SP CI L TT NTION | to the cautonary notce on ths page that pu

Isbcd rungs of the ureau do not hare the force and efft
of Treasury Decsons and that they are appcabe ony to facts presented n the pubshed ca
Department : : : : : ureau of Interna Revenue
Interna Revenue uetn
Cumuatve uetn 1938-1
NU RY- UN , 1938
IN T IS ISSU (L
INDI N UNI RSITY p Or
Introductory Notes r O C
Contents rLP, t . . - D /
Rungs Nos. 9119-9424- LOOMINGTON
oard of Ta ppeas 1- 1 /.
Income Ta /
Part I (1938. 1937, 193 , 1935. and 1934 cts) . 3-228 ,
Part n (1932 ct) 229-2 7 / ,
Part I (1928 ct) 2 8-333
Part I (192 and Pror cts) 334-377
Soca Securty and Carrers ct Ta es 378 189
Msceaneous Ta es
state and Gft Ta es 490-519
Capta Stock and cess-Profts Ta es .... 520-521
Saes Ta es 522-5 0
Msceaneous Rungs 5 1- 12
Inde 13-
The rungs reported n the Interna Revenue uetn are for the nformaton of ta payer and ther counse aa
bowng the tread of offca opnon n the admnstraton of the ureau of Interna Revenue the rungs other than
Treasary Decsons have none of the force or effect of Treasury Decsons and do not commt the Department to
any nterpretaton ef the aw whch has not been formay approved and promugated by the Secretary of tho
Treasary. ach rung embodes the admnstratve appcaton of the aw and Treasury Decsons to the entre
pate of facts upon whch a partcuar case rests. It s especay to be noted that the same resut w not neces-
sary be reached n another case uness a the matera facts are dentca wth those of the reported case. s t s
at 4 aways feasbe to pubsh a com ete statement of the facta underyng each rung, there can be no assurance
that any new case s dentca wth te reported case. s bearng out ths dstncton, t may be observed that the
rn ngs pubshed from tme to tme may appear to reverse rungs prevousy pubshed.
Offcers of the ureau of Interna Revenue are especay cautoned aganst reachng a concuson n any case
merey on the bass of smarty to a puhshed rung, and shoud base ther |udgment on the appcaton of a per-
s of the aw and Treasury Decsons to a the facts n each case. These rungs shoud be used as
ads n studyng the aw and ts forma constructon as made n the reguatons and Treasury Decsons prevousy
a addton to pubshng a Interna Revenue Treasury Decsons, t s the pocy of the ureau of Interna Revenue
ta pubsh a rungs and decsons, ncudng opnons of the Chef Counse for the ureau of Interna Revenue,
whch, because they announce a rung or decson upon a nove queston or upon a queston n regard to whch
there e sts no prevousy pubshed rung or decson, or for other reasons sre of such mportance as to be of
genera nterest. It s aso the pocy of the ureau to pubsh a rungs or decsons whch revoke, modfy, amend,
r affect n any manner whatever any pubshed rung or decson. In many nstances opnons of the Chef Coun-
se for the ureau of Interna Revenue are not of genera nterest because they announce no new rung or no new
of the revenue aws but smpy appy rungs aready made pubc to certan stuatons of fact whch are
ca sgnfcance. It s not the pocy of the ureau to pubsh such opnons. Therefore, the numbers
r I to the pubshed opnons of the Chef Counse for the ureau of Interna Revenue t not consecutve.
No unpubshed rung or derson w he cted or reed upon by any offcer or empoyee of the ureau of Interna
Revenue as a precedent n the dsposton of other cases. Uness otherwse specfca ) ndcated, a pubshed
rungs and decsons have receved the consderaton and approva of the Chef Counse or the ureau cf Interna
UNIT D ST T S GO RNM NT PRINTING O IC , W S INGTON : 1938
ar sae by the Superntendent of Documents, Washngton, D C.
Sec back of tte for pr
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The Interna Revenue uetn servce for 1938 w consst of weeky
buetns and semannua cumuatve buetns.
The weeky buetns w contan the rungs and decsons to be
made pubc and a Treasury Department decsons (known as Treasury
decsons) pertanng to Interna Revenue matters. The semannua
cumuatve buetns w contan a rungs and decsons (ncudng
Treasury decsons) pubshed durng the prevous s months.
The compete uetn servce may be obtaned, on a subscrpton
bass, from the Superntendent of Documents, Government Prntng
Offce, Washngton, D. C, for 3 per year. Snge copes of the weeky
uetn, 5 cents each.
New subscrbers and others desrng to obtan the 1919, 1920, and
1921 Income Ta Servce may do so from the Superntendent of Docu-
ments at prces as foows: Dgest of Income Ta Rungs No. 19
(contanng dgests of a rungs appearng n Cumuatve uetns
1 to 5, ncusve), 50 cents per copy Cumuatve uetns Nos. 1 to 5,
contanng n fu a rungs pubshed snce pr, 1919, to and n-
cudng December, 1921, as foows: No. 1, 30 cents No. 2, 25 cents
No. 3, 30 cents No. 4, 30 cents No. 5, 25 cents.
Persons desrng to obtan the Saes Ta Cumuatve uetns for
anuary- une and uy-December, 1921, may procure them from the
Superntendent of Documents at 5 cents per copy.
Persons desrng to obtan the Interna Revenue uetn servce for
the years 1922 to 1938, ncusve, may do so at prces as foows:
Cumuatv
e uetn.
Year.
Prce,
(cents)
rst
months.
Second
months.
1922 -
1-1
1-2
40, 30
1923
II-
11-2
30, 40
1924
III-
II1-2
50, 50
1925
I -1
I -2
40, 35
192
-
-2
40. 30
1927.
I-1
I-2
40, 40
1928
II-1
I1-2
35, 50
1929
III-1
III--
50, 55
1930
I -1
I -2
50, 50
1931
-
-2
5, 30
1932
I-1
I-2
30, 30
II-1
II-2
30, 50
1934
III-1
III-2
50, 50
1935
I -1
I -2
50, 50
193
-1
-2
55, 45
1937
1937-1
1937-2
0, 0
1938
1938-1
0,
Persons desrng to obtan the servce n dgest form may do so at
prces as foows: Dgest No. 13 (1922-1924), 0 cents Dgest No. 17
(1925), 25 cents Dgest No. 21 (192 ), 15 cents Dgest No. 22 (1925-
1927), 35 cents and Dgest (ncome ta rungs ony, pr, 1919, to
D|cember, 1930, ncusve), 1.50.
nqures n regard to these pubcatons and subscrptons shoud
be sent to the Superntendent of Documents, Government Prntng
Offce, Washngton, D. C.
T W -1
wwW -
(II)
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INTRODUCTORY NOT S.
The Interna Revenue Cumuatve uetn 1938-1, n addton to
a decsons of the Treasury Department (caed Treasury decsons)
pertanng to Interna Revenue matters, contans opnons of the
Chef Counse, and rungs and decsons pertanng to ncome, estate,
gft, saes, capta stock, e cess profts, soca securty, and msce-
aneous ta es, as ndcated on the tte page of ths uetn, pubshed
n the weeky uetns ( oume 1938-1, Nos. 1 to 2 , ncusve) for
the perod anuary 1 to une 30, 1938. It aso contans a cumuatve
st of announcements reatng to decsons of the Unted States oard
of Ta ppeas pubshed n the Interna Revenue uetn Servce
from anuary 1, 1932, to une 30, 1938.
Income Ta rungs are prnted n four parts. Rungs under the
Revenue cts of 1938, 1937, 193 , 1935, and 1934 are prnted as
Part I ( , 1938 ct, , 1937 and 193 cts, C, 1935 and 1934
cts), the secton headngs correspondng wth the sectons of those
cts. The rungs under the Revenue ct of 193 are pubshed under
the artce headngs correspondng to the artce headngs of Regua-
tons 94. Rungs under the Revenue ct of 1934 are prnted under
the artce headngs correspondng to the artce headngs of Regua-
tons 8 . Rungs under the Revenue ct of 1932 are pubshed as
Part II, the secton and artce headngs correspondng wth the secton
and artce headngs of the Revenue ct of 1932 and Reguatons 77.
Rungs under the Revenue ct of 1928 are prnted as Part III, the
secton and artce headngs correspondng wth the secton and artce
headngs of the Revenue ct of 1928 and Reguatons 74. Rungs
under the Revenue ct of 192 and pror cts are prnted as Part I ,
the secton and artce headngs correspondng wth the secton and
artce headngs of the Revenue ct of 192 and Reguatons 9.
Rungs under Tte III of the Soca Securty ct are pubshed
under artce headngs of Reguatons 91, rungs under Tte I of
the Soca Securty ct are pubshed under artce headngs of Regu-
atons 90, rungs under the Carrers Ta ng ct of 1937 are pubshed
under artce headngs of Reguatons 100, and rungs under Tte III
of the Revenue ct of 193 Ta on un|ust enrchment are coded
under the sec tons of that ct and the artce headngs of Reguatons 95.
R I TIONS.
The foowng abbrevatons are used throughout the uetn:
, , C, etc. The names of ndvduas.
. R. M. Commttee on ppeas and Revew memorandum.
. R. R. Commttee on ppeas and Revew recommendaton.
. T coho Ta Unt.
. T. . oard of Ta ppeas.
C. . Cumuatve uetn.
Ct. D. Court decson.
C. S. T. Capta Stock Ta Dvson.
C. T. Carrers Ta ng ct of 1937.
D. C. Treasury Department crcuar.
. T. state Ta Dvson.
G. C. M. Genera Counse s, ssstant Genera Counse s, or Chef Counse s
memorandum.
I. R. . Interna Revenue uetn.
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I. T Income Ta Unt.
M, N, , Y, Z, etc.- -The names of corporatons, paces, or busnesses, accord-
ng to conte t.
Mn. Mmeographed etter.
MS. Msceaneous Dvson.
O. or L. O. Soctor s aw opnon.
0. D. Offce decson.
Op. . G. Opnon of the ttorney Genera.
P. T. Processng Ta Dvson.
S. T- Saes Ta Dvson.
S Sver Ta Dvson.
S. M. Soctor s memorandum.
So. Op. Soctor s opnon.
S. R. Soctor s recommendaton.
S. S. T. Soca Securty ta .
T. Tobacco Dvson.
T. . M. dvsory Ta oard memorandum.
T. . R. dvsory Ta oard recommendaton.
T. D. Treasury decson.
and y are used to represent certan numbers, and when used wth the word
doars represent sums of money.
The practce of promugatng Treasury decsons that embody
court decsons reatng to the nterna revenue has been dscontnued.
ereafter opnons of the courts, wth approprate headnotes for the
nformaton and gudance of ta payers and offcers and empoyees of
the ureau of Interna Revenue, w be pubshed n the Interna
Revenue uetn wthout forma approva and promugaton by the
Secretary of the Treasury.
NNOUNC M NT R L TING TO O RD O T PP LS D CISIONS.
Under the provsons of the recent Revenue cts, reatng to ap-
peas to the oard of Ta ppeas, the Commssoner may acquesce
m the decson of the oard or he may, f the appea was heard by
the oard pror to the passage of the 192 ct, cause to be nsttuted
a proceedng n court for the coecton of any part of a ta deter-
mned by the Commssoner to be due but dsaowed by the oard,
provded that such proceedng s commenced wthn one year after
fna decson of the oard. s to appeas heard by the oard after
the passage of the 192 ct, the Conunssoner may, wthn s
months after the oard s decson s rendered, fe a petton for a
revew of the decson by a Crcut Court of ppeas or by the Unted
States Court of ppeas for the Dstrct of Coumba however, as to
decsons rendered on and after une 7, 1932, pettons for revew
must be fed wthn three months after the decson s rendered.
In order that ta payers and the genera pubc may be nformed as
to whether or not the Commssoner has acquesced n a decson of
the oard of Ta ppeas dsaowng a ta determned by the Com-
mssoner to be due, announcement w be made n the weeky ue-
tn at the earest practcabe date. notce that the Commssoner
has acquesced or has nonacqueseed n a oard decson reates, how-
ever, ony to the ssue or ssues decded n favor of the ta payer.
Decsons so acquesced n shoud be reed upon by offcers and
empovees of the ureau of Interna Revenue as precedents n the
dsposton of other cases before the ureau.
or addtona nformaton whch w be of assstance n the use
of the Interna Revenue uetn servce read the Introductory Notes
to the atest Dgest.
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I
Rung.
oard or Ta ppeas Con.
b 25
0703
7037
7145
87148
75 4
7870
8201.
Rung No.
70099.
73092.
73111.
73728.
73753.
73891.
738U2.
73893.
73894.
73895..
74249
74805
74885
7488
75030
75039
75488.
75488
7549
7 492
75493
75524
7 8
75782
759 0
759 1
7 499
7 580.
7 751.
77004..
771 4.
77244
7841
78o80
78589
78829
78877
78910
78995
79044
7 097
79098
79130
798 3
80103
80584
81145
81148 ,
81179 ,
81224
81328 ,
81355
815(8
81 25
81802
81873
81984
81997
82000
822 3
82242
82421
82450
82574
82 52
828
82879
83151
832
83421
1938-14-9271
1938-18-9315
1938-18-9315
1938-18-9315
1938-18-9315
1938-14-9271
1933-8-9200
1938-18-9315
1938-11-9235
1938-10-9222
1938-7-9192
1938-20-9339
1938-11-9235
1938-7-9192
1938-9-9213
1938-9-9213
1938-9-9213
1938-9-9213
1938-9-9213
1938-23-9371
1938-17-9309
1938-21-93)9
1938-21-9319
1938-21-9319
1938-9-9213
1938-15-9287
1933-15-82S7
1938-15-9287
1938-15-9287
1938-15-92S7
1938-15-9287
1938-15-9287
1938-22-9358
1938-3-9142
1938-9-9213
1938-9-9213
1938-2 9404
1938-22-9358
1938-25-9393
1938-14-9271
1938-10- 222
1U3 2 . .3
1938-2-9133
1938-23-9358
1938-10-9223
1938-9-9213
1938-21-9349
1938-19-9328
1938-5- 171
1938-11-9235
1938-7-91 2
1938-7-9192
1938-13-925
193s 2 -94114
1938-10- 222
1938-14- 371
1938-14-9271
1938-14-9271
1938-7-9192
1938-11-9215
1938-10- 222
1938-15-9387
1938-30-9339
1938-33-9358
1938-7-9193
1938-3-9142
1938-13- 258
1938-7-9193
1938-21-9349
1938-14-9271
1 38-2 -9404
1938-13-925
1938-14-0271
1 38-19-933
1938-18-9315
1938-1 -920
1938-18- 2 8
1938-22-9358
1938-13- 25
1938-18-92
1938-3-9142
1 38-1-9119
1938-20-9339
13
90
0
0
0
21
1
2
10
4
15
31
32
17,47
4
5
40
4
4
4
20
58
3
44
81
23
10
18

1
1
27
43
20
5
55
20. 49
23.52
4
28
2
4
U.41
21
2
32
44
0
1
1
48
48
2
U
17
58
41
41
14
111
13
87
4
4
2
3
25
14
44
4
21
53
17

t:
49
11
30
4
19
11
44
41
Rung.
oard ofTa ppeas Con.
83438
83459
83C42
83S30
84000
84001
84051
8404
8412.1
8412
84192
84183
84194
8419
8419
841 7
84442
84 3
85131
85320
85542
85 44
85 48
85 49
85715
85718
8588
85887
8 401
8 558
8 13
8 728
8 798
808 2
87102
87383
87498
87519
87 38
8801
881 7
88214
Offce decsons (I. T.):
3147.
3148.
3149.
3150.
3151
3152.
3153.
3154.
3155.
315 .
3157.
3158.
3159.
3180.
31 1.
31 2.
31 3.
31 4.
31 5.
31 .
31 7.
31R8.
31 9.
3170.
3171.
3172.
3173.
3174.
3175.
317 .
3177.
3178.
3179.
3180.
8131.
3182.
3183.
3184.
3185.
318 .
Rung No.
1938-13-92W
52
1938-17-9309
40
19.18-1 -12.
2
1938-19-9328
3
1 38-17- 308
33. 0
1938-17-9309
33.0,1
1838-17-9309
14,44
1 38-17-0309
14,44
1938-19-9328
1
1938-19-932
1
1938-21-8339
39
1938-20-9339
39
1938-20-9339
39
1938-20-9339
39
1938-3.1-9339
39
1938-20-9339
39
1938-24-9382
27
1838-18-9315
8
1938-20-9339
48
1938-1-9119
IS
1938-2 -94 4
20
1938-23-9371
10
1938-21-9371
10
1938-23-9371
11
1938-12-9244
9,40
1938-I2-9244
9,40
1938-14-9271
20.54
1938-14-1/271
20.54
1938-1 - 2S7
22
1838-10- 2 2

1938- -9182
39
1838-21-9349
13
1938-13-9244
e
1938-19- 328
0
1838-22-8358
4
1838-18-8315
8
1938-8-9200
12
1 38-8-92 0
2
1838-8-9200
35
1938-13-92. d
17
1938-18-9315
3
1938-7-91 2
S3
1938-1-0120
174
1938-1-9122
195
1938-2-9134
124
1938-2-9135
125
1938-3-9143
11.
1938-3-9144
155
1938-3-9145
207
193S-4-915
113
193 -4-9157
128
1S3S-4-8158
213
1938-5-9172
129
1938- -8183
130
1838- -8184
183
1938- -9185
199
1838-7-8193
11
193S-7-9194
132
1838-7-9195
202
1938-8-9201
15
1938-8-9202
183
1938-9-9214
133
1938-9-9215
190
1938-10-9223
118
1938-10-9224
134
193S-10-9225
135
1938-10-922
192
1938-11-9238
1.50
1938-12-P2IS
1 0
1938-12- 218
195
193S-12 9247
200
1938-13-92 3
348
1938-14-9272
119
1938-14-9273
135
1838-14-9274
192
1838-15-8288
1
1938-15-9291
33
1938-1 -9297
1 8
1838-1 -8302
355
1938-17-9310
13
1938-18-9321
591
1938-19-9327
140
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II
Rung.
Offce decsons (I. T.) Con.
as
3188....
3188
3190
3191..
3192.
3193
3194
31SS
319
3197
3198
3199
3300
Offce r ons (S. S. T.):
343
344
245
34
247
248
250.
251.
252.
253.
2S4..
255..
249.
257..
258..
..
2f0..
281..
2 2..
2 3..
254..
2 5..
2(59..
2 7..
270.
271.
272.
273.
274..
27 .
277.
278.
279.
2-0.
2M.
2S2.
2S4.
2S5.
2S .
2SS7.
Rung No.
1838-19-9328
1938-20-9340
1938-20 9341
1938-20-9342
1938-21-9350
1938-21-9351
1938-22-9381
1838-23-9372
1938-23-9374
1938-23-9375
1938-24-9383
1938-25-0394
1938-25-939
1938-2 -040
1938-1-9125
1838-1-912
1938-1-9127
1938-1-9128
1938-2-9138
1938-2-8139
1938-4-91 2
1938-4-91 3
1938-4-81 4
1938-4-91 5
1938-4-91
1938-5-917
1938-5-9177
1938-5-9178
1938-5-9179
1938-5-9180
1938- -9187
1938- -9188
1938-7-9198
1938-8-9205
1938-8-920
1938-9-921
1938-9-9217
1938-10-9229
1938-10-9230
1938-11-9241
1938-11-9242
1938-11-9243
1938-12-9250
1938-12-9251
1938-12-9252
1938-13-92 4
1938-13-92 5
1938-13-92
1938-14-9279
1938-15-9293
1938-15-9294
1938-15-9295
1938-1 -9305
1938-1 -930
1838-1 -9307
1938-1 -9308
1938-17-9312
1938-18-9322
1938-18-9323
1938-19-933
1938-19-9337
1938-20-9345
1938-20-934
1938-20-9347
Ptze
159
115
141
143
143
141
m
111
211)
211
1..1
115
2 w
145
42|
433
438
4.
44
tn
3 . 3
44U
45U
451
47U
3 |5
:m
425
4M
4 Us
3 7
3/
402
3 I
453
3 2
400
4U
4(2
473
441
401
Ur.
431
451
435
442
443
43.
409
411
412
413
430
437
474
4511
427
44
3sS
431
414
41
417
Rung.
Offce decsons (S. S. T.)
Contnued.
293
294
295
29
297
298
299
300
301
302
Offoe decsons (C. T.):
1
2
3
4
5

7
8
9
10
11
Offce decsons (S. T.):
871
872
Offce decson (C. 8. T.):
7
Offce decsons (MS.):
194
195
19
187
198
199
200
201
202
Offce decsons (T.):
42
43
44
45
4
47.
Mmeographs:
3838 (rev.)
4 93 (rev.)
4725
4730
473
4743
4755
47
47 7
4774
4780
Msceaneous
Rung No.
Page.
1938-21-9357
432
1938 22-9353
385
1938-22-93 4
390
1938-22-93 5
418
1938-23-9380
382
1938-24-938
448
1938-24-9187
4 0
1938-25-9400
887
1938-25-9401
455
1938-2 -9410
458
1938-3-9150
479
1938-3-9151
488
1938-4-91 7
481
1938-7-9199
484
1938-8-9207
485
1938-9-9218
41-0
1938-10-9231
475
1938-18-9324
4 2
1938-22-93
478
1938 2 9411
483
1938 2 9412
487
1938-8-9209
538
1938-18-9320
54
1938- -9189
520
1938-1-9131
580
1938-5-9181
581
1938-10-9234
583
1938-13-92 8
585
1938-13-02 9
584
1938-13-9270
5S2
1938-18-9325
58
1938-22-93 9
587
1938-2 -9-123
588
1938-1-9130
589
1938- -9191
. -M
19 8-10-9233
589
1938-14-9284
590
1938-19-9335
593
1938-23-9378
590
1938-19-9330
1S1
1938-11-9238
1
1038-8-9203
21)3
1938-12-9249
u
1938-14-9282
74
1938-14-9283
574
1938-19-9329
179
1938-23-9379
388
1938-23-9381
420
1938-25-9399
23
1938-2 -9409
383
f 1938-2-9141
5 M1
1938-4-91 8
.v., s
1938-4-91 .)
12
1938-8-9211
5 r,
1938-8-9212
511
1938-9-9221
593
1938-1 -9304
S ..
1938-2 -9414
12
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CONT NTS O CUMUL TI ULL TINS (I. T.I 1 TO 5 S. T. OR 1920 ND 1921: INT RN L
R NU . 1-2, U-, II-2. III-. III-2, I -1.I -2, -, -2. I-I. I-2. II-1. II-2, III 1. III-2,
I -1. I -2, -, -2. I-1, I-2, II-1. II-2, III-1, 1II-2, I -1, I -2, -1. -2. 1937-1. 1937-2.
ND 19SS-1.
Cumuatve uetn.
Income Ta :
December, 1919 (No. 1)
anuarv- une, 1920 (No. 2)
uv-December, 1920 (No. 3)
anuarv- une, 1921 (No. 4)
uy-December, 1921 (No. 5)
Saes Ta :
1920 (S. T. 1-20)__
anuary- une, 1921
uy-December, 1921
Interna Revenue uetn:
anuary- une, 1922 (No. 1-1)
uy-December, 1922 (No. 1-2)
anuarv- une, 1923 (No. II 1)
uv-December, 1923 (No. II-2)...
anuarv- une, 1924 (No. III-)...
uy-December, 1924 (No. III-2)..
anuary- une, 1925 (No. I -1)
uy-December, 1925 (No. I -2)..
anuary- une, 192 (No. -)
uy-December, 192 (No. -2)...
anuary- une, 1927 (No. I-1)
uy-December, 1927 (No. I-2)..
anuary- une, 1928 (No. II-1)...
uy-December, 1928 (No. II-2).
anuary- une. 1929 (No. II1-1).
uv-December, 1929 (No. III-2)
anuary- une, 1930 (No. I -1)....
uy-December, 1930 (No. I -2)..
anuary- une, 1931 (No. -)
uy-December, 1931 (No. -2)...
anuary- une, 1932 (No. I-1). .
uv-December, 1932 (No. I-2)..
anuary- une, 1933 (No. II-1)...
uy-December, 1933 (No. II-2).
anuary- une, 1934 (No. III-1)-.
uy-December, 1934 (No. III-2)
anuary- une, 1935 (No. I -1)..
uy-December, 1935 (No. I -2).
anuarv- une, 193 (No. -1)...
uv-December, 193 (No. -2)..
anuarv- une, 1937 (1937-1)
uv-D ecember, 1937 (1937-2)
anuary- une, 1938 (1938-1)
( III)
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O RD O T PP LS.
CUMUL TI LIST O NNOUNC M NTS R L TING TO
D CISIONS O T UNIT D ST T S O RD O T
PP LS PU LIS D IN T INT RN L R NU UL-
L TIN S R IC ROM NU RY 1, 1932, TO UN 30,
1938, INCLUSI .
nnouncements reatng to the acquescence or nonacquescence of the Commssoner n
decsons of the Unted States oard of Ta ppeas, as |mbshed n the weeky Interna
Revenue uetns, from December 22, 1921. to December 31, 1931, ncusve, are prnted n
Cumuatve uetn -2, pages 1-10 . The st beow, therefore, contans ony such announce-
ments pubshed n the weeky uetns from anuary 1, 1932, to une 30, 1938, ncusve.
1938-2 -9404
The Commssoner acquesces n the foowng decsons of the
Unted States oard of Ta ppeas:
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
4054
24
435
37 95
24
435
37 93
24
435
37 94
24
435
37 9
24
435
41034
24
435
25194
3S S7
24
429
39980
25
211
39593
25
124
39593
25
121
84125
3
1233
8412
3
1233
5 9 0
9007
28
58
74759
33
373
207 5
24
37
41295
27
1091
0700
28
1291
39019
27
1210
78995
3
929
73CS7
35
323
448 0
30
3
25414
25
834
31704
25
127
7 130
35
482
40039
28
8 8
becs, Chares T -
bees, Cfford -
bees, rancs, estate of
bees, ohn T
bees, atherne
bees, Wemene
cme Manfodng Co., Inc
deade Park Land et a., trustees
fremow, Davd, estate of
fremow, Sarah, e ecutr
kron Coca-Coa ottng Co
kron Standard Mod Co
abama Mnera Land Co
bere, Wam .1. -
bert Lea Packng Co., Inc
brecht et a., atherne ., e ecutrces 2
coma Corporaton
e ander, . ., estate of
e ander, Nee S
e andra Grave Co., Inc
egheny Garbage Co.
en, Irene C
ed mercan Corporaton
verson, L. T_.
mbassador Petroeum Co
1 cquescence reates to deducton for contrbutons.
1 state ta decson acquescence reates to deducton of 133,000.
Rung No. 9404 ncudes a acquescence and nonacquescence notces pubshed n the Interna Revenue
uetn servce from anuary 1, 1932, to une 30, 193S.
(1)
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2
cquescences Contnued.
Ta payer.
oard of Ta ppeas.
No.
oume.
Pace.
30133

31998
5 024
30
1182
343

83 42
3
88
1 229
21
4 4
27 23
24
18
73 8
1
73 9
33
471
9800

39721
27
1270
391 7
24
334
2955
1
8830
30
753
70701

71811
30
51
58 47
30
988
33242
27
1305
3 224
2
1208
3827
30
1274
42053
33
88
78340
35
795
258 9
29
331
8201
37
345
73 14
31
04
58400
31
418
58 03
32
12 1
1553
29
70
47190
48009
2
1188
49354
47190
48009
2
1188
49354
78589
3
878
38520
23
500
38519
28
500
78077
3
558
58958
1
5310
31
730
5311

490
34
845
490 7
34
845
490 5
34
845
5 100
32
13
5 1 2
32
13
5 441
32
13
mercan Centra Lfe Insurance Co.1.
mercan Centra Uttes Co.
mercan Cgar Co
mercan eature m Co
mercan Gas ectrc Co. and subsdary com-
panes.
mercan Prntng Co
mercan Securty Trust Co. et a., e ecutors 3
mercan South frcan Lne, Inc
mes, Mure Oakes
nco Investment Co
nderson, C.
nderson, Gustave
nderson, .
nderson, Staney S
nderson-Cayton Securtes Corporaton.
nn rbor R. R. Co.
rdengh, nna
rpumbau, rank M
rmstrong, C. George ---
rmstrong, Wam
rnod Wnsor Co
shforth, bert ., estate of
shforth et a., Mabe ., e ecutors .
smussen, .
tkns, . ., estate of
tkns, Mrs. .
tanta Charotte Ry. Co.
tantc Coast Lne R. R. Co.
twater, Davd .
twater, ohn .5
twater, r., Wam C.3.
ton, dwn D
ton, Robert L
ton. Wood
cquescence reates to Issue whether pettoner receved nterest on mortgages when t bd n property
upon forecosure.
1 state ta decson.
3 Nonacquescence (reatng to communty property agreement) pubshe n Cumuatve uetn
-2 (1938), pages 27 (Docket 71811), 29 (Dockets 9447, 10202, 10755), 31 (Dockets 10299, 32950). 34 (Dockets
4017. 5389, 2029, 5577, 8324). 35 (Docket 10980), 3 (Docket 37389), 38 (Docket 1 985), 39 (Docket 7435),
41 (Docket 9290), 45 (Dockets 450 5, 3725, 12231), 4 (Dockets 01 9, 8335). and 50 (Docket 7359), wthdrawn.
Nonacquescence pubshed n uetn 1I-1 (1933), wthdrawn.
cquescence wth respect to hodng that pettoner was not a transferee.
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3
cquescence Contnued.
Ta payer.
oard of Ta ppeas.
No.
oume.
Tage.
74047
32
93
74047
32
93
5 348
32
13
32387
23
512
83 5
3
3 4
40230
25
154
3 737
27
388
53702
29
3 8
37239
30
194
48329
2
88
2 747
25
513
2 755
25
513
2 757
25
513
2 747-
25
513
2 757
8743
2
970
51102
28
57
81873
3
7 4
5 440
32
13
45928
30
305
7 37
27
134
00 1
31
580
31931
1
4 5 9
474
49422

41295
27
1091
7873
34
754
7874
34
754
5 75
30
370
83820
3
1233
39534
30
1290
22335
27
377
18592
29104
25
195
30990
28
917
57312
5979
2
13 9
70298
32
00
3 729
28
744
3 74
2
1070
81 38
35
1147
54917
29
804
51051
27
18
72389
33
4
4 079
25
1084
27 1
3509S
I
23
731
40147
.
abbtt, Inc., . T. (Deaware)
abbtt, Inc., . T. (New York)
aker, I. ---
adwn, orence G -.
adwn, Ga
afour, Sr Robert
a, Php D. C
atmore Oho R. R. Co
atmore Oho R. R. Co.1
ankers Dary Credt Corporaton
arber, rthur
arber, Php C
arber, St. George
arber Trusts, Sarah P
arcay, W. L
arker, red
arnes, rthur S
arnes, enry
asch. T.
Ice Coa Co -.
easey, W.
eaumont, Lous D
ebb, Rchard ., estate of
eers, Cara O
eers, rank T
eggs, ohn L (Trusts)
ehoteguy et u ., Ws C
ehr, Chares
e, Ivor .
eows as Power Co
enedum, M. L.4
ent Co., R. G
erde, r., Chares P
ernsten, Isaac M
est, rank
ngs et a., May, e ecutors s
ups, George W.
ngham, Robert W
rckhead, Over W
rdneck Reaty Corporaton
scayne ay Isands Co
cquescence reates to ssue nvovng contrbutons by shppers for construct on of sde and spur tracks
and deducton for nterna-revenue stamps aff ed to bonds.
state ta decson acquescence reates to deducton of 133,000.
cquescence reates to that part of decson hodng that Waer . ettman s not abe as a transferee
and to mtaton ssue.
cquescence reates to rght of overrdng royaty owners to beneft of secton 211(b), Revenue ct of
IMS.
state ta decson.
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1
3
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1
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2
2

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:
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1

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8
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3
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e
cquescence Contnued.
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
81 25
87102
3
1173
8 9 1
3
34
09 82
31
212
2 750
25
513
39242
1
40939
45741
25
119
51507

4975
30
591
78 92
35
110
49891
29
8
39200
25
51
24223
349 4

995
8382
31
25
7 751
77244
37
494
54923
2
1410
2985
33
208
5455
29
11 1
82 95
3
884
53715
28
472
24 7
3 37
25
814
53 37
35
141
2403
19
111
24037
19
111
72383
3
9
32584
44153
25
780
44 84
32584
44153
25
780
44 84
2025
895
1 075
1 07
23
439
9 84
31
212
9 79
31
212
81 4
73954
32
501
31209
23
710
4 322
29
731
4 322
1009
29
731
53795
29
05
59797
29
190
1055
28
1241
shop Trust Co., Ltd.
ack, .
ar, r., Mrs. Wey..
oodgood, dth
um, uus, trustee.
umentha, Lucy
oehn, Lous
oehrnger, Rudoph 1
oos ros. Cafetera Co
org eck Co
ostck, r., ohn, trustee.
oston evated Ry. Co..
owden, Pau kors
owen, dwn L.1
raun, rthur ., trustee
rawner, r., enry N., estate of.
rnton, Lan McDonad
rown, erence
rowne, Sopha Geason Perce.
ryan et u ., C.
ryan et u ., L.
ryant, Wado C, estate of
uck, ohn ., estate of .
uck et a., Mary M., e ecutors
uena sta Land Deveopment Co.
uffao Unon Iron urnace Co.8
ungton, Orve
ungton, Mrs. Sade
us, een
uock, George
urdck, a P., trustee
urdck, oe W., estate of
urnham, Sas
urroughs, mbrose ., estate of.
urton, en|amn T
cquescence reates to ssue Invovng secton 115 (g) of the Revenue ct of 1928.
1 cquescence reates to ssue as to basc vaues of stuck.
8 state ta decson.
state ta decson acquescence reates to vaue of certan rea estate In San rancsco and vaue of
stock of Langcndorf akng Co. for estate ta purposes and reasonabeness of Commssoner s aowance
for support of the wdow.
cquescence reates to ssue regardng deductons for obsoescence of bast furnaces.
cquescence reates to ssue 2 of decson.
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2
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1
3
-
0
1
-
2
2

0
4
:
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2

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3
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0
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8
8
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3
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cquescencbs Contnued.
Docket
No.
oard of Ta ppeas.
oume.
usctae. . C. -
uter, U.
yers Trust, . T
C.
Cahoka Trust
Caforna Coast O Co
Cambra Deveopment Co.1
Camp Manufacturng Co
Campau Reaty Co., . M
Canadav, Inc., Ward M
Canfed et a., rances Marsha, e ecutors
Canfed, George ., estate of
Cannng, ohn
Capta Compress Co
Carman, .
Carne, Goude Manufacturng Co
Caro, Sue (Mrs. Nck Stuart)
Carona, Cnchfed 4 Oho Ry
Carona Contractng Co
Carter Pubcatons, Inc
Carter, r., W. T_.
Caspar Lumber Co
Cathey, George
Cathey, Luke
Catn, Dane -
Catn, Theron
Centra Market Street Co.3---
Centra Natona ank
Centra Natona ank, trustee
Centra Renderng Corporaton
Centra Trust 4 Savngs ank-.-
Century Crcut. Inc., of Deaware
Champon, Davd .4 --.
Champon, T. Perre 4
Chapman 4 Dewey Land Co
Chapman 4 Dewey Lumber Co
9447
10202
10755
4 055
8382
8174
25018
75411
35955
70340
58 32
8415
8415
41482
49303
44321
44939
50178
20074
27095
39 3
71025
71 49
71 50
77 38
44838
891
8 558
57729
4 05
4 057
25421
25413
24837
425S7
28701
2077
42588
9345
555 9
3818
555 8
37403
51059
334
37402
47130
5019
10
24
31
3
25
34
25
35
29
31
31
29
31
25
21
30
31
32
3
30
24
24
25
25
25
29
25
24
29
:s
27
27
25
25
Nonacquescenco (reatng to communty property agreement) pubshed n Cumuatve uetn -2
(193 ), pages 27 (Docket 71811), 29 (Dockets 9447, 10202, 10755), 31 (Dockets 1029S), 32950), 34 (Dockets 4017,
53S9, 0)29, 5577, 8324), 35 (Docket 10980), 3 (Docket 373 9). 38 (Docket 1(1985), 39 (Docket 7435), 41 (Docket
290), 45 (Dockets 450 5, 3725, 12231), 4 (Dockets 10 9, 8335), and 50 (Docket 7350). wthdrawn.
cquescence reates to determnaton of far market vaue of obgatons receved from purchasers of rea
estate ots.
1 cquescence reates to ssue regardng apportonment of ta es among affated corporatons.
cquescence reates to bass upon whch gan or oss upon redempton of stock shoud be computed.
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U
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t
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
4
2

G
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2
7
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n
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3
0
0
0
0
0
8
8
9
3
3
7
0
4
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#
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cquescences Contnued.
Ta payer.
oard of Ta ppeas.
No.
oume.
Pace.
3 343
22
1407
84497
35
1125
47704
2
292
0970
3
11 8
59797
29
190
318 9
23
3
34499
24
1235
59391
35
424
33585
1
40890
29
43
51197

4 058
24
50
84943
3
208
419 2
4 297
20
772
40554
25
44
54880
28
1311
75740
7 841

10
9843
f 33
3
1199
385
38904
28
1127
1882
27
50
75491
3
791
21974
3
1248
53799
2
588
42743
25
45
42707
2
794
43495
50051
28
143
959
3
239
70384
33
19
8034
31
515
8034
31
515
0434
32
920
78279
35
444
18591
2910

195
Chcago Northwestern Ry. Co.1
Chds, Mary S
Chrstopher, Rache S.1
Church rghton Corporaton
Cty ank armers Trust Co., e ecutor
Cty ank armers Trust Co. et a., e ecutors 1
Cark et a., ames, e ecutors
Caude Neon Lghts, Inc.
Ceand state Co., Inc., enry .4.
Cements, W. L
Ceveand Raway Co
Ceveand Trndad Pavng Co.5.
Cnchf.ed Securtes Co_.
Cnton Cotton Ms, Inc
Cother et a., Morrs L
Coast Countes Gas ectrc Co_
Coats, Inc. (R. I.), . P. --
Cogate, Mary
Conon, atharene run
Coorado Southern Ry. Co.7
Coorado Utah Coa Co
Coumban Carbon Co.8
Coumbus rck Te Co.9
Commerca Investment Trust Corporaton 0_.
Commerca Natona ank
Communty Mausoeum Co.
Cone, mma S., e ecutr
Cone, Irvng ., estate of 1
Connay, Mary W. T
Connectcut ectrc Servce Co
Connectcut Rver Power Co
stment amortzaton of bond
I. C. .
cquescence reates to foowng Issues: Matera and suppes ad|:
premum assessment or ssocaton of away ecutves: raroad Y
state ta decson.
cquescence reates to ssues (1) e chrnge by pettoner of property soey for stock In the Caude Neon
Dspays, Inc.. ott Caude Neon Lghts Inc., pha Cuude Neon Corporaton. New ersey Caude
Neon Corporaton, and Caude Neon of Connectcut, Inc. (2) grants of e cusve rghts to use of patents
to certan corpora Ions n e change for stock (3) n respect o revous ssue the bass for an or oss.
cquescence does not reate to baste ofproperty devsed su rrt to a fe estate.
Nonacquescenco notce pubshed n Cumuatve uetn -2 (1931), revoked.
cquescence reates to contrbutons Issue and ssue respectng deducton of amount pad to treasurer of
Rhode Isand on account of ncreasng capta stock.
cquescence reates to foowng Issues: Whether amount receved In fna settement wth Drector
Genera of Raroads In 1921, representng renta nterest on competed addtons and bett- rments and
addoua compensaton for use of propertes, consttutes a abe ncome for 1921 or durng the perod of
edera contro whether pettoner s en.ed to a deducton n 19 0 and 1921 for anc rmon of comms-
sons pad n connecton wth the sae of ts bonds pror to March 1, 1913 whether amounts of back ma
pay receved by pettoner and affated companes durng 1920, n consequence of an order made by the
Interstate Commerce Commsson, consttute ta abe ncon e for thtt c: r
N onacquescence pubshed In Internu Revenue uetn - (1932), revoked.
cquescence reates to ncuson n consodated nvested capta of capta stock Issued for a te and
brck manufacturng pant, etc.
10 cquescence reates to the foowng ssues: Deducton of e penses n connecton wth ssuance of
preferred stock deducton for dvdends ere ted to accounts of empoyees for purchase of stock.
11 cquescence reates to ssue whether a sae of a cemetery crypt s a sae of reaty enttng the ta payer
to the nstament bass when tota amounts receved n basc |
year do not e ceed 4a per cent of gross prce.
G
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Y
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v
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
4
2

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0
0
0
0
8
8
9
3
3
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,

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7
cquescen Ces Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Conney, ames .1
Conney, L. .
Conney, Mary .1
Conservatve Gas Co
Contnenta Lega and Protectve ssocaton
Contnenta O Co.1
Contractors Constructon 4 Suppy Co.1
Cook, zabeth .4
Cook, M. M., estate of -
Cook, P. W -
Cooke, eatrce
Coombs, zabeth M
Coombs, . oward
Cooper, ohn I
Corbett, ott R.
Cornng Trust Co., trustee --
Cornwe, . L
Corrran, ames W., estate of
Cosmopotan ond Mortgage Co.5
Costeo, oseph
Cotton. G. --
Couchman, Wam ennng
Coursey, Parah . W.7
Co , tta
Co , Carre G
Crane, e ander ., estate of
Crane et a., e ander M., e ecutor 1 -
Crews, Chares
Crews, Chares W.
Crews, verett
Crews, verett, .
Crews, Raph W
44081
45833
4 2 7
519 7
05
948
44083
45834
44082
72391
44859
28427
419 3
38579
53044
54740
0228
2 751
447 8
447 9
32 10
40115
4092
29252
30303
80345
44 17
22 40
59 55
7729
70957
71755
9 98
9 98
71718
71718
7
7
7 7
7 7
701
30
30
30
30
30
34
20
25
27
32
25
25
2
24
27
2t
24
35
30
27
25
30
33
31
31
30
30
30
31
33
37
33
37
30
31
33
37
reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
cquescence In oard s decson wth respect to computaton of ncome (or perod anuary 1 to March
N onscqnescence notce pubshed In Cumuatve uetn -2 (1931), revoked.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to ssue nvovng method of accountng used by ta payer.
1 cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
nd to mtaton ssue.
1 cquescence reates to the foowng ssue: Incuson n pettoner s ta abe net ncome for 1930, the
tota proft receved from sae of rea estate by the trust.
1 Nonacquesoence pubshed n Cumuatve uetn III-1 (1934), wthdrawn.
1 cquescence reates to queston whether deducton for depeton n connecton w th deveopment
was propery before the oard under mandates of the court.
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cqt|tescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Crews, Robert
Croker, ua R
Cromwe et a., Wam Neson, e ecutors1
Cronan, Mr. and Mrs. rancs M. --
Crouse, George N .
Crowey, oseph ., e tat of
Crownnshed Shpbudng Co
Cuver, Wmer T
Cunard Coa Co.
Curts, Laura M
D.
Tah, ndrew ., estate of_
Dah et a., .ua, e ecutors
Daey, ugene S., e ecutor
Day, Margaret P
Dana, dwn L
Dana, ra M
Dana, My or
Dancer, dth M., estate of -
Daro Tradng ccount
Davdson, dth L
Davdson, ames
Davs, C. R.8 -
Davs, ohn
Davs Reguator Co
Day, Chares, estate of
Deeds, Chares W.7-_-
De orest, ate R.7-
Deaware udson Co.
Deone, Chares
do Me, Cec . .
702
41121
42 19
78185
4344
51419
35472
18987
37574
2 874
2 875
28792
5 314
44845
44845
2 45
5213
7 9
7 70
5024 S
7045
S1519
72905
1741
72904
10299
32950
20703
72 7
75103
84 3
87383
37 84
50553
50 29
778 5
52995
1291
5122
71951
30
31
33
37
27
2-4
33
2
25
24
24
2
2S
24
24
25
32
30
3
30
30
34
3 1
34
10
20
24
3
31
37
27
20
34
31
1 cquescence reates to queston whether deducton for depeton n connecton wth deveopment
e penses was prop ry before the oard under mandates of the court.
st t e ta decson nonacquescence pubshed n Cuumatve uetn -2 0931), revoked.
state ta decson.
cquescence reates to deductons for addtona royates and offcers saares and drectors1 fees.
Nonacquescence (reatng to communty property agreement) pubshed n Cumuatve uetn
-2 (1938), pages 27 (Docket 71811), 29 (Dockets 9447, 10202,10755), 31 (Dockets 10299, 32950). 34 (Dockets
4017, 53S9, 2029. 5577, 08324). 35 (Docket 10980), 3 (Docket 373 9). 38 (Docket 1 985), 39 (Docket 7435).
41 (Docket 9290), 45 (Dockets 150 5. 3725, 12231). 4 (Dockets 1 9. S335), and 50 (Docket 7359), wthdrawn.
state ta decson acquescence reatas to deducton of attorneys fees n connecton wth the admn-
straton of the estate whch has been estmated and contracted for but not yet pad.
1 Gft ta decson.
Nonacaue cence pubshed n Cumuatve uetn I-2 (1932), wthdrawn.
Nonacquescence pubshed n Cumuatve uetn -2 (1930), page 31, wthdrawn acquesccnoe
reates to communty property agreement.
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9
cquescevces Contnue .
Docket
No.
oard of Ta ppes.
oume.
Dennett, Car P. ...
Dennett, Mare G.1
Denns, rank ., estate of1
Denns, Merry M., e ecutr
Denny, Regnad
Derby Reaty Corporaton
Detrot Trust Co. et a., e ecutors
Dckey, Water S., estate of
Dcknson, bert G
Descher et u ., Samue .
Descher et u ., ugust P.s
DOo, erbert L
Drksen, nna L., e ecutr
Drksen, Theodore ., estate of
Dttmar, mmy
Docktveer et a.. Isdore ., e ecutors and trustees 1
Doernbecher Manufacturng Co.
Dohme, fred R. L
Doe e Shepherd Co., Syndcate No. 3.
Dombrowsk, I-eesa
Dome Co
Domnon Natona ank
Donncv, Catherne, estate of.
Donney et a., Garrett ., e ecutors
Dorc partment Co
Dougas Co., ohn
Downs, Phebe Warren Mc ean.. -
Drake, rancs --
Dre e Packng Co
Droge, Chrstan
Duff, Robert C. -
Duncan, T. P ---
Duncan, Mrs. T. P
Dunham, Water
Dunne, ney Peter
du Pont, Lammot
du Pont, Perre S. --
Durkhemer Investment Co
.
age Pass Pedras Negras rdge Co.
ageton, Mark D
asterwood, r., W. _
71858
72023
502C3
502 3
4951
81213
35472
51 43
35015
4317
85715
8571
58025
59280
17717
17717
3931
50828
34853
43527
4 121
50 07
3 28
71534
S159
41130
78 17
41887
521 5
5 443
5 443
44 55
3872
8 798
4 804
20775
79 32
37552
5921
5924
308
54444
79749
2 99
83290
421 0
79553
40181
341
30
30
2
2
33
35
25
32
23
3
3
32
21
24
32
30
30
31
30
35
2
2
31
31
32
23
3
30
24
35
23
31
31
27
29
3
s
3
23
35
28
cquescence reates to deductbty of osses sustaned by pettoners upon aeged saes of stock to
each other durng the ta year.
state ta decson.
cquescence reates to ssue Invovng deducton of operatng e penses of aeropane and deprecaton
thereon and whether amounts e pended for oostumes. make-up, and wgs are deductbe as ordnary and
necessary e penses.
1 Nonacquescence pubshed n Cumuatve uetn 1937-1, page 33, wthdrawn.
1 cquescence reates to ssue Invovng gan from nventons and patents e changed for cash and stock.
1 cquescence reates to ssue 1 of decson.
) pubshed n Cumuatve uetn I -2 (1930), revoked.
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1
3
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2
2

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2

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10
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
asterwood, r., Mrs. .
nsten, Robert
sendrath, dwn W
sendrat et a., dwn W., e ecutors.
sendrath, Maron
sendrath et a., Rose L., trustees
sendrath, Wam
sendrath, Wam N., estate of
drdge, ce .1
drdge, . S.1 -
even ssocates, Inc
gn Compress Co
ott-Grante Lnen Corporaton
more Mng Co
nameed Metas Co
nns Ice Co.
psten, acob
rb et a., Ray L., e ecutors
vans, . T
vans et a., nson, trustees
vans Products Co
vergreen Cemetery ssocaton.
ason, . M.3
ack, e ander D
as Cty Ice everage Co.
auc Cannng Co...
armers ducatona and Cooperatve State Unon
of Nebraska
armers Lfe Insurance Co.4
armers Loan Trust Co., trustee
armers Unon State change
awsett, Chares
awsett, Chares .
edera Street Peasant aey Passenger Ry. Co.
erguson, arod G
dety Natona ank Trust Co. et a.
dety Savngs and Loan ssocaton.
dety Unon Trust Co., e ecutor
fth venue ank of New York, e ecutor
rst Ctzens ank Trust Co
40182
3417
75489
3G72
3U724
3 727
3 728
3 725
3 724
4779
4778
0971
49302
48212
4 7 8
52972
19011
22021
22022
2 259
42184
70099
292 0
4397
2 4
43044
3072
81324
20452
7 3
20774
1059
18105
27194
31748
43317
294 5
18105
4474
72057
29758
704 3
85 44
85 48
148 2
31801
3940
45215
9193
91
71599
2S
8
28
28
28
28
28
28
30
80
8
31
2
27
25
24
38
29
30
29
29
25
34
2
27
24
30
27
2
30
31
30
24
34
37
23
33
32
32
cquescence reates to Issue whether dvdends decared In 1929 consttuted Income to the pettoners
n 1929 or 1930.
3 cquescence reates to market vaue of o and gas eases on March 1, 1913.
1 Nonacquescence pubshed n Cumuatve -.etn -2 (193 ). page 33, wthdrawn.
cquescence reates to ssue n connecton wth opton payment receved for purchase of and.
Nonacquescence pubshed n Cumuatve uetn M (1934) wthdrawn.
state ta decson.
G
e
n
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a
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e
d

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Y
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k

U
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v
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
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2

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2
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3
0
0
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0
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8
8
9
3
3
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4
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#
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11
cquescences Contnued.
Docket
No.
oard of Ta ppeas.
oume.
rst Natona ank of oston, admnstrator.
rst Natona ank of ey West.
rst Natona ank n Mobe
rst Natona ank of Skowhegan. Mane
sher, Chares D., estate of
sher, Mram, estate of 1
tch, orence
emng, I-amar L.
emng, Margaret . .
orence Manufacturng Co
ower et a., enry C, trustees
ok, . -
ord, yn
ord, Lna
ord, Robert
ord, Sara C
ordvce et a., Wam C, trustce.
orest Products Chemca Co.
orres, Lord
orrester, W. .
oster, L. .
oster, N. C, estate of
oster ct a., Ward, e ecutor
o , ontane
rancke, Chares --
rank, m
rankn Teegraph Co
rankn Tte 4 Trust Co. _
rschkorn Deveopment Co.
uhage, fred .
GafTncv, ames ., estate of .
Garob , .
Gambe, Cec ., e ecutor
Gambe, ames N., estate of..
Gambe, Mary ., estate of
Gambe Stockton
3 438
4 583
4518
3732
771 5
8338
7482
51 70
783 2
7841
15383
2 079
85 49
2839
31018
8707
70738
870
70739
8704
77740
8705
58 47
40 21
40229
43973
73591
4308
32984
32984
71084
5 438
50224
29 95
51947
01 7
7805
3049
35170
42452
1754
83151
47902
0840
55595
0840
42707
25
2
30
35
32
3
29
34
3
25
37
25
33
33
33
33
30
27
25
32
2
2. )
2. .
30
32
27
2
32
30
32
3
2
33
32
33
2
1 state ta defMnn.
1 cquescence reates to Issue Invovng Incuson n Income nterest on the decedent s share of partner-
shp capta, and ncuson In Income the decedent s share of certan commssons earned by the partnershp.
1 cquescence reates to vauaton date for cost purposes of securtes acqured by pettoner under w
of her father.
cquescence reates to ssue regardng fng of separate return for 1925.
1 cquescence reates to deducton for deprecaton on premses and ncuson n year 1930 n pettoner
o s ncome. 17,400 representng renta vaue of premses occuped by hm.
cquescence reates to Issue nvovng deducton of commssons pad on sae of mortgage notes.
cquescence reates to ssue whether ta payer Is entted to the statutory persona e empton as the
head of a famy.
cquescence reates to ncuson n consodated nvested capta of capta stock ssued for a te and
brck manufacturng pant, etc.
G
e
n
e
r
a
t
e
d

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(
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Y
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k

U
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v
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t
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
4
2

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/

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3
0
0
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0
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8
8
9
3
3
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4
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12
cquescences Contnued.
Ta payer.
Gardner, Chares .1
Garron et. a., Isabe . ., e ecutors3-.
Gassner, Lous3
Gaston, Wam
Gay, D.
Ga v, . C
Genera Industres Corporaton
Genera Outdoor dvertsng Co., Inc.4.
George, erome R
George Machnery Co., R.
Gessner, erman
Gbbs, G. Wdy
Gbbs udson, Inc.
Gette Rubber Co..
Gmbe, Dane
Gnsberg, bert
Gnsberg, Nathan
Grard Trust Co., trustee-
Gven, T. ., estate of...
Gadstone Co., Ltd
Gancy, Inc., . R
Gobe Constructon Co.
Godwn, rthur M
God Stock Teegraph Co.
Godberg, arry S.
Goden, dward
Godman, Ma we
Godrng, ohn rnest
Godsmth, Ma
Gordon, fred W_-
Gordon, zze
Gordon, Ma L.
Gordon, Wam S.1
Gore ros., Inc
Gotteb Reaty Co
Graeper, W.
Grand Rver Grave Co
Grant, C. T., estate of.
Grant, arry ohnston
Grant, een .s.
Docket
oard of Ta ppeas.
No.
oume.
Page.
38575
25
1351
47705
2
292
4017
4
1071
f521 3
2309

57
58787
31
580
58788
31
580
79009
35
15
511
32
1011
45240
27
705
1218
2
594
7750
32
1258
31329
28
18
74 83
35
205
/ 43052
50073

483
/ 84542
8547
3
539
27 28
24
18
27 29
24
18
/ 75740
1 7 841

10
5455
29
11 1
79155
35
7 4
2002
31
23
f 43438
1
51 94
) 25
14
I 53310

/ 15 8
70407

485
29470
2
914
5389
4
1073
27 25
24
18
30302
24
915
87498
3
779
59722
29
804
57483
29
275
22332
27
377
22333
27
377
81080
3
202
39538
30
1290
42528
28
418
4 19
27
32
230S5
22
1124
82574
3
1233
51794
30
1028
f 2029
1
5577
29
7 0
1 8324
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
1 state fa decson.
Nonaequescence (reatng to communty propery agreement) pubshed n Cumuatve uetn
-2 (193 ), pages 27 (Docket 71811), 29 (Dockets 0447. 10202, 10755), 31 (Dockets 10299. 32950), 34 (Dockets
4017, 53S9, 2029, 5577, 8324), 35 (Docket 10980), 3 (Docket 37389), 38 (Docket 1 985). 39 (Docket 7435),
41 (Docket 9290), 45 (Dockets 450 5,3725,12231), 4 (Dockets 1 9, 833t). and 50 (Docket 7359), wthdrawn.
cquescence reates to ssue whether pettoner reazed gan on transfer of certan of ts assets to Centra
Outdoor dvertsng Co. for stock of that company.
Nonaequescence pubshed n Cumuatve uetn I -2 (1935), page 31, wthdrawn.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to mtPton ssue.
I cquescence n ssue nvovng oss on account of bad debt owng aw rm.

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13
cqcescences Contnued.
Docket
No.
oard of Ta poeas.
oume.
Page.
Grant, osephne C, Trust
Grauman s Greater oywood Theatre, Inc.
Great Southern Lfe Insurance Co
Green, Robert D. .
Green, W. S
Greenwood, dna M
Greenwood, . P
Grey u Corporaton.
Grffs, Stanton 3
Grffths, va Lavno..
Grffths, George W.
Grffths, ohn
Grppn, Mnne T_
Grswod Co
Groves, Waace
Guaranty udng Loan Co.
Gudeon, Water T
Guf Coast Irrgaton Co. .
Guett, C. ._
Guett, W.
Gummey, rank .
Gurnee, ugustus Coe., estate of T.
aberand, Pau
afner, fred
aev-Oa Coa Co
a, esse G
a, dward T
aaday, Sarah P
amburg, r., Sam
andy, rankn Mer.
anna, R. ., estate of
anna, rgna W., e ecutr
anscom, dward ., estate of
anscom et a., Meve, e ecutors
arbeson Lumber Co., W. .
arkness, dward S
82177
8 728
5 540
40 4
71114
81328
53 47
4378
4 373
3487
81485
81484
4737
38577
3354
42498
82 24
43074
345
8 28
77324
55352
54739
0229
33 94
40081
41343
52517
52518
105
42 19
29289
/ 48389
57132
309 2
825
81118
2 754
30304
810
7 71
7440
2718
2718
44992
44992
3307
51012
51 9
71310
35
37
33
3
24
2
34
34
27
25
30
25
4 37
25
3
33
3
27
32
24
31
31
20
24
25
31
24
3
3
25
24
30
31
31
24
2 4
24
31
448
512
828
719
1017
1209
1209
853
1351
852
1292
317
1292
1109
537
14
754
100
958
10 7
10 7
894
4 1
1370
338
895
1109
398
513
915
1271
112
112
173
173
542
1100
cquescence In Issue Invovng reducthtv 0f Interest pad on matured coupons surrendered.
1 cquescence reates to transactons 1. 2, 3. and 4.
1 cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to fraud Issue.
cquescence reates to a ssues e cept afT tnn Issue.
Nonscq tescence puhshed In Cumuatve uetn II I (11331, wthdrawn.
state ta decson, nouaoquescence pubshed n Cumuatve uetn 2 (1D3I). revoked.
state ta decson.
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14
cqtescences Contnued.
Ta ayer
arness, Mar S
arnscbfeger, enry, estate of 1
arnschfeger et a., Mare ., e ecutors .
arper, . T
arrah, Mare
arrah, Wam
arrs, en 1
arrson, Inc., . M
art, ohn . -
artford- mpre Co.
astngs, Cvo, estate of.
astngs, .
astngs, rederck
atfed, . T
avana ectrc Raway, Lght Power Co_
avard, Chares
awk, enry C, estate of.
awk, Ida W., e ecutr ...
awke, . R
awkns, . C.4
awkns, Mayme4
ay, W.
ayes, ohn ., estate of.
ayman Co.,
azewood, N.
eca Mnng Co
ess, Chares
eck, dwn
emph, Cfford8.
enke Trust, Mrs. Catherne.
enke, enry, estate of
ennngsen, Water
erder, George, estate of
erder, Mary 1 --
erff Dttmar Land Co
oard of Ta ppeas.
No.
oume.
71311
31
1100
9G3
31
224
9 3
31
224
2784
31
112
252 9
27
1305
21 43
27
1305
10980
10
1374
50594
30
455
52795
0115
27
528
29958
4173
2
134
53 00
3789
29
1 3
3790
29
1 3
388 4
27
1305
72788
32
1
40304
42570
34
782
47339
32841
25
11 1
0 90
29
10 1
0 90
29
10 1
7 507
7 508
35
784
81323
34
918
81325
34
918
37499
25
9
7 58
35
230
1 552
25
73
1334
29
595
991
74813
35
454
81179
81997
3
833
5 1 1
32
13
38573
25
1351
3321
33
73
3321
33
73
5 8
2845
30
301
84051
3
934
84052
3
934
0729
8821
32
349
4 80
25
1282
33279
24
475
22341
27
377
ervey, W. R._
ess, Nathane
ettman, Water .
state ta decson.
Nonacnuescence (reatng to communty property agreement) pubshed n Cumuatve uetn -2
(193 ). pages 27 (Docket 71811), 29 (Dockets 9147, 1U202.10755), 31 (Dockets 10299, 32950), 34 (Dockets 4017,
53S9 2029, 5577. 8324), 35 (Docket 10980), 3 (Docket373 9). 38 (Docket 1 985), 39 (Docket 7435).41 (Docket
9290), 45 (Dockets 450 5, 3725, 12231), 4 (Dockets 1 9, 8335), and 50 (Docket 73r9), w thdrawn.
s Nonacqucscence pubshed n Cumuatve uetn I1-1 (1933), page 17, wthdrawn.
Nonacquescence pubshed n Cumuatve uetn -2 (193 ), page 35, wthdrawn.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to Issue nvovng accrua of nterest.
7 cquescence reates to that part of decson hodng that Water . ITcttrnan s not abe as a transferee
and to mtaton ssue.
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15
cqt|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
ewtt, rekne
att, nna ee.
att, P. .
ckman, anne Snyder
ckaan, oward C
man, . D., estate of
man et a., udson McCntoek, admnstrators.
Co
res Co., Chares
obhs, enrv
obbs. Teck
offtr, nta Owens
offcr, T.
offman, acob S., estate of
oander, doph, estate of
oday, ohn
ongsworth, .
oster, George ne
oy Deveopment Co
omby Corporaton
omes, George W
oughton, ansnn
oughton, r., mory, estate of
oughton, rthur .-
oughton, Chares ., estate of
ouston ros.
ouston, George T.
ouston, orace .
ouston Land Trust Co., trustee.
ouston, Php D.
oward et a., ohn
ubbard, dward, estate of
ubbard, Mdred M
ubbard, Mdred M., formery e ecutr .
ubbard, Mdred M., transferee
udson-Duncan Co
ughes, .
unt, orence W
unter, C. W., e ecutor -
unter, George ., estate of-
unter, r., Thomas .4
untngton, enry ., estate of
57032
3141
825 9
825 8
1 253
373R9
2 7
2 7
41728
427 9
45 3
47781
27352
27351
33374
33375
73092
798 2
4127
54282
294 1
42771
52 1
51303
53797
29445
29444
2944
294 5
12052
13104
22008
22009
3321
22007
521 3
2309
3878
75 9
3837
3878
75 9
85220
7335
5 325
45417
45417
58490
45 129
47552
30
35
35
24
27
31
31
2
2
2
2
24
24
3
35
29
27
2
33
28
29
2
2
2
2
22
22
22
33
22
34
30
30
30
30
3
32
35
2
2
33
28
3
1 Nonacquescence (reatng to communty property agreement) pubshed n Cumuatve uetn -2
(ISM), pages 27 (Docket 71811), 29 (Dockets 9147, 10202, 10755), 31 (Dockets 10299, 32950), 34 (Dockets 4017,
S3S9. 2029. 5577, 8324), 35 (Docket 10980), 3 (Docket 373 9), 38 (Docket 1 985), 39 (Docket 7435), 41 (Docket
WW), 45 (Dockets 450 5, 3725, 12231), 40 (Dockets 1 9, 8335), and 50 (Docket 7359), wthdrawn.
1 state ta decson.
1 cquescence reates ony to deducton for busness e penses n 1920 and to number of feet of tmber cut
durng 1919.
cquescence n ssue ss to whether pettoner receved a ta abe dstrbuton from Marsha ed Co.
od anuary 5, 1927, n the amount of 1,118.51.
1 cquescence reates to ssue regardng oss from operaton of a farm n 1925 and 192 and ssue regardng
Increasng defcency for 1925 by amount of nterest accrued on bonds e changed for art ob|ects.
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1
3
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2

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1
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
untngton-Rcdondo Co
untngton, Samue L
unttng, enry R
urbut, . M
urt et a., Mrs. . ., e ecutors.
urt, oe, estate of
utchns, Chares P.1
utchns, Lena C.1
uyer s, Inc
yman, rthur . _
I.
Inos Centra R. R. Co
Inos Power Lght Corporaton-
Independent Ice Coa Co
Indana Lamp Corporaton
Ingas, Chares C, estate of 3
Ink, Mary
Insu, Margaret
Insu, Samue
Insu, r., Samue
Internatona Cgar Machnery Co_
Internatona Mortgage Investment Corporaton,
Internatona Ocean Teegraph Co
Interstate Reaty Co
Irvng Trust Co -
Irwn, Roya W
Isenberg Trust, een L
Isenberg Trust, Pau Otto
Iten scut Co
Iverson, I. C --
Iverson, Ruphane
.
ames, rthur Curtss
ames, Wam L
ens, Laura
ohnson, Chrstopher W._
ohnson, orence D., estate of
ohnson, orence Lndsay, estate of.
ohnson, Wam Perce, estate of
ones, Chester ddson 4
823
7891
75304
71788
28099
28099
49070
490 9
283 9
29154
39841
79557
2023
2991
5 299
59 87
7 39
527 1
57835
75731
8002
8504
8003
8503
08001
S505
71331
7 285
78741
29585
4 272
50981
78189
79044
71373
71374
1 429
20899
48838
48837
18395
70278
75492
75493
759 9
57890
53 34
54083
5020
3
35
32
33
30
30
34
34
24
3
30
34
33
27
2S
2.3
35
32
32
32
3
3
2
25
3
37
35
35
29
29
31
30
30
3
33
35
35
31
cquescence wth respect to hodng that pettoner was not a transferee.
cqu . enco reates to ssue whether pettoner s entted to deduct osses from sae of securtes whch
were purchased by pettoner s wfe and oss from bad debt owng to aw frm of whch pettoner was a
member.
o eseenceas to ssue whether pettoner shoud be aowed to fe hs return on communty property
bass.
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0
1
3
-
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1
-
2
2

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4
:
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2

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17
cqdesce te Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
ones, R. D
ones, Inc., T. R
ordab Co., Inc
.
ammerdner, .
Cty Leasehod t Tmprovement Co.1.
Cty Memphs arms Co
Cty Southern Raway Co. and affated
companes 1
asch, d...
asch, Theodora
e, rank
e, Mrs. rank
e, . oe ..
e, We May
eey, ohn P
ey, Ore R. and Grace .
ent. verett .
esser, . M
bee, O. .
ng County Insurance ssocaton
ng. enretta M., estate of
ngsbury, . R
nnear, Roy
nney Co., Inc. G. R
rby, Lea S.4_-
rermer, uus C
eberg et a., Robert ., e ecutors
eeman, rthur S
nght, . D
no , Sevmour .8
oppe, Morrs D
raemer, Samue
ru, rancs s
uhn. Ida L
unau et a., Oscar . C, trustees
1 cquescence reates to March t, 1913, vaue for purposes of cacuatng pan or oss upon se of and
t ersaes, Mo. whether the nvested capta) of the Smooe Rety Co shoud he ncreased for 1918
and the March 1, 1913. vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co
1 cquescence reates to the foowng ssues: Deducton of contrbutons to Y. M. C. ., Prests of Paace,
and socaton of Raway ecutves and amortzaton of commssons and e penses ncurred n sae
of bonds.
1 cquescence reates to that part of decson hodng that Water . Dettman s not abe as a transferee
and to mtaton ssue.
1 cquescence does not reate to ssue nvovng bass for computng ta abe gan n 1927, 1928, and 1929
from the sae of bonds of the rby Lumber Co.
1 ft ta decson.
1 NoDacqescence (reatng to communty property agreement) pubshed n Cumuatve uetn -2
(1 3 ), pages 27 (Docket 71811), 29( Docket 9447. 10202. 10755). 31 (Dockets 10299. 32950). 34 (Dockets 4017,
W, 52029. 5577, 8321), 35 (Docket 10980), 38 (Docket 373 9), 38 (Docket 1 985). 39 (Docket 7435), 41 (Docket
2S0), (Dockets 450 5, 3725, 12231), 4 (Doekets 10 9, 8335), and 50 (Docket 7359), wthdrawn.
9858
77871
59581
41 43
4 555
35718
510 0
22 8
35527
35528
35529
35530
35531
48293
48293
9 77
9 78
9 81
G9 5
38233
79959
3957
42589
4G0 4
52 40
24882
8801
52 32
5 382
80103
31397
32980
73753
25428
52 32
8841
5 8 5
82450
9323
37822
1 985
32 09
402 7
4815
29
35
3.3
25
17
25
22
2.3
25
31
31
31
31
2
3
2
31
27
37
31
31
3
2
35
27
31
35
28
3
35
25
10
24
27
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2

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2

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18
cquesoences Contnued.
Ta payer.
Docket
oard of Ta ppeas.
No.
oume.
Page.
797 0
35
75
/ 34 30
3 940
25
173
35443
21
1347
71117
32
527
71117
32
527
831
34
337
719 1
30
121
49347
34
1019
75494
33
8 8
40232
25
154
74287
35
243
48413
2
1004
48305
2
881
48871
2
4
210
30
800
09 9
3
11 8
7435
8
298
5 1 3
32
13
2233
27
377
22337
27
377
f 2 717
I 29899
22
1298
54
31
4
75490
3
791
53385
31
4 1
79298
35
391
391 7
24
334
49233
27
735
49233
27
735
51858
25
21
51858
25
21
1821
27
1022
78200
3
1 1
757 5
32
887
44089
30
331
341 1
2
35
/ 377 2
1 40071

798
f 47117
5 027
28
1085
1 2410

/ 3 438
1 4 583
25
252
510 4
29
95
27 30
24
18
40048
2
194
Lard, Roy
Lake Chares Nava Stores
Landers, Dougas ., estate of 1
Lang et a., orence O. R., e ecutors 1
Lang, enry, estate of
Lang, uus C, estate of
Langworthy, Mar|ore C.5-
Lansk, Samue
Lawrence, Gadys G
Lawson, ohn
Lea, een Sperry
Leamngton ote Co
Ledesdorf, Samue D
Leonard odng Corporaton, George ., estate of.
Letts, r., rthur
Levn, bert
Levne, yman 4
Lews, Sr., . S
Ley, George W
Ley, Mary C.5
Lberty arms Co
Lberty osery Ms --
Lchter, ohn
Ldo udng Co., Inc
Lenfed, uus
Lncon, Robert Todd, estate of1
Lppncott et a., . ertram, e ecutors 1
Lppncott, Water, estate of
Lttauer, ugene, estate of
Lttauer et a., Lucus N., e ecutors
Ltte, C.
Lvng unded Trust of arry . Lyman..
Lovd, S. Rose
Loyd, Water --
Loeb, r., et a., Wam, trustees
Loge, oseph
Longycar, r., ohn M_
Longyear, Mary ., estate of
Loughborough Deveopment Corporaton.
Loure, Davd
Luhrg Coeres Co .
state ta decson.
state ta decson acquescence reates to deductbty of fu amount of 1,041.89 addtona Income
ta es accrued on decedent s separate ncome ta return for 1927.
cquescence reates to reorganzaton ssue.
Nonacquescence (reatng to communty property agreement) pubshed In Cumuatve uetn -2
(193 ). paces 27 (Docket 71811), 29 (Dockets 9447, 10202. 10755), 31 (Dockets 10299, 32950), 34 (Dockets 4017,
5389. 2029. 5577, 8324), 35 (Docket 10980), 3 (Docket 373 9),38 (Docket 1 985), 39 (Docket 7435).41 (Docket
9290), 45 (Dockets 450 5, 3725, 12231). 45 (Dockets 1 9, 8335), and 50 (Docket 7359). wthdrawn.
cquescence rchtes to that part of decson hodng that Water . Icttman Is not abe as a trans
feree and to mtaton Issue.
state ta decson: acquescence reates to Issues 4, 5, and 7 of decson.
cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
Income.
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19
cquescbnces Contnued.
M.
MacCaum Gauge Co.
Mackubn, George
Mackubn, Maude P
Magee, dth Grant, Trust ---
Mata Tempe ssocaton 1
Manhattan Lfe Insurance Co
Manstque 4 Lake Superor R. R. Co
Marbara Corporaton
Markham Irrgaton Co.
Marston, dgar L
Martn, C. ---
Martn ote Co. and affated corporatons.
Martn et a., . are, trustees
Martn, T. S., estate of ---
Martns, ndy
Marvn. Water S.4.- --- ---
Pau
Matagarda Cana Co.
Matchette, rankn
Matthews, . P-.- --
Mauch, Russe C, and esse
Maudn, L If --
Mayer, Mark
Mc uffe, gnes
McCahan, Rena S
McCa, orence
McCarter, Uza
McDonne, Stea
McCoo, ess
McDonad, L. G... -
Mc wan, nna
Mc wan et a., nna ., e ecutors
Mc wan, .
Mc wan, Lan G-
Mc wan, W. ., estate of
McGrew, zabeth W
Mcnerney, ohn ., estate of
McLaughn, Thomas
McLennan, . R
McMan, Wam Northrup, estate of
McRae, Louse C, e ecutr
McRae, Php, estate of
Mead Coa Co., C. -
Mehern, P. W.
oad of Ta ppeas.
No.
oume.
Page.
70-137
32
544
83571
3
255
83 71
3
255
82178
35
239
2947
1
408
32910
32
492
35337
29
331
7870
3
519
41344
24
958
19 1
29
97
1735
34
111
1 275
24
899
44583
24
8 2
44583
24
8 2
22334
27
377
38578
25
351
58413
33
843
40082
413 5

958
40710
2
909
2 250
22
858
722 9
35
17
2 239
22
858
78980
3
117
49071
29
24
79039
35
943
47702
2
292
9193
33
304
43478
29
32
4 059
24
50
25427
27
1305
2599
2
727
25997
2
727
25995
2
727
25994
2
727
25997
2
727
2 753
25
513
8327
35
489
59788
29
247
2 730
25
1052
459
27
318
32303
30
1087
32303
30
1087
42718
1
42719
1
28
599
54 0
81035
35
472
Nonacquescenc pubshed In Cumuatve uetn TTI-2 (t 9). wthdrawn.
cquescence reates to a ssuer e cept affaton ssue.
cquescence reates to that part of decson hodng that Water . ettman s not abe
fetee and to mtaton ssue.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred
as a trans-
purchased.
1 state ta decson.
state ta decson acquescence, e cept In so fa as concerns the queston of stus.
cquescence reates to dvdend ssue.
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1
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2

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20
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Meon, . W.1
Memphs Memora Park
Mente, ugene W
Mente, . G
Mente Co., Inc ,-
Mercante-Commerce Natona ank n St. Lous
et a., e ecutors and trustees 3
Mercante Trust Co. of atmore eta
Merr, Isaac L
Messer, Rchard ., estate of
Metropotan dson Co
Metropotan Propertes Corporaton
Mchgan Centra R. R. Co.
Mchgan Trust Co. ct a., e ecutors
Mby Dow Coa Mnng Co.
.4_
Mgrm ros., Inc.,
Mken, Sae Gbbs
Mton, osephne ohnson
Mnneapos, St. Pau Saut Ste. Mare Ry. Co.
Msssspp Packng Co., Inc
Mssour State Lfe Insurance Co.
Mtche, ohn T. ., estate of
Mtche, L. C
Mtche, Oscar 1
Mobe ar Pots ssocaton..
Mobe Lght Raroad Co.7
Monroe Sand Grave Co., Inc.
Montgomery, Robert . and Los C.
Moore, dward W., estate of8
Moore, Louse C, e ecutr
Moorehead, Wam
Moorshead, O
7 499
49259
53458
54701
54708
51305
35443
8338
1722
42513
578 9
45032
19930
42513
22021
22022
2 259
42184
33177
31330
54092
74118
20772
58241
238
74805
41 10
41 80
41874
54 73
7701
81295
4102
420 2
75782
85542
58720
58720
25853
57045
3
28
29
29
29
21
32
31
27
35
24
28
27
24
24
28
35
34
24
29
37
28
27
3
23
3
37
33
33
22
28
cquescence n oard s acton wth respect to the foowng: (a) That |ont account of . W. Meon
and R. . Meon was not a partnershp ( ) deductons of osses resutng from saes to scaot company
(c) that ta payer s return was not fase and frauduent (rf) that ta payer was not durng 1931 the owner of
bank stocks (e) that ta payer s share of payments made n setk-ment of Corbett cam shoud be sub-
tracted from fna step n Unon qudaton n computng ta abe gan therefrom (/) that March 1, 1913,
far market vaue of common stock of McCntc-Marsha Constructon Co. was 300 per share (f) that
ta payer made deductbe contrbutons to . W. Meon ducatona and Chartabo Trust.
state ta decson.
cquescence reates to the foowng ssues: Whether amount pad by New York Centra R. R. Co. to
State of Inos n connecton wth ssuance of bonds was a ta or fee savage recovered from ore docks
credt representng deprecaton on property retred n 1918.
cquescence reates to ssue 1 of decson.
1 cquescence does not reate to foowng sstes: Deducton for reserve set up to meet abty upon
matured coupons ad|ustment of ncome for renta of space occuped n home offce budng and deprecaton
upon such budng.
8 cquescence reates to ssues regardng assgnment of earnngs of Iron mnes n payment of ega servces
and deducton of amount pad to son for aeged servces rendered.
7 cquescence reates to foowng ssues: 1. Whether payments receved by a trustee on behaf of pet-
toner n the ta abe years n accordance wth a wrtten agreement entered nto by and between pettoner
and another n 190 consttute ta abe payments of rent or nonta abe payments on the seng prce of
assets. 2. Whether pettoner sustaned statutory net osses for 1924 and 192 whch can be deducted from
ts ncome for 1925 and 192 , respectvey.
state ta decson acquescence n hodng that the commuted vaues of the Instament poces
n the frst two groups shoud be ncuded n the gross estate.
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2
0
1
3
-
0
1
-
2
2

