for the ríght to use copyríghts,
patents, desígns, secret processes and formuíae, trade-marks, and
other anaíogous property, and royaítíes (íncíudíng rentaís ín respect
of motíon pícture fííms) or for the use of índustríaí, commercíaí, or
scíentífíc equípment receíved on or after anuary 1, 19 7, from
sources wíthín the Uníted States by (í) a nonresídent aííen (íncíudíng
a nonresídent aííen índívíduaí, fíducíary, and partnershíp) who ís
a resídent of the Netheríands, or (íí) a Netheríands corporatíon are
e empt from Uníted States ta under the provísíons of rtícíes III
and I of the conventíon íf such aííen or corporatíon at no tíme dur-
íng the ta abíe year ín whích such ínterest or royaíty was so deríved
had a permanent estabííshment sítuated wíthín the Uníted States.
Such ínterest and royaítíes are, therefore, not sub|ect to the wíth-
hoídíng provísíons of the Internaí Revenue Code.
(2) Interest paíd by subsídíary corporatíon to íts Netheríands
parent corporatíon. € ” rtícíe III (1) of the conventíon provídes, ín
part, that the e emptíon from Uníted States ta of ínterest paíd to
Netheríands corporatíons shaíí not appíy to ínterest paíd by a domes-
tíc corporatíon to a Netheríands corporatíon íf such Netheríands
corporatíon controís, dírectíy or índírectíy, more than 0 percent of
the entíre votíng power ín such domestíc corporatíon.
(c) enefícíaríes of an estate or trust. € ” nonresídent aííen who ís
a resídent of the Netheríands and who ís a benefícíary of a domestíc
estate or trust shaíí be entítíed to the e emptíon, or reductíon ín the
rate of ta , as the case may be, províded ín rtícíes II, III, and I
of the conventíon wíth respect to dívídends, ínterest, and royaítíes to
the e tent such ítem or ítems are íncíuded ín hís dístríbutíve share of
íncome of such estate or trust íf he ís not engaged ín trade or busíness
ín the Uníted States through a permanent estabííshment. In such
case such benefícíary must, ín order to be entítíed to the e emptíon
or reductíon ín the rate of ta , e ecute Form 1001-N or Form 1001 -N
(modífíed to show dívídends where appíícabíe) and fííe such form
wíth the fíducíary of such estate or trust ín the Uníted States.
In any case ín whích dívídends, ínterest, or royaítíes are deríved
from Uníted States sources by a Netheríands estate or trust any
benefícíary of such estate or trust who ís not a resídent of the Nether-
íands, or who ís engaged ín trade or busíness ín the Uníted States
through a permanent estabííshment, ís not entítíed to any e emptíon
under the conventíon wíth respect to such íncome íncíuded ín hís
dístríbutíve share of the íncome of the estate or trust.
Sec. 7. . Government Wages, Saíaríes, Pensíons, and Símííar
Remuneratíon. € ” rtícíe (1) of the conventíon provídes that
wages, saíaríes and símííar compensatíon, and pensíons and íífe an-
nuítíes, paíd on and after anuary 1, 19 7, to an índívíduaí eíther
dírectíy by, or from funds created by, the Government of the Nether-
íands or by a poíítícaí subdívísíon or terrítory of the Netheríands,
ís e empt from Federaí íncome ta . The provísíons of thís artícíe
of the conventíon are, however, sub|ect to the reservatíon and e -
ceptíon contaíned ín rtícíe I of the conventíon. No e emptíon
from Federaí íncome ta as to such íncome, not otherwíse aííowed by
the ínternaí revenue íaws, ís granted to a cítízen or resídent of the
Uníted States, e cept as to an índívíduaí who occupíes the duaí status
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29.211-7.
10
of a cítízen of the Uníted States and a cítízen of the Netheríands.
Thus, íf , a Uníted States cítízen, marríes a Netheríands sub|ect
and assumes the status of a Netheríands sub|ect by reason of such
marríage wíthout reíínquíshíng her Uníted States cítízenshíp, and
erforms personaí servíces, whether wíthín or wíthout the Uníted
tates, for the Government of the Netheríands, the compensatíon for
such servíces ís e cíuded from gross íncome. s to the ta atíon,
generaííy, of compensatíon of aííen empíoyees of foreígn governments
see sectíon 116(h) of the Internaí Revenue Code and sectíon 29.116 € ” 2,
Reguíatíons 111 26 CFR 29.11G-2 .
Sec. 7. 9. Pensíons and Lífe nnuítíes. € ” Under the provísíons
of rtícíe (2) of the conventíon, prívate pensíons and íífe an-
nuítíes deríved on or after anuary 1, 1917, from sources wíthín the
Uníted States by a nonresídent aííen índívíduaí who ís a resídent
of the Netheríands are e empt from Federaí íncome ta . The term
pensíons ís defíned ín rtícíe (3), and for the purposes of
rtícíe (2) does not íncíude retíred pay or pensíons paíd by the
Uníted States or by any State or Terrítory of the Uníted States. The
term íífe annuítíes ís defíned ín rtícíe ( ), and for the purposes
of rtícíe (2) does not íncíude retíred pay or pensíons paíd by
the Uníted States or by any State or Terrítory of the Uníted States.
Sec. 7. 60. Compensatíon for Labok or Personaí Servíces, € ”
rtícíe I of the conventíon provídes, upon a recíprocaí basís, that
a nonresídent aííen who ís a resídent of the Netheríands ís e empt
from Federaí íncome ta upon compensatíon (regardíess of amount
of such compensatíon) receíved by such aííen on or after anuary 1,
19 7, for íabor or personaí (íncíudíng professíonaí) servíces per-
formed duríng the ta abíe year wíthín the Uníted States íf for such
ta abíe year:
(a) Such aííen ís temporarííy present wíthín the Uníted States
for a períod or períods not e ceedíng 1 3 days duríng the ta abíe
year, and
(b) Such servíces are performed as a worker or empíoyee of,
or under contract wíth, a resídent of the Netheríands or a Nether-
íands corporatíon (even though such resídent or corporatíon ís
engaged ín trade or busíness wíthín the Uníted States) whích
resídent or corporatíon actuaííy bears the e pense of such com-
pensatíon and ís not reímbursed therefor by another person.
s to the source of compensatíon for íabor or personaí servíces, see
sectíon 119(a) (3), Internaí Revenue Code.
Sec. 7. 61. Dívídends and Interest Paíd by a Netheríands Cor-
poratíon. € ” dívídend paíd by a foreígn corporatíon constítutes ín
whoíe or ín part íncome from sources wíthín the Uníted States and
hence ís sub|ect to ta ín the hands of a nonresídent aííen or foreígn
corporatíon, íf 0 percent or more of the gross íncome of the foreígn
corporatíon payíng such dívídend ís deríved from sources wíthín the
Uníted States duríng the períod prescríbed by the statute. Sectíon
119(a) (2) ( ), Internaí Revenue Code, and sectíon 29.119-3(6), Reg-
uíatíons 111 26 CFR 29.119-3(b) . Interest paíd by a resídent for-
eígn corporatíon constítutes ín íts entírety íncome from sources wíthín
| the Uníted States, and hence ís sub|ect to ta ín the hands of a non-
I resídent aííen índívíduaí or foreígn corporatíon, íf 20 percent or
more of the gross íncome of the foreígn corporatíon payíng such ín-
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1C9
: 29.211-7.
terest ís deríved from sources wíthín the Uníted States duríng the
eríod prescríbed bv the statute. Sectíon 119(a)(1)( ), Internaí
íevenue Code, and sectíon 29.119-2( ), Reguíatíons 111 26 CFR
29.119-2(b) .
Under the provísíons of rtícíe II of the conventíon dívídends and
ínterest paíd by a Netheríands corporatíon to any nonresídent aííen
or to anv foreígn corporatíon, whether or not such aííen ís a resídent of
the Netheríands, are not, on and after anuary 1,1917, sub|ect to Fed-
eraí íncome ta regardíess of whether the corporatíon payíng such
dívídends or ínterest ís a resídent foreígn (as to the Uníted States) cor-
poratíon and regardíess of the percentage of íts gross íncome deríved
from sources wíthín the Uníted States.
Sec. 7. G2. ísítíng Professors or Teachers. € ” Under rtícíe
II of the conventíon, an aííen who ís a resídent of the Netheríands
ís e empt from Uníted States íncome ta wíth respect to remunera-
tíon deríved on or after anuary 1, 19 7. for teachíng, íecturíng, or
ínstructíng at any uníversíty, coííege, schooí, or other educatíonaí
ínstítutíon sítuated wíthín the Uníted States for a períod not e ceed-
íng 2 years from the date of hís arrívaí ín the Uníted States, íf he
ís temporarííy present ín the Uníted Síates for such purposes and
because of an agreement between the Uníted States and the Nether-
íands or an agreement between an educatíonaí ínstítutíon sítuated ín
the Uníted States and an educatíonaí ínstítutíon sítuated ín the Nether-
íands, such agreement havíng as íts ob|ect the e change of professors
and teachers between such ínstítutíons. It shaíí be deemed that such
aííen comíng to the Uníted States for the purposes índícated has. for
a períod of not more than 2 years ímmedíateíy succeedíng the date of
hís arrívaí wíthín the Uníted States for such purposes, the ta status
of a nonresídent aííen ín the absence of proof of hís íntentíon to re-
maín índefíníteíy ín the Uníted States.
Sec. 7. 63. Remíttances. € ” Under rtícíe III of the conven-
tíon, nonresídent aííen índívíduaís who are resídents of the Netheríands
but who are temporarííy present ín the Uníted States for the purposes
of study or for acquíríng busíness e períence are e empt from Federaí
íncome ta upon amounts deríved on or after anuary 1, 19-17, and
representíng remíttances from sources outsíde the Uníted States for
the purposes of theír maíntenance, educatíon, studíes, and traíníng.
Sec. 7. 6 . Naturaí Resource Royaítíes and Reaí Property
Rentaís. € ” Under rtícíe of the conventíon, ín any case ín whích a
nonresídent aííen (who ís a resídent of the Netheríands) or a Nether-
íands corporatíon, deríves from sources wíthín the Uníted States, on
or after anuary 1, 19 7, royaítíes from the operatíon of mínes, oíí
weíís, quarríes, or other naturaí resources, or rentaís from reaí prop-
erty sítuated wíthín the Uníted States, such aííen or corporatíon may
eíect, for the ta abíe year ín whích such íncome ís so deríved, to be
sub|ect to Federaí íncome ta as íf such aííen or corporatíon were en-
gaged ín trade or busíness wíthín the Uníted States by reason of havíng
a permanent estabííshment thereín duríng such ta abíe year. Such
eíectíon shaíí be made by so sígnífyíng on the return for such year.
The eíectíon so sígnífíed shaíí be írrevocabíe for the ta abíe year for
whích such eíectíon ís made. In such a case a return may be fííed by
the nonresídent aííen or foreígn corporatíon even though the soíe
íncome of such aííen or corporatíon from sources wíthín the Uníted
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S 29.211-7.
110
States ís fí ed or determínabíe annuaí or períodícaí íncome upon whích
the ta has been fuííy satísfíed at the source and there e ísts no neces-
síty for the fíííng of the return e cept for the purposes of securíng
the benefíts of rtícíe of the conventíon. See sectíon 29.217-2,
Reguíatíons 111 26 CFR 29.217-2 .
Sec. 7. 6 . Credít gaínst Uníted States Ta Líabíííty for In-
come Ta Paíd to the Netheríands. € ” For the purpose of avoídance
of doubíe ta atíon, rtícíe I (2) of the conventíon provídes that
there shaíí be aííowed by the Uníted States a credít agaínst Uníted
States íncome ta ííabíííty for the amount of the Netheríands ta es
descríbed ín rtícíe I(Z )(í) of the conventíon ímposed on íncome
deríved on or after anuary 1, 19 7, from sources wíthín the Nether-
íands. Such credít ís, however, sub|ect to the íímítatíons províded ín
sectíon 131 of the Internaí Revenue Code (reíatíng to the credít for
foreígn ta es). See sectíons 29.131-1 to 29.131-9 of Reguíatíons 111
26 CFR 29.131-1 to 29.131-9 .
Sec. 7. C6. d|ustment of Ta Líabíííty of Nonresídent ííens
Who re Resídents of the Netheríands and of Netheríands Corpo-
ratíons. € ” rtícíe I (1) of the conventíon as modífíed by the reser-
vatíons thereto (see sectíon 7. 0) confers upon the Commíssíoner of
Internaí Revenue authoríty to ad|ust the ta ííabíííty for ta abíe years
begínníng príor to anuary 1,1936, of any nonresídent aííen índívíd-
uaí who ís a resídent of the Netheríands and of any corporatíon or-
ganízed under the íaws of the Netheríands ín any case ín whích such
ta ííabíííty remaíned unpaíd on anuary 1, 19 7 (the effectíve date
of the conventíon). Such provísíons, however, wííí not appíy uníess € ”
(a) the ta payer has fííed wíth the Commíssíoner of Internaí
Revenue on or before December 31, 19 , a request that such ta
ííabíííty be so ad|usted, showíng facts sufíícíent to appríse the
Commíssíoner of the basís of the request. The Commíssíoner may
aíso requíre a sworn statement showíng for each year ínvoíved
and for such other years as he deems pertínent: (1) by ítems and
cíasses of íncome, the amounts of dívídends, ínterest, rents, saí-
aríes, wages, premíums, annuítíes, compensatíons, remuneratíons,
emoíuments, or other fí ed or determínabíe- annuaí or períodícaí
íncome, gaíns, profíts, and íncome deríved from sources wíthín
the Uníted States; (2) the busíness transactíons, íf any, carríed
on ín the Uníted States by or ín behaíf of the ta payer duríng
each of such years; and (3) such further ínformatíon as the Com-
míssíoner may requíre ín the partícuíar case; and
(b) the Commíssíoner ís satísfíed that the addítíonaí íncome
ta ínvoíved díd not aríse by reason of fraud wíth íntent to
evade the ta on the part of the ta payer concerned.
In any case ín whích the Commíssíoner deems ít appropríate to e er-
císe the authoríty thus conferred, the resuítíng ta ííabíííty for any
such year or years may not e ceed the amount of the ííabíííty whích
wouíd be determíned had the foííowíng been gíven effect for such year
or years:
(í) The Revenue ct of 1936 (e cept ín the case of a Nether-
íands corporatíon ín whích more than 0 percent of the entíre
votíng power was controííed, dírectíy or índírectíy, throughout
the íatter haíf of the ta abíe year for whích the ííabíííty ís beíng
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29.211-7.
determíned, by cítízens or resídents of the Uníted States), but the
ta atíon of paíns, íf any, from the saíe or e change of capítaí
assets ín the respectíve years shaíí be determíned wíthout regard to
that ct;
(íí) rtícíe II of the conventíon, e emptíng from Uníted
States ta dívídends and ínterest paíd by a Netheríands corpora-
tíon to nonresídent aííens or foreígn corporatíons.
In any case ín whích the Commíssíoner of Internaí Revenue has
e ercísed hís authoríty to appíy the provísíons of rtícíe I (1) of
the conventíon, íf the ta payer was not engaged ín trade or busíness
wíthín the Uníted States and had no offíce or píace of busíness thereín
duríng the ta abíe year ínvoíved, the aggregate amount of ínterest and
penaítíes may not e ceed 0 percent of the amount of the ta wíth
respect to whích such ínterest and penaítíes have been computed.
rtícíe I (2) of the conventíon as modífíed by the reservatíons
thereto (see sectíon 7. 0), provídes that the Federaí íncome ta
ííabíííty for ta abíe years begínníng after December 31, 193 , and
príor to anuary 1,1917, whích remaíned unpaíd on anuary 1, 19 7,
ín the case of any nonresídent aííen índívíduaí, a resídent of the
Netheríands, or of any Netheríands corporatíon, shaíí be determíned
under the Uníted States ínternaí revenue íaw properíy appíícabíe
thereto, e cept that rtícíe II (reíatíng to e emptíon from Uníted
States ta of dívídends and ínterests paíd by a Netheríands corpora-
tíon) shaíí be treated as beíng ín effect for such years. (See sectíon
7. 61 of these reguíatíons.)
Sec. 7. 67. Recíprocaí dmínístratíve ssístance. € ” (a) Gen-
eraí. € ” y rtícíe I of the conventíon, the Uníted States and the
Netheríands adopt the príncípíe of e change of such ínformatíon as ís
necessary for carryíng out the provísíons of the conventíon or for the
preventíon of fraud or for the detectíon of practíces whích are aímed
at reductíon of the revenues of eíther country, but not íncíudíng ín-
formatíon whích wouíd díscíose a trade, busíness, índustríaí or
professíonaí secret, or trade process.
The ínformatíon and correspondence reíatíve to e change of ín-
formatíon may be transmítted dírectíy by the Commíssíoner of In-
ternaí Revenue to the Dírecteur-Generaaí der eíastíngen of the
Netheríands.
(b) Informatíon to be furníshed ín due course. € ” Pursuant to such
príncípíe, every Uníted States wíthhoídíng agent shaíí make and fííe
wíth the coííector, ín dupíícate, an ínformatíon return on Form 10 2 ,
ín addítíon to the wíthhoídíng return, Form 10 2, for the caíendar
year 19 and each subsequent caíendar year- wíth respect to: (a)
dívídends from whích a ta of 1 percent was wíthheíd from persons
whose addresses are ín the Netheríands ( percent ín the case of díví-
dends faíííng wíthín the scope of the províso of rtícíe II (1) of the
conventíon); (b) royaítíes and ííke amounts and ínterest (other than
coupon bond ínterest reported on Form 1001-N) from whích no ta
was wíthheíd from persons who have furníshed to the wíthhoídíng
agent Form 1001 -N; and (c) aíí other fí ed or determínabíe annuaí
or períodícaí íncome paíd to such persons.
In accordance wíth the provísíons of rtícíe I of the conventíon,
the Commíssíoner of Internaí Revenue wííí forward to the Dírecteur-
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29.211-7.
112
Gen era aí der eíastíngen of the Netheríands, as soon as practícabíe
after the cíose of the caíendar year 19 , and of each caíendar year
thereafter duríng whích the conventíon ís ín effect, the foííowíng
ínformatíon reíatíng to such caíendar year: the names and addresses
of aíí persons whose addresses are ín the Netheríands, who deríved
from sources wíthín the Uníted States dívídends, ínterest, rents,
royaítíes, saíaríes, wages, pensíons, annuítíes, and other fí ed or de-
termínabíe annuaí or períodícaí profíts or íncome, and the amount of
such íncome wíth respect to such persons as díscíosed on such return.
For these purposes the transmíssíon to the Dírecteur-Generaaí der
eíastíngen of ínformatíon return, Form 10 2 , and ownershíp cer-
tífícate, Form 1001-N, for the caíendar year 191 and subsequent
caíendar years, shaíí constítute compííance wíth the provísíons of
rtícíe I of the conventíon and of sectíons 7. 0 to 7. 6 of these
reguíatíons.
(c) 1 íformatíon ín specífíc cases. € ” Under the provísíons and íímí-
tatíons of rtícíe I of the conventíon, and sub|ect to the proví-
síons of rtícíe III and rtícíe I of the conventíon, and
upon request of the Dírecteur-Generaaí der eíastíngen, the Commís-
síoner of Internaí Revenue shaíí furnísh to the Dírecteur-Generaaí
der eíastíngen ínformatíon avaííabíe to or obtaínabíe by the Com-
míssíoner of Internaí Revenue reíatíve to the ta ííabíííty of any per-
son under the revenue íaws of the Netheríands ín any case ín whích
such ínformatíon ís necessary to the admínístratíon of the provísíons
of the conventíon or for the preventíon of fraud or the admínístra-
tíon of statutory provísíons agaínst íegaí avoídance.
Sec. 7. 0 . Cíaíms ín Casks of Doubíe Ta atíon. € ” Under rtícíe
I of the conventíon, where the actíon of the revenue authorítíes
of the contractíng states has resuíted or wííí resuít ín doubíe ta atíon
contrary to the provísíons of the conventíon, the ta payer ís entítíed
to íodge a cíaím wíth the country of whích he ís a cítízen or, íf he
ís not a cítízen of eíther country, wíth the country of whích he ís a
resídent, or íf the ta payer ís a corporatíon, wíth the country ín whích
ít ís created or organízed. rtícíe I further provídes that
shouíd the cíaím be upheíd, the competent authoríty of the country
wíth whích the cíaím ís íodged shaíí undertake to come to an agree-
ment wíth the competent authoríty of the other country wíth a víew
to equítabíe avoídance of the doubíe ta atíon. Such a cíaím on be-
haíf of a Uníted States cítízen or corporatíon or other entíty, or on
behaíf of a resídent of the Uníted States who ís not a Netheríands
sub|ect, shaíí be fííed wíth the Commíssíoner of Internaí Revenue,
Washíngton 2 , D. C. The cíaím shouíd be set up ín the form of a
íetter and shouíd show fuííy aíí facts on the basís of whích the cíaím-
ant aííeges that such doubíe ta atíon has resuíted or wííí resuít. If
the Commíssíoner of Internaí Revenue determínes that there ís an
appropríate basís for the cíaím under the conventíon, he wííí take the
matter up wíth the Dírecteur-Generaaí der eíastíngen of the Nether-
íands wíth a víew to arrangíng an agreement of the character con-
tempíated by rtícíe I .
Sínce the purpose of thís Treasury Decísíon ís to make effectíve the
provísíons of the íncome ta conventíon between the Uníted States
and the íngdom of the Netheríands, procíaímed by the Presídent
of the Uníted States on December , 19 , thís Treasury Decísíon ís
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113
1 292.
not sub|ect to the effectíve date íímítatíon of sectíon (c) of the d-
mínístratíve Procedure ct, approved une 11,19 .
(Thís Treasury Decísíon ís íssued under the authoríty of sectíon
62 of the Internaí Revenue Code ( 3 Stat. 32; 26 U. S. C. 62).)
Fred S. Martín,
ctíng Commíssíoner of Internaí Revenue.
pproved March 16, 19 0.
Thomas . Lynch,
ctíng Secretary of the Treasury.
(Fííed wíth the Dívísíon of the Federaí Regíster Marcíí 21,19 0, : a. m.)
SUPPL M NT I. € ” FOR IGN CORPOR TIONS
S CTION 231. € ” T ON FOR IGN CORPOR TIONS .
Sectíon 29.231-1: Ta atíon of foreígn cor-
poratíons.
INT RN L R NU COD
Reguíatíons affectíng the ta atíon of Danísh corporatíons under
the íncome ta conventíon between the Uníted States and the íng-
dom of Denmark, procíaímed by the Presídent of the Uníted States on
December ,19 . (See T. D. 777, page 76.)
Sectíon 29.231-1: Ta atíon of foreígn cor-
poratíons.
INT RN L R Nf COD
Reguíatíons affectíng the ta atíon of Netheríands corporatíons
under the íncome ta conventíons between the Uníted States and the
íngdom of the Netheríands, procíaímed bv the Presídent of the
Uníted States on December , 19 . (See T. D. 77 , page 92.)
SUPPL M NT M. € ” INT R ST ND DDITIONS TO T T
S CTION 292. € ” INT R ST ON D FICI NCI S
19 0- -13300
Ct. D. 1729
íncome ta € ” ínternaí revenue code € ” decísíon of supreme court
1. Interest on Defícíency € ” Intekest Not bated When Net
Operatíng Loss Carry- ack bates Defícíency.
Where a defícíency and Interest have been vaíídíy assessed nncíer
any appíícabíe statutory procedure, a subsequent carry-back of a net
operatíng íoss whích resuíts ín the abatement of the defícíency does
not abate the ínterest prevíousíy assessed on that defícíency.
2. Decísíon Reversed.
Decísíon of the Uníted States Court of ppeaís, Thírd Círcuít (172
Fed. (2d) 77 (19 )), reversíng decísíon of the dístríct court,
D. N. . (76 Fed. Supp. 937 (19 )), reversed.
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292.
11
Supreme Court of the Uníted States
ohn . Manníng, as Coííector of Internaí Revenue for the Fífth Dístríct of New
ersey, petítíoner, v. Seeíey Tube o Co., a Corporatíon of the State of
ctc ersey
On wrít of certíorarí to the Uníted States Court of ppeaís for the Thírd Círcuít
February 6, 19 0
OPINION
Mr. Chíef ustíce ínson deíívered the opíníon of the Court.
The facts of thís case have been agreed upon by stípuíatíon. On December 1 ,
19 1, respondent ta payer, a New ersey corporatíon, íííed a corporate ta return
for íts físcaí períod, anuary 1, 19 1, to September 30, 19 1. On anuary 12,
19 2, the Commíssíoner of Internaí Revenue assessed the ta ,1 whích respondent
tímeíy paíd. Respondent was ad|udged a bankrupt and a receíver appoínted on
uíy 7, 19 3. On ugust 2, 19 3, the Commíssíoner, usíng the acceíerated pro-
cedure appíícabíe ín bankruptcy cases,2 assessed defíeíoncíes ín the 19 1 ta es
wíth ínterest from the date the ta was properíy due to the assessment date.
On March 3, 19 , respondent fííed íts return for the físcaí períod from October
1, 19 2. to September 30, 19 3, showíng a net operatíng íoss for that year. Thís
íoss, when carríed back ín accordance wíth sectíon 122(b)(1) of the Internaí
Revenue Code, was suffícíent to abate compíeteíy respondent s ta ííabíííty for
19 1. Respondent then fííed cíaíms for a refund of that part of the 1 1 ta
whích had aíready teen paíd, and for the abatement of the assessed defícíency
and ínterest. The Commíssíoner abated the defícíency, but refused to refund
aíí the ta whích had been paíd, retaíníng nu amount equaí to the ínterest whích
had been assessed on the defícíency.
Respondent then sued the coííector for the ínterest. The dístríct court sus-
taíned the coííector, hoídíng that the payment of the ínterest remaíned au
1 The payment ín questíon íncíuded corporate íncome ta , defense ta and e cess profíts
ta . No questíon ís presented as to the correctness of the defense ta payment.
a Int. Rev. Code, sectíon 27 (a) : Upon the ad|udícatíon of bankruptcy of any ta payer
ín any bankruptcy proceedíng or the appoíntment of a receíver for any ta payer ín any
receívershíp proceedíng before any court of the Uníted States or of any State or Terrítory
or of the Dístríct of Coíumbía, any defícíency (together wíth aíí ínterest, addítíonaí
amounts, or addítíons to the ta províded for by íaw) determíned by the Commíssíoner
ín respect of a ta ímposed by thís chapter upon such ta payer shaíí, despíte the restríctíons
ímposed by sectíon 272(a) upon assessments be ímmedíateíy assessed íf such defícíency has
not theretofore been assessed ín accordance wíth íaw. In such cases the trustee ín bank-
ruptcy or receíver shaíí gíve notíce In wrítíng to the Commíssíoner of the ad|udícatíon of
bankruptcy or the appoíntment of the receíver, and the runníng of the statute of íímítatíons
on the makíng of assessments shaíí be suspended for the períod from the date of ad|udíca-
tíon ín bankruptcy or the appoíntment of the receíver to a date 0 days after the date upon
whích the notíce from the trustee or receíver ís receíved by the Commíssíoner; but the
suspensíon under thís sentence shaíí ín no case be for a períod ín e cess of 2 years. Cíaíms
for the defícíency and such ínterest, addítíonaí amounts and addítíons to the ta may be
presented, for ad|udícatíon ín accordance wíth íaw, to the court before whích the bank-
ruptcy or receívershíp proceedíng ís pendíng, despíte the pendency of proceedíngs for the
redetermínatíon of the defícíency ín pursuance of a petítíon to the Ta Court: but no
petítíon for any such redetermínatíon shaíí be fííed wíth the Ta Court after the ad|udíca-
tíon of bankruptcy or the appoíntment of the receíver.
Defícíencíes were assessed both as to the normaí Income ta and as to the e cess profíts
ta .
Further defícíencíes were assessed March 21, 19 . The ínterest on these defícíencíes
amounted to 2.00 , whereas the ínterest on the defícíencíes assessed ín ugust. 10 3,
totaíed , 30.0 . We feeí that any possíbíe dífference ín resuít attríbutabíe to the tímíng
of the assessment has ííttíe effect on tííe amount to whích ta payer míght be entítíed ín
thís ense. and we do not consíder thís factor.
The record Is bare of any cíaím or payment of ínterest from the date of the assessment
of the defícíency untíí the date of the cíaím of the refund. See Int. Rev. Code, sec-
tíon 29 (b).
Respondent does not urge and we need not decíde the appíícabíííty of Cíty of íc York v.
Saper, 330 U. S. 32 (19 9) Ct. D. 171 . C. . 19 9-1. 1201. where we heíd that under
the círcumstances of that case, bankruptcy termínated the runníng of ínterest on cíaíms
agaínst the bankrupt. In víew of the íacts that respondent was revested wíth títíe to íts
assets on une . 19 . nnd that tííe períod between the bankruptcy and the ma|or part of
the assessment was íess than a month, we do not feeí that the hoídíng of that case couíd
effect any sígnífícant change ín the dísposítíon of the probíem at hand.
Int. Rev. Code, sectíon 122(a) : s used ín thís sectíon, the term net operatíng íoss
means the e cess of the deductíons aííowed by thís chapter over the gross íncome, wíth
the e ceptíons, addítíons, and íímítatíons píovíded ín subsectíon (d).
Int. Rev. Code, sectíon 122(b)(1) : If for any ta abíe year begínníng after December
31, 19 1. the ta payer has a net operatíng íoss, such net operatíng íoss shaíí (he a net
operatíng íoss carry-back for eaeíí of the two precedíng ta abíe years, € €
The carrv-hack operated símííaríy on the e cess profíts ta . 20 U. S. C, sectíons 710,
72s. 729 (11) 0). The entíre e cess profíts sectíon of the Code, passed ín 19 0, 0 Stat
97 , was repeaíed ín 19 , 9 Stat. 0S.
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292.
obíígatíon of the ta payer, even though the assessed defícíency had ítseíf been
abated. 76 Fed. Supp. 037 (10 ). The court of appeaís reversed, hoídíng that
the carry-hack, ín wípíng out the debt of the ta defícíency, must aíso have
wíped out the ínterest whích had been assessed on that defícíency. 172 Fed.
(2d) 77 (10 ). ecause of the frequency of the use of the carry-bark proví-
síon of the Internaí Revenue Code, we granted certíorarí. 337 U. S. 9 (19 9).
The generaí statutory scheme whích presents the probíem ís as foííows: s of
a certaín date the ta payer has a duty to fííe a return for the prevíous físcaí
year and pay the amount of the ta actuaííy due for that year. If thís return
ís erroneousíy caícuíated and the payment ís íess than the tu properíy due, the
Commíssíoner, usíng the procedure appropríate to the partícuíar sítuatíon, may
assess a defícíency, the dífference between the ta ímposed by íaw and the ta
shown upon the return. Interest upon thís defícíency at the rate of 6 percent
from the date the ta was íawfuííy due to the date of the assessment ís assessed
at the same tíme as the defícíency. If a net operatíng íoss ís subsequentíy
sustaíned, that íoss may be carríed back and added to the deductíons for the two
prevíous ta abíe years, wíth appropríate ad|ustments ín the ta ííabíííty for
those years. The probíem wíth whích we are concerned In thís case Is whether
the ínterest on a vaíídíy assessed defícíency ís abated when the defícíency ítseíf
ís abated by the carry-back of a net operatíng íoss.