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4
:
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2

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0
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0
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8
8
9
3
3
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21
cquescence Contnued.
Docket
No.
oard of 1 a ppeas.
oume.
Morgan, r., dwn D
Morgan, atherne untngton, estate of.
Morton, Mary, estate of 1
Mossman, . Pau
Mossman, Wam ., estate of 1
Mountan ew Cemetery ssocaton
Mover, Water W
Muchnc, . ., admnstrator.
Munroe, Grace ohnson
Murchson, Mrs. .
Murphy, Mae . eey
Murray, dward
Murray, Rebecca .1
Murtha Schmoh Co
Musgrove, oyd L
Mutua ssurance Socety of rgna.
Mvgatt, enrv D
Mygatt, Roand

N.
a et at.. R. ., e ecutors
Natona Capta Insurance Co. of the Dstrct of
Coumba
Natona Casket Co., Inc.2
Natona Contractng Co.
Natona M Suppy Co
Natona Packng Corporaton
Natona Te Co
Ne , ames 4 - - - -
Neon ectrca Products Corporaton, Ltd., Caude.
Neracher, George
Netcher, Chares, estate of
Netcher, Gadys Over, e ecutr
Netcher, Irvng
Netcher, Tow-nsend
Newavgo Portand Cement Co
Newbock O Co. of Te as
Newbury, Moc Netcher
Moe Netcher, trustee
I et a., Sterng, e ecutors 1
New ngand Power Co ---
Newman, eage I 78580
Newman et a., Rose, e ecutors 1 50. 98 .51
Newman, Samue, estate of 1 59598 31
I state ta decson.
1 cquescence reate- to deducton of corporaton e cse tarns
1 cquescence n oard s decson that pettoner had the rrht to nocate overhead e penses to each
contract on competed bass and that formua used by pettoner was permssbe and Issue reatve to
TCSfrMMM (reatng to communty property agreement) Pubshed n -
(MM) napes 27 (Docket 71811). 29 (Dockets 9447. 10202, 0755). 31 Dockets 10299, 321. ( .. 4 (Dork, ts 4017,
-T 77: nS 35(Dockct so).3 (Docket 373 9).38(Docket 11985).30(Docket 74 41 (Docket
12231). 4 (Dockets 1 9, mar.), and 50 (Docket 73.19), wthdrawn.
I n Cumuatve uetn 2 (1932), revoked.
7 0
79 52
82242
59747
59747
83757
82588
87119
3789
7 942
2838
38222
4017
8858
40174
58857
17911
42591
43911
7 57
75 4
53044
5 748
50320
24520
37001
31 8
33971
4013
9 90
75 85
74411
38053
38053
38052
38050
3 319
28045
38049
38052
57835
18593
29105
78580
59598
59598
35
34
37
32
32
35
35
29
32
28
2
28
28
17
27
24
35
3
27
2S
29
25
23
24
30
8
. .-.
32
2
2
2
2
27
2
2
2
25
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8
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22
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Tage.
New Market Investment Co.1..
Newton, zabeth .s
Newton, oseph R., estate of 3.
New York Centra R. R. Co. ..
New York, Chcago St. Lous R. R. Co
Nagara Share Corporaton of Maryand
Nbey-Mmnaugh Lumber Co
Ncodenus, r., . C.4
Nppert et fred ., e ecutors and trustees .
Noonan state Trust, . R ---
North Sde Lumber Tmber Co
Northern Coa Co.8
Noycs, ansen
O.
Oakey, Rchard _.
O Connor, Martn P
O Donohoe, ohn
O Donohoe, Mrs. ohn
Okahoma Contractng Corporaton.
Ods, Margaret .7
Omsted, George W.8.
Omsted, Iva C .
Oympa arbor Lumber Co.
Ontaro Reaty Co.1
O Rear, . C.
Oregon Casuaty ssocaton.
Osborne, Owen, estate of10
35719
47703
47705
19932
34437
2040
21047
70813
17527
5232
25 9
55595
2 4
34924
34945
3S574
45778
74383
9 8
9 80
77871
490 8
44090
45745
48121
54714
074
44089
4574
48143
54713
0745
4272
35721
32335
8 401
59957
17
2
2
28
23
31
32
2
32
29
27
24
25
24
35
31
31
35
34
30
30
30
17
28
37
29
213
292
292
437
177
832
791
125
892
710
1187
307
1351
1082
402
212
212
232
845
331
331
114
213
98
340
374
1 cquescence reates to March 1, 1913, vaue for purposes of cacuatng gan or oss upon sae of and a
ersaes, Mo. whether the nvested capta of the 8mcoe Reaty Co. shoud be ncreased for 1918 and the
March 1,1913, vaue for amortzaton purposes of aoosehod beongng to ansas Cty Leasehod Improve-
ment Co.
state ta decson.
cquescence reates to the foowng ssues: Whether amount pad by New York Centra R. R. Co.
to State of Inos n connecton wth ssuance of bonds was a ta or fee savage recovered from ore docks
credt representng deprecaton on property retred n 1918.
N onacqucscence pubshed n Cumuatve uetn I-3 (1932), wthdrawn.
1 cquescence reates to nventory ssue.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
7 cquescence wth respect to hodng that pettoner was not a transferee.
1 cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
ncome.
cquescence reates to ssue as to aowabe deducton of cost of operatng automobe party used n
ta payer s busness n 1924.
Nonacquescence pubshed n Cumuatve uetn I1I-1 (1934), wthdrawn.
G
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2

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8
8
9
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23
cq t|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Pacfc tantc Teegraph Co. of the Unted
States --
Pacfc Coast scut Co. et a.1
Pacfc mpoyers Insurance Co
Package Machnery Co
Page, De Wtt
Pane et a., rancs Ward, e ecutors
Pane, Wam ., estate of
Pam each Mather Co
Pamer, radey W. _
Parke, Davs Co
Parker, Cara ., e ecutr
Parker, George D., estate of
Parkand Ice Coa Storage Co
Parrott, . . .. -
Patterson, zabeth P
Patterson, rank ., estate of
Peavy- yrnes Lumber Co.
Peavy-Moore Lumber Co_
Peavy-Wson Lumber Co.
Peck, Cara S., estate of
Peck et a., remont C, e ecutors.
Pegg, bert CM.
Penn Mutua Lfe Insurance Co...
Pennsyvana Indemnty Co
Pennsyvana Investors Co
Pennsyvana Water Power Co..
Peopes Lfe Insurance Co.7
Perata, ohn M
Perkns, bert T__
Perkns et a., a
2058
71588
78000
54334
78907
34113
34113
43850
2052
2717
58 04
58 04
7 40
30989
7 058
7 580
15824
1 354
25984
15823
1 355
2598
15822
1 35
25985
1520
1521
1520
1521
22338
52577
59 70
71992
207
5 720
9 9
71744
57923
75488
28701
2
32
3
28
34
25
25
24
32
31
31
31
27
28
33
3
25
25
25
31
151
27
32
30
24
3
31
33
3
25
1 cquescence wth respect to deducton of e pense ncdent to amendment of pettoner s charter.
cquescence reates to Issue whether stock rghts were capta assets where the stock In respect of
whch they were ssued had teen hed for more than two years pror to sae cf the rghts.
1 cquescence reates to a questons wheren decson was not whoy n favor of Commssoner e cept
decson regardng e stence of partnershp of George D. Parker Co.
cquescence reates to rght of overrdng royaty owners to beneft of secton 211(b). Revenue ct of
1918.
state ta decson acquescence reates to ssue whether transfer was made n contempaton of death.
cquescence reates to that part of decson hodng that Water . Iettman s not abe as a trans-
feree: and to mtaton ssue.
cquescence reates ony to treatment of renta vaue.
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24
cquescences Contnued.
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
57848
58305
5830
58443
58475
58770
58772
58904
33
0
58905
5890
58907
58917
58918
58925
9855
33
394
3 45
32
442
2 749
25
513
2 748
25
513
54050
28
97
47901
2
995
488 7
29
291
43995
2
472
2512
438 0
28
412
5173
31
403
05 9
9 4
27
1074
7422
44858
30
3
72157
72158
32

81750
3
81
4 585
22
1 1
43889
48984
52094
30
133
55 59
0923
5057
54779

3 0
7 38
27
134
815 8
35
5 8
29274
25
11 1
82425
3
475
(t
27
55
50380
2
509
737 3
34
55
57117
29
113
Perkns et a., Thomas N. _
Perry, oward
Perry, Raymond ., estate of.
Pershouse, ce
Pershouse, Mabe
Peters, ndrew .2
Phps, C.
Phoen Insurance Co
Pctora Revew Co
Pggy Wggy Corporaton.
Ptkn, George P
Pttsburgh thetc Co. --
Pttsburgh Metng Co
Pttsburgh West rgna Ry. Co.
Ptzman Methudy Trust
Pztz Dry Goods Co., Lous
Pant, enry radey
P-M- Petroeum Co.
Poar Ice Coa Co
Ponvert, Lusa Terry, estate of5
Pope, Ove R
Porter, . Staney -
Powe, T. I. are
Powe, en|amn I
Powe, oseph W
Prare O Gas Co
cquescence reates to the foowng
Isar|y part of the defcency as to astern Carbon ack Co., Thompson O Co., . . M. Co., and Davs
ros. Co. due to fraud wth ntent to evade ta
Dd the shares of Interstate Gas Co. stock receved by G. . M. Co. as a dvdend from astern Carbon
ack Co. consttute n part a qudatng dvdend
Nonacquescenco pubshed n Cumuatve uetn II-2 (1933), revoked.
cquescence reates to queston whether certan dvdends receved by the pettoner from the Grts-
wod company are sub|ect to ta nonacquescence as to ths ssue pubshed n Cumuatve uetn
III-2, page 33 (1934), wthdrawn.
cquescence reates to thrd ssue of decson.
1 state ta decson nonacquescence pubshed In Cumuatve uetn 1937-1, page 4 , wthdrawn.
Nonacquescence pubshed n Cumuatve uetn II- (1933), wthdrawn.
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25
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Preston, ohn W_.
Preston, Sara R
Prce, Laura M
Prce, W.
Prophyactc rush Co.
Prosperty Co., Inc.
Prosser, Constance
Provdent Trust Co. of Phadepha, e ecutor
Putnam Trust Co...
Putty, Mrs. Macom
van
unn, orence M
Martn M
Pau
R.
Ramsh, doph
R msh, Inc., doph
Rand, esse ., estate of
Randa, George W., estate of 4.
Randa, Mar|ore G.
Rands, Inc
Rands, Wam C
Rapp, ohn W., estate of
Rauh Reaty Co
Ray O Co. -
Raymond, Raph Lese 7
Re , enry Over
Reardon Sons Co., ohn
Reeord Petroeum Co
Reese, ugusta sb
Remeo Steamshp Co
Rew, George Campbe, estate of.
Reynard Corporaton
Reynods Catte Co.
Rhea, Isaac T
Rhea, Mrs. Isaac T.
Rhodes, erman M .-
Rato Mnng Corporaton
745 0
74559
40 59
41072
3299
47S45
4784
/ 4589
549 8
2 752
59957
34743
09 83
S544
80005
8593
8574
395f8
395 9
81984
5850
7 5
38971
74942
20
884
28 18
32822
34332
79130
802 5
20773
509 2
2424
57728
41404
738
70795
8445
71403
549 0
51959
54899
48092
5 877
21715
35
35
24
24
25
27
25
513
29
374
2
55
31
212
20
970
35
412
2
970
2
970
30
1290
30
1290
3
11 0
4
79
27
475
34
1094
34
1107
24
10 1
2
48
28
1204
34
1171
35
1132
24
37
32
1270
29
5 5
30
579
34
451
30
451
31
20
29
804
29
801
34
212
25
980
24
1280
1 cquescence reates to deducton of oss resutng from qudaton of one of ts subsdares.
Nonacquescence pubshed n Cumuatve uetn III-1 (1034), wthdrawn.
1 state ta decson.
1 Nonacquesceace pubshed In Cumuatve uetn -2 (1931), page 99, wthdrawn.
cquescence n that part of decson reatng to deductbty of oss sustaned n 1924 from sae of res-
1 cquescence reates to Issue
1 Nonacqu escence pubshed n
cquescence reates to deducton for
fo s ncome, 7,400, representng renta
ta abe n 1923 as a trust or as an assocaton.
uetn -2 (193 ), page 44 wthdrawn,
eaton on premses and ncuson n year. 1930 n pettoner
ue of premses occuped by hm.
83421
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2
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Rchardson, my S., e ecutr 1
Rchardson, Chares W., estate of 1
Rchmond, redercksburg Potomac R. R. Co. .
Rdgway, Robert
Rggs Natona ank
Rtter Lumber Co. et a., W. M.
a.
Roach Studos, Inc.,
Roberts et u ., .
Robertson, Cae
Robertson, R. R
Robson, Lester L
Robson, Cara P., estate of.
Rocky Mountan O Co.4..
Rodeo- ae|o erry Co.
Rodewad, . ngsey
Rogers, rown Crocker ros., Inc.
Roaudc, Guano
Rosenberg, Lous .
Rosenboom nance Corporaton ..
Rosshem, Irvng D.
Roth, Gorton
Roth, W. .
Roy Ttcomb, Inc
Rudman, I.10.
Rudman, Rose10
Ruz, M
Rushmore, Chares ., estate of 1
Russe, bert W
Russe, C. C
Russe, Mrs. C. C
C4023
4023
887
770
30003
42833
42834
42835
4283
43 04
43 05
43 0
48749
57319
57320
57321
57322
1750
80 97
4249
42497
53878
2 45
79421
3 411
48528
7 59
75S1
57479
728
27 2
35778
40903
57503
225 8
450 5
29138
85S8
85887
7097
771 4
73423
4 0 0
4 0 1
31
31
33
35
17
30
33
31
3
28
28
33
25
3
24
35
32
33
24
24
31
2
22
24
3
30
30
3
35
24
24
I state ta decson.
cqnoscence reates to Increased deducton for oss on retrements of roadway property.
Nonacquescence pubshed n Cumuatve uetn -2 (1931), wthdrawn.
cquescence reates to ncuson n ncome of o payments reserved by and pad to pettoner s assgn-
ors, for purposes of computng ta abe ncome and aowabe depeton.
cquescence reates to deducton of contrbuton to ctory ghway ssocaton.
cquescence reates to reducton of proft of members of syndcate by the per cent commsson da
syndcate manager and whether porton of the syndcate ncome consstng of dvdends shoud be ta ed to
the ndvduas ony at surta rates.
cquescence reates to hodng of oard that dstrbutons receved from oseph . nch fc Co. war
not parta qudatng dvdends.
I cquescence reates to ssue whether pettoner reazed addtona compensaton on sae of stock of
Warner ros. Pctures, Inc., n 1928.
Nonacquescence (reatng to communty property agreement) pubshed In Cumuatve uotn -1
(193 ). pages 27 (Docket 71811), 29 (Dockets 9447, 10202. 10755), 31 (Dockets 10299, 32950), 34 (Dockets 4017
5389, 2029, 5577, 8324), 35 (Docket 10980), 3 (Docket 373 9), 38 (Docket 1 985), 39 (Docket 7435), (Docket
9290), 45 (Dockets 450 5, 3725. 12231), 4 (Dockets 1 9, 8335), and 0 (Docket 7359), wthdrawn.
cquescence reates to foowng ssues: Incuson In ncome of o payments made to assgnors drecty
by ppe ne companes deducton of cost for cement used n drng o we deducton of drng cost as an
e pense.
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1
3
-
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2

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27
cquescen-ces Contnued.
Ta payer.
S.
St. ohns Investment Co
St. Lous Unon Trust Co. et a., cotrustees.
St. Lous Unon Trust Co., e ecutor 1
Saomon, Leon
Sanders, W. C... -
San Marcos Compress Co
San Martnez O Co
Sanson, arod R., estate of
Sappngton, G. Rdgey
Savngs eature of the Reef Department of the
atmore Oho R. R. Co.
Scatena, vra
Schepp Co., L
Schermorhorn, arret Puman
Schumacher, . P
Scov Manufacturng Co
Scruggs, Gross R
Scruggs, Maran P
Scruggs Investment Co
Scun, ohn, estate of
Seaconnet Coa Co.
Searcs Rea state Trust
Second Natona ank of Phadepha
Securtes Co
Securty rst Natona ank of Los ngees ct a.,
e ecutors
Securty- rst Natona ank of Los ngees, trus-
tee.
Sebert, Ltd
Ses Sportng Goods Co.
Shaffer, C. .
Shand, Gadsden
Shapro, Samue
Shaw, Davd, estate of...
Shea, R. P...
Sheets, Leveret T., estate of ..
Shepherd, Cette G., estate of
Shverck, ane
Sberbatt, Soomon
:of
Docket
No
50 13
5 75
459
3725
12231
2 51
49304
37447
43121
85192
51944
5948
115
3920
42908
43145
59 12
29854
30238
33 10
38711
40270
75524
18089
24489
7 825
40553
45129
8 001
57059
20771
29259
2 238
5158
31499
37835
40034
75223
91
84112
4 335
4737
oard of Ta ppeas.
oume.
30
30
27
4
8
25
31
25
3
25
32
32
25
2
32
25
24
24
24
3
24
25
33
25
28
3
29
24
29
22
29
24
24
35
32
37
28
35
Page.
973
370
318
1109
979
949
273
218
51
1385
295
75
419
1031
1242
2 5
1174
1174
1174
791
307
1115
750
44
289
319
37
1350
858
1012
1235
798
220
208
454
73
815
1 state ta decson acquescence, e cept n so far as concerns the queston of stus.
onacquescence (reatng to communty pro erty agreement) pubshed n Cumuatve uetn -2
(1938), pages 27 (Docket 71S11). 29 (Dockets 9447. 10202,10755). 31 (Dockets 10 . 9f. 32950), 34 (Dockets 4017,
9. 2029, 5577, 8324), 35 (Docket 10980), 30 (Docket 373C0), 38 (Docket 1 985). 39 (Docket 7435), 41
(Docket 9290). 45 (Dockets 45005, 3725, 12231), 4 (Dockets 01 09, 8335), and 0 (Docket 73 9), wthdrawn.
1 state ta decson.
4 cquescence reates to ssue nvovng ncuson of far market vaue of rghts to buy bonds n pettoner s
1 cquescence reates to nventory ssue.
cquescence reates to ssue regardng oss from operaton of a farm n 1925 and 192 and ssue regardng
ncreasng defcency for 1925 by amount of nterest accrued on bonds e changed for art ob|ects.
7 cquescence reates to market vaue of o and gas eases on March 1. 1913.
s pubshed n Cumuatve uetn II-2 (1933), page 25 wthdrawn.
I
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1
3
-
0
1
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2
2

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4
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2

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0
8
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3
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4
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28
cquescences Contnued.
Ta payer.
Smcoe Reaty Co.1
Smmons, II, et a., dward C, e ecutors.
Smmons, dward
Smmons, George W., estate of
Smmons et a., Rchard W., e ecutors
Smmons, Waace D., estate of
Smms, . .s
Smms O Co.
Smms Petroeum Co.5
Sncare et a., een ., e ecutors
Sncare, enry P., estate of
Sncare, r., enry P., estate of
Sncare et a., Murray, e ecutors
Sncare, Regnad
Sncare, Wam, estate of
Sou as Meta Cuvert Co... ---
Spes, asper
1C20 roadway Corporaton
Skewes-Co , dth Page
Sack, . ., estate of5
Sack, r., Wam ...
Soss, atte echt8
Smathers, . ., estate of 7
Smathers Power Typewrter Co
Smth et a., zabeth D., e ecutors.
oard of Ta ppeas.
No.
oume.
Page.
35720
17
213
47210
32
320
47211
32
320
47212
32
320
47212
32
320
47210
32
320
19175
19791
28
988
1497
28
110
149
28
110
37703
2
1359
29252
2
1359
37520
2
1359
37520
2
1359
378 4
2
1359
37703
2
1359
41070
2
1324
72 05
31
709
7883
3
149
1 9
8335
29
1 7
72404
78525
35
271
77004
3
105
4835
33
830
292 0
29
1350
439 8
28
327
39291
49 8
25
291
39291
49 8
25
291
18S7
24
807
22313
24
807
1887
24
807
32578
25
1038
45 94
f 30
33
1121
478
44500
27
897
42592
27
554
29094
2
914
Smth, I. N., estate of
Smth, esse, e ecutr
Smth, Mrs. esse
Smth, Lous, estate of
Smoot, Lews
Sneed, r., . T _
South Memphs Land Co
Southard, enne
Southern tantc Teegraph Co
cquescence reates to March 1, 1913, vaue for purposes of cacuatng Ran or oss upon sae of and
at ersaes, Mo. whether the nvested capta of the Smcoe Reaty Co. shoud be ncreased for 1918
and the March 1, 1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
1 cquescence reates to ssues 3, 5, and 7 set forth n syabus of pubshed decson.
3 cquescence reates to bass for computng deprecaton on assets acqured by Smms O Co. n 1925
from Cayton O ennng Co.
Nonacquescence (reatng to communty property agreement) pubshed In Cumuatve uetn
-2 (193 ). pages 27 (Docket 71811), 29 (Dockets 9447, 10202. 10755), 31 (Dockets 10299, 32950), 34 (Dockets
4017, 53 9. 2029, 5577, S324), 35 (Docket 10980), 3 (Docket 173 9), 38 (Docket 1 985), 39 (Docket 7435), 41
(Docket 9290), 15 (Dockets 450 5, 3725, 12231), 4 (Dockets 01 1 9, 8335), and 50 (Docket 7359), wthdrawn.
1 cquescence n ssue nvovng deducton of attorney s fees pad by decedent.
cquescence reates to the foowng queston: Dd pettoner receve a dvdend from echt roadway
Corporaton n 1929 n the amount of 1,5037
1 cquescence reates to market vaue of o and gas eases on March 1, 1913.
cquescence reates to oard s hodng that bonuses shoud be ta ed as separate or communty property
n accordance wth the cassfcaton of the propertes under the ease and ssue n connecton wth assess-
ment of defcency for 1925.
cquescence reates to ssue nvovng deducton for depeton from advanced royates or bonuses.
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29
cqt|escences Contnued.
Ta payer.
Southern Raway Co. et a.L
r, Georga M
r, . W
dward G
Sperry, mer ., estate of.
y, r., mer
y, Zua ., estate of...
Sprague-Ses Corporaton
Sprague Son Co., C. .
Sprunt Son, Inc., e ander.
Standard eef Co
Conveyor Co.
Standard Isand Creek Coa Co.
M_
Standfer Constructon Corporaton, G.
Stanton, George
Starr, rank C
Stauffen, Theodora ...
Stearns, Robert L
Steegc, W.
Stegeman, .
Stegeman, r., bert
Stegeman, anne L
Stegeman, . M
Stegeman, . R
Stegeman, Mabe
Stegeman, Wam L
Stephenson, Ida
Sternberg, erman
Stevens, ohn
Stevenson Consodated O Co.
Stewart, Maco, e ecutor
Stewart, Nee sperson
Stewart, Theodore
Stfe, rthur C.
Stfe, dward W.
Stfe, enry G.4
Stock Yards ank of Cncnnat
Stockhan, |ah
Stone et a., Irvng ., e ecutors and trustees 5.
Stone, Irvng Lee, estate of
Stoneman, Davd
Storey, . M.
Docket
oard of T ppeas.
No.
oume.
Page.
21481
I
29951
37887-
78
37898

5 320
29
2 3
50321
29
203
74297
35
243
7429
35
243
7429S
35
243
74299
35
243
4200
42434
30
11 5
3494
24
307
38408
24
599
20770
24
37
33159
30393
25
281
40873
35200
35G17
28
90
51 3
30
184
2100
3
112
9259
31
71
2075
25
513
37573
24
1013
7098
30
74
2 43
25
049
2G 50
25
949
2 44
25
949
20017
25
949
2004
25
949
20049
25
949
2 48
25
949
2S25
33
252
5575S
32
1039
29 S5
24
52
4341
23
10
3 45
32
442
8781
35
40
70297
32
00
0738
29
1145
G0739
29
1145
0740
29
1145
41085
25
9 4
22509
2G
31
43S30
20
1
43S30
2
1
27 27
24
18
2813
31
1120
1 cquescence reates to foowng Issues: I. Dd pettoner reaze ta abe ncome from unrefunded
portons of amounts deposted by shppers for constructon of factes for use of such shppers 2. Where
bond| were sod at a premum pror to March 1, 1913, Is the amortzed porton of such premum ta abe
toct e . Dd Commssoner erroneousy e cude from ad|ustment for matera and suppes an amount
c k ent to nfaton contaned n book vaue of such materas aud suppes as were not used durng 1920
1 cquescence reates to nventory ssue.
cquescence reates to ssues regardng reducton of Incomo for fsrn year endng November 30. 1924,
oy|oss sustaned for 11 months endng November 30, 1022, and Incuson n ncome for a years o 1 par
nburst O Gas Co. receved by pettoner as a premum.
ve uetn I1I-1, page 30 (1934), wthdrawn,
to ssue nvovng deductons from gross estate.
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30
cquescences Contnued.
Ta payer.
Story, atherne .1
Storv, r., Neson, estate of 1
Story, Thomas .
Story, Water P.1-..
Straube, . L. -
Street, Raph W -
Stromeyer, Irene
Stromeyer, Wam
Strong, arod C.1
Stryker, Ma II
Stuart, Chares
Stuart, r., Woughby
Sugar Creek Coa Mnng Co.
Suvan, ugene C
Summerfed Co
Summer Tubng Co
Sunburst O Refnng Co
Swenhart, r.mes
Symngton, zabeth L
Symngton, se
Symngton, my
Symngton Son, Inc., et a., T. .
T.
Tabot, . .
Tarafa y rmas, ose M., estate of
Teague, .
Te as Irrgaton Co.4
Thee, Water
Thompson, dward W
Thompson, W. L
Three Rvers Securty Corporaton.
Thrft Reaty Co
Tfft, Chares.
Tfft, Lews .
Tmes-Pcayune Pubshng Co.
Tobey, Maurce
Toerton Warfed Co.
Torrens, ames
Docket
No.
9 1
9 3
9 2
9 0
5 8 7
72 09
55341
55342
3857
8251
5379
738 9
73758
29389
58711
71070
45979
54784
2234
2228
21 1
4878
48787
48788
4S7S9
48889
48890
3 191
82 5
73034
40083
4134
750
51103
51104
44857
44880
50 53
31029
334 4
42310
45957
31030
334 5
42341
45958
48892
49539
27 24
45320
53778
oard of Ta ppeas.
oume.
3
3
3
3
29
3
28
28
25
3
29
32
31
2
29
3
23
29
35
35
3
35
2:1
37
32
24
32
28
28
30
29
25
25
27
24
23
31
state ta decson.
cquescence reates to Issues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to oss Incurred In sae of a boat.
cquescence reates to a ssues e cept affaton ssue.
cquescence reates to ssue regardng deducton of oss sustaned by pettoner durng nonaffated
perod.
cquescence In oard s decson In so far as t hods that pettoner was not ta abe on any part of the
proceeds of the 100 shares preferred stock gven by hm to hs four sons In 1928.
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31
cqt|escences Contnued.
Ta payer.
Tracy, Davd ., estate of
Tracy et a-, Gertrude emer, trustee
Tracy, Wam R
Transcaforaa O Co., Ltd
Tresner, my - -
Trcou, Sac S
Trnty Drng Co.1- --
Tro, nne
Trosk, George
Trost, dward
Trout, . W_
True, dward C ---
TurbevUe, e M._
Turner, atheen M.
Turrsh, enry
Twn e O Syndcate
Twnng, dmund S
U.
Uster Deaware R. R. Co
Unon Lard Corporaton
Unon Pacfc R. R. Co.4
Unon Pacfc R. R. Co. et a. .
Unon Peopes Natona ank of ackson et a.,
admnstrators
54828
2982
/ 54828
2982
45513
73111
G0703
28093
40208
1498
01215
/ 7 25
77204
73848
39020
C8501
43733
47900
55553
4334
45C0
22340
44742
29518
7029
28927
207 9
51530
70183
70219
35 39
35 49
35G84
35 85
400G0
400 1
400 2
7045
oard of Ta ppeas.
oume.
30
30
2. )
37
30
31
33
37
25
28
33
35
34
27
31
31
27
21
2
32
25
24
32
20
30
Page.
115
115
1055
119
15
1ST
411
387
713
1100
598
81
24
1210
71
2S3
377
913
105
000
109
370
383
112
1277
cquescence reates to queston whether deducton for depeton n connecton wth deveopment
e penses was propery before the oard under mandate0 of the court.
equescenee reates to bass for computng deprecaton on assets acqured by Smms O Co. n 1925
from Cayton O Refnng Co.
cquescence reates to that part of decson hodng that Water . etman s not abe as a trans-
feree and to mtaton ssue.
cquescence reates to ssues wth respect to oss sustaned by O. t W. R. R. Co. on e change of and
n Seatte n 1025 amount of oss sustaned by O. W. Raroad Navgaton Co. n 1925 on sae of and
n Mutnomah County, Ores. contrbutons to hospta deportments n f24. 1925. and 192T. smortzaton
of dscount on bonds ssued pror to March 1.1913. and commssons unrefunduhe porton of depost made
wth pettoner n connecton wth constructon of branch ce.
1 cquescence reates to donatons ssue amortzaton of dscount on bonds ssued pror to 1913 com
putaton of ta for 1920.
state ta decson.
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32
cquescences Contnued.
Ta payer.
Unon Trust Co. of Pttsburgh, trustee
Unted utographc Regster Co
Unted States Trust Co. of New York, trustee
aant, the Netcher..
an ken, nne Louse,
an Scken, rederck W., estate of1.
ermont ydro- ectrc Corporaton.
rgna Iron, Coa Coke Co
oge, R. red, estate of
on Gunten, Chrstan W.2
W.
Waker, George ., estate of .
Waker, Lews
Waker Products Corporator-
Waker, R. D
Wa, rank .3
Ward Uros. Co
Warner Co.4-
Warner, Raph C
Washngton, Sr., George
Washngton Market Co
Waterbury, Charotte M.5
Waterbury, Donad N.
Waterbury, ugene W. -_
Waterbury, Whtford N. -
Watson, r., ohn -------
Wayne County ome Savngs ank .
Weddng, G. G
Weeks, anson
Wes, Samue W.
Wes, Thomas .7
Whecock, R. L
Wheeock, Mrs. R. L
Whte Oak Transportaton Co.8
Whtman, Ward Lee Co
Whtney, Rchard
Whtney, Ward M
Whtson, Thomas
Docket
No.
1009
30384
2 747
2 757
38051
7 894
79334
82545
59 38
5157
5 1S2
1378
318 9
73728
4485
7 7 2
7359
30992
53039
53040
59190
2510
83712
43912
73381
73380
73383
73382
53414
49144
5 442
391
212
78829
3780
37805
18088
1552
7 1
37927
40233
oard ot Ta ppeas.
oume.
29
27
25
2
35
3
29
29
31
28
23
35
30
34
4
24
2
31
30
25
33
33
33
33
27
2
32
31
30
34
28
28
21
29
35
2
25
1 state ta decson.
Nonacquescence pubshed n Cumuatve uetn II-2 (1933), page 27, wthdrawn.
1 Nonacquescence (reatng to communtv property agreement) pubshed n Cumuatve uetn -2
(193 ), pnges 27 (Docket 71811), 29 (Dockets 9447, 10202, 10755). 31 (Dockets 10299, 32950), 34 (Dockets 4017,
53 9, 2029, 5577,08324), 35 (Docket 10 S0). 30 (I ocket 373U9), 38 (Docket 1 9S5), 39 (Docket 7435), 41 (Docket
9290), 45 (Dockets 450 5, 3725. 12231), 4 (Dockets nf ,9, S335), and 50 (Docket 7359), wthdrawn.
Nonacquescence pubshed n Cumuatve uetn II-1 (1933), wthdrawn.
cquescence reates to ssue as to basc vaues of stock.
Nonacquescence pubshed n Cumuatve uetn I-2 (1932), revoked.
Gft ta decson nonacquescence pubshed n Cumuatve uetn - (193 ), page 43, wthdrawn.
cquescence reates to nventory ssue.
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33
cquescence. Contnued.
Ta payer.
Docket
Nu.
oard of Ta ppeas
oume.
Wco , C.
Wams, r., ford
Wams, ma 1
Wams, a
Wams, L.
Wams, R. L.1 -
Wams, W. W
Wamson, e ander
Wamson, rchbad (Lord orres)
Wamson, esse C.
Ws, Mary
Wson, enton
Wson 4 Co., Inc., of Caforna
Wson Co., Lee
Wson Commsson Co
Wson urs, Inc
Wson, George S., estate of4
Wson Shpbudng Co.5
Wnne, Water G
Wnsow, Mary N
Wof, . C - -
Wood, red T
Wood Lumber Co., .
Woodard, ohn S.
Woodward, rthur P
Work, orace IL. estate of
Wray, za
Wrght, George M
Wrght, Leonard Marsha
Y.
Yazoo Msssspp aey Ry. Co..
Young, the P
Yukon aska Trust
Z.
Zmmerman, ohn
Zmmerman, Sarah .
Znsser Co
4 371
S15
84001
29273
58789
84000
4G0 2
40231
43972
40229
43973
80545
CC718
52f,94
2G7GS
3382G
207G7
57058
50828
34337
0900
7 059
5 439
38808
23 05
2415
719G2
54741
0227
81027
25881
25854
45508
2023
2991
388 8
341 1
82491
82488
5242
27
80
29
892
3
934
25
11 1
31
580
3
934
24
50
25
154

154
34
8
f 30
15
1 31
187
33
441
I 37
387
33
49
24
37
25
840
24
37
29
319
30
113
25
182
27
3 9
33
57
32
13
27
1 2
25
1013
30
121
32
100
34
741
24
94
22
858
2G
21
30
34
24
20
30
3
21
1 cquescence reates to ssue Invovng accrua of Interest.
1 cquescence reates to capta net gan Issue as to stock sod n 1933.
cquescence reates to queston whether deducton for depeton u connecton wth deveopment
e penses - us propery before the oard under mandates of the court.
state ta decson.
1 cquescence does not reate to ssue 5 of decson.
1 cquttance reates to reorganzaton ssue.
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2
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1
3
-
0
1
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2
2

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4
:
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2

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0
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3
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4
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34
The Commssoner has wthdrawn hs acquescence n the foowng
decsons of the Unted States oard of Ta ppeas:
oard of T
oume.
ppeas.
Page.
Ta payer.
Docket
No.
Wade, eptha ., estate of 1
45008
45008
431 4
431 4
22
22
21
21
1093
1093
339
339
Wade, r., et a., eptha ., e ecutors 1
state ta decson acquescence pubshed n Cumuatve uetn -2 (1931).
The Commssoner does NOT acquesce n the foowng decsons
of the Unted States oard of Ta ppeas:
Ta payer.
Docket
No.
oard of Ta
oume.
Page.
24
8
24
8
24
512
25
850
33
373
27
1091
25
243
24
457
22
1121
30
1182
33
245
30
529
30
939
31
4 5
14
328
27
24
2
849
31
533
2
10 8
27
837
27
837
27
837
beson Reaty Co., Inc.
beson s, Inc
ckcrman, Irvng C.
ameda Park Co
bers, Wam .1
brecht et a., atherne ., e ecutrces
ker, era M. oher
ed urrers Corporaton
mercan rck Te Corporaton
mercan Centra Lfe Insurance Co. _
mercan Gas ectrc Securtes Corporaton
mercan Idea Ceanng Co
mercan Raways Co
mercan Refrgerator Transt Co.
mercan Seatng Co.4
mes, r., Ward
partment Corporaton
ppeby, rancs S
rabo Manufacturng Co.
rchbad, dward
rchbad, oseph
rchbad, r., oseph
53792
53793
30311
31C34
40948
40949
8355
74759
41295
3 11
50059
29994
30133
31998
5 024
0343
2004
49205
7 2
4782
7 02
728 1
14 7
49817
42024
73089
50489
1 0
50 4
1 1
50 2
1 73
50 3
1 Nonacquescence reates to ssue concernng oss on sae of stock of . Nash Co.
1 state ta decson nonacquescence reates to State nhertance ta ssue.
1 Nonacquescence reates to ssue whether certan funds denomnated Insured s persona beneft fund
were reserve funds requred by aw and ssue whether the pettoner s abty on outstandng unsurren-
dered unpad coupons consttutes a reserve fund requred by aw.
cquescence pubshed In Cumuatve uetn III-2 (1929), wthdrawn.
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35
Nonacquescences Contnued.
Ta payer.
rmstrong. Wam M
shton, Ward .
tas Lfe Insurance Co
ato Strop Safety Razor Co., Inc.
yer, enry S., estate of 1
.
abson, red
abson, Gustavus
abson, enry
anger, esse M., e ecutr
anger, Water ., estate of
atmore Oho R. R. Co.
ank of Caforna, Natona ssocaton.
Trust Co., trustee...
arradae, . Morgan
artett, . emp
ashford, Raymond I
ass, rancs M
ateman, . L
ay, Robert P
ebb, Rchard ., estate of .
ebbc, unus, trustee
ebbe, Marcus, estate of
echtc, enneth
echte, Stephen D
ehan, Thomas W
efast Investment Co.4
e, rederc D., estate of...
Docket
No.
40419
39148
40544
40751
7199
57374
78778
79152
79153
52224
52223
52222
32177
32177
37239
55537
0 99
32459
7737
3 32
715 5
73 2
47772
014
41295
52707
52707
75485
7548
75128
19128
9534
3805
oard of Ta ppeas.
oume.
11 17
45 1
S7 38
7259
47415
5SS71
59f 0
9803
42.513
3711
55902
53122
52221
52220
751 13
43150
4014
49891
25
28
29
28
3
27
27
27
23
23
30
30
24
34
28
33
30
34
28
27
20
20
34
34
32
17
31
32
22
e 4 Sons, Samue
enaga, rthur and se
eresford, ven een dc a Poer, estate of5
erkeey a Schoo, Inc
ndey, Mary M., estate of
smarck Trbune Co
ar, C c Chares
ar, dward T - --
ss, Sydney R.
ss, aentne
um, esse
um, Davd
umentha, arry S
oard of re Underwrters of the Cty of Duuth..
oca Cega Deveopment Co
oehrngcr, Rudoph 1
1 state ta decson.
1 onacquwcence reates to
md structures.
1 state ta decson nonaennoseence reates to SI ntc Inhertance ta Issue.
4Nouaoqucscenoe n Issue as to whether pettoner s entted to deducton for amortzaton of the I
tnct warehouse for 1918.
nee reates to Issue Invovng reorganzaton.
3
31
31
28
33
29
31
2
2
29
29
34
2
25
29
uctbty as e cuse for year 1920 of amount for mantenance of ways
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3
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
oeng, Wam
onwt, Pau
oo, S.
ooth, en S
oston Safe Depost Trust Co. et a., e ecutors
owen, dwn L.3
ownan- more otes Corporaton
owman ote Corporaton
rackman, . W
radbury, I. C
rskey Co
rtsh- mercan Tobacco Co., Ltd
roadway- rompton udngs Lqudaton Trust
rookyn Cty R. R. Co
rookyn - ueens Transt Corporaton
rookyn Rado Servce Corporaton
rooks, Regnad
rown, rank ., estate of
rown, . (
rown, arry
rown, Pear ., e ecutr
rownng, ohn N
rownng, S. P
uchsbaum, Wam
uck, ohn ., estate of3
uck et a., Mary M., e ecutors
uckhardt, ugust
uffao Unon Iron urnace Co.4
uock, George 5
ungc North mercan Gran Corporaton
urdctte, Cara
urey, anche ., e ecutr
urr, dward L
usness Rea state Trust of oston
uter- etch Co
881 7
53 1
4 91
70951
819 1
49272
2985
41472
43 29
10 51
24912
28971
3800
45714
45780
0899
41224
82818
20353
20353
01229
85 0
47 77
33343
4813
47 77
72713
72714
7488
32584
44153
44 S4
3 - :, 5
41153
44084
7 255
10075
1 07
31209
47800
37321
41909
5S795
334 9
42084
50305
451 9
45170
37
33
34
3
30
33
24
24
24
23
29
27
34
27
27
31
31
2
25
2
20
31
31
30
25
2. ,
32
23
23
27
25
20
2
25
23
Nonacquescence reates to ssue Invovng reorganzaton.
1 Nonacquescence reates to ssue whether gaus on sae of stock of the Waterbury Chemca Co. were
ta abe to pettoners or to trusts created by thcn.
state ta decson nonacquescence reates to deduct on of amount of a cam fed aganst the estate
and aowed by probate court.
Nonacquescence reates to ssue regardng deducton from gross ncome of fsca year ended pr 30,
1919, of reserve for renng bast furnaces.
1 Nonacquescence reates to ssue 1 of decson.
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37
Nonacqt|escences Contnued.
Cadwaader, Marv een
Cadwaader, r., Ichard M.
Cambra Deveopment Co.1..
Carey, Robert
Carcv bre Products Co., merson.
Carey-Reed Co
Carey Sat Co
Carro, .
Carro, Lena Carter
Carson state Co
Canon, ohn
Canon, Rose L
Carter, . L
Carter, . L., admnstrator
Carter, Mrs. . L -
Carter, . -
Carter, LUe N -
Carter, Maude ., estate of
Carter, r., W. T
Case, Montgomery
Casses, Robert
Centra Market Street Co. -- -
Centra Unon Trust Co. of New York, e ecutor
Centra Unted Natona ank
Champon, Davd .
Champon, T. Perre
Chander, Constance
Chander, arrson Gray.
Chander, een
Chander, Maran Ots
Chander, Norman
Chander, Php.
Chapman, C.
Charavay, Marus
Chemca Natona ank of New York.
Chenowth, . C
Chcago Dock Cana Co
Chcago North Western Ry. Co.
Chdaw, arry
Chrstensen, Nes
Cark, Percy
Cark Thread Co.
Docket
No.
40327
71800
75411
54033
C432
7415
30381
8393
30382
51SS0
51881
47444
53489
45393
45392
51882
470 9
51883
51S84
51885
470C9
5188
7581
58793
24837
3173
9212
710 3
555 9
03818
555 8
7471
7470
7475
74C8
7473
747
5249
70005
71592
45004
38349
482 8
30343
9782
72424
5177
38903
oard of Ta ppeas.
oume.
27
32
34
31
2
3
2
27
27
31
28
28
27
. 7
27
27
27
27
27
34
2
25
25
33
27
27
32
32
32
32
32
32
28
29
30
2
32
22
29
33
31
28
1078
1157
1155
839
75
3
75
5
5
07
23
23
5

5
5
5
5
5
1229
1401
499
757
588
1312
1312
720
720
720
720
720
720
53
1255
178
301
231
1407
109
79
1082
1127
1 Noracmeecence reates to Incuson n cost of rea estate ots the estmated cost off uture e pendtures
or contractua mprovements.
1 Nonaequescence reates to Issue regardng oard s |ursdcton of subsdares.
1 N oDacqoescence reates to ssue whether redempton of stock was equvaent to ta abe dvdend.
Nonacqutescence reates to foowng Issues: Undermantenance proft and oss on bonds retred
unoruraton of bond dscount
N onacquescencc reates to Issue respectng deprecaton.
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1
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2

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38
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Tat ppea .
oume.
Caude Neon Lghts, Inc.1
Ceand state Co., Inc., enry . .
Covs, C.
Coastwse Transportaton Corporaton,..
Cobegh, Margaret dwards, estate of
Cochrane, Davd .
Coorado Southern Ry. Co.
Coumba Pacfc Shppng Co
Coumbus rck Te Co.s.
Commerca Garage Co.
Commerca Investment Trust Corporaton .
Commonweath, Inc
Communty ond Mortgage Corporaton..
Communty Mausoeum Co.8
Communty Teephone Co
Communty Water Servce Co
Cone, dward
Conney, ames . .
Conney, L. . . --
Conney, Mary .
Cont, Lucana--
Cook, zabeth .
Cook, Sam
Cooper, . T.
Cosmopotan ond Mortgage Co.u.
Coughn, R. Lawrence and veyn W.
Coursey, Sarah . W.13
59391
33585
40890
51197
8433
3991
407 5
0428
21974
509 8
42707
41 4
43495
50051
882 4
43784
70384
775 8
775 0
58777
44081
45833
402 7
519 7
05
0948
44083
45834
44082
79793
38579
35014
3144
44 17
7 10
71755
35
29
32
28
24
2
3
29
20
22
28
3
27
33
32
32
2
30
30
30
35
25
25
7
30
32
33
424
43
4
725
17
11 7
1248
9 4
794
793
143
850
480
19
1 4
1 4
1401
331
331
331
28
1351
92
798
717
Nonacquescence reates to Issues (1) the acquston by pettoner of stock of the eows Corporaton
and tho Caude Neon edera Co. (2) the Caude Neon Lghts of Maryand, Inc., transacton nvovng
the e change of property for stock.
Nonacquescence reates to bass for determnaton of gan or oss on the sae of property devsed sub|ect
to a fo estate.
state ta decson.
cquescence pubshed n Cumuatve uetn II-1 (1933), revoked.
Nonacquescence reates to the foowng Issues: Dd pettoner and affated corporatons make e -
pendtures n 1920 to rehabtate I ts propertes for undermantenance durng edera contro, for whch
they were aowed 750,004 n fna settement wth the Drector Genera of Raroads, and f so are such
amounts deductbe n determnng ta abe ncome for 1920 and the computaton of net ta abe ncome for
tho months of anuary and ebruary, 1920, sub|ect to the rate of ta appcabe to corporatons whch were
under edera contro.
Nonacquescence reates to Incuson n consodated Invested capta of capta stock Issued for promssory
notes.
Nonacquosecence reates to deducton In 1928 of e cess of market vaue over sae prce of stock sod to
empoyees.
Nonacquescence reates to Issue whether the fna nstament on the sae prce of mausoeum crypts
to be retaned by a trustee as a perpetua care fund shoud be e cuded from the fu contract prce In com-
putng proft, the ta payer reportng on the accrua nstament bass.
Nonacquescence reates to ssue nvovng the amounts pad to stockhoders by . G. Ourts Leather
Co. upon canceaton of certan stock.
Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tuns
and under the same agreement.
cquescence pubshed In Cumuatve uetn II-1 (1928), wthdrawn.
11 Nonacquescence reates to Issue Invovng commssons charged on rea estate oans.
Nonacquescence reates to the foowng ssue: Computaton of ta abe proft to pettoner from sae of
and by the trust durng 1930 on the bass of the vaue of sad and as of March 1,1913.
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)

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2
0
1
3
-
0
1
-
2
2

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4
:
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2

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30
Nonacquescenoer Contnued.
Ta payer.
Crews, Chares W. __.
Crews, verett .1
Crews, Raph W.
Crews, Robert :1
Cre, Grace Me rde..
Crspn, Mrs. gerton.
Crosby, Oscar T
Cros3, Maurce
Cunard Coa Co. .
Cuppa, erome C
Curee, Sheby ., trustec-
Curren, ector McGowan.
Curts, Cyrus .
Cza|ke, I. T., transferee.-.
Dah, Chester T., estate of
Daton, . G
Dana, Chares
Darng, rank W. and Mrs. rank W.
Dashe, C. R
Davdson, Watson P
Davs, rederck .
Davs, Thomas L
Day, Chares, estate of4
Dean, Mason L
Dearng, Rov ., estate of 5
Dearng, R. ., estate of
Dearng Trust state, R. .5 .__ _
Dearng, Mrs. R. .s 1
Dearng, Ws R.s __
Dearng, Mrs. Ws R. __
Dcgener, ohn ., estate of
Degcner, r., et a., ohn ., e ecutors 3.
De Lsser, orace, estate of7
de Me Productons, Inc., Cec . .
de Me Productons, Inc., Wam C.
Dennett, Mare G.
Denny, Regnad a
Docket
No.
7
7 7
0701
702
4313
452 7
51317
32735
2 874
2 875
28792
58545
48S33
8182
8 13
4 39
81902
4711
70953
7 99
79254
7505
4 48
37324
37395
75102
1205
9S32
84195
84194
84193
8419
84192
84197
38500
38500
2459
5290
1290
5123
53108
1321
72023
4951
oard of Ta ppeas.
oume.
37
37
37
37
2
2S
27
24
2
2
28
34
3
33
35
34
3
34
3)
27
2
24
34
35
3
30
30
30
30
30
20
20
2
31
30
30
33
1 Nonacquescenee reates to ssue In respect of aowabe deducton for depeton.
1 Nonacquescenee reates to e pendtures for mne equpment.
1 state ta decson.
state ta decson nonacquescenee reates to deducton of baance due on pedges made by decedent
durng hs fetme to certan chartabe and educatona nsttutons.
Nonacquescenee reates to ssue whether far market vaue of o payment contracts taken as compen-
aton for drng o and gas wes for others by a partnershp s ta abe as ncome.
Parta acquescence pubshed n Interna Revenue uetn 1938-1 . page 1, wthdrawn.
T state ta decson acquescence pubshed n Cumuatve uetn -2 (1931 , recaed.
1 Noracqucscence does not reate to the case of Constance . de Me, Docket 71952, whch was dsposed
of by stpuaton.
1 Nonaequescenoe reates to deductbty of 10,000 because of the fact that a bond n whch pettoner
tad nvested became worthess In 1930, athough that fact was not ascertaned unt 1931.
u Nonacquescenee reates to deducton of amount e pended for denta brdge work and amount e pended
s keepng pettoner In frst-cass physca condton.
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40
Nonacquescences Contnued.
Tatmycr.
Depew, Ganson
des Cognets, stee
dcs Cognets, Lous, estate of
Des Mones Improvement Co.1.
Descher et u ., Samue .s
Dcscher et u ., ugust P.
Dohrmann, ndrew . C
Doomte, Inc
Donner, Carro R
Donner et a., Carro ., e ecutors
Donner et a., Carro ., guardans
Donner, oseph W
Donner, r., oseph W
Dort, . Daas, estate of
Dougass, oward W., estate of 3
Drawoh, Inc
Drver, Sr., rank L., estate of
Drunheer, George -
Duff, Robert C.4
Dunnng, enry .
Dunham et a., Lucy ee, e ecutors1.
Dunham, Mary rgna, estate of
Dye, Carke
.
ast Coast O Co., S.
ckhart, ernard ., estate of 5.
dson Securtes Corporaton..
dward Securtes Corporaton..
dwards Drng Co
fert, ar C
nhorn, Ma
drdge, ce . --
drdge, . S.
khorn Coa Co.
kns, ae D.7
kns, Wam L., estate of
s, R. R., estate of
y, zabeth Tayor
merson, Sgurd
mery, Mary M., estate of 7
Docket
No.
qutabe Lfe ssurance Socety of the Unted
States
qutabe Trust Co., of New York, ancary admn-
strator 3
508 0
70892
70889
8573
85715
8571
20 58
239 9
0 1
0237
023
0235
023
0235
44735
40031
45014
70574
41515
45752
37552
83459
4 03
74911
58180
7 443
52 2
7120S
75931
45781
73893
4779
4778
490 4
39255
5 449
79 7
7 54
77307
I 77309
40899
31110
33241
57S 7
7259
oard of Ta ppeas.
oume.
27
34
34
7
3
3
19
19
28
32
32
32
32
32
2
30
28
3
27
23
3
2
33
31
33
29
3(1
35
23
3
30
30
34
24
28
31
33
35
25
33
31
cquescence pubshed In Cumuatve uetn II-1 (192S), wthdrawn.
Nonacquescence reates to ssue whether wves of pettoners are |onty abo for defcences when
|ont returns aro fed.
state ta decson.
Nonacquescence reates to ssue 2 of decson.
Nonacquescence reates to deducton of oss In transfer of securtes to a corporaton n whch pettoner
owned a the stock e cept quafyng shares.
Nonacquescence wth respect to the hodng that there was a reorganzaton.
cquescence pubshed n Cumuatve uetn I-2 (1932), revoked.
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41
Nonacquescences Contnued.
rb et a., Ray L., e ecutors .
the D. Co-..
usts, ugustus .2
venng Star Newspaper Co...
: Wam
.
armount Cemetery ssocaton
arsh, Lbbe Rce
arsh, W. S
armers Cotton O Co
armers Lfe Insurance Co.
edman, enrv O
erree, C. -
dety- ankers Trust Co
dety k. Coumba Trust Co., trustee
dety Unon Trust Co. et a., e ecutors 4.
ed, Marsha
fth venue ank of New York, e ecutor.
fth Street udng
rst Natona ank n St. Lous
rst Natona ank of oston, admnstrator .
rst Peopes Trust..
sher sher, Inc
sher, Irvng
tzgerad, Thomas
ahertv, Wam, estate of, and a
etma nn, Wam M., estate of4
etmann, r., et a., Wam M., e ecutors
emng, Lamar L.
emng, Margaret . .7
emng, Wam
emng, Mrs. Wam
etcher, Saathe R
ntermann, Car . L., estate of 4_
oey, Thomas ., estate of
oger Co., .
Docket
No.
292 0
32032
71 37
1870
855
2 75
30925
42811
81145
8114
42 79
43317
45359
1542
83421
5041
5042
7223
3 908
9534
1 27
292 4
45537
44278
48078
4474
45403
0929
1 22
2075
79397
28419
28449
783 2
7811
1042
5 7
1043
5 77
33011
7551
7217
f 22
oard of Ta ppeas.
oume.
29
27
30
28
2
2r,
3
3
27
27
28
32
37
30
31
2
31
32
24
23
25
2
32
30
29
35
22
22
34
3
31
31
24
32
34
1 1/
1
1 Nonacquescence reates to the foowng Issues: Reducton of cost bass (March 1, 1913, vaue) of assets
s M by a partnershp n 1919 by deprecaton aowed n computng ncome for perod March 1, 1913, to
December L, 1915 computaton of 1919 partnershp proft on sae of assets by consderng as part of the sae
pce ta es of the partners pad In 1920 by the vendee.
cquescence pubshed In Cumuatve uetn III-2 (1934), wthdrawn.
onacquescence does not reate to ssue In connecton wth opton payment receved for purchase
c tad.
state ta decson.
1 cquescence notce pubshed In Cumuatve uetn -2 (1931), recaed.
Nonacquescence reates to ssue nvovng ncuson In Income the decedent s share of profts of a part-
nershp of whch he was a member up to the date of hs death.
otacquIesceDce reates to vauaton date for cost purposes of securtes acqured by pettoner from
a trast under her grandfather s w.
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42
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
oger state Co
orest Gen Creamery Co
oster, Carone ., estate of 1
oster et a., Chares . W., e ect
oster, L. .s
ounders ssocates
o , ontane
o Rver Paper Co
tors 1
rankn Tte Trust Co.4.
ranks, ack M
uhage, fred .5...
uer, van T
urnture Corporaton of merca, Ltd.
G.
Inc.1
Gae, my
Gambe Stockton Co.
Garcn, dward
Gardner, Chares .
Garrc, Dane T., estate of
Garvan, ohn oseph, estate of1..
Gary, rgna ., e ecutr 1
Genera Machnery Corporaton..
Gencra Motors Corporaton
Genera Outdoor dvertsng Co.,
Genera Uttes Operatng Co
Gerard, re
Gerhardt, Php L --
Gerach, Theodore R
Gerste et a., Mark L.
Grard Trust Co., et a., admnstrators.
Gaddng, Mary D., estate of
G. M. S. Co
Goet|en Metson Co
Goforth, Mary
Goforth, R. S ---
Godberg, arry S. -
31200
, S. . 17
51833
4 072
4GG72
4308
2 84
710S4
20878
51947
01 7
7805
53 85
1754
73759
72800
72801
1 72
42707
21 57
38575
3173
4474
40031
70449
52821
511
52770
45221
77375
f 38042
I 41 11
10 2854
75 24
31435
1 383
17875
5231
5231
5389
27
33
2
2
2
29
30
28
32
32
32
31
30
27
2
22
25
25
25
30
33
35
32
20
28
34
27
33
32
27
2
2.
32
stnte ta decson.
Nonacquescence reates to deductons n 1924 and 1925 on account of osses resutng from aeged saes
of securtes.
1 Nonacquescence reates to ncuson n Income of corporaton for years ended March 31, 1930, and
March 31. 1931, amounts representng renta of premses occuped by ts presdent.
Nonacquescence reates to the queston whether rankn ond Mortgage Co. was entted to deduct
commssons pad on the sae of ts bonds nstead of proratng cost over the fe of the bonds.
Nonacquescence reutes to ssue whether redempton of shares of stock represents payment In parta
qudaton of a corporaton or a ta abe dvdend.
Nonacquescence reates to ncuson n consodated Invested capta of capta stock ssued for proms-
ory notes.
7 Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
1 Nonacquescence n ssue nvovng counse fees pad n connecton wth tgaton.
I Nonacquescence reates to the foowng queston: re pettoners entted to deduct on ther ndvdua
returns the operat ng and capta osses sustaned by rea estate syndcates of whch Ihey were members
nd 19 reated dockets.
II cquescence pubshed n Cumuatve uetn - (1931), wthdrawn.
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1
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-
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2

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43
Nonacquescences Contnued.
Docket
No.
oard of Ta ppeas.
oume.
Godschmdt, enry P., estate of 1
Godschmdt et aL, Georgette, e ecutors .
Goodae, Water S
Goodan, May Chander
Gordon, ertha M. ...
Graham M.
Great Southern Lfe Insurance Co. .
Great Western Power Co. of Caforna.
Green, .
Green, Robert D.4
Greeneaf Te te Corporaton
Gregory, veyn
Greve, Wam M
Grfs, Stanton 5
Grffths, George W.
Grosvenor, Theodore P
Gutar Trust state
Guf Coast Irrgaton Co. .
Guf, Mobe Northern R. R. Co. .
Gund, arone ., estate of
.
ackfed, ohann redrch, estate of 10_
agerman, Staney
ae, rnest
ae, R. W.
ae, W. T--_.
a, arry . R., estate of
a, Martha M
aock, enry, estate of10.
G. an
es C
1 133
1 133
7845
7472
81081
38335
5 540
40 4
71114
48 17
74910
53 47
4 74
55299
75 8
38577
82 24
0381
35102
33 94
40081
41343
24887
42150
70891
77997
7S023
7105
7750
7751
70004
71598
4501
7 802
7 S03
7 927
3 8 7
15393
11
14
34
32
3
2
33
30
33
24
2
27
37
25
37
31
25
21
22
31
33
34
33
32
32
29
31
31
25
23
s ta decson acquescence pubshed n Cumuatve uetn -2 (1931), recaed.
1 Nonacquescence n hodng that pettoner s not Indvduay abe for any part of defcency.
Nonacquescence n foowng ssues:
Dd the ta payer reaze nterest accrued upon a oan where t forecosed ens on certan bonds pedged
coatera
d ta payer reaze Interest as ta abe net Income where notes were e changed for new notes whch
ncuded nterest and the new notes were not pad durng the ta abe year
where ta payer acqured the assets and busness of three other nsurance companes durng the ta abe
Tear, was Income reazed upon the coecton of nterest that was accrued but not pad as of date of purchase
Nonacquescence reates to transacton 5.
1 onacquescence reates to vaue of common stock of mercan Chan Co., Inc.. and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
Nonacquescence reates to ssue whether sae of 5,000 shares of stock of Oakrdge Cemetery Corporaton
a a persona or corporate transacton.
Mon cquescence reates to affaton Issue.
Nonacquescenoe reates to ssues Invovng award of Interstate Commerce Commsson n 1920 for
transportaton of Unted States mas In 191 and 1917 and deducton In 192 for deprecaton on ways and
structures.
Nonacqnescence appes to the entre decson of the oard n so far as t Is adverse to the Commssoner.
Parta acquescence pubshed n I. R. . I-28 (1932), revoked.
state ta decson.
G
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2
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1
3
-
0
1
-
2
2

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4
:
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2

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3
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0
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0
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8
8
9
3
3
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#
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44
Nonacqdescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
arbson, Raph W.1.
arbson, Wam bert1.
archvck, Mar|ory Tayor.
aran, George
arrs, Smon
arrson, ames M
arrson, .
art, uan
art, Wam .
artey, Cavour, e ecutor..
artey, G. G., estate of...
auser, W.
awaan-Phppne Co
awey Investment Co
azetne Corporaton.
azeton Corporaton
ebert, Pau Octave, estate of :
cckscher, ugust
edrek, . T
effefnger, rank T.
enz, oward
eer, . G --
emph, Cfford
endrckson, oseph G., estate of
enn, . W._. - - ---
enrtze, .
cnrtze, Ne
enrtze, T. R
enrtze, T. W -
erder, George, estate of
erder, Mary 5
ermann, ohn C
ertensten, reda M --
ertensten, rederck
eronymus, Car Rchard, estate of
ghands, vanston-Lnconwood Subdvson
rst ddton, Trust No. 154 , et a ....
ghands, vanston-Lnconwood Subdvson,
Trust No. 1521, et a
5434
54347
7 545
0500
31 32
193
453 1
75030
78877
82 52
ILNMI
42343
43301
43302
9 19
451 9
45170
42277
47011
51931
0313
1954
83238
82000
33533
41145
44S52
53881
3407
9 94
73479
79059
79450
40 34
38573
73029
37102
0 09
0 07
0 08
0 0
84051
84052
51959
55938
5593
48930
744 4
744 5
2
2
33
30
24
30
28
37
8
27
27
2
35
23
32
3
3
3
24
32
31
25
25
32
20
28
28
28
28
3
3
27
29
29
24
32
32
cquescence pubshed In Cumuatve uetn -1 (1933), wthdrawn.
out ta decson.
state ta decson.
Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the
ton of cost between s:d common stock and preferred stock of sad company acqured at the
and under the same a|rroement.
Nonacquescence n ssue reatng to nvountary converson.
s tme

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1
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2

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2

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8
8
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45
Nonacqt|t|sscences Contnued.
Docket
No.
oard of Ta ppeas.
oume.
Page.
ghway Traer Co
ghey Co., . .
OI, D. ., estate of ...
et a., Pau ., e ecutors 1
nds, Water De Wtt, estate of -
tte, ohn
ochstettcr, Raph.
odges, |rnes Wey, e ecutr
odges, W. L., estate of
odges, W. L., trustee.
oge, rthur ., estate of
oge, anche C, e ecutr
oge, ames D., estate of
oge et a., the ., e ecutors
odng Corporaton, O. P. P
omes akery Confectonery...
omes, Car
omes, . ., trustee.

omes, Margaret
ome Tte Insurance Co
onnod, W. L
ousehod Products, Inc
ousman, Carence
ousman, rederck
ouston ascbaU ssocaton
ouston ros.
ouston, George T.
ouston, orace .
ouston, Php D.
oyt, 2d, ton...
uburd, Chares ., estate of
uburd, De orest, ndvduay and as e ecutor
and trustee
umme-Ross bre Corporaton
umphrey, Dudey T
unter, G. W., estate of 1
unter, r., Thomas .
untngton, enry ., estate of
utchson Coa Co
yde, ames
445 8
51003
29399
29399
498 0
70820
7 1 0
3833
3833
38337
8435
8435
58118
58119
8118
58119
0 74
44943
528 1
51473
53395
44913
528 1
48 31
51570
53394
3737
55211
41809
58798
58774
: . s ,
45130
12052
13104
22008
22009
22007
4710
70954
22028
22028
598 5
437
335 4
58490
45429
31939
05195
09952
2S
792
25
127
24
1144
24
1144
32
254
33
27
34
791
2
301
2
301
2
301
32
4
32
04
33
718
33
718
30
337
27
1229
27
0
27
1229
27
0
33
318
30
774
24
594
20
1401
2
1401
24
9
22
51
22
51
22
51
22
51
34
1011
27
1123
27
1123
31
451
32
280
25
1078
33
941
28
2S9
24
973
31
25
1 state ta decson
1 onacquescenco reates to March 1, 1913, vaue, and to tho bass for the deducton for depeton and
for the computaton of gan or oss upon subsequent sae of the tmber.
onacquesceuoe n ssue nvovng queston of reazaton of ta abe proft on e change of cass
tomnon stock for cass stock.
Nonacquescence reates to ssue whether ta payer sustaned a net oss n any busness reguary carred
ob In 1924 whch coud be carred forward and deducted from ta abe ncome n 192 .
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1
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4
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
I.
Inos Lfe Insurance Co
Impera evator Co
Impera Investment Co
Independent O Co
Indanapos, Crawfordsve Danve ectrc
Rv. Co --
Indanapos Northwestern Tracton Co
Ingram, Thoma
Irvng Trust Co., trustee 1
Irvngton Investments Co
Isenberg, Otto rnst, estate of
Iten scut Co
Ives, Chares
Ives Dary, Inc
Iwck, . W., transferee
ackson astern Ry. Co
ackson, Pau Wde, trust
ackson, Wermch Trust
amson Coa Coke Co
anotta, Stea S.1
efferson Standard Lfe Insurance Co
ohnson, . M
ohnson, ames Lee
ohnston, . arod, e ecutor
ohnston, . M., estate of
ohnston, ugh Mc rney, ndvduay and as e -
ecutor and trustee
ones, esse R
ones, Chester ddson 4
unge, Caus, transferee
ahn, ea
ahn, Isdor..
ahn, Lenora.
ansas Cty Southern Ry. Co. and affated com-
panes 5
eener O Gass Co_
eeys, dward L
ehoe, ohn
ehoe, Sarah
7201
35 88
29291
7700
33859
338 1
5 943
84371
77557
74249
43 7
451 4
51527
39873
4 53

38295
42149
74928
32307
31 90
34088
51172
43149
1345
82203
79029
79029
22028
58285
M 2
04037
73895
73891
73894
22 08
35527
35528
35529
35530
35531
00789
453 0
4 09
04 09
30
25
23
35
24
24
32
35
32
37
25
29
23
33
22
33
24
2-1
28
2
32
37
33
33
27
27
31
33
3
3
3
22
32
28
34
34
1 state ta decson.
1 Nonacquescenoe reates to ssue nvovng deducton for deprecaton on ways and structures.
1 Gft ta decson.
Nonacquescence as to ssue regardng deducton for depeton.
Nonaequescence reates to the foowng ssues: Deducton of amounts e pended to restore pettoner s
property notwthstandng the act that the Drector Genera of Raroads made payment to pettoner for
hs faure to mantan the propert y e cuson from gross ncome of ntercompany freght charges on matera
and suppes used n makng addtons and beftermeuts to pettoner s property.
G
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2
0
1
3
-
0
1
-
2
2

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4
:
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2

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0
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0
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8
8
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3
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47
NoN cgu sc NC S Contnued.
Docket
No.
oard of Ta ppeas.
oume.
ey, rancs ., e ecutor 1
ey, Rose ., estate o.
ensco Cemetery
erbaugh, enry S
errgan, rthur L
ng, ohn M
rby, Lea S.
rkpatrck, ohn L
tseman, C. M., estate of-
napp, tte .
neeand, Yae, estate of 1
no , Seymour
och, arry
onnk|ke, N. ., oandsche Loyd
ountze, Chares T
ountze, Luther L., estate of
ountze et a., Chares T., e ecutors
rauze et a., rances ., e ecutors 1
rug, George
L.
La rcada ondhoders Commttee..
La rum et a., Catherne, e ecutors.
Lafayette Lfe Insurance Co
Lang, uus C, estate of
Langford Investment Co., trustee
Langford, r., et a., Perce P
Langworthy, Mar|ore C
Lansburgh, Lester, estate of 1
Lashar, Water
Laube, ustus
Laun, fred
Laun, .
Lazarus Co., . R
Leary, Sr., . --
Lean-, Myra L
Leeper, rank ., estate of
Leepcr, Pear
Leetona urnace Co
Lembcke, George
Leon k Son, Inc., bert
Leonard, Stephen
Lews, Wadsworth R
Lberty Marne Insurance Co
Lebes Co.,
| Wam S., e ecutor,
ng Co
70899
70899
7 703
897
58791
41549
73753
7474
77812
2775
79748
5203
55318
78 2
37323
37535
37535
498 0
4 713
75 84
7217
11 721
42C 3
831
57203
57203
719 1
81480
37883
70007
71595
45347
45348
9481
9750
7 845
7 84
452
452 5
32272
753 5
53440
5805
75957
72 3
28544
35038
58871
0850
31
31
35
29
2
2
35
32
33
7
34
33
2
34
24
24
24
32
30
35
34
2
34
28
2S
30
35
34
29
2
2
32
34
28
28
23
33
29
3
34
32
23
28
33
1 state ta decson.
1 onacquescence reates to Issue Invovng the bass for computng ta abe gan In 1927, 102S, and 1929
from the sae of bonds of the rby Lumber Co.
1 cquescence pubshed In Cumuatve uetn II-1 (1928), wthdrawn.
cquescence pubshed n Cumuatve uetn -2 (193 ), page 13, wthdrawn.
sta decson nonacquescence reates to deducton for furnera e penses Incudng cost of crypt.
s to queston whether dstrbuton of stock had the e ect of dstrbuton of a
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2
0
1
3
-
0
1
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2
2

0
4
:
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2

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2
7
/

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3
0
0
0
0
0
8
8
9
3
3
7
0
4
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#
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e
48
Nonacquescences Contnued.
Ta payor.
Docket
No
oard of Ta ppeas.
oume.
Lttaucr, ugene, estate of 1
Lttauer et a., Lucus N., e ecutors 1
Lvngood, Chares ., e ecutor
Loyd, . Darse
Lovd, Water .
Loffand, . M.4_..
Loffand, T. R.4
Lous, Cora
Lousve Trust Co. et a., trustees
Lucas, Mabee T
Luqure ura ssocaton Co., Inc., W.
Luqure unera omes Insurance Co., Inc.
Lustg, Davd L., estate of 4
M.
Madson Raways Co
Maernee, D.
Maory, L. W., estate of
Maoy Co
Manchester Coa Co
Manhattan Lfe Insurance Co
Mann, George D
Mannng, Chares N
Manus, Muer Co., Inc
Margay O Corporaton
Markham Irrgaton Co.
Marvn, Water S.7
Marvn, Wam Genn, estate of 5
Matagarda Cana Co.
Mather, Samue, estate of
Matheson, ugh M
Mathews, Susan ., e ecutr
Mathews, W. ., estate of
McCabe, en C
McCabe, George ., estate of
McCabe, ames
McCabe, ames Roscoe
McCabe, Mton Mat hew
McCabe, Wam ohn
McCabe, r., Wam ohn
McCarter, Uzn L, estate of
McCormck et a., Cyrus ., trustees,
McCrorv, Luke W., trustee
McCurd y, Wam ., estate of
McGrath, ames W., and ntonette.-
McGrath, Mare Louse
McGrath, Robert
518.58
51858
40899
71445
48120
13425
1342
49179
05040
72933
79098
79097
70582
85121
3553
33231
5790
33392
0827
54223
3370
70890
59778
44891
41314
38578
77017
40082
41345
4712
71353
43208
43208
9783
9779
9778
9781
9777
9780
9784
9193
44139
32444
7 81
5040
5042
5039
2.-
25
25
33
30
10
10
29
30
34
3
3
33
3
31
27
33
24
28
33
34
30
2
24
2.-,
34
24
34
31
33
33
29
29
29
29
29
29
29
34
2
25
31
30
30
state ta decson nonacquescence In respect to that part ot decson whch hods that secured nterest
pad on edora ncome ta es or 1927 and 1928 from date of decedent s death to November 5,1930, Is a proper
aowabe admnstratve e pense.
f cquescence pubshed In Cumuatve uetn I-2 (1932), revoked.
Nonacquescence reates to Issue nvovng the amounts pad to stockhoders by . G. Curts Leather
Co. upon canceaton of certan stock.
Nonacquescence reates to deprecaton aowabe under tbo Revenue ct of 1913 acquescence pub-
shed n Cumuatve uetn II-1 (1929), wthdrawn In so far as It appes to ths Issue.
1 state ta decson.
Nonacquescence reates to affaton s ne.
Nonnrqucscencc reates to vaue of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme and
under the same agreement.
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d

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t
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
4
2

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2
7
/

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3
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0
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0
0
8
8
9
3
3
7
0
4
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#
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e
49
Nonacqttescences Contnued.
Docket
No.
oard of Ta ppea .
oume.
Mcvane et a., Wam ., trustees
Mc nney, Ida I
MeLauchan, Wam, estate of
McLster, rank
McMan, Wam Northrup, estate of
Mehern, Dora M.1
Mehern, P. W.
Meon, . W.
Menzes, Chares M
Menzes, Inc., C. M
Merner, Deght Ward
Merre, Irvng S
Metropotan Ice Co.
Meyer, George L., transferee
Mever, Robert R
Mchgan Centra R. R. Co.
Mgctta, Oga
Mes Reatv Co
Mer, bert
Mer M Co., T. R
Ms, . . Goadby
Mnnesota Tea Co
Mssour State Lfe Insurance Co.1.
Mtche, Chares
Mtche, . .
Mtche, Oscar _.
Mtche, Wam.
Mtten Management, Inc.
Mod|esk, Raph...
Moore, ma
Moore. dward W., estate of .
Moore, G.
Moore, ohn R
Moore, Louse C, e ecutr _
Moore read Co
52931
5722
45823
2905
70952
485 2
459
80422
81035
7 499
7 148
7 147
7340
70103
5393
9525
4 54
44032
19930
3 379
51394
453 8
82 25
82879
58797
54227
58211
238
74720
5834
41 80
41874
54 73
58799
42194
53990
18 1
49517
4790
8219
58720
38351
4791
8218
58720
41 45
29
32
34
27
27
35
35
3
34
34
32
33
32
33
27
28
25
31
28
37
2
34
29
32
33
27
2
29
28
.3(1
33
2
30
33
22
1 state ta decson nonacquescence as to queston of stus.
1 Nonacquescence In Issue wth respect to mmunty from edera ncomo ta of compensaton of offcers
and pmpoyees of the oard of State arbor Commssoners of Caforna.
1 Nonacquescence n oard s acton wth respect to the foowng: (a) Refusa of oard to sustan respond-
ent affrmatvo Issue wth respect to appcaton of secton 112(c) to McCntc-Marsha Cor|wraton and
Inon Constructon Co. qudatons ( ) addton of 23,191.33 to ta payer s bass of McCnLc-Marsnu
k after rather than before makng any aocaton of bass to Unon stock.
acquescence pubshed n Cumuatve uetn I -2 (1935), wthdrawn.
Nonacquescence reates to foowng Issues: Whether ma pay receved n 1021 consttuted ncome n
rtma nterest receved on competed addton and betterments n fna settement wth the Drector
Genera.
1 Nonacquescence reates to deducton for reserve set up to meet abty upon matured coupons ad|ust-
ment of ncome for renta of space occuped In home offce budng and deprecaton upon such budng.
: Nonacquescence reates to Issue regardng deducton from ncomo of sprnkng ta .
state ta decson nonacquescence In the concusons on the thrd group of poces that the proceeds
tocrtof shoud be e cuded from the g
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
4
2

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2
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2
7
/

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3
0
0
0
0
0
8
8
9
3
3
7
0
4
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#
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50
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Morgante rush Co., Inc
Moro Reaty odng Corporaton,
Morrs, rthur
Morrss et a., ua L.
Morrss Reaty Co. Trust No. 1.
Morrss Reaty Co. Trust No. 2.
Morse, mma R., estate of 1
Moser, Caroyn L
Mosser, Chares
Mott, Chares Stewart
Mott, Dee urcy
Mueer, ar W
Mucahy, ohn
Murphy et a., red T., trustees
Murphy Persona Property Trust
Mutua Lfe Insurance Co. of New York.
Myrck, uan S
N.
Nashve, Chattanooga fe St. Lous Ry.
Natona Casket Co., Inc.
Natona Contractng Co.
Natona Grange Mutua Labty Co_-
Natona Land Constructon Co
Natona Outdoor dvertsng ureau, Inc.
Natona Ppe oundry Co.4
Nea et a., . enry, trustees
Nems, rank aywood
Nems, Mrs. rank aywood
Netcher, Chares, estate of
Neuberger, arry
Newberry Lumber Chemca Co
Newbury, Moe Netcher, trustee
Newport Co
New York Centra R. R. Co. _
Co.
2 3C9
3740
44759
50490
424
41023
41024
458 3
45804
41023
458 3
41024
458 4
44 52
55937
55399
51585
5750
71903
453 2
807 9
43795
43795
97 4
5152
337
33799
50320
24520
7.3099
4012
5252
70999
32997
45103
51887
51888
42435
78919
8511
42435
35431
19932
34437
2040
38880
52093
24
25
38
23
23
23
27
2 )
27
30
35
2S
34
2. ,
25
23
2 .)
21
20
25
. ,1
25
32
I
20
27
27
31
37
ry.
31
24
28
24
30
New York Lfe Insurance Co
New York, Ontaro Western Ry.
1 state ta decson.
Nonacquescence reates to the appcaton of a net amount of operatng osses after appyng the profts
of a subsdary durng the perod of affaton to reduce the oss sustaned by a parent company on the
qudaton of a subsdary company.
Nonacquescence reates to ssue 1 of decson and Issue regardng deductbty of overhead costs In 192S.
4 cquescence pubshed n Cumuatve uetn I -2 (1930), revoked. Revocaton of pror acquescence
and present nonacquescence are due to the faure of the oard s decson to mt the word dstrbuted
to the cash dstrbuUons made to the stockhoders.
Non cquescence reates to foowng ssues: Whether ma pay receved n 1921 consttuted Income n
1920: renta nterest receved on competed addton and betterments n fna settement wth the Drector
Genera.
G
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1
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51
Nonacqotescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Nbey-Mnnaugh Lumber Co
Nchos Co Lumber Co
Nchoson, ames
Ncoa, .
Nesen Co., . -
North mercan Investment Co
North mercan Utty Securtes Corporaton-
Northern Coa Co.1
Northport Shores, Inc
Noyes, ansen
Nu deman, Chares W
Oakman et a., Mame R
O Donne, dth M. .
O Donne, Thomas -
Ogden, ugh W
Od Coony Trust Co., trustee
Od Msson Portand Cement Co
Od Natona ank n .vansve, e ecutor .
Onger Mortuary ssocaton
Over, Ove ume
Omsted, George W. _
Omsted, Iva C.4.
Ostad, Oscar
Omaha Coca-Coa ottng Co.
O Rear, . C.s
Oregon Termnas Co
Oswego as Corporaton.
Owens, . T
Owens, Mrs. . T-_
Owens, 0. O
Pacfc Coast scut Co. et a. .
Pacfc Nash Motor Co
Pacfc Rock Grave Co
17527
23 01
9
57417
8899
30183
75039
34945
4500
3S574
7912
42917
79980
529S7
2979
23943
74928
38 53
7 81
3 502
5 40
41090
45745
48121
54714
074
44089
4574
4S143
54713
0745
7 83
52 11
32335
8893
28301
32 73
34352
3149
3150
3198
71588
451 9
45170
2877
20
21
32
33
20
21
3
21
31
25
35
21
35
32
24
33
25
31
23
30
30
32
2
2S
29
20
27
27
20
32
23
20
1 N onacquescence reates to statute of mtatons ssue.
1 N onacqucscence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme
under the same agreement.
1 state ta decson.
I Nonacquescence reates to Issue nvovng the amounts pad to stockhoders by . O. Curts Leather
Co. noon canceaton of certan stock.
II Nonacquescence reates to Issue regardng amount of oss sustaned by pettoner by reason of destruc-
ton by fre of hs resdence and furnture.
onacquescence wth respect to deducton of amounts e pended n connecton wth dssouton and
ndaton of a corporaton.
G
e
n
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r
a
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f
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U
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t
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
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2

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3
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0
0
0
0
8
8
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3
3
7
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4
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52
Non acquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Pamer, radey W.1
Parker, Cara ., e ecutr
Parker, George D., estate of ..
Parker, erbert L., estate of
Parker et a., my ng, trustees
Parrott, P. .
Patrck Cudahy amy Co
Patterson, rank ., estate of
Peabody, Cornea aven, estate of
Peabody et a., Stephen, e ecutors .
Pennsyvana Co. for Insurances on Lves and Grant-
ng nnutes, e ecutor and trustee
Perkns, my S.3
Perkns et a., Thomas N. _
Petauma Santa Rosa R. R. Co.7..
Pheps et a., Lus ames, e ecutors
Phps, ben ., estate of
Phps, Pampha ., estate of
Phps, Wam S
Perce, dward
Person Corporaton, L. D
Pttsburgh 4 Lake re R. R. Co. ..
Pans Reaty Co
2C52
58 04
58004
53320
53320
309S9
83130
705SO
39 17
39 47
73029
7S532
57818
58305
58300
58443
58475
58770
58772
58901
58905
58900
58907
58917
589 IS
5S925
13830
50330
81802
87519
/ 2444G
I 31709
5879
74347
427 4
18977
5492
7197
32
31
31
30
:m)
2 s
3
3
24
24
32
35
33

11
27
3
30
24
20
35
28
31
1 Nonacquescence In oard s decson hodng that the Superpower rghts were not dvdends.
1 Nonacquescenco reates to ssue regardng e stence of George D. Parker Co. partnershp.
1 state ta decson.
Nonacquescence reates to nterpretaton of artce 15 7, Reguatons 45, as apped to e change of stock
of Pttsburgh Te as O Gas Co.
state ta decson nonacquescence reates to foowng ssues: Whother transfer Is ta abe as effectve at
death whether transfer s ta abe as one concernng whch decedent aone, or n con|uncton wth other per
eons, had power at death to ater, amend, or revoke the trust.
8 Nonacquescence reates to the foowng ssues:
Dd the statute of mtatons, at the tme of the mang of the defcency notces, bar assessment and
coecton of the defcences as to Thompson O Co., astern Carbon ack Co., W. . Davs, Lan .
Davs, Matda M. Davs, ton N. Davs, mma Luette Davs, e ecutr , u/w O. L. Davs, Lue Davs
and Davs ros. Co., where the ncome ta returns were fed wth a deputy coector
Dd the statute of mtatons, at the tme of the mang of the defcency notces, bar assessment, and
coecton of the defcency as to Thompson O Co., where a consodated return was orgnay fed and the
Commssoner ater rued aganst consodaton
Is G. II. M. Co. entted to a deducton greater than 14,170.75 as an addtona bonus to Its genera mana-
ger
1 Nonacquescence reates to that part of decson concernng purchase of ta payer s own bonds a ess
than par whch were hed as an Investment. cquescence notce as to ths ssue pubshed In Cumuatve
uetn II-2 (1928), revoked.
stato ta decson nonacquescence wth respect to the trusts for the son and daughter.
Nonacquescence reates to renta nterest queston and oard s decson wth respect to porton of ma
pay receved n 1921.
G
e
n
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r
a
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U
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t
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
4
2

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2
7
/

n
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3
0
0
0
0
0
8
8
9
3
3
7
0
4
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e
53
Nonacqt|escences Contnued.
Ta payer.
Pant, enry radey.
Patt, amma 1
PestcheefT, Guendoen C.
Pestchecff, Theodore
Pettner, Maude rown
P-M- Petroeum Co.1...
Pontare, Mchae
Porter, e ander ., estate of
Portand urnture Manufacturng Co.
Post Shedon Corporaton
Pressnger, Mabe L., estate of
Prce, arry
Prester, . C.
Proctor Shop, Inc.4
Prosperty Co., Inc.
Prouty, Ove . -
Prudenta Insurance Co. of merca.
Pryor Lockhart Deveopment Co.
Purdy, Chares Wesey.
Purse, ames N
unn, Porte .
R.
Ranbow Gasone Corporaton..
Randoph, ranke Carter
Randoph, R. D
Randoph, rg P., trust
Ray O Co.
Raymond, oward W
Reaty ssocates, as syndcate manager .
Reed, Latham R
Reese, ugusta ss
Docket
No.
I
43889
48984
52094
55 59
0923
78930
8002
80025
33345
5057
54779
83199
79322
1809
703 7
5 95
80550
70008
7159
55195
58909
2 8
4589
594 8
57829
5 41
0884
7238
38872
450 8
5132
3523
82421
54124
715
5152
723 5
51800
51889
48833
13123
45219
48015
1554
58544
27921
58800
70410
oard of Ta ppeas.
oume.
30
35
35
35
2. ,
24
35
34
30
28
34
29
33
30
27
30
33
2
34
3
27
31
31
27
27
28
28
20
17
2
30
Nonacquescence In ssue wth respect to Immunty from edera ncome ta of compensaton of offcers
and empoyees of the oard of State arbor Commssoners of Caforna,
onaoc uescence reates to frst Issue of decson.
state ta decson.
cquescence pubshed In Cumuatve uetn III-2 (1034), revoked.
1 Nonacquosconce reates to overstatement of oss sustaned as a resut of qudaton of subsdary.
Nonacquescence reates to ssue whether pettoner was ta abe for years 192 to 1929, ncusve, as a
trust or as an assocaton.
: cquescence pubshed n Cumuatve uetn -2 (1931), wthdrawn.
G
e
n
e
r
a
t
e
d

f
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(
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Y
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U
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s

t
y
)

o
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2
0
1
3
-
0
1
-
2
2

0
4
:
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3

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/

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3
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0
0
0
0
8
8
9
3
3
7
0
4
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54
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Retam, Inc
Reybne, phcus, estate of1
Reybne, Martha II., e ecutr 1
Reynard Corporaton 1
Rchardson et a., orrest, e ecutors 1
Rchfed O Co -----
Rchmond, redercksburg Potomac R. R. Co. .
Reck, dward
Rfe, enry
Rey, nna
Rey Stoker Corporaton
Rey, Thomas ., transferee
Ro Grande Land Cana Co
Ro Grande Reservor Dtch Co
Robbns, arwood
Roberts, G. P
Roberts, Water -
Robertson, . G
Rock wood, George O
Rockwood, Wam M
Rocky Mountan O Co.5
Rodeo- ae|o erry Co.
Rogers, May
Roande, Guano
Rons, arrv T
Rons, Raph
Roosevet Son Investment und.
Rormer, Lous
Rosenboom nance Corporaton
Ross, anche S.
Ross, Water L
Rosser, . M., e ecutor 1
Rosshcm, Irvng D.10
Rudman, I.
Rudnan, Rose 11
Ruth, rederck S., estate of 1

4501
G0 0
0 0
738
70795
44 52
42921
887
79157
357
10
3 584
4 38
71350
71351
707
8434
37534
49552
52370
2711
72712
79421
3 411
48528
45051
57479
728
3954
3958
7 19
5SS50
35778
40903
51171
73282
407 5
57503
8588
85S87
80840
28
31
31
30
27
25
33
35
3
29
2
33
31
31
33
32
24
28
31
31
3
24
31
32
33
34
34
34
27
24
28
30
24
31
3
3
3
state ta decson.
Nonaequescenco reates to ncuson n ncome of corporaton for years ended March 31,1930. and March
81, 1931, amounts representng renta of premses occuped by ts presdent.
1 Nonacqueseence reates to ssue nvovne the queston, re payments made to hoders of guaranteed
stock desgnated n certfcates as dvdends deductbe as nterest
state ta decson acquescence pubshed n Cumuatve uetn -2 (1931), recaed.
Nonacqueseence reates to reducton of grass ncome by ntangbe drng costs and overhead e penses
n determnng the 50 per cent mtaton on depeton.
Nonacqueseence reates to frst ssue of decson.
Nonacqueseence as to ssue regardng ta abty n 1929 of dvdends decared n stock n 192S, certf-
cates for whch were not devered unt 1929.
Nonacqueseence docs not reate to the oard s hodng that dstrbutons receved from oseph . nch
Co. were not parta qudatng dvdends.
Gft ta decson.
Nonacqueseence reates to ssue whether Commssoner s entted to ncreased defcency as rased
by hs amended answer fed wth the oard,
u Nonacqueseence reates to deducton of drng cost n computng aowabe percentage depeton.
G
e
n
e
r
a
t
e
d

f
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(
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Y
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U
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v
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t
y
)

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2
0
1
3
-
0
1
-
2
2

0
4
:
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3

G
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7
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3
0
0
0
0
0
8
8
9
3
3
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4
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55
Nonacquesce ces Contnued.
Sabatna, Rafae.
St. Lous Southwestern Ry. Co.
St. Lous Unon Trust Co., e ecutor L
San Caros Mng Co., Ltd.
San acnto Lfe Insurance Co
Sand Sprngs Ry. Co
Sanford et a., ugh W
Sather Lease Thomas Sather Co
Sauk Investment Co
Scatena, vra 1
Schesnger, rmn
Schesnger, atheen M
Schesnger, Rosa
Schoen, Lous
Schumacher Wa oard Corporaton
Schwartz- asser Improvement Co
Scott, Thomas ., estate of4-. -
Scott, Thomas S
Swe, Cnton ., estate of
Scrpps, Robert P
Scuy, nrqucta ngea
Seaconnet Coa Co.
Seatree, Wam rnest
Securty rst Natona ank of Los ngees et a.,
e ecutors 7
Securty_Savngs Commerca ank.
, C. .a
, ohn C
Sharp et a., dth uggard, e ecutors 5.
8harp, Water P., estate of
Sheaffer Pen Co., W.
Shepherd Syndcate
Shenker, Smon .
et aL ohn R., e ecutors -
., estate of
Docket
No.
50134
13319
277 8
33938
459G
39525
75348
32438
32439
83421
31979
74 42
3920
759 0
759 1
73892
5 77
1 02
9719
3 87
5033
70888
49272
7711
80244
18089
22094
33 40
45429
59523
21 12
29259
50080
59511
48317
48317
3 04
48332
51327
58801
21921
24921
oard of Ta ppeas.
oume.
32
24
27
24
34
21
37
2
34
32
3
3
3
30
33
2
27
34
30
33
34
24
25
28
29
2. ,
29
28
30
33
30
33
27
2
2 a
1
1
Page.
705
917
318
1132
18
1291
142
8
732
75
320
320
954
1075
1211
322
1224
540
79
9 3
218
307
39
2S9
17
1341
1315
1293
532
290
532
290
105
10 2
1401
915
915
1 state ta decson nonacquescence as to queston of stus.
cquescence as to ssue 2 and nonacquescence as to ssue 1 pubshed n Cumuatve uetn I-1
(1932), wthdrawn.
1 Nonacquescence reates to dvdend ssue.
4 state ta decson nonacquescence wth respect to the trusts for the son and daughter.
state ta decson.
Nonacquescence reates to statute of mtatons Issue.
Nonacquescence reates to ssue whether ta payer sustaned a not oss n any busness reguary carred
on n 1 24 whch coud be carred forward and deducted from ta abe Income n 1925.
Nonacquescence reates to the foowng Issues: Reducton of cost bass (March 1, 1913, vaue) of assets
Md by a partnershp n 1919 by deprecaton aowed n computng ncome for perod March L 1913, to
December 1,1915 computaton of 1919 partnershp proft on sae of assets by consderng as part of tbe sae
prce, ta es of the partners pad n 1920 by the vendee.
cquescence pubshed n Cumuatve uetn III-3 (1929), wthdrawn.
G
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n
e
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a
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d

f
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U
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
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3

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3
0
0
0
0
0
8
8
9
3
3
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4
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e
5
Nonacquescences Contnued.
Ta payer.
Dockot
No.
oard of Ta ppeas.
oume.
Smms, . .1
Skff, rank .
Sack, . ., estate of
Sma s, Inc
Smathers, . ., estate of4-
Smey, bert
Smey, rancs G
Smth, C.
Smth, Mrs. Grant.
Smth, Mton
Smth, Mton, estate of
Smth, r., Mton, e ecutor
Smth, Sarah vs
Smth Transportaton Co
Smth, Wam den, estate of
Sneed, r., . T.
Snyder, Inc., . S. M. W
Southern e Teephone Teegraph Co.
Southern Caforna Rock Grave Co
Southern Raway Co. et a. .
Spang, Chafant Co.
Spencer, George rnck, estate of
Speyer, ames
Sprague, C. O. M_.
Sprague Son Co., C. . _
Sprng Cty oundry Co
Sredes, Inc
Staney Co. of meca.
Stayton, r., Wam
Stearns, Marsha, admnstrator
Steee, Wam, estate of
Stern et a., Samue . ., e ecutors 10_
Stetson, Ioa Wse
Stevens, yam
19175
19791
51173
72404
78525
53791
29200
74424
74425
77417
43300
43305
4330
77414
52132
52132
77410
77415
5 405
45094
30 8
70887
30898
21481
, 29951
137887-
37898
58790
7223
5 435
5833
3494
21109
45015
31510
33142
40023
71807
48930
73347
2459
41743
70000
71593
378
28
28
35
24
29
33
33
34
2
34
2S
28
34
31
31
30
20
31
2
27
31
31
30
33
21
25
28
2
32
21
34
2
20
27
29
Nonacqucscence reates to Issues 1 and 4 set forth In syabus of pubshed decson.
1 ft ta decson.
Nonacquesceuee n Issue nvovng queston of ta abe Ran by reason of acquston of possesson of
pro|erty eased by hm.
Nonacqucseence reates to the foowng ssues: Reducton of cost bass (March I, 1913, vaue) of assets
god by a partnershp n 1U19 by deprecaton aowed n computng ncome for nerod March 1, 1913, to
December 1, WIS computaton of 1 1 partnershp proft on tae of assets by consderng as part of the sae
prce, ta es of the partners pad In 1920 by the vendee.
Nonacquescence reates to ssue whether certan nterest n rea estate stuated n Te as was acqured
by pettoner pror or subsequent to hs marrage and that part of decson whch hods that deay rentas
receved aro communty ncome notwthstandng that the ands from whch they arse may be the separate
property of ether spouso.
Nonacqueseonce reates to ssues nvovng addtona compensaton, renta nterest on addtons and
betterments, and back ma pav for use of propertes durng edera contro.
I cuescenco pubshed n Cumuatve uetn I -2 (1935), wthdrawn.
1 state ta decson.
Nouacquescence reates to statute of mtatons ssue.
state ta decson acquescence pubshed n Cumuatve uetn -2 (1931), recaed.
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57
NoN C UL SC NC S Contnued.
Ta payer.
Stevens, Wam D
Stevenson Consodated O Co.1..- --
Stewart, ohn
Stewart, Wam Rhneander, estate of
Stewart, r., et a., Wam Rhneander, e ecu-
tors
Stne, Doe If.
Stne, M. osephne
Stockhom nskda ank -
Stone, . C, estate of
Stone, Mrs. . C, e ecutr
Stone et a., Irvng ., e ecutors and trustees 4
Stone, Irvng Lee, estate of4
Straub, Teca M
Straus, aron
Straver, Water
Streefkerk, Mrs. S
Strong, arod C
Sturgeon- ubbard Trust
Sturgeon et a., Ron S., trustees
Suvan, oseph
Suncrest Lumber Co
Swartz, Inc., dward G
Swft, Marv Dodson, estate of
Swsky, Toby W -
70009
71594
4341
57531
777
777
2 94
2 95
55755
3833
3833
43830
43830
55935
5091
485 4
453 3
3857
37095
37095
5 71
33244
3 50
44C09
42032
0177
1002
3088
70998
Taft, nna S., estate of 77923
Tft, Robert ., e ecutor 77923
Taft, Robert ., trustee 7 813
Tabot, rederck C, estate of 20411
Tabot, . . 3 191
Tabot et a., Susan D., e ecutors 20409
Tabot, Wam ., estate of 20409
Tauzer, Laurence rnod 81355
Tayor, . Scdon, estate of 4444
Tayor, r., et a., . Scdon, e ecutors 8 4444
Tayor, esse Carter 51891
Tayor, udson L 51892
Ten yck, Peter G - 8197
Tennessee Consodated Coa Co
1 onacquescence reates to ssue regardng ncuson n ncome for 102 of 180,823.35 receved upon
echange by pettoner of 250,000 shares of Sunburst O S Oas Co. stock v. th that corporaton.
1 state ta decson nonacquescence reates to far market vaue of an undvded or fractonanterest
n certan rea property.
state ta decson: nonacquescence reates to far market vaue of 3,f39 shares of stock of hneander
ed state Co. as of September 4, 1929. cquescence as to ths ssue pubshed n L . . 1 -7 (1935),
wthdrawn.
1 state ta decson nonacquescence reates to ssue nvovng property transferred by trust agreement.
Nonacquescence reates to vaue or common stock of mercan Chan Co., Inc., and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tme
nd under the same agreement.
state ta decson.
1 Nooaeuescence reates to deprecaton aowance n computng oss n sae of a boat.
83421 38 3
Swss O Corporaton
Docket
No.
oard of Ta ppeas.
oumo.
29
1255
23
10
29
809
31
201
31
201
32
482
32
482
25
1328
2
301
2
301
2
1
2
1
29
21
27
111
27
155
28
23
25
1351
25
3 8
25
3 8
33
29
25
375
25
10 5
2
015
25
259
32
777
33
71
33
71
34
03
27
829
23
792
27
829
27
829
37
244
27
220
27
220
27
5
27
5
29
1113
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58
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Termna Raroad ssocaton of St. Lous.
Termna Reaty Corporaton-
Terrace Corporaton ---
Terre aute, Indanapos astern Tracton Co.
Terre aute Tracton Lght Co
Terry, nna Davs
Terry, r., . T - -
Te as Irrgaton Co.1
Te as Ppe Lne Co
Thatcher Son, ohn
The ub, Inc
Theman, Mrs. Leo
Thra, dna May.
353 Le ngton venue Corporaton...
Tde Water O Co
Totson Manufacturng Co
Tte Trust Co
Ttus, C. Dckson
Ttus, Inc., C. W_.
Todd, Ws ---
Toerton Warfed Co.1
Torrens, ames . ---
Towers Suvan Manufacturng Co.
Townsend, .
Townscnd, W. S ---
Tov, arvey M
Transatantc Shppng Co., Inc
Traveers ank Trust Co
Traveers re Insurance Co.
Traveens Indemnty Co.
Tresner, my 4
Tro|an O Co
Trustees of Lumber Investment ssocaton.
Turnev, W. W
Turney, Mrs. W. W
Tuth, r., orace S
Tutte, Car
Twn e O Syndcate
Tyer et a., Sdney ., trustees.
Tyng, Lucen
49832
53429
3 99
437
507 2
059
71157
80584
33858
338 0
4544
5835
40083
4134
59457
5 888
5545
4 298
5041
52449
5554
5089
399.3
441 7
73785
20705
422 8
3753
45320
53778
40508
7318
74541
72932
1932
2834
71349
2833
71348
5791
2832
71347
703
33757
52274
5258
5257
52448
70558
45052
5 449
74885
33
32
37
24
24
2
33
24
82
30
2
30
31
32
27
29
27
33
24
33
24
23
31
2.
32
32
34
31
a
31
81
87
2
3.5
31
31
31
32
31
2
2S
30
Nonacquescence reates to affaton ssue.
s Nonacquescence reates to Issue regardng deducton of oss sustaned by two affated c
durng fsca yenr ended anuary 81, 1 24, and te ta abe perod ebruary 1 to pr 25,1 24, n c
the consodated net ncome for ta abe perod pr 25 to December 31,1 24. and the year 1829.
Nonacquescence reates to the trust and dvdend ssues.
1 Nonacquescence reates to ssue n respect of aowabe deducton for depcton.
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59
onacquesce ces Contnued.
Tn pnyer.
u.
Then, oseph ..
nmann, manue 4Soomon
UUnann, r., oseph
nmann, Samue, estate of
nmann et a., Theresa, e ecutors
Unon Guardan Trust Co., admnstrator .
1 non Guardan Trust Co., e ecutor 1
Unon Pacfc R. R. Co.s.
Unon Pacfc R. R. Co. et a.1.
Unon Trust Co., trustee
Inted Natona Corporaton.
Unted O Co...
an Camp Packng Co., Iuc
ancoh Reatv Co
an Schack, George S., Superntendent of Insur-
ance of New York, qudator
an orst 4 Co., C.
aughan, Wam W
oebe, acob, estate of4
oebe, Water W., e ecutor 4
ounteer State Lfe Insurance Co
onnegut ardware Co
W.
Waggoner, a
Waggoner, W. T
Wat, . Russe
Wat, atharyn.
Waker, Tabot C
Waters, enry, estate of
Waters, ohn W...
Ward et a., Dasy M
Wardman, arry
arner Coeres Co. of Deaware.
1 state ta decson.
1 onacquescence reates to the ssues regardng cost of ntercompany transportaton of matera used
5 constructon of capta assets sae n 192 of bock 394. Seatte Tde Lands sae of and to ansas Cty
T mma Raway Co. ad|ustment for deprecaton sustaned pror to anuary 1, 1909, of equpment retred
Nonacquescence reates to ssue regardng renta nterest and ssue concernng net oss of Los ngees
ea t Lake R. R. Co. for perod anuary 1 to pr 30, 1921.
state ta decson acquescence pubshed n Cumuatve uetn -2 (1931), recaed.
Docket
No.
51234
5 470
5 471
5 472
5 472
7551
44735
51530
70183
70219
35 39-
35 49
35 84
35 85
400 0
400 1
400 2
42917
7949
38082
42922
51 22
40131
52340
72 3
703
7843
0009
009
5417
9058
70S51
44940
33517
3351
75772
75773
20407
77 74
70010
71597
02044-
2 49
22348
34 79
oard of Ta ppeas.
oume.
30
30
30
30
30
32
2
32
2
24
33
25
2
33
32
30
31
7
7
27
35
28
24
24
35
35
27
35
29
29
24
2
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1
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0
Nonacqdescences Contnued.
Ta payer.
Watab Paper Co.
Waterbury, Charotte M.1
Waterbury, Donad N.1
Waterbury, ugene W.1
Waterbury, Whtford N.1
Watson-Moore Co
Wayburn, Ned
Wes argo ank Unon Trust Co., admnstrator.
Wes, ames
Wes, Thomas .
West rgna-Pttsburgh Coa Co.
Wester, Mar|ore ., estate of
Wester, W. L
Western Power Corporaton
Wether, Robert, estate of
Wheeer, Dwght C
Wheeer, P. L -------
Wheeng Mod oundry Co. (De.)..
Whppe, rank
Whtcomb, N. ., Coca-Coa Syndcate.
Whte, uet C
Whte Oak Transportaton Co.4
Whte, Rta M. oher ---
Whte, Sdney
Whtng, Dwght3
Whtng, George N. ---
Whtte Co., Inc., George.
Wco 4 Sons, .
We, dwn .. ---
Wams, ma
Wams et a., rank G., e ecutors
Wams, R. L.
Wamson, esse C
Wamson, Ruth Chander-
Ws, Mary 8
Wshre O Co., Inc
Wson, ngs
Wson, ohn P
Docket
No.
24773
28082
38 85
41733
4 07
51387
73381
73380
73383
73382
2179
74348
20411
02948
78829
20337
25030
7037
714
703
7145
72943
8 8 2
71338
9028
23410
57532
7 3 7
58775
r0S8
3 112
5877
78532
72414
40 19
54451
84001
335 4
84000
80545
74 8
718
7179
73955
77377
52931
5722
oard of Ta ppeas.
oume.
27
33
33
33
33
30
32
27
29
34
24
37
37
34
3
32
32
27
29
35
2
24
25

35
34
28
31
3
25
3
34
32
37
35
31
29
1 Nonacquescence reates to ssue whether gans on sae of stock of. the Waterbury Chemca Co. were
ta ahe to pettoner or to tru t created by them.
1 Oft ta decson.
state ta decson.
Nonacquescence reates to statute of mtatons ssue.
1 Nonacquescence reates to the trust and dvdend ssues.
8 Nonacquescence n ssue reatng to nvountary converson.
Nonacquescence n 3sue whether bass for gan o oss on subsequent sae wthn meanng of secton
113(-)5. Reve.ue rt of 1932, was tme of actua dstrbuton or date of court order of dstrbuton
1 Nonacquescence reates to ssue. In respect of aowabe deducton for depeton.
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1
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1
No acquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas,
oume.
Wson, Luke ., estate of_.
Wson, Peter ., transferee.
Wson Shpbudng Co.
Wnston ros. Co
Wnthrop, eekman
Wobber ros
Wobbers, Inc
Wopert, Urban
Wood, en yer
Wood urnture Co., . _.
Wood, r., . O
Wood, eremah
Wood, Stuart, estate of
Wood, Ws D
Woodward, ohn S.
Woodward, George
Young, Du os
Young Corporaton, . .
Young, Wam M.
Youngstown Sheet Tube Co.
Z.
Zeger, bert W._
Zeger, Cfford
Zmmerman and wfe, Cavn.
Zobeen, George
Zobeen, Mrs. dward
Zukor, doph
8
32444
4 55
34337
59270
79850
3 875
387
3 874
485 3
5211
405 5
58.32
74090
74 88
75 24
9S4 I
719 2
42279
7S345
74321
81224
28149
35511
4 291
4 292
71145
45352
45353
7 120
25
33
25
29
3
2
35
2
27
I
21
33
31
32
33
30
23
34
35
3
24
23
23
31
28
28
33
Nonaequescenee reates to ssue 5 of decson.
.Nonacmescence reates to queston whether dstrbuton of stock had the effect of dstrbuton of a
ta abe dvdend.
cquescence pubshed n Cumuatve uetn -2 (1031). wthdrawn.
state ta decson.
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1
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-
0
1
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2

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0
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INCOM T RULINGS. P RT I.
R NU CTS O 193S, 1937, 193 , 1935, ND 1934.
. R NU CT O 1938.
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . COMPUT TION OP N T INCOM .
S CTION 112. R COGNITION O G IN OR LOSS.
1938-24-9392
T. D.48U9
INCOM T .
Reguatons reatve to determnaton of who s a uafed eect-
ng sharehoder and to the makng and fng of eectons under
secton 112(b)7 of the Revenue ct of 1938, reatng to the recogn-
ton of gan n certan corporate qudatons.
Treasury Department,
Offce of Commssoner of Interna Revent|f,.
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 112(b) of the Revenue ct of 1938, pro-
vdes:
(7) ecton as to recognton of gan n certan corporate quda-
tons.
( ) Genera rue. In the case of property dstrbuted n com-
pete qudaton of a domestc corporaton, f
() the qudaton s made n pursuance of a pan of quda-
ton adopted after the date of the enactment of ths ct,
whether the ta abe year of the corporaton began on, before,
or after anuary 1, 1938 and
() the dstrbuton s n compete canceaton or redemp-
ton of a the stock, and the transfer of a the property under
the qudaton occurs wthn the month of December, 1938
then n the case of each quafed eectng sharehoder (as defned
n subparagraph (C)) gan upon the shares owned by hm at the
tme of the adopton of the pan of qudaton sha be recognzed
ony to the e tent provded n subparagraphs ( ) and ( ).
( ) cuded corporaton. The term e cuded corporaton
means a corporaton whch at any tme between pr 9, 1938,
and the date of the adopton of the pan of qudaton, both dates
ncusve, was the owner of stock possessng 50 per centum or more
of the tota combned votng power of a casses of stock entted
to vote on the adopton of such pan.
(C) uafed eectng sharehoders. The term quafed eectng
sharehoder means a sharehoder (other than an e cuded cor-
poraton) of any cass of stock (whether or not entted to vote on
( 3)
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112.
4
the adopton of the pan of qudaton) who s a sharehoder at the
tme of the adopton of such pan, and whose wrtten eecton to
have the benefts of subparagraph ( ) has been made and fed In
accordance wth subparagraph (D), but
() n the case of a sharehoder other than a corporaton,
ony If wrtten eectons have been so fed by sharehoders
(other than corporatons) who at the tme of the adopton of
the pan of qudaton are owners of stock possessng at east
S per centum of the tota combned votng power (e cusve of
votng power possessed by, stock owned by corporatons) of a
casses of stock entted to vote on the adopton of such pan of
qudaton or
() u the case of a sharehoder whch Is a corporaton, ony
f wrtten eectons have been so fed by corporate sharehoders
(other than an e cuded corporaton) whch at the tme of the
adopton of such pan of qudaton are owners of stock pos-
sessng at east 80 per centum of the tota combned votng
power (e cusve of votng power possessed by stock owned by
an e cuded corporaton and by sharehoders who are not cor-
poratons) of a casses of stock entted to vote on the adop-
ton of such pan of qudaton.
(D) Makng and fng of eectons. The wrtten eectons re-
ferred to n subparagraph (C) must be made and fed n such man-
ner as to be not n contraventon of reguatons prescrbed by the
Commssoner wth the approva of the Secretary. The fng must
be wthn thrty days after the adopton of the pan of qudaton,
and may be by the audatug corporaton or by the sharehoder.
( ) Noncorporate sharehoders. In the case of a qua.fed eect-
ng sharehoder other than a corporaton
() There sha be recognzed, and ta ed as a dvdend, so
much of the gan as s not n e cess of hs ratabe share of the
earnngs and profts of the corporaton accumuated after eb-
ruary 28. 1913, such earnngs and profts to be determned as of
December 31, 1038, but wthout dmnuton by reason of dstr-
butons made durng the month of December, 1038 and
() There sha be recognzed, and ta ed as short-term or
ong-term capta gan, as the case may be, so much of the
remander of the gan as s not n e cess of the amount by
whch the vaue of that porton of the assets receved by hm
whch conssts of money, or of stock or securtes acqured by
the corporaton after pr 9, 1938, e ceeds hs ratabe share of
such earnngs and profts.
( ) Corporate sharehoders. In the case of a quafed eectng
sharehoder whch s a corporaton the gan sha be recognzed ony
to the e tent of the greater of the two foowng
() The porton of the assets receved by t whch conssts of
money, or of stock or securtes acqured by the qudatng cor-
poraton after pr 9. 1938: or
() Its ratabe share of the earnngs and profts of the qu-
datng corporaton accumuated after ebruary 28, 1913, such
earnngs and pn fts to be determned as of December 31, 1938,
but wthout dmnuton by reason of dstrbutons made durng
the month of December, 1938.
Pursuant to the authorty contaned n sectons 2 and 112(b)7 of
the Revenue ct of 1938, the foowng reguatons are prescrbed
wth respect to the determnaton of who s a quafed eectng share-
hoder and the makng and fng of wrtten eectons n connecton
wth the compete oudaton of a domestc corporaton occurrng
wthn the month of December, 1938.
RTf 1. Scope of reguatons. These reguatons reate ony to the deter-
mnaton of who s a quafed eectng sharehoder and to the makng and fng
of eectons under secton 112(b)7 of the Revenue ct of 1938, whch provdes
speca ta treatment for the gan reazed by a quafed eectng sharehoder on
the shares of stock whch he owned on the date of the adopton of a pan for
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5
112.
the compete qudaton of a domestc corporaton pursuant to whch n ts
sock s canceed or redeemed, and the transfer of a ts property occurs
entrey wthn the month of December, 1938.
rt. 2. uafed eectng sharehoder. No corporate sharehoder may be a
quafed eectng sharehoder f at any tme between pr 9, 1938, and the date
of the adopton of the pan of qudaton, both dates ncusve, t s the owner
of stock of the qudatng corporaton possessng 50 per cent or more of the
tota combned votng power of a casses of stock entted to vote upon the
adopton of the pan of qudaton. other sharehoders are dvded nto
two groups for the purpose of determnng whether they are quafed eectng
sharehoders: (a) sharehoders other than corporatons, and ( ) corporate
sharehoders. ny sharehoder of cther of such two groups (whether or not
the stock he owns s entted to vote on the adopton of the pan of qudaton)
s a quafed eectng sharehoder f
(1) s wrtten eecton to be governed by the provsons of secton 112(b)7
of the ct has been made and fed as prescrbed n artce 3 of these reguatons
and
(2) Lke eectons have been made and fed by owners of stock possessng at
east SO per cent of the tota combned votng power of a casses of stock owned
by sharehoders of the same group on the date of, and entted to vote upon,
the adopton of the pan of qudaton.
ampe: The R Corporaton has outstandng 20 shares of common stock on
uy 1, 193S, the date of the adopton of a pan of qudaton wthn the pro-
vsons of secton 112(b)7 of the ct, each entted to one vote upon the adopton
of such pan of qudaton. Ten of such shares are owned by the S Corpora-
ton, two each by the Corporaton and the Y Corporaton, one by the Z Corpora-
ton, and one each by , P , C, D, and , ndvduas. There are aso outstandng
two shares of preferred stock, not entted to vote on qudaton, one share beng
owned by . an ndvdua, and one share by the P Corporaton. The S Corpora-
ton, beng a corporate sharehoder and the owner of 50 per cent of the votng
stock, may not be a quafed eectng sharehoder under any crcumstances. In
order for any other corporate sharehoder to be a quafed eectng sharehoder,
t s necessary that the Corporaton and the Y Corporaton fe ther wrtten
eectons to be governed by secton 112(b)7 of the ct. If ths s done, the P
Corporaton w aso be a quafed eectng sharehoder f t has fed a ke eec-
ton. Smary, n the case of the ndvdua sharehoders, some combnaton of
four of the ndvdua hoders of the common stock must have fed ther wrtten
eectons, before any ndvdua sharehoder may be consdered a quafed
eectng sharehoder, but f ths s done, w aso be a quafed eectng share-
hoder f he has fed a ke eecton.
n eecton to be governed by the provsons of secton 112(b)7 of the ct
reates to the treatment of gan reazed upon the canceaton or redempton
of stock upon qudaton and can therefore be made ony by or on behaf of
the person by whom such gan w be reazed. Thus, the sharehoder who
may make such eecton must be the actua owner of stock and not a mere
record hoder, such as a nomnee.
sharehoder s entted to make an eecton reatve to the gan ony on
stock owned by hm at the tme of the adopton of the pan of qudaton. The
eecton s persona to the sharehoder makng t and does not foow such stock
nto the hands of a transferee.
rt. 3. Makng and fng of wrtten eectons. n eecton to be governed by
secton 112(b)7 of the ct sha be made n dupcate under oath or affrmaton
on orm 9 4 n accordance wth the nstructons prnted thereon nnd wth these
regnatons. Such dupcate orgnas sha be fed by the sharehoder or by the
qudatng corporaton wth the Commssoner of Interna Revenue. Washngton,
D. C, attenton of the Income Ta Unt, Records Dvson, wthn 30 days after
the adopton of the pan of qudaton. copy sha aso be attached to and
made a part of the sharehoder s ncome ta return for hs ta abe year n whch
the transfer of a the property under the qudaton occurs.
Guy T. evebng,
Commssoner of Interna Revenue.
pproved une 8, 1938.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth tbe Dvson of the edera Regster une 10, 1938, 12.24 p. m.)
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115.1

S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
1938-25-9403
T. D. 4810
INCOM T . R NU CT OP 1938.
Reguatons under secton 115(c), reatng to qudaton of
foregn persona hodng companes.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 115(c) of Tte I (Income Ta ) of the
Revenue ct of 1938, enacted May 28, 1938 (Pubc, No. 554, Seventy-
ffth Congress, thrd sesson), provdes n part:
Seo. 115. Dstrbutons by Corporatons.

(c) Dstrbutons n qudaton. If any dstrbuton
n compete qudaton (ncudng any one of a seres of dstrbu-
tons made by the corporaton n compete canceaton or redemp-
ton of a ts stock) s made by a foregn corporaton whch wth
respect to any ta abe year begnnng on or before, and endng
after, ugust 2 , 1937, was a foregn persona hodng company,
and wth respect to whch a Unted States group (as defned n
secton 331 (a) (2)) e sted after ugust 2 , 1937, and before an-
uary 1, 1938, then, despte the foregong provsons of ths subsec-
ton, the gan recognzed resutng from such dstrbuton sha be
consdered as a short-term capta gan
(1) Uness such qudaton s competed before uy 1,
1938 or
(2) Uness (f t s estabshed to the satsfacton of the
Commssoner by evdence submtted before uy 1, 1938. that
due to the aws of the foregn country In whch such corpora-
ton s ncorporated, or for other reason, t s or w be
mpossbe to compete the qudaton of such company before
such date) the qudaton s competed on or before such date
as the Commssoner may fnd reasonabe, but not ater than
December 31, 1938.
Par. . Secton 331 (a)2 of Tte I of the Revenue ct of 1938
provdes:
Sec. 331. Defnton of oreon Persona odno Company.
(a) Genera rue. or the purposes of ths tte the term foregn
persona hodng company means any foregn corporaton f

(2) Stock ownershp rvqurmen. t any tme durng the ta -
abe year more than 50 per centum n vaue of ts outstandng
stock s owned, drecty or ndrecty, by or for not more than fve
ndvduas who are ctzens or resdents of the Unted States,
herenafter caed Unted States group.
Par. C. Secton 2 of the Revenue ct of 1938 provdes:
Seo. 2. Rues and Reguatons.
The Commssoner, wth the approva of the Secretary, sha prescrbe
and pubsh a needfu rues and reguatons for the enforcement of
ths tte.
Pursuant to the above-quoted provsons and other provsons of
the nterna revenue aws, the foowng reguatons are hereby pre-
scrbed wth respect to the qudaton of foregn persona hodng
companes:
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7
148
rtce 1. Dstrbutons n qudaton of foregn persona hodng compa-
nes. In any case comng wthn the purvew of the ast sentence of secton
n5(c) of the Revenue ct of 1938 n whch t s or w be mpossbe to com-
pete the qudaton of the corporaton before uy 1, 1938, and n whch t s
desred that the sharehoders obtan the benet of secton 117 wth respect to
the amount of gan from the dstrbuton n qudaton to be taken nto account
n computng net ncome and partcuary the ong-term capta gan provsons
thereof, the corporaton sha submt to the Commssoner before uy 1, 1938,
a compete statement of the facts, crcumstances, and reasons why t s or w
be mpossbe to compete the qudaton before uy 1, 1938, and the earest
reasonabe date after uy 1, 11 38, on whch such qudaton w be competed.
or the purposes of the ast sentence of secton 115(c), a qudaton may be
competed pror to the actua dssouton of the qudatng corporaton but no
qudaton s competed unt the qudatng corporaton and the recever or
trustees n qudaton are fnay dvested of a the property (both tangbe and
ntangbe).
rt. 2. ppcaton of pror cts. or the purpose of these reguatons the
determnaton of whether a foregn corporaton was a foregn persona hodng
company wth respect to a ta abe year begnnng on or before, and endng
after, ugust 2 . 1937, sha be made under secton 331 of the Revenue ct of
193 , added to such ct by secton 201 of the Revenue ct of 1937 and artces
331-1. 331-2. and 331-3 Chapter I added to Reguatons 94 by Treasury
Decson 4782, approved December 7, 1P37 (C. . 1937-2, 1 8).
Guy T. everng,
Commssoner of Interna Revenue.
pproved une 13, 1938.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wtb the Dvson of the edera Regster une 15, 193S, 12.33 p. m.)
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 148. IN ORM TION Y CORPOR TIONS.
1938-2 -9405
INCOM T . T. D. 4811
Reguatons under secton 14S(d) of the Revenue ct of 1938,
reatng to return of nformaton by corporaton wthn 30 days
after adopton of a resouton or pan for dssouton or for quda-
ton of the whoe or any part of ts capta stock.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 148(d) of the Revenue ct of 1938, enacted
May 28, 1938 (Pubc, No. 554, Seventy-ffth Congress, thrd sesson),
provdes:
Sec. 148. Informaton by Corporatons.

(d) Contempated dssouton or qudaton. very corporaton sha,
wthn thrty days after the adopton by the corporaton of a resou-
ton or pan for the dssouton of the corporaton or for the qudaton
of the whoe or any part of Its capta stock, render a correct return
to the Commssoner, verfed under oath, settng forth the terms of such
resouton or pan and such other nformaton as the Commssoner
sha, wth the approva of the Secretary, by reguatons prescrbe.
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148.
8
Par. . Secton 2 of the Revenue ct of 1938 provdes:
Se . 2. Rues and Reguatons.
The Commssoner, wth the approva of the Secretary, sha pre-
scrbe and pubsh a needfu rues and reguatons for the enforcement
of ths tte.
Par. C. Secton 145 of the Revenue ct of 1938 provdes:
Sec. 145. Penates.
(a) ny person requred under ths tte to pay any ta , or requred
by aw or reguatons made under authorty thereof to make a return,
keep any records, or suppy any nformaton, for the purposes of the
computaton, assessment, or coecton of any ta mposed by ths tte,
who wfuy fas to pay such ta , make such return, keep such records,
or suppy such nformaton, at the tme or tmes requred by aw or
reguatons, sha, n addton to other penates provded by aw, be
guty of a msdemeanor and, upon convcton thereof, be fned not
more than 10,000, or mprsoned for not more than one year, or both,
together wth the costs of prosecuton.
(b) ny person requred under ths tte to coect, account for, and
pay over any ta mposed by ths tte, who wfuy fas to coect or
truthfuy account for and pay over such ta , and any person who w-
fuy attempts n any manner to evade or defeat any ta mposed by
ths tte or the payment thereof, sha, n addton to other penates
provded by aw, be guty of a feony and, upon convcton thereof,
be fned not more than 10,000, or mprsoned for not more than fve
years, or both, together wth the costs of prosecuton.
(c) The term person as used n ths secton Incudes an offcer or
empoyee of a corporaton or a member or empoyee of a partnershp,
who as such offcer, empoyee, or member s under a duty to perform
the act n respect of whch the voaton occurs.
(d) or penates for faure to fe nformaton returns wth respect
to foregn persona hodng companes and foregn corporatons, see
secton 340.
Pursuant to the authorty contaned n sectons 2 and 148(d) of
the Revenue ct of 1938, the foowng reguatons are hereby pre-
scrbed wth respect to the return of nformaton requred to be
rendered by every corporaton wthn 30 days after the adopton of
a resouton or pan for the dssouton of the corporaton or for the
qudaton of the whoe or any part of ts capta stock:
rt. 148(d)-. Return of nformaton respectng contempated dssouton or
qudaton. Wthn 30 days after the adopton on or after May 28, 1938, of
any resouton or pan for or n respect of the dssouton of a corporaton or
the qudaton of the whoe or any part of ts capta stock, the corporaton
sha fe wth the Commssoner of Interna Revenue, Washngton, D. C, atten-
ton of the Income Ta Unt, Records Dvson, a correct return on orm 5 ,
made under oath or affrmaton and contanng the nformaton requred by
artce 148(d)-2 of these reguatons and by such form. ke return sha be
fed by the corporaton n the case of any amendment of, or suppement to. a
resouton or pan for or n respect of the dssouton of the corporaton or the
qudaton of the whoe or any part of ts capta stock adopted on, before, or
after May 28, 1938, If such amendment or suppement was adopted on or after
May 28, 1938.
rt. 148(d)-2. Contents of return (a) Genera. There sha be attached to
and made a part of the return requred by secton 148(d) of the ct and artce
148(d)- of these reguatons a duy certfed copy of the resouton or pan, to-
gether wth any amendments thereof or suppements thereto, and such return
sha n addton contan the foowng nformaton:
(1) The name and address of the corporaton
(2) The pace and date of ncorpoaton
(3) The date of the adopton of the resouton or pan and the dates of any
amendments thereof or suppements thereto and
(4) The coecton dstrct n whch the ast ncome ta return of the corpora-
ton was fpd and the ta abe year covered thereby.
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9
338.
( ) Lqudaton n December, 1938. In the event that the pan of qudaton
(adopted after May 2S, 1 3S) provdes for a dstrbuton n compete canceaton
or redempton of a the capta stock of the corporaton, and for the transfer of
a the property of the corporaton under the qudaton entrey wthn the month
of December, 193S, such return sha, n addton to the nformaton requred by
paragraph (a) of ths artce, contan the foowng nformaton :
(1) statement showng the number of shares of each cass of stock outstand-
ng on the date of the adopton of the pan of qudaton, together wth a de-
scrpton of the votng power of each such cass
(2) st of a the sharehoders ownng stock on the date of the adopton of
the pan of qudaton, together wth the number of shares of each cass of stock
owned by each sharehoder, the certfcate numbers thereof, and the tota number
of votes to whch entted on the adopton of the pan of qudaton: and
(3) st of a corporate sharehoders as of pr 9. 1938, together wth the
number of shares of each cass of stock owned by each such sharehoder, the certf-
cate numbers thereof, the tota number of votes to whch entted on the adopton
of the pan of qudaton, and a statement of a changes n ownershp of sock
by corporate sharehoders between pr 9, 193S, and the date of the adopton of
the pan of qudaton, both dates ncusve.
(c) Returns n respect of amendments or suppements. If a return n respect
of any resouton or pan for or n respect of the dssouton of a corporaton or
the qudaton of the whoe or any part of ts capta stock has aready been hed
pursuant to secton 148(d) of the ct, a return n respect of any amendment
thereof or suppement thereto w be deemed suffcent f t gves the dae such
pror return was fed and contans a duy certfed copy of such amendment or
suppement and a other nformaton requred by these reguatons and by orm
9G whch was not gven n such pror return. If no return was fed reatve to
the resouton or pan whch s beng amended or suppemented, the return rea-
tve to the amendment thereof or suppement thereto sha contan a duy certfed
copy of the resouton or pan whch s beng amended or suppemented, together
wth a amendments thereof and suppements thereto, and a other nformaton
requred by these reguatons and by orm 9 .
Gut T. everng,
Commssoner of Interna Revenue.
pproved une 17, 1938.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une 20, 1938, 12.25 p. n.)
SUPPL M NT P. OR IGN P RSON L OLDING COMP NI S.
S CTION 338. IN ORM TION R TURNS Y
O IC RS ND DIR CTORS.
( so Secton 339.) 1938-2 -941
T. D.4814
INCOM T R NU CT O 1938.
Reguatons under sectons 338(a) and 339(a) reatng to nfor-
maton returns by offcers, drectors, and sharehoders of certan
foregn corporatons.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 338(a) of Suppement P of Tte I (Income
Ta ) of the Revenue ct of 1938, enacted May 28, 1938 (Pubc, No.
554, Seventy-ffth Congress, thrd sesson), provdes:
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338.
70
Sec. 338. Informaton Returns by Offcers and Drectors.
(a) Monthy returns. On the 15th day of each month whch begns
after the date of the enactment of ths ct each Indvdua who on
such dny s an offcer or a drector of a foregn corporaton whch,
wth respect to ts ta abe year (f not begnnng before ugust 2 ,
193 ) precedng the ta abe year (whether begnnng on, before, or
after anuary 1, 1938) In whch such month occurs, was a foregn
persona hodng company, sha fe wth the Commssoner a return
settng forth wth respect to the precedng caendar month the name
and address of each sharehoder, the cass and number of shares hed
by each, together wth any changes n stockhodngs durng such perod,
the name and address of any hoder of securtes convertbe nto stock
of such corporaton, and such other nformaton wth respect to the
stock and securtes of the corporaton as the Commssoner wth the
approva of the Secretary sha by reguatons prescrbe as necessary
for carryng out the provsons of ths ct. The Commssoner, wth
the approva of the Secretary, may by reguatons prescrbe, as the
perod wth respect to whch returns sha be fed, a onger perod than
a month. In such case the return sha be due on the 15th day of the
succeedng perod, and sha be fed by the ndvduas who on such
day are offcers and drectors of the corporaton.
Par. . Secton 339(a) of Suppement P of Tte I of the Revenue
ct of 1938 provdes:
Sec. 339. Informaton Returns by Sharehoders.
(a) Monthy returns. On the oth day of each month whch begns
after the date of the enactment of ths ct each Unted States share-
hoder, by or for whom 50 per centum or more n vaue of the out-
standng stock of a foregn corporaton s owned drecty or ndrecty
(ncudng n the case of an ndvdua, stock owned by the members of
hs famy as defned n secton 333(a)(2)), f such foregn corpora-
ton wth respect to ts ta abe year (f not begnnng before ugust
2 , 193 ) precedng the ta abe year (whether begnnng on, before, or
after anuary 1, 193S) n whch such month occurs was a foregn per-
sona hodng company, sha fe wth the Commssoner a return set-
tng forth wth respect to the precedng caendar month the name and
address of each sharehoder, the cass and number of shares hed by
each, together wth any changes n stockhodngs durng such perod,
the name and address of any hoder of securtes convertbe nto stock
of such corporaton, and such other nformaton wth respect to the
stock and securtes of the corporaton as the Commssoner wth the
approva of the Secretary sha by reguatons prescrbe as necessary
for carryng out the provsons of ths ct. The Commssoner, wth the
approva of the Secretary, may by reguatons prescrbe, as the perod
wth respect to whch returns sha be fed, a onger perod than a
month. In such case the return sha be due on the 15th day of the
succeedng perod, and sha be fed by the persons who on such day are
Unted States sharehoders.
Par. C. Secton 340 of Suppement P of Tte I of the Revenue ct
of 1938 provdes:
Sec. 340. Penates.
ny person requred under secton 338 or 339 to fe a return, or to
suppy any Informaton, who wfuy fas to fe such return, or
suppy such nformaton, at the tme or tmes requred by aw or
reguatons, sha, n eu of the penates provded n secton 145(a)
for such offense, be guty of a msdemeanor and, upon convcton
thereof, be fned not more than 2,000, or mprsoned for not more than
one year, or both.
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71
338.
Pab. D. Secton 333(a) (2) of Suppement P of Tte I of the
Revenue ct of 1938 provdes:
Sec. 333. Stock Owners np.
(a) Constructve ownershp.
(2) amy and partnershp ownershp. n ndvdua sha be
consdered us ownng the stock owned, drecty or ndrecty, by
or for hs famy or by or for hs partner. or the purposes of
ths paragraph the famy of an ndvdua ncudes ony hs brothers
and ssters (whether by the whoe or haf bood), spouse, ances-
tors, and nea descendants.
Par. . Secton 804 (Tte Msceaneous Provsons) of the
Revenue ct of 1938 provdes:
Sec. SO Informaton Returns as to oregn Corporatons.
Sectons 338(a), 339(a), and 341 (nsofar as t reates to sectons
338(a) and 339(a)) of the Revenue ct of added to such ct b-
secton 201 of the Revenue ct of 1937, sha reman n force ony wth
respect to months begnnng on or before the date of the enactment of
ths ct
Par. . Secton 80 of Tte of the Revenue ct of 1938 pro-
vdes:
Sec. S0 . dmnstraton of Oats or ffrmatons.
ny oath or affrmaton requred or authorzed by any Interna-
revenue aw or by any reguatons made under authorty thereof may
be admnstered by any person authorzed to admnster oaths for gen-
era purposes by the aw of the Unted States, or of any State, Terr-
tory, or possesson of the Unted States, or of the Dstrct of Coumba,
wheren such oath or affrmaton s admnstered. Ths secton sha
not be construed as an e cusve enumeraton of the persons who may
admnster such oaths or affrmatons.
Par. G. Secton 2 of Tte I of the Revenue ct of 1938 provdes:
Sec. 2. Rues and Reguatons.
The Commssoner, wth the approva of the Secretary, sha prescrbe
and pubsh a needfu rues and reguatons for the enforcement of
ths tte.
Pursuant to the above-quoted provsons and other provsons of
the nterna revenue aws, the foowng reguatons are hereby pre-
scrbed wth respect to nformaton returns to be fed by offcers and
drectors and sharehoders of certan foregn corporatons:
gncL 1. Informaton returns by offcers and drectors of certan foregn
corporatons. (a) Requrement for fng returns.
(1) Genera Under secton 338(a) of the Revenue ct of 1938, on the 15th
day of each month whch begns after May 28. 1938, each Indvdua who on
such 15th day s an offcer or a drector of a foregn corporaton whch, wth
respect to ts ta abe year (f not begnnng before ugust 2 , 193 ) precedng
the ta abe year (whether begnnng on, before, or after anuary 1, 1938) In
whch such month occurs, was a foregn persona hodng company, s requred
to fe wth the Commssoner a monthy nformaton return as provded n that
secton and ths artce.
(2) Returns for a perod e ceedng one month. In the case of a foregn per-
sona hodng company whch before the cose of ts ta abe year specfed n
Paragraph (a)(1) of ths artce and endng on or after May 31, 1938, ds-
trbuted to ts sharehoders 90 per cent or more of ts Suppement P net ncome
as defned n Suppement P, added to the Revenue ct of 193 by secton 20,1
of Tte II of the Revenue ct of 1937 or n Suppement P of the Revenue ct
of 1938, the foowng perods are prescrbed wth respect to whch nformaton
returns on orm 957 sha be fed durng the foowng year
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338.
72
The return requred under secton 338(a) for the ast month of the pre-
cedng ta abe year sha be fed on the 10th day of the frst month foowng
the cose of such ta abe year. Subsequent returns sha be fed for each
-month perod foowng the cose of such ta abe year and sha be fed on
the oth day of the frst month foowng such perod. If any change n the
stock hodngs or n the hodngs of securtes convertbe nto stock of the
corporaton occurs durng such perods or f a resouton or pan (ncudng
any amendments thereof or suppements thereto) for the dssouton of the
corporaton or for the qudaton of the whoe or any part of ts capta stock
s adopted durng such perods, a monthy nformaton return must aso be
fed on the 15th day of the month foowng each month n whch the change
occurs or the resouton or pan s adopted. In any case under ths paragraph
where the date for fng a monthy return concdes wth the date for fng
the return for a -month perod ony the return for the -month perod need
be fed.
In the case of a foregn persona hodng company whch before the cose
of ts ta abe year specfed In paragraph ( )(1) of ths artce and ended
before May 31, 1938. dstrbuted to ts sharehoders 90 per cent or more of ts
Suppement P net ncome as defned n Suppement P of the Revenue ct of
19.1 , as amended, the foowng perods are prescrbed wth respect to whch
nformaton returns under secton 338(a) of the Revenue ct of 1038 and ths
artce sha be fed durng the year foowng the year n whch such ds-
trbuton occurred and after May 28, 1038.
The frst nformaton return sha be fed on the same day an nformaton
return woud have been requred to be fed under secton 338(a) of Suppe-
ment P of the Revenue ct of 1930, as amended, and paragraph (a)(2) of
artce 338-1 of Chapter I added to Reguatons 94 by Treasury Dec-
son 4782, approved December 7, 1937 (C. . 1037-2, 1 3)), had the Reve-
nue ct of 1938 not been enacted. Subsequent returns sha be fed for
each -month perod foowng the cose of the month precedng the month n
whch such day occurs and sha be fed on the 15th day of the frst month
foowng such -month perod. If any change n the stock hodngs or n tho
hodngs of securtes convertbe nto stock of the corporaton occurs durng
such perods or f a resouton or pan (ncudng any amendments thereof or
suppements thereto) for the dssouton of the corporaton or for the quda-
ton of the whoe or any part of ts capta stock s adopted durng such perods,
a monthy nformaton return must be fed on the 15th day of each month fo-
owng the month n whch the change occurs or the resouton or pan s
adopted. In any case under ths paragraph where the date for fng a monthy
return concdes wth the date for fng a return for a -month perod, ony
the return for the -month perod need be fed.
(3) Returns |ony made. If two or more offcers or drectors of a foregn
corporaton are requred to fe nformaton returns for any perod under
secton 338(a) and ths artce, any two or more of such offcers or drectors
may, n eu of fng separate returns for such perod, |onty e ecute and fe
one return.
( ) orm of return The returns under secton 338(a) and ths artce
sha be made on orm 057. Such forms may, upon request, be procured
from any coector. ach offcer or drector shoud carefuy prepare hs return
so as to set forth fuy and ceary the nformaton caed for theren and by
the appcabe reguatons. Returns whch have not been so prepared w
not be consdered as meetng the requrements of the ct.
(c) Contents of return. The return sha, n accordance wth the provsons
of ts artce and the nstructons on the form, set forth wth respect to the
precedng perod the foowng Informaton:
(1) sme and address of corporaton
(2) nd of busness n whch the corporaton s engaged
(3) Date of ncorporaton
(4) The country under the aws of whch the corporaton s ncorporated
(5) Number of shares and par vaue of common stock of the corporaton
outstandng as of the begnnng and end of the perod
( ) Number of shares and par vaue of preferred stock of the corporaton
outstandng as of the begnnng and end of the perod, the rate of dvdend
on such stock and whether such dvdend s cumuatve or noncumuatve
(7) descrpton of the convertbe securtes ssued by the corporaton,
ncudng a statement of the face vaue of, and rate of nterest on, such
securtes
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338.
(S) The name and address of each sharehoder, the cass and number of
shares hed by each, together wth any changes n stock hodngs durng such
perod
( )) The name and address of each hoder of securtes convertbe nto stock
of the corporaton, the cass, number, and face vaue of the securtes hed
by each, together wth any changes n the hodngs of such securtes durng
the perod:
(10) duy certfed copy of any resouton or pan, and any amendments
thereof or suppements thereto, for or n respect of the dssouton of the
corporaton or the qudaton of the whoe or any part of ts capta stock
and
(11) Such other nformaton as may be requred by the return form.
If a person s requred to fe a return under secton 338(a) and ths
artce wth respect to more than one foregn corporaton, a separate return
must be fed wth respect to each foregn corporaton.
( ) erfcaton of returns. returns requred by secton 338(a) and ths
artce sha be verfed under oath or affrmaton. The oath or affrmaton may
be admnstered by a person authorzed to admnster oaths for genera purposes
by the aw of the Unted States or of any State, Terrtory, or possesson
of the Unted States, or of the Dstrct of Coumba, wheren such oath or
affrmaton s admnstered, or by a consuar offcer of the Unted States.
Pe.-sons n the nava or mtary servce of the Unted States may verfy ther
returns before any offca authorzed to admnster oaths for the purposes of
those resectve servces. Returns e ecuted abroad may be attested free
of charge before the Unted States consuar offcers. If a foregn notary or
other offca havng no sea sha act as attestng offcer, the authorty of
such attestng offcer shoud be certfed to by some |udca offca or other
proper offcer havng knowedge of the appontment and offca character of
the attestng offcer.
(c) Penates. or crmna penates for faure to fe the returns requred
by secton 338(a) and ths artce, see secton 340.
et. 2. Informaton returns by sharehoders of certan foregn corporatons.
(a) Requrement for fng returns.
(1) Gmera. On the oth day of each month whch begns after May 28,
1238, each Unted States sharehoder, by or for whom 50 per cent or more n
wne of the outstandng stock of a foregn corporaton s owned, drecty or
ndrecty (ncudng n the case of an ndvdua, stock owned by members of
hs famy as defned n secton 333(a)(2)), f such foregn corporaton wth
respect to ts ta abe year (f not begnnng before ugust 2 , 193 ) precedng
the ta abe year (whether begnnng on, before, or after anuary 1, 1938) n
whch such month occurs was a foregn persona hodng company, sha fe
wth the Commssoner an nformaton return as provded n secton 339(a)
and ths artce.
(2) Returns for a perod e ceedng one month. In the case of a foregn
persona hodng company whch before the cose of ts ta abe year specfed n
paragraph (a)(1) of ths artce, dstrbuted to ts sharehoders 90 per cent
or more of ts Suppement P net ncome, the perods wth respect to whch
nformaton returns under secton 339(a) sha be fed sha be the same as the
perods prescrbed n paragraph (a)(2) of artce L
(3) Dupcate returns. If a sharehoder n a foregn corporaton fes, as an
offter or drector n such corporaton, the returns requred by secton 338(a)
and artce 1 such returns sha be consdered as returns fed under secton
339(a).
(b) orm of return. The return under secton 339(a) and ths artce sha
on orm 957, copes of whch, upon request, may be secured from any co-
ector. ach sharehoder shoud carefuy prepare hs return so as to set forth
fuy and ceary the Informaton caed for theren and by the appcabe
fatons. Returns whch have not been so prepared w not be consdered
as meetng the requrements of the ct.
(c) Contents of return. The return on orm 957 sha, n accordance wth
the provsons of ths artce and the nstructons on the form, set forth wth
respect to the precedng perod the same nformaton as requred to be shown
on that form by secton 338(a) and paragraph (e) of artce 1.
If a person s requred to fe a return under secton 339(a) and ths artce
th respect to more than one foregn corporaton, a separate return must be
fed wth respect to each foregn corporaton..
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5803. 74
((f) erfcaton of return. returns requred by secton 339(a) and
ths artce sha be verfed under oath or affrmaton as prescrbed n para-
graph ( f) of artce 1.
(e) Penates. or crmna penates for faure to fe the returns requred
by secton 339(a) and ths artce, see secton 340.
rt. 3. Tme and pace of fng returns. Returns requred by sectons 338(a)
and 339(a) and these reguatons sha be fed wth the Commssoner of
Interna Revenue, Washngton, D. C, attenton Income Ta Unt, Records
Dvson, and w be consdered fed wthn the tme or tmes requred by aw
f, wthn such tme or tmes, such returns are made and paced n the mas
n due course, pro|)ery addressed and postage pad, provded they are actuay
receved n the offce of the Commssoner of Interna Revenue, Washngton,
D. C, even though receved after such tme or tmes.
Guy T. everng,
Commssoner of Interna Revenue.
pproved une 18, 1938.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une 21, .rss, 11.17 a. m.)
S CTION 339. IN ORM TION R TURNS Y
S R OLD RS.
NL CT O 1938.
Reguatons reatng to nformaton returns by sharehoders of
certan foregn corporatons. (See T. D. 4S14, page G9.)
S CTION 803. R TURNS S TO ORM TION,
TC., O OR IGN CORPOR TIONS.
1938-20-9417
T. D. 4310
INCOM T R NU CT O OSS.
Reguatons under secton 803, reatng to returns of nformaton
wth respect to foregn corporatons.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 803 (Tte Msceaneous Provsons) of
the Revenue ct of 1938, enacted May 28, 1938 (Pubc, No. 554, Sev-
enty-ffth Congress, thrd sesson), provdes:
Sec. 803. Returns as to ormaton, tc., of oregn Corporatons.
(a) Requrement. Under reguatons prescrbed by the Comms-
soner wth the approva of the Secretary, any attorney, accountant,
fducary, bank, trust company, fnanca nsttuton, or other person,
who, after the date of the enactment of ths ct, ads, asssts, coun-
ses, or advses n, or W respect to, the formaton, organzaton, or
reorganzaton of any foregn corporaton, sha, wthn 30 days there-
after, fe wth the Commssoner a return.
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75
(b) orm and content of return. Such return sha be n such
form, and sha set forth, under oath. In respect of each such corpo-
raton, to the fu e tent of the nformaton wthn the possesson or
knowedge or under the contro of the person requred to fe the re-
turn, snch nformaton as the Commssoner wth the approva of the
Secretary prescrbes by reguatons as ne-essary for carryng out the
provsons of the ncome-ta aws. Nothng n ths secton sha be
construed to requre the dvugng of prveged communcatons be-
tween attorney and cent.
(c) Penaty. ny person requred under subsecton (a) to fe a
return, or to suppy any nformaton, who wfuy fas to fe such
return, or suppy such nformaton, at the tme or tmes requred by
aw or reguatons, sha, n eu of other penates provded by aw
for such offense, be guty of a msdemeanor and, upon convcton
thereof, be fned not more than 2,000, or mprsoned for not more than
one year, or both.
(d) d, etc., before enactment of ct. The provsons of sectons
340 and 341 (nsofar as t reates to secton 340) of the Revenue ct
of 193 , added to such ct by secton 201 of the Revenue ct of 1037,
sha reman n force ony wth respect to adng, assstng, counseng,
or advsng, on or before the date of the enactment of ths ct.
Pah. . Secton 80 of Tte of the Revenue ct of 1938 pro-
vdes:
Sec 80 . dmnstraton of Oaths oe ffrmatons.
ny oath or affrmaton requred or authorzed by any nterna-
revenue aw or by any reguatons made under authorty thereof may
be admnstered by any person authorzed to admnster oaths for gen-
era purposes by the aw of the Unted States, or of any State, Terr-
tory, or possesson of the Unted States, or of the Dstrct of Coumba,
wheren such oath or afrmaton s admnstered. Ths secton sha
not be construed as an e cusve enumeraton of the persons who may
admnster such oaths or affrmatons.
Par. C. Secton 901 (Tte I Genera Provsons) of the Rev-
enue ct of 1938 provdes n part :
Sec. 901. Dkfntons.
(a) When used n ths ct
(I) The term person means an ndvdua, a trust or estate,
a partnershp, or a corporaton.

(5) The term foregn when apped to a corporaton or part-
nershp means a corporaton or partnershp whch s not domestc.
( ) The term fducary means a guardan, trustee, e ecutor,
admnstrator, recever, conservator, or any person actng n any
fducary capacty for any person.