We hoíd that the ínterest was properíy wíthheíd by the coííector. The subse-
quent canceííatíon of the duty to pay thís assessed defícíency does not canceí In
ííke manner the duty to pay the Interest on that defícíency. From the date the
orígínaí return was to be fííed untíí the date the defícíency was actuaííy assessed,
the ta payer had a posítíve obíígatíon to the Uníted States: a duty to pay íts
ta . See Rodgers v. nííed States, 332 U. S. 371, 37 (19 7) ; Uníted States v.
Chííd . 266 . S. 30 , 300-310 (102 ) T. D. 3671, C. . I -1, 2 1 (102 ) ;
ííííngs v. Uníted States, 232 U. S. 261, 2 -2 7 (191 ). For that períod the ta -
payer, by íts faííure to pay the ta es owed, had the use of funds whích ríghtfuííy
shouíd have been ín the possessíon of the Uníted States. The fact that the
statute permíts the ta payer subsequentíy to avoíd the payment of that debt
ín no way índícates that the ta payer Is to deríve the benefíts of the funds for
the ínterveníng períod. In the absence of a cíear íegísíatíve e pressíon to the
contrary, the questíon of who properíy shouíd possess the ríght of use of the
money owed the Government for the períod ít ís owed must be answered ín
favor of the Government.
It ís apparent from an ínspectíon of the Code that Congress íntended the
Uníted States to have the use of the money íawfuííy due when ít became due.
Severaí sectíons of the Code prescríbe penaítíes and addítíons to the ta for
negíígence and fraud. ta payer who fííes a tímeíy return but does not pay
the ta on tíme must pay ínterest on the ta untíí payment. ven when the
Commíssíoner, at the request of the ta payer, authorízes an e tensíon of the
tíme of payment, ínterest must be paíd by the ta payer for the períod of the
e tensíon. nd when the Commíssíoner assesses a defícíency he aíso may assess
ínterest on that defícíency from the date the ta was due to the assessment date.
The enactment of the carry-back provísíon ín 10 2 díd not change thís poíícy
of the statute requíríng prompt payment Thís sectíon was Intended to afford
ta payers an opportuníty to present for ta purposes a reaíístíc, baíanced
pícture of theír profíts and íosses. It permíts a ta payer to add a net operatíng
íoss for one year to the deductíons for the two prevíous ta abíe years. The
report of the Senate Commíttee on Fínance states that the purpose of the sectíon
was to afford reííef to cases where maíntenance and upkeep e penses were
deferred to peacetíme years because of wartíme restríctíons. S. Rept. No. 1631,
7th Cong., 2d sess. 1- 2 (19 2) C. . 19 2-2, 0 , 6- 7 . ut there Is no
índícatíon that Congress íntended to encourage ta payers to cease prompt pay-
ment of ta es. The same report, e píaíníng the operatíon of the sectíon whích
became the present carry-back provísíon, states, ta payer entítíed to a carry-
back of a net operatíng íoss or an unused e cess profíts credít € wííí
not be abíe to determíne the deductíon on account of such carry-back untíí the
cíose of the future ta abíe year ín whích he sustaíns the net operatíng íoss or
€ See Int. Rev. Code, sectíons 62(a), 3(a), 66(a). The ta may aíso be paíd ín uarteríy
ínstaííments. Int Rev. Code, sectíon 6(b).
Int. Rev. Code, sectíon 271(a).
€ Int. ev. Code, sectíon 292(a).
€ . g.. Int. Rev. Code, sectíons 291(a), 293 (a), (b).
Int. Rev. Code, sectíon 29 (a)(1).
u Int. Rev. Code, sectíons 6(c) (1), 29 .
Int. Rev. Code, sectíon 292 (a).
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292.
116
has the unused e cess profíts credít. e must therefore fííe hís return and pay
hís ta wíthout regard to such deductíon, and must fííe hís cíaím for refund at
the cíose of the succeedíng ta abíe year when he ís abíe to determíne the amount
of such carry-back. S. Rept. No. 1631 at 123-12 C. . 19 2-2, 0 , 97 .
(Itaíícs added.) We can ímagíne no cíearer índícatíon of a congressíonaí
understandíng and íntent that the carry-back was not to be ínterpreted as
deferríng or deíayíng the prompt payment of ta es properíy due.
íthough ít ís true that for many purposes the carry-back ís equívaíent to a
do novo determínatíon of the ta , our concíusíon that thís sectíon does not
retroactíveíy aíter the duty of a ta payer to pay hís fuíí ta promptíy ís ampíy
supported by sectíon 3771(e) of the Code. That sectíon, an íntegraí part of the
carry-back provísíon, prohíbíts a ta payer who does pay a ta whích ís subse-
quentíy abated by a carry-back from cíaímíng ínterest from the Government for
the ínterveníng períod. It ís cíear, therefore, that Congress ín 19 2 díd not
íntend to change the basíc statutory poíícy: the Uníted States ís to have the
possessíon and use of the íawfuí ta at the date ít ís properíy due.
To sustaín respondent s contentíon wouíd be to píace a premíum on faííure to
conform dííígentíy wíth the íaw. For then a ta payer.who díd not pay hís ta es
on tíme wouíd receíve the fuíí use of the ta funds for the ínterveníng períod,
whííe the ta payer who díd obey the statutory mandate and pay hís íawfuí ta es
promptíy wouíd be prohíbíted by sectíon 3771(e) from havíng the use of the
money for that períod. We cannot approve such a resuít.
ny other ínterpretatíon wouíd be ínconsístent wíth the present structure of
the Code, as amended by sectíon (a) of the Ta d|ustment ct of 19 , 9
Stat. 19, now sectíons 3779 and 37 0 of the Code. Príor to 19 , the Commís-
síoner had power to authoríze at the request of the ta payer, an e tensíon of
tíme for the payment of ta es, and ínterest on such an e tensíon was charged at
the rate of 6 percent. The Ta d|ustment ct of 19 was passed to ímprove
the cash posítíon of ta payers by aííowíng them to defer current ta payments íf
there was a reasonabíe chance that these payments wouíd be returned to them
ín the future because of busíness íosses, and to speed up the refund of ta es paíd.
. It. Rept. No. 9, 79th Cong., 1st sess. 1-6 (19 ) C. . 19 , 66- 6 ; oínt
Commíttee on Internaí Revenue Rept. No. 1, 79th Cong., 1st sess. 6-9 (19 ).
Under sectíon 3779 a corporatíon fíííng íts return for the precedíng ta year has
the ríght to obtaín an e tensíon of tíme for the payment of the ta for that
precedíng year. Thís e tensíon may be obtaíned íf the corporatíon e pects to
suffer, ín the físcaí year ín whích the return ís fííed, a net operatíng íoss suffícíent
to dímínísh, by a carry-back, íts ta ííabíííty for the precedíng ta years. t
the cíose of that year, the ta payer may fííe, under sectíon 37 0, an appíícatíon
for a tentatíve read|ustment of ta es for precedíng years íncíudíng a quíck
refund of ta es paíd or an abatement of ta es whích have been deferred.
corporatíon whích does take advantage of these provísíons ís not compíeteíy ab-
soíved from the payment of ínterest on deferred ta es actuaííy abated. For
sectíon 3779 (í) e pressíy provídes that the corporatíon must pay 3 percent
ínterest on deferred ta es actuaííy abated by the carry-back and 6 percent on
those not abated. gaín ít ís apparent that the Code contempíates tímeíy
payment of ta es and subsumes the ríght of the Uníted States to the ínterím
use of the ta payments.
It ís argued that the concíusíon that respondent ís not entítíed to a refund
of the assessed ínterest ís unfaír, aííegedíy díscrímínatíng agaínst a ta payer
whose defícíency ís assessed under the acceíerated bankruptcy procedure ín
favor of one whose defícíency ís assessed under sectíon 272(a)(1), the more
customary 90-day íetter Ta Court procedure. Thís sectíon provídes that ín
the usuaí case the Commíssíoner must notífy the ta payer that he íntends to
assess a defícíency agaínst hím. The ta payer ís then aííowed 90 days ín
whích to fííe a petítíon wíth the Ta Court for a redetermínatíon of the aííeged
defícíency, and the Commíssíoner ís restraíned from assessíng any defícíency
untíí the decísíon of the Ta Court becomes fínaí. Nor may the Commíssíoner
assess more than the amount the Ta Court determínes to be the defícíency.
Int. Rev. Code, sectíon 3771(e) : If the Commíssíoner determínes that any part of
an overpayment ís attríbutabíe to the íncíusíon ín computíng the net operatíng íoss deduc-
tíon for the ta abíe year of any part of the net operatíng íoss for a succeedíng ta abíe year
or to the íncíusíon In computíng the unused e cess profíts credít ad|ustment for the ta abíe
year of any part of the unused e cess profíts credít for a succeedíng ta abíe year, no
ínterest shaíí be aííowed or paíd wíth respect to such part of the overpayment for any
períod before the fíííng of a cíaím for credít or refund of such part of the overpayment or
the fíííng of a petítíon wíth the Ta Court, whíchever ís earííer; € € €
Int. Rev. Code, sectíons 0(c), 29 .
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117
29.322-3.
Sectíon 292(a), provídíng for ínterest on defícíencíes, states, Interest upon
the amount determíned as a defícíency shaíí be assessed at the same tíme as
the defícíency. The argument ís that íf there ís no defícíency there
can be no ínterest, and, ít ís further urged, the Ta Court wííí normaííy arríve
at a resuít of no defícíency, for ít wííí take ínto consíderatíon the net operatíng
íoss carry-back ín íts redetermínatíon. Therefore, no ínterest wííí be assessed.
t the tíme of the príncípaí assessment ín thís case, however, the net operat-
íng íoss had not yet been reported. Nor has the vaíídíty of the defícíency assess-
ment been chaííenged at any tíme throughout the íítígatíon. Thus, the compar-
abíe sítuatíon to the ínstant case wouíd be, íf. before the net operatíng íoss was
cíaímed, the Ta Court was confronted wíth a defícíency determíned by the
Commíssíoner. We see no reason why that method of assessment, or any of
the others authorízed by statute, wouíd arríve at a dífferent fígure because of
an uncíaímed net operatíng íoss. Whether the íanguage of the Code requíres a
dífferent resuít when the íoss ís cíaímed before the attempted assessment of the
defícíency ís a questíon whích ís not consídered by us on thís record. We hoíd
that where a defícíency and ínterest have been vaíídíy assessed under any
appíícabíe statutory procedure, a subsequent carry-back wíth an abatement
of the defícíency does not abate the ínterest prevíousíy assessed on that defícíency.
Respondent aíso píaces great reííance on the príncípíe that ínterest ís an
accretíon to and part of the ta , and, therefore, must be abated when the ta
ís abated. The cases to whích we have been referred ín support of thís prín-
cípíe deaí wíth compromíses of ta es whích were íncorrectíy assessed at the
outset, and not, as here, wíth a subsequent abatement of a ta correctíy assessed.
s such, they are not persuasíve of a contrary resuít.
Two admínístratíve ruííngs on the carry-back provísíon of the Revenue
ct of 191 , 0 Stat. 10 7, are cíted as opposed to thís ínterpretatíon of the Code.
We see no need to dístínguísh these reguíatíons or decísíons. Two ruííngs reíat-
íng to a carry-back sectíon of 2 years ago, not repeated ín the ínterveníng
quarter-century, are not suffícíent to force us to concíude that Congress íntended
to ímpart theír constructíon of that sectíon to the present provísíon.
We have consídered the remaínder of the poínts raísed by the court beíow
and respondent, but for the foregoíng reasons are ín accord that the |udgment
of the court of appeaís must be reversed and the |udgment of the dístríct court
affírmed.
Reversed.
Mr. ustíce Doug as took no part ín the consíderatíon or decísíon of thís
case.
SUPPL M NT O. € ” O RP YM NTS
S CTION 322. € ” R FUNDS ND CR DITS
Sectíon 29.322-3: Cíaíms for refund by 19 0- -13301
ta payers. T. D. 772
TITL 20 € ” INT RN L R NU . € ” C rT R I. SU C PT R , T RT 29. € ”
INCOM T ; T L Y RS GINNING FT R D C M R 31, 19 1
mendíng sectíon 29.322-3 of Reguíatíons 111, reíatíng to cíaíms
for refund.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton , D. C.
To Coííectors of Internaí Revenue and Others Concerned:
Paragraph 1. Sectíon 29.322-3 of Reguíatíons 111, as amended by
Treasury Decísíon 6 0 C. . 19 9-1, 126 , approved December 2 ,
19 26 CFR 29.322-3 , ís further amended as foííows:
L. O. 111 , Cum. uíí. 11-2, 221 (1923) ; I. T. 1 7, Cum. uíí. 1-2, 220 (1922).
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29.322-3. 11
( ) y stríkíng out as províded ín thís sectíon ín the fírst sen-
tence and ínsertíng ín ííeu thereof the foííowíng: or an amended
return .
( ) y stríkíng from the second sentence of the second paragraph,
the foííowíng: and under oath .
(C) y ínsertíng ímmedíateíy after such second sentence of the
second paragraph the foííowíng:
The statements of the grounds and facts must be under oath or verífíed by a wrít-
ten decíaratíon that they are made under the penaítíes of per|ury.
(D) y revísíng the sentence ín the second paragraph whích begíns
wíth the words If the ta payer eíects to read as foííows:
If the ta payer eíects to have aíí or part of the overpayment shown by hís íncome
ta return appííed to hís estímated ta for hís succeedíng ta abíe year, no ín-
terest shaíí be aííowed on such portíon of the overpayment credíted and such
amount shaíí be appííed as a payment on account of the estímated ta for such
year or the ínstaííments thereof.
( ) y stríkíng out the sentence ín the second paragraph whích
begíns wíth the e pressíon If the ta payer desíres .
Par. 2. Inasmuch as the amendments made by thís Treasury Decí-
síon mereíy reííeve ta payers from a íímítatíon appíícabíe under e -
ístíng reguíatíons, ít ís found that ít ís unnecessary to íssue thís
Treasury Decísíon wíth notíce and pubííc procedure thereon under
sectíon (a) of the dmínístratíve Procedure ct, approved une
11 19 6, or sub|ect to the effectíve date íímítatíon of sectíon (c) of
saíd ct.
Thís Treasury Decísíon ís íssued under the authoríty contaíned ín
sectíon 62 of the Internaí Revenue Code ( 3 Stat. 32; 26 U. S. C.
62).
Geo. . Schoeneman,
Commíssíoner of Internaí Revenue.
pproved February 10, 19 0.
Thomas . Lynch,
ctíng Secretary of the Treasury.
(Fííed wíth the Dívísíon of the Federaí Regíster February 1 , 19 0, : 7 a. m.)
Sect-ton 29.322-3: Cíaíms for refund by ta - 19 0-12-13370
payers. G. C. M. 26
ínternaí revenue code and tríor revenue íaws
Interest and penaítíes assessed and coííected ín connectíon wíth a
Federaí íncome ta ííabíííty shouíd not be credíted or refunded even
though such ta ííabíííty ís reduced or eíímínated by net operatíng
íoss carry-backs.
L. 0.111 (C. . II-2,221 (1923)) revoked.
Reconsíderatíon has been gíven to L. 0.111 (C. . 11-2,221 (1923))
ín the ííght of the decísíon ín Manníng v. Seeíey Tube o Co. (33
U. S. 61, Ct. D. 1729, page 113, thís uííetín).
L. O. 111 hoíds:
(1) Where a return contaíns a frauduíent understatement of ta and there
ís therefore a defícíency ín the ta , but the defícíency ís wíped out by appíyíng
the deductíon aííowabíe under sectíon 20 of the Revenue ct of 191 , the ad
vaíorem fraud penaíty províded ín sectíon 2 0(b) of saíd ct ís not appíícabíe
sínce upon the redetermínatíon under sectíon 20 of the ct there ís no defícíency
wíthín the meaníng of sectíon 2 0(b) ; (2) where a ta ís assessed and coííected,
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119
3 .71 -1, Regs. 12.
together wíth the percent penaíty and ínterest at the rate of 1 per centum per
month, províded ín sectíon 2 0(e) for faííure to pay wíthín 10 days after notíce
and demand by the coííector, and by reason of a redetermínatíon as províded ín
sectíon 20 the ta ís reduced and a portíon refunded, so much of the penaíty and
ínterest made a part of the ta by sectíon 2 0(c) as ís appíícabíe to the amount
of the ta refunded may be credíted or refunded as e cessíve, as províded ín
sectíon 2 2;
In the Seeíey Tube o Co. case, supra, the Supreme Court of the
Uníted States heíd that where a defícíency and ínterest have been
vaíídíy assessed under any appíícabíe statutory procedure, a subse-
quent carry-back of a net operatíng íoss whích resuíts ín the abatement
of the defícíency does not abate the ínterest prevíousíy assessed on that
defícíency. In concíudíng that the ureau was entítíed to ínterest,
the Supreme Court necessarííy concíuded that there was a reaí defí-
cíency e ístíng príor to the occurrence of the carry-back íoss sínce the
ríght to ínterest ís dependent upon the e ístence of a defícíency. Con-
sequentíy, ít appears to foííow that for purposes of the penaítíes ím-
posed under sectíons 291 and 293 of the Code, a reaí defícíency must
ííkewíse be consídered to e íst. If an amount representíng ínterest
or penaítíes has been coííected, ít ís beííeved that, regardíess of a sub-
sequent carry-back, the ureau ís entítíed to retaín such amount. The
statutory pattern requíríng prompt payment of ta es was the founda-
tíon of the opíníon ín the Seeíey Tube o Co. case. The requíre-
ment of prompt fíííng of returns ís equaííy a statutory duty of a
ta payer. The carry-back provísíons of the Code do not modífy that
duty. s poínted out by the Supreme Court, the Senate Commíttee
on Fínance made ít cíear that a ta payer who ís entítíed to carry back
a net operatíng íoss must fííe hís return and pay hís ta wíthout regard
to the deductíon. (See Senate Report No. 1631, pages 123-12 , C. .
19 2-2. 0 , 97.)
In víew of the foregoíng, ít ís the opíníon of thís offíce that ínterest
and penaítíes assessed and coííected ín connectíon wíth a Federaí ín-
come ta ííabíííty shouíd not be credíted or refunded even though such
ta ííabíííty ís reduced or eíímínated by net operatíng íoss carry-backs.
ccordíngíy, L. 0.111 (C. . II-2, 221 (1923)) ís hereby revoked.
Charíes Oííphant,
Chíef Counseí, ureau of Internaí Revenue.
C PT R 2. € ” DDITION L INCOM T S
SU C PT R .- C SS PROFITS T
P RT I
S CTION 71 . € ” UITY IN ST D C PIT L
Sectíon 3 .71 -1, Reguíatíons 12: Determí-
natíon of daííy equíty ínvested capítaí € ”
Money and property paíd ín.
ínternaí revenue code
Propertv receíved as índucement to operate ín the communíty. (See
Ct. D. 1731, page 3 .)
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0 .201, Regs. 110. 120
C PT R 9. € ” MPLOYM NT T S
SU C PT R D. € ” COLL CTION OF INCOM T T SOURC ON W G S
S CTION 1621. € ” D FINITIONS
Sectíon 0 .10 , Reguíatíons 116: mpíoyee.
Status of professíonaí modeís. (See Mím. 619 , page 137.)
S CTION 1621(a). € ” D FINITIONS: W G S
Sectíon 0 .101, Reguíatíons 116: Wages.
INT RN L R NU COD
Lívíng quarters or meaís furníshed empíoyees. (See Mím. 6 72,
page 1 .)
Sectíon 0 .101, Reguíatíons 116: Wages.
INT RN L R NU COD
Contríbutíons requíred of empíoyees under artícíe 9 of the New
York workmen s compensatíon íaw, assumed and paíd by empíoyers.
(See I. T. 010, page 30.)
S CTION 1622. € ” INCOM T COLL CT D T SOURC
Sectíon 0 .201, Reguíatíons 116: Requíre- 19 0-1-13291
ment of wíthhoídíng. I. T. 399
( íso Sectíon 1 01, Sectíon 02.30 , Reguía-
tíons 106.)
ínternaí revenue code
Tabíe whích may be used by empíoyers ín wíthhoídíng Federaí
íncome ta and Federaí Insurance Contríbutíons ct ta from
weekíy wages paíd on and after anuary 1, 19 0.
mpíoyers have requested permíssíon to use a tabíe whích combínes
amounts to be wíthheíd as Federaí íncome ta and Federaí Insurance
Contríbutíons ct ta on weekíy wages paíd on and after anuary 1,
19 0.
Permíssíon ís hereby granted to empíoyers to use the foííowíng tabíe
ín wíthhoídíng Federaí íncome ta and Federaí Insurance Contríbu-
tíons ct ta from weekíy wages paíd on and after anuary 1, 19 0:
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121
0 .201, Regs. 116.
Weekíy Wíthhoídíng Tabíe Combíníng Income Ta and mpíoyees Fedebaí
Insubance Contríbutíons ct Ta (1 Pebcent)
Thís tabíe to be used oníy íf wages for íncome ta wíthhoídíng and wages for
empíoyees F. I. C. . ta are ídentícaí
II wages are € ” nd the number of wíthhoídíng e emptíons cíaímed Is € ”
-
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t íeast
ut íess
than
The amount of Incomo ta and F. I. C. . ta to bo wíthheíd shaíí bo-
O
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I S of
1 of
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0.20
0.20
13.00
13.67 .. .
2.20
0.30
0.20
0.20
0.20
0.20
0.20
0.20
0.20
S 13.07
1 .3 .....
2.31
.36
.21
.21
.21
.21
.21
.21
.21
.21
.21
1 .3
1 .00
2. 2
. 2
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.22
.22
.22
.22
.22
.22
.22
.22
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1 .67
2. 3
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.23
.23
.23
.23
.23
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2.6
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2.7
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.26
17.67
2. 6
.96
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.26
.26
.26
.26
.26
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.26
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1 .3
2.97
1.02
.27
.27
.27
.27
.27
.27
.27
.27
.27
13.3
19.00
3.0
1.0
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.2
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19.67
3.19
1.29
.29
.29
.29
.29
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.29
.29
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19.67
20.3
3.30
1.3
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.30
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20.3
21.00
3. 1
1. 1
.31
.31
.31
.31
.31
.31
.31
.31
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21.67.
3. 2
1.62
.32
.32
.32
.32
.32
.32
.32
.32
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21.67
22.3
3.63
1.6
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.33
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.33
.33
.33
.33
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22.3
23.00
3.7
1.7
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23.00
23.67
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1.9
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2.01
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.36
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2 .67
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3.27
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S 0 .201, Regs. 116.
122
Weekíy Wíthhoídíng Tabíe Combíníng Income Ta and mpíoyees Federaí
Insurance Contríbutíons ct Ta (1 Percent) € ” Contínued
If wages are € ”
nd the number of wíthhoídíng e emptíons cíaímed ís € ”
ut íess
0
1
2
3

6

1
9
The amount of Income ta and F. I. O.
. ta to be wíthheíd shaíí be-
60.3
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7.9
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2.10
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ta 90
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10.01
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6.21
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61.67
10.02
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6.22
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2. 2
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.97
.97
6 .67
10.6
.7
6.
.9
2.9
1.0
.9
.9
.9
.9
66.3
10. 9
.9
6.99
.0
3.09
1.1
.99
.99
.99
.99
11.00
9.10
7.20
.30
3.30
1. 0
1.00
1.00
1.00
1.00
67.67
11.01
9.11
7.21
.31
3.31
1. 1
1.01
1.01
1.01
1.01
6 .3
11.22
9.27
7.32
.37
3. 2
1. 7
1.02
1.02
1.02
1.02
69.00
11.33
9. 3
7. 3
6.63
3.63
1.73
1.03
1.03
1.03
1.03
69.67
11.3
9.
7.
.6
3.6
1.7
1.0
1.0
1.0
1.0
70.3
11.
9.60
7.66
.70
3.7
1. 0
1.0
1.06
1.0
1.06
71.00 ..
11.66
9.76
7. 6
6.96
3.96
2.06
1.06
1.06
1.06
1.06
71.67 .
11.67
9.77
7. 7
.97
3.97
2.07
1.07
1.07
1.07
1.07
72.3 .
11.
9.93
7.9
6.03
.0
2.13
1.0
1.0
1.0
1.0
73.00
11.99
10.09
.19
6.29
.29
2.39
1.09
1.09
1.09
1.09
73.67
12.00
10.10
a 20
6.30
.30
2. 0
1.10
L10
1.10
1.10
7 .3 ..
12.21
10.26
.31
6.36
. 1
2. 6
1.11
1.11
1.11
1.11
7 .00 ..
12.32
10. 2
. 2
6.62
.62
2.72
1.12
1.12
1.12
1.12
7 .67 .
12.33
10. 3
.63
6.63
.63
2.73
1.13
1.13
1.13
1.13
76.3
12.
10. 9
.6
6.69
.7
2.79
1.1
1.1
1.1
LU
77.00
12.6
10.7
.
6.9
.9
3.0
1.1
1.1
1.1
1.16
77.67
12.66
10.76
. 6
6.96
.96
3.0
1.16
1.16
1.16
1.16
7 3 .
12. 7
10.92
.97
7.02
6.07
3.12
1.17
1.17
1.17
L17
79.00
12.9
11.0
9.1
7.2
.2
3.3
1.
1.1
1.1
L1
79.67
12.99
11.09
9.19
7.29
6.29
3.39
1. 9
1.19
1.19
L19
0.3 ,
13.20
11.2
9.30
7.36
6. 0
3.
1. 0
1.20
1:20
1.20
1.00
13.31
11. 1
9. 1
7.61
.61
.71
1. 1
1.21
1.21
1.21
1.67
13.32
11. 2
9. 2
7.62
6.62
3.72
1. 2
1.22
1.22
1.22
2.3
13. 3
11.
9.63
7.6
6.73
3.7
1. 3
1.23
1.23
1.23
3.00
13.6
11.7
9.
7.9
.9
.0
2.1
1.2
1.2
L2
3.67
13.66
11.7
9.
7.96
6.9
.0
2.1
1.2
1.2
L2
.3
13. 6
11.91
9.96
.01
6.06
.11
2.16
1.26
1.26
1.26
.00
13.97
12.07
10.17
.27
6.27
.37
2. 7
1.27
1.27
1.27
.67
13.9
12.0
10.1
.2
6.2
.3
2.
1.2
1.2
1.2
6.3
1 .19
12.2
10.29
.3
6.39
.
2. 9
1.29
1.29
1.29
7.00
1 .30
12. 0
10. 0
.60
6.60
.70
2. 0
1.30
1.30
1.30
7.67
1 .31
12. 1
10. 1
.61
6.61
.71
2. 1
1.31
1.31
1.31
.3
1 . 2
12. 7
10.62
.67
6.72
.77
2. 2
1.32
1.32
1.32
9.00
1 .63
12.73
10. 3
.93
6.93
.03
3.13
1.33
1.33
1.33
9.67 .
1 .6
12.7
10.
.9
6.9
6.0
3.1
1.3
1.3
1.3
90 M
1 .
12.90
10.9
9.00
7.0
6.10
3.1
1.3
1.36
1.3
91.00
1 .96
13.06
11.16
9.16
7.26
6.36
3. 6
1. 6
1.36
1.36
91.67
1 .97
13.07
11.17
9.17
7.27
.37
3. 7
1. 7
1.37
1.37
92.3
1 .1
13.23
11.2
9.33
7.3
. 3
3.
1. 3
1.3
1.3
1 .29
13.39
11. 9
9. 9
7. 9
6.69
3.79
1. 9
1.39
1.39
93.67
1 .30
13. 0
11. 0
9. 0
7.60
6.70
3. 0
1.90
1. 0
1. 0
9 .3 ..
1 . 1
13. 6
11.61
9.66
7.71
6.76
3. 1
1. 6
1. 1
1. 1
9 .00
1 .62
13.72
11. 2
9. 2
7.92
6.02
.12
2.22
1. 2
1. 2
9 .67
1 . 3
13.73
11. 3
9. 3
7.93
6.03
.13
2.23
1. 3
1. 3
96.3
1 .
13. 9
11.9
9.99
.0
6.09
.1
2.19
1.
1.
97.00
1 .9
1 .0
12.1
10.1
.2
6.3
.
2.
1.
1. 6
97.67
1 .96
1 .06
12.16
10.16
.26
6.36
. 6
2. 6
1. 6
1. 6
9 .3
16.17
1 .22
12.27
10.32
.37
6. 2
. 7
2. 2
1. 7
1. 7
99.00
16.2
1 .3
12.
10.
.
6.6
.7
2.
1.
1.
99.67
16.29
1 .39
12. 9
10. 9
. 9
6.69
.79
2. 9
1. 9
1. 9
100.3
16. 0
1 .66
12.60
10.6
.70
6.7
. 0
2.
1. 0
1. 0
101.00
16. 1
1 .91
13.01
11.11
9.21
7.21
.31
3. 1
1. 1
1. 1
101.67
16. 2
1 .92
13.02
11.12
9.22
7.22
6.32
3. 2
í 1.62
1. 2
1023
16. 3
1 .93
13.03
11.13
9.23
7.23
6.33
3. 3
1. 3
1. 3
103.00
16.
1 .9
13.0
11.1
9.2
7.2
6.3
3.
1.6
1.
103.67
16.
1 .9
13.0
11.1
9.2
7.2
6.3
3.
1.
1.
10 .3
16. 6
1 .96
13.06
11.16
9.26
7.26
6.36
3. 6
1. 6
1. 6
10 .00
16. 7
1 .97
13.07
11.17
9.27
7.27
6.37
3. 7
1. 7
1. 7
10 .67
17.6
1 .6
13.7
11.
9.9
.0
6.1
.2
2.2
1.
1063
17.69
1 .69
13.79
11. 9
9.99
.09
6.19
.29
2.29
1. 9
107.00
17.70
1 .70
13. 0
11.90
10.00
.10
6.20
.30
2.30
1.60
107.67
17.71
1 .71
13. 1
11.91
10.01
.11
6.21
.31
2.31
1.61
10 .3 ....
17.72
1 .72
13. 2
11.92
10.02
.12
6.22
.32
2.32
1.62
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123
0 .201, Regs. 116.
Weekíy Wíthhoídíng Tabíe Combíníng Income Tat and mpíoyees Federaí
Insurance Contríbutíons ct Ta (1 Percent) € ” Contínued
If wag
nd the number of wíthhoídíng e emptíons cíaímed Is € ”
0
1
2
3

6
7

9
10
t íeast
ut íess
than
The amount of íncome ta and F. I. C. . ta to be wíthheíd shaíí bc-
10 3 ....
109.00....
17.73
1 .73
13. 3
11.93-
10.03
.13
6.23
.33
2.33
1.63
1.63
109.00...-
109.67
17.7
1 .7
13.
11.9
10.0
.1
6.2
.3
2.3
1.6
1.6
1109.67
1110.3 ...
1 .1
16.20
1 .2
12.30
10.3
. 0
0.
. 0
166
1.6
1.6
110.3 ....
sí 11 .oo
1 . 6
16. 6
1 .66
12.76
10.76
. 6
6.96
.06
3.16
1.66
1.66
Iííí )....
M11.67....
1 . 7
16. 7
1 .67
12.77
10.77
. 7
6.97
.07
3.17
1.67
1.67
1111.67....
112.3
1 .
16.
1 .6
12.7
10.7
.
6.9
.0
3.1
1.6
1.6
1113 ....
SI 13.00
1 . 9
16.69
1 .69
12.79
10.79
. 9
6.99
.09
3.19
1.69
1.69
113.00
113.67
1 . 0
16.60
1 .70
12. 0
10. 0
.90
7.00
.10
3.20
1.70
1.70
913.67....
11 .3 ....
1 . 1
16.61
1 .71
12. 1
10. 1
.91
7.01
6.11
3.21
L 71
1.71
11 3 ....
11 .00
1 . 2
16.62
1 .72
12. 2
10. 2
.92
7.02
.12
3.22
1.72
1.72
11 :00...-
11 .67
19.33
17.33
1 . 3
13. 3
11.63
9.73
7. 3
6. 3
3.93
2.03
1.73
111 .67....
116 3
19.3
17.3
1 .
13.
11.6
9.7
7.
.
3.9
2.0
1.7
116-3 ....
117.00
19.3
17.3
1 .
13.
11.6
9.7
7.
.
3.9
2.0
1.7
W7 ....
117.67
19.36
17.36
1 . 6
13. 6
11.66
9.70
7. 0
. 6
3.96
106
1.76
117.67
11 .3
19.37
17.37
1 . 7
13. 7
11.67
9.77
7. 7
. 7
3.97
107
1.77
11 M
119.00
19.3
17.3
1 .
13.
11.6
9.7
7.
.
Z. S
2.0
1.7
fíU.00
119.67
19.39
17.39
1 . 9
13. 9
11.69
9.79
7. 9
. 9
3.99
2.09
1.79
119.67....
120.3
19. 0
17.
1 .90
13.9
12.00
10.0
.10
0.1
.20
126
1. 0
1203 ....
121.00....
20.11
1 .21
16.31
1 . 1
12. 1
10. 1
.61
6.71
. 1
2.91
1. 1
121.00....
121.67
20.12
1 .22
16.32
1 . 2
12. 2
10. 2
.62
6.72
. 2
2.92
1. 2
121.67....
122.3
20.13
1 .23
16.33
1 . 3
12. 3
10. 3
.63
0.73
. 3
2.93
1. 3
122-3 ....
123.00....
20.1
1 .2
16.3
1 .
12.
10.
.6
6.7
. -1
2.9
1.
123.00....
123.67....
20.1
1 .2
16.3
1 .
12.
10.
.6
6.7
.
2.9
1. 6
123.67
12 .3 ....
20.16
1 .26
16.36
1 . 6
12. 6
10. 6
.66
6.76
. 6
2.96
1.
12 3 ___.
12 .00....
20.17
1 .27
16.37
1 . 7
12. 7
10. 7
.67
6.77
. 7
197
1. 7
12 M....
12 .67
20.
1 .9
17.0
1 .1
13.2
11.3
9. S
7.
.
3.6
1.
12 .67....
126.3 ...
20. 9
1 .99
17.09
1 .19
13.29
11.39
9. 9
7. 9
. 9
3.69
1. 9
1 -...
127.00
20.90
19.00
17.10
1 .20
13.30
11. 0
9. 0
7. 0
.60
3.70
1.90
127.00....
127.67
20.91
19.01
17.11
1 .21
13.31
11. 1
9. 1
7. 1
.61
3.71
1.91
127-67....
12 .3
20.92
19.02
17.12
1 .22
13.32
11. 2
9. 2
7. 2
.62
3.72
1.92
12 -3 ....
129.00
20.93
19.03
17.13
1 .23
13.33
11. 3
0. 3
7. 3
.63
3.73
1.93
129.00....
129.67
20.9
19.0
17.1
1 .2
13.3
11.
9.
7.
.6
3.7
1.9
129.67....
130.3 .. .
21.
19. 0
17.
1 .00
13.6
11.70
9.7
7. 0
.
3.90
1.9
130.3 .. __
131.00
21.70
19. 6
17.96
1 .96
1 .06
12. 16
10.26
.36
6. 6
. 6
2. 6
131-00....
131.07
21.77
19. 7
17.97
1 .97
1 .07
12.17
10.27
.37
6. 7
. 7
1 7
131.67....
132.3
21.7
19.
17.9
1 .9
1 . OS
12.1
10.2
.3
6.
.6
1
1313 ....
133.00
2 .79
19. 9
17.99
1 .99
1 .09
12. 19
10.29
.39
6. 9
.69
2. 9
133.00
133.67
21.
19.90
1 .00
16.00
1 .10
12.20
10.30
. 0
6. 0
.60
2.60
133.67....
13 .3
21. 1
19.91
1 .01
16.01
1 .11
12.21
10.31
S. 1
6. 1
.61
2.61
13 -3 ....
13 .00
21. 2
19.92
1 .02
16.02
1 .12
12.22
10.3t
. 2
6. 2
.62
2.62
íí percent of the e cess over 13 p us-
22.2
20.33
1 .3
16. 3
1 .
12. 3
10.
.63
6.6
.73
17
The foregoíng tabíe conforms to the provísíons of the Internaí
Revenue Code. Sínce the Code provídes no tabíe method of deter-
míníng the amount of empíoyees Federaí Insurance Contríbutíons
ct ta , the wage brackets shown ín the tabíe are functíons of the íy2
percent Federaí Insurance Contríbutíons ct ta rate, and amounts
of ta used ín the tabíe are shown to the nearest cent. The tabíe ís
desígned to cover weekíy wages under 13 , but ít can be e tended
to wages of 13 and over by utííízíng the same wage brackets and
addíng the Federaí Insurance Contríbutíons ct ta at í /2 percent
to the íncome ta to be wíthheíd. It shouíd be noted that the íncome
ta for wage brackets such as 12 .3 to 12 and 12 to 12 .67 ís
determíned by reference to the ta tabíe províded by the Code (see
page 13 of Círcuíar WT € ” Revísed 19 ). owever, ín the case of
wage brackets such as 129.67 to 130.3 , whích faíí wíthín more than
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0 .601, Regs. 116.
12
one bracket of the íncome ta wíthhoídíng tabíe províded by the Code,
the íncome ta ís determíned ín accordance wíth the percentage method
(see page 22 of Círcuíar WT € ” Revísed 19 ) whích permíts the
roundíng of wages to the nearest doííar for purposes of computíng
the amount to be wíthheíd.
The use of the combíned wíthhoídíng tabíe resuíts ín the correct
aggregate wíthhoídíng oníy íf wages for íncome ta and for Federaí
Insurance Contríbutíons ct ta . wíthhoídíng are ídentícaí. The
combíned tabíe shouíd not be used wíth respect to wages ín e cess of
3,000 or ín other ínstances where the wages díffer.
Sínce amounts equívaíent to the Federaí Insurance Contríbutíons
ct ta coííectíons are appropríated to trust fund accounts, a segre-
gatíon of coííectíons must be maíntaíned, and empíoyers must report
Federaí Insurance Contríbutíons ct ta es separateíy from íncome
ta wíthheíd. For purposes of empíoyer s quarteríy Federaí ta re-
turns (Form 9 1), the ureau of Internaí Revenue wííí ínterpose no
ob|ectíon, ín the case of empíoyers usíng the combíned wíthhoídíng
tabíe, to (1) determíníng the amount of Federaí Insurance Contríbu-
tíons ct ta wíthheíd by appíyíng the I 2 percent Federaí Insurance
Contríbutíons ct ta rate to totaí ta abíe wages for Federaí Insur-
ance Contríbutíons ct purposes, and (2) determíníng the amount of
íncome ta wíthheíd by subtractíng the amount of Federaí Insurance
Contríbutíons ct ta wíthheíd from the totaí ta wíthheíd.
Wíth respect to wíthhoídíng statements (Form W-2) ín whích em-
píoyers are requíred to show the amount of ta abíe wages for íncome
ta purposes and the amount of íncome ta wíthheíd, no ob|ectíon
wííí t e ínterposed to the determínatíon of the amount of íncome ta
wíthheíd by subtractíng íy2 percent of the ta abíe wages for purposes
of Federaí Insurance Contríbutíons ct ta es, but not ín e cess of
, from the totaí ta wíthheíd.
Sectíon 0 .201, Reguíatíons 11G: Requírement
of wíthhoídíng.
INT RN L R NU COD
Premíums on group-permanent íífe ínsurance poíícíes. (See Mím.
6 77, page 10.)
C PT R 23. € ” FIR RMS
SU C PT R . € ” PISTOLS ND R OL RS
S CTION 2701. € ” R TURNS
Sectton 0 .601, Reguíatíons 116: Return and
payment of íncome ta wíthheíd on wages.
INT RN L R NU COD
Power of attorney for e ecutíng and fíííng returns. (See Míní.
C 7G, page 13 .)
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12
3072.
C PT R 36. € ” COLL CTION
SU C PT R . € ” LI N FOR T S
S CTION 3672. € ” LIDITY G INST MORTG G S,
PL DG S, PURC S RS, ND UDGM NT CR DITORS
19 0-11-1336
G. C. M. 26 19
INT RN L R NU COD ND PRIOR R NU L WS
Notíces of Federaí ta ííens aDd certífícates of díscharge of Fed-
eraí ta ííens need not be acknowíedged.
G. C. M. 266 (C. . I-2,10 (1927)) modífíed.
Reconsíderatíon has been gíven to G. C. M. 266 (C. . I-2, 10
(1927)), whích hoíds ín part that the acknowíedgment of a coííector of
ínternaí revenue on Form 669 (certífícate of díscharge of ta ííen)
shouíd be made before an offícer authorízed to take acknowíedgments
by the íaw of the partícuíar State, Terrítory, or the Dístríct of Coíum-
bía wíthín whích the certífícate ís to be fííed. In connectíon wíth
reconsíderatíon of G. C. M. 266 , supra, consíderatíon has aíso been
gíven to the matter of acknowíedgments on Form 66 (notíce of ta
en).
cknowíedgments are of statutory orígín and are not essentíaí to the
vaíídíty of an ínstrument ín the absence of specífíc statutory proví-
síons. cknowíedgment of notíces of ta ííens and certífícates of dís-
charge of ta ííens wouíd, therefore, not appear to be essentíaí ínas-
much as there are no Federaí statutory provísíons specífícaííy requír-
íng acknowíedgment of such ínstruments; moreover, there are no
Federaí statutes requíríng the fíííng of certífícates of díscharge of
ta ííens.
Sectíon 3672 of the Internaí Revenue Code, whích provídes that a
notíce of ííen shaíí not be vaííd uníess fííed ín the offíce ín whích íts
fíííng ís authorízed by State íaw does not purport to gíve a State
authoríty to do more than desígnate a píace for fíííng the notíce. Gen-
eraí provísíons of State íaws requíríng the recordíng of documents, or
otherwíse requíríng the acknowíedgment of ínstruments reíatíng to
títíe to reaí property, shouíd not be construed as affectíng a statute
specífícaííy passed, ín conformíty wíth sectíon 3672 of the Code, for
the purpose of authorízíng the fíííng of a notíce of Federaí ta ííen.
Such statute shouíd be construed as settíng up a specífíc fíííng pro-
cedure whích ís compíete ín and of ítseíf, and whích ís not affected by
generaí provísíons of State íaws reíatíng to recordíng, fíííng, or títíe
to property.
It ís, therefore, the opíníon of thís offíce that ít wííí no íonger be
necessary for coííectors of ínternaí revenue to acknowíedge notíces of
ta ííens and certífícates of díscharge of ta ííens. G. C. M. 266 ,
supra, ís modífíed to the e tent that ít ís ínconsístent herewíth.
Charíes Oíífííant,
Chíef Counseí, ureau of Internaí Revenue.
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3792.
126
C PT R 3 . € ” MISC LL N OUS PRO ISIONS
S CTION 3792. € ” P NS S OF D T CTION ND
PUNIS M NT OF FR UDS
19 0- -13303
T. D. 770
TITL 26 € ” INT RN L R NU . € ” C PT R I, SU C PT R , P RT 6. € ”
R GUL TIONS UND R S CTION 3792, INT RN L R NU COD
Rewards for Informatíon íeadíng to the detectíon and punísh-
ment of persons víoíatíng ínternaí revenue íaws.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 2 , D. C.
To Coííectors of Internaí Revenue and Others Concerned:
Paragraph 1. The foííowíng reguíatíons reíatíng to sectíon 3792,
Internaí Revenue Code, are hereby adopted:
S C. 3792. P NS S OF D T CTION ND PUNIS M NT OF
FR UDS. INT N L R NU COD , S M ND D Y
S CTION 12, PU LIC L W 271 ( IG TY-FIRST CONGR SS),
PPRO D UGUST 27, 19 9.
The Commíssíoner, under reguíatíons prescríbed by hím wíth the ap-
provaí of the Secretary, ís authorízed to pay such sums, not e ceedíng
ín the aggregate the sum appropríated therefor, as he may deem neces-
sary for detectíng and bríngíng to tríaí and puníshment persons guííty
of víoíatíng the ínternaí revenue íaws, or connívíng at the same, In
cases where such e penses are not otherwíse províded for by íaw.
Sectíon .1. Rewards for Informatíon Leadíng to the Detec-
tíon and Puníshment of Persons íoíatíng Internaí Revenue
Laws. € ” The Commíssíoner of Internaí Revenue ís hereby authorízed
to pay such reward as he shaíí deem suítabíe for ínformatíon that shaíí
íead to the detectíon and puníshment of persons guííty of víoíatíng the
ínternaí revenue íaws, or connívíng at the same. No person who was
an offícer or empíoyee of the Department of the Treasury at the tíme he
came ínto possessíon of hís ínformatíon or at the tíme he dívuíged ít
shaíí be eíígíbíe for reward under these reguíatíons.
The rewards hereby authorízed are íímíted ín theír aggregate to
the sum appropríated therefor and shaíí be paíd oníy ín cases not other-
wíse províded for by íaw. Payment of rewards wííí be made as
promptíy as the círcumstances of the case permít. íí reíevant fac-
tors, íncíudíng the vaíue of the ínformatíon furníshed ín reíatíon to
the facts deveíoped by the ínvestígatíon of the víoíatíon, are taken
ínto account by the Commíssíoner of Internaí Revenue ín determíníng
whether a reward shaíí be paíd, and, íf so, the amount thereof. No
person ís authorízed under these reguíatíons to offer, promíse, or other-
wíse bínd the Commíssíoner as to the payment of any reward or the
amount thereof.
Informatíon reíatíve to víoíatíons of the ínternaí revenue íaws, fur-
níshed by persons desíríng to cíaím rewards under the provísíons of
these reguíatíons, may be submítted ín wrítíng to the Commíssíoner of
Internaí Revenue, Washíngton 2 , D. C, or to the Offíce of the Inteí-
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127
3792.
íígence Unít, the Technícaí Staff, the ínternaí revenue agent ín charge
or the coííector of ínternaí revenue, ín the íocaííty ín whích the ín-
formant resídes, or ít may be gíven ín person to the Offíce of the Chíef
of the Inteííígence Unít ín Washíngton, D. C, or to any of the above-
mentíoned fíeíd offíces.
If the ínformatíon ís gíven ín person, eíther oraííy or ín wrítíng,
the name and offícíaí títíe of the person to whom ít ís gíven shouíd be
ascertaíned, as thís ínformatíon, together wíth the date on whích the
ínformatíon was gíven, must be íncíuded ín the formaí cíaím for re-
ward when fííed.
n ínformant who íntends to cíaím a reward shouíd notífy the per-
son to whom he gíves hís ínformatíon of such íntentíon, and shouíd fííe
formaí cíaím therefor as soon thereafter as practícabíe. Cíaím for
reward under the provísíons hereof shaíí be made on Form 211, whích
may be obtaíned from coííectors of ínternaí revenue, from the offíce of
the ínternaí revenue agent ín charge, from the Offíce of the Inteííígence
Unít, or from the ureau of Internaí Revenue at Washíngton 2 , D. C.
Such cíaíms for reward shouíd be transmítted to the Commíssíoner of
Internaí Revenue, Washíngton 2 , D. O, for the attentíon of the Chíef
Counseí.
Par. 2. Treasury Decísíon 661 C. . 19 -2, 12 , approved Oc-
tober , 19 26 CFR .1 , ís hereby revoked.
(Thís Treasury Decísíon ís íssued under the authoríty contaíned ín
sectíon 3791 and sectíon 3792 of the Internaí Revenue Code ( 3 Stat.
67; 26 U. S. C. 3791, 3792).)
ecause thís Treasury Decísíon reíates oníy to the ureau proce-
dure and practíce as to rewards, and mereíy makes technícaí changes
pursuant to amendments made by Pubííc Law 271, íghty-fírst Con-
fess C. . 19 9-2, 272 , approved ugust 27, 19 9, ít ís hereby
found that ít ís unnecessary to íssue thís Treasury Decísíon wíth notíce
of pubííc procedure thereon under sectíon (a) of the dmínístratíve
Procedure ct, approved une 11,19 6, or sub|ect to the effectíve date
íímítatíon of sectíon (c) of saíd ct.
Geo. . Scííoeneman,
Commíssíoner of Internaí Revenue.
pproved February 6,19 0.
Thomas . Lynch,
ctíng Secretary of the Treasury.
(Fííed wíth the Dívísíon of the Federaí Regíster February 9, 1900, : a. m.)
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Mísc.
12
MISC LL N OUS
19 0-3-132
Mím. 6
Income ta Informatíon reíeases
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton , D. C, December ,191,9.
Coííectors of Internaí Revenue, Internaí Revenue gents ín Charge,
and Others Concerned:
1. períence has shown that there ís occasíonaííy a need for ín-
formíng the pubííc of the ureau s generaí posítíon wíth respect to
the proper treatment of certaín gaíns, e penses íosses, etc., for Fed-
eraí íncome ta purposes. If such ínformatíon ís to be of the greatest
benefít for the guídance of ta payers ít must be furníshed promptíy
and shouíd be presented ín nontechnícaí íanguage. In order to fuí-
fííí thís need, the Deputy Commíssíoner ín charge of the Income Ta
Unít has been authorízed to prepare and reíease such generaí íncome
ta ínformatíon as ín hís |udgment the círcumstances requíre.
2. The reíeases wííí be known as Income Ta Informatíon Reíeases,
and they wííí be numbered consecutíveíy. Límíted dístríbutíon of
such reíeases wííí be made to coííectors of ínternaí revenue and ínternaí
revenue agents ín charge. owever, íf any coííector of ínternaí
revenue or ínternaí revenue agent ín charge desíres addítíonaí copíes
for dístríbutíon among the ta payers ín hís dístríct or dívísíon, they
wííí be promptíy suppííed upon receípt of requísítíons.
3. Correspondence regardíng thís mímeograph shouíd refer to íts
number and to the symboís IT: IM.
Geo. . Schoeneman,
C ommíssíoner.
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129
23(c), rt. 23(c)-í, Regs. 9 .
INCOM T RULINGS. € ” P RT II
R NU CT OF 193 ND PRIOR R NU CTS
SU TITL . € ” G N R L PRO ISIONS
P RT II. € ” COMPUT TION OF N T INCOM
S CTION 23(c). € ” D DUCTIONS FROM GROSS
INCOM : T S G N R LLY
rtícíe 23 (c)-í, Reguíatíon 9 : Ta es. 19 0- -13302
( íso rtícíe 1 1, Reguíatíons 77, and rtícíe L T. 3999
23(c)-í, Reguíatíons 6.)
R NU CTS OF 1032, 193 , ND 1036
Deductíons cíaímed ín Federaí íncome ta returns for processíng
ta es paíd under the provísíons of the grícuíturaí d|ustment ct
( Stat. 31) are aííowabíe even though cíaíms for refund of such
ta es have been fííed under the provísíons of Títíe II of the Revenue
ct of 1936.
I. T. 3170 (C. . 193 -1, 13 ) revoked.
Reconsíderatíon has been gíven to I. T. 3170 (C. . 193 -1, 13 ) ín
the ííght of G. C. M. 2 29 (C. . 19 7-2, 39), Mímeograph 6
(C. . 19 9-2, 11), and the decísíon ín Stanard-Tííton Mííííng Co. v.
Commíssíoner (3 T. C. 1026, acquíescence, C. . 19 9-1, 3).
In I. T. 3170, supra ít was heíd that deductíons for processíng ta es
paíd under the provísíons of the grícuíturaí d|ustment ct (
Stat. 31) wííí be dísaííowed to the e tent that a cíaím for refund of
aíí or part of such ta es has been fííed under the provísíons of Títíe II
of the Revenue ct of 1936. G. C. M. 2 29 , supra, hoíds (among
other thíngs) that ta es whích quaíífy as aííowabíe deductíons are
deductíbíe not íater than the tíme of payment even though such ta es
are contested by the fíííng of a cíaím for refund and suít ís ínstítuted
for recovery of the amounts paíd. Mímeograph 6 , supra, provídes
that ín the absence of a statutory provísíon to the contrary, a deduc-
tíon for ta es properíy taken ín a gíven year wííí not be dísturbed on
account of a subsequent ínvaíídatíon of such ta es. In the Stanard-
Tííton Mííííng Co. case, supra, the Ta Court heíd ín part and ín
effect that processíng ta es actuaííy paíd are deductíbíe for the year
of payment, notwíthstandíng the fact that a cíaím for refund of such
ta es was subsequentíy fííed. The decísíon ín that case and the príncí-
píes enuncíated ín G. C. M. 2 29 and Mímeograph 6 are ín confííct
wíth the concíusíon stated ín I. T. 3170, supra.
In víew of the foregoíng, ít ís heíd that deductíons cíaímed ín Fed-
eraí íncome ta returns for processíng ta es paíd under the provísíons
of the grícuíturaí d|ustment ct ( Stat. 31) are aííowabíe even
though cíaíms for refund of such ta es have been fííed under the pro-
vísíons of Títíe II of the Revenue ct of 1936. ccordíngíy, I. T.
3170, supra, ís revoked.
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122 , rt. 22, Regs. 62.
130
SU TITL C. € ” SUPPL M NT L PRO ISIONS
SUPPL M NT . € ” COMPUT TION OF N T INCOM
S CTION 113. € ” SIS FOR D T RMINING G IN
OR LOSS
rtícíe 60 , Reguíatíons 7 : Read|ustment of
partnershíp ínterests.
R NU CT OF 192
G. C. M. 10092 (C. . I-1, 11 (1932)) revoked. (See G. C. M.
26379, page .)
TITL II. € ” INCOM T
P RT II. € ” INDI IDU LS
S CTION 21 . € ” IT MS NOT D DUCTI L
rtícíe 291, Reguíatíons and 62: Personaí
and famííy e penses.
R NU CTS OP 191 ND 1921
O. D. 9 1 (C. . , 209 (1921)) revoked and I. T. 1 (C. . 1-2,
1 (1922)) modífíed. (See I. T. 39 , page 2 .)
S CTION 22 . € ” FIDUCI RY R TURNS
rtícíe 22, Reguíatíons 02: Return by 19 0- -13292
guardían or commíttee. I. T. 3996
R NU CT OF 1921
The estate of an íncompetent, heíd by a commíttee, ís not, for
Federaí íncome ta purposes, a ta abíe entíty separate and dístínct
from the íncompetent.
I. T. 1 S0 (C. . 1-2, 17 (1922)) modífíed.
I. T. 1 0 (C. . 1-2, 17 (1922)), whích ínvoíved the questíon
whether a former íncompetent or hís commíttee shouíd fííe a Federaí
íncome ta return for the year duríng whích the íncompetent was
decíared competent and the commíttee was díscharged, hoíds that the
former íncompetent, rather than hís commíttee, shouíd fííe the return.
I. T. 1 0 further hoíds that the commíttee wííí be requíred to fííe a
fíducíary return on Form 10 1 íf the net íncome receíved by ít was
suffícíent to requíre such a return. The íatter concíusíon ís equívaíent
to a hoídíng that the estate of an íncompetent ís, for Federaí íncome
ta purposes, a ta abíe entíty separate and dístínct from the íncom-
petent.
Upon reconsíderatíon, ít ís heíd that the estate of an íncompetent,
heíd by a commíttee, ís not, for Federaí íncome ta purposes, a ta -
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131 1102, rt. 1322,Regs. 69.
abíe entíty separate and dístínct from the íncompetent. ccordíngíy,
I. T. 1 0, supra, ís modífíed ínsofar as ít ímpííedíy hoíds that the
estate of an íncompetent ís, for Federaí íncome ta purposes, a ta abíe
entíty separate and dístínct from the íncompetent.
TITL L € ” G N R L DMINISTR TI PRO ISIONS
S CTION 1102. € ” R CORDS, ST T M NTS, ND
SP CI L R TURNS
rtícíe 1322, Reguíatíons 69: Offícers
authorízed to admíníster oaths.
R NU CT OF 1926
G. C. M. 266 (C. . I-2, 10 (1927)) modífíed. (See G. C. M.
26 19, page 12 .)
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ST T ND GIFT T S
GIFT T
S CTION 1000. € ” IMPOSITION OF T
Sectíon 6.2, Reguíatíons 10 : Transfers 19 0-2-1327
reached. . T. 23
INT RN L R NU COD
Where the benefícíary of a trust ís entítíed to the íncome from the
trust property for íífe and has a power to appoínt the trust corpus
by wííí to anyone, the e ercíse by such benefícíary of an addítíonaí
power to appoínt the trust property duríng hís íífetíme wíthín a
íímíted cíass consístíng of hís chíídren and theír descendants resuíts
In a ta abíe gíft of the entíre vaíue of the property so appoínted.
dvíce ís requested whether the e ercíse of a íímíted power of
appoíntment of trust property by a íífe benefícíary, who aíso has a
generaí power of appoíntment, constítutes a ta abíe gíft for Federaí
gíft ta purposes. In the case under consíderatíon, a decedent who
díed after October 21, 19 2, íeft property by wííí ín trust wíth dírec-
tíons to pay the íncome therefrom to hís wífe for íífe. In addítíon,
the wífe was gíven power to appoínt the entíre trust property (1) by
deed, duríng her íífetíme, wíthín a cíass consístíng of her chíídren
and theír descendants, or (2) by wííí to anyone, íncíudíng Iter estate.
The íímíted (fírst) power was e ercísed by the trust benefícíary.
The e ercíse of the íímíted power to appoínt duríng the íífetíme
of the benefícíary ís not ín ítseíf a ta abíe gíft under the provísíons
of sectíon 1000(c) of the Code, as added by sectíon 2(a) of the
Revenue ct of 19 2, sínce such power cíearíy comes wTíthín the e -
cepted powers defíned ín sectíon 1000(c)(1) of the Code. Such
e ercíse, however, resuíts ín (1) the reíínquíshment of the benefícíary s
ríght to receíve the íncome from the property, and (2) the reíease of
the generaí power to appoínt by wííí to anyone, íncíudíng the estate
of the benefícíary. The reíínquíshment of the benefícíary s íífe estate
constítutes a transfer of property of the benefícíary by gíft, and ít ís,
therefore, ta abíe under the provísíons of sectíon 1000(a) of the Code.
The reíease of the power to appoínt the entíre corpus of the trust to
anyone ís a ta abíe gíft under the provísíons of sectíon 1000(c) of
the Code.
In víew of the above, ít ís heíd that where the benefícíary of a trust
ís entítíed to the íncome from the trust property for íífe and has a
power to appoínt the trust corpus by wííí to anyone, the e ercíse by
such benefícíary of an addítíonaí power to appoínt the trust property
duríng hís íífetíme wíthín a íímíted cíass consístíng of hís chíídren
and theír descendants resuíts ín a ta abíe gíft of the entíre vaíue of
the property so appoínted. It foííows that the e ercíse of the íímíted
fower ín the ínstant case resuíted ín a transfer whích ís sub|ect to
ederaí gíft ta .
(133)
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MPLOYM NT T RULINGS
INT RN L R NU COD
C PT R 9, SU C PT R . € ” F D R L INSUR NC CONTRI UTIONS
CT
Sectíon 1 01: Deductíon of ta from wages.
Reguíatíons 10G, Sectíon 02.30 : Coííectíon of,
and ííabíííty for, empíoyees ta .
Wíthhoídíng tabíe combíníng Federaí Insurance Contríbutíons
ct ta and Federaí íncome ta as to weekíy wages paíd on and after
anuary 1, 19 0. (See I. T. 399 , page 120.)
Sectíon 1 20: Coííectíon and payment of ta es. 19 0-7-1332
Reguíatíons 10G, Subpart F: Returns, payment Mím. 6 76
of ta , and records.
( íso Subchapter C (Federaí Unempíoyment Ta
ct), Sectíons 160 and 160 ; Reguíatíons 107,
Sectíons 03. 01 and 03. 0 ; Subchapter
(Raííroad Retírement Ta ct), Sectíon 1 30;
Reguíatíons 100, Chapter .)
Power of attorney Form 13 2 for use ín grantíng authoríty to e -
ecute and fííe returns under Subchapter (Federaí Insurance
Contríbutíons ct) ; Subchapter C (Federaí Unempíoyment Ta
ct) ; Subchapter (Raííroad Retírement Ta ct) ; and Subchap-
ter D (Federaí Income Ta Wíthheíd from Wages) ; of Chapter t) of
the Internaí Revenue Code, as amended. (Supersedíng Mímeograph
0S9 (C. . 19 0-2, 2 2) : Mímeograph TS0 (C. . 193 -1, 3 3) ;
Mímeograph 099 dated December 3, 1937.)
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton, D. C, March 1,19 0.
Coííectors of Internaí Revenue, Internaí Revenue gents ín Charge,
Other Offícers and mpíoyees of the ureau of Internaí Revenue,
and Others Concerned:
The attached form of power of attorney ís to be used by ta payers
ín grantíng to an attorney ín fact authoríty confíned to the e ecutíon
and fíííng of returns under the Federaí Insurance Contríbutíons ct,
the Federaí Unempíoyment Ta ct, and the Raííroad Retírement
Ta ct, and of the Federaí íncome ta wíthheíd from wages. Such
form shaíí be used ín ííeu of the power of attorney forms prescríbed
ín Mímeograph 699 dated December 3,1937, Mímeograph 7 0 (C. .
193 -1, 3 3), and Mímeograph 0 9 (C. . 19 0-2, 2 2). owever,
new powers of attorney authorízíng the e ecutíon and fíííng of re-
turns wííí not be requíred to repíace those aíready properíy e ecuted
on forms heretofore prescríbed.
U3 )
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Regs. 106, Subpart F.
136
The form of power of attorney prescríbed ín thís mímeograph ís
to be used by the ta payer oníy to deíegate authoríty to an attorney
ín fact to e ecute and fíe the returns desígnated. It ís not to be used,
and wííí not be accepted, for other or addítíonaí purposes, such as
the deíegatíon of authoríty to sígn cíaíms or to otherwíse act for the
ta payer. Powers of attorney other than for the e ecutíon and fíííng
of returns shouíd be prepared ín accordance wíth the ínstructíons
contaíned ín the Conference and Practíce Requírements, ureau of
Internaí Revenue, revísed February, 19 2.