(II) The term Secretary means the Secretary of the Treas-
ury.
(12) The term Commssoner means the Commssoner of
Interna Revenue.
Pursuant to the above-quoted provsons and other provsons of
the nterna-revenue aws, the foowng reguatons are hereby
prescrbed wth respect to returns of nformaton to be fed by
attorneys, accountants, fducares, banks, trust companes, fnanca
nsttutons, or other persons as to the formaton, organzaton, or
reorganzaton of foregn corporatons:
btcb 1. Informaton returns. (a) Genera. ny attorney, accountant,
fducary, bank, trust company, fnanca Insttuton, or other person, who, after
May 28, 1938, ads, asssts, counses, or advses n, or wth respect to, the
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803.
7
formaton, organzaton, or reorganzaton of any foregn corporaton sha
fe wth the Commssoner, wthn 30 days after gvng such ad, assstance,
counse, or advce, an nformaton return as provded n secton 803(a) and
these reguatons. The return must be fed n every such case (1) regardess
of the nature of the counse or advce gven, whether for or aganst the forma-
ton, organzaton, or reorganzaton of the foregn corporaton, or the nature
of the ad or assstance rendered and (2) regardess of the acton taken upon
the advce or counse, that s. whether the foregn corporaton s actuay
formed, organzed, or reorganzed.
If, n a partcuar case, the ad, assstance, counse or advce gven by any
person e tends over a perod of more than 1 day and not for more than
30 days, such person, to avod the mutpe fng of returns, may fe a snge
return for the entre perod. In such case, the return sha be fed wthn SO
days from the frst day of such perod. If, n a partcuar case, the ad, assst-
ance, counse, or advce gven by any person e tends over a perod of more
than 30 days, such person may fe a return at the end of each 30 days ncuded
wthn such perod and at the end of the fractona part of a 30-day perod,
f any, e tendng beyond the ast fu 30 days. In each such case, the return
must dscose a the requred nformaton whch was not reported on a pror
return.
( ) Speca provsons. (1) mpoyers. In the case of ad, assstance,
counse, or advce n, or wth respect to, the formaton, organzaton, or reor-
ganzaton of a foregn corporaton gven by a person n whoe or n part
through the medum of subordnates or empoyees (ncudng n the case of a cor-
poraton the offcers thereof), the return of the empoyer must set forth to the
fu e tent a nformaton prescrbed by these reguatons, ncudng that whch,
as au ncdent to such empoyment, s wthn the possesson or knowedge or
under the contro of such subordnates or empoyees.
(2) mpoyers. The obgaton of a subordnate or empoyee (ncudng m
the case of a corporaton the offcers thereof) to fe a return wth respect to
any ad, assstance, counse, or advce n, or wth respect to, the formaton,
organzaton, or reorganzaton of a foregn corporaton, gven as an ncdent
to hs empoyment, w be satsfed f a compete and accurate return as pre-
scrbed by these reguatons s duy fed by the empoyer settng forth a of
te nformaton wthn the possesson or knowedge or under the contro of
such subordnate or empoyee.
Cerks, stenographers, and other subordnates or empoyees, renderng ad
or assstance soey of a cerca or mechanca character n, or wth respect to,
the formaton, organzaton, or reorganzaton of a foregn corporaton are
not requred to fe returns by reason of such servces.
(3) Partners. In the case of ad. assstance, counse, or advce n, or wth
respect to, the formaton, organzaton, or reorganzaton of a foregn corpo-
raton gven by one or more members of a partnershp n the course of ts
busness, the obgaton of each such ndvdua member to fe a return w
be satsfed f a compete and accurate return, as prescrbed by these reguatons,
s duy fed by the partnershp, e ecuted by a the members of the frm
who gave any such ad, assstance, counse, or advce. If, however, the
partnershp has been dssoved at the tme the return s due, ndvdua
returns must be red by each member of the former partnershp who gave
any such ad. assstance, counse, or advce.
(4) Returns |onty made. If two or more persons ad, assst, counse, or
advse In, or wth respect to, the formaton, organzaton, or reorganzaton
of a partcuar foregu corporaton, any two or more of such persons may.
n eu of fng severa returns, |onty e ecute and te one return.
(c) Penates. or crmna penates for faure to fe the returns requred
by secton 803(a) and these reguatons, see secton 803(c) quoted n para-
graph .
(d) Informaton returns and penates under pror cts. or nformaton
returns n the case of ad, assstance, counse, or advce n, or wth respect to.
the formaton, organzaton, or reorganzaton of any foregn corporaton gven
on or before May 28, 1938, and for crmna penates for faure to fe such
returns, see artces 340-1 and 340-2 of Chapter I added to Reguatons
94 by Treasury Decson 47S2, approved December 7, 1037 (C. . 1937-2, 1 8),
aud secton 803(d) of the Revenue ct of 1S13S quoted n paragraph .
rt. 2. orm of return. The returns under artce 1 sha be made on orm
959. Such forms may, upon request, be procured from any coector. ach per-
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77
803.
son shoud carefuy prepare hs return so as to set forth fuy and ceary the
nformaton caed for theren. Returns whch have not been so prepared w
not be accepted as meetng the requrements of the ct.
t. 3. contents of returns. The return sha, n accordance wth the pro-
vsons of these reguatons and the nstructons on the form, set forth the
foowng nformaton to the fu e tent such nformaton s wthn the know-
edge or possesson or under the contro of the person requred to fe the
return:
(1) The name and the address of the person (or persons) to whom and
the person (or persons) for whom or on whose behaf the ad, assstance,
counse, or advce was gven
(2) compete statement of the ad, assstance, counse, or advce gven
(3) Name and address of the foregn corporaton and the country under the
aws of whch t was formed, organzed, or reorganzed
) The month and year when Ue foregn corporaton was formed, organ-
zed, or reorganzed:
(5) statement of how the formaton, organzaton, or reorganzaton of
the foregn corporaton was effected
(G compete statement of the reasons for, and the purposes sought to be
aceomp.sed by, the formaton, organzaton, or reorganzaton of the foregn
corporaton
(7) statement showng the casses and knds of assets transferred to the
foregn corporaton n connecton wth ts formaton, organzaton, or reor-
ganzaton, ncudng a detaed st of any stock or securtes ncuded n
such assets, and a statement showng the names and addresses of the persons
who were the owners of such assets mmedatey pror to the transfer
(8) The names and addresses of the sharehoders of the foregn corporaton
at the tme of the competon of ts formaton, organzaton, or reorganzaton,
showng the casses of stock and number of shares hed by each
(9) The name and address of the person (or persons) havng custody of
the books of account and records of the foregn corporaton
(10) Snch other nformaton as may be requred by the return form and
(11) Where any of the nformaton requred to be furnshed s wthhed
because ts character s camed to be prveged as a communcaton between
attorney and cent wthn the meanng of secton 803(b), the return must
so state and must contan a compete statement of the nature and the cr-
cumstances of the communcaton on whch a decson as to the proprety of
the cam of prvege may be reached.
If a person ads, asssts, counses, or advses n, or wth respect to, the
formaton, o ganzaton, or reorganzaton of more than one foregn corpora-
ton, a separate return must be fed wth respect to each foregn corporaton.
bt. 4. erfcaton of return. returns requred by secton 803(a) and
these reguatons sha be verfed under oath or affrmaton. The oath or
affrmaton may be admnstered by a person authorzed to admnster oaths
for genera purposes by the aw of the Unted States, or of any Stute, Terr-
tory, or possesson of the Unted States, or of the Dstrct of Coumba,
wheren such oath or affrmaton s admnstered, or by a consuar offcer
of the Unted States. Such returns e ecuted abroad may be attested free
of charge before Unted States consuar offcers. If a foregn notary or other
offca havng no sea sha act as attestng offcer, the authorty of such
attestng offcer sha be certfed to by some udca offca or other proper
offfer havng knowedge of the appontment and offca character of the
attestng offcer.
bt. 5. Pace of fng returns. Returns requred by secton 803(a) of the
Revenue ct of 1938 and these reguatons sha be fed wth the Comms-
soner of Interna Revenue, Washngton, D. C, attenton of the Income Tu
Cot, Records Dvson.
Gt|y T. everng,
Commssoner of Interna Revenue.
pproved une 20, 1938.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( fed wth the Dvson of the edera Regster une 21, 1938, 11.18 a. m.)
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807. 78
TITL . MISC LL N OUS PRO ISIONS.
S CTION 807. SIS O PROP RTY C UIR D IN
CONN CTION WIT R ORG NIZ TIONS.
1938-2 -9422
T. D. 4819
INCOM T .
rtce 113(a) (7)- of Reguatons 94 amended to accord wth
secton 807 of the Revenue ct of 1938, reatng to the bass of
property acqured after December 31, 1917, by a corporaton In
connecton wth a reorganzaton.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C
To Coectors of Interna Revenue and Others Concerned:
In order to accord wth secton 807 of the Revenue ct of 1938.
enacted May 28, 1938 (Pubc, No. 554, Seventy-ffth Congress thrd
sesson), amendng secton 113(a)(7) of the Revenue ct of 193 ,
reatng to the bass of property acqured after December 31, 1917,
by a corporaton n connecton wth a reorganzaton, Reguatons 94
are amended as foows:
The foowng s nserted mmedatey precedng artce 113(a)-
(7)-:
Secton 807 of Tte of the Revenue ct of 1938 provdes:
Sec. 807. ass of Property cqured n Connecton wth Ue-
organzatonb.
(a) Secton 113(a)(7) of the Revenue ct of 1930 s amended to
read as foows:
(7) Transfers to corporaton. If the property was acqured
( ) after December 31, 1917, and n a ta abe year be-
gnnng before anuary 1, 193G, by a corporaton n connecton
wth a reorganzaton, and Immedatey after the transfer
an nterest or contro n such property of 50 per centum or
more remaned n the same persons or any of them, or
( ) n a ta abe year begnnng after December 31, 193o.
by a corporaton n connecton wth a reorganzaton,
then the bass sha be the same as t woud be n the hands of
the transferor, ncreased n the amount of gan or decreased n the
amount of oss recognzed to the transferor upon such transfer
under the aw appcabe to the year n whch the transfer was
made. Ths paragraph sha not appy f the pro )erty acqured
conssts of stock or securtes n a corporaton a party to the
reorganzaton, uness acqured by the ssuance of stock or
securtes of the transferee as the consderaton n whoe or n par
for the transfer.
(b) The amendment made by subsecton (a) sha be apped n the
computaton of net ncome for ta abe years begnnng after Decem-
ber 31, 193o, and before anuary 1, 1938.
rtce 113(a) (7)- s amended to read as foows:
rt. 113(a) (7)-. Property acqured by corporaton n reorganzaton after
December 31, 1017. Secton 113(a)(7) of the ct, as amended, sets forth the
condtons under whch the bass of property acqured by a corporaton after
December 31, 1917, n connecton wth a reorganzaton as defned n secton
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79
808.
112 of the ct s the same as t woud be n the hands of the transferor, n-
creased or decreased as theren provded n the amount of gan or oss recog-
nzed to the transferor under the appcabe revenue aw. In the case of property
so acqured n a ta abe year begnnng pror to anuary 1, 1930, secton
113(a) (7) s appcabe ony f mmedatey after the transfer there remaned n
the same persons or any of them an nterest or contro n such property of 50
per cent or more. In the case, however, of property so acqured n a ta abe year
governed by the ct, secton 113(a)(7) s appcabe rrespectve of the e tent
of the nterest or amount of contro n such property remanng, mmedatey
after the transfer, n the hands of the same persons or any of them.
The appcaton of the provsons of secton 113(a) (7) ( ) of the ct may be
ustrated by the foowng e ampes:
ampe ( ): In t)25 the Corporaton caused the organzaton of the Y
Corporaton and transferred to the Y Corporaton, n e change for a the capta
stock of that corporaton, property whch t had prevousy purchased for
10,000. The bass of the property n the hands of the Y Corporaton s 10.00).
ampe (2): In 1925 the M Corporaton e changed 10 per cent of ts votng
stock: for a the property of the N Corporaton whch had a bass of 10,000
n the bands of the N Corporaton. The bass of the property n the hands
of the M Corporaton s cost thereof to t at the tme of the transfer, that s,
the far market vaue of the M stock e changed for the property.
Secton 113(a)(7) of the ct, as amended, does not appy f, rrespectve of
when acqured, the property conssts of stock or securtes n a corporaton a
party to a reorganzaton as defned n secton 112 of the ct, uness such stock
or securtes are acqured by the ssuance of stock or securtes of the transferee
as the consderaton n whoe or n part for the transfer. The appcaton of the
ast sentence of secton 113(a) (7) to a case where such stock or securtes are
acqured by the ssuance of stock or securtes of the transferee may be us-
trated as foows:
ampe (3) The Y Corporaton owns a of the stock of the Corporaton,
whch stock t acqured n 193 by the ssuance of a of ts own votng stock to
the Indvdua sharehoders of the Corporaton. The stock of the Corpora-
ton was acqured by the ndvduas n 1924 for 100 COT n cash. The stock of
the Y Corporaton had a far market vaue of 1,000,000 at the tme t was e -
changed n 193 for the stock of the Corporaton. The far market vaue of
the stock of the Corporaton at the tme of the e change n 193 was aso
1,000,000. The bass to the Y Corporaton of the stock of the Corporaton
s the bass whch such stock woud have had In the hands of the ndvduas
from whch t was acqured by the Y Corporaton, that s, 100,000.
Ths Treasury decson s prescrbed pursuant to the provsons of
secton 2 of the Revenue ct of 193 .
Guy T. everng,
Commssoner of Interna Revenue.
pproved une 20, 1938.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une 22, 1938, 12.01 p. m.)
S CTION 808. SIS O PROP RTY C UIR D IN
CONN CTION WIT LI UID TION.
1938-2 9415
T. D 4815
INCOM T .
rtce 113(a) (15)-1 of Reguatons 94, amended to accord wth
secton 113(a 15) of the Revenue ct of 103 . as amended by sec-
ton 808 of the Revenue ct of 1938. reatng to the bass of prop-
erty receved n certan corporate qudatons.
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808.
80
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
In order to accord wth secton 808 of the Revenue ct of 1938. en-
acted May 28, 1938 (Pubc, No. 554, Seventy-ffth Congress, thrd
sesson), amendng secton 113(a) (15) of the Revenue ct of 193 ,
reatng to the bass of property receved n certan corporate quda-
tons, Reguatons 94 are amended as foows:
The foowng s nserted mmedatey precedng artce 113(a)-
(15)-1:
Secton 808 of the Revenue ct of 1938 provdes:
Sec. 808. ass of Property cqured n Connecton Wth Lqudaton.
(a) Secton 113(a) (15) of the Revenue ct of 193 s amended by
nsertng at the end thereof the foowng: If upon the compete quda-
ton of a corporaton wthn the meanng of secton 112(b)( ) of the
Revenue ct of 1934, as amended, n case the frst of the seres of dstr-
butons In qudaton was made after ugust 29, 1935, nnd the ast of
the seres of dstrbutons was made before une 23, 193 , f wth re-
spect to a the property (other than money) receved by a corporaton
pror to une 23, 193 , and n a ta abe year begnnng after December
31, 1935, no gan or oss woud have been recognzed on the recept of
such property under such secton 112(b) ( ), the bass of such property
n the hands of such corporaton sha be the bass prescrbed by the
Revenue ct of 1934, as amended, f such corporaton (wthn 180 days
after the date of the enactment of the Revenue ct of 1938) eects,
under reguatons prescrbed by the Commssoner, to have such bass
appy.
rtce 113(a) (15)-1 s amended to read as foows:
rt. 113(a) (15)-1. ass of property receved n compete qudaton of con-
troed corporaton. (a) cvcru rue. cept as provded n paragraphs (ft)
and (c) of ths artce, the bass of property receved n compete qudaton,
wthout the recognton of gan or oss as provded n secton 112(b)( ), sha
be the same as the bass of the property n the hands of the qudatng corpora-
ton, wth proper ad|ustments as provded n secton 113. See secton 112(b).
( ) cepton to genera rue. In the case of property receved n qudaton
after December 31, 1935, and before une 23, 193 , n a ta abe year of the
recpent corporaton begnnng after December 31, 1935, the bass of such
property n the hands of the recpent corporaton sha be the bass prescrbed
by secton 113(a)( ) of the Revenue ct of 1934, as amended by the Revenue
ct of 1935, f
(1) Such property was receved n a qudaton whch was competed
before une 23, 193
(2) Such qudaton consttuted a compete qudaton wthn the meanng
of secton 112(b)( ) of the Revenue ct of 1934, as added by the Revenue
ct of 1935
(3) No gan or oss woud have been recognzed under secton 112(b) ( )
of the Revenue ct of 1934, as amended, upon the recept of such property
and
(4) The recpent corporaton (wthn 180 days after the enactment of
the Revenue ct of 1938) eects under these reguatons to have such bass
appy to such property.
If such an eecton s made, the bass of such property receved n qudaton
sha be the cost or other bass (ad|usted as provded n secton 113) of the stock
of the qudatng corporaton surrendered n e change for the property, decreased
n the amount of money receved and ncreased n the amount of g n or decreased
n the amount of oss to the recpent corporaton that was recognzed upon the
qudaton under the Revenue ct of 193 . If such property conssts of more
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81
903.
than one cass of property the bass sha be aocated among the severa
propertes (other than money) receved, In the proporton thnt the far market
vaue of each steh property as of the date of dstrbuton bears to the fa-
market vaue of a such propertes on that date.
(e) Wrtten eecton as to bass. In order to eect under secton 113(a) (15)
of the Revenue ct of 193f . as amended by secton 808 of the Revenue ct of
1038 to have the h ss provsons of the Revenue ct of 1034, as amended, appy
to property receved n compete qudaton of a corporaton, It s necessary that
affrmatve acton be taken, n the manner prescrbed heren, by the corporaton
entted to make the eecton. To be effectve, the eecton must bp made wth
respect to a of the property receved n qudaton from the qudatng corpora-
ton :fter T ecpmbPr 31. 1935, and before une 23. 103 . n a ta abe year of the
recpent corporaton begnnng after December 31, 1035. aure so to act w
not be consdered as an eecton. n eecton once made under these reguatons
Is rrevocabe. corporaton entted to make the eecton penntted under
secton 113(a) (15) of the Revenue ct of 193 , as amended, sha, wthn ISO
days after May 28. 193S. the d te of the enactment of the Revenue ct of 19R8,
fe wth the Commssoner of Interna Revenue, Washngton, D. C, for the
attenton of the Income Ta Unt, Records Dvson, ts wrtten eecton, n
dupcate, under oath, on orm 005, sgnfyng such eecton. Such form sha be
e ecuted and fed n accordance wth these reguatons and the nstructons on
the form If pror to fng of the eecton the recpent corporaton has fed
ts ncome and eveess-profts t retnrn for any ta abe year begnnng after
December 31. 1935. the eecton sha be accompaned by an amended return for
each such year or by a statement e panng n dera the ad|ustments to be made
In the return for each such year as a resut of the eecton.
Ths Treasury decson s prescrbed pursuant to the provsons of
secton 2 of the Revenue ct of 193 .
Guy T. evertng,
Commssoner of Interna Revenue.
pproved une 18, 1938.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une 21, 1938, 11.18 a. m.)
TITL I G N R L PRO ISIONS.
S CTION 903. CTI D T O CT.
1938-25-9402
G. C. M. 202 8
R NU CT O 1938.
The effectve date of the Revenue ct of 1938 s May 28, 1938.
n opnon s requested reatve to the effectve date of the Revenue
ct of 1938, whch provdes n secton 903 that
cept as otherwse provded, ths ct sha take effect upon ts enactment.
On Monday, May 1 ,1938, . R. 9 82, n ct to provde revenue,
equaze ta aton, and for other purposes (Revenue ct of 1938),
was presented to the Presdent for hs approva. (8 Con |. Rec,
May 1 , 1938, at 9152.) On May 27, 1938, the Presdent announced
that he dd not ntend ether to sgn the b or to veto t.
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903.
82
rtce I, secton 7, cause 2, of the Consttuton provdes as foows:
very b whch sha have passed the ouse of Representatves and the
Senate, sha, before t become a aw, be presented to the Presdent of the
Unted States f he approve he sha sgn It, but f not he sha return t, wth
hs ob|ectons to that ouse n whch t sha have orgnated, . If
any b sha not be returned by the Presdent wthn ten days (Sundays e -
cepted) after t sha have boon presented to hm, the same sha be a aw, n ke
manner as f he had sgned t, uness the Congress by ther ad|ournment prevent
ts return, n whch case t sha not be a aw.
In order to determne when the b became a aw, a 10-day perod
s computed from and ncudng May 17,19 8. The day on whch the
b was presented to the Presdent, May 1 , s not ncuded n the
computaton. (See Unted States v. en et a., 3 ed., 174 Inter-
natona Manufacturers Saes Co. of merca v. Unted States, Ct.
Cs., No. 43430, November 1, 1937, cert, den., 58 S. Ct, 749, and cases
cted theren State v. om (172 Mnn., 1 2, 215 N. W., 200, 201.)
May 22 was a Sunday, and, therefore, s not ncuded n the computa-
ton. 10-day perod begnnng May 17, and e cudng Sunda ,
May 22, e pred wth the e praton of May 27.
Under rtce I, secton 7, cause 2 of the Consttuton the Pres-
dent had unt mdnght on May 27 ether to sgn the b or to return
the b wth hs ob|ectons to the ouse n whch t orgnated. Upon
the Presdent s faure to sgn the b or to return t to the ouse of
Representatves before the e praton of May 27, the b then nstanty
after the e praton of May 27 became a aw. That tme was the frst
moment of May 28, 1938.
precedent for the opnon here e pressed s the Tarff ct of u-
gust 28, 1894. The b was presented to the Presdent on Wednesdav,
ugust 15, 1894. ugust 19 and ugust 2 were Sundays. cud-
ng the day upon whch the b was presented to the Presdent, and
e cudng the two Sundays, a 10-day perod begnnng ugust 1
e pred wth the e praton of ugust 27. The b was nether sgned
by the Presdent nor returned by hm wthn the 10-day perod. In
the case of In re N. Woff Co. (1894) (Gen. pp. 2775) t was sad:
It may be assumed that the Tarff ct of 1894 became operatve as a
aw at the hour of mdnght of the 27th of ugust, 1894, or, what
s the same thng, at the frst moment of the 28th of sad month
. The case of Unted States v. urr (1895) (159 U. S., 78.
83) nvoved the queston of the retrospectve effect of the Tarff ct
of 1894. The court there refers to the ct as the ct of ugust 28,
1894, and durng the course of ts opnon sad: The rght of the
Government to dutes under the tarff aw whch e sted between
ugust 1 and ugust 28 was a rght accrung pror to the passage
of the ct of 1894 (that s, the date when the b became a aw)
. (See aso (1895) T. D. 1 148 (1895) T. D. 1 403.)
It s the opnon of ths offce that the effectve date (date of enact-
ment) of the Revenue ct of 1938 s May 28,1938.
. P. We che,
Chef Counse, ureau of Interna Revenue.
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83
207.
. R NU CTS O 19 7 ND 193 .
1938-4-9155
T. D.4791
INCOM T .
Reguatons 94 amended to accord wth the Revenue ct of 1937.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
In order to accord wth the Revenue ct of 1937, approved ugust
2 , 1937 (Pubc, No. 377, Seventy-ffth Congress, chapter 815, frst
sesson), Reguatons 94 are amended as foows:1
The frst paragraph of artce 1-1 s amended to read as foows:
btce 1-1. Scope of reguatons. These reguatons dea wth the ta es upon
net ncome mposed by Tte I of the Revenue ct of 1930 and that tte, as
amended by the Revenue ct of 1937, ncudng the ta mposed by secton
ICC of Tte I of the Revenue ct of 1930 upon the net ncome of certan
corporatons, and the ta mposed by Tte I of the Revenue ct of 1930 and
that tte, as amended by the Revenue ct of 1937, upon the undstrbuted
ad|usted net ncome of persona hodng companes. (See secton 351.)
rtce 1-1 s further amended by addng at the end thereof a new
paragraph to read as foows:
The references n these reguatons to the Revenue ct of 1930 and to ttes,
sectons, subsectons, or paragraphs thereof sha be consdered, wherever con-
sstent, as references aso to such ct, ttes, sectons, subsectons, or para-
graphs thereof as amended by the Revenue ct of 1937.
rtce 3-1 s amended to read as foows:
st. 3-L Dvson of reguatons. These reguatons have been dvded nto
37 chapters. Chapter I reates to Introductory Provsons, Subtte of Tte I.
Chapters II to I reate to Genera Provsons, Subtte of Tte I. Chapters
to II reate to Suppements to D of Suppementa Provsons, Subtte
C of Tte I. Chapters III to I reate to Suppements to of Sup-
pementa Provsons, Subtte C of Tte L Chapters to I reate
to Suppements L to P of Suppementa Provsons, Subtte C of Tte I. Chap-
ter reates to Tte I . Surta on Persona odng Companes, pror
to ts amendment by the Revenue ct of 1937. Chapter ( ) reates
to Tte I , as amended by the Revenue ct of 1937. Chapter I reates to
Tte III, Genera Provsons of the ct.
The foowng s nserted mmedatey precedng artce 4-1, reat-
ng to appcaton of reguatons to speca casses of ta payers:
Secton 207(a) of Tte II of the Revenue ct of 1937, reatng to foregn
persona hodng companes, provdes:
Sec. 207. Mnor mendments to Tte I of 1930 ct.
(a) Secton 4 of the Revenue ct of 1930 s amended by addng
at the end thereof a new subsecton to read as foows:
() oregn persona hodng companes and ther sharehoders
Suppement P.
or other amendments of Reguatons 94 made necessary by the Revenue ct of 1037,
Treasury Decsons 4782 C. . 1037-2, 1 8 nnd 4784 C. . 1937-2, 13 , approved
Dwember 7, 1937, and December 15, 1937, respectvey.
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207.
84
rtce 4-1, reatng to appcaton of reguatons to speca casses
of ta payers, s amended by addng after the number I appear-
ng for the frst tme n the frst sentence thereof, the foowng : and
Chapter I .
rtce 4-1 s further amended by nsertng at the end of the tabe
precedng the ast paragraph the foowng:
Chapter I oregn persona hodng companes.
rtce 4-1 s further amended by changng the cause see artces
351-1 to 351-9, ncusve appearng n the ne t to the ast sentence
thereof to see artces 351-1 to 351-9, ncusve, and artces 351 1
(1937) to 358-2, ncusve.
rtce 4-1 s further amended by nsertng between the ast two
sentences thereof the foowng: or provsons reatng to the ta a-
ton to sharehoders of the ncome of foregn persona nodng com-
panes and requrng certan nformaton returns, see artces 331 1
to 340-2, ncusve.
rtce 11-1, reatng to ncome ta on ndvduas, s amended )y
substtutng for the ast two sentences thereof, the foowng: See
secton 351(d) as to sharehoders of persona hodng companes.
See Suppement P as to sharehoders of foregn persona hodng
companes. See secton 117 as to the treatment of capta gans and
capta osses.
The foowng s nserted mmedatey precedng artce 12 1,
reatng to surta on ndvduas:
Secton 2 of Tte I of the Revenue ct of 1937, reatng to persona hodng
companes, provdes n part:
Sec. 2. Changes n Cross-references.
Secton 12(c) of the Revenue ct of 193 are amended,
by strkng out secton 351 and nsertng n eu thereof Tte I .
The foowng s nserted mmedatey before artce 14-1, reatng
to surta on undstrbuted profts of corporatons:
Secton 2 of Tte I of the Revenue ct of 1937, reatng to persona hodng
companes, provdes In part:
Sec 2. Chances n Cross-References.
Secton 14(f) of the Revenue ct of 1930 are
amended by strkng out secton 331 and nsertng n eu thereof
Tte I .
The ast sentence of artce 21-1 s amended by strkng out and
351 and nsertng n eu thereof Tte I and Tte I , as
amended.
The ast sentence of the frst paragraph of artce 22(a)- s
amended to read as foows:
s to dvdends, see sectons 115 and 337(b).
The foowng s nserted at the end of Chapter III:
Secton 207(b) of Tte II of the Revenue ct of 1937, reatng to foregn
persona hodng companes, provdes:
Sec 207. Mnor mendments to Tte I of 1930 ct.
(b) Secton 22 of such ct s amended by addng at the end thereof
a new subsecton to read as foows:
(g) oregn Persona odng Companes. or provsons reat-
ng to gross ncome of foregn persona hodng companes and of ther
sharehoders, see secton 334.
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85
301.
The ast paragraph of artce 23(b)- s amended by addng at
the end thereof the foowng:
s to other amounts of nterest not deductbe under secton 23(b), see secton
24(c), as added by the Revenue ct of 1937.
The frst sentence of artce 23(e)-, reatng to osses by ndvd-
uas, s amended by substtutng for the cause, secton 21(a)( ),
reatng to osses from saes or e changes of property between the
members of a famy or between a corporaton and ts sharehoders,
the foowng:
secton 24(a)( ) (pror to the amendment of secton 24(a) by the Revenue
ct of 1937) reatng to osses from saes or e changes of property between the
members of a famy or between a corporaton and ts sharehoders secton
24(b) (as added by the Revenue ct of 1937) reatng to osses from saes or
e changes of property between persons desgnated theren
The frst sentence of artce 23(f)-, reatng to osses by corpora-
tons, s amended to read as foows:
Losses sustaned by domestc corporatons durng the ta abe year and not
compensated for by nsurance or otherwse are deductbe e cept n so far as
not prohbted or mted by sectons 23(g), 24(a)( ) (pror to the amend-
ment of secton 24(a) by the Revenue ct of t)37), 24(b) (as added by the
Revenue ct of 1937), 112, 117, 118, and 251.
The foowng s nserted mmedatey before artce 24 1, reatng
to persona and famy e penses:
Secton 331 of Tte III of the Revenue ct of 1937, reatng to dsaowed
deductons, provdes:
Sec. 301. Dsaowed Deductons.
(a Secton 24(a) of the Revenue ct of 193 s amended to read
as foows:
(a) Geneta Rue. In computng net ncome no deducton sha
n any case be aowed n respect of
(1) Persona, vng, or famy e penses
(2) ny amount pad out for new budngs or for permanent
Improvements or betterments made to ncrease the vaue of any
property or estate
(3) ny amount e pended n restorng property or In makng
good the e hauston thereof for whch an aowance s or has been
made
(4) Premums pad on any fe nsurance pocy coverng the
fe of any offcer or empoyee, or of any person fnancay nter-
ested n any trade or busness carred on by the ta payer, when
the ta payer s drecty or Indrecty a benefcary under such
pocy or
(5) ny amount otherwse aowabe as a deducton whch s
aocabe to one or more casses of ncome other than nterest
(whether or not any amount of ncome of that cass or casses s
receved or accrued) whoy e empt from the ta es mposed by ths
tte.
(b) Losses from Saes ob changes of Pbopertt.
(1) Losses dsaowed. In computng net ncome no deduc-
ton sha n any case be aowed n respect of osses from saes
or e changes of property, drecty or ndrecty
( ) etween members of a famy, as defned n para-
graph (2)(D)
( ) cept n the case of dstrbutons n qudaton,
between an ndvdua and a corporaton more than 50 per
centum n vaue of the outstandng stock of whch s owned,
drecty or Indrecty, by or for such ndvdua
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8G
(C) cept the case of dstrbutons n qudaton,
between two corporatons more than 50 per centum n vaue
of the outstandng stock of each of whch s owned by or for
the same ndvdua, f
() ther one of such corporatons, wth respect to
the ta abe year (f begnnng after December 31, 1935)
of the corporaton precedng the date of the sae or e -
change, was a persona hodng company as defned n
secton 352, or
() ther one of such corporatons, wth respect to
the ta abe year (f not begnnng more than 12 months
before the date of the enactment of the Revenue ct of
1937) of the corporaton precedng the date of the sae or
e change, was a foregn persona hodng company as
defned n secton 331
(D) etween a grantor and a fducary of any trust
( ) etween the fducary of a trust and the fducary of
another trust, f the same person s a grantor wth respect to
each trust or
( ) etween a fducary of a trust and a benefcary of
such trust.
(2) Stock ocnershp, famy, and partnershp rue. or the
purposes of determnng, n appyng paragraph (1), the owner-
shp of stock
( ) Stock owned, drecty or ndrecty, by or for a cor-
poraton, partnershp, estate, or trust, sha be consdered as
beng owned proportonatey by or for ts sharehoders, part-
ners, or benefcares
( ) n ndvdua sha be consdered as ownng the
stock owned, drecty or ndrecty, by or for hs famy:
(C) n ndvdua ownng (otherwse than by the app-
caton of subparagraph ( )) any stock n a corporaton sha
be consdered as ownng the stock owned, drecty or nd-
recty, by or for hs partner
(D) The famy of an ndvdua sha ncude ony hs
brothers and ssters (whether by the whoe or haf bood),
spouse, ancestors, and nea descendants and
( ) Constructve ownershp as actua ownershp. Stock
constructvey owned by a person by reason of the appcaton
of subparagraph ( ) sha, for the purpose of appyng sub-
paragraph ( ), ( ), or (C), be treated as actuay owned by
such person, but stock constructvey owned by an ndvdua
by reason of the appcaton of subparagraph ( ) or (C) sha
not be treated as owned by hm for the purpose of agan appy-
ng ether of such subparagraphs n order to make another
the constructve owner of such stock.
(3) Speca rue for year 19S . In appyng paragraph
()(C)() n a case where the precedng ta abe year theren re-
ferred to began n the caendar year 193 , the determnaton as to
whether the corporaton was a foregn persona hodng company
sha be made under secton 351(b)(1) before the amendment of
Tte I made by secton 1 of the Revenue ct of 1937.
(c) Unpad panses and Intehest. In computng net ncome no
deducton sha be aowed n respect of e penses ncurred under secton
23(a) or nterest accrued under secton 23(b)
(1) If not pad wthn the ta abe year or wthn two and one
haf months after the cose thereof and
(2) If, by reason of the method of accountng of the person
to whom the payment s to be made, the amount thereof s not,
uness pad, ncudbe n the gross ncome of such person for the
ta abe year n whch or wth whch the ta abe year of the ta -
payer ends and
(3) If, at the cose of the ta abe year of the ta payer or at
any tme wthn two and one haf mouths thereafter, both the ta -
payer and the person to whom the payment s to be made are
persons between whom osses woud be dsaowed under secton
24(b).
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87
302.
(b) Secton 24(b) and secton 24(c) of the Revenue ct of 193 , as
n force pror to the amendment to secton 24 made by subsecton (a)
of ths secton, are amended by strkng out (b) and (c) and nsertng
s en thereof (d) and (e).
Secton 302 of Tte III of the Revenue ct of 1937 provdes:
Sec 302. ffectve Dates.
The amendments made by ths tte sha appy ony wth respect
to ta abe years begnnng after December 31, 193 .
The headng and the frst paragraph of artce 24-5 (e cusve of
the e ampe theren gven) s amended to read as foows:
bt. 24-5. Losses from saes or e changes between certan casses of persons
for ta abe years begnnng pror to anuary 1, 1937. The appcaton of secton
24(a)( ) (pror to the amendment of secton 24(a) by the Revenue ct of 1937)
may be ustrated generay by the foowng e ampe:
The ast paragraph of artce 24-5 s amended to read as foows:
Under secton 24(a) ( ) (pror to ts amendment) none of the above-descrbed
osses of are deductbe from hs gross ncome.
rtce 24- s renumbered as artce 24-8 and the foowng new
artce s nserted after artce 24-5, as amended:
sr. 24- . Losse3 from saes or e changes between certan casses of persons
for ta abe years begnnng after December SI, 19,1 . (a) Indvduas ncud-
ng fducares). In the case of saes or e changes of property, drecty or n-
drecty, between ndvduas (ncudng fducares) secton 24(b)(1), as added
by the Revenue ct of 1937, provdes that no deducton sha be aowed wth
respect to osses arsng therefrom n the foowng cases: (1) between members
of a famy as defned n secton 24(b) (2)(D) (2) between fducares of trusts
barng a common grantor (3) between a grantor and a fducary of the same
trust or (4) between a fducary of a trust and a benefcary of such trust.
(b) Corporatons (ncudng sharehoders). In the case of saes or e changes
of property where a corporaton not actng n a fducary capacty s a party to
the transacton, secton 24(b) (1) aso provdes that under certan crcumstances
no deducton sha be aowed wth respect to osses arsng from such saes or
fchanges, drecty or Indrecty, between a corporaton and an ndvdua share-
hoder (see secton 24(b)(1)( )) or between two corporatons (see secton
24(b)(1)(C)). Under secton 24(b) (1) ( ) t s necessary that there be owned,
drecty or ndrecty, by or for the ndvdua a party to the transacton, more
than 50 per cent In vaue of the stock of the other party to the transacton on
the date of the sae or e change. Under secton 24(b) (1) (C), however, as pro-
Tded theren, not ony must more than 50 per cent n vaue of the outstandng
stock of each of such corporatons be owned, drecty or ndrecty, on the date
of the sae or e change by or for the same ndvdua, but one of the corpora-
tons must be ether a persona hodng company as defned n secton 352, or a
foregn persona hodng company as defned n secton 331, for the ta abe year
precedng the date of the sae or e change. Secton 24(b) (3), as added by the
Revenue ct of 1937, makes an e cepton to the rue provded for n paragraph
() of secton 24(b)(1) (C), by requrng that n a case n whch the precedng
ta abe year referred to n that paragraph s the caendar year 193 or any
fsca year begnnng In 193 , the provsons of secton 351(b) (1) before amend-
ment of Tte I by the Revenue ct of 1937 sha appy n determnng whether
wth respect to such year ether of the corporatons was a persona hodng
company. It s not necessary under ether rue that ether of the corporatons
be a persona hodng company or a foregn persona hodng company on the
date of the sae or e change.
(e) Stock ownershp rue. or the purpose of paragraph ( ) of ths artce,
the ownershp of stock sha be determned n accordance wth the rues pro-
vded n secton 24(b) (2), as added by the Revenue ct of 1937. In order that
u ndvdua sha be consdered under secton 24(b)(2)(C) as constructvey
wng the stock of a corporaton owned, drecty or ndrecty, by or for hs
Partner, such ndvdua must hmsef own, drecty or ndrecty, stock of such
corporaton. On the other hand, under secton 24(b) (2) ( ) an ndvdua need
not own any stock of a corporaton, ether drecty or ndrecty, n order to be
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24(e).
88
consdered as constructvey ownng the stock of such corporaton whch Is
owned, drecty or ndrecty, by or for any member of hs famy.
(d) Iustratons of the appcaton of secton 24(b) as added by the Revenue
ct of 1937. The appcaton of secton 24(b), as added by the Revenue ct of
1937, may be ustrated by the foowng e ampes:
ampe ( ): On uy 1, 1937, the M Corporaton owned a of the stock of
the O Corporaton whch for the caendar year 193 was a persona hodng
company under secton 351(b)(1) before the amendment of Tte I by the
Revenue ct of 1937. On that day a of the outstandng stock of the M Cor-
poraton was owned by . y the appcaton of the rue provded n secton
24(b)(2)( ), the stock n the O Corporaton owned by the M Corporaton s
consdered to be owned constructvey by , the soe stockhoder of the M
Corporaton. Such constructve ownershp of the stock of the O Corporaton
by s consdered as actua ownershp for the purpose of appyng the famy
rue provded n secton 24(b) (2) ( ) to make a member of s famy, as, for
e ampe, hs wfe W, the constructve owner of the stock of the O Corporaton.
ut the constructve ownershp of the O Corporaton stock by W may not be
consdered as actua ownershp by W for the purpose of agan appyng the
famy rue so as to make a member of W s famy, for e ampe, her father,
W , n turn constructve owner of such stock. These rues appy n the same
manner and wth the same effect n determnng the ownershp of stock n the
M Corporaton.
ccordngy, assumng that , W, W , the M Corporaton and the O Cor-
poraton make ther ncome returns on the bass of a caendar year and that
there was no dstrbuton n compete or parta qudaton of the M or O Cor-
poraton, no deducton s aowabe under secton 24(b)(1), as ndded by the
Revenue ct of 1937, wth respect to osses from saes or e changes of property
made on uy 1, 1937, between any of such ndvduas or corporatons, e cept
as between and W and between W and the M or O Corporaton.
ampe (2): On une 15, 1937, a of the stock of the N Corporaton was
owned n equa proportons by and s partner, P. cept n the case of
dstrbutons n compete or parta qudaton by the N Corporaton, no de-
ducton s aowabe wth respect to osses from saes or e changes of property
made on une 15, 1937, between and the N Corporaton or P and the N Cor-
poraton nasmuch as. by the appcaton of secton 24(b)(2)(C), each partner
s consdered as havng owned the stock owned by the other and, therefore, s
consdered as havng owned more than 50 per cent n vaue of the outstandng
stock of the N Corporaton. Deductons for osses from saes or e changes
between s brother, , and the N Corporaton, or between P and , or P
and are not prohbted by secton 24(b), as added by the Revenue ct of
1937.
ampe (3): ssumng the same facts as stated n the e ampe gven under
artce 24-5, as amended, e cept that the osses were ncurred durng the ca-
endar year 1937, none of the osses of woud be deductbe from hs gross
ncome.
The foowng new artce s nserted after artce 24- , as amended:
rt. 24-7. Dsaocancc of deductons for unpad e penses and nterest.
The appcaton of secton 24(c), as added by the Revenue ct of
1937, may be ustrated by the foowng e ampe:
ampe: s the hoder and owner of an nterest-bearng note e ecuted by
the M Corporaton a of the stock of whch s owned by hm. and the M
Corporaton make ther ncome returns on the bass of a caendar year but the
M Corporaton makes ts returns on the accrua bass and makes hs returns
on the cash recepts and dsbursements bass. The I Corporaton does not pay
any nterest on such note durng the caendar year 1937 or wthn two an
one-haf months after the cose thereof, but cams a deducton for the year
1937 wth respect to the nterest accrung on the note n that year. , beng
on the cash recepts and dsbursements bass, does not ncude such nterest n
hs return for the year 1937. y the appcaton of secton 24(c), as added
by the Revenue ct of 1937, no deducton for such nterest s aowabe n com-
putng the net ncome of the SI Corporaton for the year 1937. The provsons
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89
5 02.
of snch secton 24(c) do not otherwse affect the genera rues governng the
aowance of deductons under the accrua bass. ence n the event the M
Corporaton shoud pay such nterest after March 15, 193S, no deducton therefor
wood be aowabe n computng ts net ncome for the year n whch the pay-
ment was made.
The foowng s nserted mmedatey before artce 18(e)-, re-
atng to ta aton of mutua nvestment companes n genera:
SecUon 02 of Tte I of the Revenue ct of 1937, reatng to msceaneous
provsons, provdes:
Sec. 02. Mutua Investment Companes.
(a) Secton 4S(e)() of the Revenue ct of 193 s amended by
strkng out other than a persona hodng company as defned n sec-
ton 351 and nsertng n eu thereof e cept as provded n paragraph
(3).
(b) Such secton 48(e) s further amended by addng at the end
of such subsecton a new paragraph to read as foows:
(3) Cokpobatons e cepted. Ths secton sha not appy to
any corporaton
( ) Wth respect to a ta abe year begnnng after De-
cember 31, 1 )3 , f the corporaton s wth respect to such year
a persona hodng company as denned n secton 352.
( ) Wth respect to a ta abe year begnnng before an-
uary 1, 1937, f the corporaton s wth res eet to such year a
persona hodng company as defned n secton 351(b)(1) be-
fore the amendment of Tte I by secton 1 of the Revenue
ct of 1937.
(C) Wth respect to a ta abe year endng after the date
of the enactment of the Revenue ct of 1937, f the corporaton
s wth respect to such year a foregn persona hodng com-
pany as defned n secton 331.
The frst sentence of artce 48(e)-2, reatng to the defnton of a
mutua nvestment company, s amended to read as foows:
The term mutua nvestment company means a corporaton, whether char-
tered or Incorporated, or created under a trust nstrument or otherwse, as an
nvestment trust, and whether of the f ed or genera management type (other
than corporatons e cepted by secton 48(e)(3)), whch compes wth a the
condtons prescrbed by secton 48(e).
The frst and second sentences of artce 48(e)-5, reatng to records
to be kept for the purpose of determnng whether a company cam-
ng to be a mutua nvestment company s a persona hodng com-
pany, are amended by nsertng after the words secton 351 and
secton 351(b)(1), respectvey, the phrase, pror to the amend-
ment of Tte I by the Revenue ct of 1937.
rtce 48(e)-5 s further amended by addng after the thrd
sentence thereof the foowng:
or the purpose of determnng whether a foregn corporaton camng to be a
mutua nvestment company wth respect to a ta abe year endng after ugust
28, 1937, s a foregn persona hodng company as defned n secton 331, (he
permanent records of the foregn corporaton wth respect to ta abe years
endng after ugust 20, 1937, sha show, to the best of the knowedge and
beef of the actua owners of ts stock, the ma mum number of shares of the
corporaton (ncudng the number and face vaue of securtes convertbe nto
stock of the corporaton) to be consdered as constructvey owned by each of
the actua owners of any of ts stock at any tme durng the corporaton s ta -
Me year, as provded n secton 333 and artces 333(a)- to 337(a)-7 and
artce 333(b)-. or the purpose of determnng whether a corporaton
83421 88 4
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207.1
90
camng to be a mutua nvestment company wth respect to a ta abe year
begnnng after December 31, 193 , s a persona hodng company as defned n
secton 352 of Tte I , as amended by the Revenue ct of 1937, the permanent
records of (he corporaton wth respect to ta abe years begnnng after Decem-
ber 81, 11 3 , sha show, to the best of the knowedge and beef of the actua
owners of ts stock, the ma mum number of shares of the corporaton (ncud-
ng the number and face vaue of securtes convertbe nto stock of the
corporaton) to be consdered as constructvey owned by each of the actua
owners of any of ts stock at any tme durng the ast haf of the corporaton s
ta abe year as provded n secton 354 of Tte I , as amended by the Revenue
ct of 1037, and artces 354(a)- to 354(a)-7 and artce 354(b)-.
rtce 48(e)-5 s further amended by addng at the end thereof
the foowng paragraph:
The provsons of the frst paragraph of ths artce requrng statements to
be demanded not ater than 30 days after the cose of the company s ta abe
year. In so far as such statements reate to the ma mum number of shares of
stock of the company to be consdered as constructvey owned by an ndvdua
at any tme durng the fsca year of the company endng after ugust 2 , 1937,
and on or before November 30, 1937, sha be consdered as havng been comped
wth f such statements are demanded not ater than anuary 31, 1938.
The paragraph numbered (4) of artce 48(e)- , reatng to add-
tona nformaton requred n returns of sharehoders, s amended by
nsertng after the words secton 351 the phrase pror to the
amendment of Tte I by the Revenue ct of 1937.
The paragraph numbered (5) of artce 48(e)- , s amended by
strkng out the word and appearng at the end of that paragraph.
The paragraph numbered ( ) of artce 48(e)- s amended by
strkng out the perod at the end thereof and nsertng n eu thereof
a semcoon.
rtce 48(e)- s further amended by addng after the paragraph
numbered ( ) two new paragraphs to provde:
(7) or ta abe years endng after ugust 20, 1937, the ma mum number of
shares (ncudng the number and face vaue of securtes convertbe nto stock
of the company) n any foregn corporaton camng to be a mutua nvestment
company to be consdered as constructvey owned by such ndvdua at any
tme dnng the company s ta abe year as provded n secton 333 and artces
333(a)- to 333(a)-7 and artce 333(b)- and
(8) or ta abe years begnnng after December 31, 193 , the ma mum num-
ber of shares (ncudng the number and face vaue of securtes convertbe
nto stock of the corporaton) n any domestc corporaton camng to be a
mutua nvestment company to be consdered as constructvey owned by such
ndvdua at any tme durng the ast haf of the corporaton s ta abe year,
as provded n secton 354 of Tte I , as amended, and artces 354(a) 1 to
354(a)-7 and artce 354(b)-.
The foowng s nserted mmedatey before artce 54 1, reatng
to ads to coecton of ta :
Secton 207(c) of Tte II of the Revenue ct of 1937, reatng to foregn
persona hodng companes, provdes:
Sec. 207. Mnor mendments to Tte I of 193 ct.
(c) Secton 54 of such ct s amended by addng at the end thereof
a new subsecton to read as foows:
(e) oregn Persona oednq Companes. or nformaton
returns by ocers, drectors, and arge sharehoders, wth respect
to foregn persona hodng companes, see sectons 338, 339, and
341. or nformaton returns by attorneys, accountants, and so
forth, as to formaton, and so forth, of foregn corporatons, see
sectons 340 and 341.
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91
I 01.
The frst sentence of artce 55(b)-2 s amended by nsertng after
the words Tte I of that ct the foowng: or Tte I of
that ct as amended.
The foowng s nserted mmedatey before artce 102-1, reatng
to ta aton of corporatons formed or utzed for avodance of
surta :
Secton 2 of Tte I of the Revenue ct of 1937, reatng to persona hodng
companes, provdes n part:
Sec. 2. Changes n Ceoss-Rffeeences.
Secton 102(e) of the Revenue ct of 1930 are amended
by strkng out secton 351 and nsertng n eu thereof Tte I .
Secton 01 of Tte I of the Revenue ct of 1937, reatng to msceaneous
provsons, provdes:
Sec. G01. Corporatons cepted rom Secton 102.
(a) Secton 102(a) of the Revenue ct of 193 s amended by strk-
ng out (other than a persona hodng company as defned n secton
351) and nsertng n eu thereof (e cept as provded n subsecton
(f)).
(b) Such secton 102 s further amended by addng at the end
thereof a new subsecton to read as foows:
(f) Corporatons cepted. Ths secton sha not appy to
any corporaton
(1) Wth respect to a ta abe year begnnng after De-
cember 31, 193 , f the corporaton s wth respect to such
year a persona hodng company as defned n secton 352.
f2) Wth respect to a ta abe year begnnng before an-
uary 1, 1937, f the corporaton s wth respect to such year a
persona hodng company as defned n secton 351(b)(1)
before the amendment of Tte I by secton 1 of the Revenue
ct of 1937.
(.3) Wth respect to a ta abe year endng after the date
of the enactment of the Revenue ct of 1937, f the corporaton
s wth respect to such year a foregu persona hodng company
as defned n secton 331.
The foowng s substtuted for the second sentence of the frst
paragraph of artce 102-1, reatng to ta aton of corporatons
formed or utzed for avodance of surta :
or corporatons to whch secton 102 does not appy, see secton 102(a) pror
to Us amendment by the Revenue ct of 1937, and secton 102(f).
The foowng s substtuted for cause numbered (2) of the second
paragraph of artce 102 1:
(2) s composed n whoe or n part of nonresdent nen ndvduas who, by the
appcaton of secton 211(b) or 211(c), woud be sub|ect to surta wth respect
to dstrbutons of the corporaton whch f made woud consttute ncome from
sources wthn the Unted States (see secton 119) or
The ast sentence of the second paragraph of artce 102-1 s
amended to read as foows:
On the other hand, the ta mposed by secton 102 w not appy even though a
foregn corporaton, whether resdent or nonresdent, derves ncome from
sources wthn the Unted States, If t s composed entrey of nonresdent aen
ndvduas who, by the appcaton of secton 211(a) as amended, woud not be
sub|ect to surta wth respect to dstrbutons of the corporaton f made.
The foowng s nserted mmedatey before artce 113(a) (5)-,
reatng to the bass of property acqured by bequest, devse, or
nhertance:
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5204.
92
Secton 204 of Tte II of the Revenue ct of 1937, enacted ugust 2 . 1937.
reatng to foregn persona hodng companes, provdes:
Sec. 204. ass of Stock n oregn Persona odng Company
cqured kom Decedent.
Secton 113(a) (5) of the Revenue ct of 193 s amended by addng
nt the end thereof a new sentence to road as foows:
If the property was acqured by bequest, devse, or Inhertance,
or by the decedent s estate from the decedent, and f the decedent
ded after the date of the enactment of the Revenue ct of 1937,
and f the property conssts of stock or securtes of a foregn
corporaton whch wth respect to ts ta abe year ne t precedng
the date of the decedent s death was a foregn persona hodng
company, then the bass sha be the far market vaue of such
property at the tme of such acquston or the bass n the hands
of the decedent, whchever s ower.
Paragraph (b) of artce 113(a) (5)- reatng to the bass of
property acqured by bequest, devse, or nhertance, s amended to
read as foows:
( ) ass. Secton 113(a)(5) provdes two rues for determnng the bass
of property transmtted at death, a rue governng property generay and a
speca rue governng stock n a foregn persona hodng company.
(1) Genera rue. cept as prescrbed n paragraph (2), the bass of prop-
erty acqured from a decedent by w or under the aw governng the descent
and dstrbuton of the property of decedents s the far market vaue at the
tme of such acquston. Snce under the aw governng ws and the dstr-
buton of the property of decedents, a ttes to property acqured by bequest,
devse, or nhertance reate back to the death of the decedent, even though
the nterest of hm who takes the tte was, at the date of death of the decedent,
ega, equtabe, vested, contngent, genera, specfc, resdua, condtona,
e ecutory, or otherwse, the tme of the acquston of such property s the
death of the decedent. or e ampe, f dstrbuton of persona property eft
by a decedent s not made unt one year after hs death, the bass of such
property n the hands of the egatee s ts far market vaue at the tme when
the decedent ded, and not when the egatee actuay receved the property
or, f the bequest s of the resdue to trustees n trust, and the e ecutors do
not dstrbute the resdue to such trustees unt fve years after the death of
the decedent, the bass of each pece of property eft by the decedent and thus
receved, n the hands of the trustees, s ts far market vaue at the tme when
the decedent des or, f the bequest s to trustees n trust to pay to durng
hs fetme the ncome of the property bequeathed, and after hs death to ds-
trbute such property to the survvors of a cass, and upon s death the prop-
erty s dstrbuted to the ta payer as the soe survvor, the bass of such prop-
erty, n the hands of the ta payer, s ts far market vaue at the tme when
the decedent ded.
The purpose of the ct, In prescrbng a genera unform bass rue for prop-
erty acqured by bequest, devse, or nhertance, s, on the one hand, to ta the
gan, n respect of such property, to hm who reazes t (wthout regard to
the crcumstance that at the death of the decedent t may have been qute
uncertan whether the ta payer woud take or gan anythng) and, on the other
hand, not to recognze as gan any eement of vaue soey from the crcum-
stance that the possesson or en|oyment of the ta payer was postponed. Such
postponement may be, for e ampe, unt the admnstraton of the decedent s
estate s competed, unt the perod of the possesson or en|oyment of nnother has
termnated, or unt an uncertan event has happened. It s the ncrease or
decrease n the vaue of property refected n a sae or other dsposton whch
secton 113(a) (5) recognzes as the measure of gan or oss.
(2) Speca rue th respect to stock n a foregn persona hodng company
In the case of decedents dyng after ugust 2 , 1937, the bass of stock of a
foregn corporaton acqured from the decedent by w or under the aw gov-
ernng descent and dstrbuton of property of decedents, where such foregn
corporaton wth respect to ts ta abe year ne t precedng the date of the
decedent s death was a foregn persona hodng company, s the far market
vaue of such stock at the tme of such acquston, . e., the date of the de-
cedent s death, or the bass n the hands of the decedent, whchever a ower.
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93
5402.
The foowng s nserted mmedatey before artce 113(b)-, re-
atng to the genera rue wth respect to the ad|usted bass:
Secton 203 of Tte II of the Revenue ct of 1937, reatng to foregn persona
hodng companes, provdes:
Sec. 203. d|usted ass of Stock of oregn Persona odng
Company.
Secton 113(b)(1) of the Revenue ct of 193 s amended by
strkng out the perod at the end thereof and nsertng n eu thereof
a semcoon and the foowng:
and
( ) to the e tent provded In secton 337(f) n the case of
the stock of Unted States sharehoders n a foregn persona
hodng company.
rtce 113(b)- s amended by addng after the thrd paragraph
from the end thereof a new paragraph to provde:
In the case of the stock of Unted States sharehoders n a foregn persona
hodng company the cost or other bass must be ad|usted aso to the e tent
provded n secton 337(f).
The foowng s nserted mmedatey before artce 142-1, reatng
to fducary returns:
Secton 402 of Tte I of the Revenue ct of 1937, reatng to fducary
returns, provdes:
Sec. 402. ducary Returns.
Secton 142(a) of the Revenue ct of 1930 s amended to reud as
foows:
(a) Requrement of Return. very fducary (e cept a recever
apponted by authorty of aw n possesson of part ony of the property
o an ndvdua) sha make under oath a return for any of the foow-
ng ndvduas, estates, or trusts for whch he acts, statng specfcay
the tems of gross ncome thereof and the deductons and credts
aowed under ths tte and such other nformaton for the purpose
of carryng out the provsons of ths tte as the Commssoner wth
the approva of the Secretary may by reguatons prescrbe
(1) very ndvdua havng a net ncome for the ta abe year
of 1,0 00 or over, f snge, or f marred and not vng wth
husband or wfe
(2) very ndvdua havng a net ncome for the ta abe
year of 2,500 or over, f marred and vng wth husband or wfe
(3) very Indvdua havng a gross ncome for the ta abe
year of 5,000 or over, regardess of the amount of hs net ncome
(4) ( ) very estate, and every trust entted to the per-
sona e empton aowed by secton 103(a)(1), the net ncome of
whch for the ta abe year s 1,000 or over.
( ) very trust, not entted to a persona e empton
under secton 103(a)(1), whch has a net ncome for the
ta abe year.
(5) very estate or trust the gross ncome of whch for the
ta abe year s 5,G00 or over, regardess of the amount of the not
ncome
( ) very estate or trust of whch any benefcary s a non-
resdent aen and
(7) Regardess of the amount of the gross or net ncome,
every trust, though havng no net ncome, whch woud have a net
Income f dstrbutons had not been made whch under the terms
of the trust nstrument were n the dscreton of the trustee or con-
dtoned upon a contngency but sub|ect to such condtons, mta-
tons, and e ceptons and under such reguatons as may be
prescrbed by the Commssoner, wth the approva of the Secretary,
a fducary requred by ths paragraph to fe a return may be
e empted from the requrement of fng such return.
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403.
94
Secton 403 of Tte I of the Revenue ct of 1937 provdes:
Sec. 403. ffectve Dates.
The amendments made by ths tte sha appy ony wth respect
to ta abe years begnnng after December 31 193 .
rtce 142-1 s amended by nsertng mmedatey after the frst
sentence thereof the foowng:
In addton to the requrements stated n (a) and ( ), every fducary, or at
east one of |ont fducares, must, wth respect to ta abe years begnnng after
December 31, 1930, make a return of ncome for the trust for whch he acts
( ) If the trust s not entted to the persona e empton aowed by
secton 1 3(a)(1), as amended by secton 401 of the Revenue ct of 1937
(see artce 1 3-1) and the trust has a net ncome for the ta abe year or
( ) If (1) the trust has no net ncome and (2) under the terms of the
trust nstrument the ncome of the trust, n the dscreton of the fducary,
may be ether dstrbuted to the benefcary or accumuated or the dstrbu-
ton of the ncome s based upon a contngency, and (3) the net Income of
the trust computed wthout the aowance of a deducton for the amount of
the ncome of the trust propery pad or credted durng the ta abe year
to any egatee, her, or benefcary, s 1,000 or more.
The foowng s substtuted for the frst three sentences of the ne t
to the ast paragraph of artce 142-1:
The return n case (a) sha be on orm 1040 or 1040 . In case ( ) for ta -
abe years begnnng before anuary 1, 1937, a return s requred on orm 1040
wth respect to any ta abe net ncome of the estate or trust computed n
accordance wth secton 1 2 and a return on orm 1041 wth respect to any
ncome deducted under secton 1 2(b) or 1 2(c). or such ta abe years, f
a porton of the ncome of the estate or trust s retaned by the fducary and
the remander s dstrbutabe or dstrbuted to benefcares, both orms 1O 0
and 1041 w be requred. or ta abe years begnnng after December 31,
193 , the return n case (a) sha be on orm 1040 or 1040 and In a other
cases stated n ths artce on orm 1041.
rtce 142-5, reatng to returns for nonresdent aen benefcares,
s amended by substtutng for the parenthetca reference at the end
of paragraph (a) and the sentence mmedatey precedng such refer-
ence, the foowng:
In such a case for ta abe years begnnng after December 31, 193 , the fdu-
cary sha make a return on orm 1041, as we as on orm 1040 . If there
are two or more such nonresdent aen benefcares, then for a ta abe years
the fducary sha render a return on orm 1041 and aso a return on orm
1040 for each nonresdent aen benefcary. (See further artce 217-1).
rtce 142-5 s further amended by substtutng for paragraph
(b) the foowng:
(ft) No Unted States busness or offce. ctzen or resdent fducary
havng the dstrbuton of the ncome of an estate or trust w not be requred
to make a return on orm 1040N for any benefcary of the estate or trust
who s a nonresdent aen not engaged n trade or busness wthn the Unted
States and not havng an offce or pace of busness theren at any tme wthn
the ta abe year f the entre amount of the ta on the ncome payabe to such
benefcary has been wthhed at the source (see sectons 143 and 211(a)).
or ta abe years begnnng after December 31, 193 , a ctzen or resdent fdu-
cary havng the dstrbuton of the ncome of an estate or trust sha make
a return on orm 1040N f a benefcary, other than a resdent of Canada,
has gross ncome for the ta abe year of more than 21, 00 from the sources
specfed n secton 211(a), as amended, regardess of the amount of ta wth-
hed at the source. If the benefcary apponts a person n the Unted States
to act as hs agent for the purpose of renderng ncome ta returns, the fducary
sha he reeved from the necessty of fng orm 1010N n behaf of the
benefcary and from payng the ta . In such a case the fducary sha make
a return on orm 1041 and attach thereto a copy of the notce of appontment.
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9.3
401.
or the caendar year 19 0 the fducary may ether (1) make a return on
orm 1042 of the ta at 10 per cent on the entre amount of the ncome payabe
to the benefcary, or (2) make a return on orm 1042 of the ta at 10 per cent
on the porton of the ncome not pad to the benefcary before uy 2, 193 , and
a return on orm 1O40N for the benefcary, ncudng theren the Income pad
to hm before uy 2, 103G. cept for the caendar year 10, the fducary
sha make a return on orm 1042 of the ta at 10 per cent on the entre amount
of the Income payabe to the benefcary, e cept that n the case of a benef-
cary, resdent of Canada, the rate sha be 5 per cent. In addton to such
return or returns, the fducary sha make a return on orm 1041 for the
estate or trust, rrespectve of the number of benefcares.
The foowng s nserted mmedatey before artce 145-1, reatng
to penates:
Secton 207(e) of Tte II of the Revenue ct of 1937, reatng to foregn
persona hodng companes, provdes:
8kc. 207. Mnor mendments to Tte I of 193 ct.
(e) Secton 145 of such ct Is amended by addng at the end thereof
a new subsecton to read as foows:
(d) or penates for faure to fe Informaton returns wth
respect to foregn persona hodng companes and foregn corporatons,
see secton 341.
The foowng s nserted mmedatey after artce 150-1, reatng
to cense to coect foregn tems:
Secton 207(d) of Tte II of the Revenue ct of 1937, reatng to foregn
persona hodng companes, provdes:
Sec. 207. Mnob mendments to Tte I of 193 ct.
(d) Such ct s amended by addng after secton 150 a new secton
to read as foows:
Sec. 151. orecn Persona odng Companes.
or nformaton returns by offcers, drectors, and arge share-
hoders, wth respect to foregn persona hodng companes, see sec-
tons 338, 339, and 341. or nformaton returns by attorneys, account-
ants, and so forth, as to formaton, and so forth, of foregn corporatons,
see sectons 340 and 341.
The foowng s nserted mmedatey before artce 1 3-1, reatng
to credts to an estate, trust, or benefcary:
Secton 401 of Tte I of the Revenue ct of 1937 provdes:
Sec. 401. Dena of Persona empton to Thusts.
Secton 1 3(a) of the Revenue ct of 193 Is amended to read as
foows:
(a) Credts of state or Trust.
(1) or the purpose of the norma ta and the surta an
estate or trust sha be aowed the same persona e empton as
Is aowed to a snge person under secton 25(b)(1), e cept
that no e empton sha be aowed a trust If the trust nstru-
ment requres or permts the accumuaton of any porton of
the ncome of the trust and there s not dstrbuted an amount
equa to the net ncome. or the purposes of ths paragraph
the term net ncome does not ncude amounts ncuded n
gross ncome whch, under the aw of the |ursdcton under
whch the trust Is admnstered, cannot (even f permtted or
requred by the trust nstrument to be consdered as Income)
be consdered as ncome and are not dstrbutabe.
(2) If no part of the Income of the estate or trust s n-
cuded n computng the net ncome of any egatee, her, or
benefcary, then the estate or trust sha be aowed the same
credts aganst net ncome for nterest as are aowed by
secton 25(a).
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501.1
9
Paragraph (a) of artce 1 3-1 s amended to read as foows:
(a) Persona e empton of 1,000. (1) n estate s aowed for both norma
ta am surta purposes the persona e empton of 1,000 aowed a snge
person under secton 25(b) (1). credt for dependents s not aowabe to an
estate or trust.
(2) or ta abe years begnnng pror to anuary 1, 1937, a trust s aowed
for both norma ta and surta purposes the persona e empton of 1,000
aowed a snge person under secton 25(b) (1).
(3) or ta abe years begnnng after December 31, 193 , a trust Is aowed
for both norma ta and surta purposes the persona e empton of S 000 a-
owed a snge person under secton 25(b) (1), e cept that such e empt on sha
not be aowed f the trust nstrument requres or permts the accumuaton of
any porton of the ncome and the amount actuay dstrbuted durng the ta -
abe year s ess than the net ncome of the trust. Net ncome as used n
ths paragraph s to be computed n accordance wth secton 1 2, e cept that
there sha be e cuded any amounts ncuded n gross ncome whch ( ) under
the aw of the |ursdcton controng the admnstraton of the trust can not
(even f permtted or requred under the trust nstrument to be consdered as
ncome) be consdered as ncome and ( ) are not dstrbutabe durng the ta -
abe year. Typca of such amounts s the proft arsng from the sae of trust
property whch under the appcabe State aw s consdered not as ncome but
as a mere converson of corpus and whch under the terms of the trust nstru-
ment s not dstrbutabe durng the ta abe year.
Paragraph (b) of artce 1 3-1 s amended by nsertng after ( )
the foowng:
Credt for nterest to estate or trust.
Paragraph (c) of artce 1 3-1 s amended by nsertng after (c)
the foowng:
Credt for nterest to benefcary.
The foowng s nserted mmedatey before artce 211-1, reatng
to ta aton of aens n genera:
Secton 501 of Tte of the Revenue ct of 1937, reatng to nonresdent aen
Indvduas, provdes:
Sec. 501. Ta on Nonresdent en Indvduas.
(a) Secton 211(a) of the Revenue ct of 193 s amended by
addng at the end thereof a new sentence to read as foows: The ta
mposed by ths subsecton sha not appy to any ndvdua f the
aggregate amount receved durng the ta abe year from the sources
above specfed s more than 21, 00.
(b) Secton 211 of the Revenue ct of 193 s further amended by
addng at the end thereof a new subsecton to read as foows:
(c) No Unted States busness or offce and gross ncome of
more than 21, 00. nonresdent aen ndvdua not engaged n
trade or busness wthn the Unted States and not havng an offce or
pace of busness theren who has a gross ncome for any ta abe year
of more than 21, 00 from the sources specfed n subsecton (a), sha
be ta abe wthout regard to the provsons of subsecton (a), e cept
that
(1) The gross ncome sha ncude ony ncome from the
sources specfed n subsecton (a) and
(2) The deductons (other than the so-caed chartabe de-
ductons provded n secton 213(c)) sha be aowed ony f and
to the e tent that they are propery aocabe to the gross ncome
from the sources specfed n subsecton (a) and
(3) The aggregate of the norma and surta under sectons
11 and 12 sha, n no case, be ess than 10 per centum of the gross
ncome from the sources specfed n subsecton (a).
(c) The amendments made by subsectons (a) and (b)
(1) Sha appy ony to ta abe years begnnng after Decem-
ber 31, 193 and
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97
501.
(2) Sha not appy to a resdent of a contguous country so
ong as there s n effect a treaty wth such country (ratfed
pror to the date of the enactment of ths ct) under whch rates
of ta under secton 211(a), pror to ts amendment by subsecton
(a), were reduced.
rtce 211 7 s amended by changng the capton thereof to read
as foows:
Ta aton of nonresdent aen ndvduas for years begnnng pror to anu-
ary 1. 1937-
new artce s added after artce 211-7, to read as foows:
ht. 211-S. Ta aton of nonresdent aen ndvduas for years begnnng
after December 31, 193 . or the purposes of ths artce and artces 212-1,
213-1, 214-1, and 217-2 nonresdent aen ndvduas, for years begnnng after
December 31, 193 , are dvded nto three casses: (a) nonresdent aen nd-
vduas not engaged n trade or busness wthn the Unted States and not havng
an offce or pace of busness theren at any tme wthn the ta abe year and
dervng n the ta abe year not more than 21, C0 gross amount of f ed or de-
termnabe annua or perodca ncome from sources wthn the Unted States,
( ) nonresdent aen ndvduas not engaged n trade or busness wthn the
Unted States and not havng an offce or pace of busness theren at any me
durng the ta abe year and dervng n the ta abe year more than 21,000
gross amount of f ed or determnabe annua or perodca ncome from sources
wthn the Unted States, and (c) nonresdent aen ndvduas who at any tme
wthn the ta abe year are engaged n trade or busness n the Unted States
or have an offce or pace of busness theren.
nonresdent aen ndvdua fang wthn (a) or (c) s ta abe n the
same manner as provded n paragraphs (a) and ( ), respectvey, of artce
211-7.
nonresdent aen ndvdua fang wthn ( ) s sub|ect to ta ony upon
hs f ed or determnabe annua or perodca ncome specfed n secton 211 (a)
determned under the provsons of secton 119, mnus (1) the deductons prop-
ery aocabe to such ncome and (2) the so-caed chartabe contrbuton
deducton provded n secton 213(c). Such nonresdent aen s entted to the
credts aganst net ncome aowabe to an ndvdua by secton 25, sub|ect to
the mtatons provded n secton 214. owever, the ta thus computed under
sectons 11 and 12 sha n no such case be ess than 10 per cent of the gross
amount of such f ed or determnabe annua or perodca ncome from sources
wthn the Unted States.
Uness such nonresdent aen ndvdua sha fe or cause to be fed wth the
coector a true and accurate return of hs tota f ed or determnabe annua or
perodca ncome from sources wthn the Unted States, the ta sba be co-
ected on the bass of gross amount of such f ed or determnabe annua or
perodca ncome.
Where such nonresdent aen has varous sources of f ed or determnabe
annua or perodca ncome from wthn the Unted States, as, for nstance,
from an estate or trust, from stocks or bonds hed drecty by hm, and from
securtes hed for hm by a custodan resdent n the Unted Sates, so that
bs tota gross f ed or determnabe annua or perodca ncome from Unted
States sources s n e cess of 21, 00 and a return of ncome was not fed by
hm or on hs behaf, the Commssoner w cause a return of ncome to be
made and ncude theren the f ed or determnabe annua or perodca ncome
from a sources wthn the Unted States concernng whch he has nformaton
wthout aowance for deductons and credts, and w assess tbe ta and co-
ect t from one or more of the sources of ncome of such nonresdent aen
wthn the Unted States.
Such nonresdent aen sha make or have made a fu and accurate return
on orm O-ON (a) of a hs f ed or determnabe annua or perodca ncome
from sources wthn the Unted States. s to what consttutes f ed or deter-
mnabe annua or perodca ncome, see paragraph (a) of artce 211-7.
s to the duty of the representatve or agent of such aen to fe the return
and pay the ta , see paragraph ( ) of artce 217-2.
Nonresdent aen ndvduas, resdents of Canada, are not affected by tbe
provsons of secton 501, Tte of the Revenue ct of 10 7. nr of ths Treasury
decson and are sub|ect to ta under the provsons of tbe Revenue ct of 193
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20 .
98
as modfed by the terms of the ta conventon between the Unted States and
Canada ratfed ugust 13, 1937, effectve anuary 1, 193 . or the ta aton of
nonresdent aen ndvduas, resdents of Canada, not engaged n trade or
busness wthn the Unted States and not havng an offce or pace of busness
theren, see Treasury Decson 47 , approved October 7, 1937 (C. . 1937-2,
158).
Paragraph (a) of artces 212-1, 213-1, 214-1 217-2, and artce
215-1 are amended by addng at the end thereof the foowng sen-
tence :
s to a nonresdent aen ndvdua who derves more than 21, 00 gross
amount of f ed or determnabe annua or perodca ncome from sources wthn
the Unted States for any ta abe year begnnng after December 31, 193 , see
artce 211-8.
The frst two sentences of artce 219-1, reatng to partnershps,
are amended to read as foows:
Whether a nonresdent aen ndvdua who Is a member of a partnershp
s ta abe under the provsons of ( ) secton 211(a) or 211(c) or ( ) secton
211(b) may depend on the status of the partnershp. nonresdent aen
ndvdua who s a member of a partnershp whch s not engaged n trade or
busness wthn the Unted States and has no offce or pace of busness theren
s sub|ect to the provsons of secton 211(a) or 211(c), as the case may be,
dependng on whether n the ta abe year he derves f ed or determnabe
annua or perodca Income from sources wthn the Unted States of more
than 21, 00, f he Is not otherwse engaged In trade or busness wthn the
Unted States and has no offce or pace of busness theren.
The foowng s substtuted for the ast sentence of the frst
paragraph of artce 231-3, reatng to gross ncome of foregn cor-
poratons :
s to persona hodng companes organzed under the aws of foregn countres
see artce 351-3, as amended, of Chapter , as renumbered, and artce
351-1 (1937) of Chapter ( ). s to foregn persona hodng companes
see Chapter I .
The foowng s substtuted for the ast sentence of artce 232-1,
reatng to deductons aowed foregn corporatons:
s to persona hodng companes organzed under the aws of foregn countres
see artce 351-3, as amended, of Chapter , as renumbered, and artce
351-1 (1937) of Chapter ( ). s to foregn persona hodng companes
see Chapter I .
The foowng s nserted mmedatey before artce 275-1, reat-
ng to the perod of mtaton upon assessment of ta :
Secton 20 of Tte II of the Revenue ct of 1937, reatng to foregn persona
hodng companes, provdes:
Seo. 20 . Pebod of Lmtaton Upon ssessment and Coecton.
(a) Secton 275 of the Revenue ct of 193 s amended by nsertng
after subsecton (c) thereof a new subsecton to read as foows:
(d) Sharehoders of oregn Persona odng Companes. If
the ta payer omts from gross ncome an amount propery ncudbe
theren under secton 337(b) (reatng to the ncuson In the gross
ncome of Unted States sharehoders of ther dstrbutve shares of
the undstrbuted Suppement P net ncome of a foregn persona hod-
ng company) the ta may be assessed, or a proceedng n court for
the coecton of such ta may be begun wthout assessment, at any
tme wthn seven years after the return was fed.
(b) Subsecton (d) of such secton 275, before Its amendment by
subsecton (a) of ths secton, s amended to read as foows:
(e) or the purposes of subsectons (a), (b), (c), and (d), a
return fed before the ast day prescrbed by aw for the fng thereof
sha be consdered as fed on such ast day.
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90
5351.
(c) Subsecton (e) of such secton 275, before ts amendment by
subsectons (at and (b) of ths secton, s amended by strkng out
(e) and nsertng n eu thereof (f) .
rtce 275-1 s amended by renumberng paragraphs ( ), (7),
and (8) as (7), (8), and (9) and by nsertng mmedatey before
such paragraphs a new paragraph numbered (G), to read as foows:
( ) If the ta payer omts from gross ncome an amount propery ncudbe
theren under secton 337(b) as hs dstrbutve share of the undstrbuted Sup-
pement P net ncome of a foregn persona hodng company, the ta may be
assessed at any tme wthn seven years after the return was fed.
rtce 275-2, reatng to the perod of mtaton upon the coec-
ton of ta , s amended by nsertng after the paragraph numbered
(3) a new paragraph numbered (4) to read as foows:
(4) If the ta payer omts from gross ncome an amount propery ncudbe
theren under secton 337(b) as hs dstrbutve share of the undstrbuted Sup-
pement P net ncome of a foregn persona hodng company, a proceedng n
court for the coecton of the ta may be begun wthout assessment at any
tme wthn seven years after the return was fed.
new chapter s added after Chapter , desgnated Chap-
ter ( ) and provdng as foows:
C PT R ( ).
U T ON P RSON L OLDING COMP NI S.
(Under Tte I of the Revenue ct of 193 as amended by secton 1 of the Revenue ct
of 1037.)
Tte I ddtona Income Ta es.
Secton 3 of the Revenue ct of 1937 enacted ugust 2 , 1937, provdes n
part:
Sec. 3. Revenue ct of 1937 . ffectve Dates.
The amendment made by secton 1 Revenue ct of 1937 sha appy
ony wth respect to ta abe years begnnng after December 31,
193 .
Note. The provsons of ths chapter appy ony to ta abe years begnnng after De-
19 r tn e years begnnng pror to December 31, 103 , see Chapter
Tte I Pebsona odno Companes.
Sec, L mendment of 193C ct.
Tte I of the Revenue ct of 193 s amended to read as foows:
Tte I ddtona Income Ta es.
Sec. 351. Subta on Pebsona odng Companes.
There sha be eved, coected, and pad, for each ta abe year
(n addton to the ta es mposed by Tte I), upon the undstrbuted
ad|usted net ncome of every persona hodng company a surta equa
to the sum of the foowng:
(1) 5 per centum of the amount thereof not n e cess of 2,000
pus
(2) 75 per centum of the amount thereof n e cess of 2,000.
akt. 351-1 (1937). Surta on pcr oa hodng companes. Secton 351 of
Tte I . as amended, mposes for each ta abe year begnnng after December
31, 193 (n addton to the ta es mposed by Tte I of the Revenue ct of
193 ), a graduated ncome ta or surta upon corporatons cassfed as per-
sona hodng companes. Corporatons so cassfed are e empt from the surta
on corporatons mpropery accumuatng surpus mposed by secton 102 of
Tte I of the Revenue ct of 1930. but are not. e empt from the other ta es
Imposed by that tte. Unke the surta mposed by secton 102, the surta
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352 .
100
mposed by secton 351 of Tte I , as amended, appes to a persona hodng
companes defned as such n secton 352 and artce 352-1, regardess of whether
or not they were formed or avaed of to accumuate earnngs or profts for
the purpose of avodng surta upon sharehoders. The surta mposed by
secton 351 of Tte I , as amended, s 05 per cent of the amount of the unds-
trbuted ad|usted net ncome not n e cess of 2,000, and 75 per cent of the
amount of the undstrbuted ad|usted net ncome n e cess of 2,000.
foregn corporaton, whether resdent or nonresdent, whch s cassfed
ns a persona hodng company under secton 352 (not ncudng, wth respect
to ta abe years endng after ugust 2 , 1037, a foregn persona hodng com-
pany as defned n secton 331) s sub|ect to the ta mposed by secton 351
of Tte I . as amended, wth respect to ts ncome from sources wthn the
Unted States even thoush such ncome s not f ed or determnabe annua or
perodca ncome specfed n secton 231(a). (See secton 119.) The term
persona hodng company1 as used n Tte I , as amended, does not Incude
a foregn corporaton f (1) ts gross ncome from sources wthn the Unted
States for the perod specfed n secton 119(a) (2) ( ) s ess than 50 per cent
of ts tota gross ncome from a sources and (2) a of ts stock outstandng
durng the ast haf of the ta abe year s owned by nonresdent aen Indvd-
uas, whether drecty or ndrecty through other foregn corporatons.
Sec. 352. Defnton of Persona odng Company.
(a) Geneha Rue. or the purposes of ths tte and of Tte I the
term persona hodng company means any corporaton f
(1) Grogg ncome requrement. t east 80 per centum of ts
gross ncome for the ta abe year s persona hodng company
ncome as defned n secton 353 but f the corporaton s a persona
hodng company wth respect to any ta abe year, then, for each
subsequent ta abe year, the mnmum percentage sha be 70 per
centum n eu of 80 per centum, unt a ta abe year durng the
whoe of the ast haf of whch the stock ownershp requred by
paragraph (2) does not e st, or unt the e praton of three
consecutve ta abe years n each of whch ess than 70 per centum
of the gross ncome s persona hodng company ncome and
(2) S/oefc ownershp requrement. t any tme durng the
ast haf of the ta abe year more than 50 per centum In vaue of
ts outstandng stock Is owned, drecty or ndrecty, by or for
not more than fve ndvduas.
(b) ceptons. The term persona hodng company does not
ncude a corporaton e empt from ta aton under secton 101, a bank
as defned n secton 104, a fe nsurance company, a surety company,
or, e cept wth respect to a ta abe year endng on or before the date
of the enactment of the Revenue ct of 1937, a foregn persona hod-
ng company as defned n secton 331.
rt. 352-1. Defnton of persona hodng company. persona hodng
company s any corporaton (other than a corporaton specfed n secton
352(b)) whch for the ta abe year meets (a) the gross ncome requrement
specfed n artce 352-2, and ( ) the stock ownershp requrement specfed n
nrtce 352-3. oth requrements must be satsfed and both must be met wth
respect to each ta abe year.
ht. 352-2. dross ncome requrement. To meet the gross ncome requre-
ment, t s necessary that ether of the foowng percentages of gross ncome
of the corporaton for the ta abe year be persona hodng company ncome ns
defned n secton 353:
(a) 80 per cent or more or
( ) 70 per cent or more f the corporaton has been cassfed as a persona
hodng company for any ta abe year begnnng after December 31, 193 ,
uness
(1) a ta abe year has ntervened snce the ast ta abe year for whch
t was so cassfed, durng no part of the ast haf of whch the stock
ownershp requrement specfed n secton 352(a) (2) e sts or
(2) three consecutve years have ntervened snce the ast ta abe year
for whch It was so cassfed, durng each of whch ts persona hodng
company ncome was ess than 70 per cent of ts gross ncome.
In determnng whether the persona hodng company ncome s equa to
the requred percentage of the tota gross ncome, the determnaton must not
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101
353.
he made upon the bass of gross recepts, snce gross ncome s not synonymous
wth gross recepts. or a further dscusson of what consttutes gross ncome,
see secton 22(a) and the reguatons prescrbed under that secton.
n. 302-3. Stock ownershp requrement. To meet the stock ownershp
requrement, t s necessary that at some tme durng the ast haf of the
ta abe year more than 50 per cent n vaue of the outstandng stock of the
corporaton be owned, drecty or ndrecty, by or for uot more than fve
ndvduas. or such purpose, the ownershp of the stock must be determned
u provded n secton 35 and artces 354(a)- to 354(a)-7 and artce
354(b)-.
In the event of any change n the stock outstandng durng the ast haf of the
ta abe year, whether n the number of shares or casses of stock, or whether n
the ownershp thereof, the condtons e stng Immedatey pror and subsequent
to each change must be takeu nto consderaton.
In determnng whether the statutory condtons wth respect to stock owner-
shp are present at any tme durng the ast haf of the ta abe year, the phrase
h vaue sha, n the ght of a the crcumstances, t e deemed the vaue of
the corporate stock outstandng at such tme (not ncudng treasury stock).
Ths vaue may be determned upon the bass of the company s net worth, earn-
ng and dvdend payng capacty, apprecaton of assets, together wth such
other factors as have a bearng upon the vaue of the stock. If a vaue of stock
a used whch s greaty at varance wth that refected by the corporate books,
the evdence upon whch such vauaton s based shoud be fed wth the returu.
In any case where there are two or more casses of tock outstandng, the tota
vaue of a the stock shoud 1k aocated among the dfferent casses accordng
to the reatve vaue of each cass theren.
The rues stated n the ast two precedng paragraphs are equay appcabe
n determnng the stock ownershp requrement specfed n secton 353(e), re-
atng to persona servce contracts, and n secton 353(f), reatng to the use of
corporaton property by a sharehoder. The stock ownershp requrement spec-
fed n these sectons reates, however, to the stock outstandng at any tme
durng the entre ta abe year and not merey durng the ast haf thereof.
Sec. 353. Persona odnq Company Income.
or the purposes of ths tte the term persona hodng company
Income means the porton of the gross ncome whch conssts of:
(a) Dvdends, nterest, royates (other than mnera, o, or gas
royates), annutes.
(b) Stock and Securtes Transactons. cept In the case of
reguar deaers n stock or securtes, gans from the sae or e change
of stock or securtes.
(c) Commodtes Transactons. Gans from futures transactons
In any commodty on or sub|ect to the rues of a board of trade or
commodty e change. Ths subsecton sha not appy to gans by a
producer, processor, merchant, or hander of the commodty whch
arse out of bona fde hedgng transactons reasonaby necessary to the
conduct of ts busness n the manner n whch such busness s cus-
tomary and usuay conducted by others.
(d) states and Trusts. mounts ncudbe n computng the net
ncome of the corporaton under Suppement of Tte I: and gans
from the sae or other dsposton of any nterest n an estate or trust
(e) Persona Servce Contracts. (1) mounts receved under a
contract nnder whch the corporaton Is to furnsh persona servces
f some person other than the corporaton has the rght to desgnate (by
name or by descrpton) the ndvdua who s to perform the servces,
or f the ndvdua who s to perform the servces s desgnated (by
name or by descrpton) n the contract and (2) amounts receved
from the sae or other dsposton of such a contract. Ths subsecton
sha appy wth respect to amounts receved for servces under a par-
tcuar contract ony f at some tme durng the ta abe year 25 per
centum or more n vaue of the outstandng stock of the corporaton Is
owned, drecty or ndrecty, by or for the ndvdua who has per-
formed, s to perform, or may be desgnated (by name or by descrp-
ton) as the one to perform, such servces.
(f) Use of Corporaton Property by Sharehoder. mounts re-
ceved as compensaton (however desgnated and from whomsoever
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353.
102
receved) for the use of, or rght to use, property of the corporaton In
any case where, at any tme durng the ta abe year, 25 per centum or
more n vaue of the outstandng stock of the corporaton s owned,
drecty or ndrecty, by or for an ndvdua entted to the use of the
property whether such rght s obtaned drecty from the corpora-
ton or by means of a subease or other arrangement.
(g) Rents. Rents, uness consttutng 50 per centum or more of
the gross ncome. or the purposes of ths subsecton the term rents
means compensaton, however desgnated, for the use of, or rght to use,
property but does not ncude amounts consttutng persona hodng
company ncome under subsecton (f).
(h) Mnera, O, oe Gas Royates. Mnera, o, or gas royates,
uness (1) consttutng 50 per centum or more of the gross ncome, and
(2) the deductons aowabe under secton 23(a) (reatng to e penses)
other than compensaton for persona servces rendered by sharehoders,
consttute 15 per centum or more of the gross ncome.
rt. 353-1. Persona hodng company ncome. The term persona hodng
company ncome means the porton of the gross ncome whch conssts of
the foowng:
(1) Dvdends. The term dvdends means dvdends as defned n sec-
ton 115(a), and ncudes amounts requred to be ncuded n gross ncome
under secton 337(b). It does not ncude stock dvdends (to the e tent they
do not consttute ncome to the sharehoders wthn the meanng of the s teenth
amendment to the Consttuton), qudatng dvdends, or other capta dstr-
butons referred to n secton 115(c), as amended, and secton 115(d).
(2) Interest. The term nterest means any amounts, Incudbe n gross
ncome, receved for the use of money oaned.
(3) Royates (other than mnera, o, or gas royates). The term roya-
tes ncudes amounts receved for the prvege of usng patents, copyrghts,
secret processes and formuas, good w, trade marks, trade brands, franchses,
and other ke property. It does not ncude rents, nor overrdng royates
receved by an operatng company. s used n ths paragraph the term over-
rdng royates means amounts receved from the subessee by the operatng
company whch orgnay eased and deveoped the natura resource property
n respect of whch such overrdng royates are pad.
(4) nnutes. The term annutes refers ony to annutes to the e tent
ncudbe n the computaton of gross ncome. (See secton 22(b)(2).)
(5) Gans from the sae or e change of stock or securtes. The term gans
from the sae or e change of stock or securtes as used n secton 353(b)
and these reguatons appes to a gans (ncudng gans from qudatng
dvdends and other dstrbutons from capta) from the sae or e change of
stock or securtes ncudbe n gross ncome. The term stock or securtes
ncudes shares or certfcates of stock, or nterest n any corporaton (ncudng
any |ont-stock company, nsurance company, assocaton, or other organzaton
cassfed as a corporaton by the ct), certfcates of nterest or partcpaton
n any proft-sharng agreement, or In any o, gas, or other mnera royaty,
or ease, coatera trust certfcates, votng trust certfcates, stock rghts or
warrants, bonds, debentures, certfcates of ndebtedness, notes, car trust certf-
cates, bs of e change, obgatons ssued by or on behaf of a Government,
State, Terrtory, or potca subdvson thereof, etc. In the case of reguar
deaers n stock or securtes the term does not Incude gans derved from
the sae or e change of stock or securtes made n the norma course of bus-
ness. The term reguar deaer n stock or securtes means corporatons
wth an estabshed pace of busness reguary engaged n the purchase of
stock or securtes and ther resae to customers, but such corporatons are not
deaers wth respect to stock or securtes hed for specuaton or nvestment
( ) Gans from futures transactons n, commodtes. Gans from futures
transactons n commodtes Incude gans from futures transactons n any
commodty on or sub|ect to the rues of a board of trade or commodty e -
change, but do not Incude gans from cash transactons or gans by a pro-
ducer, processor, merchant, or hander of the commodty, whch arse out of
bona fde hedgng transactons reasonaby necessary to the conduct of Its bus-
ness n the manner In whch such busness s customary and usuay con-
ducted by others. In genera, persona hodng company Income ncudes gans
on futures contracts whch are specuatve. utures contracts representng true
hedges acanst prce fuctuatons n spot goods are not specuatve transactons,
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103
353.
though not concurrent wth spot transactons. utures contracts whch are not
hedges aganst spot transactons are specuatve uness they are hedges aganst
concurrent futures or forward saes or purchases.
(7) Income from estates and trusts. The ncome from estates and trusts
whch s to be ncuded n persona hodng company ncome conssts of the n-
come from estates and trusts whch s requred to be ncuded n the gross
ncome of a corporaton under sectons 1 1 to 109, together wth the gans de-
rved by the corporaton from the sae or other dsposton of any nterest n
an estate or trust.
(S) mounts receved under persona servce contracts. mounts ncudbe
m persona hodng company ncome as amounts receved under persona servce
contracts consst of amounts receved pursuant to a contract under whch the
corporaton s to furnsh persona servces, and amounts receved from a sae
or other dsposton of such a contract, f
(a) some person other than the corporaton has the rght to desgnate
(by name or by descrpton) the Indvdua who s to perform the servces,
or f the ndvdua who s to perform the servces s desgnated (by name
or by descrpton) n the contract and
(o) at some tme durng the ta abe year 25 per cent or more n vaue
of the outstandng stock of the corporaton s owned, drecty or ndrecty,
by or for the ndvdua who has performed, s to perform, or may be desg-
nated (by name or by descrpton), as the one to perform such servces.
or ths purpose the stock ownershp must be determned as provded n
secton 354 and artces 354(a)- to 354(a)-7, artce 354(b)- and the
ast paragraph of artce 352-3.
The appcaton of secton 353(e) may be ustrated by the foowng e ampes:
ampe (): , whose professon s that of an actor, owns a of the out-
standng capta stock of the M Corporaton. The M Corporaton entered nto a
contract wth under whch was to perform persona servces for the person
or persons whom the M Corporaton mght desgnate, n consderaton of whch
was to receve 10,000 a year from the M Corporaton. The M Corporaton
entered nto a contract wth the O Corporaton n whch was desgnated to
perform persona servces for the O Corporaton n consderaton of whch the O
Corporaton was to pay the M Corporaton 500,000 a year. The 500,000 receved
by the M Corporaton from the O Corporaton consttutes persona hodng
company ncome.
ampe (2): The N Corporaton, the entre outstandng capta stock of
whch s owned by four ndvduas, s engaged n engneerng. The N Corpo-
raton entered nto a contract wth the O Corporaton to perform engneerng
servces for the O Corporaton, n consderaton of whch the O Corporaton was
to pay the Corporaton .10,000. The ndvdua who was to perform the
servces was not desgnated (by name or by descrpton) n the contract and no
one but the N Corporaton had the rght to desgnate (by name or by descrp-
ton) such ndvdua. The 50,000 receved by the N Corporaton from the O
Corporaton does not consttute persona hodng company ncome.
(9) Compensaton for use of property. The compensaton for the use of, or
the rght to use, property of the corporaton whch s to be ncuded n persona
hodng company ncome conssts of amounts receved as compensaton (how-
ever desgnated and from whomsoever receved) for the use of, or the rght to
ose, property of the corporaton n any case n whch, at any tme durng the
ta abe year, 25 per cent or more n vaue of the outstandng stock of the
corporaton Is owned, drecty or Indrecty, by or for the ndvdua entted to
the use of the property, whether such rght s obtaned drecty from the cor-
poraton or by means of a subease or other arrangement. The property may
consst of a yacht, a cty resdence, a country house, or any other knd of prop-
erty. See secton 354 and artces 354(a)- to 354(a)-7, artce 354(b)- and
the ast paragraph of artce 352-3.
(10) Rents. The rents whch are to be ncuded n persona hodng company
tocome consst of compensaton, however desgnated, ncudng charter fees, etc.,
for the use of, or the rght to use, rea property, or any other knd of property,
but do not Incude amounts consttutng persona hodng company ncome under
ecton 353(f) and paragraph (9) of ths artce. owever, rents do not con-
state persona hodng company ncome f consttutng 50 per cent or more of
toe gross ncome of the corporaton.
(11) Mnera, o, or gas royates. The ncome from mnera, o, or gas
royates s to be Incuded as persona hodng company ncome, uness ( ) the
regate amount of such royates consttutes 50 per cent or more of the
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354.
104
gross ncome of the corporaton for the ta abe year and ( ) the aggregate
amount of deductons aowabe for e penses under secton 23(a) (other than
compensaton for persona servces rendered by the sharehoders of the cor-
poraton) equas 15 per cent or more of the gross ncome of the corporaton
for the ta abe year.
The term mnera, o, or gas royates means a royates, e cept over-
rdng royates, receved from any nterest n mnera, o, or gas propertes.
The term mnera ncudes the ores specfed n paragraph (d) of artce
23(m)-. s used n ths paragraph the term overrdng royates means
amounts receved from the subessee by the operatng company whch orgnay
eased and deveoped the natura resource property n respect of whch such
overrdng royates are pad.
Sec. 354. Stock Ownershp.
(a) Constructve Ownkbshp. or the purpose of determnng
whether a corporaton s a persona hodng company, nsofar as such
determnaton s based on stock ownershp under secton 352(a) (2),
secton 353(e), or secton 353(f)
(1) Stock not owned by ndvdua. Stock owned, drecty or
ndrecty, by or for a corporaton, partnershp, estate, or trust
sha be consdered as beng owned proportonatey by ts share-
hoders, partners, or benefcares.
(2) amy and partnershp otoner hp, n ndvdua sha be
consdered as ownng the stock owned, drecty or Indrecty, by or
for hs famy or by or for hs partner. or the purposes of ths
paragraph the famy of an ndvdua ncudes ony hs brothers
and ssters (whether by the whoe or haf bood), spouse, an-
cestors, and nea descendants
(3) Optons. If any person has an opton to acqure stock
such stock sha be consdered as owned by such person. or the
purposes of ths paragraph an opton to acqure such an opton,
and each one of a seres of such optons, sha be consdered as an
opton to acqure such stock.
(4) ppcaton of famy-partnershp and opton rues. Para-
graphs (2) and (3) sha be apped
( ) or the purposes of the stock ownershp requrement
provded n secton 352(a)(2), f, but ony f, the effect s to
make the corporaton a persona hodng company:
( ) or the purposes of secton 353(e) (reatng to per-
sona servce contracts), or of secton 353(f) (reatng to the
use of property by sharehoders), f, but ony f, the effect s
to make the amounts theren referred to ncudbe under such
subsecton as persona hodng company ncome.
(5) Constructve ownershp as actua ownershp. Stock con-
structvey owned by a person by reason of the appcaton of
paragraph (1) or (3) sha, for the purpose of appyng para-
graph (1) or (2). be treated as actuay owned by such person
but stock constructvey owned by an ndvdua by reason of the
appcaton of paragraph (2) sha not be treated as owned by
hm for the purpose of agan appyng such paragraph In order to
make another the constructve owner of such stock.
( ) Opton rue n eu of famy and partnershp rue. If
stock may be consdered as owned by an ndvdua under ether
paragraph (2) or (3) t sha be consdered as owned by hm under
paragraph (3).
rt. 354(a)-. Sock ownershp. or the purpose of determnng whether
(a) a corporaton s a persona hodng company, n so far as such
determnaton s based on the stock ownershp requrement specfed n
secton 352(a) (2) and artce 352-3, or
( ) amounts receved under a persona servce contract or from the
sae of such n contract consttute persona hodng company ncome In so
far as such determnaton s based on the stock ownershp requrement
specfed n secton 353(e) and paragraph (8) of artce 353 1, or
(c) compensaton for the use of property consttutes persona hodng
company ncome n so far as such determnaton s based on the stock
ownershp requrement specfed n secton 353(f) and paragraph (9) of
artce 353-1,
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105
354.
stock owned by an ndvdua ncudes stock constructvey owned by hm as
provded In secton 354. or such purpose constructve ownershp of stock
sha be determned and apped n accordance wth the rues provded n
secton 354 and artces 354(a)-2 to 354(a)-7 and artce 354(b)-. forms
and casses of stock, however denomnated, whch represent the nterests of
sharehoders, members, or benefcares n the corporaton sha be taken nto
consderaton.
rt. oT 4(a)-2. Stock not owned by ndvdua. In determnng the ownershp
of stock for any of the purposes set forth n artce 354(a)-, stock owned,
drecty or ndrecty, by or for a corporaton, partnershp, estate, or trust sha
be consdered as beng owned proportonatey by ts sharehoders, partners, or
benefcares. or e ampe, f and 15, two ndvduas, are the e cusve and
equa benefcares of a trust or estate, and f such trust or estate owns the
entre capta stock of the M Corporaton, and f the M Corporaton n turn
owns the entre capta stock of the N Corporaton, then the sock of both
the M Corporaton and the N Corporaton sha be consdered as beng owned
equay by and as the ndvduas ownng the benefca nterest theren.
See aso artce 351(a)- .
rt. 354(a)-3. amy and partnershp ownershp. In determnng the own-
ershp of stock for any of the purposes set forth n artce 354(a)-1, an Ind-
vdua sha be consdered as ownng the stock owned, drecty or ndrecty,
by or for hs famy or by or for hs partner. or the purposes of such determ-
naton the famy of an ndvdua ncudes ony hs brothers and ssters (whether
by the whoe or haf bood), spouse, ancestors, and nea descendants.
The appcaton of the famy and partnershp rue n determnng the owner-
shp of tock for the purpose set forth n (a) of artce 354(a)- s ustrated
by the foowng e ampe:
ampe: The M Corporaton at some tme durng the ast haf of the ta abe
year had 1,800 shares of outstandng stock, 450 of whch were hed by varous
ndvduas havng no reatonshp to one another and none of whom were part-
ners, and the remanng 1,350 were hed by 51 sharehoders as foows:
Reatonshps.
Shares.
Shares.
Shares.
Shares.
Shares.
n ndvdua.
100
10
W 10
10
S 10
20
10
W 40
10
S 40
C 20
C 10
CW 40
C 10
CS 40
D 20
D 10
DW 40
D 10
DS 40
, 20
10
W 41)
10
S 40
s htbec
swfe
L- brother
s son
s damrtto- by former marrage
(son s haf-sster)
SD8 10
W 10
W 10
W 10
W W 10
P 10
S S 40
W 10
W 10
W 10
W W 10
csns 40
DS S 40
D W IfO
DW 10
S 40
W 10
W 0
W 10
W W 110
s hrotr|er we
C W 10
CW 110
CW 10
CW W 10
s wfe s brr.thcr
dwb o
a wfe s brother s wfe
DW W 10
Indvdnu - partner
y appyng the statutory rue provded n secton 351(a) (2) fve ndvduas
owe more than 50 per cent of the outstandng stock as foows:
(ncudng . W. , S, S S, P) 100
(ncudng , W. , S, S S) 100
CW (ncudng C. CS. CW , CW ) 220
D (ncudng D, D , D W) 200
W (ncudng W, W , W W) 170
Tota, or more than 50 per cent 010
Indvdua represents the obvous case where the head of the famy owns
the buk of the famy stock and naturay s the head of the group. s partner
owns 10 shares of the stock. Indvdua represents the case where he s st
head of the group because of the ownershp of stock by hs mmedate famy.
Indvduas C and D represent cases where the ndvduas fa n groups headed
In C s case by hs wfe and n D s case by hs brother because of the preponderance
of hodngs on the part of reatves by marrage. Indvdua represents the
rase where the preponderant hodngs of others emnate that ndvdua from
the group.
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354.
10
The method of appyng the famy and partnershp rue as ustrated In the
forcgo e ampe aso appes n determnng the ownershp of stock for te
purposes staed n (0) and (c) of artce 354(a)-.
bt. 354(a)-4. Optons. In determnng the ownershp of stock for any of the
purposes set forth n artce 354(n)-, f any person has an opton to acqure
stock, such stock may be consdered as owned by such person. The term
opton as used n ths artce ncudes an opton to acqure such an opton
and each one of a seres of such optons, so that the person who has an opton
on an opton to acqure sock may be consdered as the owner of the stock.
kt. 354(a) ). ppcaton of famy-partnershp and opton rues. The famy
and partnershp rue provded n secton 354(a)(2) and artce 354(a)-3 and
the opton rue provded n secton 354(a) (3) and artce 354(a) sha be
apped
(a) for the purpose stated n (a) of artce 354(a)-, f, but ony f, the
effect of such appcaton s to make the corporaton a persona hodng
company, or
(b) for the purpose stated n ( ) of artce 354(a)-, f, but ony f, the
effect of such appcaton s to make the amounts receved under a per-
sona servce contract or from the sae of such a contract persona hodng
company ncome, or
(c) for the pur ose stated n (c) of artce 354(a)-, f, but ony f, the
effect of such appcaton s to make the compensaton for the use of prop-
erty persona hodng company ncome.
The famy and partnershp rue and the opton rue must be apped nde-
pendenty for each of the purposes stated n artce 854(a) 1.
bt. 354(a)- . Constructve ocnershp as actua ownershp. In determnng
the ownershp of stock for any of the purposes set forth n artce 354(a)-
(a) stock constructvey owned by a person by reason of the appcaton
of the rue provded n secton 354(a) (1), reatng to stock not owned by an
ndvdua (see artce 354(a)-2) sha be consdered as actuay owned by
such person for the purpose of agan appyng such rue or of appyng the
famy and partnershp rue provded n secton 304(a) (2) (see artce
354(n)-3) n order to make another person the constructve owner of such
stock, and
( ) stock constructvey owned by a person by reason of the appcaton
of the opton rue provded n secton 354(a)(3) (see artce 354(a)-4)
sha be consdered as actuay owned by such person for the purpose of
appyng ether the rue provded n secton 354(a) (1), reatng to stock not
owned by an ndvdua, or the famy and partnershp rue provded n
secton 354(a)(2) n order to make another person the constructve owner
of such stock, but
(c) stock constructvey owned by an ndvdua by reason of the
appcaton of the famy and partnershp rue provded n secton 304(a) (2)
sha not be consdered as actuay owned by such ndvdua for the purpose
of agan appyng such rue n order to make another ndvdua the
constructve owner of such stock.
The appcaton of ths artce may be ustrated by the foowng e ampes:
ampe (1): s wfe, W, owns a of the stock of the M Corporaton, whch
n turn owns a the stock of the O Corporaton. The O Corporaton n turn
owns a the stock n the P Corporaton.
Under the rue provded n secton 354(a) (1), reatng to stock not owned by
an ndvdua, the stock n the P Corporaton owned by (he O Corporaton s con-
sdered to be owned constructvey by the M Corporaton, the soe sharehoder of
the O Corporaton. Such constructve ownershp of the stock of the M Corpora-
ton s consdered as actua ownershp for the purpose of agan appyng such
rue n order to make W, the soe sharehoder of the M Corporaton, the con-
structve owner of the stock of the P Corporaton. Smary, the constructve
ownershp of the stock by W s consdered as actua ownershp for the purpose
of appyng the famy and partnershp rue provded n secton 354(a)(2) n
order to make the constructve owner of the stock of the P Corporaton, f
such appcaton s necessary for any of the purposes set forth n artce 354(a)--
ut the stock thus constructvey owned by may not be consdered as actua
ownershp for the purpose of agan appyng the famy and partnershp rue n
order to make another member of s famy, for e ampe s father, the con-
structve owner of the stock of the P Corporaton.
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107
154.
ampe (2): , an ndvdua, owns a the stock of the R Corporaton whch
has an opton to acqure a the stock of the S Corporaton, owned by C, an
ndvdua, who s not reated to .
Under the opton rue provded n secton 354(a) (3) the R Corporaton may be
consdered as ownng constructvey the stock of the S Corporaton owned by C.
Snch constructve ownershp of the stock by the R Corporaton s consdered as
actua ownershp for the purpose of appyng the rue provded n secton
854(a) (1), reatng to stock not owned by an ndvdua, n order to make , the
oe sharehoder of the R Corporaton, the constructve owner of the stock of the
S Corporaton. The stock thus constructvey owned by by reason of the
appcaton of the rue provded n secton 354(a) (1) kewse s consdered as
actua ownershp for the purpose, f necessary, of appyng the famy and part-
nershp rue provded n secton 354(a)(2), n order to make another member
of s famy, for e ampe, s wfe, W, the constructve owner of the stock of
the S Corporaton. owever, the famy and partnershp rue coud not agan be
apped so as to make st another ndvdua the constructve owner of the stock
of the S Corporaton, that s, the stock constructvey owned by W coud not be
consdered as actuay owned by her n order to make W s father the construc-
tve owner of such stock by a second appcaton of the famy and partnershp
rue.
rt. 354(a)-7. Opton rue n eu of famy and partnershp rue. If, In de-
termnng the ownershp of stock for any of the purposes set forth n artce
354(a)-, stock may be consdered as constructvey owned by an ndvdua by
an appcaton of both the famy-partnershp rue provded n secton 354(a) (2)
(see artce 354(a)-3) and the opton rue provded n secton 354(a) (3) (see
artce 354(a) 4) such stock sha be consdered as owned constructvey by the
ndvdua by reason of the appcaton of the opton rue.
The appcaton of ths artce may be ustrated by the foowng e ampe:
ampe: Two brothers, and , each own 10 per cent of the stock of the M
Corporaton, and s wfe, W, aso owns 10 per cent of the stock of such corpo-
raton. Wa husband, , has an opton to acqure the stock owned by her at
any tme. It becomes necessary, for one of the purposes stated n artce
354(a)-, to determne the stock ownershp of n the M Corporaton.
If the famy and partnershp rue were the ony rue that apped n the case,
woud be consdered, under that rue, as ownng 20 per cent of the stock o
the M Corporaton, namey, hs own stock pus the stock owned by hs brother.
In that event, coud not be consdered as ownng the stock hed by W snce
(1) W Is not a member of s famy and (2) the constructve ownershp of
such stock by through the appcaton of the famy and partnershp rue n
hs case s not consdered as actua ownershp so as to make the constructve
owner by a second appcaton of the same rue wth respect to the ownershp
ofthestock. (See artce 354(a)- .)
owever, there s more than the famy and partnershp rue Invoved n ths
e ampe. s the hoder of an opton upon the stock, may be consdered the
constructve owner of hs wfe s stock by the appcaton of the opton rue and
wthout reference to the famy reatonshp between and W. If s con-
sdered as ownng the stock of hs wfe by appcaton of the opton rue, then
under artce 354(a)- , such constructve ownershp by s regarded as actua
ownershp for the purpose of appyng the famy and partnershp rue so as to
make another member of s famy, for e ampe, , the constructve owner of
the stock. ence, snce may be consdered as ownng hs wfe s stock by
appyng both the famy-partnershp rue and the opton rue, the provsons of
secton 354(a) ( ) appy and accordngy must be consdered the constructve
owner of hs wfe s stock under the opton rue rather than the famy-partnershp
roe. thus becomes the constructve owner of 30 per cent of the stock of the
M Corporaton, namey, hs own 10 per cent, s 10 per cent, and W s 10 per cent
constructvey owned by as the hoder of an opton on the stock.
Sbo. 354. Stock Ownershp.
(b) Cowebttbb S crr rrr S. Outstandng securtes convertbe Into
stock (whether or not convertbe durng the ta abe year) sha be con-
sdered as outstandng stock
(1) or the purpose of the stock ownershp requrement pro-
vded In secton 352(a)(2), but ony If the effect of tho ncuson
of a such securtes Is to make the corporaton a persona hodng
company
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355.
108
(2) or the purpose of secton 353(e) (reatng to persona serv-
ce contracts), but ony If the effect of the Incuson of a such
securtes s to make the amounts theren referred to ncudbe
under such subsecton as persona hodng company ncome and
(3) or the purpose of secton 353(f) (reatng to the use of
property by sharehoders), but ony If the effect of the ncuson of
a such securtes s to make the amounts theren referred to ncud-
be under such subsecton as persona hodng company ncome.
The requrement n paragraphs (1), (2), and (3) that a convertbe
securtes must be ncuded f any are to be ncuded sha be sub|ect
to the e cepton that, where some of the outstandng securtes are
convertbe ony after a ater date than n the case of others, the cass
havng the earer converson date may be ncuded athough the others
are not ncuded, but no convertbe securtes sha be ncuded uness
a outstandng securtes havng a pror converson date are aso
ncuded.
bt. 354(b)-. Convertbe securtes. Under secton 354(b), outstandng
securtes of a corporaton, such as bonds, debentures or other corporate obga-
tons, convertbe nto stock of the corporaton (whether or not convertbe durng
the ta abe year) sha be consdered as outstandng stock of the corporaton
for the purpose of the stock ownershp requrement provded n secton 352(a) (2),
but ony f the effect of such consderaton s to make the corporaton a per-
sona hodng company. Such convertbe securtes sha be consdered as out-
standng stock for the purpose of secton 353(e), reatng to amounts receved
under persona servce contracts, or of secton 353(f), reatng to compensaton
for the use of property, but ony f the effect of such consderaton s to make
the amounts theren referred to ncudbe under such sectons as persona
hodng company ncome. The consderaton of convertbe securtes as out-
standng stock s sub|ect to the e cepton that, f some of the outstandng
securtes are convertbe ony after a ater date than n the case of others,
the cass havng the earer converson date may be consdered as outstandng
stock athough the others are not so consdered, but no convertbe securtes
sha be consdered as outstandng stock uness a outstandng securtes hav-
ng a pror converson date are aso so consdered. or e ampe, f outstand-
ng securtes are convertbe n 1937, 1038, and 1939, those convertbe n 1937
can be propery consdered as outstandng stock wthout so consderng those
convertbe n 1938 or 1930, and those convertbe n 1937 and 1938 can be
propery consdered as outstandng stock wthout so consderng those convertbe
n 1939. owever, the securtes convertbe n 1938 coud not be propery
consdered as outstandng stock wthout so consderng those convertbe n 1937
and the securtes convertbe n 1939 coud not be propery consdered as out-
standng stock wthout so consderng those convertbe n 1937 and 1938.
Sec. 355. Undstrbuted d|usted Net Income.
or the purposes of ths tte the term undstrbuted ad|usted net
ncome means the ad|usted net ncome (as defned n secton 35 )
mnus
(a) The amount of the dvdends pad credt provded n secton 27,
computed wthout the beneft of subsecton (b) thereof (reatng to
the dvdend carry-over) : and
(b) mounts used or Irrevocaby set asde to pay or to retre In-
debtedness of any knd ncurred pror to anuary 1, 1934, f such
amounts are reasonabe wth reference to the sze and terms of such
ndebtedness.
kt. 355-1. Undstrbuted ad|usted net ncome. The term undstrbuted
ad|usted net ncome means the ad|usted net ncome (as defned n secton 35
and artce 35 -1) mnus ( ) the amount of dvdends pad credt provded n sec-
ton 27, computed wthout the beneft of secton 27(b) (reatng to the dvdend
carry-over) and (IS) amounts used or rrevocaby set asde to pay or to retre
ndebtedness of any knd ncurred pror to anuary 1, 19 54, f such amounts
are reasonabe wth reference to the sze and the terms of such ndebtedness
(see artce 355-2).
rt. 355-2. mounts used or rrevocaby set asde to pay or to retre ndebt-
edness of any knd ncurred pror to anuary 1, 1931). (a) Indebtedness. The
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109
3S .
term Indebtedness means an obgaton, absoute and not contngent, to pay,
on demand or wthn a gven tme, n cash or other medum, a t ed amount.
The term ndebtedness does not ncude the obgaton of a cor oraton on
ts capta stock.
The ndebtedness must have been ncurred (or, f ncurred by assumpton,
assumed) by the ta payer pror to anuary 1, 1934. n ndebtedness evdenced
by bonds, notes, or other obgatons ssued by a corporaton s ordnary n-
curred as of the date such obgatons are ssued and the amount of such ndebt-
edness s the amount represented by the face vaue of the obgatons. In the
ase of renewa or other changes n the form of an ndebtedness, so ong as (he
reatonshp of debtor and credtor contnues between the ta payer and hs
credtor, the gvng of a new promse to pay by the ta payer w uot have the
effect of changng the date the ndebtedness was ncurred.
( ) mounts used or rrevocaby set asde. The deducton s aowabe, n
any ta abe year, ony for amounts used or rrevocaby set asde n that year.
The use or rrevocabe settng asde must be to effect the e tngushment or
dscharge of ndebtedness. Snce, therefore, n the case of renewa and other
changes n the form of an ndebtedness, the reatonshp of debtor an credtor
contnues between the ta payer and hs credtor, the mere gvng of a new
promse to pay by the ta payer w not resut n an aowabe deducton. If
amounts are set asde n one year, no deducton s aowabe for such amounts
for a ater year n whch actuay pad. s ong as a other condtons are
satsfed, the aggregate amount aowabe as a deducton for any ta abe year
ncudes a amounts (from whatever source) used and, as we, a amounts
(from whatever source) rrevocaby set asde, rrespectve of whether n cash
or otber medum. Doube deductons are not permtted.
(c) Reasonabeness of the amounts wth reference to the sze and terms of
the ndebtedness. The reasonabeness of the amounts used or rrevocaby set
asde must be determned by reference to the sze and terms of the partcuar
ndebtedness. ence, a the facts and crcumstances wth respect to the
nature, scope, condtons, amount, maturty, and other terms of the partcuar
ndebtedness must be shown n each case.
Ordnary an amount used to pay or retre an ndebtedness, n whoe or n
part, at or pror to the maturty and n accordance wth the terms thereof w
be consdered reasonabe, and may be aowabe as a deducton for the year
n whch so used, f no ad|ustment s requred by reason of an amount set
asde n a pror year for payment or retrement of the same ndebtedness.
amounts rrevocaby set asde for the payment or retrement of an
ndebtedness n accordance wth and pursuant to the terms of the obgaton,
for e ampe, the annua contrbuton to trustees requred by a mandatory snk-
ng fund, w be consdered as compyng wth the statutory requrement of
reasonabeness. To be consdered reasonabe t s not necessary that the pan of
retrement provde for a retroactve settng asde of amounts for years pror to
that n whch the pan s adopted. owever, f a vountary pan was adopted
pror to 1934, no ad|ustment s aowabe n respect of the amounts set asde n
the years pror to 1934.
d) Genera. The burden of proof w rest upon the ta payer to sustan the
deducton camed. Therefore, the ta payer must furnsh the nformaton
requred by the return, and such other nformaton as the Commssoner may
requre n substantaton of the deducton camed.
Sec. 35 . d|usted Net Income.
or the purposes of ths tte the term ad|usted net ncome means
the net ncome wth the foowng ad|ustments:
(a) ddtona Deductons. There sha be aowed as deduc-
tons
(1) edera ncome, war-profts, and e cess-profts ta es pad or
accrued durng the ta abe year to the e tent not aowed as a
dedncton under secton 23 but not ncudng the ta mposed by
secton 102, secton 351 (ether before or after ts amendment by
the Revenue ct of 1937), or a secton of a pror ncome-ta
aw correspondng to ether of such sectons.
(2) In eu of the deducton aowed by secton 23(q), contrbu-
tons or gfts made wthn the ta abe year to or for the use of
donees descrbed n secton 23(q) for the purposes theren specfed,
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535 .)
110
to an amount whch does not e ceed 15 per centum of the ta -
payer s net ncome, computed wthout the beneft of ths paragraph
and secton 23(q), and wthout the deducton of the amount
dsaowed under subsecton (b) of ths secton.
(3) In the case of a corporaton organzed pror to anuary 1,
1930, to take over the assets and abtes of the estate of a
decedent, amounts pad n qudaton of any abty of the
corporaton based on the abty of the decedent to make contrbu-
tons or gfts to or for the use of donees descrbed n secton 23(o)
for the purposes theren specfed, to the e tent such abty of
the decedent e sted pror to anuary 1, 1934. No deducton sha
be aowed under paragraph (2) of ths subsecton for a ta abe
year for whch a deducton s aowed under ths paragraph.
(b) Dkductons Not owed. The aggregate of the deductons
aowed under secton 23(a), reatng to e penses, and secton 23(1),
reatng to deprecaton, whch are aocabe to the operaton and man-
tenance of property owned or operated by the corporaton, sha be
aowed ony n an amount equa to the rent or other compensaton
receved for the use or rght to use the property, uness t s estabshed
(under reguatons prescrbed by the Commssoner wth the approva of
the Secretary) to the satsfacton of the Commssoner:
(1) That the rent or other compensaton receved was the
hghest obtanabe, or, f none was receved, that none was obtan-
abe
(2) That the property was hed n the course of a busness
carred on bona fde for proft and
(3) ther that there was reasonabe e pectaton that the
operaton of the property woud resut n a proft, or that the
property was necessary to the conduct of the busness.
rt. 35 -1. d|usted net ncome. The term ad|usted net ncome as used
In Tte 1 , as amended, means, n the case of a domestc corporaton, the gross
ncome as defned n secton 22 ess the deductons provded n secton 23 sub|ect
to the quafcatons, mtatons, and e ceptons provded n secton 35 . In the
case of a foregn corporaton, whether resdent or nonresdent, whch fes or
causes a return to be fed, the ad|usted net ncome means the net ncome
from sources wthn the Unted States (gross ncome from sources wthn the
Unted States ns defned n secton 119 and the reguatons thereunder ess statu-
tory deductons) sub|ect to the quafcatons, mtatons, and e ceptons pro-
vded In secton 35 . In the case of a foregn corporaton, whether resdent or
nonresdent, whch fes no return the ad|usted net ncome means the gross
ncome from sources wthn the Unted States as defned n secton 119 and the
reguatons thereunder ess the deductons enumerated n secton 35 (a) but
wthout the beneft of any deductons under Tte I of the Revenue ct of 193
(see secton 233).
The ad|usted net Income ncudes nterest upon obgatons of the Unted
States and obgatons of a corporaton organzed under ct of Congress, f such
corporaton s an nstrumentaty of the Unted States, e cept as provded n
secton 22(b)(4). The ad|usted net ncome does not ncude nterest on
obgatons of States or Terrtores of the Unted States or any potca subdv-
son thereof or of the Dstrct of Coumba or of the possessons of the Unted
States.
The foregn ta credt permtted by secton 131 wth respect to the ta es
mposed by Tte I of the Revenue ct of 193 s not aowed wth respect to the
surta mposed by secton 351. owever, the deducton of foregn ta es under
secton 23(c) s permtted for the purposes of the surta even f for the purposes
of the corporate ta mposed by Tte I of that ct a credt for such ta es s
taken.
In nddton to the quafcatons, mtatons, and e ceptons provded n sec-
ton 353(a), under secton 35 (b) the aggregate of the deductons aowed under
secton 23(a), reatng to e penses, and secton 23(1), reatng to deprecaton,
whch are aocabe to the operaton and mantenance of property owned or
operated by the company sha e aowed ony n an nmount equa to the rent
or other compensaton receved for the use of, or rght to use, the property,
uness t s estabshed to the satsfacton of the Commssoner:
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I
35 .
(1) That the rent or other compensaton receved was the hghest obtan-
abe, or f none was receved, that none was obtanabe
(2) That the property was hed n the course of a busness carred on
bona fde for proft and
(3) ther that there was reasonabe e pectaton that the operaton of
the property woud resut n a proft, or that the property was necessary to
the conduct of the busness.
The burden of proof w rest upon the ta payer to sustan the deducton
camed. If, n computng ts ad|usted net ncome, a persona hodng company
cams deductons for e penses and deprecaton aocabe to the operaton and
mantenance of property owned or operated by the company, n an aggregate
amount n e cess of the rent or other compensaton receved for the use of, or
the rght to use, the property, t sha attach to ts Income ta return a state-
ment settng forth ts cam for aowance of the addtona deductons together
wth a compete statement of the facts, crcumstances, and arguments on whch
t rees n support of ts cam. Such statement sha set forth:
(a) descrpton of the property
( ) The cost or other bass to the corporaton and the nature and vaue of
the consderaton pad for the property
(c) The name and address of the person from whom acqured and the date
thereof
( ) The name and address of the person to whom eased or rented, or the
person permtted to use the property, and the number of shares of stock, f any,
hed by such person and the members of hs famy
(c) The nature and gross amount of the rent or other compensaton receved
for the use of, or the rght to use, the property durng the ta abe year and for
each of the fve precedng years and the amount of the e penses ncurred wth
respect to, and the deprecaton sustaned on, the property for such years
f) vdence that the rent or other compensaton was the hghest obtanabe
and, f none was receved, a statement of the reasons therefor
( ) copy of the contract, ease or renta agreement
(h) The purpose for whch the property was used
( ) The busness carred on by the corporaton wth respect to whch the
property was hed and the gross ncome, e penses, and net ncome derved
from the conduct of such busness for the ta abe year and for each of the
fve precedng years
()) statement of any reasons whch e sted for e pectaton that the op-
eraton of the property woud be proftabe, or a statement of the necessty for
the use of the property n the busness of the corporaton, and the reasons
thy the property was acqured and
(fc) ny other nformaton on whch the ta payer rees.
m. 35 -2. Iustraton of computaton of ad|usted net ncome, undstrbuted
ad|usted net ncome, and surta . The method of computaton of the ad|usted
net ncome, the undstrbuted ad|usted net ncome, and the surta under Tte
I as amended, may be ustrated as foows:
The foowng facts e st wth respect to the O Corporaton, a persona hod-
ng company, for the caendar year 1937:
The net ncome, as computed under Tte I of the ct amounts to 190,000.
edera ncome ta aggregates 17,500. Ths amount ncudes the surta
under secton 14 but does not ncude e cess-profts ta mposed by secton 10
of the Revenue ct of 1935, surta mposed by secton 102 of the Revenue
ct of 193 , or secton 351 of the atter ct ether before or after ts amend-
ment by the Revenue ct of 1937, or a secton of a pror ncome-ta aw corre-
spondng to ether of such sectons 102 or 351.
Contrbutons or gfts made to or for the use of donees descrbed n secton
23(q) for the purposes theren specfed amount to 35,000, of whch 10,000 s
deducted n arrvng at the net ncome under Tte I of the Revenue ct
of 193 .
Rent n the amount of 10,000 was receved from the prncpa sharehoder
o the corporaton for the use of a country estate whch had been prevousy
acqured from such sharehoder n e change for ts capta stock. The e penses
of the corporaton aocabe to the mantenance and operaton of the country
Mtate amount to 30,000. The yeary deprecaton on the deprecabe property
of the estate amounts to 5,000. The corporaton has not estabshed Its rght
to cam the entre amount of the e penses and deprecaton appcabe to the
atate as provded In secton 350(b) and artce 350-1.
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358.
112
Dvdends pad by the corporaton to ts sharehoders durng the ta abe
year whch are aowabe as a credt under secton 27 amount to 40,000.
The amount used durng the year to pay ndebtedness ncurred by the cor-
poraton pror to anuary 1, 1934, s 31,750.
The ad|usted net ncome, the undstrbuted ad|usted net ncome, and the
surta are computed as foows:
Net ncome under Tte I of the Revenue ct of 193C 190, 000
dd:
Contrbutons deductbe n computng net ncome under sec-
ton 21 10,000
ggregate of e penses and deprecaton reatng to the country
estate n e cess of the ncome derved therefrom 25,000
Net ncome computed wthout the beneft of a deducton for contrbu-
tons and wthout the beneft of the amount dsaowed under sec-
ton 35 (b) 225,000
Less:
edera ncome ta es 17, SCO
Contrbutons deductbe under secton 35 (a) (2) (15 per
cent of 225,000) 33,750
51,250
d|usted net ncome 173, 750
Less:
Dvdends pad credt 40, 000
mount used to pay ndebtedness 31, 750
71,750
Undstrbuted ad|usted net ncome 102,000
mount ta abe at 5 per cent (not n e cess of 2,000) 2.000
mount ta abe at 75 per cent ( 102,000 mnus 2,000) 100.000
Surta on 2,000 at 5 per cent 1,300
Surta on 100,000 at 75 per cent 75,000
Tota surta 7 ,300
Sec. 357. Meanng of Terms Used.
The terms used n ths tte sha have the same meanng as when
used n Tte I.
Sec. 358. dmnstratve Provsons.
provsons of aw (ncudng penates) appcabe n respect of
the ta es mposed by Tte I of ths ct, sha nsofar as not nconsstent
wth ths tte, be appcabe n respect of the ta mposed by ths tte,
e cept that the provsons of secton 131 of that tte sha not be app-
cabe.
rt. 358-1. Return and payment of ta . separate return s requred for the
surta mposed under secton 351 of Tte I , as amended. Such returns sha
be made on orm 1120 . In the case of a persona hodng company whch s a
domestc corporaton, the return s requred to be made wthn the tme provded
by secton 53 and n the case of a foregn corporaton wthn the tme provded
n secton 235. The ta shown by the corporaton on ts return must be pad n
the case of a domestc corporaton wthn the tme provded n secton 5 and n
the case of a foregn corporaton wthn the tme provded n secton 23 . The
same provsons of aw reatng to the perod of mtatons for assessment and
coecton whch govern the ta es mposed by Tte I of the Revenue ct of 193
aso appy to the surta mposed under Tte I , as amended. owever, snce
the surta mposed under Tte I , as amended, s a dstnct and separate ta
from those mposed under Tte I of the Revenue ct of 193 , the makng of a
return under Tte I of that ct w not start the perod of mtatons for assess-
ment of the surta mposed under Tte I , as amended. If the corporaton sub-
|ect to secton 351 of Tte I , as amended, fas to fe a return the ta may be
assessed at any tme. If the Commssoner fnds a defcency n respect of the
ta mposed by secton 351 of Tte I , as amended, he s requred to foow the
same procedure whch appes to defcences n ncome ta under Tte I of the
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113
22(a), rt. 22(a)-.
eTenne ct of 19.3 . The penates appcabe to the ncome ta es mposed
under Tte I of the Revenue ct of 103 , as we as the provsons of Tte I of
that ct reatng to nterest and addtons to the ta , aso appy to the surta
mposed by secton 351 of Tte I , ns amended. The admnstratve provsons
appcabe to the surta mposed by secton 3 1 of Tte I , a.- amended, are not
confned to those contaned n Tte I of the Revenue ct of 103 but embrace a
admnstratve provsons of aw whch have any appcaton to ncome ta es.
bt. 35S-2. Determnaton of tn , assessment, coecton. The determnaton,
assessment, and coecton of the ta mposed by secton 351 of Tte I , as
amended, and the e amnaton of returns and cams n connecton therewth,
w be made under such procedure as may be prescrbed from tme to tme by
the Commssoner.
Sec. 359. Improper ccumtaton or Subpds.
or surta on corporatons whch accumuate surpus to avod
surta on stockhoders, see secton 102.
Sec. 3 0. oeeon Persona odng Companes.
or provsons reatng to foregn persona hodng companes and
ther sharehoders, see Suppement P of Tte I.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved anuary 14. 1938.
ROSW LL MaGILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster anuary 18, 1938, 11.34 a. m.)
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION O N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D INITION.
ktce 22(a)-: What ncuded n gross ncome. 1938-4-915
( so Secton 23(a), rtce 23(a)- Secton 23(c), L T. 3154
rtce 23(c)-.)
R NU CT O 193 .
Where an empoyer pays the amount of the empoyees ta m-
posed by secton 801, Tte III, of the Soca Securty ct wthout
deducton from the empoyee s wages, such payment consttutes add-
tona compensaton to the empoyee for edera ncome ta purposes
and Is deductbe by the empoyer as a busness e pense.
dvce s requested whether, for edera ncome ta purposes, the
payment by the empoyer of the empoyees ta mposed by secton 801,
Tte TII, of the Soca Securty ct resuts n addtona compensa-
ton to tbe empoyee and whether such payment s deductbe by the
empoyer.
It s hed that the payment by the empoyer of the empoyees ta
mposed by secton 801 of the Soca Securty ct wthout deducton
thereof from the empoyee s wages resuts n addtona compensa-
ton to the empoyee for edera ncome ta purposes. (See generay
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22 (b).
114
Od Coony Trust Co. v. Commssoner, 279 U. S., 71 , Ct. D. 80,
C. . III-2, 222 (1929), and cases cted theren.)
The amount of the empoyees ta mposed by secton 801 of the
Soca Securty ct, whether pad by the empoyer or empoyee, s
not deductbe by the empoyee for edera ncome ta purposes. (See
secton 803 of the Soca Securty ct.) urthermore, nasmuch as
the ta under secton 801 s mposed upon the empoyee, and, n gen-
era, ta es are deductbe ony by the person upon whom they are
mposed, the amount of such ta s not deductbe by the empoyer
as a ta under secton 23(c) of the Revenue ct of 193 . Such ta es
pad by the empoyer for the empoyee, beng a part of the empoyee s
compensaton, are, however, deductbe by the empoyer under secton
23(a) of the Revenue ct of 193 as a busness e pense.
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
1938-23-9372
I. T. 3194
R NU CT O 193 .
Lump sum payments made under secton 204(a), Tte II, of the
Soca Securty ct (49 Stat., 20) are not sub|ect to ncome ta In
the hands of the recpents.
dvce s requested whether ump sum payments made under
secton 204(a), Tte II, of the Soca Securty ct (49 Stat., 20) to
aged ndvduas not quafed for benefts are sub|ect to edera
ncome ta .
Secton 204(a), Tte II, of the Soca Securty ct reads as foows :
Sec. 204. (a) There sha be pad In a ump sum to any ndvdua who, upen
attanng the age of -|, s not a quafed ndvdua, an amount equa to 3
per centum of the tota wages determned by the oard to have been pad to
hm, wth respect to empoyment after December 31, 193 , and before he
attaned the age of 5.
Secton 210(c), Tte II, of the Soca Securty ct reads as foows:
Sec. 210. When used In ths tte