Pursuant to the provísíons of Mímeograph 637 (C. . 1937-2,
C 6), whích modífíed Mímeograph 07 (C. . -2, 0 (1936)),
the statement reíatíve to fees, to be fííed wíth each power of attorney,
wííí not be requíred ín thís ínstance.
Coííectors and ínternaí revenue agents ín charge wííí be furníshed
wíth an ínítíaí suppíy of Form 13 2, Power of ttorney, for ímme-
díate use pendíng the príntíng and dístríbutíon of the reguíar suppíy.
Coííectors and ínternaí revenue agents ín charge shouíd estímate
theír needs for a 6 months períod and submít theír requísítíons on
Form 16 ímmedíateíy.
Thís mímeograph supersedes Mímeograph 0 9, supra; Mímeograph
7 0, supra; and Mímeograph 699 dated December 3,1937.
Correspondence reíatíng to thís mímeograph shouíd refer to íts
number and to the symboís mT: S: F.
Geo. . Schoeneman,
Commíssíoner.
Poweb or ttorney
FOR CUTING ND FILING R TURNS UND R SU C PT R (F D R L INSUR NC
CONTRI UTIONS CT) ; SU C PT R C (F D R L UN MPLOYM NT T CT) ; SU -
C PT R (R ILRO D R TIR M NT T CT) ; ND SU C PT R D (INCOM T
WIT LD FROM W G S) ; OF C PT R 9 OF T INT RN L R NU COD , S
M ND D
now íí Men by These Presents, that
(Name)
íocated at
(State whether índívíduaí, partnershíp or corporatíon, etc.)
has made,
(Street address) (Cíty) (State)
constítuted, and appoínted, and by these presents does hereby make, constítute,
and appoínt
(Name) ( ddress)
(Its) (my) true and íawfuí attorney for (ít) (me) and ín (íts) (my) name,
píace and stead to e ecute and to fííe on (íts) (my) behaíf, returns
– Under the Federaí Insurance Contríbutíons ct.
– Under the Federaí Unempíoyment Ta ct.
(Check) – Under the Raííroad Retírement Ta ct.
– Of Federaí íncome ta wíthheíd from wages.
In deíegatíng authoríty to the attorney In fact hereín desígnated to e ecute
and fííe the returns specífíed above ít ís understood that each return (e cept the
return of Federaí Income ta wíthheíd from wages) e ecuted by such attorney
ín fact must íncíude the ta abíe remuneratíon of LL empíoyees of the empíoyer-
ta payer for the ta abíe períod covered by the return, regardíess of where the
empíoyees servíces are performed, and that each return must be fííed wíth the
coííector of ínternaí revenue at , ín whose dístríct the
ta payer s príncípaí píace of busíness ís íocated.
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137
Regs. 106 02.20 .
Dated at thís day of , 19-
(If a corporatíon affí seaí.)
ttest:
(Sígnature) (Name of ta payer)
y.
(Títíe) (See Instructíons) (Títíe)
ecuted ín the presence of:
y.
(Wítness) (Títíe)
(Wítness)
cknowíedged before me thís day of , 19
(Notaríaí Seaí)
(Sígnature of offícer admínísteríng oath) (Títíe)
Form 13 2
ínstbuctíons
Thís form must be fííed by the attorney ín fact wíth the fírst ta return e -
ecuted by hím as such attorney ín fact. s thís form of power of attorney ís
not vaííd for the purpose of representíng the ta payer generaííy before the
Treasury Department, ít wííí not be necessary that a statement reíatíve to fees
accompany ít
power of attorney must be sígned by (1) the índívíduaí, íf the empíoyer
ís an índívíduaí; (2) the presídent, více presídent, or other príncípaí offícer, If
the empíoyer ís a corporatíon; (3) a responsíbíe and duíy authorízed member or
offícer havíng knowíedge of íts affaírs, íf the empíoyer ís a partnershíp or other
uníncorporated organízatíon; or ( ) the fíducíary, íf the empíoyer ís a trust or
estate. The power of attorney must aíso eíther be wítnessed by two dísínterested
índívíduaís, or be acknowíedged before a notary pubííc or other offícer authorízed
to take acknowíedgments.
The ta payer and the attorney ín fact are responsíbíe for the return, or
returns, as made and íncur ííabíííty for the penaítíes províded for faíse or
frauduíent returns.
Sectíon 1 26: Defínítíons. 19 0-9-133
Reguíatíons 106, Sectíon 02.20 : Who are em- Míní. 6 9
píoyees.
( íso Subchapter C (Federaí Unempíoyment Ta
ct), Sectíon 1607; Reguíatíons 107, Sectíon
03.20 ; Subchapter D (Coííectíon of Income Ta
at Source on Wages), Sectíon 1621; Reguíatíons
116, Sectíon 0 .10 .)
Status of certaín professíonaí modeís for purposes of the Fed-
eraí empíoyment ta es and of the íncome ta wíthhoídíng under
sectíon 1622 of the Internaí Revenue Code.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 2 , D. C, príí 3,19 0.
Coííectors of Internaí Revenue and Others Concerned:
1. It has been the posítíon of the ureau that generaííy índívíduaís
performíng modeííng servíces for photographíc íííustrators, adver-
tísíng agencíes, merchandísíng estabííshments, and others are em-
píoyees for purposes of empíoyment ta es and íncome ta wíthhoídíng.
2. In the case of arnaba Photographs Corporatíon v. Uníted
States, decíded on une 2 ,19 9, by the Uníted States Dístríct Court,
03SS0 € ” 0 10
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Regs. 107, 03. 01.
13
Southern Dístríct of New York, and affírmed on November 2 , 19 9,
by the Uníted States Court of ppeaís, Second Círcuít, the questíon
for decísíon was whether modeís who performed servíces under the
círcumstances and condítíons detaííed ín the case were empíoyees or
índependent contractors. The factuaí sítuatíon consídered by the
court concerned professíonaí modeís engaged by a photographíc íííus-
trator to pose for photographs prepared by hím for hís varíous cííents.
The modeís performed servíces whích requíred professíonaí traíníng
and e períence; they heíd themseíves out through theír bookíng agents
as avaííabíe for modeííng engagements wíth anyone desíríng theír
servíces; they worked for the píaíntíff and for numerous other photo-
graphíc íííustrators and símííar operators ín síngíe engagements of
one or severaí hours duratíon and of írreguíar occurrence; they had
no contínuíng or permanent reíatíonshíp wíth the píaíntíff as each
engagement ínvoíved a new and separate agreement; they charged
for theír servíces at houríy rates fí ed ín advance by the modeís or
theír agents ín accordance wíth theír abíííty, e períence, and popu-
íaríty ; they reserved the ríght to decííne engagements personaííy dís-
tastefuí or unsuítabíe to them and to canceí at theír díscretíon any
bookíngs made for them by theír agents; they maíntaíned e tensíve
wardrobes and generaííy furníshed the wearíng appareí, accessoríes,
and make-up used by them ín theír engagements; and, whííe they
compííed wíth ínstructíons reíatíve to the resuít to be accompííshed by
theír work, they used theír own ínítíatíve, abíííty, and e períence
ín ínterpretíng and enactíng the roíes assígned to them ín the íííus-
tratíons for whích they pose. The court heíd that the modeís were
not empíoyees but índependent contractors.
3. The ureau s posítíon ís changed to conform to the decísíon of
the court and índívíduaís performíng modeííng servíces under cír-
cumstances and condítíons such as those present ín the arnaba case
are not empíoyees for purposes of empíoyment ta es and the íncome
ta wíthhoídíng.
. If doubt e ísts as to the appíícabíííty of thís mímeograph ín any
case, the compíete facts ín the case shouíd be presented to the ureau
wíth a request for a ruííng.
. Inquíríes reíatíve to the contents of thís mímeograph shouíd refer
to the number hereof and to the symboís raT: RR.
Fred S. Martín,
ctíng Commíssíoner.
C PT R 9, SU C PT R . € ” R ILRO D R TIR M NT T CT
Sectíon 1 30: Coííectíon and payment of ta es.
Reguíatíons 100, Chapter : Returns and payment
of ta .
Power of attorney form. (See Mím. C 76, page 13 .)
C PT R 9, SU C PT R C € ” F D R L UN MPLOYM NT T CT
Sectíon 1G0 : Returns.
Reguíatíons 107, Sectíon 03. 01: Returns.
Power of attorney form. (See Mím. 6 76, page 13 .)
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139 Regs. 107, 03.20 .
Sectíon 160 : Payment of ta es.
Reguíatíons 107, Sectíon 03. 0 : Payment of ta .
Power of attorney form. (See Mím. 6 76, page 13 .)
Sectíon 1607: Defínítíons.
Reguíatíons 107, Sectíon 03.20 : Who are empíoyees.
Status of professíonaí modeís. (See Mím. 6 9 , page 137.)
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MISC LL N OUS T RULINGS
ST MP T S
INT RN L R NU COD
S CTION 3 2, S M ND D. € ” CON Y NC S
Reguíatíons 71 (19 1), Sectíon 113. 0: Scope 1
of ta .
19 0-9-133 7
M. T. 39
Ta abíííty, for Federaí stamp ta purposes, of conveyances of
reaí property to or by a State or a poíítícaí subdívísíon or corporate
Instrumentaííty thereof.
S. T. 97 (C. . 10 0-1, 2 6) revoked.
dvíce ís requested regardíng the appíícatíon of the documentary
stamp ta ímposed by sectíon 3 2 of the Internaí Revenue Code to
conveyances of reaí property to or by a State or a poíítícaí subdívsíon
It ís heíd that conveyances of reaí property to or by a State or a
poíítícaí subdívísíon or corporate ínstrumentaííty thereof are not
e empt from documentary stamp ta mereíy by reason of the govern-
mentaí character of one of the partíes to the transactíon. ccord-
íngíy, S. T. 97 (C. . 19 0-1, 2 6), ín whích ít was heíd that a con-
veyance of reaíty to a íocaí housíng authoríty, whích ís an ínstrumen-
taííty of eíther a State or a poíítícaí subdívísíon thereof, ís not sub|ect
to stamp ta , ís revoked.
Sectíon 3791 (b): Retroactívíty of reguía- 19 0-13-133 1
tíons or ruííngs. M. T. 0
Nonretroactíve appíícatíon of M. T. 9 (above), reíatíng to con-
veyances of reaí property to or by a State or a poíítícaí subdívísíon
or corporate ínstrumentaííty thereof.
M. T. 39 (above) hoíds that conveyances of reaí property to
or by a State or a poíítícaí subdívísíon or corporate ínstrumentaííty
thereof are not e empt from documentary stamp ta mereíy by
reason of the governmentaí character of one of the partíes to the trans-
actíon. That ruííng revoked S. T. 97 (C. . 19 0-1, 2 6), ín whích
ít was heíd that a conveyance of reaíty to a íocaí housíng authoríty,
whích ís an ínstrumentaííty of eíther a State or a poíítícaí subdívísíon
thereof, ís not sub|ect to stamp ta . ecause of the íong-standíng
posítíon of the ureau and the consequent reííance on thís ruííng ín
transactíons ínvoívíng conveyances or reaí property, ít ís heíd that,
under the authoríty contaíned ín sectíon 3791 (b) of the Internaí Reve-
nue Code, the ruííng pubííshed as M. T. 39, supra, wííí not be appííed
retroactíveíy, e cept that any ta whích has been paíd on conveyances
of reaí property faíííng wíthín the scope of that ruííng wííí not be
refunded.
(1 1)
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3791(b).
1 2
ccordíngíy, sub|ect to the íímítatíons stated above wíth respect to
refunds, conveyances of reaí property príor to May 1; 19 0, made to
or by a State or a poíítícaí subdívísíon or corporate ínstrumentaííty
thereof wííí not be sub|ect to the documentary stamp ta ímposed by
sectíon 3 2 of the Code, as amended. owever, such conveyances
made on and after May 1, 19 0, wííí not be e empt from the ta ím-
posed by that sectíon mereíy by reason of the governmentaí character
of one of the partíes to the transactíon.
Geo. . Scííoeneman,
Commíssíoner of Internaí Revenue.
pproved une 1,19 0.
Thomas . Lynch,
ctíng Secretary of the Treasury.
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1 3
Regs. 3 (19 1), 101.3.
DMISSIONS T
INT RN L R NU COD
S CTIONS 1700(a) ND 16 0, S M ND D. € ” T ON DMISSIONS
rouz noNs 3 (19 1), Sectíon 101.3: Meaníng 19 0-1-13271
of the term píace. Ct. D. 1726
( íso Sectíon 101. .)
DMISSIONS T € ” INT RN L R NU COD € ” D CISION OF SUPR M COURT
1. dmíssíon to athínq each Operated Under uthoríty of
State € ” Constítutíonaííty op Ta .
Petítíoner Is a park dístríct organízed and admínístered pursuant
to Iííínoís statute, and operates a pubííc bathíng beacb under author-
íty conferred by the Iííínoís íegísíature. Operatíon and maíntenance
of the area and íts varíous servíces are soíeíy by the dístríct.
Charges for admíssíon are made to cover the e pense of maíntenance
and operatíon of the beach and of some capítaí ímprovements, and
are not íntended to produce net íncome or profít to petítíoner.
cíd: Sectíon 1700(a) of the Internaí Revenue Code Is appíícabíe
to the paíd admíttances to the bench. The fees charged were paíd
for admíssíon to a píace as those terms are used ín the sectíon.
It was not the íntent of Congress to e empt from ta admíssíons to
any actívíty not conducted for gaín or to any munícípaííy con-
ducted actívíty. The sectíon Is not rendered ínappíícabíe because
petítíoner s authoríty to make a charge to patrons ís deríved from a
State statute whích contempíates a charge for use. The appííca-
tíon of the Federaí admíssíons ta statute ís not controííed by such
characterízatíon of the fee by íocaí íaw. The ímposítíon of the ta
ís wíthín the constítutíonaí power of Congress.
2. Decísíon ffírmed.
Decísíon of the Uníted States Court of ppeaís, Seventh Círcuít
(172 Fed. (2d) ), reversíng decísíon of the dístríct court, N. D.
Iííínoís, . D. (76 Fed. Supp. 02 ), affírmed.
Suprsme Court of the Uníted States
Wíímette Park Dístríct, petítíoner, v. Nígeí D. Campbeíí, Coííector of Internaí
Revenue
On wrít of certíorarí to the Uníted States Court of ppeaís for the Seventh Círcuít
December 12,19 9
opíníon
Mr. ustíce Cíark deíívered the opíníon of the Court.
Sectíon 1700(a)(1) of the Internaí Revenue Code, as amended, provídes for
the ímposítíon, e cept as to certaín cíasses of persons under círcumstances not
Important here, of ta of 1 cent for each 10 cents or fractíon thereof of the
amount paíd for admíssíon to any píace, íncíudíng admíssíon by season tícket or
subscríptíon. 1 Paragraph (2) of the subsectíon decíares that the ta shaíí be
paíd by the person pnyíng for such admíssíon. nd sectíon 171 requíres that
very person receívíng any payments for admíssíon € € sub|ect to the
ta Imposed by sectíon 1700 € shaíí coííect the amount thereof from the
person makíng such payments.
w r ta rate of 1 cent for each cents or ma|or fractíon thereof has been In effect
(IM ) 19 , pursuant t0 Revenue ct of 19 3, sectíon 02(a). 6 Stat. 21, 61
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Regs. 3 (19 1), 101.3.
1
Tííís suít, brought to recover penaítíes paíd by petítíoner for noncoííectíon of
Federaí admíssíons ta , presents two questíons for determínatíon: Whether sec-
tíon 1700(a) ís appíícabíe to paíd admíttances to a bathíng beach operated wíth-
out purpose of gaín by a íocaí park dístríct of Iííínoís; and, íf the Code provísíon ís
to be so ínterpreted, whether the ímposítíon of admíssíons ta ín connectíon wíth
such State actívíty ís wíthín the constítutíonaí power of Congress.
Petítíoner ís Wíímette Park Dístríct, a body poíítíc and corporate íocated wíthín
the víííage of Wíímette, Cook County, 111. Organízed and admínístered pursuant
to Iííínoís statutes, the dístríct íncíudes wíthín íts |urísdíctíon four park areas.
The íargest, Washíngton Park, e tends for appro ímateíy three-fourths of a mííe
aíong Lake Míchígan and was acquíred partíy by grant from the State of Iííínoís,
partíy by purchase, and partíy by e ercíse of the power of emínent domaín. t
the north end of Washíngton Park, petítíoner has operated a pubííc bathíng beach
duríng the summer months for many years, under authoríty conferred by the Iííí-
noís Legísíature. The beach has been used prímarííy by resídents of the dístríct,
but aíso has been open to nonresídents.
mong the facííítíes whích the dístríct províded at the beach duríng the períod
under revíew were a bath house, automobííe parkíng area, íífe-savíng equípment,
fíood ííghtíng, drínkíng fountaíns, showers, spectator benches, bícycíe racks, fírst
aíd, and suppííes. The operatíon and maíntenance of the area and Its varíous
servíces were soíeíy by the Dístríct, whích empíoyed the necessary personneí.
Petítíoner charged aíí persons for admíttance to the beach. Its charges were of
two types: a daííy fee of 0 cents on weekdays and 1 on Saturdays, Sundays and
hoíídays, for whích no tícket was íssued; and a fíat rate for a season tícket whích
couíd be purchased on an índívíduaí or famííy basís. These charges were made
to cover the e pense of maíntenance nnd operatíon of the beach and of some
capítaí ímprovements. Over the years the charges were íntended mereíy to ap-
pro ímate these costs and not to produce net íncome or profít to petítíoner; dur-
íng the períod 19 0-19 the accounts of the beach, maíntaíned on a cash receípts
and dísbursements basís, refíected an e cess of receípts over e pendítures of
2.11.
In uíy 19 1 the coííector notífíed petítíoner to coííect a ta of 10 percent on
oíí tíckets to the beach soíd on or after uíy 2 of that year. Petítíoner had not
prevíousíy coííected such ta es, and ít refused to do so after the coííector s notíce.
Subsequentíy the Commíssíoner under sectíon 171 of the Code assessed over petí-
tíoner s protest penaítíes ín the amount of the ta whích the Commíssíoner
cíaímed shouíd have been coííected under sectíon 1700(a) from uíy 2 , 19 1
through 19 , píus Interest and sums due under sectíon 30 (b) of the Code for
faííure to pay the ta on demand. These penaítíes amounted to 0,139.93 and
were paíd out of petítíoner s generaí funds raísed by property ta es.
Petítíoner fííed tímeíy cíaíms for refund whích were re|ected, and In 19 C
brought thís suít agaínst the coííector. The dístríct court entered |udgment for
petítíoner. 70 Fed. Supp. 92 . The Court of ppeaís for the Seventh Círcuít re-
versed. 172 Fed. (2d) . ecause the questíons presented have ímportance
ín the admínístratíon of the admíssíons ta sectíons of the Code, we granted
certíorarí. 337 U. S. 937.
Fírst. The Government raíses no íssue as to petítíoner s standíng to sue for
refund. s recovery ís here sought of penaítíes paíd from petítíoner s generaí
revenue fund after íts faííure to coííect the ta , we deem petítíoner s fínancíaí
ínterest cíearíy suffícíent.
Second. Sectíon 1700(a) ís appíícabíe íf the charge made by petítíoner for ad-
míttance to the beach was, wíthín the meaníng of the statutory íanguage, an
amount paíd for admíssíon to any píace.
The words of the provísíon when taken In theír ordínary and famíííar meaníng
refíect a íegísíatíve purpose of comprehensíve appíícatíon. y íts terms the sec-
tíon embraces every payment made ín order to secure admíttance to a specífíc íoca-
tíon. nd thís purpose of broad appíícatíon ís not íess certaín because of any-
thíng ín the íegísíatíve hístory of the ínítíaí adoptíon of that íanguage. In thís
– The dístríct court aííowed recovery oníy of payments made sínce anuary 1, 19 , when
respondent took offíce as coííector. These payments were based on petítíoner s operatíons
after October 1, 19 1, through 19 . Príor to anuary 1, 19 , petítíoner paíd 7.20 on
the basís of operatíons from uíy 2 . 19 1, to October 1. 19 1.
See 2 111. L. Rev. 1 , 19- 20 (19 ).
€ Tho report of the ouse Commíttee on Ways and Means reíatíng to the War Revenue
ct of 1917 recommended that thís ta be Imposed upon aíí píaces to whích admíssíon
ís charged, such as motíon-pícture shows, theaters, círcuses, entertaínments, cabarets, haíí
games, athíetíc games, etc., but not upon admíssíons aíí the proceeds of whích wííí go
e cíusíveíy to the benefít of reíígíous or charítabíe Instítutíons or for agrícuíturaí purposes.
. U. Rept. No. 0, 0 th Cong., 1st scss. (1 17). See 63 Cong. ec. 21 (191-7).
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Regs. 3 (19 1), 101.3.
víew It Is unnecessary to consíder whether petítíoner s beach area can be dístín-
guíshed from a spectator entertaínment, for we are unabíe to accept petítíoner s
argument that Congress íntended ín sectíon 1700(a) to ta oníy admíssíons to
We thínk ít cíear that a beach area may be a píace ín the sense of sectíon
1700(a) (1). Petítíoner s beach park, íncíudíng the ad|acent shoaí waters, was
poííced and ííghted; the íand area was defíned, and entrance was through gates.
payment was made by patrons of the beach as the condítíon of adrííttance
to a specífíc area wíth defíníte physícaí íímíts. Thus the fee whích petítíoner
charged was paíd for admíssíon to a píace as those terms are used ín sectíon
1700(a)(1).
We cannot agree wíth petítíoner s suggestíon that Congress íntended to e empt
from ta admíssíons to any actívíty not conducted for gaín. Sectíon 1701 of
the Code díd aííow certaín e emptíons príor to theír termínatíon on October 1,
19 1, pursuant to the Revenue ct of 19 1, sectíon 1(b). Stat. 6 7, 710.
In sectíon 1701 Congress e empted admíssíons to certaín cíasses of events and
admíssíons aíí the proceeds of whích ínured e cíusíveíy to the benefít of desíg-
nated cíasses of persons or organízatíons. ut sínce Congress díd not e empt
aíí actívítíes not for profít as ít readííy míght have done, ít appears that admís-
síons to such actívítíes are not for that reason outsíde the admíssíons ta scheme.
moor Country Cíub v. níted States, 119 Fed. (2d) 961 (C. . 7th Cír. 19 1).
Nor Is there greater force ín petítíoner s contentíon that the admíssíons ta
was not íntended to appíy ín the case of actívítíes conducted by a munícípaííty.
In ínterpretíng Federaí revenue measures e pressed ín terms of generaí appííca-
tíon, thís Court has ordínarííy found them operatíve In the case of State actívítíes
even though States were not e pressíy índícated as sub|ects of ta . See con-
curríng opíníon ín New York v. níted States, 326 U. S. 72. and n. 3 (19 6).
nd ín Zen v. Regents of the Uníversíty System of Georgía, 30 U. S. 39 (193 )
Ct D. 13 , C. . 193 -1, 30 , ít was decíded that the admíssíons ta íaw was
appíícabíe In connectíon wíth actívítíes carríed on by an agency of a State,
aíthough ít does not appear that the íssue of íegísíatíve purpose was there dís-
puted. owever, we are unabíe to díscover that there has been any desígn to
e empt admíssíons to munícípaííy conducted actívítíes. We regard the Interpreta-
tíve íssue as controííed by a íong contínued admínístratíve constructíon, e pressíy
denyíng such e emptíon, whích has been foííowed by repeated reenactment of
€ In the admíssíons ta provísíons of the Code, words restríctíng the Imposítíon of ta
to certaín cíasses of píaces appear oníy ín subsectíons other than (a) of ectíon 1700.
Sectíon 1700(b) Imposes a ta of 11 percent on the permanent use or íease of bo es or
seats ín an opera bouse or any píace of amusement ; such ta ís ín ííeu of that províded
for under sectíon 1700(a). Sectíon 1700(c) ímposes on the saíe outsíde bo oífíces. of
tíckets to theaters, operas, and other píaces of amusement a ta of 11 rereent of the
príce ín e cess of the bo offíce príce ; such ta ís ín addítíon to the ta ímposed by sectíon
1700(a). Sectíon 1700(d) ímposes a ta of SO percent on the amount of saíes ín e cess of
reguíar príce by the management of any opera house, theater, or other píace of amuse-
ment. Sectíon 1700(e) ímposes a ta of percent on amounts paíd for admíssíon, refresh-
ment, servíce, or merchandíse, at any roof garden, cabaret, or other símííar píace fur-
níshíng a pubííc performance for profít ; ín such cases no ta may be ímposed under
sectíon 1700(a).
Compare moor Country Cíub v. Uníted States, 119 Fed. (2d) 901 (C. . 7th Cír.
19 1) ; Twín Faíís atatoríum v. níted States, 22 Fed. (2d) 30 (S. D. Idaho 1927) ;
Uníted State v. oííer, 2 7 Fed. 1 (W. D. Wash. 1921).
€ ccord: Dashote v. arríson. 1910 P- . paragraph 72. 0 (N. D. 111. 19 0).
íthough an e emptíon was aííowed by sectíon 1701 of the Internaí Revenue Code príor
to October 1. 19 1, of admíssíons níí the proceeds of whích ínure € € e cíusíveíy
to the benefít of € € € socíetíes or organízatíons conducted for the soíe purpose
€ € € of ímprovíng any cíty, town, víííage, or other munícípaííty. we need not O ter-
míne whether tííe e emptíon was properíy Interpreted as Inappíícabíe to actívítíes con-
ducted by a munícípaí corporatíon. See Treas. Reg. 3 (192 ed.). rt. 22 : Id. (1932 ed.
rt. 22; Id. (19 0 ed.) sectíon 101.2 . The provísíon became ínappíícabíe príor to the
períod for whích petítíoner made payments whích couíd be recovered agaínst the present
respondent. See note 2. supra.
Petítíoner has argued that the specífíc e emptíon benefítíng munícípaí Improvement
socíetíes was Intended to afford them the same e emptíon whích Congress thought appííed
to munícípaí corporatíons ; thus, ít Is urged, repeaí of the socíetíes e emptíon stííí wouíd
íeave the e emptíon In the case of munícípaííy conducted actívítíes. If Congress assumed
that any such munícípaí corporatíon e emptíon e ísted by ímpíícatíon, ít seems ííkeíy that
It díd so beeause of constítutíonaí consíderatíons whích we notíce hereafter and not because
of a beííef or purpose that the ta was not apníícabíe to actívítíes conducted by any pubííc
agency. Thus Congress, In adoptíng 9 Stat. 17 7, 1792 (1936) and Stat. 303. 3 0
(19 1), apparentíy assumed that an e press e emptíon was necessary In order to wíthdraw
admíssíons to Natíonaí Parks from the ta statue. Cf. Stat. 6 7. 710 (19 1), termínat-
íng such e emptíons of park admíssíons.
€ Treas. Reg. 3 (1919 ed. Part 1), rt. 2: íd. (1921 ed. Part 1) rt. 2: íd. (1 22
ed. Part 1) rt. 26: íd. (192 ed. Tart 1) rt. 26; íd. (1926 ed. Part 1) rt. 26: Id. (192
ed.) rt. 2 ; íd. (1932 ed.) rt. 2 ; Id. (19 0 ed.) sectíon 101.27: íd. (19 1 ed.) sectíon
101.16.
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Regs; 3 (19 1), 101.3. 1 6
the reíevant íanguage wíthout change. Cf. eíveríng v. Wínmííí, 30 U. S. 79
(193 ) Ct. D. 136 , C. . 193 -2,212 .
Fínaííy, sectíon 1700(a) (1) Is not rendered Inappíícabíe because beach patrons
make use of a beach and íts facííítíes, thus affordíng characterízatíon of tbe
admíssíon fee as a use charge. Few íf any admíssíons ta abíe under sectíon
1700(a) are not accompaníed by a use of the property or equípment to whích
the admíttee s íícense e tends. íthough tabíe accommodatíons for whích a
charge ís made are usuaííy thought of as ob|ects of a patron s use, yet Congress
ín sectíon 170 of the Code has decíared that for purposes of the admíssíons
ta íaw a charge for theír use must be treated as a charge for admíssíon and
not as a rentaí charge. símííar resuít must obtaín when payment ís pre-
requísíte, as ít was at petítíoner s beach, to both admíssíon to and use of a specífíc
area. Chímney Rock Co. v. Uníted States, 63 Ct. Cís. 660 (1927) T. D. 07 ,
C. . I-2, 303 , cert deníed, 27 U. S. 2 (1927) ; Tícín FaíU Natatoríum v.
Uníted States, 22 Fed. (2d) 30 (D. Idaho 1927) T. D. 127, C. . II-1, 292 .
The tríaí court, ín aííowíng |udgment for petítíoner ín víew of the use made
of the beach, consídered the fee a use ta . ut íf there ís no ta e emptíon
for admíssíons to a munícípaííy conducted actívíty, then a munícípaííty may
not escape ta by cíaímíng that íts admíssíon fee ís a use ta when a símííar
prívate busíness couíd not advance such cíaím. Nor does ít matter that petí-
tíoner s authoríty to make any charge to beach patrons ís deríved from a statute
whích contempíates a charge for use. 111. Rev. Stat. c. 10 , sectíon -7d
(19 7). The appíícatíon of the Federaí admíssíons ta statute ís not controííed
by the characterízatíon of petítíoner s fee by íocaí íaw. Cf. Morgan v. Com-
míssíoner, 309 U. S. 7 , 1 (19 0) Ct. D. 1 1, C. . 19 0-1, 229 .
We concíude that sectíon 1700(a) ís appíícabíe.
Thírd. The constítutíonaííty of admíssíons ta íevíed ín connectíon wíth an
actívíty of a State ínstrumentaííty was before thís Court ín ííen v. Regents of
the Uníversíty System of Georgía, 30 U. S. 39 (193 ). We there found no
constítutíonaí ínhíbítíon agaínst a nondíscrímínatory ímposítíon of such ta on
admíssíons to an athíetíc e híbítíon conducted ín connectíon wíth a State educa-
tíonaí admínístratíon and ín the performance of a governmentaí functíon.
The ííen decísíon foííowed soon after eíveríng v. Gerhardt, 30 U. S. 0
(193 ) Ct. D. 13 3, C. . 193 -1, 2 6 , whích decíared two príncípíes íímítíng
State ímmuníty from Federaí ta atíon. Id. at 19. The fírst of these, ínvoked
ín the ííen decísíon, was dependent upon the nature of the functíon beíng
performed by the State agency and e cíuded from ímmuníty such actívítíes as
míght be thought not essentíaí for the preservatíon of State government. We
need not consíder here the appíícabíííty of that doctríne, for the petítíoner s
assertíon of ímmuníty must be re|ected on the second restríctíve príncípíe
reaffírmed ín the Gerhardt decísíon. Thís príncípíe, e empíífíed by those cases
where the ta íaíd upon índívíduaís affects the State oníy as the burden ís passed
on to ít by the ta payer, forbíds recognítíon of the ímmuníty when the burden on
the State ís so specuíatíve and uncertaín that íf aííowed ít wouíd restríct the
Federaí ta íng power wíthout affordíng any correspondíng tangíbíe protectíon to
the State government. 30 U. S. at 19- 20. ccordíng to thís príncípíe, the
State ís not necessarííy protected from a ta whích weíí may be substantíaííy
or entíreíy absorbed by prívate persons. Id. at 20.
Whííe the ííen decísíon assumed that the admíssíons ta there ímposed was a
dírect burden on the State, that assumptíon was requíred oníy for the purpose
of consíderíng the fírst príncípíe of íímítatíon of ímmuníty as formuíated ín the
Gerhardt case. Such an assumptíon need not be made here. It ís true, of
course, that uníess there ís a shíft ín demand for admíssíons to petítíoner s beach,
ímposítíon of the ta may to an undetermínabíe e tent adverseíy affect the
voíume of admíssíons. Insofar as thís occurs, the sen-íces of the dístríct wííí
be íess wídeíy avaííabíe and íts revenues from beach admíssíons wííí be reduced.
ut admíssíons ta , whích ís paíd by the person payíng for such admíssíon,
ís so ímposed as to facííítate absorptíon by patrons of the beach rather than
€ Revenue ct of 191 . sectíon 00, 0 Stat. 10 7, 1120; Revenue ct of 1921, sectíon
00, 2 Stat. 227, 2 9 ; Revenue ct of 192 , sectíon 00, 3 Stat. 2 3, 320 : Revenue ct
of 1926, sectíon 00. Stat. 9. 91 ; Revenue ct of 192 , sectíon 11, Stat. 791, 63;
Revenue ct ot 1932, sectíon 711, 7 Stat. 109, 271 ; Pub. Res. No. 36, une 2 . 193 ,
9 Stat. 31 ; I. R. C. sectíons 1700, 1701 (1939) ; Revenue ct of 19 1, sectíon 1,
Stat. 6 7. 710.
10 See uguenot Yacht Cíub v. Uníted States, 32 Feíí. Supp. 3 7, 3 (S. D. N. Y. 19 0) ;
Lent. The dmíssíons Ta , 1 Nat. Ta . 31, 3 -30 (19 ) ; 61 arv. L. Rev. 9 (19 ).
u See Lent, note 10, supra, at 0- 2.
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1 7
Regs. 3 (19 1), 101.3.
by the dístríct, and we have no evídence that the dístríct wííí be forced to absorb
the ta ín order to maíntaín the voíume of íts revenues and the avaííabíííty of
íts benefíts. Cf. Metcaíf v. Mítcheíí, 269 U. S. 1 , 26 (1926). The mere fact
that the economíc burden of such ta es may be passed on to a State government
and thus Increase to some e tent, here whoííy con|ecturaí, the e pense of íts
operatíon, ínfrínges no constítutíonaí Immuníty. Such burdens are but normaí
íncídents of the organízatíon wíthín the same terrítory of two governments, each
possessed of the ta íng power. eíveríng v. Oerhardt, supra, 30 U. S. at 22.
s ít foííows that there Is no constítutíonaí ob|ectíon to the ta penaítíes
assessed agaínst petítíoner, the decísíon of the court of appeaís must be
ffírmed.
Mr. ustíce Dougías and Mr. ustíce Mínton took no part In the consíderatíon
or decísíon of thís case.
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MISC LL N OUS RULINGS
S CTION 3 OF T INSON CT ( ST T. 03, 0 ), S
M ND D Y T CT OF UN 2 ,1936 ( 9 ST T. 1926),
ND Y T CT OF PRIL 3,1939 ( 3 ST T. , 60)
19 0-2-1327
I. T. 3991
ffect of the renegotíatíon of Government contracts or subcon-
tracts upon the determínatíon of e cess profít under the profít
íímítatíon provísíons of the ínson ct ( Stat. 03, 0 ), as
amended.
I. T. 39 7 (C. . 19 0-1, 2C2) revoked.
Sectíon 622(b) of the Natíonaí Mííítary stabííshment ppropría-
tíon ct, 19 0 (63 Stat. 9 7, 1021; C. . 19-19-2, 2 1), approved Oc-
tober 29, 19 9, provídes as foííows:
(b) Notwíthstandíng any agreement to the contrary, the profít íímítatíon
provísíons of the ct of March 27, 193 ( Stat. 03, 0 ), as amended and
suppíemented, shaíí not appíy to any contract or subcontract whích ís sub|ect
to the Renegotíatíon ct of 19 .
In víew of the foregoíng provísíons of the Natíonaí Mííítary stab-
ííshment ppropríatíon ct, 19 0, the ruíes and procedure set forth
ín L T. 39 7 (C. . 19 9-1, 262) for determíníng the ííabíííty for
e cess profít under sectíon 3 of the ínson ct ( Stat. 03 . 0 ) as
amended, ín the case of any contract or subcontract whích ís sub|ect
to the Renegotíatíon ct of 19 , now have no appíícatíon. ccord-
íngíy, I. T. 39 7, supra, ís hereby revoked.
( 9)
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Mísc.
1 0
MISC LL N OUS
19 0-7-13321
Mím. 6 6
Transfer of dutíes ín connectíon wíth íncome ta wíthhoídíng
under sectíon 1622 of the Internaí Revenue Code from Income Ta
Unít to mpíoyment Ta Unít.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 2 , D. C, March 16,19 0.
Offícers and mpíoyees, ureau of Internaí Revenue, and Others
Concerned:
ffectíve príí 1, 19 0, aíí dutíes heretofore performed by the In-
come Ta Unít ín connectíon wíth the admínístratíon of íncome ta
wíthhoídíng under sectíon 1622 of the Internaí Revenue Code are
transferred to the mpíoyment Ta Unít. Thís transfer íncíudes
the admínístratíon of aíí provísíons of Subchapters D and of Chap-
ter 9 of the Code, as weíí as the provísíons of Reguíatíons 116. It
does not, however, íncíude |urísdíctíon over questíons arísíng wíth re-
spect to the ííabíííty of any índívíduaí under Chapter 1 of the Code.
If a questíon whether a partícuíar amount paíd to an índívíduaí
constítutes wages sub|ect to wíthhoídíng requíres a determínatíon of
whether such amount constítutes íncome to the índívíduaí under Chap-
ter 1 of the Code, such questíon, ín the absence of a cíearíy appíícabíe
precedent, shaíí be referred by the mpíoyment Ta Unít to the In-
come Ta Unít for consíderatíon and advíce.
Geo. . Scííoeneman,
Commíssíoner.
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1 1 Regs. 3, 1 2.6(6), et .
INDUSTRI L LCO OL
INT RN L R NU COD
Reguíatíons 3, Sectíons 1 2.6(6), re 19 0-12-13371
T.D. 7
TITL 26 € ” INT RN L R NU . € ” C PT R I, SU C PT R C. P RT 1 2. € ”
INDUSTRI L LCO OL
mendíng Reguíatíons 3
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 2 , D. C.
To Dístríct Supervísors and Others Concerned:
L Reguíatíons 3, approved March 6, 19 2 (26 CFR, Part 1 2), as
amended, are hereby amended as foííows:
(a) Sectíons 1 2.6(b), 1 2. 3, 1 2.10 , 1 2.109, 1 2.133 (ff),
( ), 1 2.226(1), 1 2.229(6), 1 2.262(a)( ), 1 2.33 , 1 2.339,
1 2.3 0,1 2.3 1,1 2.3 2,1 2.3 ,1 2.3 6,1 2.3 2,1 2.3 ,1 2.3 ,
1 2.3 6, 1 2.3 9, 1 2.360, 1 2.361, 1 2.367, 1 2.371(d), 1 2.372,
1 2.377(d), 1 2.37 , 1 2.3 3(d), 1 2.3 , 1 2.3 9(d), 1 2.391,
1 2. 00,1 2. 01,1 2. 0 ,1 2. 0 ,1 2. 06,1 2. 12,1 2. 1 ,1 2. 1 ,
1 2. 23,1 2. 36,1 2. 37,1 2. 3,1 2. ,1 2. 0,1 2. 1,1 2. 2,
1 2. ,1 2. ,1 2. 6,1 2. 9,1 2. 61,1 2. 6 ,1 2. ,1 2. 9,
1 2. 90,1 2. 91,1 2. 9 ,1 2. 96,1 2. 02,1 2. 1 ,1 2. 19,1 2. 26,
1 2. 0,1 2. 1,1 2. ,1 2. 6,1 2. 9,1 2. 60,1 2. 61,1 2. 62,
1 2. 6 , 1 2. 70, 1 2. 7 d, 1 2. 76, 1 2. 2, 1 2. , 1 2. 7,
1 2.602, 1 2.610, 1 2.620, 1 2.621, 1 2.622, 1 2.630c, 1 2.6 2,
1 2.6 3,1 2.6 ,1 2.6 6,1 2.6 7,1 2.6 9,1 2.6 7,1 2.66 ,1 2.66 ,
1 2.669, 1 2.671, 1 2.672, 1 2.69 , 1 2.69 , 1 2.696, 1 2.7 9,
1 2.7 0, 1 2.7 1, 1 2.7 3, 1 2.7 , 1 2.7 7, 1 2.7 1, 1 2.7 ,
1 2.7 7(e), 1 2.7 , 1 2.7 9, 1 2. 10, 1 2. 11, 1 2. 13, 1 2. 19,
1 2. 21,1 2. 22,1 2. 23,1 2. 33,1 2. 3 ,1 2. 73,1 2. 7 ,1 2. 76,
1 2. 9 , 1 2. 97,1 2. 9 ,1 2.9 0, 1 2.9 1, 1 2.1000 are amended;
(6) Sectíons 1 2.31a, 1 2. 01a, 1 2. 01b, 1 2. 0 a, 1 2. 0 b,
1 2. 0 c, 1 2. 0 d, 1 2. 0 e, 1 2. 0 f, 1 2. 0 g, 1 2. 0 h, 1 2. 0 í,
1 2. 0 , 1 2. 0 k, 1 2. 0 1,1 2. 0 m, 1 2. 0 n, 1 2. 0 o, 1 2. 0 p,
1 2. 0 q, 1 2. 0 r, 1 2. 0 s, 1 2. 0 t,1 2. 0 u, 1 2. 0 v, 1 2. 0 v,
1 2. a, 1 2. b, 1 2. 6a, 1 2. 90a, 1 2. 9 a, 1 2. 9 b, 1 2. 6a,
1 2. 60a, 1 2. 76a, 1 2.6 3a, 1 2.6 3b, 1 2.6 3c, 1 2.6 3d, 1 2.6 3e,
1 2.6 3f, 1 2.6 3g, 1 2.6 3h, 1 2.69 a, 1 2.696a, 1 2.69 b. 1 2.C9 c,
1 2.7 9a, 1 2.7 2a, 1 2.7 2b, 1 2.7 2c, 1 2.7 2d, 1 2.7 a, 1 2.7 b,
1 2.7 c, 1 2.7 d, 1 2.7 e, 1 2. 11a, 1 2. 11b, 1 2. 11c, 1 2. 3 a,
1 2. 3 b are added; and
(c) Sectíons 1 2. 02,1 2. 03,1 2. 3,1 2. ,1 2. 60,1 2. 7,
1 2. 77, 1 2.6 , 1 2.7 6, 1 2.96 , and 1 2.966 are revoked.
Defínítíons
Síc. 1 2.6. Defínítíons. € ” s used In thís part, the foííowíng words and phrases
shaíí have the meaníngs as hereín defíned:
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Regs. 3, 1 2.6(b), etc.
1 2
(6) ppíícatíon shaíí mean a formaí, wrítten, verífíed request, supported
by a verífíed statement of facts, when necessary, for a permít for one or more
of the prívííeges authorízed by íaw. ....
€ €
(Sees. 310 , 312 , 3176, I . C.)
Constructíon
INDUSTRI L LCO OL PL NTS
Sec. 1 2.31a. Ta -Paíd Storeroom. € ” Where aícohoí ín packages, after ta -pay-
ment, ís to be temporarííy retaíned on the índustríaí aícohoí píant premíses
pendíng removaí, the propríetor must províde ín connectíon wíth the índustríaí
aícohoí píant a separate room for the storage of such aícohoí ta -paíd at the
píant. The ta -paíd storeroom, íf contíguous to the receívíng room, or to the
temporary storage room authorízed by sectíon 1 2.31, must be separated there-
from by soííd and unbroken partítíons or fíoors of substantíaí constructíon con-
formíng to the provísíons of sectíons 1 2.17 and 1 2.1 . Where a bonded ware-
house on the same premíses as the índustríaí aícohoí píant has a ta -paíd
storeroom prescríbed by sectíon 1 2. 2, ít may be used aíso for the temporary
storage of ta -paíd packages fíííed ín the Industríaí aícohoí píant (Sees. 3100,
312 (a) (6), 3176, I. R. C.)
quípment
índustríaí aícohoí píants
Sec. 1 2. 3. Coíors fob Pípe Línes. € ” The pípe íínes ín the índustríaí aícohoí
píant used for conveyíng the foííowíng substances shaíí be paínted and kept
paínted ín the coíors índícated:
íack ícohoí.
íue apor, íow wínes, hígh
wínes, or other unfín-
íshed spíríts.
Red Fermented mash or beer.
Gray Moíasses or other fer-
mentíng materíaí.
rown Spent beer or síop.
Yeííow Fuseí oíí.
Yeííow wíth red strípe ther.
Yeííow wíth green strípe utyí aícohoí.
Yeííow wíth purpíe strípe cetone.
Whíte Water.
íumínum Steam.
Orange ír.
Oííve green Carbon dío íde.
Purpíe Refrígerants.
These coíors ape íntended for such pípe íínes oníy, and are prescríbed for the
purpose of dístínguíshíng such pípe íínes from each other and from aíí other
pípe íínes on the premíses whích are paínted but for whích coíoí s are not pre-
scríbed. The paíntíng ín one of the prescríbed coíors, or a coíor símííar thereto,
of a pípe ííne for whích a coíor ís not prescríbed ís prohíbíted. Pípe íínes for
ether, butyí aícohoí, and acetone shaíí be stríped conspícuousíy ín the pre-
scríbed coíors. Pípe íínes for whích coíors are not prescríbed may be paínted
ín sectíons of contrastíng coíors. (Sees. 3103, 310 , 312 (a) (6), 3176, I. R. C.)
uaíífyíng Documents
índustríaí aícohoí píants, bonded warehouses, and denaturíng píants
Sec. 1 2.10 . ppíícatíon, Form 1 31. € ” very person desíríng the estabíísh-
ment of an índustríaí aícohoí píant; an índustríaí aícohoí bonded warehouse; a
denaturíng píant; an índustríaí aícohoí píant and bonded warehouse; an ín-
dustríaí aícohoí píant and denaturíng píant; an índustríaí aícohoí píant, bonded
warehouse, and denaturíng píant; or an Industríaí aícohoí bonded warehouse
and denaturíng píant, must fííe Form 1 31, ppíícatíon by Propríetor of In-
dustríaí ícohoí Píant, onded Warehouse, or Denaturíng Píant. Thís ap-
píícatíon must be fííed, ín trípíícate, wíth the dístríct supervísor of the dístríct
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1 3 Regs. 3, 1 2.6(b), etc.
ín whích the premíses are íocated for a basíc permít to engage ín such busíness.
cept as províded ín Sectíon 1 2.117 ín the case of amended and suppíementaí
appíícatíons, aíí of the Informatíon índícated by the íínes on the form and the
ínstructíons prínted thereon or íssued ín respect thereto, and as requíred by the
reguíatíons ín thís part, shaíí be furníshed. ppíícatíons on Form 1 31 must be
fííed ín accordance wíth the ínstructíons, prínted on the form, and be sworn to
before an offícer authorízed to admíníster oaths: Províded, That íf the form
offícíaííy prescríbed for such appíícatíon contaíns thereín a provísíon for verífí-
catíon by a wrítten decíaratíon that such appíícatíon ís made under penaítíes of
per|ury, such appíícatíon shaíí be verífíed by the e ecutíon of such decíaratíon,
and such decíaratíon so e ecuted shaíí be ín ííeu of the oath requíred hereín
for verífícatíon. Such appíícatíons must be numbered seríaííy, commencíng
wíth number 1 and contínuíng ín reguíar sequence for aíí appíícatíons thereafter
fííed, whether annuaí, amended, or suppíementaí. íí data, wrítten statements,
affídavíts, and other documents submítted ín support of the appíícatíon Shaíí be
deemed to be a part thereof. (Sees. 3100, 3101, 3102, 310 , 311 (a), 312 (a) (6),
317G,3S09, I. R. C.)
Sec. 1S2.109. Daííy Productíon. € ” The estímated ma ímum quantíty of each
kínd of materíaí that the propríetor of an índustríaí aícohoí píant íntends to
mash ín a day of 2 hours, and the estímated ma ímum quantíty In proof gaííons
of aícohoí that wííí be produced from such materíaís ín a ííke períod shaíí be
stated on Form 1 31. Where the propríetor íntends to mash dífferent kínds of
materíaís than those covered by Form 1 31, or a íarger quantíty of specífíed
materíaís than the ma ímum índícated on such form, or to produce a íarger
quantíty of aícohoí than the ma ímum índícated on the form, he must fííe wíth
the dístríct supervísor an amended appíícatíon, Form 1 31, ín trípíícate, and íf the
ta on the quantíty of aícohoí to be produced duríng a períod of 1 days wííí e ceed
the penaí sum of the bond (íf such penaí sum ís íess than the ma ímum as set
forth ín sectíon 1S2.133), a new or addítíonaí bond. Form 1 32- , must be fííed,
as províded ín sectíon 1 2.133 (h). Líkewíse, where the quantíty of aícohoí
actuaííy produced duríng any períod of 1 days e ceeds the estímated ma ímum
quantíty to be produced duríng such períod, the propríetor must fííe an amended
appíícatíon, Form 1 31, and, where requíred, a new or addítíonaí bond, Form
1 32- , ín accordance wíth sectíon 1 2.133(7í). (Sees. 3100, 310 , 311 (a),
312 (a) (6), 3176, I. R. C.)
Sec. 1 2.133. Penaí Sum. € ”
€ € € € €
(g) Industríaí aícohoí píants. € ” The penaí sum of the bond to cover the opera-
tíon of an índustríaí aícohoí píant shaíí not be íess than the amount of the
ínternaí revenue ta at the rate prescríbed by íaw on the ma ímum quantíty of
aícohoí (ín proof gaííons) that wííí be produced ín the índustríaí aícohoí píant
duríng a períod of 1 days of 2 hours each: Províded, That the ma ímum penaí
sum of the bond shaíí be 100,000.
( ) Increase ín penaí sum of bond. € ” Where the permíttee has not furníshed
bond ín the ma ímum penaí sum, ín accordance wíth paragraphs (a) to (g) of
thís sectíon, and he íntends to produce, or have on hand, ín transít, or unac-
counted for a íarger quantíty of aícohoí than that covered by hís bond, he must
fííe a new or addítíonaí bond ín a suffícíent penaí sum to cover the ta on the
íncreased quantíty to be produced. Líkewíse, where the quantíty of aícohoí
actuaííy produced duríng any períod of 1 days ín the case of an índustríaí
aícohoí píant, or the quantíty of aícohoí, or specíaííy denatured and recovered
or restored denatured aícohoí actuaííy on hand, ín transít, and unaccounted
for at any one tíme at the bonded warehouse or denaturíng píant, as the case may
be, e ceeds the penaí sum of the bond on fííe, he must furnísh ímmedíateíy a new
or addítíonaí bond ín a suffícíent penní sum, effectíve as of the begínníng of such
períod. If an addítíonaí bond ís furníshed ín eíther case, ít must be ín ac-
cordance wíth sectíon 1 2.203. (Sees. 310 , 311 (a), 312 (a) (6), 3176, I. R. C.)
asíc Permíts
G N R L
Sec. 1 2.220. Scope of rtícíe. € ” The provísíons of thís artícíe are appíícabíe
to aíí basíc permíts coveríng operatíons íncíuded ín thís part, whích are as
foííows:
(1) Permít to Operate Industríaí ícohoí Píant, onded Warehouse, or De-
naturíng Píant, Form 1 33. ( síngíe basíc permít wííí be íssued for an índus-
33 0 € ” 0 11
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Regs. 3, 1 2.6( ), etc. 1
tríaí aícohoí píant; an índustríaí aícohoí bonded warehouse; a denaturíng píant;
índustríaí aícohoí píant and bonded warehouse If íocated on the same premíses;
Industríaí aícohoí píant and denaturíng píant If íocated on the same premíses;
Industríaí aícohoí píant, bonded warehouse and denaturíng píant íf íocated on
the same premíses; or bonded warehouse and denaturíng píant íf íocated on the
same premíses.)
€ €
(Sees. 310 , 312 (a) (6), 3176,1. R. C.)
íssuance of orígínaí basíc permít
Sec. 1 2.229. Límítatíons Under Permít. € ”
- € € € € €
(6) Permít to Procure ícohoí Free of Ta by the Uníted States or Govern-
mentaí gency Thereof, Form í- |. € ” Permíts on Form 1 wííí not íímít the
quantíty of aícohoí authorízed to be procured. Such permíts, however, shaíí
name the propríetor of the índustríaí aícohoí píant or bonded warehouse, the
number and íocatíon thereof, from whích aícohoí, free of ta , shaíí be procured.
If ít ís desíred to procure aícohoí from more than one índustríaí aícohoí píant
or bonded warehouse a separate permít must be procured, authorízíng wíthdrawaí
from each such píant or warehouse.
€ € € € € €
(Sees. 310 ,3107,311 ,312 (a)(6),3176,1. R. C.)
Requírements Governíng Changes ín Name, Propríetorshíp, Controí, Loca-
tíon, Premíses and quípment; and ín the Títíe to Industríaí ícohoí
Píant or onded Warehouse Property or the ncumbrance Thereof
change ín propríetorshíp
Sec. 1 2.262. Change ín Propríetorshíp. € ” (a) Suspensíon. € ”
€ € € € €
( ) Fíníshed, aícohoí. € ” In the case of an Industríaí aícohoí píant, draw off,
brand and mark, and remove aíí fíníshed aícohoí ín the índívíduaí, fírm, or cor-
porate name, or trade name or styíe, under whích ít was produced ín accordance
wíth sectíon 1 2. 7.

(Sees. 3100, 3101, 3102, 3103, 10 , 311 , 312 (a) (6), 3176, I. R. C; sec. 3, 9
Stat. 97 (27 T . S. C 203).)
Operatíon of Industríaí ícohoí Píants
dístííííng materíaís
Sec 1 2.33 . Weíghíng Materíaís Receíved. € ” cept as províded ín sectíon
1 2.63, the propríetor wííí weígíí or, ín the case of ííquíds, weígh or measure aíí
materíaís receíved on the índustríaí aícohoí píant premíses Intended for use ín
the productíon of aícohoí. e wííí prepare weíght or quantíty sííps of aíí such
materíaís receíved and furnísh sígned copíes to the storekeeper-ganger. e wííí
maíntaín a commercíaí record of aíí such materíaís receíved, showíng the date
of receípt, the name of the concern or person from whom the materíaís were pur-
chased, and the kínd and quantíty of each materíaí, and wííí report on Form
1 2 the totaí quantíty of each kínd of materíaís receíved duríng the month,
províded, however, that the Commíssíoner may. ín hís díscretíon, requíre that
receípts of materíaís be reported daííy on Form 1 2. (Sees. 3103, 310 ,
312 (a) (6), 3176, 1. R. C.)
Sec. 1 2.339. Stobekeeper-Gauger s Record of Materíaís Receíved. € ” The
storekceper-gauger wííí record on Form 1GS6, T . S. Storekeeper-Gauger s Rec-
ord of Operatíons at Regístered Dístíííery or Industríaí ícohoí Píant, the totaí
quantíty of each kínd of materíaís receíved on the premíses, duríng the month,
íntended for use ín the productíon of aícohoí. ntríes wííí be made from the
propríetor s weíght or quantíty sííps. The storekeeper-ganger wííí verífy such
sííps by comparíson wíth the propríetor s commercíaí records and hís Form
1 2. (Sees. 310 , 312 (a) (6), 3176, 1. R. C.)
Sec. 1 2.3 0. Weíghíng Materíaís Used. € ” The propríetor wííí weígh, or In
the case of ííquíds, weígh or measure, aíí materíaís used ín the productíon of
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1 Regs. 3, 1 2.6(6), etc.
aícohoí. e wííí prepare weíght or quantíty sííps of aíí such materíaís and wííí
furnísh sígned copíes to the storekeeper-gauger. The saccharíne content of
moíasses mashed must be reported. The aícohoí content of fermented ííquor,
níne, or other dístííííng materíaís must be shown and the same shaíí be deter-
míned from sampíes taken under such condítíons as wííí afford a proper test
of the partícuíar íot or íots dístíííed. The materíaís used wííí be recorded by
the propríetor on Form 1 2. The quantíty of resídue returned to a brewery
wííí aíso be entered on Form 1 2. (Sees. 3103, 310 , 312 (a) (6), 3176, I. R. C.)
Sec. 1 2.3 1. Use of Materíaís Other Tíían for the Productíon of íco-
hoí. € ” Where materíaís are used prímarííy for the productíon of substances other
than ethyí aícohoí, such as butyí aícohoí, ísopropyí aícohoí, acetone, etc., and
such materíaís produce a smaíí amount of ethyí aícohoí as a byproduct, a sep-
arate record wííí be kept on Forms 1 2 and 16 6 for each process or fermenta-
tíon, showíng the materíaís used and the resuítíng productíon of ethyí aícohoí
and chemícaís therefrom. (Sees. 3103, 310 , 312 (a) (6), 3176, I. R. C.)
Sec. 1S2.3 2. Storekeeper- auger s Record of Materíaís Used. € ” The store-
keeper-gauger wííí record on Form 16S0 aíí materíaís used ín the productíon of
aícohoí. ntríes wííí be made from the propríetor s weíght or quantíty sííps.
The storekeeper-ganger wííí verífy such sííps by comparíson wíth the propríetor s
commercíaí records and hís Form 1 2. The quantíty of resídue returned to a
brewerv wííí be entered by the storekeeper-gauger on Form 16 6. (Sees. 3103,
310 , 312 (a)(6), 3176, I. R. C.)
Sec. 1 2.3 . Removaí or Destructíon of Fermentíng or Dístííííng Mate-
ríaí. € ” (a) Saíe or transfer of fermentíng materíaí. € ” If fermentíng materíaí ís
stored on the premíses and ít ís desíred to remove the same or any portíon thereof
from the premíses for any purpose whatever, the storekeeper-gauger shaíí be
notífíed by the propríetor, príor to the removaí of such materíaís, of the kínd
and quantíty to be removed and the reasons therefor. The removaí of such
materíaís wííí be entered by the propríetor on Form 1 2 and by the storekeeper-
gauger on Form 16 6.
(6) Destructíon of dístííííng materíaí. € ” Dístííííng materíaís must not be de-
stroyed untíí permíssíon therefor has been obtaíned from the dístríct supervísor
and the same has been ínspected by a Government offícer, uníess destructíon wíth-
out supervísíon ís authorízed by the dístríct supervísor. If the materíaí ís found
by an ínspectíng Government offícer to be useíess for dístíííatíon, he wííí supervíse
destructíon thereof and submít a wrítten report of hís actíon to the dístríct super-
vísor. The destructíon of the materíaí wííí be entered by the propríetor on
Form 1 2 and by the storekeeper-gauger on Form 16 6.
(c) Destructíon of fermented maít ííquor and wíne. € ” Fermented maít ííquor
and wíne whích have become unfít for dístíííatíon shaíí not be destroyed untíí
ínspected by a Government offícer and a chemícaí anaíysís ís made pursuant to
the ínstructíons of the dístríct supervísor. If destructíon ís authorízed, ít wííí
be entered by the propríetor on Form 1 2 and by the storekeeper-gauger on
Form 1C 6. (Sees. 3030, 310 , 312 (a) (6), 31 0, 3176, I. R. C.)
T STINO
Sec. 1 2.3 6. Materíaís for Yeast Mash. € ” Materíaís capabíe of producíng
aícohoí whích are used ín preparíng yeast mash wííí be weíghed or measured by
the propríetor, who wííí furnísh weíght or quantíty sííps to the storekeeper-gauger
and wííí make proper record on Form 1 2. If the materíaís used ín a yeast mash
have been íncíuded ín the materíaís weíghed or measured by the propríetor for
use ín the productíon of the maín mash, a notatíon shouíd be made on the sííp
to that effect and no entry wííí be made on Forms 1 2 and 16 6. Such weíght
or quantíty sííps wííí be fííed by the storekeeper-ganger for record and reference
purposes. (Sees. 3103, 310 , 312 (a) (6), 3176, I. R. C.)
F RM NTING
Sec. 1 2.3 2. Test of eer and Síop. € ” t the tíme of dístíííatíon, the propríe-
tor wííí thoroughíy agítate the contents of each fermenter and the storekeeper-
gauger wííí then take a sampíe of beer or other dístííííng materíaí from each
fermenter to determíne the aícohoííc content of the beer or other dístííííng mate-
ríaí. e wííí aíso take daííy severaí representatíve sampíes of síop or spent beer
after the same has come from the stííí and determíne the aícohoííc content of each
sampíe. e wííí make the test of beer or other dístííííng materíaí and síop and
compute the caícuíated yíeíd ín-accordance wíth the ínstructíons on Form 16 6
(Sees. 310 , 312 (a) (6), 3176, I. R. C.)