(c) The term quafed ndvdua means any ndvdua wth respect
to whom t appears to the satsfacton of the oard that
(1) e s at east 5 years of age and
(2) The tota amount of wages pad to hm, wth respect to empoyment after
December 31, 193 , and before he attaned the age of 05, was not ess than 2,000
and
(3) Wages were pad to hm, wth respect to empoyment on some fve days
after December 31, 193 , and before he attaned the age of 5, each day beng
n a dfferent caendar year.
The term oard, used n the foregong provsons of the Soca
Securty ct, refers to the Soca Securty oard estabshed by sec-
ton 701, Tte II, of that ct.
It s hed that ump sum payments made to ndvduas under
secton 204(a), Tte II, of the Soca Securty ct are not sub|ect
to ncome ta n the hands of the recpents.
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115
22(b), rt. 22(b) (4)-4.
rtce 22(b)-: emptons cusons from 1938-20-9340
gross ncome. I. T. 3188
R NU CT OP 1938.
empton from ta aton under rtce I of the conventon on
doube ta aton between the Unted States and rance effectve
anuary 1, 193 (C. . I -2, 535 (1935)).
rtce I of the conventon on doube ta aton between the Unted
States and rance, sgned pr 27, 1932, and effectve anuary 1,
193 (C. . I -2, 535 (1935)), provdes as foows:
The foowng casses of ncome pad n one of the contractng States to a
corporaton of the other State, or to a ctzen of the atter State resdng there,
are e empt from ta n the former State:
(a) amounts pad as consderaton for the rght to use patents, secret processes
and formuas, trade marks and other anaogous rghts
( ) ncome receved as copyrght royates
(c) prvate pensons and fe annutes.
The above-quoted provsons e tend to partnershps and to mem-
bers of partnershps as comprehended by the term socete n the
rench, te t of the conventon.
rtce 22(b) (2)-2: nnutes. 1938-10-9223
I. T. 31 8
R NU CT O 193 .
Income to be reported for 1937 by under an annuty contract.
dvce s requested reatve to the amount of ta abe ncome to
be reported for 1937 by under an annuty contract.
pad 15,000 to an nsurance company for an annuty contract
ssued n uy, 1937, under the terms of whch he receved 4 1. 0 on
December , 1937, and w receve 738.45 on each une and
December thereafter for the duraton of hs fe.
rtce 22(b) (2)-2 of Reguatons 94, reatng to the Revenue ct
of 193 , provdes n part:
If an annuty s payabe n two or more nstaments over each 12-
month perod, such porton of each nstament sha be ta abe as s equa
to 3 per cent of the aggregate premums or consderaton pad for such an-
nuty, whether or not pad durng the ta abe year, dvded by the number
of nstaments payabe durng such year.
The amount to be reported n the nstant case as ta abe ncome
for 1937 s 225 ( 15,000 .03 450-h2).
rtce 22 (b) (4)-4: Interest upon Unted 1938-25-9394
States obgatons. I. T. 3198
R NU CT OP 193 .
Interest on obgatons of the ectrc ome and arm uthorty
s sub|ect to edera ncome ta .
dvce s requested whether nterest pad on obgatons ssued by
the ectrc ome and arm uthorty s sub|ect to edera ncome
ta -
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23(a), rt. 23(a)-. 11
The ectrc ome and arm uthorty was ncorporated under
the aws of the Dstrct of Coumba on ugust 1, 1935, to succeed
the ectrc ome and arm uthorty, Incorporated, a corporaton
organzed under the aws of the State of Deaware on anuary 17,
1934, pursuant to ecutve Order No. 514, ssued under authorty
of the ct of une 1 , 1933 (48 Stat., 195). y ecutve Order
No. 7139, dated ugust 12, 1935, the ectrc ome and arm
uthorty was desgnated as an agency of the Unted States. It
was contnued to ebruary 1, 1937, by ct of March 31, 193 (49
Stat., 118 ), and contnued further unt une 30,1939, or such earer
date as may be f ed by the Presdent by ecutve order, by ct
of anuary 2 , 1937 (50 Stat., 5).
The ectrc ome and arm uthorty was formed to ad n the
dstrbuton, sae, and nstaaton of eectrca equpment and ap-
pances through the credt factes made avaabe by t to pur-
chasers of such equpment. In furtherance of ts purposes the cor-
poraton s authorzed to end money, to purchase, dscount, se, re-
dscount, and otherwse dea n notes and to dea n condtona
sae contracts, chatte mortgages, trust recepts, etc. The authorty
s aso authorzed to borrow money, sub|ect to mtatons contaned
n the ct, to ssue notes, bonds, or other evdences of debt, and as
securty therefor, wth the consent of the stockhoders, to mortgage,
pedge, hypothecate, assgn, or otherwse gve a en on a or any part
of the corporate assets.
Under the provsons of secton 22(b)4 of the Revenue ct of 193 ,
reatng to ta -free nterest, t s provded that nterest upon obga-
tons of a corporaton, an nstrumentaty of the Unted States, or-
ganzed under an ct of Congress sha be e empt from ta aton
ony f and to the e tent provded n the cts authorzng the ssue
thereof as amended and suppemented. Snce there s no provson n
the ct authorzng the ssuance of obgatons of the ectrc ome
and arm uthorty whch e empts the nterest on such obgatons,
t foows that such nterest s sub|ect to edera ncome ta .
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 23 (a)-1: usness e penses.
R NU CT O 1930.
Pavment bv empoyer of empoyees ta mposed by secton 801.
Tte III, Soca Securty ct. (See I. T. 3154, page 113.)
rtce 23(a)-: usness e penses. 1938-7-9193
I. T. 31 1
R NU CT O 1938.
The securtes e change regstraton fee coected by a broker
from hs customer n connecton wth the sae of securtes s de-
ductbe by the customer as an e pense of the sae n computng
gan or oss from the transacton.
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117
23(a), rt. 23(a)-.
dvce s requested whether the securtes e change regstraton
fee coected by a broker from hs customer s deductbe by the cus-
tomer n computng gan or oss from the sae of securtes or shoud
be treated smary to the stock transfer ta es nvoved n G. C. M.
18245 (C. . 1937-1, 70).
In that memorandum t was hed that stock transfer ta es pad
for a ta payer by hs broker on the sae or transfer of stock owned
by the ta payer, and for whch the broker s rembursed, are de-
ductbe by the ta payer as ta es pad and may not be added to the
cost of the stock or used to reduce the seng prce thereof n de-
termnng gan or oss. The ta es referred to were stamp ta es
mposed by secton 800 of the Revenue ct of 192 .
The securtes e change fee n queston s requred by secton 31
of the Securtes change ct of 1934 (48 Stat., 881). That secton
reads as foows :
Sec. 31. very natona securtes e change sha pay to the commsson on or
before March 15 of each caendar year a regstraton fee for the prvege of do-
ng busness as a natona securtes e change durng the precedng caendar
year or any part thereof. Such fee sha be n an amount equa to one fve-hun-
dredths of 1 per centum of the aggregate doar amount of the saes of securtes
transacted on such natona securtes e change durng the precedng caendar
year and subsequent to ts regstraton as a natona securtes e change.
The regstraton fee under secton 31 of the Securtes change
ct of 1934 s not strcty a ta and ts deductbty s not, therefore,
affected by G. C. M. 18245, supra. If the regstraton fee s pad by
the securtes e change, t s deductbe from ts gross ncome under
the provsons of secton 23(a) of the Revenue ct of 193 as an
ordnary and necessary e pense pad n carryng on ts trade or
busness. owever, f such amount s coected by the e change
from ts brokers, the amount must be ncuded n ts gross ncome.
Lkewse, where the broker s requred to pay the amount of the
regstraton fee to the securtes e change n connecton wth a sae of
stock, he may deduct t as an tem of e pense, but f he coects the
amount of the fee from hs customer, he must aso ncude such
amount n hs gross ncome. The customer seng the stock may
deduct the amount of the regstraton fee so passed on to hm as an
e pense of the sae n computng hs gan or oss from the trans-
acton. or e ampe, f stock whch cost the customer 8,000 shoud
be sod through hs broker for 9,000, from whch the broker de-
ducted 18 for hs commsson and 18 cents pad by hm to the
e change as the amount of the regstraton fee passed on to hm,
the customer recevng 8,981.82 as the proceeds from the sae, the
gan from the transacton woud bo the dfference between the cost,
8,000, and the net proceeds receved by hm from the sae, 8,981.82,
namey, 981.82.
rtce 23 (a)-: usness e penses.
R NU CT OP 1930.
untng and fshng censes n the State of Oho. (See I. T. 3 G,
page 133.)
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23(a), rt. 23(a)- .
118
rtce 23 (a)-: usness e penses. 1938-13-9257
G. C. M. 19G 2
R NU CT O 193G.
pendtures by |ockeys for purchasng and ceanng rdng ap-
pare used soey n the performance of ther dutes are aowabe
deductons from gross ncome under secton 23(a) of the Revenue
ct of 1930.
dvce s requested reatve to the deductbty of te cost of rdng
appare of |ockeys and the e pense of ceanng such appare.
It s stated that |ockeys ncur consderabe e pense each year n pur-
chasng rdng appare consstng of trousers, |ockey shrts, rdng
boots, and caps, and n havng such appare ceaned. It s contended
that such amounts consttute ordnary and necessary busness e penses.
Secton 23(a) of the Revenue ct of 193 aows as deductons
from gross ncome the ordnary and necessary e penses pad or
ncurred durng the ta abe year n carryng on any trade or bus-
ness . rtce 23(a)- of Reguatons 94 provdes that
usness e penses deductbe from gross ncome ncude the ord-
nary and necessary e pendtures drecty connected wth or pertan-
ng to the ta payer s trade or busness, wth certan e ceptons nap-
pcabe n the present case. The artces of rdng appare here m
queston are especay requred by the |ockeys busness and are used
soey n such busness. Such artces do not appear to be adaptabe
to genera or contnued wear to the e tent that they may be sad to
repace the |ockeys reguar cothng.
ccordngy, t s hed that e pendtures by |ockeys for purchasng
and for ceanng rdng appare used soey n the conduct of ther
busness are aowabe deductons from gross ncome under secton
23(a) of the Revenue ct of 193 .
. P. Wence,
Chef Counse, ureau, of Interna Revenue.
rtce 23(a)-: usness e penses. 1938-13-9258
G. C. M. 19790
R NU CT O 193 .
. endtures by baseba payers for the purchase of baseba
unforms used soey n the wearer s busness are aowabe de-
ductons from gross ncome.
Recommended that I. T. 1488 (C. . 1-2, 145 (1922)) be modfed.
dvce s requested whether that part of I. T. 1488 (C. . 1-2,
145 (1922)), whch hods that e pendtures by baseba payers for
the purchase of unforms are persona e penses and nondeductbe
for ncome ta purposes, shoud be modfed n vew of G. C. M.
19 2 (above).
In G. C. M. 19 2 t was hed that e pendtures by |ockeys for
purchasng and for ceanng rdng appare used soey n the con-
duct of ther busness consttute aowabe deductons from gross
ncome under secton 23(a) of the Revenue ct of 193 . Such rdng
appare s especay requred by the |ockeys busness and does not
appear to be adapted to genera or contnued wear to the e tent that
t can propery be sad to repace the |ockeys reguar cothng.
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119
23(a). rt. 23(a)-.
In the opnon of ths offce baseba payers unforms kewse
do not fa n the category of cothng adaptabe to genera or con-
tnued wear to the e tent that they may be sad to repace reguar
cothng. Such unforms are anaogous to theatrca costumes pur-
chased e cusvey for use n the producton of a pay and unsuted
to wear outsde of workng hours. ccordngy, t s recommended
that I. T. 1488, supra, be modfed n so far as t hods that e pend-
tures by baseba payers for the purchase of baseba unforms used
soey m the wearer s busness are persona e penses and nondeduct-
be for ncome ta purposes.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
rtce 23(a)-1: usness e penses. 1938-14- 9272
I. T. 3177
R NU CT OP 193 .
n empoyer who made ump sum payments durng the ta abe
year 11 37 n accordance wth the provsons of secton 108.18(4) of
the Wsconsn unempoyment reserves and compensaton act, as
amended, s entted to deduct such payments as ordnary and
necessary busness e penses for that year, regardess of whether
hs books of account are kept on the cash recepts and dsburse-
ments bass or on the accrua bass.
dvce s requested whether ump sum contrbutons made n 1937
to the Wsconsn unempoyment reserve fund are deductbe for that
year for edera ncome ta purposes.
Provsons of the aw pertnent to the queston are set forth n
secton 108.18 of the Wsconsn Statutes, 1937, subsectons (3), (4),
(5). and ( ), readng as foows:
(3) Whenever an empoyer (after beng potentay abe for benefts through-
out the most recenty competed caendar year) at the cose of 1937 or any
subsequent caendar year has a reserve percentage of 7 per cent or more, but
ess than 10 per cent, hs contrbuton rate for the ne t caendar year sha be
1 per cent on hs pay ro. When hs reserve percentage s 10 per cent or more,
no contrbutons sha be requred of hm for the ne t ensung caendar year. No
empoyer s rate sha be reduced under ths subsecton uness such reducton s
consstent wth any then appcabe provsons of subsecton (0) of ths secton.
(1) ny empoyer may at any tme make payments to hs account, n e cess
of the other requrements of ths secton and a such payments sha be con-
sdered as contrbutons requred under ths chapter and payabe and pad for
empoyment durng the caendar year n whch such payments are made.
(5) The standard rate of contrbutons payabe by each empoyer to hs
account n the fund, stated as a percentage of hs pay ro as defned n ths
chapter for the gven perod, sha be for 1035, 103 , 1037 and for each
year thereafter, e cept as a hgher standard rate may appy n 1038 or thereafter
under other provsons of ths secton.
( ) or the caendar year 103S the standard rate (and aso the ma mum
rate) of contrbutons appcabe to each empoyer under ths secton sha be
2.7 per cent on hs pay ro as then defned. n empoyer sha
under ths secton be permtted to pay contrbutons to hs account at a rate
ower than the then standard rate or ower than hs mmedatey precedng rate
ony when: (a) benefts have been payabe from such account throughout the
precedng caendar year, and (b) the net reserve of such account amounts to
not ess than fve tmes the argest amount of benefts charged aganst such
account wthn any one of the three precedng caendar years, and (c) the
reserve percentage of such account equas or e ceeds 7 per cent .
1935, ch. 192, 44 1937, ch. 95, s. 4 1937, ch. 343.
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523(a), rt. 23(a)- .
120
Under the provsons of aw quoted above, many empoyers n Ws-
consn made ump sum payments to the fund n 1937 n order to brng
ther reserves n the fund to 7 - per cent or more and thus derve the
beneft of a 1 per cent rate n 1938, or, f the reserve was 10 per cent
or more, they w not be requred to make any contrbutons what-
ever durng 1938. The queston s whether such ump sum payments
made n 1937 consttute ordnary and necessary busness e penses for
that year or prepad e penses for 1938.
It s hed that an empoyer who made ump sum payments nto the
Wsconsn unempoyment fund durng the ta abe year 1937 under the
provsons of secton 108.18(4) of the Wsconsn unempoyment re-
serves and compensaton act, as amended, s entted to deduct such
payments as ordnary and necessary busness e penses n hs edera
ncome ta return for that year, regardess of whether hs books of
account are kept on the cash recepts and dsbursements bass or on
the accrua bass.
rtce 23(a)-: usness e penses. 1938-22-9359
G. C. M. 1997
R NU CT O 1030.
penses ncurred n successfuy defendng a sut brought by
n State to revoke the rght of the M Company to do busness n that
State because of voaton of the aws reatng to monopoes and
combnatons n restrant of competton are deductbe as busness
e penses.
n opnon s requested whether e penses ncurred n successfuy
defendng a sut fed by the State of R to revoke the rght of the M
Company to do busness n that State on account of voaton of the
aws and pubc pocy of the State reatng to monopoes and comb-
natons n restrant of competton are deductbe as busness e penses
or whether they are to be treated as capta e pendtures.
It s stated that under a pan of reorganzaton the M Company,
the ta payer, took over contro of certan other companes. The reor-
ganzaton was approved by the Pubc Uttes Commsson of the
State of R under authorty conferred upon the commsson by State
statute. Some tme ater a b of compant was fed by the State of
R through the attorney genera to revoke the rghts or the M Com-
pany to do busness n that State and to annu the contracts and
arrangements of the M Company. The b sought a forfeture of the
charter of the defendant corporaton, the aegaton beng that the
corporaton had voated the State aws reatng to monopoes and
combnatons n restrant of competton. In defense of the above sut
the ta payer e pended 500a doars and was successfu n such de-
fense, the court fndng that there was no voaton of State aws.
deducton of the amount of 500a doars as an ordnary and necessary
busness e pense s camed by the ta payer. The proprety of such
deducton s the queston presented.
The oard of Ta ppeas has consstenty hed snce the ppea
of Sarah acker et a. (1 . T. ., 214) that where a sut s drecty
connected wth or resuts pro matey from a ta payer s trade or
busness, attorneys fees and costs ncurred theren are deductbe as
ordnary and necessary busness e penses. The rue adopted n that
case was approved n omhawser v. Unted States (27 U. S., 145,
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121
23(a), rt. 23(a)-.
T. D. 4222, C. . II-2, 207 (1928)). Where, however, a corporaton
s compeed to make payments upon convcton of prce f ng n
voaton of a statute and pays attorneys fees n connecton wth ts
defense, nether e pendture s deductbe. (See urroughs udng
Matera Co. v. Commssoner, 47 ed. (2d), 178, Ct. D. 297, C. . -,
397 (1931) cf. Goud Paper Co. v. Commssoner, 2G . T. ., 5 0,
affrmed 72 ed. (2d), 98 Santary arthenware Specaty Co. v.
Commssoner, 19 . T. ., 41 ppea of Coumbus read Co., 4
.T. ., 112 , acquescence, C. . -2, 14 (1931) onne ros., Inc.,
v. Commssoner, 15 . T. ., 1231, acquescence, C. . -2, 8 (1931).
Ths rue appes wth equa force where, nstead of a sut beng tred,
settement thereof s made. (Cf. aehwe O Gas Co. v. Comms-
mner. tt . T. ., 1, affrmed, 0 ed. (2d), 257 Natona Outdoor
dvertsng ureau, Inc., v. Commssoner, 32 . T. ., 1025, nonac-
quescence, C. . I -2, 37 (1935), affrmed n part, 89 ed. (2d),
878.)
In Commssoner v. Contnenta Screen Co. (19 . T. ., 1095,
affrmed, 58 ed. (2d), 25) the queston before the court was whether
attorneys fees pad by a corporaton for servces n representng the
corporaton bef ore the edera Trade Commsson under an aegaton
of voaton of the Sherman nt-Trust Law were deductbe from
gross ncome. In the proceedng before the Trade Commsson, an
order was ssued dsmssng the compant. The court hed that the
attorneys fees were deductbe, statng:
The proceedng before the Trade Commsson was undoubtedy an
acton aganst respondent whch was drecty connected wth or whch
pro matey resuted from ts busness. To respondent s board of drectors
the stuaton was omnous. The fe of the busness was endangered. Under
soch crcumstances respondent foowed the very natura and ordnary procedure
suggested by the vta necessty of the stuaton.
In Natona Outdoor dvertsng ureau, Inc., v. Commssoner,
supra, the ta payer was sued by the Unted States for aeged voa-
ton of anttrust aws. The tgaton was termnated by a consent
decree en|onng the ta payer from performng certan acts but not
fndng that t had commtted the acts so forbdden. The oard of
Ta ppeas hed that attorneys fees pad n connecton wth the t-
gaton were a ega deducton from gross ncome. Upon appea the
Crcut Court of ppeas for the Second Crcut hed that the ega
e penses resutng from the defense of the sut were deductbe ony
to the e tent that they were ncurred n resstng those aegatons
whch were found to be un|ustfed and therefore not ncuded n the
decree. The case was remanded for the oard to make such an ap-
portonment and to recompute the ta wth t as a factor. (See aso
Genera Outdoor dvertsng Co., Inc., v. Commssoner, 32 . T. .,
1011,nonacquescence, C. . I -2, 31 (1935), 89 ed. (2d), 882.)
In the opnon of ths offce, the ad|udcated cases are favorabe to
the ta payer s contenton on ths partcuar pont.
Whether an tem consttutes an e pense or a capta e pendture
frequenty depends upon the crcumstances of the partcuar case.
(See Duesenberg, Inc., of Deaware v. Commssoner, 31 . T. .. 922,
affrmed, 84 ed. (2d), 921 Commonweath Lfe Insurance Co. v.
Commssoner, 31 . T. ., 887.) n amount pad by one corpora-
ton for servces rendered n connecton wth the acquston of a-
3421 38 5
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523(a), rt. 23(a)- .
122
most a the capta stock of another corporaton s not deductbe as
an ordnary and necessary e pense of carryng on a trade or busness.
remen s Insurance Co. v. Commssoner, 30 . T. ., 1004.) When
a corporaton whch has |ust acqured a the stock of ts predecessor
pays attorneys fees for servces rendered pror to ts ncorporaton,
such fees are not deductbe but represent payments n acqurng the
stock. (Pdffeon-Thomas Iron Co. v. Commssoner, 27 . T. ., 42
cf. Moton Pcture Capta Corporaton et a. v. Commssoner, 80
ed. (2d), 872, Ct. D. 1137, C. . -2, 212 (193 ) Guarantee
ond Mortgage Co. v. Commssoner, 44 ed. (2d), 297.)
ppyng the prncpes of the foregong cases to the nstant case,
the better vew woud seem to be that the amount of the attorneys
fees consttutes an ordnary and necessary busness e pense and not
a capta e pendture. Such e penses were ncurred n successfuy
defendng a sut brought aganst the ta payer and were not ncurred
n connecton wth te reorganzaton proceedngs but subsequent
thereto. True, the very e stence of the ta payer and ts subsdares
may have been n danger, but such condton kewse obtaned n
the Contnenta Screen Co. and Genera Outdoor dvertsng Co.,
Inc., cases, supra.
In vew of the foregong, t s hed that the e penses n queston
shoud be aowed as a deducton from gross ncome.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
rtce 23(a)-: usness e penses. 1938-22-93 0
G. CM. 20134
R NU CT O 193 .
mounts pad by wheat processors n settement of cams under
contracts contanng the ta cause emboded n the contract e -
ecuted by the M Company, a wheat processor, entered nto durng
the perod n whch the processng ta es mposed were not pad
(referred to as the n|unctve perod), are deductbe as ordnary
and necessary busness e penses for the year n whch remburse-
ments were actuay made, or, where the processors keep ther
accounts on the accrua bass, for the year n whch they agreed
wth the vendees to sette or compromse the dsputed cams.
dvce s requested whether amounts pad by wheat processors to
ther vendees n settement of saes contracts contanng the cause
emboded n contracts of the M Company, a wheat processor, entered
nto durng the perod when the processng ta es mposed were not
pad (referred to as the n|unctve perod) are deductbe as ord-
nary and necessary e penses, and, f so, the year n whch such
deductons are aowabe for ncome ta purposes.
Durng the n|unctve perod, many wheat processors used saes
contracts contanng the cause, or a cause smar to, that used n
contracts by the M Company. The ta cause n ths contract reads
as foows:
ny decrease n the processng ta es as now or hereafter Imposed by any
egsatve or admnstratve branch of the Unted States sha nure to the
beneft of the buyer, f as and when the beneft of such decrease has been
actuay reazed and secured by the seer, and sha be credted aganst tbe
contract prces named In ths contract to the e tent and ony to the e tent,
that the gran used n the manufacture of the product covered by ths contract
Is med after the decrease n the processng ta takes effect, and to the e tent
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123
23(a), rt. 23(a)-.
that the seer Is thereby defntey reeved from the processng ta provded
that no such decrease sha be credted on the prces of feeds for feedng ve
stock.
Many wheat processors dd not acknowedge mmedatey subse-
quent to anuary , 193 the date upon whch the processng ta es
were decared unconsttutona by the Unted States Supreme Court n
Unted States v. uter (297 U. S., 1, Ct. D. 1070, C. . -1, 421
(193 )), that they were abe to remburse ther vendees n the
amount equa to the processng ta es mposed but not pad. It was
not unt after enactment of the Revenue ct of 193 , contanng pro-
vsons wth respect to un|ust enrchment (Tte III, sectons 501 to
0 , ncusve), that settement negotatons were ntated generay
by the processors and settements made by makng rembursements
to the vendees. The deductbty of such rembursements s the
queston presented.
Upon carefu consderaton of the queston as to the deductbty
of such payments, t s consdered that amounts pad by processors
n settement of contracts contanng the cause emboded n the
contract entered nto by the M Company, whch contracts were
entered nto durng the n|unctve perod, are deductbe as ord-
nary and necessary busness e penses. Such contracts were entered
nto n the usua course of the busness of the wheat processors and
the payments were made to sette cams of vendees under such
contracts.
It remans to determne the proper year n whch such deductons
mav be taken. In Lucas v. mercan Code Co., Inc. (280 U. S., 445,
Ct.D. 158, C. . I -1,314 (1930)), a corporaton on the accrua bass
sought to deduct under secton 234(a) of the Revenue ct of 1918 as
a oss sustaned n 1919 the amount of a |udgment rendered aganst
t n 1922 for a breach of contract commtted n 1919. The court, n
denyng the deducton for such year, sad n part:
Labty for the breach was dened and strenuousy contested, the
tgaton beng carred to the hghest court of the State. The amount of the
damages, f any, was whoy unpredctabe. Whe the facts determnng a-
bty had occurred In the year of the breach, the amount to be recovered, f
there was ega abty, depended In arge part on the course of future
events.
Where a dsputed abty s compromsed by a ta payer, t has
been hed that the amount pad s deductbe n the year of com-
promse. (See Centra Trust Co. v. urnet, 45 ed. (2d), 922 P. C.
Tomson Co., Inc., et a. v. C on unss oner, 82 ed. (2d), 398 Sunset
Coor Works v. Commssoner. 21 . T. ., 304.)
I. T. 308 (C. . 1937-1, 77), reatng to deductons for processng
ta es, reads n part as foows:
(a) egardess of whether the ta es have been pad to the coector, the
enUre amount of the seng prce receved from the purchasers for the commod-
tes n respect of whch the ta es were mposed, ncudng any addton to the
fng prce as the resut of such ta es, must be ncuded u computng gross
ncome, uness durng the ta abe year the ta payer rebated, or was under a
ega contractua obgaton to rebate, to the purchasers the addton to the
seng prce on account of such ta es.
IT. 3090 (C. . 1937-1, 78) reads n part as foows:
The foowng practce w be observed by the ureau:
(o) Cases n whch processng ta es have not been pad to the coector and
|a whch Ue deductons n respect thereof are to be dsaowed as provded n
I T. 308 , supra.
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23(c), rt. 23(c)- .
124
(1) If at the cose of the ta abe year the vendor was under a ega con-
tractua obgaton to remburse the vendee for the processng ta In the event
the vendor was fnay reeved from payng such ta to the coector, or upon
the happenng of some other event, the return of the vendor w be ad|usted by
emnatng from gross saes the amount of the rembursement for whch the
vendor was so obgated.
(2) If at the cose of the ta abe year the vendor was not under a ega
contractua obgaton to remburse the vendee for the processng ta us In (1),
no part of the amount thereof w be emnated from gross saes and a deduc-
ton for the rembursement w be aowed to the vendor ony In hs return for
the year n whch the rembursement Is made to the vendee.
It s hed that the deductons on account of such rembursements
under the contracts here n queston may be taken by the processors
for the year n whch rembursements were actuay made or, where
the processors keep ther accounts and fe ther returns on the accrua
bass, for the year n whch they agreed wth the vendees to sette
or compromse the dsputed cams.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
rtce 23(a)-: usness e penses.
R NU CT O 193 .
Insurance premums pad n advance for perod of more than one
year bv ta payer on cash recepts and dsbursements bass. (See
G. C. M. 20307, page 157.)
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 23(c)-1: Ta es. 1938-2-9134
I. T. 3149
R NU CT O 103 .
Whore the carrers ta Imposed by the Carrers Ta ng ct of
1935 ( 40 Stat., 974) was not pad by carrers not partes to the
sut Insttuted n the courts of the Dstrct of Coumba to en|on
coecton of the ta and a deducton for such ta was not
camed n the respectve carrers ncome ta returns for 1930,
there are no ad|ustments to be made wth respect to the carrers
ta n such ncome ta returns for that year or subsequent years.
The M Company refers to L T. 311 (C. . 1937-2, 90), reat-
ng to the treatment of deductons for the carrers e cse ta
under the Carrers Ta ng ct of 1935 (49 Stat. 974) and states
that the rung does not specfcay cover the stuaton of a carrers
not partes to the sut to en|on coecton of the ta nsttuted n the
courts of the Dstrct of Coumba. dvce s requested reatve to
the practce to be foowed by the ureau n the foowng cases:
1. carrer not a party to the sut made a return to the coector
of nterna revenue on orm 942 (carrer s return of ta under Car-
rers Ta ng ct of 1935) under protest and at the same tme fed a
cam for abatement of the ta so reported. It accrued the ta n
ts accounts but dd not cam a deducton therefor n ts ncome ta
return for 193 .
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125
23(c), rt. 23(c)- .
2. carrer not a party to the sut, and whch dd not contest
abty for the e cse ta , dd not make a return or pay the ta to
the coector of nterna revenue. It accrued the ta n ts accounts
but dd not cam a deducton therefor n ts ncome ta return for
193 .
3. carrer not a party to the sut, and whch dd not contest
abty for the e cse ta , dd not make a return or pay the ta to
the coector of nterna revenue. It dd not accrue the ta n ts
accounts and dd not cam a deducton therefor n ts ncome ta
return for 193G.
Secton 11 of the Carrers Ta ng ct of 1937 (Pubc| No. 174,
Seventy-ffth Congress, approved une 29, 1937), provdes n part as
foows:
Sc. 11. The provsons of ths ct are n substtuton for the provsons of
the ct of ugust 29, 1035, as amended, entted n ct to evy an e cse
ta upon carrers and an ncome u upon ther empoyees, and for other
purposes, whch Is hereby repeaed. moneys payabe as and for ta es
nder such ct of ugust 23, 11)35, and not heretofore pad sha cease to be
payabe and a proceedngs pendng for the recovery of any such moneys sha
be termnated.
In a three of the cases stated, the carrers e cse ra was not pad
and a deducton for such ta was not camed n the respectve car-
rers ncome ta returns for 193 . ccordngy, there are no ad|ust-
ments to be made wth respect to the carrers e cse ta mposed by
the Carrers Ta ng ct of 1935 n the carrers ncome ta returns
for 193 , nor shoua the carrers e cse ta mposed under the Car-
rers Ta ng ct of 1935 be taken nto consderaton n the carrers
ncome ta returns for subsequent years.
etce 23 (c)-1: Ta es. 1938-2-9135
I. T. 3150
R NU CT O 193 .
The Tennessee gross recepts ta mposed on transportaton com-
panes for the prvege of dong busness for the fsca year begn-
nng uy 1, 1937, became an accrued abty on that date and s an
aowabe deducton for edera ncome ta purposes n the ta -
payer s return for the year, fsca or caendar, n whch uy 1, 1937,
fas, notwthstandng the fact that the ta s measured by the
gross recepts of the precedng fsca or caendar year, as the case
may be, ended pror to that date.
dvce s requested as to the year n whch the Tennessee gross
recepts ta due and payabe n 1937 s deductbe for edera ncome
ta purposes.
The aw under whch the gross recepts ta on transportaton com-
fwes s mposed s found n the genera revenue b, chapter 108,
ubc cts of 1937, rtce II, secton 2, tem 0(a), and reads n
part as foows:
ach person engaged In the busness of operatng a transportaton company
a, for the prvege of dong such busness, pay to the State for State pur-
Poses an amount equa to three (3) per cent of the gross recepts derved from
ntrastate busness In ths State.