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Regs. 3, 1 2 6(0), etc. 1 6
dístíííatíon
Sec. 1 2.3 . Gaugíng or Unfíníshed ícohoí € ” t índustríaí aícohoí píants
where unfíníshed aícohoí, hígh wínes and íow wínes (hereínafter desígnated unfín-
íshed aícohoí), ín the course of dístíííatíon are run Into tanks In the píant for
temporary deposít preparatory to compíetíng the dístíííatíon thereof, and where
2 -hour supervísíon ís maíntaíned by the storekeeper-gauger, a daííy gauge of
such unfíníshed aícohoí wííí not be requíred. Where 2 -hour supervísíon ís not
maíntaíned, the storekeeper-gauger, príor to íeavíng the premíses, wííí gauge
(measure and proof) the unfíníshed aícohoí retaíned ín each tank, make an offíce
record of the quantíty and proof of the unfíníshed aícohoí thereín, and attach
íocks ín accordance wíth sectíon 1 2.91 : Províded, That where such tanks are
encíosed ín a room or buíídíng equípped for íockíng ín accordance wíth sectíon
1S2.26, such room or buíídíng wííí be íocked ín ííeu of gaugíng the unfíníshed
aícchoí. Upon hís return to the premíses the storekeeper-gauger wííí gauge the
unfíníshed aícohoí ín the tanks prevíousíy gauged and compare the quantíty and
proof wíth the offíce record. ny materíaí díscrepancy wííí be reported ímme-
díateíy to the dístríct supervísor. cept as authorízed by the reguíatíons ín
thís part, unfíníshed aícohoí may not be stored ín such tanks, but may be deposíted
thereín oníy temporarííy ín the course of dístíííatíon. t the cíose of the month
the storekeeper-gauger wííí make an accurate gauge of aíí unfíníshed aícohoí on
hand and report the totaí quantíty on Form 16 6. (Sees. 310 , 312 (a) (6), 3176,
I. R.C.)
Sec. 1 2.3 . Redístíííatíon of ícohoí. € ”
(a) uthorízatíon and procedure. € ” The dístríct supervísor may, ín hís dís-
cretíon, províded he deems ít proper so to do and sub|ect to such condítíons and
restríctíons as he may ímpose, authoríze the transfer of aícohoí from an índus-
tríaí aícohoí píant or a bonded warehouse to an índustríaí aícohoí píant for
redístíííatíon. In makíng the request for such specíaí authorízatíon the proprí-
etor of the índustríaí aícohoí píant desíríng to redístííí aícohoí wííí submít to
the supervísor of hís dístríct a statement ín trípíícate showíng the source and
quantíty of the aícohoí and the necessíty for redístíííatíon. The dístríct super-
vísor wííí note hís approvaí or dísapprovaí on aíí copíes of the appíícatíon. e
wííí return the orígínaí to the propríetor, retaín one copy for fííe and attach the
remaíníng copy to the Commíssíoner s copy of Form 1 2 for the mouth ín whích
the transfer ís made. Where the aícohoí for redístíííatíon ís to be receíved from
an índustríaí aícohoí bonded warehouse on the Industríaí aícohoí píant premíses,
the procedure prescríbed by the reguíatíons ín thís part governíng the transfer
of aícohoí from an índustríaí aícohoí píant to a bonded warehouse wííí be
foííowed ínsofar as appíícabíe. See partícuíaríy sectíon 1 2. 0 b. Where the
aícohoí for redístíííatíon ís to be receíved from an índustríaí aícohoí bonded
warehouse not on the same premíses or from another Industríaí aícohoí píant,
the procedure prescríbed by the reguíatíons ín thís part wííí be foííowed ínsofar
as appíícabíe. See partícuíaríy sectíons 1 2. 0 c and 1 2. 0 d. The transfer
appíícatíon and permít Form 1 36 wííí be appropríateíy modífíed.
(6) Records and reports. € ” The aícohoí for redístíííatíon wííí be weíghed and
proofed. The number of proof gaííons wííí be reported on Form 1 -12, Form
1 3- , or Form 1 3- , as the ease may be, as a removaí for redístíííatíon and
on Forms 1 2 and 1GS6 as a receípt for redístíííatíon. The redístíííatíon of the
aícohoí wííí aíso be reported on Forms 1 2 and 16 6. (Sees. 3103, 310 ,
312 (a) (6), 3176, I. R. C.)
Sec. 1 2.3 6. Dístíííatíon of Líquíd Chemícaís. € ” If, ín the productíon of
ethyí aícohoí, other ííquíd chemícaís are produced, such as butyí aícohoí, ísopropyí
aícohoí, acetone, ether, etc., each such chemícaí or product must be deposíted
ín separate receívíng tanks províded therefor, ín order that the daííy productíon
thereof may be gauged and appropríate entríes made on Forms 1 2 and I 6,
kept ín accordance wíth sectíon 1 2.3 1. The daííy ínventory shaíí be made
by the propríetor In the ímmedíate presence of the storekeeper-gauger.
(a) Dísposítíon. € ” íí chemícaís drawn from the receívíng tanks shaíí be
gauged (weíghed or measured) by the propríetor ín the presence of the store-
keeper-gauger. Removaí of such chemícaís wííí be ín such contaíners as the
propríetor may desíre. The kínd and quantíty of chemícaís gauged and removed
from the premíses wííí be reported on Forms 1 2 and 16S0.
(6) Markíng of contaíners. € ” The contaíners ín whích chemícaís are removed
from índustríaí aícohoí píant premíses shaíí have marked thereon the regístry
number, name and address of the propríetor, the kínd of chemícaí, and the quan-
títy of wíne gaííons ín such package.
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1 7
Regs. 3, 1 2.0(6), etc.
(c) Test for aícohoí. € ” The chemícaís produced, such as butyí aícohoí, ísopropyí
aícohoí, acetone, ether, etc., must be tested for the purpose of determíníng the
presence of ethyí aícohoí, ín accordance wíth the appíícabíe requírements of
sectíons 1 2.30 -1S2.3 , or by such other method or methods as may be pre-
scríbed by the Commíssíoner. (Sees. 3103, 310 , 312 (a) (6), 3170, I. R. C.)
D POSIT OF LCO OL IN R C I ING T N S
Sec. 1 2.3 9. Immedíate Depostt Requíred. € ” íí fíníshed aícohoí must be
deposíted ín receívíng tanks ín the receívíng room ímmedíateíy upon compíetíon
of manufacture. The quantíty of fíníshed aícohoí produced wííí be determíned
and entered daííy on Forms 1 2 and 10 0. (Sees. 310 , 312 (a)(0), 3176,
I. R. C.)
Sec. 1 2.360. Receívíng Tanks Not To I e Used for Storage. € ” Rsceívíng tanks
are not íntended to be used for storage purposes and aíí aícohoí must be drawn
from the receívíng tanks on or before the thírd day foííowíng the deposít of the
same thereín: Províded, That where emergency condítíons over whích the
propríetor has no controí wouíd prevent the compíetíon of such wíthdrawaí
wíthín the specífíed períod, the dístríct supervísor may, ín hís díscretíon, author-
íze the retentíon of the aícohoí for such períod ín e cess of 3 days as he may
deem necessary to meet the partícuíar sítuatíon. (Sees. 2 20, 3103, 310 ,
312 (a)(0), 3170, I. R. C.)
comparíson of actuaí yíeíd wíth caícuíated yíeíd
Sec. 1. 2.301. bnormaí Dífferences To e Investígated. € ” The storekeeper-
gauger wííí compare the quantíty of aícohoí produced and deposíted ín the
receívíng tanks wíth the caícuíated yíeíd for the respectíve fermenters. The
comparíson wííí be made by síngíe fermenters where It ís possíbíe so to do.
Where, by reason of the mode of operatíon, ít ís not possíbíe to make the
comparíson by síngíe fermenters, ít wííí be made by groups of fermenters, dís-
tíííed daííy íf possíbíe. If ít ís not possíbíe to make the comparíson eíther by
síngíe fermenters or by groups of fermenters, dístíííed daííy, the comparíson
wííí be made on a monthíy basís or for such íesser períods as may be feasíbíe.
Where the dífference between the caícuíated yíeíd and the actuaí yíeíd ís more
than that determíned by e períence to be the normaí dífference for the partícu-
íar píant, the storekeeper-gauger assígned to supervíse dístííííng operatíons and
the storekeeper-gauger ín charge wííí make a thorough ínquíry to determíne the
reason or reasons therefor and wííí make a fuíí report of theír fíndíngs on Form
16SG. Where the facts warrant, the offícers wííí make a report by íetter to the
dístríct supervísor and wííí submít ít wíth Form 1 2 forwarded to the dístríct
supervísor. If the fíndíngs of the offícers do not fuííy e píaín the díscrepancy,
the dístríct supervísor wííí cause such further ínvestígatíon to be made as may be
deemed advísabíe. (Sees. 310 , 312 (a) (0), 3176, I. R. O.)
COLL CTION ND R MO L OF FUS L OIL
Sec. 1 2.367. Washíng and Purífyíng. € ” The fuseí oíí-aícohoí mí ture must be
thoroughíy washed and purífíed wíth water to separate the oíí and aícohoí mí ture
before the oíí ís removed from the tanks ín whích ít ís deposíted or stored.
ía) Dísposítíon of ícashwatcr. € ” The water used for washíng and purífyíng the
oíí ín the tanks may be conveyed dírectíy to the stííí, or ít may be run ínto a tank,
beer weíí, or sewer, or ít may be otherwíse destroyed on the premíses under the
supervísíon of the storekeeper-gauger. If the washwater ís run ínto a stííí, tank,
or beer weíí, the quantíty wííí not be entered on Form 1 2 or 10S0. If the wash-
water ís run ínto the sewer or otherwíse destroyed, the aícohoííc content and the
quantíty wííí be reported on Form 1 0. ntry of such dísposítíon wííí be made
on Forms 1 2 and 10 0. (Sees. 310 , 312 (a) (6), 3176,1. R. C.)
Sec 1S2.371. Removaí. € ”
€ € €
( f) Record of removaí € ” The propríetor wííí prepare Form 1 0 coveríng
removaís of fuseí oíí. Such removaís wííí be entered on Forms 1 2 and 16 6
(Sees. 310 , .312 (a) (6), 3176, I. R. C.)
PRODUCTION ND R MO L OF UTYL LCOnOL
Sec. 1 2.372. Receívíng Tanks. € ” If butyí aícohoí Is produced at the índustríaí
aícohoí píant. It must be run ínto íocked receívíng tanks províded therefor and
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Regs. 3, 1 2.6(6), etc. 1
retaíned thereín untíí tested and removed from the píant premíses or transferred
to storage tanks. The daííy productíon of butyí aícohoí must be determíned, and
appropríate entríes made on Forms 1 2 and 16 6, kept ín accordance wíth sectíon
1 2.3 1. The daííy ínventory shaíí be made by the propríetor ín the ímmedíate
presence of the storekeeper-gauger. (Sees. 310 , 312 (a) (6), 3176,1. R. C.)
Sec. 1 2.377. Removaí. € ”
€ € € € € €
(d) Record of removaí. € ” The propríetor wííí report butyí aícohoí removed from
the premíses on Form 1 2. (Sees. 310 , 312 (a) (6), 3176,1. R. C.)
PRODUCTION ND R MO L OF C TON
Sec. 1 2.37 . Receívíng Tanks. € ” If acetone ís produced at the índustríaí aícohoí
píant, ít must be run ínto íocked receívíng tanks províded therefor and retaíned
thereín untíí tested and removed from the píant premíses or transferred to storage
tanks. The daííy productíon of acetone must be determíned and appropríate
entríes made on Forms 1 2 and 16 6, kept ín accordance wíth sectíon 1 2.3 1.
The daííy ínventory shaíí be made by the propríetor ín the ímmedíate presence of
the storekeeper-gauger. (Sees. 310 , 312 (a) (6), 3176,I. R. C.)
Sec. 1 2.3 3. Removaí. € ”
€ € € € € €
(d) Record of removaí. € ” The propríetor wííí report acetone removed from the
premíses on Form 1 2. (Sees. 310 , 312 (a) (6), 3176,1. R. C.)
PRODUCTION and removaí of ether
Sec. 1 2.3 . Receívíng Tanks. € ” If ether ís produced at the índustríaí aícohoí
píant, ít must be run ínto íocked receívíng tanks províded therefor and retaíned
thereín untíí tested and removed from the píant premíses or transferred to storage
tanks. The daííy productíon of ether must be determíned and appropríate entríes
made on Forms 1 2 and 16 6, kept ín accordance wíth sectíon 1 2.3 1. The daííy
ínventory shaíí be made by the propríetor ín the ímmedíate presence of the store-
keeper-gauger. (Sees. 310 , 312 (a) (6), 3176, I. R. C.)
Sec. 1 2.3 9: Removaí. € ”

(d) Record of removaí. € ” The propríetor wííí report ether removed from the
premíses on Fonn 1 2. (Sees. 310 , 312 (a) (6), 3176,1. R. C.)
R CO RY ND R MO L OF C R ON DIO ID
Sec. 1 2.391. Procedure. € ” Carbon dío íde may be recovered from fermenters
and removed from the píant premíses províded ít ís fírst thoroughíy washed or
scrubbed and purífíed to remove the aícohoí therefrom. Where carbon dío íde Is
recovered, the washwater may be coííected ín a receívíng tank and transferred by
pípe ííne to a fermenter or to a beer weíí. Where the washwater ís transferred to
a fermenter, the transfer must be made príor to the testíng of the beer by the
storekeeper-gauger at the tíme of dístíííatíon. Where the washwater ís trans-
ferred to a beer weíí after the caícuíated yíeíd has been determíned, the aícohoííc
content, the number of gaííons, and the caícuíated yíeíd thereof wííí be determíned
by the storekeeper-gauger, and ínterííned ín Part 1 of Form 16 6. The aícohoííc
content of the washwater wííí be determíned ín accordance wíth an approved
method. The number of gaííons wííí aíso be ínterííned ín Part 1 of Form 1 2.
If the washwater ís not utííízed ín the manufacture of aícohoí, ít wííí be run ínto
the sewer or otherwíse destroyed on the premíses under the supervísíon of the
storekeeper-gauger. ntry of such dísposítíon wííí not be made on Forms 1 2
and 16 6. (Sees. 310 ,312 (a) (6), 3176,1. R. C.)
R MO L of aícohoí from índustríaí aícohoí píant
Sec. 1 2. 00. uthorízed Removaís. € ” ícohoí produced at índustríaí aícohoí
píants, after deposít ín the receívíng tanks, may be removed for the foííowíng
purposes:
(1) Transferred by means of pípe íínes to storage tanks In a bonded
warehouse on the bonded premíses where produced, as authorízed by sectíon
1 2. 0 b or to aícohoí storage tanks or mí íng tanks ín a denaturíng píant
íocated on the bonded premíses where produced, as authorízed by sectíon
1 2. 0 f.
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1 9
Regs. 3, 1 2.6(6), etc.
(2) Drawn ínto tank cars or other approved contaíners (e cept cases con-
taíníng one-haíf pínt to 1-gaííon bottíes) or drawn ínto tank trucks and
transferred to any bonded warehouse for storage thereín, as authorízed by
sectíons 1 2. 0 b-1 2. 0 d, or to any denaturíng píant for denaturatíon
as authorízed by sectíons 1 2. 0 f-1 2. 0 h.
(3) Wíthdrawn ín packages or tank cars, upon payment of ta , as au-
thorízed by sectíons 1 2. 0 í-1 2. 0 1, and ta -paíd and transferred by pípe
ííne to a rectífyíng píant on contíguous or nearby premíses, as authorízed
by sectíons 1 2. 0 m and 1 2. 7 a-1 2. 7 g.
( ) Wíthdrawn ta -free for scíentífíc purposes, use of hospítaís, States,
etc., as authorízed by sectíons 1 2. 0 n-1 2. 0 p.
(a) Wíthdrawn for use by the Uníted States or governmentaí agency
thereof, as authorízed by sectíons 1 2. 0Sq-1 2. 0St.
(0) Wíthdrawn for e portatíon, as authorízed by sectíons 1 2. 0 u and
1S2. -1 2.619.
(7) Transferred to a customs manufacturíng bonded warehouse, as au-
thorízed by sectíons 1 2. 0 v and 1 2.G20-1 2.C30.
( ) Wíthdrawn ta -free for use on certaín vesseís and aírcraft, as au-
thorízed by sectíons 1 2. 0 w and 1 2.030a-1 2.030n.
fSecs. 2 , 2S91, 3070(a), 3103, 310 , 3100, 3107, 310 , 312 (a) (6), 3176, I. R. C.;
sec. 309(a), Taríff ct of 1930 (19 U. S. C. 1309).)
Sec. 1 2. 01. pproved Contaíners. € ” ícohoí may be drawn ínto any ap-
proved contaíner e cept cases contaíníng one-haíf pínt to 1-gaííon bottíes. The
contaíners must conform to the appíícabíe requírements of sectíons 1 2. 06-
1 2. 09 and sectíons 1 2. 11-1S2. 1 . (Sees. 310 , 312 (a)(6), 3176, I. R. C.)
Sec. 1 2. 01a. Marks, rands, and Stamps. € ” The contaíners ínto whích aíco-
hoí ís drawn must be marked, branded, and stamped ín accordance wíth the
appíícabíe provísíons of sectíons 1 2. 1 -1 2. 32. (Sees. 310 , 312 (a)(6),
3176, I. R. C.)
Sec. íS2. 01b. Transportatíon. € ” (a) In bong. € ” ícohoí shípped ín bond from
an índustríaí aícohoí píant to an índustríaí aícohoí bonded warehouse ín con-
taíners other than tank trucks shaíí be transported to the premíses of the re-
ceívíng warehouse by the propríetor of the shíppíng píant; or by a raííroad or
steamshíp company, or an e press company operatíng thereon; or by a motor
farríer who hoíds a permít to transport ta -free or specíaííy denatured aícohoí
or who has quaíífíed wíth the Interstate Commerce Commíssíon as a seíf
ínsurer ; or by other carríers, íncíudíng motor and barge íínes, who are
actíveíy and reguíaríy engaged ín the íegítímate busíness of transportatíon
and who possess adequate facííítíes to ínsure safe deíívery at destínatíon of any
aícohoí transported by them, and who are approved by the dístríct supervísor.
ícohoí shípped ín bond to a bonded warehouse or to a denaturíng píant ín
tank trucks shaíí be transported to the premíses of the receívíng bonded ware-
house or denaturíng píant by the propríetor of the shíppíng píant, or by the
propríetor of the receívíng bonded warehouse or denaturíng píant, or by a
motor carríer, who hoíds a permít, Form 1 , to transport undenatured ethyí
aícohoí ín tank trucks.
(6) Ta -free. € ” ícohoí wíthdrawn from an índustríaí aícohoí píant free of
ta for denaturatíon, e port, transfer to customs manufacturíng bonded ware-
house, use on vesseís and aírcraft, use of the Uníted States or any governmentaí
agency thereof, the severaí States and Terrítoríes or any munícípaí subdívísíon
thereof, or the Dístríct of Coíumbía, hospítaís, sanatoríums, coííeges, íabora-
toríes, scíentífíc purposes, etc., must be transported to the premíses of the con-
sígnee, or, íf wíthdrawn for e port, to the port of e port, by the propríetor of
the índustríaí aícohoí píant or a carríer hoídíng permít on Form 1 to trans-
port ta -free aícohoí: Províded, That the consígnee may transport the aícohoí
from the premíses of the deííveríng carríer at the píace of destínatíon to hís
own premíses, or, ín the case of e port, or use on vesseís and aírcraft, to the
poínt of íadíng.
(c) Method of transportatíon. € ” ícohoí shípped ín bond or ta -free ín accord-
ance wíth paragraphs (a) and (6) of thís sectíon, must be transported by the
propríetor of the índustríaí aícohoí píant or the authorízed carríer personaííy, or
by some person reguíaríy and e cíusíveíy ín theír empíoy, and the ríght to the
possessíon of any vehícíe used for such transportatíon must be vested ín the
vendor or carríer.
(d) Responsíbíííty for deíívery. € ” The consígnor wííí be responsíbíe for proper
deíívery of aícohoí shípped ín bond or ta -free to an authorízed carríer, or to
the premíses of the consígnee when deíívery ís made by the consígnor. The con-
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Regs. 3, 1 2.6(6), etc. 160
sígnec wííí ííkewíse be responsíbíe for the proper deíívery to bís permít premíses
of aícohoí shípped to hím ín bond or ta -free and transported by hím from the
premíses of the authorízed carríer. Faííure to make such deíívery wííí be
deemed to be grounds for cítatíon for revocatíon of the basíc permít of the per-
son responsíbíe for the proper deíívery of the aícohoí.
(e) Certífícate ín bííí of íadíng, waybííí, etc. € ” When aícohoí ís transported by
a carríer, as authorízed hereín, the propríetor of the shíppíng índustríaí aícohoí
píant shaíí íncíude ín hís bííí of íadíng, waybííí, e press receípt, etc., a statement
to the foííowíng effect: efore makíng deíívery, the agent of the deííveríng car-
ríer at destínatíon must have receíved from the consígnee a certífíed copy of the
wíthdrawaí permít authorízíng thís shípment.
(1) ceptíon: Wrítten statement. € ” Where no bííí of íadíng Is Issued, as In
the case of deíívery by íocaí e press company, a wrítten statement to the above
effect, sígned by the shípper, shaíí be deíívered to the carríer. (Sees. 3070(a),
310 , 3107, 310 , 311 , 312 (a) (6), 3176, I. R. C.)
DR WING OFF, G UGING, ND R MO L OF LCO OL
Sec. 1 2. 0 . Drawíng Off ícohoí. € ” When aícohoí Is to be drawn from a
receívíng tank, the storekeeper-gauger wííí see that the vaíve In the pípe ííne
controíííng the fíow of aícohoí ínto the tank Is cíosed and íocked before the
aícohoí ín the tank Is reduced and proofed and that such vaíve remaíns cíosed
and íocked untíí the aícohoí has been removed. Whenever aícohoí Is to be drawn
from receívíng tnnks or transferred ínto or out of other tanks secured wíth Gov-
ernment íocks, the storekeeper-gauger wííí open and cíose the íocks, bnt It shaíí
be the duty of the propríetor to manípuíate the stopcocks or vaíves controíííng
the fíow of the aícohoí. The storekeeper-gauger assígned to the receívíng room
Is requíred to be present and personaííy supervíse the drawíng off of aíí aícohoí
ín the receívíng tanks, the markíng and brandíng of aíí packages of aícohoí fíííed
therefrom, and the stampíng of aíí packages ta -paíd or e ported dírectíy
from the receívíng room. e wííí aíso see that aíí mechanícaí dutíes connected
wíth such operatíon are properíy performed, as províded ín thís part and ín the
Gaugíng Manuaí (26 CFR, Part 1 6). (Sees. 310 , 312 (a)(6), 3176, I. R. C.)
Sec. 1 2. 0 . Gaugíng of ícohoí. € ” Where aícohoí Is drawn from receívíng
tanks Into drums, barreís, or símííar contaíners, the packages shaíí be gauged
ín accordance wíth the provísíons of the Gaugíng Manuaí (26 CFR, Part 1 6).
Where aícohoí Is drawn Into tank cars, drawn ínto tank trucks, or ís transferred
by pípe ííne as authorízed by thís part, such aícohoí shaíí be gauged ín accordance
wíth thís part and the Gaugíng Manuaí; and the weíght of the aícohoí wííí be
determíned by means of weíghíng tanks, as províded In sectíon 1 2. 07. íí
aícohoí drawn from receívíng tanks wííí be proofed and weíghed by the propríetor
and the packages marked ín accordance wíth thís part, In the ímmedíate presence
of the storekeeper-gauger. The storekeeper-ganger wííí verífy the proof, weíght,
and gaííonage of aíí aícohoí and wííí see that the Instructíons ín the Gaugíng
Manuaí respectíng the proofíng of aícohoí are stríctíy foííowed ín order that the
proof may be accurateíy determíned. The propríetor shaíí províde, at hís own
e pense, accurate and standard hydrometers, hydrometer cups, and thermometers
for the purpose of gaugíng aícohoí. íí fractíonaí parts of a gaííon íess than
one-tenth, shown ín the Gaugíng Manuaí, shaíí be dísregarded ín gaugíng aícohoí.
For e ampíe, a package of 190 proof aícohoí, weíghíng 326 pounds not. shaíí
be reported on Form 1 0 ns contaíníng 7.90 wíne gaííons and 91.10 proof gaííons.
package contaíníng 190 proof aícohoí, weíghíng 3 0 pounds net, shaíí be re-
ported as contaíníng 0 wíne gaííons and 9 proof gaííons. The detaíís of aíí
aícohoí gauged ín the bonded warehouse shaíí be recorded by the propríetor on
Form 1 0 as províded ín thís part. (Sees. 2 0 , 3103, 310 , 3107, 3121(a) (6),
3176, I. R. C.)
Sec 1 2. 06. Tíme of Removaí From Receívíng Room. € ” Where aícohoí ís
removed from the receívíng room dírectíy to the bonded wnrehouse or denaturíng
píant on the same premíses ít must be so removed on the same day It ís drawn
from the receívíng tanks. Where aícohoí Is drawn ínto approved contaíners for
ta -payment or for e portatíon or other íawfuí ta -free purposes or ís drawn
ínto such contaíners for transfer to a bonded warehouse or denaturíng píant off
the índustríaí aícohoí píant premíses, ít must be removed on the same day ít ís
drawn from the receívíng room: Províded however, the same may be píaced In
a temporary storage room wíthín the receívíng room, authorízed by sectíon 1 2.31,
and permítted to remaín thereín for such períod as may be reasonabíy necessary
to accompíísh ta -payment, ta -free removaí, or transfer ín bond, but not more
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161 Regs. 3, 1 2.6(6), etc.
than 3 days, e cept ín cases of emergency, and then oníy wíth the approvaí of
the dístríct supervísor. Whííe aícohoí ís stored ín such temporary storage room
ít wííí be kept secureíy íocked at aíí tímes, e cept when necessary to be opened
for the deposít or removaí of aícohoí. The entrance door wííí be secured wíth a
Government seaí íock, the key to whích wííí remaín at aíí tímes In the custody
of the storekeeper-gauger. (Sees. 3103, 310 , 312 (a) (6), 3176,1. R. C.)
TR NSF R OF LCO OL IN OND TO INDUSTRI L LCO OL OND D W R OUS S
Sec. 1 2. 0 a. Generaí. € ” ícohoí may be transferred ín bond from any índus-
tríaí aícohoí píant to any índustríaí aícohoí bonded warehouse, as províded ín
sectíons 1 2. 0 b-íS2. 0 d. (Sees. 310 , 3106, 3107, 312 (a) (6), 3170, I. R. C.)
Sec. 1 2. 0S1). Deposít ín onded Warehouse on Same Premíses. € ” ícohoí
may be wíthdrawn from an índustríaí aícohoí píant and transferred to a bonded
w arehouse on the same premíses wíthout the necessíty of procuríng wíthdrawaí
permít, Form 1 36. ícohoí may be so transferred by pípe ííne to storage
tanks ín the bonded warehouse ín accordance wíth sectíon 1 2. S9, or ín approved
contaíners (other than cases contaíníng one-haíf pínt to 1-gaííon bottíes) ín
accordance wíth sectíon 1 2. 90. Where the bond for the bonded warehouse
ís ín an amount íess than the ma ímum penaí sum prescríbed by thís part, and
the basíc permít, Form 1 33, for the bonded warehouse íímíts the quantíty of
aícohoí that may be on hand, ín transít and unnccounted for at any one tíme,
the dístríct supervísor wííí ínform the storekeeper-gauger ín charge of such íímí-
tatíon ín accordance wíth sectíon 1S2. SS, and the storekeeper-gauger wííí see
Uíat the quantíty of nícohoí deposíted ín the warehouse does not e ceed that
authorízed by the bond and the basíc permít. When the aícohoí Is gauged for
deposít ín the warehouse, the propríetor wííí prepare Form 1 0, ín dupíícate.
The form wííí bear the notatíon ntry. fter deposít of the aícohoí ín the
warehouse, Form 1 0 wííí be dísposed of ín accordance wíth sectíon 1 2. 90a.
(Sees. 310 , 3106,3107,312 (a) (6), 3176,1. R. C.)
Sec. 1 2. 0 c. Transfer to onded Warehouses Located on Other Premíses
ín Same Supervísory Dístríct. € ” ícohoí wííí be transferred ín bond from an
Industríaí aícohoí píant to any índustríaí aícohoí bonded warehouse íocated on
other premíses pursuant to wíthdrawaí permít, Form 1 36, ín accordance wíth
sectíons 1 2. 1-1 2. . ícohoí may be so transferred ín approved contaíners
(other than cases contaíníng one-haíf pínt to 1-gaííon bottíes) after the con-
taíner has been correctíy weíghed and the aícohoí proofed to determíne the
e act contents of such contaíner. The propríetor wííí prepare Form 1 0 ín
quadrupíícate. The form wííí bear the notatíon ntry and wíthdrawaí. e
wííí deííver aíí copíes to the storekeeper-gauger ín charge who shaíí upon shíp-
ment of the aícohoí forward one copy to the dístríct supervísor, and gíve one
copy to the propríetor of the índustríaí aícohoí píant for fíííng ín accordance
wíth sectíon 1 2. b. In the case of transfer ín contaíners other than tank
trucks, the storekeeper-gauger ín charge shaíí maíí the remaíníng two copíes
to the storekeeper-gauger ín charge of the receívíng warehouse. In the case of
transfers ín tank trucks, he shaíí maíí one copy to the storekeeper-gauger ín
charge of the receívíng warehouse, and encíose the other copy of Form 1 0 ín
a seaíed enveíope addressed to the storekeeper-gauger ín charge and gíve the
same to the dríver of the tank truck for deíívery to the storekeeper-gauger ín
charge. fter deposít of the aícohoí ín the warehouse, Form 1 0 wííí be dís-
posed of ín accordance wíth sectíon 1 2. 9 . (Sees. 310 , 3100, 3107, 312 (a) (6),
3176.1.R. C.)
Sec. 1 2. 0 d. Transfer to onded Warehouse Located ín Dífferent Super-
vísory Dístríct. € ” ícohoí wííí be transferred ín bond from an índustríaí aícohoí
píant to any índustríaí aícohoí bonded warehouse íocated ín a dífferent super-
vísory dístríct pursuant to wíthdrawaí permít, Form 1 36, ín accordance wíth
sectíons 1S2. 1-1S2. . ícohoí may be so transferred ín approved contaíners
(other than cases contaíníng one-haíf pínt to 1-gaííon bottíes) after the con-
taíner has been correctíy weíghed and the aícohoí proofed to determíne the
e act contents of such contaíner. The propríetor wííí prepare an orígínaí and
four copíes of Form 1 0. The form wííí bear the notatíon ntry and wíth-
drawaí. e wííí deííver aíí copíes to the storekeeper-gauger ín charge who
shaíí upon shípment of the aícohoí forward one copy to the supervísor of the
dístríct ín whích the shíppíng píant ís íocated, one copy to the supervísor of
the dístríct ín whích the receívíng warehouse ís íocated, and gíve one copy to
the propríetor of the índustríaí aícohoí píant for fíííng ín accordance wíth sec-
tíon íS2. b. In the case of transfers ín contaíners other than tank trucks
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Regs. 3, 1 2.6(6), etc. 162
the storekeeper-gauger In ehnrge shaíí maíí the remaíníng two copíes to the
storekeeper-gauger ín charge of the receívíng warehouse. In the case of trans-
fers ín tank trucks he shaíí maíí one copy to the storekeeper-gauger ín charge
of the receívíng warehouse and encíose the other copy of Form 1 0 ín a seaíed
enveíope addressed to the storekeeper-gauger ín charge and gíve the same to
the dríver of the tank truck for deíívery to the storekeeper-gauger ín charge.
fter deposít of the aícohoí ín the warehouse, Form 1 0 wííí be dísposed of
In accordance wíth sectíon 1 2. 0 b. (Sees. 310 , 3106, 3107, 312 (a) (6), 3176,
I.R.C.)
WIT DR W L FO D N TUR TION
Sec. 1 2. 0 e. Generaí. € ” ícohoí may be wíthdrawn free of ta for denatura-
tíon ín any denaturíng píant, as províded ín sectíons 1 2. 0 f-íS2. 0Sh. (Sees.
3070(a), 310 . 3106, 3107. 310 (a). 311 (a), 312 (a) (6), 3176, I. R. C.)