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23(o), rt. 23(c)- .
12
There sha be credted upon the ta hereby Imposed any ta es pad under
the franchse ta aw and under the e cse ta aw durng the caendar year
n whch the ta hereby eved becomes due.
The ta hereby mposed sha be admnstered and coected n accordance
wth rtce III, secton 2, of ths act.
Secton 2 of rtce III of chapter 108 of the Pubc cts of 1937,
as amended by secton 14 of house b No. 1235, provdes n part:
very person e ercsng any prvege decared ta abe by an tem provdng
for admnstraton under rtce III, secton 2 of ths act sha annuay on or
before the 1st day of ugust make a statement contan-
ng the foowng Informaton as of the 1st day of uy of the current caendar
year:
(a) The tota gross recepts of the ta payer for hs most recenty competed
fsca year from busness wthn and wthout the State.
(b) The tota gross recepts of the ta payer for the same perod from such
busness wthn the State.

The ta es eved by tems provdng for admnstraton under rtce III,
secton 2, are hereby decared to be mposed for the prvege of engagng n
busness for the year begnnng on uy 1, even though such ta s made pay-
abe on the foowng ugust 1 and even though such ta s measured by gross
recepts for the precedng fsca or caendar year.
ny person who shaU have been engaged n busness for ess than a fu year
on uy 1, sha, for the ensung year, pay as foows: The measure of the ta
sha be ascertaned by mutpyng such person s gross recepts by the rato
whch an entre year bears to the perod durng whch he has engaged n
busness.
ny person who frst commences busness on or after uy 1, 1937, sha at the
concuson of each month report to the commssoner of fnance and ta aton
hs gross recepts for such month and sha pay ta , measured by such monthy
gross recepts, at the rate specfed n the approprate ta ng tem. Ths ta
sha be pad not ater than the 10th day of the foowng month. On ugust
1 foowng the date when such person entered busness he sha pay annua
ta for the year commencng on the ne t pror uy 1, computed accordng
to the precedng paragraph but he sha not thereafter make monthy payments.
t s hed that the Tennessee gross recepts ta mposed on trans-
portaton companes for the prvege of dong busness for the fsca
year begnnng uy 1, 1937, became an accrued abty on uy 1,
1937, and s an aowabe deducton, for edera ncome ta purposes,
n the ta payer s edera ncome ta return for the year, fsca or
caendar, n whch that date fas, notwthstandng the fact that the
ta s measured by the gross recepts of the precedng fsca or
caendar year, as the case may be, ended pror to that date.
rtce 23 (c)-: Ta es. 1938-3-9143
I. T. 3151
R NU CT O 193 .
The e cse ta mposed by secton 131 , Code of Tennessee, 1932,
as amended, due and payabe uy 1, 1937, and measured by net
earnngs for the caendar year 193 , accrues as of uy 1, 1937, and
s deductbe for the caendar year 1937 by a corporate ta payer
keepng ts books on the accrua bass and fng Its edera
ncome ta return on the caendar year bass. The e cse ta
measured by the corporaton s net earnngs for the caendar year
1937 s an aUowabe deducton n ts return for the caendar year
1938.
dvce s requested as to the accrua date, for edera ncome ta
purposes, of the Tennessee e cse ta mposed by secton 131 , Code
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127
23(c), rt. 23(c)-.
of Tennessee, 1932, as amended by chapter 99, Pubc cts of 1937,
In the case of a corporaton keepng ts books on the accrua bass
and fng ts returns for the perod of the caendar year. In sub-
mttng the nqury, the ta payer asked whether such a corporaton
shoud deduct the e cse ta based on ts 1937 net earnngs n ts
edera ncome ta return for 1937 or for 1938.
Chapter 99 s entted n act to amend sectons 1310, 1317 and
1323 of the Code of Tennessee, whch sectons are a porton of the
statute commony known as the e cse ta aw, and became effectve
March 4, 1937. The e cse ta aw was further amended by chapter
17 , Pubc cts of Tennessee, 1937, approved May 19, 1937. Sec-
tons of the aw pertnent to the queston nvoved, whch ncude
secton 1318, Code of Tennessee, 1932, read as foows:
Sec. 131 . Taw mposed. corporatons sha pay to
the commssoner of fnance and ta aton annuay an e cse ta
eqna to three and three-quarters (3.75 ) per cent of the net earnngs for
ther ne t precedng fsca or caendar year, from busness done wthn the
State.

Seo. 1317. Credt for certan other ta es pad. The ta hereby mposed
tha be n addton to a other ta es, and no other ta sha be a credt upon
the ta hereby mposed e cept that nsurance companes payng a prvege a
of two and one-haf 2,/2 ) per cent on gross premum recepts sha be entted
to a credt for such ta so pad .
Sec. 1318. Due, when penaty. The ta mposed sha be due and payabe
on uy 1 of each succeedng year .
The department of fnance and ta aton of the State of Tennessee
advses that the e cse ta s payabe n advance for the prvege of
dong busness for the fsca year begnnng on the due date, uy 1
of each year, and that the e cse ta s measured by the ncome (net
earnngs) of the corporaton for the ta abe year ne t precedng the
due date of the ta . (Cf. ank of Commerce Trust Co. v. Senter,
149Tenn., 5 9 2 0 S. W.. 144 Genera Securtes Co. v. Wams, 101
Tenn., 50, 29 S. W. (2d), 2 Memphs Dock orwardng Co. v.
or, 170 Tenn., 109, 92 S. W. (2d), 408.)
or edera ncome ta purposes, a corporate ta payer n the
State of Tennessee keepng ts books on the accrua bass and fng
ts edera ncome ta return for the caendar year perod shoud
deduct the e cse ta , measured by ts net earnngs for the caendar
year 193 and due and payabe uy 1, 1037, n ts return for the ca-
endar year 1937. No abty for such ta e sted pror to the frst
day of the e cse ta year begnnng uy 1, 1937, and endng une
SO, 1938. Correspondngy, the e cse ta measured by the corpora-
ton s net earnngs for the caendar year 1937 s an aowabe deduc-
ton n ts edera ncome ta return for the caendar year 1938.
ctce23(c)-1: Ta es.
R NU CT O 103 .
Payment by empoyer of empovees ta mposed by secton 801,
Tte III, Soca Securty ct. (See I. T. 3154, page 113.)
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23(c), rt. 23(c)- .
128
etce 23 (c)-: Ta es. 1938-4-91 57
I. T. 3155
R NU CT O 1938.
The e cse ta mposed by the State of Coorado (house b No.
148, Thrty-frst Genera ssemby, 1937), effectve uy 1, 1937,
upon natona bankng assocatons, banks and trust companes,
fnance and oan assocatons, and Morrs Pan companes accrues
n genera at the begnnng of the ta payer s current ta abe year.
s the frst ta abe year for the purpose of the e cse ta began on
uy 1, 1 S7, the e cse ta for that year s aceruabe, for edera
ncome ta purposes, for the year, caendar or fsca, n whch that
date fas.
dvce s requested reatve to the proper accrua date for edera
ncome ta purposes of the e cse ta , measured by net ncome, m-
posed by the State of Coorado upon banks and trust companes.
The aw evyng the ta n queston on ndvduas and corporatons
was enacted as house b No. 148 by the Thrty-frst Genera ssemby,
State of Coorado, 1937 approved une 2, 1937, and effectve uy 1,
1937. Pertnent provsons of the aw reatng to ta aton of banks
read as foows:
Seo. 2.

(e)(1) In eu of the ta mposed by secton 2(b) every natona bankng
assocaton ocated or dong busness wthn the mts of ths State, sha pay
annuay to ths State a ta accordng to or measured by ts net ncome, to be
computed, n the manner herenbefore provded, upon the bass of ts net
ncome for the ne t precedng fsca or caendar year at the rate provded for n
parngraph (e) (4) of ths secton.
(2) very bank, ndustra bank, Morrs Pan company, or trust company,
fnance and oan assocatons, other than a natona assocaton dong busness
wthn the mts of ths State, sha annuay pay to ths State for the prvege of
e ercsng ts corporate franchses wthn ths State, a ta nccordng to or
measured by ts net ncome, to be computed n the manner herenafter provded,
upon the bass of ts net ncome for the ne t precedng fsca or caendar year
at the rate provded for n paragraph (e) (4) of ths secton.

(4) The rate of ta on natona bankng assocatons and nterstate fnance
or oan assocatons and other banks, ndustra bunks, trust companes, fnance
and oan assocatons, and Morrs Pan companes sha be 0 per cent
of the amount of the net ncome as heren provded.
The frst ta abe year under ths aw began on uy 1, 1937. or
ta payers keepng ther accounts on the bass of the caendar year, the
frst year ended on December 31, 1937 and for ta payers on the fsca
year bass, such year ends on the ast day of the frst fsca year endng
after uy 1,1937. (Secton 1(12) and secton 38.)
The ta n queston, though measured by net ncome, s eved upon
the fnanca nsttutons for the prvege of dong busness or e er-
csng ther corporate franchses wthn the State of Coorado and s
n the nature of an e cse ta rather than an ncome ta . ( nt v.
Stone Tracy Co. 220 U. S., 107.) The ta s contngent upon the bank
engagng n busness wthn the mts of the Sate. The ureau has
prevousy hed that an e cse ta of ths character whch s mposed
for the prvege of carryng on or dong busness, and whch s meas-
ured by net ncome or gross recepts for the precedng ta abe year,
accrues as of the begnnng of the ta payer s current ta abe year
(I. T. 313 , C. . 1937-2, 100) and cases cted theren.)
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129
23(c), rt. 23(c)-.
In vew of the foregong, t s hed that the ta mposed by house
b No. 148, Thrty-frst Genera ssemby, State of Coorado 1937,
on natona bankng assocatons, banks and trust companes, fnance
and oan assocatons, and Morrs Pan companes, whch s mposed
n eu of an ncome ta and s measured by the net ncome for the
precedng ta abe year, accrues n genera at the begnnng of the
ta payer s current ta abe year. s the frst ta abe year for the
purpose of the Coorado e cse ta began on uy 1, 1937, the e cse
ta for that year s accruabe, for edera ncome ta purposes, for
the year, caendar or fsca, n whch that date fas. or e ampe, a
bank whch fes ts edera ncome ta returns on the caendar year
bass and uses the accrua method of accountng shoud accrue and
deduct the ta n ts return for the caendar year 1937, such ta beng
measured by net ncome for the year 193 .
rtce 23 (c)-: Ta es. 1938-5-9172
I. T. 3157
R NU CT O 1930.
Iea and persona property ta es n the State of entucky accrue
for edera ncome ta purposes as of the 1st day of uy each
year.
dvce s requested reatve to the proper accrua date for rea and
persona property ta es n the State of entucky.
Under the entucky statutes ( adwn s 193 Revson of Carro s
entucky Statutes, nnotated), property ta es are mposed as
foows:
Sec. 4052. Property to be assessed as of uy 1. ta abe estate sha
be assessed and vaued as of the 1st day of uy n the year sted, and the
person ownng or possessng same on that day sha st t wth the assessor,
and reman bound for the ta , notwthstandng he may have sod or parted wth
the same. (1918, ch. 11, page 31, secton 190 , eh. 22, page 88, artce 11,
secton 12.)
In the event of such sae or partng wth the property, secton
4023 provdes:
The hoder of the ega tte, and the hoder of the equtabe tte,
and the camant or baee n possesson of the property on the 1st day of uy
of the year the assessment s made, sha be abe for ta es thereon but, as
between themseves t sha be the duty of the hoder of the equtabe tte to
the property and pay the ta es thereon, whether the property be u possesson
or not at the tme of the payment.
nd, provded, that f the property be sod before anuary 1, of the
year n whch the ta es are due and payabe, then, as between the purchaser
and st-or, and n the absence of any contract to the contrary, t sha be the
duty of the purchaser of the property to pay the ta es thereon and f the
property s sod after anuary 1, n the year n whch the ta es are due and
payabe, t sha be the duty of the seer to pay the ta es thereon. (March
15, ch. 22. page 88, rtce I, secton 5 March 23, 1908, ch. 47, page 121,
secton 2, as amended March , 1918, ch. 1 2, page S8 March 24, 1922, ch. 103,
page 273.)
Secton 4021 provdes n part:
The Commonweath, and each county, ncorporated cty, town or
ta ng dstrct, sha have a en on the property assessed for the ta es due
them respectvey (for fve years) whch sha not be defeated by gft, devse,
sae, aenaton, or any means whatever .
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23(c), rt. 23(c)- .
130
The ta resutng from the stng and assessment as of uy 1 of
any year sha be due and payabe on and after the 1st day of March
after the assessment . (Secton 4148-a.)
The poston of the ureau wth respect to the accrua of property
ta es s that ownershp of the property on the date as of whch assess-
ment s made by the State ta ng authortes s the event whch
determnes the abty for property ta es. ccordngy, such ta es
shoud be accrued as of that date. (See G. C. M. 18828, C. . 1937-2,
87 and cases cted theren.)
In Unted States v. nderson (2 9 U. S., 422, T. D. 3889, C. .
-, 179 (192 )), the Unted States Supreme Court, n consderaton
of the queston as to when ta es accrue for edera ncome ta pur-
poses, used the foowng anguage:
In a technca ega sense It may be argued that a ta does not accrue
unt t has been assessed and becomes due but t s aso true that n advance
of the assessment of a ta , a the events may occur whch f the amount of
the ta and determne the abty of the ta payer to pay t. 9 Itacs
supped.
State may make the ownershp of property for ta aton reate to
any day t deems proper. Where State statutes have f ed the tme
for determnaton of the ta abe status of property, t s ta ed to the
owner as of such tme. On ths pont t s stated n 1 Corpus urs,
page 207, as foows:
ut where property s requred to be assessed as of a certan day
n the year, and s then propery assessed to the person ownng t on that day,
he Is not reeved from abty for such ta es by hs subsequent transfer or
conveyance of t to another, athough made before the ta became payabe,
uness the statute makes some provson for apportonment of the ta between
the buyer and seer. Where the date f ed by statute for determnaton of the
ta abe status of property fas before the actua assessment, one ownng the
property on such date may not escape abty for ta aton by eng the
property before competon of the assessment ros.
The courts of entucky, n construng secton 4023, supra, have
hed that the owner of reaty as of uy 1 s abe to the State for
ta es for the ensung year, athough as between hm and one who
buys the and pror to anuary 1, foowng, the atter may be abe
for the ta (Chapve et a. v. Morrs, 247 y., 47 , 57 S. W. (2d).
48 ) and that whatever may be the rghts between vendor ana
vendee as to ta es under ths secton, the owner on uy 1 of the
year n whch the assessment s made s under obgaton to the State
to pay the ta es for the foowng year. entucky Natona Park
ss n v. Reed, 250 y., 525, 3 S. W. (2d) 14.)
In vew of the foregong, the ownershp of property n entucky
on uy 1 s the event whch f es abty for ta es thereon. It s
hed, therefore, that entucky property ta es, both rea and persona,
shoud be accrued as of uy 1 for edera ncome ta purposes.
rtce 23(c)-1: Ta es. 1938- -9183
I. T. 3158
R NG CT O 193 .
The ta Imposed under the Mchgan Use Ta ct of 1937 Is
deductbe by the purchaser or consumer for edera ncome ta
purposes.
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131 523(c), rt. 23(c)-.
dvce s requested reatve to the deductbty by the purchaser or
consumer, for edera ncome ta purposes, of the use ta mposed by
the State of Mchgan.
The ta s eved under the provsons of ct No. 94 (house b No.
317), Pubc cts of 1937, approved une 18, 1937, and effectve No-
vember 1, 1937. The act s entted n act to provde for the evy,
assessment and coecton of a specfc e cse ta on the storage, use or
consumpton n ths State of tangbe persona property to appropr-
ate the proceeds thereof and to prescrbe penates for voatons of
the provsons of ths act. Provsons of the aw pertnent to a deter-
mnaton of the queston are as foows:
Sua 3. There s hereby eved upon and there sha be coected from every
person n ths State a specfc ta for the prvege of usng, storng or consumng
tangbe persona property n ths State , whch ta sha be equa to 8
per cent of the prce of such property.

Pbc. 5. very seer of tangbe persona property for storage, use or other con-
sumpton n ths State, engaged n the busness of seng at reta n ths State,
ha regster wth the board . very such seer sha co-
ect the ta mposed by ths act from the consumer and the board may, by rue
or reguaton, authorze any other seer to coect such ta from the
consumer .
Sec. . very person storng, usng or consumng tangbe persona property,
the storage, use or consumpton of whch s sub|ect to the ta mposed by ths
act, when such ta was not pad to a seer, and every seer coectng such
ta from the purchaser, sha, on or before the 15th day of each cnendar
month fe wth the board a return for the precedng caendar month .
t the same tme each such person sha pay to the board the amount of
ta mposed by ths act wth respect to the purchases covered by such
return.

Sec. 9. In case any seer who s requred or authorzed to coect the ta
fas to do so, he sha be abe personay for such amount as he faed to
coect

Sec. IS. ny consumer who refuses to pay the fu and e act ta as requred
by ths act, or refuses to compy wth the provsons of ths act or the rues
and reguatons of the board, or presents to the seer a fase certfcate nd-
catng that the storage, use or consumpton s not sub|ect to the ta heren
mposed, sha be deemed guty of a msdemeanor .
In defnng the word prce as used n the act, secton 2(f) there-
of states that the ta coected by the seer from the consumer un-
der the provsons of ths act sha not be consdered as a part of the
prce, but sha be consdered as a ta coecton for the beneft of the
State, and no person other than the State sha derve any beneft
from the coecton or payment of such ta .
The use ta rues and reguatons (rue ), n deang wth the
sub|ect of who s abe for payment of the use ta and to whom
t s payabe, provde n part as foows:
(a) very purchaser n ths State s abe for payment of a specfc ta ,
known as use ta , for the prvege of storng, usng or consumng tangbe
persona property n ths State on or after November 1, 1937, whch ta sha
be equa to three per cent (3 ) of the prce of such property, .
(b) very person abe for the use ta sha pay to the person from
whom he has purchased the amount of the ta mposed by the act,
whch ta sha be payabe by the seer to the board, .
Secton 23(c) of the Revenue ct of 193 provdes that n comput-
ng net ncome there sha be aowed as deductons ta es pad or
accrued wthn the ta abe year, wth certan e ceptons not here
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23(c), rt. 23(c)- .
132
matera. rtce 23(c)- of Reguatons 94, reatng to the Revenue
ct of 193 , provdes that n genera ta es are deductbe ony by the
person upon whom they are mposed. The Mchgan statute and the
reguatons thereunder show that t was the ntent of the State egs-
ature to mpose the use ta upon the consumer for the prvege of
usng, storng, or consumng ta abe persona property, and to make
the seer the coector of the ta for and on behaf of the State.
It s hed, therefore, that the ta under the Mchgan Use Ta
ct of 1937, beng mposed upon the purchaser or consumer, s de-
ductbe by hm as a ta n hs edera ncome ta return. In the
event the ta s added to or made a part of hs busness e penses, or
s otherwse used to reduce hs net ncome, t may not be deducted
separatey as a ta .
rtce 23 (c) -1: Ta es. 193 -7-9194
L T. 31 2
R NU CT O 103 .
Rea and persona property ta es n the State of North Dakota
accrue as of pr 1 of each year for edera Income ta purposes.
dvce s requested as to the proper accrua date for edera ncome
ta purposes of rea and persona property ta es mposed by the
State of North Dakota.
rtce 5 of the Comped Laws of the State of North Dakota, as
amended, provdes n part as foows:
Seo. 2093. Lstng of property. rea property sub|ect to ta aton sha be
sted and assessed every odd numbered year wth reference to Its vaue on
pr 1 of that year and sha not be reassessed In the foowng year, e cept
by order of the board of county commssoners or ta commssoner. Property
assessed n odd numbered years sha be ta ed upon the assessed vauaton as
equazed by the State board of equazaton n such year and n the foowng
year e cept as heren otherwse provded. rea property becomng ta abe
In any ntervenng year sha be sted and assessed wth reference to ts vaue
on pr 1 of that year.
Persona property sha be sted and assessed annuay wth reference to Its
vaue on pr 1. In every even numbered year at the tme of assessng persona
property, the assessor sha aso assess a rea property that may have become
sub|ect to ta aton snce the ast prevous assessment, and a budngs or
other structures of any knd, whether competed or n process of competon, or
mprovements on any structures of over one hundred doars ( 100) In vaue,
the vaue of whch has not been prevousy added to or ncuded In the vauaton
of the and or ots on whch they have been erected. Laws 1925, ch. 205,
secton 1 Laws 1917, ch. 228, secton 1. (Page 509, Suppement to the
Comped Laws of North Dakota, 1913-1925.)
The genera rue s that n the absence of statute to the contrary
property s ta abe to the person who s the owner thereof on the
date prescrbed by statute for ts stng or assessment, or the date
f ed by statute as of whch ts ownershp for purposes of ta aton
s to be determned. (37 Cyc, page 788.) In Unted States v. nder-
son (2 9 U. S., 422) the queston nvoved was whether ta es shoud
be accrued when they became due and payabe, or whether they shoud
be accrued when the ta payer knew, or coud determne to a reason-
abe degree of certanty, the amount of ta es whch eventuay woud
have to be pad. The court n that case ad down the rue that n
advance of the assessment of the ta a the events may occur whch
f the amount of the ta and determne the abty of the ta payer
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133
523(c), rt. 23(c)-.
to pay t. The ureau has consstenty hed that the event whch
determnes the abty for ta es s the ownershp of the property as
of the date for whch the assessment of ta es s made. (See G. C. M.
9793, C. . -2, 142 (1931) G. C. M. 15305, C. . I -2, 80 (1935)
and cases cted theren.)
It s cear from the above-quoted provsons of the aw of the State
of North Dakota that the day as of whch the ta s assessed s
pr 1. The Supreme Court of North Dakota n Gaar, Scott ( Co.
r. Sorum (90 N. W., 799, 11 N. D., 1 4) stated that the above-quoted
provsons of aw e press the egsature s purpose to f pr 1 as the
tme for determnng the ta abty, ownershp, and vaue of both
rea and persona property for the purpose of ta aton. It was
ponted out that the North Dakota aw Mas coped after the Mnne-
sota aw and the court quoted wth approva from the decson of the
supreme court of that State n Martn County v. Drake (41 N. W.,
942, 40 Mnn., 137), as foows:
ta aws have to f upon some partcuar date In the year at
wfceh to determne the ta abty, as we as the ownershp and vaue of
property, for purposes of assessment and ta aton. Persona property
Is assessed and ta ed wth regard to both ts vaue and ownershp at that date.
ea estate s assessed accordng to Its vaue at that date . very
man mast pay ta es on what he then owns, and at ts then vaue, no matter
how short a tme he may have owned It .
The decson of the Supreme Court of the State of North Dakota
n Gaar Scott db Co. v. Sorum, supra, ceary hods that abty for
ta es wth respect to rea and persona property s based on owner-
shp and vauaton of such property as of pr 1. (See aso St.
nthmy D. evator Co. v. Cass County, 10 N. W., 41, 14 N. D.,
It s hed, therefore, that for edera ncome ta purposes ta -
payers whose books of account are kept on the accrua bass shoud
accrue North Dakota rea and persona property ta es as of pr 1
of each year.
btce 23(c)-: Ta es. 1938-9-9214
( so Secton 23(a), rtce 23(a)-.) I. T. 31
R NU CT O 193 .
mounts pad to purchase huntng and fshng censes n the State
of Oho are not aowabe deductons as ta es under the Revenue
ct of 103 . If, however, the cense s acqured for use n the
purchaser s trade or busness, the cost may be deducted as a busness
e pense.
dvce s requested whether the cost of huntng and fshng censes
n the State 01 Oho s deductbe as ta es n a edera ncome ta
return for 1937.
Under secton 1430, Page s nnotated Oho Genera Code, Perma-
nent Suppement 192 -1935, provsons are made for the ssuance of
fshng censes. cense for angng by rod or ree s procured n the
manner provded for takng out huntng and trappng censes.
moneys derved from the censes are approprated for the use of
the conservaton counc n the conservaton and propagaton of fsh.
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23(c), rt. 23(o)-.
134
Sectons 1432 and 1433 of the Oho Genera Code, whch reate to
hunters and trappers censes, read n part as foows:
Sec. 1432. Lcenses, by whom ssued appcaton for cense affdavt e pra-
ton revocaton.
unter s and trapper s censes sha be Issued by the cerk ot the common
peas court, vage and townshp cerks and other authorzed agents desgnated
by the conservaton commssoner .
Seo. 1433. Record of censes appcaton of fees penaty for voaton.
The cerks and other agents authorzed to ssue censes sha trans-
mt the moneys receved as cense fees, and may Incude the amounts
pad to cerks and other authorzed agents as ther fees, whch sha be pad nto
the State treasury to the credt of a fund whch s hereby approprated for
the use of the conservaton counc n the purchase, preservaton, propagaton,
protecton and stockng of brds, game brds, game and fur-bearng anmas, for
estabshng and purchasng or otherwse acqurng tte to ands for game
preserves .
It was hed n I. T. 279 (C. . III-2, 48 (1934)) and I. T. 2999
(C. . -2, 139 (193 )) that huntng censes ssued n North
Dakota, New York, North Carona, and Pennsyvana were ssued
for reguatory and not for revenue producng purposes, and that the
cost or such tems was not deductbe as ta es. In the nstant case
the charges are nomna, the provsons of the statute show that t s
for reguatory purposes, and the funds coected by the ssuance of the
varous censes are to be used n defrayng the e penses of regua-
ton. It s cear that the purpose of the statute s not to rase revenue.
In vew of the foregong t s hed that the amounts pad to pur-
chase huntng and fshng censes n the State of Oho are not aow-
abe deductons under the Revenue ct of 193 uness the cense s
acqured for use n the purchaser s trade or busness, n whch case
the cost may be deducted as a busness e pense.
rtce 23(c)-1: Ta es. 1938-10-9224
I. T. 31 9
R NU CTS O 1934 ND 193 .
The ta on net ncomes of unncorporated busnesses Imposed by
the State of New York accrues for edera Income ta purposes
for the year In whch the Income Is earned.
dvce s requested reatve to the accrua for edera ncome ta
purposes of the ta mposed by the State of New York on unncor-
porated busnesses.
The ta n queston s a temporary emergency ta on net ncomes
of unncorporated busnesses and s mposed under artce 1 - of
chapter 0 of the Consodated Laws of New York, Laws of 1935,
chapter 33, approved and effectve ebruary 1 , 1935, as amended by
Laws of New York, 1937, chapter 179, secton 1, effectve pr 5,
1937. (Mc nneys Consodated Laws of New York, nnotated,
book 59, and suppement, 1937.) The ta s mposed as foows:
Seo. 38 -a. Imposton of ta . ta Is hereby Imposed upon the entre
net ncome of any unncorporated busness whoy or party carred on wthn
ths State durng the caendar years 1935, 193 and 1937, or, n case a ta -
payer s accounts are kept on a fsca year bass, for any fsca year endng
durng the caendar years 1930, 1937 and 1938, whch ta sha be equa to
4 per centum of the entre net Income wthn ths State of such unncorpo-
rated busness and sha be payabe by the ta payer conductng the same.
Returns are requred to be fed on or before the 15th day of the
fourth month after the cose of the ta abe year (secton 88 -h), and
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135
23(c), rt. 23(c)-.
the ta s due on the ast date on whch the return s requred to he
fed and must be pad when the return s fed (secton 38 -).
In the ght of the provsons of the New York st atute, t s hed
that the ta on net ncomes of unncorporated busnesses mposed
by the State of New York accrues for edera ncome ta purposes
for the year n whch the ncome s earned.
rtce 23(c) -1: Ta es. 1938-10-9225
I. T. 3170
R NU CTS OP 1932, 1034, ND 103 .
Procedure n e amnaton of edera Income ta returns n whch
deductons have been taken for processng ta es Imposed by the
grcutura d|ustment ct (48 Stat., 31) and cams for refund
have been fed under Tte II of the Revenue ct of 193 .
L T. 308 (C. . 1937-1, 77) modfed.
In I. T. 30S (C. . 1937-1, 77), reatng to deductons for process-
ng ta es, t w-as stated n part that:
The practce of the ureau has been that n the e amnaton
of edera Income ta returns n whch deductons were camed for such
ta es hed to be unconsttutona, where the ta es have not been pad to
the coector of nterna revenue, such deductons have been dsaowed, whe
In cases where such ta es have been pad to the coector, the deductons taken
n respect thereof have not been questoned.
Where, however, deductons have been camed n edera ncome
ta returns for such ta es pad under the provsons of the gr-
cutura d|ustment ct, the deductons w be dsaowed f a cam
for refund of such ta es has been fed under the provsons of Tte
II of the Revenue ct of 193 . If the cam for refund under
Tte II s for ony a porton of such ta es pad durng any ta -
abe perod, then that porton of the deducton camed not covered
by such refund cam w be aowed.
I. T. 308 , supra, s modfed accordngy.
rtce 23(c)-1: Ta es.
R NU CT O 193 .
Credt not aowabe because of restrctons or mtatons n secton
131 of the ct. (See G. C. M. 19727, page 255.)
rtce 23(c)-: Ta es. 1938-14-9273
I. T. 3178
R NU CT O 193 .
The quor ta es mposed by the State of Mane under chapters 1
and 245, pubc aws of 1937, are aowabe deductons as ta es n
the return of the purchaser of the quor from the Mane State
Lquor Commsson.
dvce s requested whether the quor ta es mposed under chap-
ters 1 and 245, Pubc Laws of 1937 of the State of Mane, are aow-
abe deductons for edera ncome ta purposes n the return of the
purchaser or consumer.
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23(c), rt. 23(c)- .
13
Reguaton of the dstrbuton and sae of nto catng beverages
n Mane s vested n the State quor commsson. quor sod
wthn the State must be purchased from the commsson. (Pubc
Laws of 1934, ch. 300, 301.) The commsson has power to mport
sprts and wnes and has e cusve contro of the sae of a quor.
(Pubc Laws of 1937, ch. 237, secton 22.)
Chapter 1 of the pubc aws of 1937 s entted n act reatng to
od age assstance and reads n part as foows:
Contnuaton of od age assstance. ta of 10 per cent on the sae prce
s hereby mposed ou the purchase of a sprtuous and vnous quors sod
n the State by the State durng the perod from anuary IS, 1937, to une 30,
1937, both dates ncusve.
The Mane State Lquor Commsson sha coect the sad ta from the
purchaser and pay the amounts nto the State treasury, and the State con-
troer sha credt the same to the State contngent fund.
Chapter 245 of the pubc aws of 1937, entted n act mposng
a ta on wne and sprts sod by or through the State quor com-
msson, reads as foows:
Secton 1. Ta mposed. ta of 2.08 s hereby assessed on each gaon
of sprts and at a ke rate for any other quantty or for the
fractona part of a gaon sod by or through the State quor comms-
son and a ta of 50 cents s hereby assessed on each gaon of
wne and at a ke rate for any other quantty or for the fractona
part of a gaon sod by or through the State quor commsson .
Sec. 2. Ta added to sae prce. The State quor commsson sha add the
amount of the sad ta to the prce of each gaon or fracton thereof of wne
and sprts sod by or through the sad State quor commsson and coect
the same from the purchaser thereof and depost the same In the State
treasury to the credt of the genera funds of the State.
Secton 23(c) of the Revenue ct of 193 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad
or accrued wthn the ta abe year, wth certan e ceptons not here
matera. rtce 23(c)- of Reguatons 94, reatng to the Revenue
ct of 193G, provdes that n genera ta es are deductbe ony by the
person upon whom they are mposed.
The provsons of chapter 1 of the pubc aws of 1937 quoted above
ceary show that t was the egsatve ntent to mpose the 10 per
cent ta on the sae prce of sprtuous and vnous quor upon the
purchaser and to make the seer, the State quor commsson, the
coector of the ta for and on behaf of the State. Whe the method
of mposton and coecton of the ta mposed by chapter 245 of
the pubc aws of 1937 s somewhat dfferent, t s equay cear that
t was the egsatve ntent aso to mpose that ta on the purchaser
of the wne or sprts and to make the State quor commsson the
agent of the State n ts coecton. or edera ncome ta pur-
poses, therefore, both ta es are aowabe deductons as ta es n the
return of the person who purchases the quor from the Mane State
Lquor Commsson.
rtce 23(c)-1: Ta es. 193S-17-9310
I. T. 31S1
R NU CT O 193 .
The corporate oans ta mposed by the State of Pennsyvana
accrues, for edera ncome ta purposes, at the tme the Interest
on the scrp, bonds, certfcates, or other evdences of ndebtedness
s pad and s deductbe by the owner of the securtes.
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137
23(c), rt. 23(c)-.
dvce s requested reatve to the accrua date, for edera n-
come ta purposes, of the corporate oans ta mposed by the State
of Pennsyvana.
ntangbe persona property owned by resdents of Pennsy-
vana and not specfcay e empt s sub|ect to ta and n some cases
ths ta s coected at the source. If a resdent of Pennsyvana
owned a bond of a Pennsyvana busness corporaton and a bond of
a New York company not dong busness n Pennsyvana, he woud
be requred to st the bond of the New York company for ta aton
by the county, but he woud not be requred to st the bond of the
Pennsyvana company because the ta on that bond s deducted by
the company from the nterest due hm and s pad by the treasurer
of the company to the State. The ta coected at the source and
pad by the Pennsyvana company for the owner s the corporate
oans ta . In 1937 much of the e stng corporate oans ta aw
was repeaed, reenacted, or amended by ct No. 171, P. L. 1937,
approved and effectve May 18, 1937, whch s cted as the State
Persona Property Ta ct. Sectons 17 and 18 of that act reate
to the corporate oans ta and read as foows:
Sbc. 17. State ta on scrp, bonds, etc. mposton and rate of ta . scrp,
bonds, certfcates, and evdences of ndebtedness ssued, and a scrp, bonds,
certfcates, and evdences of ndebtedness assumed, or on whch nterest sha
be pad by any and every prvate corporaton, ncorporated or created under the
aws of ths Commonweath, or the aws of any other State or of the Unted
States and dong busness n ths Commonweath and havng a resdent cor-
porate treasurer theren, are hereby made ta abe for State purposes at the rate
of S ms on each doar of the nomna vaue thereof, durng the caendar years
one thousand nne hundred thrty-eght and one thousand nne hundred thrty-
nne, on rc-ports fed for the caendar years one thousand nne hundred thrty-
seven and one thousand nne hundred thrty-eght, or for any fsca year begn-
nng n the caendar years one thousand nne hundred thrty-seven and one
thou-sand nne hundred thrty-eght, and at the rate of 4 ms on each doar of
the nomna vaue thereof durng the caendar years one thousand nne hundred
forty, and every year thereafter, on reports fed for the caendar ye rs one
thousand nne hundred thrty-nne (or for any fsca year begnnng n the caen-
dar year one thousand nne hundred thrty-nne), and for every year thereafter,
and a scrp, bonds, certfcates and evdences of ndebtedness ssued and a
scrp, bonds, certfcates and evdences of ndebtedness assumed or on whch
nterest sha be pad by any county, cty, borough, townshp, schoo dstrct or n-
corporated dstrct of ths Commonweath, are hereby made ta abe for State
purposes at the rate of 4 ms on each doar of the nomna vaue thereof durng
the caendar year one thousand nne hundred thrty-eght, and every year there-
after, on reports fed for the caendar year one thousand nne hundred thrty-
seven, or for any fsca year begnnng n the caendar year one thousand nne
hundred thrty-seven, and for every year thereafter .
Sc. 18. Reports and payments of the State ta by prvate corporatons and
muncpates. (a) It sha be the duty of the resdent treasurer of each pr-
vate corporaton, ncorporated by or under the aws of ths Commonweath or
the aws of any other State or of the Unted States or any foregn country, and
dong busness n ths Commonweath and t sha be the duty of the
treasurer of each county, cty, borough, townshp, schoo dstrct or ncorporated
dstrct of ths Commonweath, upon the payment of any nterest on any scrp,
bond, certfcate or evdence of ndebtedness ssued or assumed by such corpora-
ton, county, cty, borough, townshp, schoo dstrct or ncorporated dstrct,
or upon whch t s abe for the payment of the Interest to resdents of ths
Commonweath and hed by them, to assess the ta mposed for State purposes
by the seventeenth secton of ths act, upon the nomna vaue of each such scrp,
bonds, certfcates or evdences of ndebtedness, and to report an-
nuay, on or before the 15th day of March, for the caendar year ne t preced-
ng the amount of such ndebtedness owned, hed or In any manner
Possessed by resdents of ths Commonweath and t sha be hs fur-
ther duty to deduct the ta , mposed by the seventeenth secton of ths act, on
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523(c), rt. 23(c)- .
138
the payment of any Interest upon such ndebtedness and return the same to the
State treasury .
The tme for tng reports may be e tended, ta payers may be permtted to
fe ther reports on a fsca year bass, .
( ) It s the ntent and meanng of ths act that the ta for State purposes.
Imposed upon obgatons of prvate and pubc corporatons by secton 17 of
ths act, sha be coected n the same manner as the ta heretofore mposed
for State purposes upon such obgatons.
Sectons 0 and 07, Tte 72, Purdon s Pennsyvana Statutes
nnotated, read as foows:
Sec. 0 . Treasurers of prvate corporatons to coect ta from nterest pad.
The treasurer of every prvate corporaton sha contnue to be
the agent of the Commonweath, for the purpose of assessng, coectng, and
payng nto the State treasury the ta mposed by aw upon any scrp, bond,
certfcate, or evdence of ndebtedness, ssued or assumed by such corporaton,
or upon whch nterest sha be pad and hed by resdents of ths Common-
weath, ncudng nterest pad for pror years, but a ta es thus coected ha
be pad nto the State treasury .
Sec. 07. Count /, cty, dstrct, and borough treasurers to coect ta from
nterest pad.
The treasurer of each county, ncorporated dstrct, cty, borough, and schoo
dstrct sha be the agent of the Commonweath for the assessment
and deducton of the State ta from nterest or dvdends on debts due by
such county, cty, borough, schoo dstrct, or ncorporated dstrct, and sha
pay the same nto the State Treasury .
Secton 70S, as amended by the act of ebruary 2, 1937, provdes:
Sec. 708. Report of corporate oans and payment of ta .
The treasurer of every prvate corporaton sha report, annuay,
on or before the 15th day of March, the amount of ndebtedness of
the corporaton, or assumed by t, or upon whch t pays nterest, owned by
resdents of ths Commonweath . very such treasurer, at the tme
of makng every report requred by ths secton, sha compute and pay to
the department the ta due the Commonweath upon suc scrp, bonds, cer-
tfcates and evdences of ndebtedness, as requred by aw.
It appears from the foregong provsons of the aw that abty
for the corporate oans ta mposed by the State of Pennsyvana
arses at the tme the ta s requred to be wthhed by the treasurer
of the prvate corporaton or of the county, cty, dstrct, or borough
from the payment of nterest on oans to the owner -esdent n
Pennsyvana. Wthhodng of the ta and payment of the nterest
concde. The corporate oans ta has been n effect for a ong
perod of tme and t appears to be we setted that the ta s m-
posed upon the owner of the obgaton athough coected at the
source at the tme the nterest s pad. (See re Raroad v. Pennsy-
vana, 153 U. S.. G28 Commonweath v. Deaware Dv. Cana Co.,
123 Pa. St., 594, 1 t., 584.) It s hed, therefore, that the cor-
porate oans ta mposed by the State of Pennsyvana accrues, for
edera ncome ta purposes, durng the ta abe year h whch
the nterest on the scrp, bonds, etc., s pad and s deductbe by
the owner of the securtes.
rtce 23(c)-: Ta es. 19-38-18-931
G. C. M. 20025
R NU CT O 1930.
The ntangbe persona property ta mposed by rtce III,
Schedue II, Chapter 127 of the Pubc Laws of North Carona,
1937, accrues on December 31 of each year for edera ncome ta
purposes.
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139
523(c), rt. 23(c)-.
n opnon s requested reatve to the tme of accrua of the n-
tangbe persona property ta mposed by the State of North Caro-
na under chapter 127, Pubc Laws of North Carona, 1937.
The queston of the proper accrua date of rea and persona prop-
erty ta es under the North Carona Machnery ct, effectve March
22, 1937 (chapter 291, Pubc Laws of North Carona, 1937), was
consdered by ths offce n G. C. M. 18929 (C. . 1937-2, 91). In
that memorandum t was hed that property ta es n North Caro-
na shoud be accrued as of pr 1 by ta payers whose books of
account are kept on the accrua bass begnnng wth ta es assessed as
of pr 1, 1937.
The ta now n queston s mposed under an entrey dfferent
act, namey, n act to rase revenue effectve March 13, 1937, and
s eved under the provsons of rtce III, Schedue , entted
Intangbe Persona Property. (Chapter 127, Pubc Laws of
North Carona, 1937.) Secton 700 of that act reads as foows:
Seo 700. Intangbe persona property.
Ta es eved In ths artce for the mantenance of the pubc schoos of the
State, under authorty of secton , rtce , of the consttuton.
Intangbe persona propertes defned and cassfed by ths chapter, wth
the e ceptons herenafter made, are hereby segregated for e cusve State
ta aton after the year one thousand nne hundred thrty-seven and at the same
tme stated n ths artce and sha be ta ed as herenafter provded. Nothng
heren contaned sha affect the ta abty of those sub|ects of ta aton n the
year one thousand nne hundred thrty-seven nor the stng of same for the year
one thousand nne hundred thrty-seven n the manner provded n the machnery
act
Secton 701 of the North Carona ct to rase revenue, effectve
March 13, 1937, provdes that the amount of bank deposts to be
ta ed sha be the average of the quartery credt baances of each
depostor on the 15th day of each September, December, March, and
une n the caendar year. money on hand, accounts recevabe,
matured nsurance poces, funds hed by fducares, bonds, notes,
and other evdences of debt, and shares of stock, owned on December
31, 1937, and annuay thereafter, are sub|ect to ta . (Sectons
702-70 , ncusve.) It s further provded that a ta es eved under
rtce TII sha be due and payabe on the 15th day of March,
1938, and annuay thereafter, wth respect to the ta abty that
sha accrue under each secton of that artce on ntangbes
owned by the ta payer on the 31st of December ne t precedng.
(Secton 707.)
In vew or the fact that the ntangbe persona property ta
mposed by rtce III, Schedue , Chapter 127 of the Pubc
Laws of North Carona, 1937, s measured Dy the factors or con-
dtons e stng on December 31. 1937, and annuay thereafter, t s
hed that ownershp of ntangbe persona property on such date s
the event whch f es the abty under the rue ad down n
Unted States v. nderson (2 9 IL S., 422, T. D. 3839, C. . -,
179 (192 )). Ta payers whose books of account are kept on the
accrua bass shoud, therefore, accrue such ntangbe persona prop-
erty ta as of December 31, 1937, and on the ast day of December
annuay thereafter. Inasmuch as the ta on ntangbes eved
under that provson of aw s separate and dstnct from the ta on
persona property eved by the North Carona Machnery ct of
1937. referred to n G. C. M. 18929, supra, care shoud be e ercsed
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23(c), rt. 23(c)-. 140
to see that the two ta es are not confused, as the accrua dates are
dfferent. It shoud aso be noted that after the year 1937 ntangbe
persona propertes are not sub|ect to ta aton under the North
Carona Machnery ct but are segregated for e cusve State
ta aton under rtce III referred to above.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
rtce 23 (c)-: Ta es. 1938-19-9327
I. T. 318
R NU CTS OP 1934 ND 193 .
The annua franchse ta Imposed by the State of Inos on
ordnary busness corporatons, domestc or foregn, whch Is pay-
abe durng the month of uy each year, accrues for edera Income
ta purposes on uy 1 of the year In whch the ta s payabe and
s for the fsca year begnnng on that date.
dvce s requested reatve to the accrua date for edera ncome
ta purposes of the annua franchse ta mposed by the State of
Inos on ordnary busness corporatons, domestc and foregn,
under the busness corporaton act, effectve uy 14, 1933, as ater
amended, whch revoked the prevousy e stng aw on the sub|ect.
The aw s set forth n secton 157, chapter 32, of the State bar asso-
caton edton of the Inos revsed statutes, 1937.
Under sectons 157.131 and 157.138, each domestc corporaton and
each foregn corporaton authorzed to transact busness n the State
sha pay to the secretary of state the foowng franchse ta es, computed on
the bass, at the rates, and for the perods prescrbed n ths act:

(d) n annua franchse ta durng the month of uy of each year n whch
the corporaton s requred by ths act to fe an annua report.
The bass for the annua franchse ta payabe by a domestc cor-
poraton or by a foregn corporaton sha be the amount represented
n ths State, determned n accordance wth the provsons of ths
secton, of the sum of ts stated capta and pad-n surpus on the
81st day of December of the precedng caendar year, mnus the
amount hy whch the sum of the stated capta and pad-n surpus
may have been reduced after the 31st day of December of the pre-
cedng caendar year and pror to the 25th day of une of the current
caendar year, as dscosed by any report or document fed by t wth
the secretary of state. (Sectons 157.132 and 157.139.) The fran-
chse ta payabe by such corporatons sha be computed at the
rate of one-twenteth of 1 per cent for the 12 months perod com-
mencng on the 1st day of uv of the year n whch such ta s
payabe. (Sectons 157.133 and 157.140.) The annua report to be
fed by the domestc or foregn corporaton s requred to ncude,
among other tems, a statement e pressed n doars of the gross
amount of busness transacted by the corporaton for the 12 months
ended on the 31st day of December precedng the date provded for
the fng of the report and the gross amount thereof transacted by
the corporaton at or from paces of busness n the State. Such
annua report sha be made on forms prescrbed and furnshed by
the secretary of state, and the nformaton theren contaned sha be
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141
523(c), rt. 23(c)-.
gven as of the cose of busness on the 31st day of December ne t
precedng the date heren provded for the fng of such report, or
f the corporaton keeps ts accounts on a fsca year bass, then as of
the cose of ts fsca year ne t precedng such 31st day of December,
. (Sectons 157.95 and 157.115.) Under sectons 157.9 and
157.11 , the annua report of the domestc or foregn corporaton
usha be devered to the secretary of state between the 15th day of
anuary and the ast day of ebruary of each year.
Under secton 157.143 t s made the duty of the secretary of state
to coect a annua franchse ta es and penates mposed by, or assessed n
accordance wth, ths act
etween the 1st day of March and the 15th day of une of each year the
secretary of state sha assess aganst each corporaton, domestc or foregn,
requred to fe an annua report tn such year the franchse ta payabe by t
for the 12 months perod commencng on the 1st day of uy of such year In
accordance wth the foregong provsons and sha ma a wrtten
notce to each corporaton aganst whch such ta s assessed, not-
fyng the corporaton (1) of the amount of franchse ta assessed aganst t
for the year ne t ensung (2) and (8) that such ta
sha be payabe to the secretary of state on the 1st day of uy ne t
succeedng the date of the notce.

annua franchse ta es and a penates for faure to fe annua reports
sha be due and payabe on the 1st day of uy of each year.
The provson that the rate of ta sha be computed for the 12
months perod commencng on the 1st day of uy of the year n
whch such ta s payabe, f es the year for whch the ta s payabe
as the fsca year begnnng on uy 1, athough the ta s assessabe
pror to that date and s computed prmary on the bass of factors
e stng at the cose of busness on the 31st day of December ne t
precedng, or, n the case of a ta payer on a fsca year bass, upon
factors e stng at the cose of the ast day of ts fsca year ne t
precedng such 31st day of December.
It s hed that the annua franchse ta mposed by the State of
Inos on ordnary busness corporatons, domestc or foregn, whch
s payabe durng the month of uy of any year, accrues on uy 1 of
that year for edera ncome ta purposes and s for the fsca year
begnnng on that date.
rtce 23(c)-: Ta es. 1938-20-9341
I. T. 3189
R NU CT O 193 .
The capta stock ta and the franchse ta mposed upon corpora-
tons by the State of Pennsyvana accrue, for edera ncome ta
purposes, on the ast day of the ta abe year, fsca or caendar, as
the case may be, for whch the ta In queston s eved or mposed.
dvce s requested reatve to the accrua date, for edera ncome
ta purposes, or the capta stock ta and the franchse ta mposed by
the State of Pennsyvana.
It appears that mportant changes were made by 1935 amendments
to the e stng aw of Pennsyvana affectng the capta stock ta on
domestc corporatons and the franchse ta on foregn corporatons
(act of May 1 , 1935, P. L. 184) and that the aw has been further
amended by the act of ebruary 2, 1937, P. L. 3, No. 1, and the act of
pr 8, 1937, P. L. 239, No. 55, effectve upon enactment. Pertnent
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523(c), rt. 23(c)- .
142
provsons of the aw, as amended, read as foows (Purdon s Penn-
syvana Statutes nnotated, une, 1937) :
Sec. 1871. Rate of ta payment.
(a) That every domestc corporaton, and every |ont-stock asso-
caton, mted partnershp and company whatsoever, from whch a report s
requred sha be sub|ect to, and pay nto the treasury of the Common-
weath annuay a ta at the rate of 5 ms upon each doar of the
actua vaue of ts whoe capta stock .
(b) very foregn corporaton, |ont-stock assocaton, mted partnershp,
and company whatsoever, from whch a report s requred sha be
sub|ect to and pay Into the treasury of the Commonweath annuay a
franchse ta at the rate of ms upon a ta abe vaue to be deter-
mned .

Sec. 1901. nnua reports to audtor genera.
ereafter, t sha be the duty of every corporaton , every
ont-stock assocaton, mted partnershp, and every company whatsoever
to make annuay on or before the 15th day of March, for the caendar
year ne t precedng, a report settng forth :
rst. The amount of ts capta stock at the cose of the year for whch report
Is made, together wth the hghest seng prce per share, and the average seng
prce thereof durng sad year.
Second. Its debt account.
Thrd. Its ncome account .
ourth. Its genera baance sheet.
fth. Its rea estate and tangbe persona property, .
S th. vauaton and apprasa of the capta stock of the sad
corporaton, company, |ont-stock assocaton, or mted partnershp, at ts actua
vaue n cash as t e sted at the cose of the year for whch the report s
made.
Secton 707, as amended, wth respect to payment of the ta , reads
n part as foows:
Se . 707. Capta stock and franchse ta reports and payment of ta .
every corporaton, |ont-stock assocaton, mted partnershp, and
other company, abe to pay to the Commonweath a capta stock ta
or a franchse ta sha make, annuay, a capta stock report to the
department of revenue, on or before the 15th day of March, for the caendar year
ne t precedng. very corporaton, |ont-stock assocaton, mted
partnershp, and other company, at the tme of makng every report requred by
ths secton, sha compute and pay to the department the capta stock ta or
franchse ta , as the case may be, due to the Commonweath upon or wth respect
to the vaue of ts capta stock.
Secton 702, as amended, reads n part as foows:
Sec. 702. Report on fsca year oass.
If any corporaton or assocaton coses ts fsca year, not upon the 31st day of
December, but upon some other date, and reports to the Unted States Govern-
ment as of such other date , such corporaton or assocaton
sha make any capta stock, franchse, or oans ta report or bonus report
requred to be made wthn 75 days after such date, sub|ect In a
other respects to the aws reatng to the makng of such reports and returns.
Inasmuch as under the statute the corporaton s requred to make
a ta report for the ne t precedng ta abe year based upon specfc
tems at the cose of that | ear, t s hed that the capta stock ta
and the franchse ta mposed upon corporatons by the State of
Pennsyvana are accruabe, for edera ncome ta purposes, on the
ast day of the ta abe year, fsca or caendar as the case may be,
for whch the ta s eved or mposed. or e ampe, n the case
of a corporaton whch fed ts annua ta report wth the State
department of revenue on or before March 15, 1938, the ta accrued,
for edera ncome ta purposes, on December 31, 1937.
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143
23(c), rt. 23(c)-.
rtce 23 (c)-1: Ta es. 1938-20-9342
I. T. 3190
R NU CT O 193 .
benefcary of an estate who pays Caforna rea property ta es
accrued durng the perod of admnstraton, tte to such property
havng vested In the benefcary upon the death of the testator,
may take a deducton therefor If such deducton has not aready
been taken by the estate.
dvce s requested wth respect to the deductbty of Caforna
rea property ta es n returns of benefcares of an estate n vew of
the decson of the Unted States oard of Ta ppeas n Securty-
rst Natona ank of Los ngees, Trustee, Trust SS- 170 Robert
W. George, Deceased, v. Commssoner (3 . T. ., 72, acquescence,
page 27, ths uetn). In the case cted the ta es accrung on
the rea property durng the perod of admnstraton were charge-
abe, under the Caforna aw, to the e ecutor of the estate. The
books of account of the estate were kept on the cash recepts and
dsbursements bass. s the e ecutor dd not pay the ta es before
dstrbuton of the estate, the resduary devsee (a trust), whch aso
kept ts books on the cash bass, pad the ta es and was aowed a
deducton therefor under the oard s decson.
In the George case, supra, tte to the rea property vested n the
resduary devsee from the date of the testator s death notwthstand-
ng the ntervenng admnstraton of the decedent s estate. In such
a case the benefcary who pays the ta upon the rea property of
the estate, assessed as of a date whch fe wthn the perod of
admnstraton, s payng a ta upon hs own property and may take
a deducton for the ta f t has not aready been taken by the estate.
Ths concuson appes whether the benefcary keeps hs accounts
on the cash bass or the accrua bass.
etc : 23 (c)-: Ta es. 1938-21-9350
I. T. 3191
R NU CT O 1938.
The cense fee and the busness prvege ta Imposed under Tte
I of the Dstrct of Coumba Revenue ct of 1937 pad by a ta -
payer are deductbe as ta es n hs edera Income ta return uness
made a part of hs busness e penses or otherwse used to reduce
net Income, n whch event they are not deductbe separatey as
ta es.
dvce s requested reatve to the deductbty, for edera ncome
ta purposes, of the Dstrct of Coumba busness prvege ta and
the cense fee requred to be pad under Tte I of the Dstrct of
Coumba Revenue ct of 1937 (50 Stat., 73, 88), effectve ugust
17, 1937. Provsons of the aw pertnent to the queston nvoved
read n part as foows:
Sec. 2. No person sha engage In or carry on any busness n the Dstrct of
Coumba after 0 days from the approva of ths ct and unt uy 1, 1938,
wthout frst havng obtaned a cense so to do from the Commssoners .
D censes ssued under ths tte sha e pre on une 30, 1938, and no cense
M be transferred to any other person.
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23(c), rt. 23(c)-
144
Sec. 3. ach appcaton for cense sha be accompaned by a fng fee of 10:
Provded, hotrever. That no cense fee sha be requred of any person f
hs gross recepts durng the year mmedatey precedng was not
more than 2,000.
Sec. 4. very person sub|ect to the ta hereunder sha, wthn 30 days after
the approva of ths ct, furnsh to the assessor, on a form prescrbed by the
Commssoners, a statement under oath showng the gross recepts of the ta -
payer durng the precedng caendar year, whch sad return sha contan such
other nformaton as the Commssoners may deem necessary for the proper
admnstraton of ths tte.

Seo. 5. or the prvege of engagng n busness n the Dstrct of Coumba,
each person so engaged sha pay to the coector of ta es of the Dstrct of
Coumba for the fsca year 1037-1938 a ta equa to two-ffths of 1 per centum
of the gross recepts n e cess of 2,000 derved from such busness for the ca-
endar year 103 : Provded .

Sec. 7. The ta es mposed hereby sha be due 30 days after the approva of
ths ct and may be pad wthout penaty to the coector of ta es of the Dstrct
of Coumbu n equa semannua nstaments, n the months of September and
March foowng.
Under the reguatons promugated by the Commssoners, the tme
for fng reports or returns of gross recepts was e tended to and
ncudng October 1 , 1937, and the tme for payment of the frst
semannua nstament of ta es wthout penaty to any tme durng
the month of November.
Secton 23(c) of the Revenue ct of 193 provdes that n computng
net ncome there sha be aowed as deductons ta es pad or accrued
wthn the ta abe year, wth certan e ceptons not here matera.
rtce 23(c)- of Reguatons 94, reatng to the Revenue ct of
193 , provdes that n genera ta es are deductbe ony by the person
upon whom they are mposed.
It s hed that the busness prvege ta mposed under the Dstrct
of Coumba Revenue ct of 1937 s an e cse ta eved for the prv-
ege of dong busness n the Dstrct of Coumba, and the amount
thereof pad by a ta payer may be deducted as a ta n hs edera
ncome ta return. The cense fee of 10 s aso a ta and may be
deducted as such for edera ncome ta purposes. In the event the
ta es referred to are added to or made a part of the busness e penses
of the ta payer or are otherwse used to reduce hs net ncome, they
may not be deducted separatey as ta es.
rtce 23(c)-: Ta es. 1938-21-9351
I. T. 3192
R NU CT O 1930.
corporate ta payer keepng ts books of account on the accrua
bass shoud accrue the annua franchse ta mposed by the State
of Maryand on corporatons as of anuary 1 of each year.
dvce s requested as to the accrua date, for edera ncome ta
purposes, of the Maryand franchse ta mposed on corporatons.
The ta n queston s the annua franchse ta mposed on ordnary
busness corporatons, domestc and foregn, dong busness, e ercsng
ther franchses, or mantanng an offce n Maryand. The aw
under whch such ta s eved s set forth n artce 81, sectons 13
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145
23(c), rt. 23(c)-.
to 141, ncusve, of the 1935 Suppement to the nnotated Code of
Maryand. Provsons of the aw pertnent to the queston nvoved
read as foows:
13 . very ordnary busness corporaton, e cudng chartabe, benevoent and
fraterna nsttutons, sha pay annuay to the State treasurer for the use of
the State on or before the 1st of ugust In each year succeedng the date of Its
ncorporaton, an annua ta for ts franchse to be a corporaton at
the foowng rate, that Is to say:
On the amount of ts capta stock ssued, outstandng and/or subscrbed for,
on the 1st day of the precedng anuary, for the frst 5,000 or ess, the sum
of 10.

140. very foregn corporaton, e cept nsurance companes of a casses,
chartabe and benevoent nsttutons and corporatons sub|ect to a franchse
ta measured by gross recepts, whch does busness or e ercses ts franchses
or mantans an offce n ths State, sha pay to the State treasurer an
annua franchse ta upon the amount of capta empoyed by t n ths State
on the precedng 1st day of anuary, as determned by the State ta commsson,
at the foowng rates, that s to say:
The sum of 25 for every 50,000, or fractona part thereof of capta empoyed
by It n ths State up to . 00,000 but n no case ess than 25.
Under the provsons of the aw, t s cear that the franchse ta
year s the caendar year. or edera ncome ta purposes, there-
fore, a corporate ta payer keepng ts books of account on the accrua
bass shoud accrue the annua franchse ta mposed by the State of
Maryand on corporatons as of anuary 1 of each year.
btce 23(c)-: Ta es.
R NG CT OP 193 .
Ta mposed under artce 14, ncome ta aw of Me co (Ley de
Impuesto sobre a Renta), 1934 edton, as amended by decree sgned
ugust 30, 1937, and effectve September 15, 1937. (See L T. 3193,
page 193.)
ktce 23(c)-: Ta es. 1938-2 -940
I. T. 3200
R NU CT OP 193 .
The New York Cty gross recepts ta for the perod (or any
part thereof) commencng uy 1, 1037, and endng une 30, 1038,
where the ta payer was engaged n ta abe actvty durng the
entre caendar year 1937, accrued, for edera ncome ta pur-
poses, on December 31, 1937.
ence, n the case of a ta payer engaged n ta abe actvty
durng the entre caendar year 1937 and fng ts edera ncome
ta return for the fsca year ended uy 31, 1937, such ta for the
perod uy 1, 1937, to une 30, 1938, dd not accrue wthn the
fsca year ended uy 31, 1937, and s not deductbe n Its return
for that fsca year. Such ta accrued and s deductbe n ts ed-
era ncome ta return for ts ta abe year n whch fe December
31, 1937.
Proper accrua date, for edera ncome ta purposes, of the
ta n certan other cases determned.
L T. 3107 (C. . 1937-2. 84) modfed.
dvce s requested reatve to the proper accrua date, for ed-
era ncome ta purposes, of the New York Cty gross recepts ta
to the case of the M Company, whch reguary empoys the accrua
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23 (o), rt. 23(c)- .
14
method of accountng and makes ts edera ncome ta returns on
the fsca year bass endng uy 31. Its ta abe year under con-
sderaton s the fsca year ended uy 31,1937.
The gross recepts ta referred to s an e cse ta mposed under
Loca Laws of 1937, No. 22, Cty of New York (approved and effec-
tve une 1 , 1937) for the prvege of carryng on or e ercsng for
gan or proft wthn the cty of New York any trade, busness, pro-
fesson, vocaton, or commerca actvty, for the perod commencng
uy 1, 1937, and endng une 30, 1938, or any part thereof. The
ta wth respect to other than fnanca busness s equa to one-tenth
of 1 per cent upon a recepts from such professon, vocaton, trade,
busness, or commerca actvty e ercsed or carred on by the ta -
payer n the cty of New York durng the caendar year 1937. The
ta wth respect to fnanca busness s equa to one-ffth of 1 per
cent upon a gross ncome receved from such fnanca busness car-
red on by the ta payer n the cty of New York durng the caendar
year 1937. The ta , however, s not mposed, and no return s re-
qured, where the gross recepts do not e ceed 10,000 per annum.
If a ta payer s engaged n both casses of ta abe actvty, he s re-
garded for the purposes of the ta as beng engaged n ony one.
namey, the cass n whch he s prncpay or predomnanty en-
gaged, and the recepts and gross ncome from both are consdered as
n actvtes as above ndcated durng the entre caendar year 1937,
the ta s measured by the recepts or gross ncome durng the perod
of one year from the date when he became so engaged and f not so
engaged for an entre year pror to une 30,1938, the ta s measured
by the recepts or gross ncome for the perod durng whch he was
so engaged, mutped by 3G5 over the number of days he was so
engaged.
Where the ta payer was engaged n ta abe actvty durng the
entre caendar year 1937, a return for the purposes of the ta must
be fed on or before une 15, 1938, and the ta must be pad at the
tme of fng the return, the ta n such case beng due and payabe
une 15, 193S. Where the ta payer was not so engaged durng the
entre caendar year 1937, but was so engaged for a perod of one year
by une 30, 1938, or wThere not so engaged for an entre year pror
to une 30, 1938, t s prescrbed (n nstructons upon return forms)
that a tentatve return be fed on or before une 15, 1938, and that
a fna return be fed on or before ugust 1, 1938, accompaned by
a remttance for the amount of ta due. s aready ndcated, no
ta s due nor need a return be fed f the basc recepts do not e ceed
10,000, but f the basc recepts e ceed 10,000 and the ta payer was
engaged n ta abe actvty durng the perod commencng uy 1,
1937, and endng une 30,1938, or any part thereof, . e., even though
durng ony one day thereof, and that may be the frst or the ast
day of such perod, abty for the ta s ncurred.
The ta s a contnuaton of a smar ta mposed under Locn
Laws of 193 , No. 29, Cty of New York, for the perod commencng
uy 1, 193 , and ended une 30, 1937, whch s a contnuaton of
smar ta es mposed for pror perods under ts Loca Laws of 1934,
No. 17 (as amended by ts Loca Laws of 1935, No. 8), and under
ts Loca Laws of 1935, No. 32. though a of the earer aws
provded an e empton of 15,000 wth respect to ta abe actv-
If the ta payer was not engaged
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147
123(c), rt. 23(c)-.
tes other than fnanca busness and of 5 000 wth respect to fnan-
ca busness, such dfferences are mmatera to the queston of the
proper accrua date of the ta es for edera ncome ta purposes.
In the opnon of ths offce, the proper accrua date of ths ta ,
for edera ncome ta purposes, shoud be determned n accord-
ance wth the prncpe ad down n Unted States v. nderson et a.
(2 9 U. S., 422, T. D. 3839, C. . -, 179 (1920)), n whch t
was hed that a ta mposed on the profts on muntons manufac-
tured and sod by the ta payer durng the year 191 accrued and
was deductbe for edera ncome ta purposes n that year by a
ta payer keepng ts accounts and makng ts returns on the accrua
bass, and not n 1917, even though the ta became due and was
pad n the atter year. The Court sad (n part):
Ony a word need be sad wth reference to the contenton that the ta upon
montons manufactured and sod n 191 dd not accrue unt 1917. In a
technca ega sense t may be argued that a ta does not accrue unt t
has been assessed and becomes due but t s aso true that n advance of the
assessment of a ta , a the events may occur whch f the amount of the ta
and determne the abty of the ta payer to pay t.
Unted State v. Woodward (25 U. S., 32 C. . 4, 153 (1921) ), reed
upon by appeees, arose under the ncome ta aw of 1918 (ch. 18, Tte
II, sectons 210-214, 219, 1405, 40 Stat., 10 2-1007, 1071, 1151). Secton
213 (a) and (e) of that ct provded that ta es pad or accrued
wthn the ta abe year mposed by authorty of the Unted States, e cept
ncome, war profts, and e cess profts ta es, mght be deducted n ascertan-
ng ncome. The cam of the ta payer of the rght to deduct estate ta es
eved under that ct for the year when due, athough pad n a ater year,
was uphed. It dd not appear whether, as here, the ta payer kept hs books
on the accrua bass or whether, as here, events had occurred before the tarn
became due whch ed the amount of t for It dd not appear whether the
deductons to be made from the testator s gross estate were ascertanabe for
the purpose of determnng the estate ta . The queston whch we now have
to determne was not rased, consdered, or decded n that case. Itacs
supped.
In other words, snce the muntons manufacturer s ta nvoved
n the nderson case was based on the ta payer s muntons profts
for the year 191 , a events whch f ed the amount of the ta and
determned the ta payer s abty to pay t had occured by the end
of that year.
ppyng that prncpe to the New York Cty gross recepts ta
mposed as above set forth, t foows that such ta for the perod
(or any part thereof) commencng uy 1, 1937, and endng une
30,1938, n the case of a ta payer who was engaged n ta abe actv-
ty durng the entre caendar year 1937, accrued, for edera ncome
ta purposes, on December 31, 1937 that n the case of a ta payer
who was not so engaged durng the entre caendar year 1937, but
was so engaged for a perod or one year by une 30, 1938, the ta
accrued (or w accrue) at the end of such perod of one year and
that n the case of a ta payer who was not so engaged durng the
entre caendar year 1937, nor for an entre year by une 30, 1938,
but was so engaged durng a part of the perod commencng uy 1,
1937, and endng une 30, 1938, the ta w accrue on une 30, 1938,
where he was so engaged on that date, and such ta accrued (or
w accrue) on the date of termnaton of ta abe actvty where
he defntey and fnay termnated such actvty pror to une 30,
1938. The same rues are appcabe to the ta for the perod (or
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23(c), rt. 23(c)-2
148
any part thereof) commencng uy 1, 193 , and ended une 30,
1937, e cept that the varous dates w be one year earer.
ccordngy, assumng that the M company was engaged n ta -
abe actvty durng the entre caendar year 1937, ts New York
Cty gross recepts ta for the perod (or any part thereof) com-
mencng uy 1, 1937, and endng une 30, 1938, accrued, for edera
ncome ta purposes, on December 31, 1937. ence, such ta shoud
not be accrued as a deducton n ts edera ncome ta return for
the fsca year ended uy 31, 1937, but n ts edera ncome ta
return for the ta abe year n whch fe December 31. 1937.
In vew of the foregong, I. T. 3107 (C. . 1937-2, 84) s mod-
fed to the e tent that t s n confct herewth. In that rung t
was hed that the New York Cty gross recepts ta for the perod
commencng uy 1, 193 , and ended une 30, 1937, accrued on
uy 1, 193 , n the case of a ta payer engaged n ta abe actvty
on that date and that the New York Cty gross recepts ta for the
perod commencng uy 1, 1937, and endng une 30, 1938, accrued
on uy 1, 1937, n the case of a ta payer engaged n ta abe actvty
on that date. The ta payer there nvoved kept ts accounts and
made ts edera ncome ta return for the caendar year 1930 on
the accrua bass. ssumng that the ta payer n that case was
engaged n ta abe actvty durng the entre caendar year 193 , the
ta for the perod (or any part thereof) commencng uy 1, 193 ,
and ended une 30, 1937, accrued, under the rues above outned,
on December 31, 193 . I. T. 3107 n hodng that the ta accrued
on uy 1, 193 , merey by reason of the ta payer beng engaged n
ta abe actvty on that date s n confct herewth uness that day
was the ony part of the perod commencng uy 1, 193 , and ended
une 30, 1937, durng whch the ta payer was so engaged and t
then defntey and fnay termnated such actvty. The hodng n
the rung that the ta for the perod (or any part thereof) com-
mencng uy 1, 1937, and endng une 30, 1938, s accruabe on
uy 1, 1937| n the case of a ta payer engaged n ta abe actvty
on that day s .aso n confct herewth uness that day was the ony
part of the perod commencng uy 1, 1937, and endng une 30,
1938, durng whch the ta payer was so engaged and t then def-
ntey and fnay termnated such actvty.
rtce 23(c)-2: edera dutes and e cse ta es. 1938-21-9352
G. C. M. 19 92
R NU CT O 103 .
Deductbty for edera ncome ta purposes of the e cse ta es
Imposed upon empoyers by secton 804, Tte III, and secton
001, Tte I , of the Soca Securty ct where the ta payer
(empoyer) keeps hs accounts on the accrua bass.
dvce s requested reatve to the deductbty for edera n-
come ta purposes of the e cse ta es mposed by secton 804, Tte
III, and secton 901, Tte I , of the Soca Securty ct. The
nqury s mted to ta payers (empoyers) who keep ther accounts
and fe ther edera ncome ta returns on the accrua bass.
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149
23(c), rt. 23(c)-2.
The empoyer s ta mposed by secton 804, Tte IIT, of the
Soca Securty ct s an e cse ta measured by a percentage of
wages pad by an empoyer after December 31, 193 . Labty for
the ta attaches when the wages are ether actuay or constructvey
r ad. ( rtce 303, Reguatons 91, reatng to Tte III of the
Soca Securty ct.) There s no abty unt such payment s
made. Not unt then can the ta be accrued, whether the payments
are made weeky, twce a month, monthy, or upon some other bass.
Therefore, where the ta payer has adopted the accrua method of
accountng, the e cse ta mposed by secton 804, Tte III, of the
Soca Securty ct s deductbe for the ta abe year n whch the
wages are actuay or constructvey pad.
Secton 901, Tte I , of the Soca Securty ct provdes that on
and after anuary 1, 193 , every empoyer sha pay for each ca-
endar year an e cse ta wth respect to havng ndvduas n hs
empoy equa to certan specfed percentages of the tota wages
payabe by hm wth respect to empoyment durng such caendar
year. Under secton 902 of the Soca Securty ct, the ta payer
may credt aganst the ta mposed by secton 901 the amount of
contrbutons wth respect to empoyment durng the ta abe year
pad by hm (before the date of fng hs return) for the ta abe
year nto an unempoyment fund under a State aw, provded the
tota credt aowed to a ta payer under that secton sha not e -
ceed 90 per cent of the ta aganst whch t s credted.
Ths offce s of the opnon that 10 per cent of the ta abty un-
der secton 901, Tte I , of the Soca Securty ct s f ed and may
be accrued f and when the empoyer quafes as an empoyer of
eght or more ndvduas n accordance wth the provsons of secton
907(a), Tte I , of the Soca Securty ct, whch reads as foows:
(a) The term empoyer does not ncude any person uness on ench of
some 20 days durng the ta abe year, each day beng n a dfferent caendar
week, the tota number of ndvduas who were n hs empoy for som .
porton of the day (whether or not at the same moment of tme) was 8 or more.
or e ampe, f a corporaton havng a fsca year ended une 30,
193 , has quafed as an empoyer under secton 907(a) by havng
n ts empoy eght or more ndvduas for the perod prescrbed n
that secton and ts abty for soca securty ta under secton 901
s ascertaned to be 20,000 (whch s n part contngent) t may
accrue 10 per cent ( 2,000) of that amount as a f ed abty deduct-
be for edera ncome ta purposes n ts return for the fsca year
ended on that date. To the e tent of 10 per cent the abty s
defntey determned and w not be affected by subsequent events.
s to the remanng 90 per cent, that porton of the 20,000 abty
under secton 901, or 18,000, may not be pad at a. of the
factors essenta to the cacuaton under secton 901, consdered
aone, may be defntey determnabe from tme to tme pror to
December 31 of any caendar year, but the fact remans that because,
of the credt provsons of secton 902, 90 per cent of the ta so cacu-
ated may never become a abty whch must be pad to the edera
Government. ssumng that as to the partcuar empoyment there
s a State unempoyment compensaton aw, t may propery be
sad that some porton up to 90 per cent of the abty under secton
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23(k), rt. 23(k)-.
150
901 s canceed mmedatey upon ts arsng by the offsettng credt
to whch the ta payer becomes entted under secton 902 e cept
for the. fact that the credt s to be aowed to the ta payer ony
for contrbutons made under the aws of States certfed for the
ta abe year as provded n secton 903. The abty under secton
901 thus remans n suspense unt acton respectng certfcaton,
as requred by secton 903, s taken by the Soca Securty oard.
Secton 903(b), Tte I , of the Soca Securty ct provdes:
(b) On December 31 n each ta abe year the oard sha certfy to the
Secretary of the Treasury each State whose aw t has prevousy approved,
e cept that t sha not certfy any State whch, after reasonabe notce and
opportunty for hearng to the State agency, the oard fnds has changed ts
aw so that t no onger contans the provsons specfed n subsecton (a) or
has wth respect to such ta abe year faed to compy substantay wth any
such provson. Itacs supped.
Secton 903(a) sets forth certan standards wth whch a State aw
(as wrtten and as admnstered) must compy n order to secure
the approva of the Soca Securty oard and be certfed on Decem-
ber 31 of each caendar (ta abe) year. It can not, therefore, be
known pror to December 31 n each caendar year whether the
partcuar State aw s certfed for that year and, as the caendar
year s the ta abe year, t can not be known unt the ast day of
the ta abe year whether the ta payer s entted to the credt pro-
vsons of secton 902. ven though t s necessary for the ta payer
to make some provson n ts accountng durng the course of the
caendar year aganst the possbe ncdence of an actua cash a-
bty for ths 90 per cent porton of the ta computed under secton
901, t s ceary a contngent provson. Inasmuch as there s a
dstnct kehood that 90 per cent of the ta cacuated under secton
901 w not be pad, . e., that t w not survve as a abty whch
must be pad to the edera Government, that much of the ta m-
posed by that secton must be cassfed as a abty contngent upon
a specfed event, namey, whether the State aw s n fact certfed
by the Soca Securty oard on December 31 of the ta abe year.
Ony n the event the State aw s not certfed w the entre amount
of the abty cacuated under secton 901 consttute a defnte and
f ed abty to the edera Government, and any defnte accrua
of the amount of the abty n e cess of 10 per cent must be
postponed unt December 31. | p y NCII L
Chef Counse, ureau of Interna Revenue.
S CTION 23(k). D DUCTIONS ROM GROSS
INCOM : D D TS.
rtce 23(k)-: ad debts. 1938-11-923
I. T. 3172
R NU CT O 193 .
Ta abty of amounts recovered on debts deducted by a bank
In a pror year pursuant to charge-offs at the specfc drecton of
edera or State bank e amners.
dvce s requested reatve to paragraph (g) of G. C. M. 18525
(C. . 1937-1, 80), reatng to deductons for bad debts n the case of
banks or other corporatons sub|ect to edera or State supervson.
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151
23(k), rt. 23(k)-.
rtce 23(k - of Reguatons 94, reatng to the Revenue ct of
193 , provdes m part as foows:
Where bnnks or other corporatons whch are sub|ect to supervson by ed-
era authortes (or by State authortes mantanng substanty equvaent
standards) n obedence to the specc orders of such supervsory offcers charge
off debts n whoe or n part, such debts sha be concusvey presumed, for
ncome ta purposes, to be worthess or recoverabe ony n part, as the case
may be. but n order that any amount of the charge-off may be aowed as a
deducton for any ta abe year t must be shown that the charge-off took pace
wthn such ta abe year.
Paragraph (g) of G. C. M. 18525, supra, reads as foows:
(g) If a debt has been so ascertaned to be worthess ether n whoe or In
part n any partcuar ta abe year but has not been aowed as a deducton
for Income ta purposes n whoe or n part as the case may be, amounts subse-
quenty coected on account of such debt are not requred to be ncuded n
p-oss ncome for the ta abe year of such recept (artce 191, Reguatons 77
artce 23(k)-, Reguatons SC and 94).
In the ast paragraph of G. C. M. 18525, t s stated:
The deductons for bad debts contempated by the cause aowed ns a de-
ducton for Income ta purposes (as used n (g) , above)
refer to deductons for bad debts whch accompshed a reducton In ta abty
and do not refer to deductons for bad debts n cases In whch the ta payer, on
account of other aowabe deductons, had no net ncome rrespectve of the
deducton for bad debts.
The queston presented s what porton, f any, of recoveres n
1937 on the bad debts set forth n the foowng case, whch were
charged off n 193 n accordance wth orders of a bank e amner,
foud be reported as ta abe ncome for 1937:
Net ncome for 193 before deducton of bad debts 10,000
ad debt No. 1 10, 000
ad debt No. 2 10,000
20,000
Loss on 193 return 10, 000
Recovery n 1937 on bad debt No. 1 3, 000
Recovery n 1937 on bad debt No. 2 1,000
Tota 4,000
G. C. M. 18525, supra, reates ony to bad debt deductons by banks
or other corporatons sub|ect to supervson of edera or State au-
thortes as a resut of the concusve presumpton of parta or tota
worthessness estabshed by orders of edera or State supervsory
offcers. ccordngy, paragraph (g) of that memorandum reates
ony to recoveres on account of such debts and does not reate to
recoveres of debts of banks or other corporatons otherwse ascer-
taned to be worthess and deducted n pror years.
s ndcated n the ast paragraph of G. C. M. 18525, deductons
forbad debts contempated by the cause aowed as a deducton for
ncome ta purposes refer to deductons whch accompsh a reduc-
ton n ta abty. In the nstant case both charge-offs were made
n 193 , and t must be assumed, for practca reasons, that the ta abe
net ncome was offset by the debt deductons n proporton to the
amount deducted on account of each debt. Thus, n ths case each
debt, to the e tent of 5,000, served to offset the ta abe net ncome,
and 5,000 of each debt resuted n no reducton of ta abe net ncome.
Snce the amount recovered n 1937 on each debt was ess than that
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23(p), rt. 23(p)-.
152
porton of each debt deducton whch dd not effect a reducton n ta
abty, t s hed that no ta abe ncome was derved from the recov-
eres n 1937.
S CTION 23(p). D DUCTIONS ROM GROSS
INCOM : P NSION TRUSTS.
rtce 23(p)-: Payments to empoyees 1938-4-9170
penson trusts. T. D. 4792
INCOM T .
rtce 23(p)- of Reguatons 04 amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 23(p)- of Reguatons 94 s amended to read as foows:
rt. 23(p)-. Payments to empoyees penson trusts. n empoyer camng
the beneft of the deducton aowabe by secton 23 (p) must show hmsef en-
tted to such deducton. In no case w any amount be aowed as a deducton
for the ta abe year under secton 23(p) and ths artce whch was aowabe
as a deducton from gross ncome for any pror year. n empoyer who adopts
or has adopted a reasonabe penson pan, actuaray sound, and who estabshes,
or has estabshed, and mantans a penson trust for the payment of reasonabe
pensons to hs empoyees (f the trust s e empt from ta under secton t 5.
reatng to trusts created for the e cusve beneft of empoyees) sha be aowed
to deduct from gross ncome reasonabe amounts pad to such trust, n accord-
ance wth the penson pan (ncudng any reasonabe amendment thereof),
as foows:
(a) If the pan contempates the payment to the trust, n advance of the
tme when pensons are granted, of amounts to provde for future penson
payments, then (1) amounts pad to the trust durng the ta abe year represent-
ng the penson abty appcabe to such year, determned n accordance wth
the pan, sha be aowed as a deducton for such year as an ordnary and
necessary busness e pense, and n addton (2) one-tenth of a reasonabe
amount transferred or pad to the trust durng the ta abe year to cover n
whoe or n part the penson abty appcabe to the years pror to the ta abe
year, or so transferred or pad to pace the trust on a sound fnanca bass,
sha be aowed as a deducton for the ta abe year and for each of the nne
succeedng ta abe years
(b) If the pan does not contempate the payment to the trust, n advance
of the tme when pensons are granted, of amounts to provde for future
penson payments, then (1) amounts pad to the trust durng the ta abe year
representng the present vaue of the e pected future payments n respect of
pensons granted to empoyees retred durng the ta abe year sha be aowed
as a deducton for such year as an ordnary and necessary busness e pense,
and n addton (2) ono-tenth of a reasonabe amount transferred or pad to
the trust du the ta abe year to cover n whoe or n part the present vaue
of the e pected future payments n respect of pensons granted to empoyees
retred pror to the ta abe year, or so transferred or pad to pace the trust on
a sound fnanca bass, sha be aowed as a deducton for the ta abe year
and for each of the nne succeedng ta abe years.
The rght to a deducton under secton 23(p) w be recognzed n cases
where the penson trust may not be perpetua, provded the trust Is of such a
character as to evdence good fath on the part of the empoyer actuay to pay
the amounts paced n trust for empoyees penson purposes. owever, shoud
any porton of the funds of a penson trust revert to the possesson, ownershp,
or contro of the empoyer by reason of the termnaton of the trust or otherwse,
such amount (e cept to the e tent that t represents a payment to the penson
trust made by the empoyer n accordance wth the penson pan and pursuant to
paragraph (a) or (b) of ths artce, and not theretofore aowed as a deducton
to the empoyer) sha be returned as ncome by the empoyer for the ta abe
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153
t 23(p), rt. 23(p)-.
year n whch t so reverts, uness pror to the cose of such year t sha agan
be paced n trust for the beneft of empoyees under provsons satsfactory to
the Commssoner.
Reasonabe payments made by an empoyer durng the ta abe year drecty
to pensoners on account of pensons n respect of whch no payment has been
made to a penson trust sha be aowed as a deducton from gross ncome for
snch year as an ordnary and necessary busness e pense.
Devces of whatever nature for wthdrawng profts or payng saares to
offcers are not penson trusts wthn the meanng of the ct and ths artce.
penson trust mantaned by affated corporatons for the e cusve beneft
of ther empoyees s wthn the scope of sectons 23(p) and 1 5.
The appcaton of secton 23(p) may be ustrated by the foowng e ampes:
ampe ccruas n advance of pensons granted: In 193 the M Company
adopted a reasonabe penson pan and estabshed a penson trust whch was
e empt from ta under secton 1 5. Durng the year and upon the bass of an
actuara computaton the company pad 8,950,000 to the trust. t the tme of
the payment and n accordance wth the penson pan of the company, the pen-
son abty appcabe to the years pror to 193 , n respect of empoyees then
oa the retred ro, for pensons to be pad n the future, was 2,000,000 the
penson abty appcabe to the years pror to 193 , n respect of empoyees
on the actve ro, for pensons to be pad n the future, was ,500,000 the pay-
ment requred to cover the penson abty appcabe to the ta abe year 1930
for pensons to be pad n the future, was 450,000. The amount pad to retred
empoyees of the M Company by the penson trust as pensons durng 193 was
8 0,000.
The deducton for 193 s computed as foows:
(a) ntre amount pad to penson trust representng the penson a-
bty appcabe to 103 for pensons to be pad n the future 450, 000
(h) One-tenth of 8,500,000, amount transferred to penson trust to
cover the penson abty appcabe to the years pror to 193 ,
n respect of empoyees on ether the retred ro or the actve
ro, for pensons to be pad n the future 850,000
Tota deducton 1,300,000
The amount of 3 0,000 pad to pensoners s not aowabe as a deducton for
ncome ta purposes snce t was pad by the penson trust and not by the
M Company.
ampe ccruas on bass of pensons granted: In 193 the N Company
adopted a reasonabe penson pan and estabshed a penson trust whch was
e empt from ta under secton 1 5. Durng the year and upon the bass of an
actuara computaton the company pad 2,300,000 to the trust. t the tme of
the payment the present vaue of the e pected future payments n respect of
pensons granted to empoyees retred pror to 193 was 2,000,000 the present
vaue of the e pected future payments n respect of pensons granted to em-
poyees retred durng 193 was 300,000. The amount pad to retred empoyees
of the N Company by the penson trust as pensons durng 103 was 3 0,000.
The deducton for 193 s computed as foows:
(a) ntre amount pad to the penson trust representng the present
vaue of the e pected future payments n respect of pensons
granted to empoyees retred durng 193 300,000
( ) One-tenth of 2,000,000, the amount transferred to the penson
trust to cover the present vaue of the e pected future pay-
ments n respect of pensons granted to empoyees retred pror
to 193 200,000
Tota deducton 500,000
The amount of 3 0,000 pad to pensoners Is not aowabe as a deducton for
ncome ta purposes, snce It was pad by the penson trust and not by the N
Company.
Reguatons 94 are further amended by addng after artce
- P)-1, as amended, the foowng artce:
w. 23(p)-2. Informaton to be furnshed by empoyer camng deduc-
oM f a deducton from gross ncome s camed under secton 23(p) In an
83421 88
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23(p), rt. 23(p)-.
154
Income return or n a cam for refund on account of payments to an empoyee s
penson trust, the empoyer sha fe wth such return or cam for refund a
statement descrbng the penson trust pan, ncudng the bass and method of
ts operaton, together wth a copy of the trust ndenture, wth any amendments
thereto, and other documents consttutng a part of the pan. If a empoyees
are not ncuded as benefcares of the penson trust, a statement showng
what casses of empoyees are e cuded, and the genera nature of ther re-
spectve empoyment and dutes, together wth the reason why a empoyees are
not covered by the penson trust pan, sha kewse be fed. If such statements
have once been fed and f the return contans a statement when and where
such statements were fed, they need not agan be fed but, however, f
changes n the penson trust pan have been made, a statement showng the
nature of such changes (together wth copes of any amendments to the trust
ndenture and other documents consttutng a part of the pan) must be fed
wth the return for the frst ta abe year for whch aowance of deductons
under secton 23(p) may be affected by such changes n the penson trust pan.
In addton the foowng descrbed data and nformaton sha be kept at a
tmes avaabe for nspecton by nterna revenue offcers at the man offce
or prncpa pace of busness of the empoyer:
1. Schedues or work sheets showng the dervaton of the basc vauaton
factors, or, f such data are not avaabe, a statement gvng the source of the
factors from whch the actuara vauatons were made.
2. (o) Schedues showng the computaton of the reserve abty for a
empoyees n the actve servce as determned from the most recent actuara
vauaton. or ta abe years begnnng after December 31, 193 , the most recent
actuara vauaton, for the purposes of ths artce, means such a vauaton made
not earer than fve years pror to the fng of the return.
( ) smar schedue based on the ne t precedng vauaton If such a vaua
ton has been made.
3. schedue showng by ages the ndvdua current abty factors and the
appcaton of these factors n determnng the abty accrued durng the
current ta abe year.
4. (a) schedue showng the computaton of the penson abty for a
empoyees retred on penson at the date of the ast actuara vauaton.
( ) schedue showng, by caendar years, the present vaue of pensons
granted from the date of the ast actuara vauaton to the end of the ta abe
year for whch the deducton s camed n an ncome return or n a cam for
refund.
5. schedue showng the recepts and dsbursements of the penson fund
durng each ta abe year carred forward from the date the penson trust was
estabshed. The recepts shoud ncude the accruas mentoned In paragraph
3, nterest, and any other moneys credted to the fund. The dsbursements
shoud ncude actua penson payments made to retred empoyees and any
other e pendtures charged to the penson fund.
If the vauaton factors are changed at any tme, ether because of a change
n the penson pan or because of a change n the assumptons upon whch the
vauaton factors are based, the data ndcated under 2. 3, and 4 above shoud he
avaabe showng the appcaton of both the od and the new vauaton factors
to the pay ro as of the vauuton date concdng wth or ne t foowng the
date of the change.
If the penson pan does not contempate the payment to the trust n advance
of the tme when pensons are granted, of amounts to provde for future penson
payments, the data descrbed under 2 and 3 above need not be furnshed.
Ths Treasury decson s ssued under the authorty contaned n
secton 2 of the Revenue ct of 193 .
Chas. T. Russe ,
ctng Commssoner of Interna Revenue.
pproved anuary 18, 1938.
ROSW LL M GILL,
ctng Secretary of the Treasury.
(Ped wth the Dvson of the edera Regster anuary 21, 1038, 12.4S p. m.)
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155
2 . rt. 2 -2.
S CTION 2 . CR DITS O CORPOR TIONS.
rtce 2 2: Credt n connecton wth con
tracts restrctng payment of dvdends.
1938-3-9144
I. T. 3152
R NU CT O 193 .
The provson n the preferred stock certfcates of the M Cor-
poraton ssued pror to May 1, 1930, that no dvdends sha be
pad on the common stock whe any of the preferred stock re-
mans outstandng and that no dvdend sha be pad on the
preferred stock so ong as the corporaton sha owe on wrtten
evdence of debt n e cess of doars, consttutes a restrcton
on the payment of dvdends by the corporaton and enttes t
to the credt provded by secton 2 (c) 1 of the Revenue ct of 193
unt the condtons are met or faure to meet them s due to
the wfu conduct of the corporaton.
dvce s requested whether the M Corporaton s entted to a
credt under secton 2 (c) 1 of the Revenue ct of 193 for purposes
of the surta on undstrbuted profts mposed by secton 14 of that
ct on the ground that t was restrcted from payng any dvdends
durng the ta abe year by the foowng provson contaned n the
outstandng preferred stock certfcates of the corporaton ssued
The shares of the preferred stock sha be entted, begnnng on the 1st day
of October, 1932, to carry dvdends payabe on the 1st days of anuary, pr,
uy and October n each year at the rate of per centum and no more, to be
decared and pad out of the net profts or surpus, such dvdends to be cumu-
atve and to have preference over dvdends on the common stock of the
corporaton, so that no dvdends sha be decared or pad on the common
stock of the corporaton whe any of sad preferred stock remans outstandng
nor sha any dvdend be decared or pad upon sad preferred stock so ong
as or f the corporaton sha on ts notes or other wrtten evdence of debt
ewe n e cess of doars, but not ncudng ts capta stock.
Preferred stock n the amount of doars has been outstandng
snce 1932 and the company has been ndebted on ts notes n e cess
of doars at a tmes snce that year. In vew of the above-
quoted restrcton contaned n the preferred stock certfcates, the
company pad no dvdends durng the year 193 or n pror years.
The queston s presented whether the restrcton contaned n the
certfcates of preferred stock, a of whch were ssued and outstand-
ng pror to May 1, 193 , consttutes such a restrcton on the pay-
ment of dvdends as to entte the company to the credt provded
for n secton 2 (c) of the Revenue ct of 193 , whch reads as
foows:
(c) Contracts restrctng payment of dvdends.
(1) Prohbton on payment of dvdends. n amount equa to the e cess
of the ad|usted net ncome over the aggregate of the amounts whch can be
dstrbuted wthn the ta abe year as dvdends wthout voatng a provson
of a wrtten contract e ecuted by the corporaton pror to May 1, 193 , whch
provson e pressy deas wth the payment of dvdends. If a corporaton
woud be entted to a credt under ths paragrnph because of a contract pro-
vson and aso to one or more credts because of other contract provsons,
ony the argest of such credts sha be aowed, and for such purpose f two
or more credts are equa n amount ony one sha be taken nto account.
n 1932:
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41, rt. 41-1
15
The restrcton contaned n the preferred stock certfcates pro-
hhts payment of dvdends n any medum so ong as the corpora-
ton has wrtten evdence of debt outstandng n e cess of doars.
It s to be noted that the restrcton s n genera terms, unquafed
by any anguage to ndcate that the restrcton was ntended to appy
ony to dvdends n cash. The ureau hods that where there s a
genera restrcton on the payment of dvdends n unquafed terms,
the corporaton s entted to credt under secton 2 (c) of the
Revenue ct of 193 to the e tent that dvdends are restrcted
thereby.
It s, therefore, hed that the provson contaned n the preferred
stock certfcates consttutes a restrcton on the payment of dv-
dends by the M Corporaton, enttng the corporaton to the credt
provded by secton 2 (c) of the Revenue ct of 193 unt the
requrements of that provson have been met, or unt the faure
to meet those requrements may be sad to be due to the wtu con-
duct of the corporaton. (I. T. 3130, C. . 1937-2, 107 L T. 3133,
C. . 1937-2,109 I. T. 3139, C. . 1937-2, 111.)
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 41. G N R L RUL .
rtce 41-1: Computaton of net ncome. 1938-8-9201
I. T. 31 4
R NU CT O 19: .
The foowng rates of e change are accepted by the ureau of
Interna Revenue as the current or market rates of e change pre-
vang as of December 31, 1937:
Country or cty.
Monetary unt.
aue n
terms of
I nted
Sates
money.
Country or cty.
Monetary unt.
rgentna
ustraa
ustra
egum
raz
rtsh Inda...
ugara
Canada-
Che
OaOt
Chna
Coomba
Cuba
Czechosovaka
Denmark
ngand
nand
ranco
Germany
Greece
ong ong
Peso
0.333145
Pound
3.9) 0yS9
Schng
. I- - .
. 109571
Mres
. 01.2277
Ruee
.377235
Lev
.012725
Doar
.9Ub942
Peso -
.05 I M)
Peso
.040000
Yuan
.2U40S7
Peso
. 519500
Peso
.99910
oruna
.035087
rone
.223008
Pound
4.997041
Markka
.022080
ranc
.033920
Recbsmark...
.402 4
.0091 4
Doar
.312082
ungary
Itay
apan
Me co
Netherands. _
New Zeaand
Norway
Panama
Peru.
Phppne Isands-
Poand
Portuga __
Rumana
South frca-
Span
Strats Settements
Sweden
Swtzerand ...
Uruguay
enezuea
Yugosava
Pengo
Lra, _
Yen
Peso
orn
Pound
rone
aboa-.-
So
Peso _
Zoty
scudo
Leu
Pound
Peseta
Doar
rona
ranc
Peso
ovar
Dnar
Offca rate.
port rate.
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41, rt. 41-3.
rtce 41-1: Computaton of net ncome. 1938-2 -9407
( so Secton 23(a), rtce 23(a)-.) G. C. M. 20307
R NU CT O 1030 ND PRIOR R NU CTS.
Whore nsurance premums whch consttute busness e penses
are pad n advance for a perod of more than one year by a
ta payer fng edera ncome ta returns on the cash recepts
and dsbursements bass, the amount of such premums s deduct-
be n the year of payment.
G. C. M. 13148 (C. . III-1, 7 (1934)) revoked.
In Wech v. De os et a., Trustees, decded by the Unted States
Crcut Court of ppeas for the rst Crcut on ebruary 15, 1938
(94 ed. (2d), 842), t was hed that a ta payer who renders edera
ncome ta returns on the bass of cash recepts and dsbursements
may deduct as an ordnary and necessary busness e pense n the
year of payment nsurance premums on busness property even
though such premums are pad n advance for a perod of more
than one vear.
In G. C. M. 13148 (C. . III-1, C7 (1934)) t was hed, n
the case of a ta payer fng returns on the cash recepts and ds-
bursements bass, that where nsurance premums are deductbe as
busness e penses and are pad n advance for a perod of more than
one year, ony the pro rata part of such payment s aowabe as a
deducton each year.
In vew of the decson n Wech v. De os et a., Trustees, supra,
G. C. M. 13148 s hereby revoked.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
rtce 41-3: Methods of accountng. 1938-21-9353
G. C. M. 20021
R NU CT O 1938.
mounts receved by the M Pubshng Co. wthn the ta abe
year for subscrpton servce to be rendered n a succeedng year or
years, there beng no restrcton as to dsposton, use, or en|oyment
of such amounts, consttute ncome for the year n whch receved
regardess of the fact that the ta payer s books of account are
kept on the accrua bass.
dvce s requested whether ncome receved by the M Pubshng
Co. n payment for subscrptons to perodcas may be reported as
ncome for the years n whch earned rather than n the year of
recept. The facts are as foows:
The M Pubshng Co., the ta payer, ssues two perodcas, a
weeky and a quartery. Snce the date of ts ncorporaton t has
used the accrua method of accountng and fed ts returns on the
caendar year bass. Income from subscrptons has been reported
for the year n whch receved. The ta payer now proposes to report
n the year of recept ony that porton of each subscrpton payment
whch the remanng perod of the ta abe year bears to the fu
perod covered by the subscrpton. It s contended that unearned
subscrptons at the end of each ta abe year consttute a abty
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42, rt. 42-1.
158
of the company whch, accordng to ts present system of accountng,
s not refected on ts books of account. or ths reason the ta payer
requests permsson to report ncome receved from subscrptons n
the years n whch earned rather than n the year n whch receved.
Secton 42 of the evenue ct of 193 provdes that the amount of
a tems of gross ncome sha be ncuded n the gross ncome for
the ta abe year n whch receved by the ta payer uness, under
methods of accountng permtted under secton 41 of that ct, any
such amounts are to be propery accounted for as of a dfferent perod.
Under secton 41 f the method of accountng empoyed does not
ceary refect the ncome, the computaton sha be made n ac-
cordance wth such method as n the opnon of the Commssoner does
ceary refect the ncome.
Inasmuch as edera ncome ta es are based upon ncome whch
s the net resut of a of a ta payer s transactons durng the annua
accountng perod, there may be n a gven case a varance between
an accountant s concept of ncome and ncome as computed under
the statute. The genera rue as to advance payments of royates,
bonuses, rents, etc., s that such payments are ncome for the year
n whch receved whether the cash or accrua method of accountng
s used, and even though no part of such advance payments was earned
n the ta abe year. (See utomobe Underwrters, Inc., v. Comms-
soner, 19 . T. ., 11 0 O. . Mead Coa Co. v. Commssoner,
31 . T. ., 190 Poneer utomobe Servce Co. v. Commssoner,
3 . T. ., 213 I. T. 2080, C. . III-2, 48 (1924).) The permsson
to deduct unearned premums on outstandng busness at the end
of the ta abe year granted to certan nsurance companes under
secton 204(b) 5, Revenue ct of 193 , appears to be a specfc e cep-
ton. Whe under the accrua method of accountng, generay speak-
ng, net ncome s n a broad sense measured by the e cess of ncome
earned over e penses ncurred, t w be observed that under the
statute ta abe ncome s not mted to earned ncome.
In vew of the foregong, t s the opnon of ths offce that
amounts receved by the M Pubshng Co. wthn the ta abe year,
wthout restrcton as to dsposton, use, or en|oyment, for subscrp-
ton servce to be rendered n a succeedng year or years consttute
ncome for the year n whch receved regardess of the fact that the
ta payer s books of account are kept on the accrua bass.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
S CTION 42. P RTOD IN W IC IT MS O
GROSS INCOM INCLUD D.
rtce 42-1: When ncuded n gross ncome. 1938-8-9202
L T. 31 5
R NU CT O 1030.
Where the accrua method of accountng Is used by a ta payer,
the amount of a |udgment entered n ts favor by the Unted States
Court of Cams, whch |udgment became fna n 1937, shoud be
Incuded n the ta payer s gross ncome for that year, athough
payment of the |udgment s dependent upon an appropraton beng
made by Congress for that purpose.
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159
42, rt. 42-1.
dvce s requested as to when ta abe ncome accrues to the M
Company under the foowng crcumstances:
The ta payer (the M Company) nsttuted a sut aganst the Unted
States n the Court of Cams for damages for aeged breach of con-
tract and was awarded a |udgment for as doars whch became fna
n 1937, a petton for wrt of certorar havng been dened by the
Unted States Supreme Court n that year and the perod for fng
a petton for rehearng havng e pred n that year. The payment
of the |udgment s dependent upon an appropraton beng made by
Congress for that purpose. No such appropraton was made n 1937.
The ta paver fes ts ncome ta returns on the caendar year bass
and uses the accma method of accountng. The ta paver contends
that the proceeds of the |udgment shoud be consdered ncome when
coected.
s heretofore stated, the |udgment became fna n 1937, and, a-
though t was not pad and no appropraton was made for ts pay-
ment n that year, there was then (when and after the |udgment
became fna) a reasonabe e pectancy that t woud be pad n due
course. Snce the ta payer empoys the accrua method of accountng,
t s suffcent for the ncuson of ths ncome n ts gross ncome
for ts ta abe (caendar) year 1937 that ts rght to the ncome became
fnay f ed n that year and that there was then a reasonabe e pect-
ancy that the rght woud be converted nto money. ( . Lcbes
Co. v. Commssoner, 90 ed. (2d), 932.) ccordngy, t s hed that
the amount of the |udgment shoud be ncuded n the ta payer s gross
ncome for ts ta abe year 1937.
rtce 42-1: When ncuded n gross ncome. 1938-19-9328
I. T. 3187
R NU CT O 1930.
Where the ta payer s books of account are kept on the accrua
bass, condtona payments whch It e pects to receve under
Tte III of the Sugar ct of 1937 ( 50 Stat., 903, 909) shoud be
reported as ncome for the ta abe year n whch such payments
are authorzed by the Secretary of grcuture.
dvce s requested whether the M Company, whch keeps ts books
on the accrua bass, shoud ncude n ts gross ncome for the caendar
year 1937 the condtona payments whch t e pects to receve from
the Secretary of grcuture, under the authorty vested n that off-
ca by Tte III of the Sugar ct of 1937, approved September 1,
1937 ( 50 Stat., 903, 909), for sugar produced from sugar beets and
cane harvested durng the perod uy 1 to December 31, 1937.
rght of the producer to such payments s contngent upon hs
meetng the varous condtons specfed n the ct to the satsfacton
of the Secretary of grcuture. Not unt then can t be propery
sad that any vested rght to the ncome has accrued to the ta payer
or that there s any f ed abty on the part of the Government to
make the condtona payments. (Cf. Unted States v. nderson, 2 9
U. S., 422, T. D. 3839, C. . -, 179 (192 ).) Pror to the meetng
of the condtons to the satsfacton of the Secretary of grcuture,
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51, rt. 51-1.
1G0
any rght to such ncome s purey contngent and t s fundamenta
that contngent tems shoud not be accrued for edera ncome ta
purposes. It has been hed that ncome does not accrue to a ta payer
unt there arses to hm a f ed or uncondtona rght to receve t.
( . Lebes Co. v. Commssoner, 90 ed. (2d), 932.) If payment
of the ncome, even though earned, s contngent upon the happenng
of future events and may never be receved, a ta payer shoud not be
requred to pay a ta thereon. (North mercan O Consodated v.
urnet, 28 U. S., 417, Ct. D. 499, C. . I-1, 293 (1932) Ceveand
Trndad Pavng Co. (Oho) v. Commssoner, 20 . T. ., 772,
affrmed 2 ed. (2d), 85.)
In vew of the foregong, t s the opnon of ths offce that nas-
much as the M Company s books of account are kept on the accrua
bass, condtona payments whch t e pects to receve under the
Sugar ct of 1937 shoud be reported as ncome for edera ncome
ta purposes for the ta abe year n whch such payments are author-
zed by the Secretary of grcuture.
P RT . R TURNS ND P YM NT O T .
S CTION 51. INDI IDU L TURNS.
rtce 51-1: Indvdua returns. 1938-12-9245
I. T. 3173
R NU CT O 193 ND PRIOR R NU CTS.
Where mercan ctzens are marred n the Phppne Isands,
resde there, and are sub|ect to the communty property aws of
that country, the wfe may fe a separate return coverng the n-
come receved from her parapherna property. owever, f the
ncome from such property s added to the con|uga property, the
ncome from such ncome may not be reported by her n a separate
return.
I. T. 1297 (C. . 1-1, 235 (1922)) modfed.
dvce s requested reatve to the fng of separate edera n-
come ta returns by marred mercan ctzens resdng n the Ph-
ppne Isands.
In ths connecton reference s made to the decson rendered by the
Supreme Court of the Phppne Isands n Ossoro v. Posadas (5
Ph., 748 (1929)) and to I. T. 1297 (C. . 1-1, 235 (1922)) n whch
t was hed that the ncome ta return of the husband shoud ncude
the ncome of the separate property of the wfe.
In the Ossoro case, supra, the pantff, Mgue . Ossoro, and hs
wfe each fed separate ncome ta returns for the year 1927. The
husband s return dscosed a net ta abe ncome of P128. 31.35, and
hs wfe s return dscosed a net ta abe ncome from the parapherna
property (whch she nherted from her father) of 1 598, 8 .70. The
defendant as coector of nterna revenue combned the two separate
and ndependent returns of the pantff and hs wfe and assessed for
the year 1927 aganst the pantff aone the addtona ta of
1 59,928.29 upon the sum tota of the combned net ta abe n-
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1 1
51, rt. 51-1.
come of the pantff and hs wfe. The pantff pad the ta of
59,928.29 on une 15, 1928. If the ta had been computed and
assessed separatey upon the net ta abe ncome of the pantff and
hs wfe, there woud have been due for the year 1927 from the hus-
band a ta of 1 3,724.72, and from the wfe a ta of 1 45,505. 5.
The decson rendered n the Ossoro case, supra, s n part as fo-
ows:
Ths acton s for the recovery from the defendant of the sum of 5 ,24 .72
whch he, accordng to the compant, coected from the pantff n e cess of
what he shoud have coected by way of ncome ta , n accordance wth the
decaraton return presented for that purpose.
4
The basc pont of dscusson between the partes s whether the parapherna
property of the pantff s wfe consttutes her separate estate wthn the
scope and meanng of ths phrase for the purposes, of the addtona ncome ta ,
so that she s entted to fe a separate decaraton return , and to have the
addtona ta on the ncome from her parapherna property separatey assessed.

s the rues governng the ncome ta n the Phppnes are derved from
North merca, t s necessary to determne whether or not the parapherna
property under the Cv Code of the Phppne Isands s the
so-eaed separate estate of North mercan aw and ursprudence.
In our opnon the paraphernn consttute the property desgnated In the
Unted States aw and |ursprudence, statutory semrate estate as ds-
tngushed from the equtabe separate estate whch s a creaton of the
ngsh common aw, not n force n the Phppnes, because our aw on the
matter has been derved from Span, and through Span from the Roman
aw. ere there are gven certan defntons whch show that the
wfe s parapherna property s the equvaent of the wfe s statutory
separate estate of North mercan aw.

It shoud be noted that both wth respect to the parapherna property,
and to the statutory separate estate, the ownershp thereof beongs to the
wfe e cusvey, and the ncome s not at the husband s dsposa, nor s she
responsbe for hs persona obgatons.
The foowng ctaton s nvoked
to show that the separate estate dffers from the parapherna
property n that, among other detas, the Cv Code In force
n the Phppnes provdes that the fruts, rents or nterest from the para-
pherna property are a part of the con|uga property (artce 1385).

The fact that under the aw artce 1385, supra the ncome from the para-
pherna property passes to the con|uga property does not prevent t from beng
ncome derved from the wfe s separate estate, and ta abe as such.
When the wfe s ncome passes to the marrage property, t t not added as
ncome from the con|uga property, but as a part of the funds or capta of sad
property.
The court beng of the opnon that the parapherna property s the equvaent
of the North mercan so-caed wfe s separate estate, and that the ncome
therefrom s ta abe as the wfe s ncome, and not as a part of the funds (not
ncome) of the con|uga partnershp, we see no reason for not appyng to the
Instant case the resouton sc of the Unted States Department of the Treas-
ury passed upon a case that orgnated n the Phppnes, and therefore, arrved
at after a consderaton of our aws on con|uga property and those on separate
property of husband and wfe, quoted wth approva n the case of Madrga
and Paterno v. Rafferty and Concepcon 1918 (38 Ph., 414), as foows:
Where the wfe has ncome from a separate estate and makes return
thereof, or where her ncome s separatey shown n the return made by her
husband, whe the ncomes are added together for the purpose of the norma ta
they are taken separatey for the purpose of the addtona ta .
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51, rt. 51-2.
1 2
Wherefore, the |udgment appeaed from Is reversed, and It s ordered that
the defendant make two separate assessments of the addtona ncome ta , one
aganst the pantff, and the other aganst hs wfe on her parapherna property,
returnng the sum of P5 .203.50 to sad pantff, .
Snce the court hed n the Ossoro case that the ncome from the
parapherna property s ta abe as the wfe s ncome t s hed that
the wfe may, n a case where she s an mercan ctzen resdng n
the Phppne Isands and sub|ect to the communty property aws
thereof, fe a separate return coverng a ncome actuay or con-
structvey receved from her parapherna property.
Snce the court aso hed n the Ossoro case that the ncome from
the parapherna property s added under artce 1385 of the Cv
Code n force n the Phppne Isands to the con|uga property as
a part of the funds or capta of sad con|uga property, t s hed
that the ncome from a or any part of such ncome may not, n a
case where the wfe s an mercan ctzen resdng n the Phppne
Isands, be reported by her n a separate return for the purpose of the
edera ncome ta .
ttenton s nvted to artce 10 of the Cv Code of the Phppne
Isands, whch reads n part as foows:
persona property s sub|ect to the aws of the naton of the owner
thereof rea property to the aws of the country n whch t s stuated.
No case has been ocated n whch t s hed that mercan ctzens,
marred n the Unted States, are sub|ect to the communty property
system of the Phppne Isands by reason of subsequent resdence or
domce n the sands. owever, under the aws of Puerto Rco,
whch are fundamentay smar, the Supreme Court of Puerto Rco
has hed that ts communty property aws do not appy to mercan
ctzens, marred n the Unted States, resdng n Puerto Rco.
( arthomew v. en et a., 24 P. R. R., 347 ntongorg v. The Reg-
strar of Property, P. R. R., 493.) ccordngy, the foregong con-
cusons are appcabe ony to those cases n whch mercan ctzens
are marred n the Phppne Isands, resde there, and are sub|ect to
the communty property aws of that country.
I. T. 1297 supra, s hereby modfed to conform to the vews e -
pressed heren.
rtce 51-2: orm of return. 1938-13-92 7
( so Secton 142, rtce 142 5.) T. D. 4795
INCOM T .
mendments to artce 51-2, Reguatons 04, and to artce 142-5,
Reguatons 94, as amended by Treasury Decson 4791 page 83,
ths uetn .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 51-2 of Reguatons 94, reatng to the form of return, s
hereby amended by nsertng after the frst sentence thereof the
foowng:
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1 3
52, rt. 2-1.
or ta abe years begnnng after December 31, )3C, tbe return sha be
on short orm 1040 f (1) the net Income does not e ceed 5,000 and s
derved soey from nterest, dvdends and saares, wages, commssons, bonuses,
and other compensaton for persona servces, and (2) the ta payer does not
own a busness or practce a professon on hs own account and renders a
return on the cash recepts and dsbursements bass for the caendar year.
rtce 51-2 of Reguatons 94 s further amended by strkng out
the parenthetca cause n the ffth sentence.
Paragraph (b) of artce 142-5 of Reguatons 94, as amended by
Treasury Decson 4791, approved anuary 14, 1938 (page 83, ths
uetn), s hereby further amended by strkng out of the frst sen-
tence thereof on orm 1040N by strkng out of the second sen-
tence thereof orm 1040N , and nsertng n eu thereof orm
1040N (a) and by strkng out of the thrd sentence thereof
a orm 1040N , and nsertng n eu thereof a return.
Ths Treasury decson s ssued pursuant to the authorty contaned
n secton 2 of the Revenue ct of 193 .
Gut T. everng,
Commssoner of Interna Revenue.
pproved March 21, 1938.
Roswe Mag .
ctng Secretary of the Treamry.
( ed wth the Dvson of the edera Regster March 2.1, 1938. 10.37 a. m.)
S CTION 52. CORPOR TION R TURNS.
rtce 52-1: Corporaton returns. 1938-11-9237
G. C. M. 19714
U CT O 11)30.
Connectcut corporaton whch has comped wth the State
statutory requrements n order to obtan a certfcate of organ-
zaton, f not otherwse e empt, s requred to fe a return for
edera Income ta purposes.
dvce s requested whether a Connectcut corporaton whch has
fed ts certfcate of organzaton wth the secretary of state n
accordance wth the requrements of the State aw shoud be regarded
as havng perfected ts organzaton and thus requred to fe a return
for edera ncome ta purposes.
rtce 52-1 of Reguatons 94, reatng to the requrement for
fng ncome ta returns by corporatons, states n part that:
corporaton whch has receved a charter, but has never perfected
ts organzaton, whch has transacted no busness and had no ncome from any
source, may upon presentaton of the facts to the coector be reeved from
the necessty of makng a return as ong as t remans n an unorganzed
condton.
That part of the reguatons recognzes the genera rue of aw that
even after obtanng a charter a corporaton s not capabe of trans-
actng busness unt t has been propery organzed by the eecton
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54, rt. 54-1 .
1 4
of offcers and drectors to act for the corporaton and the adopton of
by-aws. (Cramer v. urn ham-, 107 Conn., 21 , 140 t., 477.)
Under the aws of Connectcut, a corporaton pror to engagng n
busness must obtan from the secretary of state a certfcate of organ-
zaton. The statutory requrements for commencement of busness
are found n secton 3404, Tte 35, Genera Statutes of Connectcut,
Revson of 1930, readng as foows:
Commencement of busness: certfcate of organzaton. No corpo-
raton sha commence busness unt the amount of capta speeed n ts
certfcate of ncorporaton as the amount of capta wth whch t w commeuce
busness has been pad n nor unt ts drectors and offcers have been duy
eected and ts by-aws adopted nor unt a ma|orty of ts drectors have caused
to be fed a certcate of organzaton settng forth: (1) The amount of each
cass of stock subscrbed for (2) the amount pad thereon n cash (3) the
amount pad thereon n property other than cash (4) the amount pad on each
share of stock whch s not pad for u fu (5) the name, resdence and address
of each of the or|rna subscrbers, wth the number and cass of shares sub-
scrbed for by each ( ) that the drectors and offcers of the corporaton have
been duy eected and ts by-aws adopted (7) the name, resdence and post
offce address of each of the offcers and drectors (8) the ocaton of ts prn-
cpa offce n ths State, wth the street and number, f any there be, and the
name of the agent or person n charge thereof upon whom process aganst the
corporaton may be served. copy of such certfcate, duy approved by the
secretary of the State and certfed under hs hand and the sea of the State,
sha be prma face evdence that such corporaton has been duy organzed and
s duy authorzed to e ercse a of ts corporate powers. Uness the certfcate
of organzaton requred by ths secton sha be fed wthn two years after the
fng of the certfcate of ncorporaton, such certfcate of Incorporaton sha
be vod.
The queston presented s whether a corporaton after obtanng
the prescrbed certfcate of organzaton shoud be regarded as havng
perfected ts organzaton and thus requred to fe a edera ncome
ta return.
It s the opnon of ths offce that the performance of the acts
whch are requred by the quoted provsons of the State aw n order
to obtan a certfcate of organzaton s suffcent to consttute perfec-
ton of the organzaton of the corporaton wthn the meanng of the
provsons of Reguatons 94, supra, and that after a corporaton has
fufed those statutory requrements t s requred, uness otherwse
e empt, to fe a return for edera ncome ta purposes.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
S CTION 54. R CORDS ND SP CI L R TURNS.
rtce 54-1: Records and ncome ta forms 1938-3-9152
( so Secton 358 Secton 503, rtce 27 T. D.4789
(Reguatons 95).)
Income returns. Informaton requred regardng the prepara-
ton of ncome returns under Tte I, Tte 1 , and Tte III,
Revenue ct of 103 , as amended, for ta abe perods endng on or
after December 31, 1937.
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54, rt. 54-1.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned
Tte I (Income Ta ) of the Revenue ct of 193 , as amended,
provdes n part:
Sec. 54. Records and Speca Returns.
(a) y ta payer. very person abe to any ta mposed by ths tte or
for the coecton thereof, sha keep such records, render under oath such
statements, make such returns, and compy wth such rues and reguatons, as
the Commssoner, wth the approva of the Secretary, may from tme to tme
prescrbe.
#
Sec. 2. Rues and Reguatons.
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths tte.
Tte I ( ddtona Income Ta es) of the Revenue ct of 193 ,
as amended, provdes n part:
Src. 35S. dmnstratve Provsons.
provsons of aw (ncudng penates) appcabe n respect of the ta es
Imposed by Tte I of ths ct, sha nsofar as not nconsstent wth ths tte,
be appcabe n respect of the ta mposed by ths tte, e cept that the pro-
vsons of secton 131 of that tte sha not be appcabe.
Tte III (Ta on Un|ust nrchment) of the Revenue ct of
193 provdes n part:
Sec. 503. dmnstratve Provsons.
(a) provsons of aw (ncudng penates) appcabe wth respect to
ta es mposed by Tte I of ths ct, sha, nsofar as not nconsstent wth
ths tte, be appcabe wth respect to the ta es mposed by ths tte, e cept
that the provsons of sectons 101, 131, 251, and 232 sha not be appcabe.

Pursuant to the authorty n the above-quoted provsons of the
ct, the foowng reguatons reatng to the preparaton of ncome
returns are hereby prescrbed:
rtce 1. Scope of reguatons. (a) These reguatons appy to a ncome
returns for ta abe perods endng on or after December 31, 1937, requred
under Tte I, Tte I , and Tte III of the Revenue ct of 193 , as amended,
e cept
( ) Returns requred to be made by ndvduas on orm 1040 (returns of
net ncome not e ceedng 5,000 and derved from saares, wages, nterest, and
dvdends)
( ) Returns requred under sectons 143 and 144 (reatng to wthhodng of
ta at the source)
(C) Returns requred to be made by departng aens under secton 14
(reatng to cosng of ta abe year)
(D) Returns requred under sectons 147, 148, and 149 (reatng to nforma-
ton at source)
( ) Returns by subsdary corporatons ncuded n consodated returns and
( ) Returns requred under sectons 338(a), 339, nnd 340 (reatng to
monthy nformaton returns fed by offcers and drectors, and aso monthy
and annua nformaton returns fed by certan sharehoders, of certan
foregn corporatons, and returns as to the formaton of foregn corporatons).
( ) The term return as used hereafter In these reguatons means an
ncome return to whch these reguatons are appcabe.
(c) The term preparaton as used n these reguatons does not refer to
mere mechanca assstance or preparaton, as for e ampe, the work done by
a stenographer or a typst n the preparaton of the return.
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54, rt. 54-1.
1
rt. 2. ffdavt by person preparng the return for another person. If any
person or persons actuay prepare a return for another person, the prescrbed
form of affdavt on the return sha be subscrbed and sworn to by such person
or persons preparng the return.
rt. 3. Partcuar cases. (a) If the return s the separate return of a mar-
red person, the requrements of artce 2 appy, athough the one actuay
preparng the return s the husband or wfe of the ta payer.
( ) If the actua preparaton of the return s a reguar and usua ncdent
of the empoyment of one reguary and contnuousy empoyed by the person
for whom the return s made for the fu tme of such empoyee (as cerk,
secretary, bookkeeper, accountant, etc.), the requrements of artce 2 do not
appy. If, however, the empoyee s not reguary or contnuousy empoyed
by the person for whom the return s made for fu tme, or the actua prepara-
ton of the return s not a reguar and usua ncdent of such empoyment,
the requrements of artce 2 appy. Thus, f the return s prepared by an
accountant or rm of accountants makng perodca audts of the accounts of
the person for whom the return s prepared, the sworn statement requred
by artce 2 sha be made.
(c) If, n the course of hs offca dutes, a deputy coector, an nterna rev-
enue agent, or other offcer or empoyee of the ureau of Interna Revenue
actuay prepares the return, the person for whom the return s made sha
make n the return a bref statement to that effect, and t w not be necessary
to make the sworn statement requred by artce 2.
C 8. T. Russe,
ctng Commssoner of Interna Revenue.
pproved anuary 10, 1938.
ROSW LL MaGILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster anuary 12, 1938, 4.12 p. m.)
rtce 54-1: Records and ncome ta forms. 1938-11-9238
Mm. 4 93 (Rev.)
Statement of net worth.
Treasury Department,
Offce or Commssoner of Interna Revenue,
Washngton, D. C, ebruary 1 /., 1938.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Other Offcers and mpoyees of the ureau Concerned:
In the nterest of unformty, the attached form ( orm 9 2, revsed)
has been prepared for use by nterna revenue agents n ther work
n verfyng the correctness of ta returns whch, because of the
nsuffcency of the records of ta payers whch such returns refect
or for other reasons, can not be satsfactory verfed wthout a
statement of net worth.
When, n the cases descrbed, t s necessary to obtan the nforma-
ton specfed n ths form, such form shoud be forwarded by the
nterna revenue agent wth hs report.
Inqures regardng ths mmeograph shoud refer to the number
thereof and to the symbos IT: CTR.
Gut T. everno,
Commssoner.
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1 7 5 2.
orm 9 2. Treasury Department. Interna Revenue Servce. (Revsed ebruary, 1938).
Statement of net worth.
Ta abe year endng , 193__.
D SCRIPTION O SS TS.
egnnng
of year.
nd of year.
Cu
.

ccounts and notes recevabe:

( ) amy - . - --
( ) Controed corporatons -
(c) Other
Securtes:
Stock-
Domestc (a) Persona hodng company. -
( ) Other.
onds
( ) Obgatons of Unted States ssued on or before Sept. 1, 1917
( ) Other.-
ea estate:
( ) Land
Tota -
D SCRIPTION OP LI ILITI S.
ccounts and notes payabe:
b anks. rrSw
to S S
Tota
1 assets shoud be vaued at cost.
S CTION 55. PU LICITY O R TURNS.
R NU CT O 1930.
Reguatons governng the nspecton of returns of ndvduas,
partnershps, estates, trusts, corporatons, assocatons, |ont-stock
companes, and nsurance companes. (See T. D. 4797, page 35 .)
P RT I. MISC LL N OUS PRO ISIONS.
S CTION 2. RUL S ND R GUL TIONS.
R NU CT OP 193 .
Reguatons wth respect to the use of orgna, and the furnshng
of copes of, returns open to nspecton. (See T. D. 4798, page 3 4.)
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101, rt. 101( )- .
1 8
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 101. MPTIONS ROM T
ON CORPOR TIONS.
rtce 101( )-1: Regous, chartabe, scen-
tfc, terary, and educatona organzatons
and communty chests.
( so Secton 101, rtce 101(7)-1.)
1938-1 -9297
I. T. 3182
R NU CT O 193 .
The M Organzaton, whch was ncorporated for the purpose of
promotng the scence and art of medcne, the wefare, frendy
reatons, and unty of the physcans of the State of It In eevatng
the standards of medca educaton, Is not entted to e empton
under secton 101( ) of the Revenue ct of 193 , but s e empt as a
busness eague under secton 101(7) of that ct.
dvce s requested whether the M Organzaton s entted to
e empton under secton 101( ) of the Revenue ct of 193 . That
secton provdes that there sha be e empt from ncome ta aton
( ) Corporatons, and any communty chest, fund, or foundaton, organzed
and operated e cusvey for regous, chartabe, scentfc, terary, or educa-
tona purposes, or for the preventon of cruety to chdren or anmas, no part
of the net earnngs of whch nures to the beneft of any prvate sharehoder or
ndvdua, and no substanta part of the actvtes of whch s carryng on
propaganda, or otherwse attemptng, to nfuence egsaton
The consttuton of the M Organzaton states that ts ob|ects sha
be to promote the scence and art of medcne, and to ths end t sha
endeavor to unte the medca professon of the State of R n one
effectve organzaton for the purpose of eevatng the standard of
medca educaton and ncreasng medca knowedge of enghtenng
and drectng pubc opnon n regard to the probems of State med-
cne and pubc heath: of securng the enactment and enforcement of
|ust medca aws and of promotng the wefare and frendy rea-
tons of the physcans of the State.
The actvtes of the M Organzaton consst of hodng scentfc
meetngs and dssemnatng medca knowedge to physcans and
others. Its ncome s derved from membershp dues, revenue from
ts pubcatons and conventons, nterest n a sma amount, and occa-
sona donatons. Its ncome s used for the mantenance of ts offce
and for the e pense of scentfc meetngs, conventons, commttees,
and ts pubcatons. None of ts ncome nures to the beneft of any
prvate sharehoder or ndvdua.
Ths organzaton appears to be substantay the same n character
as the Waterbury Medca ssocaton, whch the oard of Ta p-
peas n Coona Trust Co., ecutor, v. Commssoner (19 . T. .,
174) hed not to be an organzaton organzed and operated e cu-
svey for regous, chartabe, scentfc, terary, or educatona pur-
poses, wthn the meanng of secton 403(a)3 of the Revenue ct of
1921. In that case the oard stated n part that:
We are of the opnon that the assocaton was not organzed and operated
e cusvey for the purposes set out n the statute. The testmony dscoses
that much of ts actvty was drected toward keepng Its members Informed of
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1 9
101, rt. 101( )-1.
new deveopments and nterestng cases and n ths respect t may be sad to
have been operated for the educaton of ts members. If ts operatons were
eor.fned to ths soe form of actvty t woud st be necessary to ook to the
purposes for whch t was organzed. The statute s concerned not ony wth
the actvtes actuay undertaken by the corporaton to whch the bequest s
made but to the actvtes whch, under ts consttuton and by-aws, the cor-
poraton may undertake. The purposes of ths assocaton are stated n ts
certfcate of ncorporaton to be threefod: (1) To estabsh the practce of
medcne and surgery n the cty of Waterbury upon a respectabe footng, (2)
to devse and carry nto effect measures for the mutua mprovement of the
members, and (3) to promote a good understandng and harmonous ntercourse
wh each other. These purposes are not such as are made the test of the
deducton. (Georuc O ay, 1 . T. .. 1220. See aso Medca Socety v. cff.
S4 pp. Dv. (N. Y.), 83 53 N. T. S., 1077.)
It seems cear from the provsons of the consttuton referred to
that the M Organzaton was not organzed e cusvey for regous,
chartabe, scentfc, terary, or educatona purposes. In vew of
ths fact, and upon authorty of the above-cted case, t s hed that
the organzaton s not entted to e empton under the provsons of
secton 101 ( ) of the Revenue ct of 193 .
It s, however, the opnon of ths offce that the M Organzaton s
entted to e empton as a busness eague under the provsons of
secton 101 (7) of the Revenue ct of 193 .
The M enefca ssocaton, a raway empoyees assocaton
organzed and operated for the purpose of furnshng medca,
surgca, and hospta care to ts members, membershp beng re-
qured and each member beng assessed a percentage of hs monthy
earnngs, the raway company makng reatvey sma contrbu-
tons thereto n part as payment for care of empoyees n|ured
whe on duty and n part as donatons, the ncome from assess-
ments aganst members consttutng by far the prncpa source
of ncome, s not a chartabe organzaton wthn the meanng of
secton 101( ) of the Revenue ct of 193 .
n opnon s requested whether the M enefca ssocaton s
entted to e empton from edera ncome ta as a chartabe or-
ganzaton under secton 101( ) of the Revenue ct of 193 whch
provdes for the e empton from edera ta aton of:
( ) Corporatons, and any communty chest, fund, or foundaton, organzed
and operated e cusvey for regous, chartabe, scentfc, terary, or edu-
catona purposes, or for the preventon of cruety to chdren or anmns, no
part of the net earnngs of whch nures to the beneft of any prvate sharehoder
or ndvdua, and no substanta part of the actvtes of whch s carryng
on propaganda, or otherwse attemptng, to nfuence egsaton.
The assocaton n queston was organzed for the decared purpose
of furnshng medca, surgca, and hospta care to ts members.
empoyees of the N Raway Co. and subsdary companes are
mum assessment per month. The raway company makes a monthy
contrbuton to the assocaton n part as a ump-sum payment for the
rtce 101( )-1: Regous, chartabe, scen-
tfc, terary, and educatona organzatons
and communty chests.
1938-23-9373
G. C. M. 20015
R NU CT O 193 .
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101, rt. 101( )- .
170
care of empoyees n|ured as the resut of accdents whe on duty
and n part as donatons. In carryng out ts purpose, the assoca-
ton mantans severa genera hosptas and a sma emergency hos-
pta. It aso empoys physcans and surgeons n severa ocates
who render servces at ther homes or the homes of the members. It
accepts some nonmembers as pay patents n ts hosptas for the
purpose of reducng the overhead e pense and some charty patents
are gven treatment. The assocaton has aso estabshed penson and
death beneft systems under a group pan whch s mantaned |onty
by the assocaton and ts empoyees. statement of recepts and
e penses of the assocaton for 193 shows that the assessments aganst
members tota 42a doars as compared wth tota recepts from a
sources of 50 doars. The by-aws of the assocaton provde that
a persons who accept servce n the empoy of the N Raway Co.
sha be consdered members of the assocaton and entted to ts
benefts, and that members who fa to pay ther dues monthy n
advance sha automatcay forfet ther membershp and rghts to
benefts of the assocaton.
It thus appears that the organzaton s, as ts name mpes, a
benefca assocaton, and that a members are entted as a matter
of rght, n consderaton of payment of assessments, to receve hos-
pta care and medca treatment. It s for the purpose of carryng
out ths obgaton to ts members that t mantans the hosptas,
that s, the hosptas are not mantaned for charty but for the pur-
pose of renderng the prescrbed servce to the members of the
assocaton.
The assocaton has cted In re Rust s state (1 8 Wash., 344, 12
Pac. (2d), 39 ) and Mnns et a. v. ngs eta. (183 Mass., 12 ,
N. ., 593) n support of ts contenton that t s e empt under the
aforementoned provsons of the Revenue ct of 193 . The former
(rase nvoved the queston whether a bequest to the Takoma Genera
ospta was e empt from State nhertance ta es under a statute
whch e empts bequests for one of the foowng chartabe pur-
poses, namey, mantenance of sck and mamed. The
hospta n queston was one organzed to furnsh medca and sur-
gca attendance theren for sck and n|ured persons, under a
statute reatng to the creaton and organzaton of corporatons and
socetes for benevoent and chartabe purposes. The court caed
attenton to the fact that the e empton n the statute was not n
terms mted to the mantenance of such sck or mamed as were
dependent on charty, and hed that the fact that the hospta charged
patents who were abe to pay dd not deprve ths bequest of ts rght
to e empton under the State statute.
In Mnns v. ngs, supra, the queston nvoved was whether a
bequest to such chartabe purposes as to them may seem proper
authorzed the e ecutors to make a contrbuton to a fund mantaned
by a mutua beneft assocaton. The court, n hodng that such a
contrbuton was for a chartabe purpose, caed attenton to the fact
that the fund was made up e cusvey of gfts, bequests, and gra-
tutes made for the purpose of renderng chartabe assstance to
sck and dsabed persons who are members of the assocaton, and,
therefore, because of that character of the fund, there was no neces-
sty to appy the prncpe ad down n earer decsons of the court
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171
101, rt. 101( )-1.
whch made a dstncton between pubc chartes and mutua
beneft assocatons supported by contrbutons or assessments from
ther members, whereby the members became entted to certan
benefts, n case of sckness or accdent, as a persona rght. The
earer decsons whch were cted and dstngushed are C oe v. Wash-
ngton Ms et a, (149 Mass., 543, 21 N. ., 9G ) and Young Men s
Protestant, etc., Socety v. Cty of a Rver (1 0 Mass., 409, 3
N. ., 57). In the former case t was hed that a vountary assoca-
ton, whose members consst soey of empoyes of a certan corpora-
ton, organzed for the purpose of furnshng ad to ts members n
case of sckness, each member beng requred to pay to the socety
a certan sum weeky, and the corporaton aso contrbutng a weeky
sum, s n no sense a pubc charty. The court stated:
It was a vountary assocaton for the mutua beneft of ts members,
and can not be hed to be a pubc chartabe nsttuton. To consttute a pubc
charty there must be an absoute gft to a chartabe use for the beneft of
the pubc. In ths case the contrbutons of the members were not gfts for
a chartabe use for the beneft of the pubc, but they were payments for ther
own advantage, and were n the nature of premums for nsurance aganst
sckness and accdent It s true that the contrbutons by the cor-
poraton empoyer were of a dfferent character, but they dd not change the
genera scheme or purpose, and were, we thnk, gfts to a prvate use, and not
to a pubc charty.
In the atter case t was hed that beneft payments coverng sck-
ness and funera e penses for members ony out of ncome chefy
derved from reguar compusory dues pad by such members s not
a use for a chartabe purpose wthn the meanng of a statute
e emptng from ta aton rea estate of socetes devotng ther ncome
to such purpose. The court stated:
socety whose prncpa ncome s derved from a f ed reguar
compusory contrbuton from ts members, whch s to consttute a fund to be
used e cusvey for the beneft of ts members, can not be hed to be a
chartabe socety, wthn the meanng of the statute.
The M enefca ssocaton s substantay dentca n character
wth the ones nvoved n Coe v. Washngton Ms, supra, and Young
Men-s Protestant, etc., Socety v. Cty of a Rver, supra. The
mere fact that t mantans ts own hosptas n whch to furnsh ts
members the treatment to whch they are entted nstead of payng
do, does not make, the assocaton a chartabe organzaton.
It s apparent, n the opnon of ths offce, that ths assocaton s
a mutua beneft assocaton and not an nsttuton organzed and
operated e cusvey for chartabe purposes. The dstncton s thus
stated n 11 Corpus urs, page 305:
There s a dstncton between pubc chartes and mutua bene-
ft assocatons supported by contrbutons or assessments from ther mem-
bers, whereby the members, or ther wdows and orphans, become entted
to certan benefts as a persona rght. Such an assocaton s not a pubc
charty.
In 7 Corpus urs, page 1051 (note 5a), t s stated:
Where the e empton of property from ta aton s nvoved, the
dstncton between benevoent or chartabe assocatons and benefca assoca-
tons s sharpy drawn. Laws of e empton are to be strcty construed.
charty s hed to mean a pubc charty, one whose benefts are e tended to
needy persons generay, wthout regard to ther reaton to the members of the
socety, or to the fees pad. benefca socety whose benevoence s confned
for such treatment
woud be bound to
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101, rt. 101(9)- .
172
to the members, ther fames, dependents, or frends, and depends upon the
contrbutons made, s not a charty, but a prvate Insttuton for the mutua
advantage of the members. The property of such a socety s therefore not e -
empt from ta aton under a aw e emptng the property of chartes.
The same dstncton s stated n 19 Rung Case Law, page 1182,
secton 5, as foows:
though t has been hed that mutua beneft socetes are char-
tabe nsttutons n the sense that they may awfuy undertake to transact
ther busness on Sunday, nevertheess they are not chartes, n the
ega sense of that term, and are easy dstngushabe therefrom. No matter
how dversfed the purposes of mutua beneft socetes may be, they are aways
confned to ther own members and are dependent upon the payment by them of
the assessments requred by the by-aws. In a certan sense, benefcary mem-
bers get what s pad for, and nothng more, for f they cease to pay tey cease
to receve. s a matter of fact, members contnue to pay for the beneft of
another, not because of any chartabe or benevoent mpuse, but because they
e pect, upon ther death, that those whom they are nterested n, or bound by
aw or tes of affecton to provde for, w receve the amount whch t s
agreed n the benefcary certfcate w be pad by the assocaton to such
benefcary. Ths s nether charty or benevoence. Moreover, payment to
the benefcary does not depend upon hs or her fnanca condton.
enefts are pad because of so much money and so many assessments pad
by the assured member and whatever benevoence or charty may be con-
nected therewth s of a purey commerca character. Socetes whose prn-
cpa ncome s derved from compusory contrbutons eved upon ther mem-
bers for the purpose of creatng a fund to be used e cusvey for the beneft
of ther members can not be sad to be ether benevoent or chartabe wthn
the usua meanng of those terms. ccordngy t s generay hed that they
are not chartes wthn the meanng of statutory provsons e emptng the
property of such nsttutons from ta aton, even though ther surpus funds,
together wth vountary contrbutons of members, are devoted to the reef
of the needy.
In vew of the foregong, t s the opnon of ths offce that the M
enefca ssocaton s not a corporaton organzed and operated
e cusvey for chartabe purposes wthn the meanng of secton
101( ) of the Revenue ct of 193 .
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
rtce 101 (7)-1: usness eagues, chambers of commerce,
rea estate boards, and boards of trade.
R NU CT O 103 .
State medca organzaton. (See I. T. 3182, page 1 8.)
rtce 101(9)-1: Soca cubs. 193S-5-9173
G. C. M. 194 5
R NU CT O 193 ND PRIOR R NU CTS.
n organzaton otherwse entted to e empton under secton
101(9) of the Revenue ct of 193 and correspondng provsons of
pror Revenue cts w not be dened e empton merey because t
sod at a proft rea property used for cub purposes n order to
avod a fnanca burden whch t was unabe to carry.
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173
101, rt. 101(9)-1.
dvce s requested whether the M organzaton s e empt from
ncome ta as a soca cub.
The cub was organzed and s operated for purposes whch entte
t to e empton under secton 101(9) of the Revenue ct of 193 and
correspondng provsons of pror Revenue cts. Its ncome s de-
rved prncpay from dues and fees coected from ts members and
s used to defray necessary operatng e penses. In 19 the organ-
zaton purchased the budng and and whch t had occuped under
ease for severa years for use as a cub. Wthn a year or two the
members of the cub reazed the mpractcabty of contnung to
own the property, as the cub s ncome was not suffcent to fnance
current actvtes and aso defray the heavy carryng charges on the
property. y reason of these factors, the property was sod m 192
at a proft of 250a doars, payments on the sae prce beng receved
annuay durng the years 1920 to 193 , ncusve. The proceeds of
the sae have not been dstrbuted to any of the members of the organ-
zaton but have been used to create a surpus whch s graduay beng
absorbed by operatng osses. fter the sae the cub contnued to
occupy the premses under ease from the purchaser. The queston s
whether the cub oses ts e empt status because of such sae.
Secton 231(9) of the Revenue ct of 192 provdes:
The foowng organzatons sha be e empt from ta aton under
ths tte

(9) Cubs organzed and operated e cusvey for peasure, recreaton, ana
other nonproftnbe purposes, no part of the net earnngs of whch nure to the
beneft of any prvate sharehoder.
There s a smar provson n subsequent Revenue cts.
rtce 520, Reguatons 9, provdes:
bt. 520. Soca cubs. The e empton granted by paragraph (9) of secton
231 appes to practcay a soca and recreaton cubs whch are supported
by membershp fees, dues, and assessments. If a cub, by reason of the com-
prehensve powers granted n ts charter, engages n traffc, n agrcuture or
hortcuture, or n the sae of rea estate, tmber, etc., for proft, such cub s
not organzed and operated e cusvey for peasure, recreaton, or soca pur-
poses, and any proft reazed from such actvtes s sub|ect to ta .
smar artce has been ncuded n a subsequent reguatons.
owever, the foowng sentence was added n Reguatons 8 and 94,
reatng to the Revenue cts of 1934 and 193 , respectvey:
If a cub, otherwse e empt, ses any of ts property at a proft, t s not
e empt for the ta abe year for whch the proft s ta abe.
In Sanee Cub v. Whte (87 ed. (2d), 5) t was hed, under sec-
ton 103(9) of the Revenue ct of 1928 and artce 530, Reguatons
74, that the sae at a proft by a huntng cub of a part of ts and
whch had become vaueess for cub purposes was not such a trans-
acton as woud cause the cub to ose ts e empt status. That con-
cuson was contrary to the poston of the ureau at that tme. The
court sad:
On the facts stated t seems to us too cear for any reasonabe
fndng to the contrary that the sae of the tract n queston was ncdenta to
the genera purposes of the cub. It was not made n pursuance of any pan to
change the genera purposes or actvtes of the cub, nor dd t change them
they contnued as before the proceeds of the sae went to further them. The
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10 .
174
cub was not obged to bod ndefntey a pece of property whch for ts
purposes had become vaueess. Ths s obvousy true as to persona property,
and we see no reason whv the same prncpe does not appy to rea es-
tate.
oowng the decson n the Santee Cub case, artce 101 (9)-1,
Reguatons 8 and 94, was amended to read as foows (T. D. 47 0,
C. . 1937-2, 128):
rt. 101(9)-1. Soca cubs. The e empton granted by secton 101(9) ap-
pes to practcay a soca and recreaton cubs whch are supported by
membershp fees, dues, and assessments. If a cub engages n traffc, n agr-
cuture or hortcuture, or n the sae of rea estate, tmber, etc., for proft,
such cub s not organzed and operated e cusvey for peasure, recreaton,
or soca purposes. Generay, an ncdenta sae of property not deprve
the cub of the e empton. Itacs supped.
No genera rue can be ad down to determne whether a partcu-
ar sae of property s an ncdenta sae, but each case must be de-
cded on ts own partcuar facts. In the nstant case the property
was actuay acqured for the use of the cub and not for the purpose
of resae at a proft. Then, when t became evdent that too arge a
fnanca burden had been assumed, the property, whch had greaty
apprecated n vaue, was sod and a proft reazed. The purposes
and actvtes of the cub were not changed ether before or after the
sae of the property. To deny e empton n ths case woud be to
compe an organzaton n order to quafy for e empton to retan
property whch t was unabe to carry fnancay, and whch t woud
probaby have ost by forecosure had the property not been sod.
Under these crcumstances, t s the opnon of ths offce that the
sae of property n the nstant case was an ncdenta sae wthn
the meanng of the above-quoted provsons of the reguatons.
Inasmuch as the M organzaton s otherwse entted to e empton
under secton 101(9) of the Revenue ct of 193 and correspondng
provsons of pror Revenue cts, t w not be dened e empton
merey because t sod at a proft rea property used for cub pur-
poses n order to avod a fnanca burden whch t was unabe to
carry.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
S CTION 10 . C SS-PRO ITS T .
Secton 10 . 1938-1-9120
I. T. 3147
NU CTS O 1930 ND 193 .
empton for e cess-profts ta purposes of nterest on obga-
tons ssued by the ome Owners Loan Corporaton, edera arm
Mortgage Corporaton, edera ome Loan anks, edera Land
anks, ont Stock Land anks, edera Intermedate Credt
anks, Reconstructon nance Corporaton, and Commodty Credt
Corporaton.
dvce s requested whether nterest on obgatons of the foowng
organzatons s sub|ect to the e cess-profts ta mposed by secton
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175
10 .
10 of the Revenue ct of 1935, as amended by secton 402 of the
Revenue ct of 193 :
ome Owners Loan Corporaton
edera arm Mortgage Corporaton
edera ome Loan anks
edera Land anks
ont Stock Land anks
edera Intermedate Credt anks
Reconstructon nance Corporaton
Commodty Credt Corporaton.
In G. C. M. 18893 (C. . 1937-2, 210) t was hed that nterest
on bonds ssued by the ome Owners Loan Corporaton and the
edera arm Mortgage Corporaton s e empt from such ta .
In L T. 3127 (C. . 1937-2, 214) t was hed that nterest on
the bonds ssued by edera ome Loan anks s not sub|ect to
such ta . Those rungs answer the nqury as to the nterest on the
bonds of those organzatons. In those rungs t was ntended to
ay down the rue that nterest on obgatons of such organzatons
s e empt from the e cess-profts ta ony where the cts of Congress
authorzng the ssuance of the obgatons (or cts amendatory
thereof or suppementa thereto) provde for e empton therefrom
(even though the anguage of the Revenue ct teray apped woud
requre the ncuson of the nterest for the purpose of such ta .
(See I. T. 3125, C. . 1937-2, 214.)
oth edera Land anks and ont Stock Land anks may ssue
farm oan bonds. ( s to edera Land anks see ct of uy 17,191 ,
ch. 245, secton 13, 39 Stat, 372 as to ont Stock Land anks see
ct of uy 17, 191 , ch. 245, secton 1 , 39 Stat., 374.) The ct of
uy 17, 191 (ch. 245, secton 2 , 39 Stat., 380), provdes that
farm oan bonds ssued under the provsons of ths ct,
sha be deemed and hed to be nstrumentates of the Government
of the Unted States, and as such they and the ncome derved there-
from sha be e empt from edera, State, muncpa, and oca ta -
aton. ccordngy, t s hed that the nterest on farm oan bonds
of edera Land anks and ont Stock Land anks s not sub-
|ect to the e cess-profts ta . The nqury reates to obgatons
of the varous organzatons. ttenton s nvted to the fact that
edera Land anks and ont Stock Land anks are aso authorzed
to borrow money, to gve securty therefor, and to pay nterest
thereon. (See statutes above referred to wth respect to ssuance of
farm oan bonds.) No provson s made n the statutes for e empt-
ng the nterest on any obgatons of edera Land anks and ont
Stock Land anks other than nterest on farm oan bonds. ccord-
ngy, nterest on any obgatons of such banks, other than nterest
on farm oan bonds, s sub|ect to the e cess-profts ta .
edera Intermedate Credt anks are authorzed to borrow
money and to ssue and to se coatera trust debentures or other
smar obgatons. ( ct of uy 17, 191 , above referred to, as
amended by ct of March 4, 1923, ch. 252, secton 2, 42 Stat., 145 .)
They are aso authorzed to ssue and se consodated debentures,
and t s provded that the term debentures ncudes consodated
debentures. ( ct of uy 17, 191 , above referred to, as amended
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112(b), rt. 112(b)( )- .
17
by ct of une 3, 1935, ch. 1 4, secton (b) 49 Stat., 315.) It s
provded that the debentures ssued under ths tte sha be deemed
and hed to be nstrumentates of the Government and sha en|oy
the same ta e emptons as are accorded farm oan bonds n sad sec-
ton. ( ct of uy 17, 191 , above referred to, as amended by ct
of March 4, 1923, ch. 252, secton 2, 42 Stat., 1459.) s shown heren-
above, farm oan bonds are e empt from the e cess-profts ta . c-
cordngy, t s hed that the nterest on debentures ssued by edera
Intermedate Credt anks s e empt from the e cess-profts ta .
The Reconstructon nance Corporaton s authorzed to ssue
notes, debentures, bonds or other such obgatons. ( ct of anu-
ary 22, 1932, ch. 8, secton 9, 47 Stat., 9.) y chapter 8, secton 10 of
the ct of anuary 22, 1932 (47 Stat, 9), t s provded:
ny nnd a notes, debentures, bonds, or other such obgatons Issued
by the corporaton sha be e empt boLh as to prncpa and nterest from a
ta aton (e cept surta es, estate, nhertance, and gft ta es) now or hereafter
mposed by the Unted States, by any Terrtory, dependency, or possesson
thereof, or by any State, county, muncpaty, or oca ta ng authorty.
Ths e empton provson s substantay the same as the e emp-
ton provsons nvoved n G. C. M. 18893, supra, and L T. 3127,
supra, under whch t was hed that nterest on bonds of the organ-
zatons there concerned s e empt from the e cess-profts ta . c-
cordngy, t s hed that nterest on a notes, debentures, bonds, or
other such obgatons ssued by the Reconstructon nance Corpora-
ton s e empt from the e cess-profts ta .
The Commodty Credt Corporaton was ncorporated under the
aws of the State of Deaware on October 17,1933, under authorty of
ecutve Order No. 340, dated October 1 , 1933. Its fe as an
agency of the Unted States was e tended to pr 1, 1937, by secton
7 of ct of Congress approved anuary 31, 1935 (49 Stat., 1), and
to cose of busness on une 30, 1939, by secton 2(a) of Pubc, No. 2,
Seventy-ffth Congress, approved anuary 2 , 1937. There s no pro-
vson of aw for the e empton from the e cess-profts ta of the
nterest on obgatons of the Commodty Credt Corporaton. Such
nterest s, therefore, sub|ect to the e cess-profts ta .
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 112(b). R COGNITION O G IN OR LOSS:
C NG S SOL LY IN IND.
rtce 112(b) ( )-: Dstrbutons n quda- 1938-1-9121
ton of subsdary corporaton. G. C. M. 19435
R NU CT O 103 .
The term property as used n secton 112(b) of the Revenue
ct of 193 ncudes money, and the recept of a qudatng dv-
dend n money by a corporaton under crcumstances whch meet
the other requrements of that secton s a ta -free transacton.
n opnon s requested whether the term property as used n
secton 112(b) of the Revenue ct of 193 ncudes money. Ths
queston arses n determnng whether a ta abe gan was reazed
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177
1 112(b), rt. 112(b)( )- .
by the M Company by the recept of a cash dvdend n compete
qudaton of the N Company durng 193 when 80 per cent of the
stock of the qudatng company was owned by the M Company.
Durng the year 193 a of the assets of the N Company were
sod to the M Company for cash. na qudaton of the N Com-
pany was competed n 193 by the dstrbuton of cash on hand,
no property other than cash remanng. t the tme of the recept
of the qudatng dvdend the M Company owned e acty 80 per
cent of a the outstandng stock of the N Company and had been
the owner of such stock durng the entre year 193 and shorty pror
thereto. The M Company receved doars n e cess of the cost
of the stock owned by the corporaton as a resut of the qudaton
of the N Company, whch gan, t s contended, s not to be recog-
nzee under the provsons of secton 112(b) of the Revenue ct
of 193 , the pertnent porton of whch reads as foows:
( ) Property receved by corporaton on compete qudaton of another.
No gan or oss sha be recognzed upon the recept by a corporaton of property
dstrbuted n compete qudaton of another corporaton. or the purposes
of ths paragraph a dstrbuton sha be consdered to be In compete quda-
ton ony f .
The quafyng provsons of secton 112(b) (see subdvsons ,
, C, and D) have been fuy comped wth and the soe queston
presented s whether the term property, as used n the foregong
secton, ncudes money receved as a qudatng dvdend.
The provson permttng qudatng dstrbutons wthout recog-
nton of gan or oss to a corporaton ownng 80 per cent of the stock
of the qudatng corporaton was frst enacted n the Rovenue ct of
1935. It frst appeared as a Senate amendment to . R. 8974 n the
foowng anguage:
(1 ) Sec. 110. Corporate Lqudatons.
(a) Secton 112(b) of the Revenue ct of 1934 s amended by addng after
paragraph 5 a new paragraph readng as foows:
( ) No gan or oss sha be recognzed upon the recept by a corporaton
of property or money dstrbuted n compete or parta qudaton of another
corporaton, f the corporaton recevng such property owns at east 80 per
centum of the votng stock of such other corporaton. s used In ths para-
graph parta qudaton means any one of a seres of dstrbutons by a
corporaton In compete canceaton or redempton of a of Us stock. Itacs
supped.
No reference was made to ths amendment or ts purpose n the
report (report No. 1240. uy 29, 1935) of the Senate nance Com-
mttee accompanyng the b. It s to be noted that as passed by
the Senate the e empton e tended to qudatng dvdends n prop-
erty or money. The conference commttee (report No. 1885, ugust
22,1935), however, atered the amendment by strkng out the words
or money and nsertng n eu thereof the words (other than
money) so that the frst cause of the secton then read:
No gan or oss sha be recognzed upon the recept by a corpora-
ton of property (other than money) dstrbuted n compete qudaton of
another corporaton, f .
Certan other changes were made n the Senate amendment but they
are of no mportance to ths dscusson, and as so atered the above
provson was enacted as secton 110(a) of the Revenue ct of 1935,
amendng secton 112(b) of the Revenue ct of 1934. No reason for
ths partcuar change was gven n the report of the conference
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112(b), rt. 112(b)( )- . 178
commttee. Secton 112(b) of the Revenue ct of 193 consttutes
a revson of that secton as amended by secton 110(a) of the Revenue
ct of 1935, and was substtuted by Senate amendment to . R. 12395,
whch as enacted became the Revenue ct of 193 . s revsed by the
Senate, the quafyng words (other than money) were deeted and
the cause rewrtten to read No gan or oss sha be recognzed upon
the recept by a corporaton of property dstrbuted m compete
qudaton of another corporaton. The report of the
Senate nance Commttee on . R. 12395 gves no reason for ths
change.
Thus t appears that the egsatve body whch frst proposed the
prncpe contaned n secton 112(b) of the Revenue ct of 193
ntended to have that prncpe appcabe n the case of qudatng
dvdends n property or money. Ths ntenton was defeated n part
by the conference commttee, whch atered the amendment to ncude
ony property other than money. Then the foowng year the same
egsatve body whch had proposed to appy the prncpe to a
qudatng dstrbutons struck out the quafyng words other than
money. Ths egsatve hstory of tsef gves strong force to the
argument that the term property as used n ths secton of the ct
was ntended to ncude qudatng dstrbutons n money. That
concuson s further strengthened by the fact that durng ths tme
the crcut court of appeas n aburton v. Commssoner (78 ed.
(2d), 2 5, decded une 3, 1935) hed that the term property, as
used n secton 203(b)4 of the Revenue ct of 1924, ncudes money
wthn ts meanng. That secton, whch s dentca wth secton
112(b)5 of the Revenue ct of 193 , provdes as foows:
(4) No gan or oss sha be recognzed f property s transferred to a corpo-
raton by one or more persons soey n e change for stock or securtes n such
corporaton, and mmedatey after the e change such person or persons are n
contro of the corporaton but n the case of an e change by two or more
persons ths paragraph sha appy ony f the amount of the stock and securtes
receved by each s substantay n proporton to hs nterest In the property
pror to the e change.
The court n ts opnon recognzed that whe money s property n
the broad sense of the term, nevertheess the term money may be
so used n a statute as to dstngush that type of property from cther
types. fter dscussng the varous sectons of the ct wheren
money s dstngushed from other types of property, the court con-
cuded that as used n secton 203(b)4 of the Revenue ct of 1924 the
term property ncudes money, and stated n part as foows:
Not ony s the word property used n sad paragraph (4) wthout quaf-
caton, but no apparent reason suggests tsef why money pad for stock shoud
not be consdered property wthn the contempaton of that provson of the
statute.
If the term property ncudes money as used n a secton of
the ct e emptng from ta an e change of property for stock of a
corporaton, there appears to be no dstngushng factor whch
woud ead to the concuson that the term property as used n
secton 112(b) of the Revenue ct of 193 , reatng to e changes
of stock for property n qudaton proceedngs, does not aso n-
cude money. The fact that Congress omtted the quafyng phrase
other than money foowng a decson by a edera court that
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179
11 .
the term property, f unquafed, ncudes money gves rse to
the mpcaton that not ony s money ncuded wthn the term
property by tera nterpretaton of that secton of the ct but that
such was the apparent ntenton of Congress. urthermore, there
appears no reason for dstngushng between a qudatng dvdend
n money and one n property f an e empton s to be granted n
ether case. To do so woud be to penaze un|usty corporatons
ownng property of a nature whch coud not be dstrbuted as a
qudatng dvdend.
It appears then from the egsatve hstory of ths secton of the
ct and from the decson of the court n aburton v. Comms-
soner, supra, that the term property, as used n secton 112(b)
of the Revenue ct of 193 , woud doubtess be construed by the
courts as ncudng money and t s apparent that such a construc-
ton woud not be at varance wth the genera purposes of that
secton of the ct.
It s, therefore, the opnon of ths offce that the term property
as used n secton 112(b) of the Revenue ct of 193 ncudes money,
and that the recept of a qudatng dvdend n money by a cor-
poraton under crcumstances whch meet the other requrements
of that secton s a ta -free transacton.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
S CTION 11 . CLUSIONS ROM GROSS INCOM .
1938-19-9329
Mm.4755
Ta abty of ncome derved by a essee ta payer under a ease
of State schoo ands.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, pr 1,1938.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Other Offcers and mpoyees of the ureau of Interna
Revenue Concerned:
Reference s made to the decson of the Unted States Supreme
Court, rendered March 7,1938, n the case entted everng v. Moun-
tan Producers Corporaton (58 S. Ct., 23, Ct. D. 1321, page 343,
ths uetn).
In that case the Mountan Producers Corporaton owned a the
capta stock of the Wyomng ssocated O Corporaton and fed
a consodated ncome ta return for the year 1925. The State of
Wyomng n 1919 made a ease for the term of fve years to the Md-
west O Co. coverng a secton of schoo and for the purpose of
producng o and gas, reservng a royaty to the State. The ease was
superseded n 1923 by another ease of ke mport runnng from 1924,
the royaty to the State beng f ed at 5 per cent of the o and gas
produced. In 1923 the Mdwest O Co. e ecuted a decaraton of
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11 .
180
trust that t hed an undvded 50 per cent nterest n the ease, and
n the net proceeds to be reazed therefrom, and a renewas thereof,
for the beneft of the Wyomng ssocated O Corporaton. In 1925
the State receved the agreed royaty of the o produced, and the
proceeds from the sae of the remanng o were dvded between
the Wyomng ssocated O Corporaton and the Mdwest O Co.
The queston presented to the Court was whether the Wyomng sso-
cated O Corporaton s sub|ect to edera ncome ta wth respect
to the amount t thus receved, mmunty beng camed upon the
ground that the Wyomng ssocated O Corporaton s a State
nstrumentaty.
The Court stated that t coud fnd no ground for concudng that
the ta upon the profts of the Wyomng ssocated O Corporaton
derved under ts ease from the State consttuted any drect and
substanta nterference wth the e ecuton of the trust whch the
State had assumed, and the Court hed that the ncome receved by the
Wyomng ssocated O Corporaton s not mmune from the ed-
era ncome ta but on the contrary that such ncome s sub|ect to
the ta .
The Supreme Court overrued ts decsons n the cases of urnet v.
Coronado O Gas Co. (285 U. S., 393, Ct. D. 485, C. . -, 2 5
(1932)) and Gespe v. Okahoma (257 U. S., 501). In the Gespe
case the Court had hed that nether eases of trba Indan ands nor
the ncome therefrom may be ta ed by a State. In the Coronado
case the Court had hed that the ncome of a essee of State schoo ands
n Okahoma, derved from the producton by t of o and gas from
such ands, s not sub|ect to edera ncome ta for the reason that the
ease of such ands s an nstrumentaty of the State used n carryng
out an essenta governmenta functon and that to ta the ncome
arsng from the ease woud be to ta the ease tsef.
In overrung ts decsons n the cases of Gespe v. Okahoma and
urnet v. Coronado O Gas Co., the Court stated n part:
In numerous decsons we have had occason to decare the competng prncpe,
buttressed by the most cogent consderatons, that the power to ta shoud not be
crpped by e tendng the consttutona e empton from ta aton to those sub-
|ects whch fa wthn the genera appcaton of nondscrmnatory aws, and
where no drect burden s ad upon the governmenta nstrumentaty, and there
s ony remote, f any, nfuence upon the e ercse of the functons of govern-
ment.