Sec. 1 2. 0Sf. Transfer to Denaturíng Píant on Same Premíses. € ” ícohoí
may be wíthdrawn from an índustríaí aícohoí píant and transferred to a de-
naturíng píant on the same premíses wíthout the necessíty of procuríng wíth-
drawaí permít, Form 1 63. ícohoí may ííe so transferred by pípe ííne to storage
or mí íng tanks ín the denaturíng píant ín accordance wíth sectíon 1 2.69 ,
or ín approved contaíners (other than cases contaíníng one-haíf pínt to 1-gaííon
bottíes) ín accordance wíth sectíon 1 2.60 . Where the bond for the denaturíng
píant ís ín an amount íess than the ma ímum penaí sum prescríbed by thís part,
and the basíc permít, Form 1 33, for the denaturíng píant íímíts the qunntíty
of aícohoí, specíaííy denatured aícohoí, and recovered or restored denatured
aícohoí that may be on hand, ín transít, and unaccounted for at any one tíme,
the quantíty of aícohoí so transferred to the denaturíng pínnt duríng a caíendar
month, shaíí not e ceed the quantíty bo íímíted ín the basíc permít, and the
storekeeper-gauger wííí see that such íímítatíons are observed. When the aí-
cohoí ís gauged for transfer to the denaturíng píant, the propríetor wííí prepare
Form 1 10, ín dupíícate. The form wííí bear the notatíon € Wíthdrawaí and
the purpose shown as For denaturatíon. Upon receípt of the aícohoí at the
denaturíng píant, Form 1 0 wííí be dísposed of ín accordant wíth sectíon
1 2.60 a. (Sees. 3070(a), 310 , 3106, 3107, 310 (a), 312 (a) (6), 3176. I. R. C.)
Sec. íS2. 0.Sg. Transfer to Denaturíng Píant Located on Othf.r Premíses
ín the Same Supervísory Dístríct. € ” ícohoí wííí be transferred In bond from
an índustríaí aícohoí píant to any denaturíng píant on other premíses pursuant
to wíthdrawaí permít, Form 1 03. ín accordance wíth sectíons 1 2.6 6-1 2.690.
ícohoí may be so transferred ín approved contaíners (other than cases contaíníng
one-haíf pínt to 1-gaííon bottíes) after the contaíner has been correctíy weíghed
and the aícohoí proofed to determíne the.e act contents of such contaíner.
Such shípments may not be made untíí the propríetor of the índustríaí aícohoí
píant has receíved from the denaturer tíe wíthdrawaí permít, Form 1 63, namíng
hím as vendor, and then oníy ín the quantíty specífícd ín the wíthdrawaí permít.
Upon shípment, the propríetor of the índustríaí aícohoí píant wííí enter the shíp-
ment on the permít and return ít to the denaturer, uníess he has been authorízed
by the denaturer to retaín the permít for the purpose of makíng future shípments.
The propríetor wííí prepare Form 1 0 ín quadrupíícate. The form wííí bear the
notatíon Wíthdrawaí and the purpose shown as For denaturatíon. e wííí
deííver aíí copíes to the storekeeper-gauger ín charge who shaíí upon shípment
of the aícohoí forward one copy to the dístríct supervísor and gíve one copy to
the propríetor of the índustríaí aícohoí píant for fíííng ín accordance wíth sectíon
íS2. b. In the case of transfers ín contaíners other than tank trucks the
storekeeper-gauger ín charge shaíí maíí the remaíníng two copíes to the store-
keeper-gauger ín charge of the receívíng denaturíng píant. In the case of trans-
fers ín tank trucks he shaíí maíí one copy to the storekeeper-gauger In charge
of the receívíng denaturíng píant and encíose the other copy of Form 1 0 ín a
seaíed enveíope addressed to the storekeeper-gauger ín charge and gíve the same
to the dríver of the tank truck for deíívery to the storekeeper-gauger ín charge.
Upon receípt of the aícohoí at the denaturíng píant Form 1 0 wííí be dísposed
of ín accordance wíth sectíon 1 2.696a. (Sees. 3070(a), 310 , 3106, 310 (a),
311 (a), 312 (a) (6), 3176,1. R. C.)
Sec. 1 2. 0Sh. Transfer to Denaturíng Píant Located ín Dífferent Super-
vísory Dístríct.- € ” ícohoí wííí be transferred In bond from an índustríaí aícohoí
píant to any denaturíng píant íocated ín a dífferent supervísory dístríct pursu-
ant to wíthdrawaí permít. Form 1 63, ín accordance wíth sectíons 1 2.6S6-
1 2.690. ícohoí may be so transferred ín approved contaíners (other than
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163
Regs. 3, 1 2.6(6), etc.
eases contaíníng one-haíf pínt to 1-gaííon bottíes) after the contaíner has been
correctíy weíghed and the aícohoí proofed to determíne the e act contents of
such contaíner. Such shípments may not be made untíí the propríetor of the
índustríaí aícohoí píant has receíved from the denaturer the wíthdrawaí permít,
Form 1 63, namíng hím as vendor, and then oníy In the quantíty specífíed ín
the wíthdrawaí permít Upon shípment, the propríetor of the índustríaí aícohoí
píant wííí enter the shípment on the permít and return ít to the denaturer, uníess
he has been auhorízed by the denaturer to retaín the permít for the purpose of
makíng future shípments. The propríetor wííí prepare an orígínaí and four
copíes of Form 1 0. The form wííí bear the notatíon Wíthdrawaí and the
purpose shown as For denaturatíon. e wííí deííver aíí copíes to the store-
keeper-gauger ín charge who shaíí upon shípment of the aícohoí forward one
copy to the supervísor of the dístríct In whích the shíppíng píant ís íocated, one
copy to the supervísor of the dístríct ín whích the receívíng píant ís íocated, and
gíve one copy to the propríetor of the índustríaí aícohoí píant for fíííng ín ac-
cordance wíth sectíon 1 2. b. In the case of transfers ín contaíners other
than tank trucks the storekeeper-gauger ín charge shaíí maíí the remaíníng
two copíes to the storekeeper-gauger ín charge of the receívíng denaturíng píant.
In the case of transfers ín tank trucks he shaíí maíí one copy to the storekeeper-
gauger ín charge of the receívíng denaturíng píant and encíose the other copy of
Form 1 0 ín a seaíed enveíope addressed to the storekeeper-gauger ín charge
and gíve the same to the dríver of the tank truck for deíívery to the storekeeper-
gauger ín charge. Upon receípt of the aícohoí at the denaturíng píant Form 1 0
wííí be dísposed of ín accordance wíth sectíon 1 2.69 c. (Sees. 3070(a), 310 ,
3106,310 (a), 311 (a), 312 (a)(6), 3176,1. R. C.)
T -P YM NT OF LCO OL IN P C G S
Sec. 1S2. 0 L Gaugíng of Packages. € ” Whenever the propríetor desíres to wíth-
draw aícohoí ín packages on payment of ta , he shaíí correctíy weígh and proof
the aícohoí and determíne the e act contents of each package ín proof gaííons.
e shaíí prepare Form 1 0, ín quadrupíícate, gívíng the detaíís of the gauge,
and deííver aíí copíes thereof to the storekeeper-gauger In charge for e amínatíon.
If the forms are ín proper order, the storekeeper-gauger wííí retaín one copy and
return three copíes to the propríetor, who wííí forward aíí three copíes to the coí-
íector of ínternaí revenue wíth remíttance ín cash or by certífíed check or post
offíce money order for the ta . (Sees. 3103, 310 , 3106, 312 (a) (6), 3176, 36 6(a),
I. R. C.)
Sec. 1 2. 0 . Issuance of Ta -Paíd Stamps. € ” The coííector wííí íssue the
ta -paíd stamps. ach ta -paíd stamp shaíí bear the sígnature of the coííector,
who shaíí wríte or stamp thereon the date of payment of the ta , by whom paíd,
the number of gaííons and tenths of gaííons of proof spíríts, and seríaí number
of the package. Facsímííes of sígnatures of coííectors may be affí ed by the
use of hand stamps to the ta -paíd stamps, care beíng taken to use oníy such
ínk as wííí neíther fade nor bíur. The coííector wííí enter the seríaí numbers of
the stamps ín the appropríate spaces on aíí three copíes of Form 1 0, e ecute the
certífícate of ta -payment on aíí copíes, retaín one copy, and return the remaín-
íng two copíes of the form to the propríetor of the índustríaí aícohoí píant wíth
the stamps. fSecs. 3103, 310 , 3106, 312 (a) (6), 3176, I. R. C.)
Sec. 1 2. 0 k. Removaí of ícohoí € ” The propríetor shaíí deííver aíí copíes
of Form 1 0 wíth the ta -paíd stamps to the storekeeper-gauger, who wííí
verífy the data thereon wíth hís retaíned copy of Form 1 0, and, íf no dís-
crepancíes are found, he wííí note the seríaí numbers of the stamps on the
retaíned copy of Form 1 0, and affí hís sígnature to each stamp. Facsímííes
of sígnatures of storekeeper-gaugers may be affí ed by the use of hand stamps,
care beíng taken to use oníy such ínk as wííí neíther fade nor bíur. The store-
keeper-gau| r wííí then return the stamps to the propríetor, who wííí stamp
and mark the packages, as províded ín sectíons 1 2. 2 , 1 2. 27, and 1 2. 2
and ín the Gaugíng Manuaí (26 CFR, Part 1 6), after whích the propríetor
wííí ímmedíateíy remove the aícohoí from the premíses or to hís ta -paíd store-
room, íf one has been províded. When the aícohoí has been removed, the
storekeeper-gauger wííí forward one copy of Form 1 0 to the dístríct super-
vísor, and return two copíes to the propríetor who shaíí fííe one copy ín accord-
ance wíth sectíon 1 2. b. and íf he so desíres, furnísh the remaíníng copy to
the vendee. (Sees. 3103, 310 , 3100, 312 (a) (6), 3176, I. R. C.)
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Regs. 3, 1 2.6(6), etc. 16
T -P ID WIT DR W LS IN T N C S
Sec. 1 2. 0 1. Procedure. € ” Whenever the propríetor desíres to wíthdraw aíco-
hoí from receívíng tanks for ta -payment and removaí ín raííroad tank cars,
the procedure prescríbed by sectíons 1 2. 66-1 2. 7 wííí be foííowed. (Sees.
3103, 310 , 3106, 312 (a) (6), 3176, 36 6, L R. C.)
T -P ID WIT DR W LS Y PIP LIN TO R CTIFYING PL NT
Sec. 1 2. 0 m. Procedure. € ” Where a pípe ííne has been ínstaííed and approved
for the transfer of aícohoí, after ta -payment, dírect from the weíghíng tank
ín the índustríaí aícohoí píant to a contíguous rectífyíng píant or rectífyíng
píant ín the ímmedíate vícíníty, as províded ín sectíon 1 2. 2a, and the pro-
príetor desíres to so transfer aícohoí, the procedure prescríbed by sectíons
1 2. 7 a-1 2. 7 g wííí be foUowed. (Sees. 3103, 310 , 3106, 312 (a)(6), 3176,
I. R. C.)
T -FR WIT DR W LS FOR SCI NTIFIC PURPOS S, US OF OSPIT LS, ST T S, TC.
Sec. 1 2. 0 n. Who May Procure. € ” Under the íaw, aícohoí may be wíth-
drawn ín accordance wíth thís part ín approved contaíners (other than cases
contaíníng one-haíf pínt to 1-gaííon bottíes), from any índustríaí aícohoí píant,
ta -free for use by the severaí States and Terrítoríes, or any munícípaí sub-
dívísíon thereof, or by the Dístríct of Coíumbía, or for the use of any scíentífíc
uníversíty or coííege of íearníng, any íaboratory for use e cíusíveíy ín scíentífíc
research, or for use ín any hospítaí or sanatoríum, or for the use of any cííníc
operated for charíty and not for profít, íncíudíng use ín the compoundíng of
bona fíde medícínes for treatment outsíde of such cíínícs of patíents thereof,
but not for saíe, pursuant to permít, Form 1 0, ín the possessíon of the pro-
príetor and namíng hím as vendor. Wíthdrawaís shaíí be made ín accordance
wíth sectíons 1 2. 0 o and 1 2. 0 p. The propríetor of the índustríaí aícohoí
píant makíng shípment of ta -free aícohoí shaíí enter on the wíthdrawaí permít,
Form 1 0, the date and number of proof gaííons shípped. Future ííke shíp-
ments may be made under such permít duríng the períod for whích íssued
untíí the fuíí quantíty for whích the permít was íssued has been wíthdrawn.
The wíthdrawaí permít, Form 1 0, may, at the optíon of the permíttee-con-
sígnee, be returned to the propríetor of the Industríaí aícohoí píant after each
shípment from the píant, or ít may be retaíned at the píant to cover addítíonaí
shípments therefrom. If retaíned at the píant, the permít must be returned
to the permíttee by the propríetor of the píant when the fuíí quantíty of aícohoí
authorízed thereby has been obtaíned or when the permít has e píred or has
been otherwíse termínated or revoked. Where the same wíthdrawaí permít.
Form 1 0, covers wíthdrawaís from an índustríaí aícohoí píant and a bonded
warehouse on the same premíses, the permít may be retaíned at the warehouse
pursuant to sectíon 1 2. 79. (Sees. 3103, 310 , 3106, 310 (b), (c), 312 (a) (6),
3176, I. R. C.)
Sec. 1 2. 0 o. Intradístríct Wíthdrawaís. € ” Where the índustríaí aícohoí
píant and the consígnee are íocated ín the same supervísory dístríct, the pro-
príetor wííí prepare Form 1 0 ín trípíícate. The packages shaíí be marked
ín accordance wíth sectíons 1 2. 1 -1 2. 26. The propríetor wííí deííver aíí
copíes of Form 1 0 to the storekeeper-gauger ín charge who shaíí upon removaí
of the aícohoí forward one copy of Form 1 0 to the dístríct supervísor and one
copy to the consígnee. e wííí gíve the remaíníng copy to the propríetor for
fíííng ín accordance wíth sectíon 1 2. b. The dístríct supervísor, upon receípt
of Form 1 1 from the permíttee, shaíí check the same agaínst Forms 1 0
coveríng aícohoí shípped to the permíttee, to determíne that aíí aícohoí wíth-
drawn by the permíttee has been duíy receíved and accounted for. (Sees. 3103,
310 , 3106, 310 (b), (c), 312 (a) (6), 3176, I. R. C.)
Sec. 1 2. 0 p. Interdístríct Wíthdrawaís. € ” Where the índustríaí aícohoí
píant and the consígnee are íocated ín dífferent supervísory dístrícts, the pro-
príetor wííí prepare Form 1 0 ín quadrupíícate. The packages shaíí be marked
ín accordance wíth sectíons 1 2. 1 -1 2. 26. The propríetor wííí deííver aíí
copíes of Form 1 0 to the storekeeper-gauger ín charge who shaíí upon removaí
of the aícohoí forward one copy of Form 1 0 to the supervísor of the dístríct
ín whích the índustríaí aícohoí píant ís íocated, one copy to the supervísor of
the dístríct ín whích the consígnee ís íocated, and one copy to the consígnee.
e wííí gíve the remaíníng copy to the propríetor for fíííng ín accordance wíth
sectíon 1 2. b. The supervísor-consígnee upon receípt of Form 1 1 from
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16
Regs. 3, 1 2.6(6), etc.
the permíttee, shaíí check ít agaínst aíí Forms 1 0 coveríng aícohoí shípped to
the permíttee, to determíne that aíí aícohoí wíthdrawn by the permíttee has b en
duíy receíved and accounted for. e shaíí take appropríate actíon concerníng
any íosses ín transít e shaíí note on each copy of Form 1 0 coveríng receípts
shown on Form 1 1 for the month that the shípment was reported receíved.
e wííí then send aíí such copíes of Form 1 0 to the supervísor-consígnor.
(Sees. 3103, 310 , 3106, 310 (b), (c), 312 (a) (0), 3176, I. R. C.)
T -FR WIT DR W LS Y T UNIT D ST T S O GO RNM NT L G NCY
Sec. 1 2. 0 q. Generaí. € ” ícohoí may be wíthdrawn ín approved contaíners
(other than cases contaíníng one-haíf pínt to 1-gaííon bottíes) from any ín-
dustríaí aícohoí píant ta -free for use of the Uníted States or any governmentaí
agency thereof, ín accordance wíth sectíons íS2. 0Sr-íS2. 0 t. (Sees. 310 ,
310S(b), 312 (a) (0), 3176, I. It. C).
Sec. 1 2. 0 r. Permít, Form 1 . € ” The propríetor of the píant may not shíp
aícohoí to the Uníted States or governmentaí agency thereof uníess he ís named
as vendor ín the basíc permít, Form 1 , and such permít ís ín hís possessíon.
The permít may remaín ín the possessíon of the propríetor of the índustríaí
aícohoí píant untíí ít ís canceíed or ís recaííed by the department or governmentaí
agency to whích ít was íssued. When the same wíthdrawaí permít, Form 1 ,
covers wíthdrawaís from an índustríaí aícohoí píant and a bonded warehouse on
the same premíses, the permít may be retaíned at the warehouse pursuant to
sectíon 1 2. 1. (Sees. 310 , 3106, 310 (b), 311 (a), 312 (a) (6), 3176, I. R. C.)
Sec. 1S2. 0SS. Forms 1 0 and 1 3. € ” Tííe propríetor wííí gauge each package
of aícohoí wíthdrawn ta -free and prepare Form 1 0, ín trípíícate, gívíng the
detaíís of such gauge. The form wííí bear the notatíon Wíthdrawaí and the
purpose shown as Use of Uníted States. The packages wííí be marked ín ac-
cordance wíth sectíons 1S2. 1S-1 2. 26. t the tíme of shípment, the propríetor
wííí prepare one copy of Form 1 3. e wííí índícate on the form, ín the space
províded, the address of the supervísor of the dístríct ín whích the índustríaí
aícohoí píant ís íocated. The propríetor wííí deííver aíí copíes of Forms 1 0
and 1 3 to the storekeeper-gauger who shaíí, upon removaí of the aícohoí, retaín
one copy of Form 1 0, forward one copy of Form 1 0 to the supervísor of the
dístríct ín whích the aícohoí píant ís íocated, and forward one copy each of
Forms 1 0 and 1 3 to the Government offícer to whom the aícohoí ís to be
deíívered at destínatíon. The remaíníng Form 1 0 wííí be returned to the pro-
príetor for fíííng ín accordance wíth sectíon 1 2. b. Upon receípt of the aí-
cohoí by the consígnee, Forms 1 0 and 1 3 wííí be dísposed of ín accordance
wíth sectíon 1 2. 9 . (Sees. 3103, 310 , 3106, 310 (b), 312 (a) (6), 3176, I. R. C.)
Sec. íS2. 0 t. ííí of Ladíng. € ” Where the aícohoí ís transported from an ín-
dustríaí aícohoí píant by a common carríer, the person to whom the aícohoí was
deíívered for shípment shaíí furnísh a copy of the bííí of íadíng coveríng trans-
portatíon of the aícohoí from the poínt of shípment to fínaí destínatíon to the
storekeeper-gauger, who wííí forward the same to the dístríct supervísor wíth
Form 1 0. (Sees. 310 , 3106, 312 (a) (6), 3176, I. R. C.)
e portatíon of aícohoí free of ta
Sec. 1S2. 0SU. Procedure. € ” ícohoí wííí be wíthdrawn from an índustríaí aí-
cohoí píant, for e portatíon free of ta , ín approved contaíners (other than
cases contaíníng one-haíf pínt to 1-gaííon bottíes) ín accordance wíth sectíons
1 2. S -1 2.619. (Sees. 2 , 2 6, 3101, 3103, 310 , 3106, 3112(b), 3113, 312
(a) (6), 3170, 3171, 3176, 33 1(b), 3361(b), 36 0, 39 3(b), I. R. C.)
transfer of aícohoí to customs manufacturíng bonded warehouses
Sec. 1S2. 0 v. Procedure. € ” ícohoí wííí he wíthdrawn from an índustríaí aí-
cohoí píant, for transfer to customs manufacturíng bonded warehouses, ín ap-
proved contaíners (other than eases contaíníng one-haíf pínt to 1-gaííon bottíes)
ín accordance wíth sectíons 1 2.620-1 2.630. (Sees. 2 91, 3103, 310 , 310 ,
312 (a) (0), 3176, 3177, 317 , I. R. C.; sec. 6, 32 Stat. (19 U. S. C. 1 2(a)).)
suppííes for certaín vesseís and aírcraft
Sec. 1 2. 0Sw. Procedure € ” ícohoí wííí be wíthdrawn from an índustríaí
aícohoí píant, free of ta for use on certaín vesseís and aírcraft, ín approved
contaíners (other than cases contaíníng one-haíf pínt to 1-gaííon bottíes) ín
accordance wíth sectíons 1 2.630a-1 2.630n. (Sees. 3103, 310 , 310 , 311 (a),
312 (a) (6), 3176, I. R. C.; sec. 309(a), Taríff ct of 1930 (19 U. S. C. 1309).)
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Regs. 3, 1 2.6(6), etc 166
LOSS S OF LCO OL
Sec. 1 2. 12. Records. € ” Where aícohoí Is íost or destroyed on the índustríaí
aícohoí píant premíses, appropríate entry and report of such íoss or destructíon
wííí be made by the storekeeper-gauger on Form 16 6, and by the propríetor on
Form 1 2. (Sees. 310 , 312 (a) (6), 3176, I. R. C.)
LCO OL PRODUC D ND NOT CCOUNT D FO
Sec. 1 2. 1 . Storekeeper-G auger To Report Defícíencíes. € ” The storekeeper-
gauger upon compíetíon of hís monthíy record, Form 16 6, wííí compare the
caícuíated yíeír . for that month wíth the actuaí productíon and wííí gíve a com-
píete statement on such form ín respect to any materíaí defícíency ín the caícu-
íated productíon ín accordance wíth sectíon 1 2.361 and of any íoss of beer or
aícohoí by casuaíty or otherwíse. e wííí ííkewíse report any unusuaí or pe-
cuííar condítíons at the píant. Where the facts warrant, he wííí make a report
by íetter to the dístríct supervísor and wííí submít ít wíth Form 1 2 forwarded
to the dístríct supervísor. (Sees. 310 , 312 (a) (0), 3176, I. R. C.)
Sec. 1 2. 1 . Dístríct Supervísor s amínatíon of Returns. € ” Upon receípt
of the propríetor s monthíy return, Form 1 2, the dístríct supervísor wííí e -
amíne ít to determíne whether the propríetor has accounted for aíí the aícohoí
produced by hím duríng the month. If he fínds that the propríetor apparentíy
has not accounted for aíí the aícohoí produced by hím, he shaíí make such ín-
vestígatíon as he may deem necessary and determíne from aíí the evídence he
can obtaín the quantíty of aícohoí actuaííy produced by the propríetor. (Sees.
3103, 310 , 312 (a) (6), 3176, 36 0,1. R. C.)
SUSP NSION OF OP R TIONS
Sec. 1 2. 23. Notíce, Form 12 . € ” ny propríetor desíríng to suspend operatíons
for an índefíníte períod or for a defíníte períod of 7 days or more at hís ín-
dustríaí aícohoí píant shaíí gíve notíce on Form 12 , Notíce of Suspensíon, ín
trípíícate, statíng when he wííí suspend operatíons. The notíce wííí be deíívered
to the storekeeper-gauger ín charge at the píant.
(a) Compíetíon of operatíons requíred. € ” cept as províded ín sectíon 1 2. 2 ,
before the índustríaí aícohoí píant may be suspended, aíí dístííííng materíní and
aíí unfíníshed aícohoí must be dístíííed and aíí aícohoí produced must be run ínto
the receívíng tanks: Províded, That where aícohoí ís heíd ín the wíne room for
redístíííatíon, and the índustríaí aícohoí píant Is to be suspended for a temporary
períod of not more than 7 days and ís not to be operated by another propríetor
or as a regístered dístíííery or fruít dístíííery duríng such períod, the dístríct su-
pervísor may, where ín hís opíníon sucíí may be done wíthout |eopardy to the
revenue, permít such aícohoí to be retaíned ín tanks ín the wíne room of the ín-
dustríaí aícohoí píant duríng the períod of temporary suspensíon, íf both the tanks
and the wíne room are kept íocked wíth Government íocks: Províded further,
That where the índustríaí aícohoí píant ís to be operated temporarííy as a regís-
tered dístíííery or fruít dístíííery, unfíníshed aícohoí may be heíd under Govern-
ment íock ín unfíníshed aícohoí tanks ín the wíne room, as províded ín sectíon
1 2. 39(a). The dístríct supervísor may aíso ín hís díscretíon authoríze the re-
tentíon of unwashed fuseí oíí ín íocked tanks duríng the períod of such tem-
porary suspensíon: nd províded further, That ín any case where the suspensíon
ís due to emergency condítíons over whích the propríetor has no controí, and
whích wouíd prevent the compíetíon of operatíons, the dístríct supervísor may,
ín hís díscretíon, gíve wrítten authorízatíon to the propríetor to retaín aíí un-
fíníshed aícohoí, cr fíníshed aícohoí, ín Government seaí-íocked tanks or ín Gov-
ernment íocked tanks ín the wíne room for such períod ín e cess of 7 days as he
mav deem necessnrv to meet the partícuíar sítuatíon. (Sees. 3103, 310 ,
312 (a) (6), 3176, I. R. C.)
OP R TIONS Y PROPRI TOR UND R DIFF R NT TR D N M S OR STYL S
Sec. 1 2. 36. Fíníshed ícohoí. € ” íí fíníshed aícohoí remaíníng ín the receív-
íng room at the tíme the change ín trade name or styíe becomes effectíve must be
marked and removed ín the trade name or styíe under whích ít was fíníshed. íí
fíníshed aícohoí produced from mash, beer, or other dístííííng materíaí, and un-
fíníshed aícohoí remaíníng on hand at the tíme the change ín trade name or styíe
becomes effectíve must be marked and removed ín the trade name or styíe under
whích ít ís fíníshed. The propríetor wííí report the removaí of such fíníshed
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167 Regs. 3, 1 2.0(6), etc.
aícohoí on Form 1 2 on the same ííne coveríng íts manufacture. símííar
entrv wííí be made by the storekeeper-ganger on Form 16 6. (Sees. 310 ,
312 (a)(6), 3176, I. R. C.)
Sec. 1 2. 37. ecokds. € ” Separate record on Form 1 2 wííí not be requíred for
operatíons under each trade name but the propríetor must note on such record
the trade names or styíes under whích he operated duríng the month and the
dates of operatíons under each. The storekeeper-gauger wííí make a símííar
notatíon on hís record. Form 16 6. Where aícohoí ís produced under a trade
name, the propríetor and the storekeeper-gauger must show on theír records both
the reaí name of the actuaí producer and the trade name under whích the aícohoí
was produced. (Sees. 310 , 312 (a) (6), 3170, I. R. C.)
LT RN T OP R TION S Ií CIST D DISTILL RY OR FRUIT DISTILL RY
Sec. 1 2. 3. Compíetíon of Records. € ” The outgoíng propríetor wííí compíete
hís record. Form 1 2, and the storekeeper-ganger hís record, Form 16S6, as to
the removaí of basíc materíaís from the premíses, or the transfer of basíc mate-
ríaís and mash and beer or other dístííííng materíaí ín process to the successor,
as the case may be, and as to aíí aícohoí produced by hím. If unfíníshed aícohoí
ís retaíned on the premíses ín íocked tanks, as províded ín sectíon 1 2. 39(a), the
propríetor wííí enter the quantíty thereof on Form 1 2, wíth e píanatory nota-
tíon that the same ís unfíníshed aícohoí temporarííy retaíned on the premíses
pendíng resumptíon of operatíons as an índustríaí aícohoí píant. The store-
keeper-gauger wííí make símííar entry on hís Form 16 6, wíth an e píanatory
notatíon ín the statement of specíaí operatíons or condítíons. The propríetor wííí
contínue to fííe monthíy reports on Form 1 2 and the storekeeper-gauger to maín-
taín a record on Form 10 0, accountíng for such unfíníshed aícohoí duríng the
períod ít ís retaíned on the premíses. Where the píant ís operated as an ín-
dustríaí aícohoí píant ín two or more períods duríng the same month by the same
propríetor, the operatíons of such propríetor wííí be recorded on the same Forms
1 2 and íSfí, respectíveíy, but appropríate notatíons wííí be made on the sep-
aratíng íínes to show the dates the índustríaí aícohoí píant was operated as a
regístered dístíííery or fruít dístíííery and the names under whích ít was operated.
(Sees. 3103, 310 . 312 (a) (G), 3176, I. R. C.)
Sec. 1 2. . Records of Successor. € ” The succeedíng propríetor wííí enter aíí
materíaís, íncíudíng those ín process receíved from hís predecessor on Form 1 0
íf the píant ís to be operated as a regístered dístíííery, or on Form 1 íf the píant
ís to be operated as a fruít dístíííery. The materíaís wííí aíso be entered on
Form 16S0 íf the índustríaí aícohoí píant ís to be operated as a regístered dís-
tíííery. If the materíaís are transferred when the píant ís agaín operated as an
índustríaí aícohoí píant, appropríate entry thereof wííí be made on the records of
the transferor and the transferee and the storekeeper-gauger. (Sees. 2 1(a),
310 , 312 (a) (G), 3176, I. R. C.)
C NG IN PROPRI TORS IP
Sec. 1 2. 0. Records.- € ” The outgoíng propríetor wííí enter on hís record, Form
1 2, aíí materíaís and aíí unfíníshed aícohoí outsíde the receívíng room trans-
ferred to hís successor, who shaíí ín turn enter such ítems on hís records as
receíved from hís predecessor. Where the change ín propríetorshíp ís of a per-
manent nature, the outgoíng propríetor shaíí compíete Form 1 2 and submít a
fínaí report on such form to the dístríct supervísor. ppropríate notatíons wííí
be made on such fínaí report showíng the change ín propríetorshíp and the date
thereof. Where the píant ís operated under aíternatíng propríetorshíps, each
propríetor shaíí keep a separate record on Form 1 2. When operatíons are con-
ducted by the same propríetor ín two or more períods duríng (he same month, the
operatíons by such propríetor wííí bo entered on the same Form 1 2, appropríate
notatíons beíng made on the separatíng íínes to show the names of the aíternatíng
propríetors and the dates the índustríaí aícohoí píant was operated by them.
The storekeeper-gauger wííí make símííar entríes on Form 10 G. The propríetor
wín díspose of Form 1 2 ín accordance wíth sectíon 1S2. 6. (Sees. 3103, 310 ,
312 (a) (6), 3176, I. R. C.)
Sec. 1 2. 1. Successíon by Fíducíary. € ” Where a change ín propríetorshíp Is
brought about by operatíon of íaw, the admínístrator, e ecutor, receíver, trustee,
assígnee, or other fíducíary may not contínue the busíness untíí the requíred
quaíífyíng documents have been fííed and approved and a basíc permít íssued.
In the case of such change, the fíducíary shaíí make appropríate notatíon on
Form 1 2 of hís successíon and the date thereof, and the storekenper-gau-|er wííí
make a símííar notatíon on Form 16 6. (Sees. 310 , 312 (a) (G), 317G, I. R. C.)
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Regs. 3, 1 2.6(6), etc.
16
storekeeper-gauger s record
Sec. 1 2. 2. Fork 16 6. € ” The storekeeper-gauger shaíí keep a daííy record of
the Industríaí aícohoí píant operatíons on Form 16 6, U. S. Storekeeper-Ganger s
Report of Operatíons at Regístered Dístíííery and Industríaí ícohoí Píant.
ntríes shaíí be made as índícated by the headíngs of the varíous coíumns and
íínes and ín accordance wíth the ínstructíons on the form or íssued ín respect
thereto and as requíred by the reguíatíons ín thís part. Where an índustríaí
aícohoí píant, ín connectíon wíth the productíon of ethyí aícohoí by any manner,
produces other chemícaís as byproducts, or where an Industríaí aícohoí píant,- ín
connectíon wíth the productíon of substances other than ethyí aícohoí, such as
butyí aícohoí, produces ethyí aícohoí as a byproduct, a separate record on Form
16 6 wííí be maíntaíned for each process. The storekeeper-gauger wííí note on
the record any specíaí operatíons or condítíons that may occur and any unusuaí
or pecuííar condítíons at the píant. Where the facts warrant, the offícers wííí
make a report by íetter to the dístríct supervísor and wííí submít ít wíth Form 1 2
forwarded to the dístríct supervísor. (Sees. 3103,310 ,312 (a)(6), 3176,1. R. C.)
Sec. 1 2. . System of Fíííng. € ” The storekeeper-gauger s monthíy records on
Form 16S6 wííí be fííed together ín chronoíogícaí order by months and ín bound
form as a permanent record In the storekeeper-gauger s offíce, and kept avaííabíe
for ínspectíon by Internaí revenue offícers. (Sees. 310 , 312 (a)(6), 3176,
I. R. C.)
propríetor s records and reports
Sec. 1 2. . Generaí. € ” The propríetor of every índustríaí aícohoí píant shaíí
keep monthíy records and render daííy reports as províded In sectíons 1 2. b
and 1 2. 6a. íí of the ínformatíon caííed for ín each form, as índícated by
the headíngs of the varíous coíumns and íínes of the form and the ínstructíons
prínted thereon or Issued ín respect thereto, and as requíred by the reguíatíons In
thís part, wííí be gíven. ntríes shaíí be made on the forms before the cíose of
the busíness day ne t succeedíng the day on whích the transactíons occur, e cept
that summary entríes wííí be made at the cíose of the month. Where the makíng
of entríes Is deferred to the ne t busíness day, as authorízed hereín, appropríate
memoranda shaíí be maíntaíned for the purpose of makíng the entríes correctíy.
(Sees. 3103, 310 , 3121(c), 312 (a) (6), 3171, 3176, I. R. O.)
Sec. 1 2. a. Faííure To eep Records or ííow Inspectíon. € ” Faííure to
keep the records and fííes or to make and fííe reports as and when requíred, or to
furnísh verífíed copíes of fííes and records when requested, or to promptíy aííow
ínspectíon to be made upon proper request therefor wííí be suffícíent grounds for
cítatíon and revocatíon of the propríetor s basíc permít. (Sees. 3103, 310 ,
3121(c), 312 (a) (6), 3171, 3176, I. R. C.)
Sec 1 2. b. Form 1 0. € ” Detaíís of aíí aícohoí gauged shaíí be reported by
the propríetor of the índustríaí aícohoí píant on Form 1 0 as índícated by the
headíngs of the varíous coíumns and íínes and the ínstructíons prínted thereon
or íssued ín respect thereto and as requíred by the reguíatíons ín thís part.
Notatíon shaíí be made on the Form 1 0 coveríng aíí aícohoí wíthdrawn from
Industríaí aícohoí píants ta -paíd for beverage use showíng the materíaí from
whích produced or an abbrevíatíon thereof, such as ícohoí € ” Graín, ícohoí € ”
Cane, ícohoí € ” Fruít, ícohoí € ” Dístíííed from graín, ícohoí € ” Dístíííed
from cane, or ícohoí € ” Dístíííed from fruít When the propríetor desíres
to wíthdraw aícohoí from the índustríaí aícohoí píant for any íawfuí purpose and
has compííed wíth aíí the requírements of the íaw and reguíatíons ín thís part
respectíng the partícuíar wíthdrawaí, he wííí make appíícatíon on the back of
each copy of Form 1 0 coveríng the wíthdrawaí to the storekeeper-gauger ín
charge for permíssíon to wíthdraw the aícohoí. If wíthdrawaí ís to be made
upon ta -payment, the propríetor shaíí present to the storekeeper-gauger the
prescríbed ta -paíd stamps or certífícate of ta -payment coveríng the aícohoí to
be wíthdrawn. If the aícohoí ís to be transferred ín bond to an índustríaí aícohoí
bonded warehouse or shípped to a denaturíng píant or wíthdrawn for e port or
other íawfuí ta -free purpose, the propríetor wííí present to the storekeeper-
gauger the necessary permít authorízíng such wíthdrawaí. The storekeeper-
gauger wííí e amíne the ta -paíd stamps or certífícate of ta -payment, or the
permít authorízíng transfer ín bond or ta -free wíthdrawaí, and íf he fínds that
the ta has been paíd, or, ín the case of transfer ín bond or ta -free wíthdrawaí
that proper wíthdrawaí permít ís heíd by the propríetor, the storekeeper-gauger
wííí sígn the authorízatíon on Form 1 0 for the wíthdrawaí of the aícohoí. The
number of copíes of Form 1 0 to be e ecuted and the dísposítíon thereof wííí be
made ín accordance wíth the reguíatíons ín thís part One copy of each Form
1 0 coveríng the deposít of aícohoí ín the índustríaí aícohoí bonded warehouse on
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169 Regs. 3, 1 2.6(6), etc.
the premíses shaíí be fííed by the propríetor of the warehouse In accordance wíth
sectíon 1 2.6 3g. One copy of each Form 1 0 coveríng aíí other wíthdrawaís of
aícohoí from the Industríaí aícohoí píant shaíí be fííed by the propríetor of such
píant ín bound form as a separate permanent record. The Forms 1 0 wííí be
arranged ín the fííe ín chronoíogícaí order accordíng to the date of wíthdrawaí.
(Sees. 3103, 310 , 3121(c), 312 (a) (C), 3171, 3176, L R. C.)
Sec. 1S2. 6. Form 1 2. € ” The propríetor of every índustríaí aícohoí píant
shaíí keep a daííy record of índustríaí aícohoí píant operatíons on Form 1 2,
Propríetor s Report of Operatíons at Industríaí ícohoí Píant. ntríes shaíí
be made as índícated by the headíngs of the varíous coíumns and íínes on the form
and the ínstructíons prínted thereon or íssued ín respect thereto, and as requíred
by the reguíatíons ín thís part. ntríes shaíí be made on the form before the
cíose of the busíness day ne t succeedíng the day on whích the transactíons
occur, e cept that summary entríes wííí be made at the cíose of the month.
Where the makíng of entríes ís deferred to the ne t busíness day, as authorízed
hereín, appropríate memoranda shaíí be maíntaíned for the purpose of makíng the
entríes correctíy. Where an índustríaí aícohoí píant, ín connectíon wíth the
productíon of ethyí aícohoí by any method, produces other chemícaís as by-
products, or where an índustríaí aícohoí píant, ín connectíon wíth the productíon
of substances other than ethyí aícohoí, such as butyí aícohoí, produces ethyí
aícohoí as a byproduct, a separate record on Form 1 2 wííí be maíntaíned for
each process. The quantíty of materíaís used ín the productíon of ethyí aícohoí
wííí be determíned separateíy from the quantíty used ín the productíon of other
substances. Such determínatíon may be made at the cíose of the month for
reportíng on Form 1 2. Form 1 2 must be verífíed under oath (or affírmatíon)
by the propríetor or hís authorízed agent at the píant; Províded, That íf the
form offícíaííy prescríbed for such report contaíns thereín a provísíon for verí-
fícatíon by a wrítten decíaratíon that such report Is made under penaítíes of
per|ury, such report shaíí be verífíed by the e ecutíon of such decíaratíon, and
such decíaratíon so e ecuted shaíí be ín ííeu of the oath requíred hereín for
verífícatíon. The propríetor wííí deííver Form 1 2 ín trípíícate, to the store-
keeper-ganger on or before the th day of the month succeedíng that for whích
the report ís rendered. The storekeeper-gauger wííí e amíne the report, e ecute
the certífícate of the Government offícer on aíí three copíes of the form, return
one copy to the propríetor, and forward two copíes to the dístríct supervísor.
The dístríct supervísor wííí, after audít of the report, and not íater than the
íast day of. the month succeedíng that for whích the report ís rendered, forward
one copy to the Commíssíoner. e wííí retaín the remaíníng copy. (Sees.
3103, 310 , 312 (a) (6), 3171, 3176, 3 09, L R. C.)
Sec. 1 2. 6a. Record at Ta -Paíd Premíses, Form 2- . € ” very propríetor
of an índustríaí aícohoí píant who maíntaíns a ta -paíd storeroom ín connec-
tíon wíth such píant, as províded In sectíon 1 2.31a, shaíí keep Form 2- ,
Monthíy Record and Report of Importer or Propríetor of Ta -Paíd Premíses,
of aíí aícohoí receíved and dísposed of at such ta -paíd premíses. The records
shaíí be kept and reports rendered to the dístríct suí ervísor ín accordance wíth
the appíícabíe provísíons of sectíon 1 2.6 . (Sees. 310 , 3106, 312 (a) (6), 3171,
3176, I. R. C.)
Sec. 1 2. 9. Sígníng of Reports. € ” Forms 1 2 and 2- must be sígned ín
the same manner as the appíícatíon, Form 1 31, e cept that ín the case of a
corporatíon, the affí íng of the corporate seaí wííí not be requíred. Where the
reports are sígned by an agent, proper power of attorney authorízíng the agent
to e ecute the reports for the propríetor must be fííed on Form 1 3 , In trípíícate,
In accordance wíth the provísíons of sectíon 1 2.129. (Sees. 310 , 312 (a) (0),
3176, 3S09, I. R. C.)
Sec. 1 2. 61. Fh|no.of Forms. € ” The propríetor shaíí fííe Forms 1 2 ín
chronoíogícaí order by months and ín bound form, as a pprmanent record avaíí-
abíe for ínspectíon by Government offícers at any reasonabíe tíme. (Sees. 310 ,
312 (a) (6), 3176, I. R. C.)
PURC S OF DISTILL D SPIRITS NDON D TO T UNIT D ST T S
Sec. 1 2. 6 . Receípt at Industríaí ícohoí Píant. € ” When spíríts so pur-
chased are to be redístíííed príor to denaturatíon, they shouíd be receíved at the
índustríaí aícohoí píant, where they wííí be redístíííed and transferred to the
denaturíng píant promptíy. The spíríts wííí be kept separate from other spíríts
ín the Industríaí aícohoí píant not Intended for denaturatíon. The receípt of
the spíríts at the índustríaí aícohoí píant and theír redístíííatíon and transfer
to the denaturíng píant wííí be reported by the propríetor on the índustríaí
03 S0 € ” 0 12
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Regs. 3, 1 2.G(fc), etc.
170
aícohoí píant, bonded warehouse, and denaturíng píant records, Forms 1 2,
1 3- , and 1 0 - , and by the storekeeper-gauger on Form 16 0, wíth proper
e píanatory note. (Sees. 310 , 312 (a) (6), 3170, I. R. C.)
Opebatíon of Industríaí ícohoí onded Warehouses
saíes of aícohoí € ž
Sec. 1 2. . emptíon From Specíaí Ta Líabíííty. € ” In víew of the e emp-
tíon províded by íaw, the propríetor of an índustríaí aícohoí píant or of a bonded
warehouse may seíí or offer for saíe ta -paíd aícohoí In the ta -paíd storeroom
províded In connectíon wíth such píant or bonded warehouse wíthout beíng re-
quíred to pay such specíaí ta as whoíesaíe or retaíí ííquor deaíer, províded
the saíes are made from the píant or bonded warehouse. If ta -paíd aícohoí
ís soíd eísewhere, the propríetor engagíng ín the traffíc wííí not be entítíed to the
e emptíon but wííí be sub|ect to the specíaí ta ímposed by íaw.
(a) Límítatíon of e emptíon. € ” The ta -paíd storeroom províded ín connec-
tíon wíth the índustríaí aícohoí píant or bonded warehouse ís covered by the
basíc permít requíred to be heíd by the propríetor of an índustríaí aícohoí
píant or of a bonded warehouse, respectíveíy, and, accordíngíy, the above e emp-
tíon ís heíd appíícabíe to aícohoí ta -paíd ín such píant or bonded warehouse and
stored In the ta -paíd storeroom províded ín connectíon therewíth. Such ta -
paíd aícohoí so stored may not be transferred to another símííar ta -paíd store-
room estabííshed ín connectíon wíth another píant or bonded warehouse nor
wííí the above e emptíon appíy to any premíses to whích such ta -paíd aícohoí
may be transferred. (Sees. 3103, 310 , 312 (a) (0), 317G, 32 0 (a) (1), (b) (1),
I.R. C.)
R C IPT OF LCO OL FROM INDUSTRI L LCO OL PL NT ON W R OUS PR MIS S
Sec. 1S2. 9. y Pípe Líne. € ” If the bonded warehouse ís íocated on the premíses
of an índustríaí aícohoí píant, the aícohoí produced at such píant may be trans-
ferred from the receívíng tanks to storage tanks ín the bonded warehouse by
means of pípe íínes. The transfer wííí be made ín accordance wíth sectíons
1S2.S2, 1S2. 07, and 1S2. 0S. The transfer of aícohoí by pípe ííne from the receív-
íng room to storage tanks ín the bonded warehouse wííí be under the ímmedínte
supervísíon of the storekeeper-gauger ín charge of the receívíng room and the
storekeeper-gauger ín charge of the warehouse. The storekeeper-gauger super-
vísíng the deposít of the aícohoí ín the warehouse storage tanks wííí see that the
cutíet and aíí other openíngs of the tanks, e cept the íníet, affordíng access to
the aícohoí are cíosed and íocked and that the vaíves ín the pípe ííne are so ad-
|usted by the propríetor as to controí the fíow of aícohoí ínto the tank. When
the aícohoí has been deposíted ín the tank, the íníet wííí be ímmedíateíy cíosed
by the propríetor and íocked by the storekeeper-gauger. The vaíves ín the pípe
íínes and the openíngs of tanks contaíníng aícohoí shaíí be kept cíosed and íocked
at aíí tímes, e cept when necessary to be open for the transfer of aícohoí. When-
ever aícohoí ís transferred Into or out of storage tanks or weíghíng tanks, the
storekeeper-ganger wííí open and cíose the íocks but ít shaíí be the duty of the
propríetor to manípuíate the stopcocks or vaíves controíííng the fíow of the
aícohoí. Form 1 0 wííí be dísposed of ín accordance wíth sectíon 1 2. 00a.
(Sees. 310.3, 310 , 312 (a) (0), 3170, I. íí. C.)
Sec. 1 2. 00. In Packages. € ” Where aícohoí ís receíved ín casks, drums, or sím-
ííar contaíners for deposít from an índustríaí aícohoí píant on the same premíses,
the packages wííí be transferred from the receívíng room to the bonded ware-
house under the supervísíon of the storekeeper-gauger ín charge of the receívíng
room and the storekeeper-gauger ín charge of the bonded warehouse. The pack-
ages wííí bo e amíned ín accordance wíth sectíon 1S2. 92. Form 1 0 wííí be
dísposed of ín accordance wíth sectíon íS2. )0a. (Sees. 3101, 310 , 312 (a) (6),
3170, I. R. C.)
Skc. 1 2. 90a. Deposít ín Warehouse From Industríaí ícohoí Píant on
the Same Premíses. € ” Upon the deposít ín storage tanks of aícohoí transferred
by pípe ííne pursuant to sectíon 1 2. 9, and upon compíetíon of the e amínatíon
of packages receíved pursuant to sectíon 1 2. 90, from the índustríaí aícohoí
píant on the premíses of the bonded warehouse, the propríetor wííí determíne
accurateíy the quantíty receíved and wííí check ín the receípt of the aícohoí
agaínst Form 1 0 ín the presence of the storekeeper-gauger. The propríetor
wííí e ecute the certífícate of receípt on botíí copíes of Form 1 0 and wííí note
thereon and on Form 1 3- or Form 1 3-I any íoss or defícíency ín the shíp-
ment. Where a íoss ín transít ís sustaíned, the propríetor wííí report on such
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171
Regs. 3, 1 2.f ), etc.
forms the totaí íoss for transfer by pípe ííne and. In the case of packages, the
íoss from each package. The storekeeper-gauger wííí make a fuíí report of such
íoss to the dístríct supervísor In accordance wíth sectíon 1S2. 92. The pro-
príetor wííí fííe one copy of Form 1 0 as a permanent record as províded In
sectíon 1 2.6 3g and wííí deííver the remaíníng copy to the storekeeper-gauger who
wííí forward It to the dístríct supervísor. (Sees. 3101, 310 , 3113, 312 (a) (0),
3176, I. R. C.)
R C IPT OF LCO OL FROM INDUSTRI L LCO OL PL NT NOT ON W R OUS PR MIS S
ND FROM NOT R OND D W R OUS IN S M SUP R ISORY DISTRICT
Sec. 1 2. 91. Packages, Tank Cars, and Tank Trucks. € ” Upon receívíng Form
1 0 ín dupíícate coveríng aícohoí transferred ín bond from an índustríaí aíco-
hoí píant ín the same supervísory dístríct pursuant to sectíon 1S2. 0SC, or from
another bonded warehouse ín the same supervísory dístríct pursuant to st c
tíon 1 2. 6, the storekeeper-gauger ín charge at the receívíng warehouse wííí
deííver both copíes to the propríetor of the warehouse. When the aícohoí ís re-
ceíved at the warehouse ín packages, the shípment wííí be e amíned by the pro-
príetor and the storekeeper-gauger ín accordance wíth sectíon 1R2. 92. When
receíved In a tank car, the shípment wííí be e amíned In accordance wíth sectíon
1S2. 93. When receíved In a tank truck, the seaís wííí be broken and the shíp-
ment e amíned ín accordance wíth sectíons 1 2. 91a and 1 2. 93a, respectíveíy.
Form 1 0 wííí be dísposed of In accordance wíth sectíon 1 2. 9 . (Sees. 310 ,
3113. 312 (a) (6), 3176, I. R. C.)
Sec. 1 2. 9 . Deposít ín Receívíng Warehouse. € ” Upon compíetíon of the e -
amínatíon of the contaíners from an índustríaí aícohoí píant íocated on other
premíses, or from another bonded warehouse, ín the same supervísory dístríct,
the propríetor wííí determíne accurateíy the quantíty receíved and wííí check ín
the receípt of the aícohoí agaínst Form 1 0 ín the presence of the storekeeper-
gauger. The propríetor wííí e ecute the certífícate of receípt on botíí copíes of
Form 1 0 and wííí note thereon and on Form 1 3- or Form 1 3- any íoss or
defícíency ín the shípment Where a íoss ín transít ís sustaíned, the propríetor
wííí report on such forms the totaí íoss from tank cars and tank trucks and.
In the case of packages, the íoss from each packape. The storekeeper-gauger wííí
make a fuíí report of such íoss to the dístríct supervísor ín accordance wíth
sectíon 1 2. 92, 1 2. 93, or 1 2. 93a as the case may be. The propríetor wííí fííe
one copy of Form 1 0 as a permanent record as províded ín sectíon 1 2.6 3g and
wííí deííver the remaíníng copy to the storekeeper-gauger who wííí forward ít to
the dístríct supervísor. The dístríct supervísor wííí check daííy, on receípt, each
Form 1 0 coveríng a tank truck shípment, and make any ínquíry whích he
deems necessary wíth respect to any díscrepancy. In the event of faííure to
receíve a form from the storekeeper-gauger at the consígnees premíses wíthín the
tíme normaííy requíred for the truck to make the shípment and the form to be
receíved by maíí, the dístríct supervísor wííí make appropríate fnquíry. (Sees.
3101, 310 , 3113, 312 (a) (6). 3176, I. R. C.)
R C IPT OF LCO OL FROM INDUSTRI L I.COnOL PL NT OR NOT R OND D
W R OUS IN DIFF R NT SUP R ISORY DISTRICT
Sec. 1 2. 9 a. Packages, Tank Cars, and Tank Trucks. € ” Upon receívíng
Form 1 0 coveríng aícohoí transferred ín bond from an índustríaí aícohoí píant
ín a dífferent supervísory dístríct pursuant to sectíon 1 2. 0Sd, or from another
bonded warehouse ín a dífferent supervísory dístríct pursuant to sectíon íS2. 6a,
the storekeeper-gauger In charge at the receívíng warehouse wííí deííver aíí
copíes to the propríetor of the warehouse. When the aícohoí ís receíved at the
warehouse ín packages, the shípment wííí be e amíned by the propríetor and
the storekeeper-gauger ín accordance wíth sectíon 1 2. 92. When receíved ín a
tank car ít wííí be e amíned ín accordance wíth sectíon 1 2. 93. When re-
ceíved ín a tank truck, the seaís wííí be broken and the shípment e amíned ín
accordance wíth sectíons 1 2. 91a and íS2. 93a, respectíveíy. The aícohoí shaíí
be deposíted ín accordance wíth sectíon 1 2. 9 . Form 1 0 wííí be dísposed
of ín accordance wíth sectíon 1 2. 9 b. (Sees. 3101, 310 , 3113, 312 (a)(6).
3176,1. RC.)
Sec. 1 2. 9 b. Deposít ín Receívíng Warehouse. € ” Upon compíetíon of the
e amínatíon of the contaíners from an índustríaí aícohoí píant or another bonded
warehouse íocated ín a dífferent supervísory dístríct, the propríetor wííí deter-
míne accurateíy the quantíty receíved and wííí cheek ín the receípt of the aícohoí
agaínst Form 1 0 ín the presence of the storekeeper-gauger. The propríetor
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Regs. 3, 1 2.0(6), etc. 172
wííí e eeuta the certífícate of receípt on aíí copíes of Form 1 0 and wííí note
thereon and on Form 1 3- or Form 1 3- any íoss or defícíency ín the
shípment. Where a íoss ín transít ís sustaíned, the propríetor wííí report on
such forms the totaí íoss from tank cars and tank trucks and, ín the case of
packages, the íoss from each package. The storekeeper-gauger wííí make a fuíí
report of such íoss to the dístríct supervísor ín accordance wíth sectíon 1S2. 92,
1 2. 93, or 1 2. 93a as the case may be. The propríetor wííí fííe one copy of
Form 1 0 as a permanent record as províded ín sectíon 1 2.6 3g and wííí
deííver the remaíníng copy of Form 1 0 to the storekeeper-gauger. The store-
keeper-gauger wííí forward the copy of Form 1 0 to the supervísor of the
dístríct ín whích the warehouse ís íocated. The supervísor-consígnee wííí forward
the copy receíved at tíme of shípment to the supervísor-consígnor and fííe the
remaíníng copy. e wííí check daííy, on receípt, each Form 1 0 coveríng a
tank truck shípment, and make any ínquíry whích he deems necessary wíth
respect to any díscrepancy. In the event of faííure to receíve a form from
the storekeeper-gauger at the consígnees premíses wíthín the tíme normaííy
requíred for the truck to make the shípment and the form to be receíved by
maíí, the supervísor-consígnee wííí make appropríate ínvestígatíon. The super-
vísor-consígnor wííí aíso check daííy on receípt each Form 1 0 coveríng a tank
truck shípment receíved from the supervísor-consígnee. In the event of faííure
to receíve a form wíthín a reasonabíe tíme, he wííí make appropríate ínquíry.
If receípted Forms 1 0 coveríng other shípments are not receíved wíthín a
reasonabíe tíme, dístríct supervísors wííí make appropríate ínquíry. (Sees. 3101,
310 ,3113,312 (a) (6), 3170,1. . C.)
TUItN TO INDUSTRI L LCO OL PL NT OR OND D W R OUS OF UNUS D LCO OL
WIT DR WN FR OF T
Sec. 1 2. 96. Procedure. € ” s províded ín sectíon 1 2.6G , where ta -free aíco-
hoí íawfuííy ín possessíon of a permíttee authorízed to use the same ís found to be
unsuítabíe for use, or where such permíttee díscontínues the use thereof, or where
for any other íegítímate reason such permíttee desíres so to do, such aícohoí
may be returned to the respectíve índustríaí aícohoí píant or bonded warehouse
for íawfuí dísposítíon: Províded, That the propríetor of such píant or bonded
warehouse consents to such return and permíssíon therefor ís, ín each ínstance,
fírst obtaíned from the supervísor of the dístríct from whíc| the ta -free aícohoí
ís to be returned. If the índustríaí aícohoí píant or bonded warehouse ís
sítuated ín another dístríct, the dístríct supervísor authorízíng the return wííí
forward a copy of hís íetter of authoríty to the supervísor of such other dístríct.
Notatíon of such return wííí be made by the propríetor of the índustríaí aícohoí
píant on hís monthíy report, Form 1 2, and by the warehouseman on hís
monthíy report, Form 1 3- , as províded ín sectíon 1 2.0 0. (Sees. 3101, C10 ,
312 (a) (6), 3170, I. R. C.)
R MO L OF LCO OL FROM R C I ING ND STOR G T N S
Sec. 1 2. 02. Fííííng of Tank Car. € ” The tank car must be fíííed ín the
ímmedíate presence of the storekeeper-gauger. The pípe ííne from the weíghíng
tank to the tank car must be ín fuíí víew of the offícer, and must not bo con-
nected or used e cept ín hís presence. The offícer wííí seaí-íock the car as soon
as It ís fíííed. The propríetor wííí enter on Form 1 0, coveríng the gauge of
the aícohoí, the symboí and seríaí number of the car, the number of ínches
above or beíow the fuíí mark, and the temperature of the aícohoí at fííííng, the
seríaí number of the íock seaí or seaís, the destínatíon, and the date of shípment; .
for e ampíe: Wíthdrawn ín U. P. tank car No. 10 . , tíííed 2 ínches above fuíí
mark at 0 F., íock seaí No. 0 7, for transfer to Ind. íe. onded Whse.
No. 0, New York, N. T. íííed out : 30 p. ín., May 1, 19 1. (Sees. 3101, 310 ,
3107, 310 , 312 (a) (0), 3170, I. R. C.)
M R S, R NDS, ND ST MPS
Sec. 1 2. 1 . Numberíng of Packages. € ” Where packages of aícohoí are fíííed
from receívíng tanks ín an índustríaí aícohoí píant, they shaíí be numbered ín
seríaí order begínníng wíth number 1 for the fírst package fíííed and contínuíng
ín reguíar sequence. Líkewíse, where packages of aícohoí are fíííed from storage
tanks ín an índustríaí aícohoí bonded warehouse, they shaíí be numbered ín seríaí
order begínníng wíth number 1 for the fírst package fíííed and contínuíng ín regu-
íar sequence. Where an e ístíng índustríaí aícohoí píant ís íocated on the
premíses of the bonded warehouse and one seríes of numbers has been used for
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173
Regs. 3, 1 2.6(6), etc.
packages fíííed from both the receívíng and storage tanks, such seríes wííí be
contínued for packages fíííed from the storage tanks ín the bonded warehouse.
ereafter, a dífferent seríes of numbers wííí be used for packages fíííed from the
receívíng tanks of such índustríaí aícohoí píant, begínníng wíth number 1 for
the fírst package fíííed and contínuíng In reguíar sequence. Where there Is a
change ín the trade name or styíe or ín the propríetorshíp of the busíness, the
seríes ín use at the tíme of such change wííí be contínued. new seríes wííí be
used where there ís a change ín the type of píant; but use of the príor seríes
wííí be resumed when the píant Is agaín operated as an Industríaí aícohoí
píant. When the seríaí numbers of packages fíííed have reached the number
1.000,000, the propríetor may, íf he so desíres, begín a new seríes, com-
mencíng wíth number 1, preceded or foííowed by a íetter to dístínguísh It
from the príor seríes as 1 , 2 , etc., and when the number 1,000,000 so dístín-
guíshed ís agaín reached, the propríetor may begín another seríes dístínguíshed
by the second íetter of the aíphabet, as I , 2 , etc., and subsequent seríes, dís-
tínguíshed by other íetters of the aíphabet ín order, may ííkewíse be commenced.
(Sees. 2 0 , 3100, 312 (a) (6), 3176, L R. C.)
Sec. 1 2. 19. Masks and rands. € ” (a) Drums, barreís, etc. € ” ícohoí wíth-
drawn ínto drums, barreís, or other approved contaíners shaíí be weíghed and
proofed by the propríetor. Such propríetor shaíí have marked upon the head
of each package, ín the order named, the gross weíght, tare, net weíght ín pounds
and haíf pounds, wíne gaííons, proof, and proof gaííons, retaíníng fractíons of
gaííons ín aíí ínstances. The name of the propríetor of the índustríaí aícohoí
píant or bonded warehouse at whích the package ís fíííed, the number of the
píant or warehouse, the cíty or town and State ín whích the píant or warehouse
ís íocated, and the date the package was fíííed shaíí aíso be marked on the pack-
age. In addítíon to the foregoíng, the word ícohoí must aíso appear on the
heads of aíí packages of more than 30 wíne gaííons capacíty, ín íetters of not
íess than 1 Inch ín heíght. On packages of 30 wíne gaííons or íess such íetters
shaíí not be íess than three-fourths of an ínch ín heíght On smaíí contaíners,
the requíred markíngs shaíí be píaced on the síde of the contaíner. In addítíon
to the foregoíng, each package shaíí be seríaííy numbered ín accordance wíth
sectíon 1 2. 1 . There shaíí aíso be píaced upon the Government head or síde
of each contaíner, by príntíng, stencíííng, or íabeííng, a statement to the effect
that aíí marks and stamps must be destroyed ímmedíateíy after the contaíner Is
emptíed.
(6) Cases of bottíed aícoííoí. € ” ach package contaíníng aícohoí In bottíes shaíí
bear aíí the marks requíred by sectíons 1 2. 17 and 1 2. 1 , e cept the gross
weíght, tare, and net weíght. The number and capacíty of the bottíes shaíí, how-
ever, be shown on each package. The marks shaíí be píaced on one síde of the case.
(Sees. 2 0 , 3103, 310 , 312 (a) (6), 3176, I. R. C.)
Sec. 1 2. 26. Wíthdrawn for Ta -Free Use or for port. € ” (a) Ta -free
use. € ” When aícohoí ís wíthdrawn free of ta from an índustríaí aícohoí píant or
a bonded warehouse for scíentífíc purposes, use of hospítaís, etc., or for use of
the Uníted States, there shaíí be stencííed on the Government head of each pack-
age or síde of each case In íetters and fígures not íess than one-haíf Inch ín heíght
the date and purpose of wíthdrawaí, such as ospítaí use, Scíentífíc purposes,
Use of U. S., etc., and number of the permít authorízíng the wíthdrawaí, ín
addítíon to the other marks and brands requíred by the reguíatíons ín thís part.
(1) Tank cars. € ” When aícohoí ís wíthdrawn ín tank cars for use of the Uníted
States or a governmentaí agency thereof, there shaíí be attached to the route
board of the tank car, a íabeí showíng the name, regístry number, and íocatíon
(cíty