mmunty from nondscrmnatory ta aton sought by a prvate per-
son for hs property or gans because he s engaged n operatons under a Gov-
ernment contract or ease can not be supported by merey theoretca concep-
1ons of nterference wth the functons of government. Regard must be had to
substance and drect effects. nd, where t merey appears that one operatng
under a Government contract or ease s sub|ected to a ta wth respect to hs
profts on the same bass as others who are engaged n smar busnesses, there
s no sufeent ground for hodng that the effect upon the Government s other
than ndrect aud remote. We are convnced that the rungs n Ocspc v.
Okahoma, supra, and urnet v. Coronado O Gas Co., supra, are out of har-
mony wth correct prncpe aud accordngy they shoud be, and they now are,
overrued.
The decson of the Supreme Court n Teverng v. Mountan Pro-
ducers Corporaton s appcabe under a the Revenue cts. Care
shoud be taken n the e amnaton of returns nvovng the queston
of the ta abty of ncome derved by a essee ta payer under a ease
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181
11 , rt. 11 -2.
of State schoo ands n order that fu effect may be gven to the
decson of the Court n the determnaton of the ncome and e cess-
profts ta abty of the ta payers concerned.
Correspondence regardng ths mmeograph shoud refer to the
number thereof and to the symbos IT: R .
Mton . Carter,
ctng Commssoner.
rtce 11 -2: Compensaton of State offcers 1938-3-9148
and empoyees. T. D. 4787
INCOM T .
Compensaton of State offcers and empoyees mendment of
artces 11 -2 of Reguatons 04 and 80, artces 43 of Reguatons
77 and 74, and artce 83 of Reguatons 9.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 11 -2 of Reguatons 94, artce 11 -2 of Reguatons 8 ,
artce 43 of Reguatons 77, artce 43 of Reguatons 74, and artce
83 of Reguatons 9 are amended by deetng a of such part of the
frst paragraph of each of such artces as foows the number of each
of such artces and nsertng n eu of such deeted porton of each
of such artces the foowng:
Compensaton of State offcers and empoyees. Compensaton receved for
servces rendered to a State s to be Incuded n gross ncome uness the person
receves such compensaton from the State as an offcer or empoyee thereof
and such compensaton s mmune from ta aton under the Consttuton of the
Unted States.
t the end of artce 11 -2 of Reguatons 94, artce 11 -2 of Regu-
atons 8 , artce 43 of Reguatons 77, artce 43 of Reguatons
74, and artce 88 of Reguatons 9, a new paragraph sha be added,
as foows:
The commssons of recevers apponted by the State courts and the fees
receved by notares pubc are ta abe. s used In ths artce, the term
State ncudes a potca subdvson of a State.
Ths Treasury decson s ssued under the authorty of sectons
2 of the Revenue cts of 193 , 1934, 1932, and 1928 and secton 1101
of the Revenue ct of 192 .
Guy T. everng,
Commssoner of Interna Revenue.
pproved anuary 7, 1938.
ROSW LL MaGILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster anuary 11, 1938. 9.53 a. m.)
rtce 11 -2: Compensaton of State offcers 1938-19-9330
and empoyees. Mn. 3838
(Revsed 1938)
Ta abty of compensaton receved by offcers and empoyees of a
State or potca subdvson.
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11 , rt. 11 -2.
182
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, pr 1 ,1938.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
In order to nsure greater unformty n the admnstraton of the
Revenue cts n regard to the mposton of the edera ncome ta
upon the compensaton receved by offcers and empoyees of a State
or ts potca subdvsons, and to secure the revenue to whch the
edera Government s entted from that source, t s desred to drect
attenton to the provsons of artce 88 of Reguatons 9, artce 43
of Reguatons 74, artce 43 of Reguatons 77, artce 11 -2 of Regu-
atons 8 , and artce 11 - 2 of Reguatons 94, as amended by Treas-
ury Decson 4787, approved anuary 7, 1938 (page 181, ths ue-
tn), to rungs of the ureau, and to certan court decsons and dec-
sons of the Unted States oard of Ta ppeas whch pertan to the
sub|ect.
Treasury Decson 4787 was prepared as the resut of the decson
of the Unted States Supreme Court, rendered on March 15, 1937, n
rush v. Commssoner (300 U. S., 352 Ct. D. 1212, C. . 1937-1, 217).
The Court hed n that case that the saary of the chef engneer of
the bureau of water suppy of the cty of New York s not a part of hs
ta abe ncome snce the water system of the cty was created and s
conducted n the e ercse of an essenta governmenta functon, and
the f ed saares and compensatons pad to ts offcers and empoyees
n ther capactes as such are mmune from edera ta aton.
rtce 11 -2 of Reguatons 94, artce 11 -2 of Reguatons 8 ,
artce 43 of Reguatons 77, artce 43 of Reguatons 74, and artce
88 of Reguatons 9, as amended, provde n part:
Compensaton of State offcers and empoyees. Compensaton receved for
servces rendered to a State s to be ncuded n gross ncome uness the person
receves such compensaton from the State as an offcer or empoyee thereof and
such compensaton s mmune from ta aton under the Consttuton of the Unted
States.

s used n ths artce, the term State ncudes a potca subdvson of a
State.
States and potca subdvsons thereof have a dua character and
possess two knds of power, one that s a governmenta power and one
that s a corporate or propretary power. In the e ercse of the
former, the State and ts potca subdvsons are cothed wth sov-
eregnty. In the e ercse of the atter, they are treated as prvate
corporatons. (Coector v. Day, 11 Wa., 3 State of South Caro-
na v. Unted States, 199 U. S., 437 eaze ank v. enno, 8 Wa.,
533 and Unted States v. Raroad Co., 17 Wa., 322.) owever,
there s a fundamenta dstncton between a pubc purpose and a
governmenta functon. (State of North Dakota v. Oson-, 33 ed.
(2d), 848.)
The doctrne of mmunty from edera ta aton of State agences
or nstrumentates essenta to the dscharge of ther usua and
essenta functons of government s not e pressy stated n the
Consttuton but has been estabshed by decsons of the Unted
States Supreme Court hodng that due to an mped consttu-
tona restrcton the edera Government can not nterfere wth the
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183
511 , rt. 11 -2.
States n the dscharge of such functons. The e empton does not
e st for the beneft of the ndvdua but soey to protect the e ercse
of the soveregn powers of the States and ther potca subdvsons.
The protecton of the soveregn power of the edera Government to
evy and coect ta es s no ess mportant than the protecton of
governmenta actvtes of States and potca subdvsons.
That the doctrne of mmunty shoud be confned wthn appro-
prate narrow bounds was recognzed by the Unted States Supreme
Court n Wcuts v. unn (282 U. S., 21 , Ct. D. 280, C. . -,
309 (1931)) when t stated that The mtaton of ths prncpe
to ts approprate appcaton s aso mportant to the successfu
workng of our governmenta system. The power to ta s no ess
essenta than the power to borrow money, and, n preservng the
atter, t s not necessary to crppe the former by e tendng the con-
sttutona e empton from ta aton to those sub|ects whch fa
wthn the genera appcaton of nondscrmnatory aws, and where
no drect burden s ad upon the governmenta nstrumentaty, and
there s ony a remote, f any, nfuence upon the e ercse of the func-
tons of government. Itacs supped. The rue must be apped
accordng to practca standards. (Raroad Co. v. Pentton, 18 Wa.,
5 Metcaf ddy v. Mtche, 2G9 U. S., 514 T. D. 3824, C. .
-, 218 (192 ) and urnet v. ergns Trust, 288 U. S., 508 Ct. D.
53, C. . II-1, 214 (1933) .) The Unted States Supreme Court
n ducatona ms Corporaton v. Ward (282 U. S., 379) sad
that The consttutona power of one government to reach ths per-
mssbe ob|ect of ta aton may not be curtaed because of the ndrect
effect whch the ta may have upon the other. In that same decson
the Court aso sad:
Ths Court, n drawng the ne whch defnes the mts of the powers and
mmuntes of State and Natona Governments, s not ntent upon a mechanca
appcaton of the rue that governmenta nstrumentates are mmune from
ta aton, regardess of the consequences to the operatons of government. The
necessty for markng those boundares grows out of our consttutona system,
under whch both the edera and the State Governments e ercse ther authorty
over one peope wthn the terrtora mts of the same State. The purpose
s the preservaton to each Government, wthn ts own sphere, of thp freedom
to carry on those affars commtted to t by the Consttuton, wthout undue
nterference by the other. (Cases cted.)
The Unted States Supreme Court n nt v. Stone Tracy Co.
(220 U. S-, 107) sad that The true dstncton s between the at-
tempted ta aton of those operatons of the States essenta to the e e-
cuton of ts governmenta functons, and whch the State can ony
do tsef, and those actvtes whch are of a prvate character. The
former, the Unted States may not nterfere wth by ta ng the agen-
ces of the State n carryng out ts purposes the atter are
not removed from the fed of egtmate edera ta aton. Itacs
supped.
The rue s not appcabe where the pubc actvty s one com-
mony undertaken by prvate corporatons or ndvduas, as, for
e ampe, the operaton of an eectrc ght pant or a street raway.
(See Zn v. Stone Tracy Co., supra, and everng v. Powers et a.,
293 T . S., 214, Ct. D. 900, C. . III-2, 213 (1934).) In everng v.
Powers et a., supra, the Court sad:
We see no reason for puttng the operaton of a street raway n a dfferent
category from the sae of quors. In each case, the State, wth ts own con-
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184
cepton of pubc advantage, s undertakng a busness enterprse of a sort
that s normay wthn the reach of the edera ta ng power and s dstnct
from the usua governmenta functons that are mmune from edera ta aton
n order to safeguard the necessary ndependence of the State.
If the busness tsef, by reason of ts character, s not mmune, athough
undertaken by the State, from a edera e cse ta upon ts operatons, upon
what ground can t be sad that the compensaton of those who conduct the
enterprse for the State s e empt from a edera ncome ta Ther compensa-
ton, whether pad out of the returns from the busness or otherwse, can have
no quaty, so far as the I edera ta ng power s concerned, superor to that
of the enterprse In whch the compensated servce s rendered.
In State of Oho v. evernq et a. (292 U. S.. 3 0, Ct. D. 83 ,
C. . III-1, 531 (1934)), the Court sad:
ut, by the very terms of the rue, the mmunty of the States
from edera ta aton s mted to those agences whch are of a governmenta
character. Whenever a State engages n a busness of a prvate nature t e er-
cses nongovernmenta functons, and the busness, though conducted by the
State, s not mmune from the e ercse of the power of ta aton whch the
Consttuton vests n the Congress.
The argument seems to be that the poce power s eastc and
capabe of deveopment and change to meet changng condtons. Nevertheess,
the poce power s and remans a governmenta power, and apped to busness
actvtes s the power to reguate those actvtes, not to engage n carryng
them on.
s stated by the Unted States Supreme Court n Metcaf ddy
v. Mtche, supra, n offce s a pubc staton conferred by the
appontment of government. Where an offce s created,
the aw usuay f es ts ncdents, ncudng ts term, ts dutes and
ts compensaton. The term offcer s one nseparaby
connected wth an offce . statute may authorze the
empoyment or engagement of an ndvdua and yet not create an
offce nor consttute the ndvdua an empoyee. n empoyee
s one who s contnuousy empoyed to render servces of a routne
or recurrng character and who s sub|ect to drecton not ony as
to what sha be done, but as to how t sha be done. Comms-
soner v. Mod|esk, 75 ed. (2d), 4 8, certorar dened, 295 U. S.,
7 4.) One engaged to render a partcuar servce to a State or
otca subdvson, or to brng about a desred resut, or one who
as entered nto a contract to accompsh a specfc ob|ect s an nde-
pendent professona agent or an ndependent contractor, and not an
empoyee, as there s not present a contro of such a nature as char-
acterzes an empoyer and empoyee reatonshp.
ffect of sources of funds for compensaton. If a or a part of
the compensaton of an offcer or empoyee of a State or potca
subdvson thereof s pad drecty or ndrecty by the edera Gov-
ernment, such compensaton (or part) s ta abe, as, for e ampe,
the compensaton pad by the Unted States to offcers of the Natona
Guard of a State, or the compensaton pad by a State to offcers
or empoyees of an agrcutura schoo or coege whoy or party
out of grants from the edera Government. Ths s aso appcabe
to State emergency reef admnstratons where compensaton s
pad from grants of edera funds. (I. T. 2859, C. . I -1, 101
(1935).) The rung n regard to ta ng the compensaton of offcers
and empoyees of agrcutura schoos and coeges pad from edera
grants w be apped ony for the year 1934 and subsequent years,
as the reguatons under pror Revenue cts specfcay provded
that such compensaton s not sub|ect to edera ncome ta .
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511 , rt. 11 -2.
Recevers, qudators of banks and nsurance companes, and
notares pubc. It s aso hed n certan other cases where the
compensaton s not pad out of pubc funds of the State or potca
subdvsons, the compensaton s sub|ect to edera ncome ta , as
the mposton of the ta woud not so burden the State or potca
subdvsons as to consttute a substanta and drect nterference by
the edera Government wth the e ercse of a usua soveregn func-
ton. ccordngy, the compensaton of recevers apponted by State
courts and qudators of banks and nsurance companes taken over
bv the States, whch s pad out of the funds or assets of the corpora-
tons nvoved, s not e empt. (See G. C. M. 13488, C. . III-2,
15 (1934), G. C. M. 1411 , C. . I -1, 102 (1935), everng v.
ohn . TherreU et a, 58 S. Ct, 539, Ct. D. 131 , page 243, ths ue-
tn.) ees of notares pubc are sub|ect to ta . ( rtce 11 -2,
Reguatons 8 , as amended.)
ppontees of State courts. s a genera rue the compensaton of
masters apponted by State courts to hear and report on specfc
cases, recevers, audtors, e amners, guardans of estates of
ncompetent persons, apprasers, and pubc admnstrators w be
sub|ect to ta . (I. T. 1245, C. . 1-1,103 (1922) I. T. 1305, C. . 1-1,
104 (1922) S. M. 5287, C. . -, 222 (192 ) G. C. M. 1411 , supra
and Mer v. McCaughn, 22 ed. (2d), 1 5 (affrmed 27 ed. (2d).
128), C. . II-2, 2 (1928).) The acquescence n the decson of
the Unted States oard of Ta ppeas n Davd . Cochrane v.
Commssoner (2 . T. ., 11 7, C. . II-2, 4 (1933)) was wth-
drawn (C. . III-2, 23 (1934)).
State acoho admnstratons. The Department has decded that
t was not the ntenton of Congress to mpose the edera ncome
ta drecty on States or potca subdvsons thereof. States and
potca subdvsons whch engage n the manufacture and/or sae
of acohoc beverages w not be ta ed on the profts made from
such saes. (See G. C. M. 14407, C. . I -1, 103 (1935).) ow-
ever, as the actvty s one that s propretary n nature as dstn-
gushed from one that s essentay governmenta, the compensaton
of the offcers and empoyees engaged n the manufacture and/or
sae of such beverages s sub|ect to edera ncome ta . (See Oho v.
everng et a., supra.)
Pubc parks ard paygrounds. In Commssoner v. Sherman ( 9
ed. (2d), 755) the Unted States Crcut Court of ppeas for the
rst Crcut, m affrmng the decson of the Unted States oard
of Ta ppeas (27 . T. ., 11 9), hed that the saary of the
superntendent of pubc parks of a muncpaty s e empt from
edera ncome ta as a saary pad to an empoyee for servces ren-
dered n connecton wth the e ercse of an essenta governmenta
functon. In Commssoner v. Lamb (82 ed. (2d), 733), the Unted
States Crcut Court of ppeas for the Nnth Crcut affrmed the
decson of the oard of Ta ppeas n ernard Peter Lamb v.
Commssoner, Docket No. 70050 (memorandum opnon), and hed
that the saary of the secretary of the board of park commssoners
of the cty and county of San rancsco, Caf., s e empt from ed-
era ncome ta as a saary pad by a potca subdvson of the
State to an empoyee engaged n essenta governmenta functons.
In Comrnu oner v. Schnackenberg (90 ed. (2d), 175), the Unted
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18
States Crcut Court of ppeas for the Seventh Crcut affrmed the
decson of the oard of Ta ppeas n the appea of mer .
Schnackenberg, Docket No. 55714 (memorandum opnon). and hed
that the acquston, mantenance, or reguaton of muncpa parks
consttutes the e ercse of an essenta governmenta functon and
that the saary of an attorney for a board of park commssoners s
e empt from edera ncome ta . In vew of these decsons, t s
hed that the mantenance or operaton of pubc parks by States
and ther potca subdvsons s the e ercse of an essenta govern-
menta functon and the compensaton of offcers and empoyees
whose servces are rendered n connecton wth such mantenance and
operaton s not sub|ect to edera ncome ta . I. T. 2 27 (C. .
-1, 119 (1932)) hodng that the compensaton of the drector of
parks and forestry of a muncpa corporaton was not receved n
connecton wth the e ercse of an essenta governmenta functon
and therefore not e empt from edera ncome ta s revoked.
osptas. It s hed that the operaton of chartabe or soaton
hosptas, or hosptas for the nsane, by States or potca subdv-
sons consttutes the e ercse of an essenta governmenta functon,
and the compensaton of the offcers and empoyees of such hosptas
s e empt from edera ncome ta . On the other hand, n the case
of the operaton by a State or potca subdvson of a genera hos-
pta, where a casses of patents are admtted and charges made to
such as can pay, even though the amount of such charges s ess than
the cost, the actvty s cassed as a propretary one and the compen-
saton of the offcers and empoyees of such a hospta s sub|ect to
edera ncome ta . (I. T. 2357, C. . I-1, 52 (1927) I. T. 2 42,
C. . I-2, 44 (1932).) s to hosptas comng between these e -
tremes, no defnte rue can be ad down and each case must be de-
cded on the partcuar facts. In submttng nformaton wth
respect to such nsttutons you shoud gve fuy a the facts, par-
tcuary as to the statutes or ordnances provdng for ther estab-
shment and operaton, the practce wth respect to admsson of
patents and charges therefor, and a other pertnent facts.
Independent contractors. Partcuar attenton shoud be gven to
cases of professona men who engage n prvate practce and who
aso serve States or ther potca subdvsons professonay. s
a genera rue they w be hed to be ndependent contractors or
ndependent professona agents on the authorty of Metcaf ddy
v. Mtche, supra urnet v. McDonough (4 ed. (2d), 944, Ct. D.
838, C. . -, 3 7 (1931)) urnet v. ones (50 ed. (2d), 14)
Underwood v. Commssoner (5 ed. (2d), 7) ohn Red, r., v.
Commssoner (28 . T. ., 1217) Commssoner v. Mod|esk, supra
and Water G. Wnne v. Commssoner (27 . T. ., 3 9). In Regster
v. Commssoner ( 9 ed. (2d), 07, Ct. D. 8 3, C. . III-2, 284
(1934)), the court sad that It s setted doctrne, however, that one
of a cass sub|ect to ta aton camng the beneft of an e emp-
ton must brng hmsef e acty wthn the e cepton ne
cams. To hod moneys whch pettoner has earned n
the practce of hs professon e empt from ncome ta merey because
the cent who pad them was a cty, woud be to set unreasonabe
bounds to the doctrne of the mmunty of the soveregn to press ts
consequences far beyond the practca necesstes of ether govern-
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ment. Ths cass of cases s the most dffcut upon whch to reach
a decson. In submttng nformaton reatve to them t s desred
that you do not merey draw a concuson that the ndvdua s an
offcer or an empoyee but that you gve very fuy a the facts, etc.,
upon whch you base your opnon, so that ths offce may be n a
poston to determne the correctness of your concusons. ery com-
pete and defnte nformaton shoud be furnshed n regard to the
nature of ther actvtes, whether a pubc offce s provded for them,
whether they are requred to observe reguar offce hours, whether
the poston s specfcay provded for by statute or by ordnance, and,
f so, the provson of the aw or ordnance shoud be secured, and
the ctaton of the aw gven by voume and page. (See . . Pease v.
Commssoner, 30 . T. ., 17, affrmed by the Unted States Crcut
Court of ppeas for the S th Crcut, 83 ed. (2d), 122.) In
Regster v. Commssoner, supra, the court sad that In decdng
those cases as we dd we ad down no genera rue. We dd not
undertake to, we dd not, mark out for other cases the ne beyond
whch the edera ta ng power coud not go. We recognzed that
on what sde of that ne each case woud fa must be precsey and
separatey determned n each case as t arses.
State banks. The operaton of a State bank has aso been hed to
be the dscharge of a propretary functon and, therefore, the com-
pensaton of ts offcers and empoyees s sub|ect to ta . The State
of North Dakota v. Oson, supra.) .
arbors. The constructon, ownershp, and operaton by a State
or potca subdvson of wharves, pers, eevators, termnas, cng
pants, warehouses, and other port factes to promote shppng and
commerce are propretary actvtes. (S. M. 2232, C. . III-2, 83
(1924) and Packet Co. v. eokuk, 95 U. S., 80.) (The queston of
the ta abty of the compensaton of empoyees of the Port of New
York uthorty s now pendng before the courts.
Rura credt board. The functon of a rura credt board has been
hed to be propretary n character and the compensaton of ts off-
cers and empoyees s, therefore, sub|ect to ta . (S. M. 5490, C. .
-1,37 (192 ).)
arbor pots. The compensaton .of harbor pots s ta abe.
(See rungs n C. . I-2, 39 to 58 (1927), and ew v. Unted States,
35 ed. (2d), 977.)
Irrgaton and recamaton dstrcts. The functons of rrgaton
and recamaton dstrcts are propretary n nature and the com-
pensaton of the offcers and empoyees thereof s sub|ect to ta .
Ta coectors. Persons apponted ony for the purpose of co-
ectng denquent ta es or partcuar ta es are not offcers or em-
poyees of a State or ts potca subdvsons and the compensa-
ton receved for such servces s sub|ect to ta . (G. C. M. 809, C. .
-2.28 (192 ) and Reed v. Commssoner, 34 ed. (2d), 2 3, reversed
by the Supreme Court, 281 U. S., 99.)
Schoo cafeteras. The operaton of schoo cafeteras s an actvty
that s propretary n nature and the compensaton of the offcers and
empoyees whose servces are rendered n connecton therewth s ta -
abe. In the appea of ugene Ioskns et a. v. Commssoner (32
. T. ., 82), the oard of Ta ppeas hed that where a pubc
schoo dstrct, a potca subdvson of a State, estabshes and
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188
operates a system of pubc schoo cafeteras, such actvty s not
beyond the edera ta ng power and that compensaton receved by
one for her servces as drector of the system of cafeteras s not
mmune from the edera ncome ta . The decson of the oard n
that case was reversed on uy 3, 193 , by the Crcut Court of p-
pas for the fth Crcut (84 ed. (2d), 27). Pendng a fna
|udca determnaton of the queston of the ta abty of the com-
pensaton of offcers and empoyees of States and ther potca sub-
dvsons, the ureau w adhere to ts poston that the compensaton
of ndvduas who render servce n connecton wth the operaton
of schoo cafeteras s not e empt from edera ncome ta .
M ed actvtes. In some cases ndvduas render servces to States
or potca subdvsons n connecton wth an nstrumentaty em-
bracng both propretary and governmenta actvtes. In such cases
the ta abty of the compensaton receved w depend upon the
nature of the enterprse, and not the partcuar ncdents of ts
management. The fact that a part of the actvty may be govern-
menta n nature does not warrant e empton when that part s
merey ncdenta to the man purpose. (See C. S. Denman v. Com-
mssoner, 27 . T. ., 25 , affrmed 73 ed. (2d), 193: and everng
v. Powers, supra.) When a ta payer cams the beneft of an e emp-
ton from ta aton, the burden s upon hm to show ceary that he
s wthn the e empton camed. (Phoen re Marne Insurance
Co. v. Tennessee, 1 1 U. S., 174 Chcago, urngton ansas Cty
Raroad v. Guffey, 120 U. S., 5 9 Metcaf ddy v. Mtche, supra.)
In regard, therefore, to the admnstratve dffcutes nvoved n cases
where a State or a potca subdvson combnes n one agency
actvtes whch are party propretary and party governmenta and
nether can be sad to be merey ncdenta, t may be stated that t
devoves upon the ta payer to substantate from records the dv-
son of hs tme between the two, such as the number of months,
days, etc., devoted to each. If he can furnsh no bass for the dv-
son of hs tme or saary whch appears reasonabe, the tota amount
shoud be ncuded n ta abe ncome.
Ths mmeograph w be foowed n a respects, pendng a fur-
ther carfcaton by the Unted States Supreme Court of the queston
of the ta abty of the compensaton of offcers and empoyees of
States and ther potca subdvsons.
Inqures regardng ths mmeograph shoud refer to the number
thereof and to the symbos IT: R .
Gut T. evekng,
Commssoner.
S CTION 117. C PIT L G INS ND LOSS S.
rtce 117-1: Meanng of capta assets. 1938- -9184
I. T. 3159
R NU CTS O 1934 ND 193 .
Iustratve e ampes under I. T. 3121 (O. . 1937-2. 138)
showng appcaton of the provsons of secton 117 of the Revenue
cts of 1934 and 193 to cases Invovng debt ad|ustments.
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189
5117, rt. 117-1
dvce s requested whether the thrd paragraph of the concusons
contaned n I. T. 3121 (C. . 1937-2, 138) statng that
If a mortgage s forecosed and the credtor buys the mortgaged property at
a prce equa to the bass of the note representng the unpad ndebtedness, no
deducton may be taken by the credtor as a bad debt. owever, If the far
market vaue of the property s ess than the bd prce, the credtor sustans a
capta oss, sub|ect to the mtatons contaned n secton 117, measured by
the dfference between the bass of the obgatons of the debtor apped to the bd
prce of the property and the far market vaue of the property. The far
market vaue of the property w be presumed to be the amount for whch t s
td n by the ta payer n the absence of cear and convncng proof to the
contrary. (See artce 23(k)-3, Reguatons 8 .)
s ntended as a restrcton upon the provsons of the second sentence
of artce 23 (k)-3 of Reguatons 8 and 94, whch read as foows:
In addton, f the credtor buys n the mortgaged or pedged property, oss or
pn s reazed measured by the dfference between the amount of those obga-
tons of the debtor whch are apped to the purchase or bd prce of the property
(to the e tent that such obgatons consttute capta or represent an tem the
ncome from whch has been returned by hm) and the far market vaue of the
property.
I. T. 3121, supra, was not ntended as a restrcton upon any of the
provsons set forth n artce 23(k)-3 of the reguatons. It s.
merey e panatory of the appcaton of the provsons of secton 117
of the Revenue cts of 1934 and 193 to cases nvovng debt
ad|ustments.
The appcaton of the above-mentoned reguatory provsons and
of that porton of I. T. 3121 referred to s shown n the foowng
ustratve e ampes:
ampe 1.
Mortgage ndebtedness 10, 000
Purchase or bd prce of credtor 10,0UO
mount of bad debt deducton None.
Obgatons of debtor apped to bd prce 10,000
ar market vaue of property 5, 000
Capta oss (sub|ect to mtatons of secton 117) 5,000
ampe 2.
Mortgage ndebtedness 10. 000
Purchase or bd prce of credtor _ 5, 000
mount of bad debt deducton . 5,000
Obgatons of debtor apped to bd prce 5, 000
ar market vaue of property 5,000
mount of capta gan or oss None.
ampe 3.
Mortgage ndebtedness 10, 000
Purchase or bd prce of credtor 5,000
mount of bad debt deducton 5,000
ar market vaue of property 8,000
Obgatons of debtor apped to bd prce 5,000
Capta gan 3, 000
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117, rt. 117-1.
190
Wth respect to e ampes 2 and 3 above, attenton s nvted to that
porton of artce 23 (k)-3 of Reguatons 94 whch provdes that
where the bd prce upon forecosure s ess than the mortgage n-
debtedness the ta payer may be entted to a bad debt deducton de-
pendng on whether the porton of the debt remanng unsatsfed a
uncoectbe and charged off.
rtce 117-1: Meanng of capta assets. 1938-9-9215
L T. 31 7
R NU CT O 1938.
Where stock s hed by a credtor as securty for a debt and the
debt s compromsed by the debtor transferrng tte to the stock
to the credtor n e change for a reease of the debtor from hs
obgaton, the oss, f any, sustaned by the credtor shoud be
treated as arsng from an e change of an asset, and such oss s
sub|ect to the mtaton contaned n secton 117(d) of the Reve-
nue ct of 193 f the stock s a capta asset wthn the defn-
ton of secton 117(b) of that ct.
dvce s requested whether a oss ncurred by the M Company
shoud be treated as a bad debt or a capta oss for edera
ncome ta purposes.
The M Company for a number of years purchased and sod ts own
capta stock on the open market. The stock was often sod on the
deferred payment pan and at varous prces rangng up to 5 do-
ars a share. Notes were gven to the company by the purchasers
and the stock was hed by the company as coatera securty. Later
the market prce of the stock decned to doars a share. Many
purchasers competed ther payments and receved ther stock whe
others dscontnued payments on ther notes. fforts were made by
the M Company to coect the baances due on the notes but the
company was unsuccessfu, and whe t had the rght to se the co-
atera and appy the proceeds to a reducton of the notes and then
take ega acton to coect the defcences, t decded that no substan-
ta recovery coud be e pected n e cess of the vaue of the coatera,
the far market vaue of the stock as of that date. n offer was made
and accepted to cance the baances due on the notes f the makers
woud renqush a ther rghts n the stock hed by the company
as coatera. Ths acton resuted n a oss of 22. 2a doars to the
ta payer n the year 193 . The queston presented s whether the
oss shoud be treated as a bad debt or a capta oss.
In I. T. 3121 (C. . 1937-2, 138), reatve to the appcaton of
secton 117 of the Revenue cts of 1934 and 193 to cases nvovng
debt ad|ustments, t was hed n part that where a debt s compro-
msed between the debtor and the credtor for a cash consderaton
because of nabty of the debtor to pay, the oss sustaned by
the credtor shoud not be treated as a capta oss under sec-
ton 117. ae v. everng, 85 ed. (2d) 819.) dstncton
was, however, drawn between the compromse of a debt for an
amount of cash ess than the unpad outstandng ndebtedness and
the compromse of a debt secured by a mortgage whch resuts n a
transfer of tte to the mortgaged property to the credtor n e -
change for the reease of the debtor from hs obgaton to the credtor.
It was hed that the oss, f any, n such a case s to be treated
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191
119. rt. 110-4.
as arsng from the sae or e change of a capta asset, and s meas-
ured by the dfference between the bass of the obgatons of the
debtor n the hands of the credtor and the far market vaue of the
property.
It s hed, therefore, that where a debt secured by stock hed as co-
atera s compromsed by the debtor transferrng tte to the stock
to the credtor n e change for a reease of the debtor from hs obga-
ton to the credtor, the oss, f any, sustaned by the credtor s to
be treated as arsng from an e change of a capta asset and s
sub|ect to the mtaton contaned n secton 117(d) of the Revenue
ct of 193 f the asset s a capta asset wthn the defnton
contaned n secton 117(b) of that ct.
S CTION 119. INCOM ROM SOURC S WIT IN
UNIT D ST T S.
Where a nonresdent aen retred ensted man of the Unted
States rmy rendered part of hs servce wthn the Unted States,
the porton of hs retrement pay appcabe to such servce s sub-
|ect to ncome ta and the wthhodng provsons of the Revenue
cts of 1934 and 193 .
dvce s requested whether the retrement pay of nonresdent aen
retred ensted men of the Unted States rmy s sub|ect to edera
ncome ta and to the wthhodng provsons of the Revenue cts of
1934 and 193 .
The queston s presented n the case of , who s a nonresdent
aen resdng n the Phppne Isands and who receved durng 193
the sum of doars as retrement pay from the Unted States Govern-
ment. The records of the War Department dscose that served n
the Unted States rmy under a Pppne enstment for a perod
of 30 years, of whch 20 years were spent n the Phppne Isands and
10 years n the Unted States.
Retrement pay consttutes addtona compensaton for past servces
rendered. (I. T. 19 3 C. . III-, 104 (1924) artce 22(a)-2, Regu-
atons 94.) In arrvng at the amount of retrement pay sub|ect to
edera ncome ta n the hands of a nonresdent aen retred ensted
man of the Unted States rmy, who, durng the perod of hs enst-
ment, rendered servces wthn and wthout the Unted States, t s
necessary to ascertan the perod durng whch servces were rendered
wthn the Unted States, because ony that porton of the retrement
pay appcabe to such servces consttutes ta abe ncome n the hands
of the recpent. (See secton 119 of the Revenue ct of 193 .) In
the partcuar case under dscusson, one-thrd of the servces rendered
by the nonresdent aen were rendered wthn the Unted States.
Therefore, ony one-thrd of the retrement pay represents ncome
sub|ect to edera ncome ta n hs hands.
Under secton 143(b) of the Revenue ct of 193 , a offcers and
empoyees of the Unted States havng the contro, recept, custody,
btce 119-4: Compensaton for abor or per-
sona servces.
1938-24-9383
I. T. 3197
( so Secton 143, rtce 143-1.)
R NU CTS O 1934 ND 193 .
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131, rt. 131-1.
192
dsposa, or payment of saares, wages,, compensatons, remuneratons,
emouments, or other f ed or determnabe annua or perodca n-
come from sources wthn the Unted States of any nonresdent aen
ndvdua are requred to deduct and wthhod a ta at the rate of
10 per cent (ths rate has been reduced to 5 per cent under the terms
of a treaty between the Unted States and Canada n the case of non-
resdent aens, resdents of Canada). The rate of wthhodng wth
respect to payments made from anuary 1, 193 , to and ncudng
uy 1, 193 , was 4 per cent under secton 143(b) of the Revenue ct
of 1934. It foows that under secton 143(b) of the Revenue cts
of 1934 and 193 ncome ta on that porton (one-thrd) of the retre-
ment pay of shoud have been deducted and wthhed at the rate of
4 per cent for the perod anuary 1, 193 , to uy 1, 193 , and at the
rate of 10 per cent from payments made on and after uy 2,193 .
SUPPL M NT C CR DITS G INST T .
S CTION 131. T S O OR IGN COUNTRI S ND
POSS SSIONS O UNIT D ST T S.
rtce 131-1: nayss of credt for ta es. 1938-10-922
I. T. 3171
. R NU CT O 193 .
The ta mposed under secton 19, Part III of the rtsh -
nance ct, 1937 (1 dw. 8 and 1 Geo. , ch. 4), known as the
natona defense contrbuton, s an ncome ta wthn the mean-
ng of secton 131 of the Revenue ct of 193 .
dvce s requested whether the ta mposed by ngand on cor-
poraton ncome known as the natona defense contrbuton s
an ncome, war-profts, or e cess-profts ta as used n secton 131
of the Revenue ct of 193 , reatng to credts for ta es pad to
foregn countres and possessons of Unted States.
Secton 19, Part III of the rtsh nance ct, 1937 (1 dw. 8
and 1 Geo. , ch. 54), provdes n part:
(1) There sha be charged, on the profts arsng n each chargeabe ac-
countng perod fang wthn the fve years begnnng on the 1st day of
pr, 1937, from any trade or busness to whch ths secton appes, a ta
(to be caed the natona defense contrbuton ) of an amount equa to 5
per cent of those profts n a case where the trade or busness s carred on
by a body corporate and 4 per cent of those profts n any other case.
(2) Sub|ect as hereafter provded, the trades and busnesses to whch ths
secton appes are a trades or busnesses of any descrpton carred on n
the Unted ngdom, or carred on, whether personay or through an agent,
by persons ordnary resdent n the Unted ngdom.
It s hed that the natona defense contrbuton s an ncome
ta wthn the meanng of secton 131 of the Revenue ct of 193 .
rtce 131-1: nayss of credt for ta es. 1938-14-9274
I. T. 3179
R NU CT O 193 .
ungary does not satsfy the smar credt requrement of sec-
ton 131 (a)3 of the Revenue ct of 193 .
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193
131, rt. 131-1.
rtce 131-1: nayss of credt for ta es. 1938-22-93 1
( so Secton 23(c), rtce 23(c)-.) L T. 3193
R NU CT OP 193 .
The ta mposed under artce 14 of the ncome ta aw of Me co
(Ley de Impuesto sobre a Renta), 1934 edton, as amended by
decree sgned ugust 30, 1937, and effectve September 15, 1937, s
not an ncome ta , and credt therefor may not be aowed under
secton 131 of the Revenue ct of 193 . The amount of such ta
s. however, aowabe as a deducton under secton 23(c) of the
Revenue ct of 193 .
dvce s requested whether the ta mposed under artce 14 of
the ncome ta aw of Me co (Ley de Impuesto sobre a Renta),
1934 edton, as amended by decree sgned ugust 30, 1937, effectve
September 15, 1937, s an ncome ta , credt for whch s aowabe
under secton 131 of the Revenue ct of 193 .
rtce 14 of the Me can ta aw requres an advance payment of
3 per cent to be made on the vaue of merchandse sent nto Me co
from abroad as shown by the nvoce. The advance payment s con-
sdered the defntve payment uness the ta payer subsequenty fes
an annua return showng that the aggregate advance payments
e ceed the amount of hs ta abty computed under artce 8 of the
Me can ncome ta aw on hs gross yeary recepts, ess 5 per cent,
n whch case the e cess ta s refunded.
The provsons of the Me can aw pertnent n determnng
whether or not the 3 per cent ta referred to s an ncome ta aow-
abe as a credt under secton 131 of the Revenue ct of 193 are as
foows:
Chapter I.
G N R L PRO ISIONS.
rtce 1. The foowng are abe for payment of ncome ta :

II. oregners domced n the Repubc or abroad whose ncome or profts
are derved from sources of weath wthn natona terrtory or busness trans-
actons effected theren.

Chapter II:
IRST SC DUL .

rt. 8. The ta sha be eved accordng to the foowng.
(Note: The rates are graduated from 2 per cent to 12.3 per cent.)

rt. 14. Persons who send merchandse to Me can terrtory from abroad
sha pay the ta n accordance wth the tarff contaned n artce 8, based on
ther gross yeary recepts ess 5 per cent, but n no case sha the ta e ceed
3 per cent of the tota recepts.
or the fna assessment of the ta payabe by sad ta payers, they must fe
a decaraton every March showng ther operatons durng the precedng year.
aure to present sad decaraton at the proper tme sha furnsh grounds for
ther advances, made n accordance wth the foowng provsons, to be apped
defntey as payment of the ta .
The ta payers referred to n ths artce sha make an advance payment of
3 per cent of the vaue of the effects, as per the coverng nvoce, on account of
the ta payabe.
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131, rt. 131-1.
194
Such amounts as shoud not be apped as defnte payment of the ta sha be
refunded as soon as a resouton s handed down on the decaratons referred to
n the second paragraph of ths artce.
The advance payment of 3 per cent sha be made n cash at the consuar
offces at the tme that the commerca nvoce s presented for the purpose of the
decree of the th March, 1937. Shppers are bound to present the commerca
nvoce for the purposes of ths ta at the consuates even n the cases where
the customs aw or the aforesad decree do not requre that the commerca
nvoce be presented.
In I. T. 2909 (C. . I -2,13 (1935)) t was hed that a duty on
annua profts of uebec mnng companes, mposed wthout
regard to whether there s any ncome from the propertes, s not an
ncome ta and may not be camed as a credt under secton 131 of
the Revenue ct of 1934. In that rung t was stated n part as
foows:
or the purpose of a credt for foregn ta es, t Is necessary to determne
whether the ta s a ta on ncome wthn the concept of that term as used and
recognzed n the Unted States ncome ta aw. The Supreme Court of the
Unted States has hed that ncome may be defned as the gan derved from
capta, from abor, or from both combned, provded t be understood to ncude
proft derved through a sae or converson of capta assets. ( sner v.
Macomber, 252 U. S., 189, T. D. 3010, C. . 3, 25 (1920).)
In I. T. 259 (C. . -2,184 (1931)) t was hed n genera that a
ta based on gross recepts s an e cse ta and may not be camed as
a credt under secton 131 of the Revenue ct of 1928. Other dec-
sons hod that t s the ta on ncome wthn the meanng of that
term as used and understood for edera ncome ta purposes whch
may be credted under secton 131. (See I. T. 2 20, C. . I-1, 44
(1932), and G. C. M. 18182, C. . 1937-1, 149.)
rom a readng of the Me can aw, t s evdent that the ta
mposed under artce 14 s based upon gross recepts, snce the ta
s frst computed at the rate of 3 per cent of the nvoce vaue of
merchandse sent nto Me co, and then computed upon a f ed per-
centage of gross recepts, the atter beng arbtrary desgnated as
ta abe profts. The fact that the ta payer may sustan an actua
oss does not affect hs abty under artce 14. It s true that such
ta s part of a statute desgnated, n the ngsh transaton, as an
ncome ta aw. owever, such desgnaton seems more descrptve
of the ta es eved under some other artces of the aw on the bass
of net proft than the ta es mposed under artce 14 on the bass of
gross recepts of mporters, or of those mposed under artce 11 of
4 per cent of the tota premums receved by nonresdent foregn
bondng houses for ther rebondng operatons n Me co. Moreover,
whe the desgnaton of a ta ng statute s entted to weght, the
substance of the aw s controng n determnng the true nature of
the ta . (Securty Savngs Commerca ank v. Dstrct of
Coumba. 279 ed., 185 cf. . W. Wooworth Co. v. Unted States,
91 . (2d), 973.)
ccordngy, t s hed that the ta mposed under artce 14 of the
Me can aw referred to heren s not an ncome ta , and credt there-
for s not aowabe under secton 131 of the Revenue ct of 193 .
The amount of such ta s, however, aowabe as a deducton under
secton 23 (c) of the Revenue ct of 193 .
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195 143, rt. 143-1.
rtce 131-3: Condtons of aowance of credt.
R NU CT O 193 .
Credt for foregn ta es by husband and wfe n communty prop-
erty State. (See G. C. M. 19727, page 255.)
rtce 131-5: Countres whch do or do not 1938-12-924
satsfy the smar credt requrement. I. T. 3174
R NU CT OP 193 .
Germany does not satsfy the smar credt requrement of secton
131 (a)3 of the Revenue ct of 193 .
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 142. IDUCI RY R TURNS.
rtce 142-5: Return for nonresdent aen benefcary.
R NU CT O 193 .
mendment of Reguatons 94, artce 142-5. (See T. D. 4795,
page 1 2.)
S CTION 143. WIT OLDING O T
T SOURC .
rtce 143-1: Wthhodng ta at source. 1938-1-9122
I. T. 3148
R NU CT O 193 .
The provsons of the recproca ta conventon entered nto
between the Unted States and Canada, ratfed ugust 13, 1937
(T. D. 47 , C. . 1937-2, 158), are not appcabe to non-resdent
aen resdents of Newfoundand.
dvce s requested reatve to the refundng of ta wthhed from
ncome pad to nonresdent aens, resdents or Newfoundand, n ac-
cordance wth the recproca ta conventon between the Unted
States and Canada, whch was ratfed ugust 13, 1937, and s retro-
actve to anuary 1,193 . (See T. D. 47 , C. . 1937-2, 158.)
Inasmuch as Newfoundand s not a Provnce of Canada, the pro-
vsons of the recproca ta conventon are not appcabe to non-
resdent aen resdents of Newfoundand and no refund shoud be
made of the 10 per cent ta wthhed.
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143, rt. 143-1.
19
rtce 143-1: Wthhodng ta at source. 1938-15-9288
L T. 3180
R NU CT O 193 .
Under the recproca ta conventon between the Unted States
and Canada effectve anuary 1, 1938, Canadan nomnees or
agents recevng f ed or determnabe annua or perodca Income
for the account of nonresdents of Canada who are ctzens or
resdents of the Unted States or corporatons organzed under the
aws of the Unted States, must wthhod an addtona ta of 5
per cent or 10 per cent, as the case may be, uness dscosure s
made on orm 1042 to the Unted States Government of the names
and addresses of, and amounts of ncome receved by, the actua
owners.
I. T. 3144 (C. . 1937-2, 147) modfed.
eference s made to I. T. 3144 (C. . 1937-2, 147), whch n-
voves an nterpretaton of artces 4 and 8 of the Unted States
reguatons prescrbed to carry nto effect the recproca ta conven-
ton between the Unted States and Canada, efectve anuary 1,
193 .
In that rung t was hed that ctzens or resdents of the Unted
States and corporatons organzed under the aws of the Unted States
are not sub|ect to wthhodng of an addtona ta of 5 per cent or
10 per cent by Canadan nomnees or agents. It appears that there s
a confct between the Unted States reguatons, as nterpreted by the
pubshed rung, and the Canadan reguatons. It s suggested that
the reguatons of the two countres mght be reconced by requrng
Canadan nomnees or agents to do one of two thngs
1. Deduct an addtona 5 per cent under the Canadan reguatons
and remt the baance of the money to the Unted States resdent
wthout furnshng the name and address of the Unted States resdent,
or
2. urnsh the name and address of the Unted States resdent
and remt the money to hm wthout any deducton.
When the rung n queston was ssued, the ureau dd not have
before t a copy of the fna draft of the Canadan reguatons. Under
the conventon between the Unted States and Canada referred to,
nomnees or agents n Canada who receve f ed or determnabe an-
nua or perodca ncome from sources wthn the Unted States for
the account of other persons who are nonresdents of Canada must,
as a genera rue, deduct the addtona 5 per cent or 10 per cent
ncome ta and remt same to the Unted States Government accom-
paned by orm 1042. In such cases the names and addresses of the
actua owners of the ncome are not requred. Where, however, such
nonresdents of Canada are ctzens or resdents of the Unted States,
or corporatons organzed under the aws of the Unted States, an
addtona ta of 5 per cent or 10 per cent need not be wthhed by
the Canadan nomnees or agents, provded dscosure s made on
orm 1042 to the Unted States Government of the names and
addresses of, and amounts of ncome receved by, the actua owners.
I. T. 3144, supra, s modfed accordngy.
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197
143, rt. 143-1.
|mcu : 143-1: Wthhodng ta at source. 1938-18-9317
G. C. M. 19992
R NU CT O 1930 ND PRIOR R NU CTS.
The ony ta requred to be wthhed at the source wth respect
to f ed or determnabe annua or perodca Income pad to the
en Property Custodan Is the ta whch the debtor corporaton
has agretn to pay n connecton wth ts ta -free covenant bonds
ssued pror to anuary 1, 1034, referred to n secton 143(a) of
the Revenue ct of 193 . Ths rung s appcabe to ncome pad
to the en Property Custodan n years governed by pror
Revenue cts.
n opnon s requested whether ncome ta s requred to bo
wthhed at the source n connecton wth payments of ncome made
wth respect to property taken over by the en Property Custodan.
Secton 143(a) of the Revenue ct of 193 requres the deducton
of ncome ta at the source n connecton wth nterest upon ta -free
covenant bonds ssued before anuary 1, 1934, payabe to the casses
of persons enumerated theren, and secton 143(b) requres the deduc-
ton of ncome ta from other f ed or determnabe annua or perod-
ca ncome pad to nonresdent aen ndvduas. Secton 144 of the
ct reates to the deducton of ncome ta at the source wth respect
to the ncome of foregn corporatons, the tems of ncome beng the
same as those provded n secton 143.
The queston of the deducton of ncome ta at the source wth re-
spect to ncome pad to the en Property Custodan has prevousy
been consdered by ths offce. In Treasury Decson 29 9 (C. . 2,
195 (1920)), amendng artce 375 of Reguatons 45, t was hed that
payments made after October ,1917, to the en Property Custodan
are n the same category as payments made to or for ctzens of the
Unted States, and wthhodng at the source s unnecessary e cept n
the case of nterest payments on corporate bonds or other obgatons
contanng a ta -free covenant. It s further stated n that Treasury
decson that No dstncton s to be made between payments drecty
to the en Property Custodan and to hs depostares. In O. D.
831 (C. . 4, 234 (1921)) t was agan ponted out that 2 per cent n-
come ta was requred to be pad at the source n the case of nterest
payments to the en Property Custodan or to hs depostares on
corporate bonds or other obgatons contanng a ta -free covenant.
Secton 24 of the Tradng wth the nemy ct, as amended, provdes
that the en Property Custodan s authorzed to pay a ta es aw-
fuy assessed by any body potc aganst any money or other prop-
erty hed by hm or by the Treasurer of the Unted States under that
ct. In the case of ncome, war profts, and e cess-profts ta es m-
posed by any ct of Congress the amount thereof sha, under regua-
tons prescrbed by the Commssoner and approved by the Secretary
of the Treasury, be computed n the same manner as though the
money or other property had not been sezed by or pad to the en
Property Custodan. Treasury Decson 41 8 (C. . II-2, 413
(1928)) sets forth the reguatons wth respect to the computaton
and coecton of ta es due from enemy aens wth respect to prop-
erty hed by the en Property Custodan. That Treasury decson
was amended by Treasury Decson 4514 (C. . I -1, 543 (1935))
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143, rt. 143-1.
198
but the amendment reates soey to the queston of requrng certan
ncome ta returns and not to the queston of the deducton of ncome
ta at the source.
In Maranne rausz et a. v. Unted States (14 ed. Supp., 291,
Ct. Cs., Ct. D. 1188, C. . 1937-1, 302), t was ponted out that the
en Property Custodan was not the agent of the former owner of
the property but was the agent of the Unted States Government,
ctng the opnon of the ttorney Genera (voume 32, pages 249,253).
The court stated n part as foows:
Ths money or property was turned over purey as an act of grace.
In so dong, the Unted States was not standng upon ts war-tme rghts, but
paced the matter on a mora and equtabe pane hghy favorabe to the cam-
ants. avng done ths, t seems hardy concevabe that It was Intended to
turn ths property back to the former owners wthout coectng ta es |usty due
from them. Our Government was ntendng to do e act |ustce to the aen
camants, and t woud e act no more than |ustce n requrng these ta es to be
pad. Where the Intent s manfest and the anguage ambguous the Intent must
contro.
In Cummngs, ttorney Genera, et a. v. Deutsche ank und Ds-
contogeseschaft (300 U. S., 115), decded ebruary 1, 1937, the
Unted.States Supreme Court stated n part as foows:
en enemy owners were dvested of every rght n respect of the
money and property sezed and hed by the Custodan under the Tradng wth
the nemy ct. The tte acqured by the Unted States was absoute
and unaffected by defnton of dutes or mtatons upon the power of the
Custodan or the Treasurer of the Unted States. s the takng eft
n enemy owners no benefca rght to, or nterest n, the property, the Unted
States dd not take or hod as trustee for ther beneft.
In vew of the fact that the en Property Custodan s the agent
of the Unted States rather than the agent of the former owner of the
property, and the fact that the former owner ost a rght and tte to
the property whch s n possesson of the Unted States Government,
no wthhodng of ncome ta at the source s requred under sectons
143 and 144 of the evenue ct of 193 and correspondng provsons
of pror Revenue cts n connecton wth ncome pad to the en
Property Custodan e cept from nterest payments upon ta -free
covenant bonds. To treat the enemy aen as the actua owner of
roperty sezed by the en Property Custodan and to have wth-
odng at the source wth respect to payments to hm woud requre
wthhodng agents to deduct and wthhod ncome ta from ncome
payabe to an agency of the Unted States. Such acton s not neces-
sary, because the Government aready has n ts possesson the prop-
erty of the aen, and n vew of the reguatons promugated wth
respect to the preparaton of returns and payment of the ta by the
en Property Custodan, such wthhodng woud compcate rather
than assst n the coecton of ncome ta es due the Government.
Ths offce s of the opnon, therefore, that the ony ta requred
to be wthhed at the source wth respect to f ed or determnabe
annua or perodca ncome pad to the en Property Custodan s
the ta whch the debtor corporaton has agreed to pay n connecton
wth ts ta -free covenant bonds ssued pror to anuary 1, 1934, re-
ferred to n secton 143(a) of the Revenue ct of 193 . Tns rung
s appcabe to ncome pad to the en Property Custodan n years
governed by pror Revenue cts.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
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199 14S, rt. 143-2.
rtce 143-1: Wthhodng ta at source.
R NU CT O 103 .
Retrement pay of a nonresdent aen ensted man of the Unted
States rmy. (See I. T. 3197, page 191.)
rtce 143-2: ed or determnabe annua or 1938- -9185
perodca ncome. I. T. 31 0
R NU CT O 193 .
domestc fducary s abe for the deducton of an Income ta
at the source of 10 per cent wth respect to the dstrbutabe net
Income of a trust, ncudng capta gans, from sources wthn the
Unted States whch s payabe to a nonresdent aen ndvdua.
dvce s requested whether an ncome ta of 10 per cent s requred
to be wthhed at the source from a dstrbuton by a trust n 193
to , a nonresdent aen.
, a resdent fducary, deducted and wthhed ta on 1 doars
from a dstrbuton of 1 | doars made as trustee under a trust
nstrument e ecuted for the beneft of , and ncuded on orm 1042,
nnua return of ncome ta to be pad at source, the foowng
statement:
Of the 1 -r doars shown on the fducary return as dstrbutabe to ,
doars represents capta gans.
The amount representng capta gans, to whch reference was
made on orm 1042 for the year 193 , was propery pad or dstrb-
utabe n accordance wth the terms of the trust nstrument e ecuted
n 1934. The rea queston s whether capta gans consttute f ed
or determnabe annua or perodca ncome and are sub|ect to wth-
hodng of ncome ta at tne source when receved by a nonresdent
aen benefcary from a domestc fducary.
Secton 143(b) of the Revenue ct of 193 requres that an ncome
ta of 10 per cent sha be wthhed at the source from f ed or deter-
mnabe annua or perodca ncome of any nonresdent aen nd-
vdua from sources wthn the Unted States. rtce 143-1 of Regu-
atons 94 provdes that resdent or domestc fducares sha deduct
the ncome ta at the source from a f ed or determnabe annua
or perodca gans, profts, and ncome of nonresdent aen bene-
fcares to the e tent that such tems consttute gross ncome from
sources wthn the Unted States. The share of the ncome of an
estate or trust from sources wthn the Unted States whch s ds-
trbutabe, whether dstrbuted or not, or whch has been pad or
credted durng the ta abe year to a nonresdent aen benefcary
of such estate or trust, consttutes f ed or determnabe annua or
perodca ncome wthn the meanng of secton 143(b), supra.
( rtce 143-2 of Reguatons 94.) The tems of gross ncome from
sources wthn the Unted States specfcay mentoned n secton
119(a) of the Revenue ct of 193 ncude gans, profts, and ncome
from the sae of rea property ocated n the Unted States. Secton
119(e) of the ct provdes that ncome derved from the purchase
and sae of persona property sha be treated as derved entrey
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143, rt. 143-9.
200
from the country n whch sod, wth certan e ceptons as to posses-
sons of the Unted States. (See aso artce 119-8 of Reguatons
It s hed that the domestc fducary n the nstant case s abe
for the deducton of an ncome ta at the source of 10 per cent wth
respect to the dstrbutabe net ncome of the trust, ncudng capta
gans, from sources wthn the Unted States whch s payabe to the
nonresdent aen benefcary.
If a ta payer ses a ta -free covenant bond between Interest dates
and reports the accrued Interest as Income In hs return, he w be
aowed a credt for ta wthhed at the source from such ncome,
and the purchaser s not entted to a credt for ta wthhed upon
any bond nterest n e cess of that reported n hs return.
0. D. 830 (C. . 4, 232 (1921)) modfed.
dvce s requested regardng the amount of ncome ta whch may
be aowed as a credt n connecton wth nterest upon ta -free cove-
nant bonds whch are sod between nterest dates.
Reference s made to O. D. 830 (C. . 4, 232 (1921)) and the dec-
son of the oard of Ta ppeas n Margaret . . emng v. Com-
mssoner (3 . T. ., 773), promugated October 27, 1937. In that
case the pettoner receved nterest upon ta -free covenant bonds of
the type referred to n secton 144 (a)1 of the Revenue ct of 1928.
t the tme of purchase of these bonds she pad n addton to the
purchase prce amounts aggregatng 2,834.24 for nterest accrued to
the date of sae. In her return for the year 1931, the pettoner e -
cuded that amount from gross ncome and the queston presented
nvoved the amount aowabe as a credt under secton 33 of the
Revenue ct of 1928 for ta es wthhed at the source under secton
144 of that ct.
Wth respect to ths ssue the oard stated as foows:
Issue No. 4- though apparenty not n dspute, the stpuaton does not
revea whether pettoner returned as ncome any nterest receved on bonds
upon whch ta was wthhed at the source. We thnk she s entted to a credt
on contested ncome ta , of the amount of such ta wthhed at the source
on the bond nterest, ony, whch s ncuded n her ta abe ncome, as such.
Revenue ct of 1928, secton 33 and secton 144(d).
In other words, the oard aowed a credt for such ta es to the
e tent that the credt represented ta wthhed at the source on the
ncome reported n the ta payer s return, presumaby the amount
of ta wthhed from nterest accrued after the date of purchase.
It foows that the ncome accrued pror to the purchase of the
bonds shoud be reported by the seer, and that the seer shoud
receve credt for ta wthhed at the source from the nterest ac-
crued up to the date of sae and ncuded n hs return. That case
arose under the Revenue ct of 1928 and the oard s decson s n
accord wth the foowng provson of that ct:
94.)
rtce 143-9: Return of ncome from whch ta
was wthhed.
R NU CT OP 103 .
1938-12-9247
I. T. 3175
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143, rt. 143-9.
Sec. 144. Wthhodng of tat at source.

(d) Income of recpent. Income upon whch any ta Is requred to be
wthhed at the source under ths secton sha be ncuded n the return of
the recpent of such ncome, but any amount of ta so wthhed sha be
credted aganst the amount of ncome ta as computed n such return.
The same provson s contaned n secton 143(d) of the Revenue
ct of 193 .
The ureau s of the opnon that the oard s correct n ts con-
cuson n the emng case, namey, that the ta payer was entted
to a credt of the amount of such ta wthhed at the source on the
bond nterest, ony, whch s ncuded n her ta abe ncome, as such.
On the other hand, O. D. 830, supra, hods that where an nterest
coupon s presented for payment of nterest upon a bond whch has
been sod between nterest dates, the coupon sha be accompaned by
the ownershp certfcate of the purchaser ony, and the certfcate
shoud cover the fu amount of the coupon. That rung aso hods,
n effect, that the purchaser may take credt n hs return for the ta
pad at the source on the entre amount of nterest represented by the
coupon, athough he may e cude from ncome nterest accrued pror
to the date of purchase. On the atter pont, the e cuson of the
accrued nterest up to date of sae, t has been hed that accrued nter-
est on bonds pad by the purchaser recoverabe at the ne t nterest date
s not ncome when recovered. (L. . Thompson Scenc Raway Co.
v. Commwswner, 9 . T. ., 1203, acquescence, C. . -1, 31
(1928).) The same prncpe s recognzed n Treasury Decson 427
(C. . m-2, 83 (1929)), whch hods that the dscount on Treasury
bs may be prorated among the respectve owners and e empton
from ta aton may be camed accordngy. In I. T. 3011 (C. . -2,
132 (193G) ), t was hed that accrued bond nterest s ta abe to the
settor of a trust where bonds were transferred to the trust even though
the settor returns hs ncome on the cash recepts and dsbursements
bass. It s we setted, therefore, that where bonds are sod between
nterest dates the accrued bond nterest to the date of sae s ta abe
to the person who ses the bonds. In vew of the oard s decson
n the emng case and the specfc provson contaned n secton
143(d) of the Revenue ct of 193 , the ogca concuson s that the
credt for ta wthhed at the source shoud foow the ncome from
whch t was deducted.
The queston nvoved has arsen frequenty and t was thought
mpractcabe to requre a certfcate of ownershp every tme a ta -
free covenant bond changes hands between nterest dates. (See So.
Op. 4 , C. . 3, 90 (1920), I. T. 1432, C. . 1-2, 1 7 (1922).) or
admnstratve reasons, t woud seem that O. D. 830. supra, shoud be
foowed as a genera rue regardess of the oard s decson n the
emng case n so far as t requres ony one ownershp certfcate
to accompany the coupon. Takng nto consderaton the arge num-
ber of bonds sod day, t s not deemed advsabe to requre separate
ownershp certfcates from each successve purchaser. To do so
woud pace a burden upon debtor corporatons, banks, and other
wthhodng agents whch woud not be |ustfed n vew of the sma
amount of ta nvoved n the average case. If, however, a ta payer
ses a ta -free covenant bond between nterest dates and reports
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1 2, rt. 1 2-1.
202
the accrued nterest as ncome n hs return, he w be aowed a
credt for ta wthhed at the source from such ncome n accordance
wth the decson rendered n emng v. Commssoner, supra, upon
submsson to the ureau of satsfactory evdence, and the purchaser
of the bond may not cam credt for ta wthhed upon any bond
nterest n e cess of that reported n hs return.
O. D. 830, supra, s modfed accordngy.
S CTION 147. IN ORM TION T SOURC .
rtce 147-3: Cases where no return of nfor- 1938-3-9149
maton requred. T. D. 4788
INCOM T .
rtce 147-3 of Reguatons 94 amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 147-3 of Reguatons 94, reatng to cases where no re-
turn of nformaton s requred, as amended, s amended by nsert-
ng the foowng mmedatey before the ast paragraph thereof:
(fc) mounts pad by the Unted States to persons In Its servce (cv, m-
tary, or nava) as an aowance for traveng e penses, ncudng an aowance
for meas and odgng, as, for e ampe, a per dem aowance n eu of sub-
sstence, and amounts pad as rembursements for traveng e penses.
Ths Treasury decson s prescrbed pursuant to the provsons of
sectons 2 and 147 of the Revenue ct of 193 .
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved anuary 8, 1938.
Roswe Mag,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster anuary 11, 1938, 10.5 a. m.)
SUPPL M NT . ST T S ND TRUSTS.
S CTION 1 2. N T INCOM .
rtce 1 2-1: Income of estates and trusts. 1938-7-9193
I. T. 31 3
R NU CT O 103 .
Trustee s commssons In the case of an Irrevocabe domestc
trust dervng ncome from sources wthn and wthout the Unted
States shoud be apportoned between the two casses of ncome
and ony a ratabe part of such commssons aowed as a deduc-
ton n computng the ta abe ncome of the nonresdent aen bene-
fcares. The ratabe part of such commssons s based upon the
rato of gross ncome from sources wthn the Unted States to the
tota gross ncome of the trust.
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203
1 3, rt. 1 3-1.
dvce s requested reatve to the deductbty of commssons
pad to the M Trust Co., as trustee, under an rrevocabe trust cre-
ated by , a ctzen of the Unted States. The ncome of the trust s
derved party from sources wthn and party from sources wthout
the Unted States. Wth the e cepton of amounts pad to the M
Trust Co. as trustee s commssons for the coecton and dsbursement
of the trust funds, a the ncome of the trust s dstrbutabe cur-
renty to nonresdent aen benefcares.
s a genera rue commssons or servce charges of trustees con-
sttute aowabe deductons n computng the net ncome of an r-
revocabe trust. (S. M. 24 3, C. . III-2, 91 (1924).) owever, no
deducton s aowabe for the amount of such commssons or charges
aocabe to a cass of e empt ncome other than e empt nterest.
(See G. C. M. 10123, C. . -2, 254 (1931) and dscusson n ohn II.
Watson, r., et ce., Trustees of the Trust state of ames W. Cor-
rgan, v. Commssoner, 35 . T. ., 70 , acquescence, C. . 1937-1,
.) Items drecty attrbutabe to such e empt ncome shoud be
aocated thereto, and tems drecty attrbutabe to any cass of ta -
abe ncome shoud be aocated to such ta abe ncome. In the n-
stant case the ncome receved by the trust from sources wthout the
Unted States, whch s dstrbutabe to the nonresdent aen nd-
vduas, s not ta abe to the benefcares.
It s hed that the trustee s commssons n the case of the rrevoca-
be domestc trust created by , whch derved ncome from sources
wthn and wthout the Unted States, shoud be apportoned between
the two casses of ncome and ony a ratabe part of such comms-
sons aowed as a deducton n computng the ta abe ncome of the
nonresdent aen benefcares. The ratabe part of such comms-
sons s based upon the rato of gross ncome from sources wthn the
Unted States to the tota gross ncome of the trust. (See secton
119(e) of the Revenue ct of 193 , and artce 119-10 of Regua-
tons 94.)
S CTION 1 3. CR DITS G INST N T INCOM .
rtc e 1 3-1: Credts to estate, trust, or 1938-8-9203
benefcary. Mm. 4725
mendment of Instructons accompanyng fducary ncome ta
return ( orm 1041) for caendar year 1937.
Treasury Department,
Offce of Commssoner or Interna Revenue,
Washngton, D. C, anuary 31, 1938.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Instructons numbered 19 of the nstructons accompanyng the
fducary ncome ta return on orm 1041 for the caendar year
1937 provde:
19. Persona e empton aotoed under secton 1 3(a) (1). n estate or trust
s aowed for both norma ta and surta purposes the persona e empton
of 1,000 aowed a snge person under secton 25(b)(1), e cept that such
persona e empton s not aowed to any trust f the trust nstrument requres
or permts the accumuaton of any porton of the trust ncome and the sum
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204
of the foowng Items Is ess than Its gross ncome: (a) tota deductons
aowabe under sectons 23 and 1 2 and ( ) tota amounts Incuded n gross
ncome whch ( ) under the aw of the |ursdcton under whch the trust s
admnstered can not (even f permtted or requred by the trust nstrument
to be consdered as ncome) be consdered as ncome and ( ) are not dstrbut-
abe durng the ta abe year. If a persona e empton s camed for a trust
whch has not dstrbuted durng the ta abe year an amount equa to ts
gross ncome ess ts deductons aowabe under secton 23, there shoud be
attached to the return a statement settng forth the facts regardng that por-
ton of the ncome whch, under the aw of the |ursdcton under whc the
trust s admnstered, can not be consdered as ncome and s not dstrbutabe.
The above-quoted nstructons were based upon secton 1 3(a) of
the Revenue ct of 193 , as amended by secton 401 of Tte I
of the Revenue ct of 1937 (approved ugust 2 , 1937, Pubc, No.
377, Seventy-ffth Congress, chapter 815, frst sesson). Secton
1 3(a) 1 of the Revenue ct of 193 , as so amended, provdes:
(a) Credts of estate or trust.
(1) or the purpose of the norma ta and the surta an estate or trust
sha be aowed the same persona e empton as s aowed to a snge person
under secton 25(b)(1), e cept that no e empton sha be aowed a trust f
the trust nstrument requres or permts the accumuaton of any porton of
the ncome of the trust and there s not dstrbuted an amount equa to the
net ncome. or the purposes of ths paragraph the term net ncome does
not ncude amounts ncuded n gross ncome whch, under the aw of the
|ursdcton under whch the trust s admnstered, cannot (even f permtted
or requred by the trust nstrument to be consdered as ncome) be consdered
as ncome and are not dstrbutabe.
Paragraph (a) of artce 1 3-1 of Reguatons 94, as amended by
Treasury Decson 4791, approved anuary 14, 1938 page 83, ths
uetn), provdes n part:
(3) or ta abe years begnnng after December 31, 193 , a trust s aowed
for both norma ta and surta purposes the persona e empton of 1,000
aowed a snge person under secton 25(b)(1), e cept that such e empton
sha not be aowed f the trust nstrument requres or permts the accumu-
aton of any porton of the ncome and the amount actuay dstrbuted
durng the ta abe year s ess than the net ncome of the trust. Net ncome
as used n ths paragraph s to be computed n accordance wth secton 1 2,
e cept that there sha be e cuded any amounts ncuded n gross ncome
whch ( ) under the aw of the |ursdcton controng the admnstraton
of the trust can not (even If permtted or requred under the trust nstru-
ment to be consdered as Income) be consdered as Income and ( ) are not
dstrbutabe durng the ta abe year. Typca of such amounts s the proft
arsng from the sae of trust property whch under the appcabe State aw
Is consdered not as ncome but as a mere converson of corpus and whch
under the terms of the trust nstrument Is not dstrbutabe durng the
ta abe year.
In vew of the above-quoted provsons of artce 1 3-1 of Regua-
tons 94, as amended, nstructons numbered 19 of the nstructons
accompanyng the fducary ncome ta return on orm 1041 for the
caendar year 1937 are amended to provde as foows:
19. Persona e empton aoccd under secton 1 8(a) 1. n estate or trust
s aowed for both norma ta and surta purposes the persona e empton
of 1,000 aowed a snge person under secton 25(b) (1) of the Revenue ct
of 193 , e cept that such e empton sha not be aowed to a trust f the trust
nstrument requres or permts the accumuaton of any porton of the ncome
and the amount actuay dstrbuted durng the ta abe year s ess than the
net ncome of the trust. The term net ncome as used n ths paragraph s
to be computed n accordance wth secton 1C2 of the Revenue ct of 193 ,
e cept that there sha be e cuded any amounts Incuded n gross ncome whch
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205
1G3, rt. 1 3-1.
( ) under the aw of the ursdcton controng the admnstraton of the
trust can not (even f permtted or requred under the trust nstrument to be
consdered as ncome) be consdered as ncome and ( ) are not dstrbutabe
darng the ta abe year. Typca of such amounts s the proft arsng from
the sae of trust property whch under the appcabe State aw s consdered
not as ncome but as a mere converson of corpus and whch under the terms
of the trust Instrument s not dstrbutabe durng the ta abe year. In a
cases n whch the amount of the ncome of the trust for the ta abe year
actuay dstrbuted durng such year s equa-to or more than the net ncome
of the trust, the persona e empton of 1,000 s aowabe even though there
be accumuated amounts whch under the State aw are consdered as ncome.
mounts of ncome whch are merey permanenty set asde for chartabe or
other uses specfed n secton 1 2(a) of the Revenue ct of 193 are not to be
consdered as amounts actuay dstrbuted durng the ta abe year. In com-
parng the amounts actuay dstrbuted wth the net ncome of the trust for
the purpose of determnng whether the persona e empton s aowabe, t s
mmatera whether the amounts so dstrbuted are aowabe as a deducton
under ether subsecton (a), (b), or (c) of secton 1 2 of the Revenue ct of
193 . If a persona e empton s camed for a trust whch has not dstrbuted
darng the ta abe year an amount equa to the net ncome of the trust, there
shoud be attached to the return a statement settng forth the facts regardng
that porton of the ncome whch, under the aws of the |ursdcton under
whch the trust Is admnstered, can not be consdered as ncome and s not
dstrbutabe.
The above-quoted provsons of secton 1 3 (a) 1 of the Revenue
ct of 193 , as amended, and artce 1 3-1 of Reguatons 94, as
amended, and the nstructons numbered 19 of the nstructons accom-
panyng the fducary ncome ta return on orm 1041 for the
caendar year 1937, may be ustrated by the foowng e ampes:
ampe (1): Under the terms of the w of , a trust was created
for the beneft of hs mnor chd, . fty-one per cent of the net
ncome of the trust, e cusve of gans from the sae of capta assets,
may under the terms of the w n the dscreton of the trustee be
dstrbuted for s beneft and the remanng 49 per cent of such
ncome s to be accumuated n trust unt becomes of age, at whch
tme the entre corpus and accumuated ncome of the trust are to be
dstrbuted to . or the caendar year 1937, the gross ncome of the
trust s 950, of whch 100 consttutes gan from the sae of capta
assets hed for a perod of ess than one year and the remander con-
sttutes ncome on bonds of corporatons not nstrumentates of the
Unted States. Under the aw of the |ursdcton controng the ad-
mnstraton of the trust, the 100 gan from the sae of capta assets
can not be consdered as ncome and such gan s not dstrbutabe
durng the ta abe year. The amount of ta es and other aowabe
deductons of the trust under secton 23 of the Revenue ct of 193
s 50. Durng the caendar year, the trustee dstrbuted for s
beneft 408 of the ncome of the trust. Snce the amount actuay
dstrbuted durng the ta abe year 1937 s equa to more than the
net ncome of the trust (computed wthout regard to the 100 gan
from the sae of capta assets and n accordance wth secton 1 2 of
the Revenue ct of 193 ) the persona e empton of 1,000 s aow-
abe to the trust for that year.
ampe (2): If n e ampe (1) the facts were the same e cept
that durng the caendar year the trustee dstrbuted for s beneft
392 of the ncome of the trust, the amount actuay dstrbuted dur-
ng the ta abe year 1937 woud be ess than the net ncome of the
trust, the persona e empton of 1,000 woud not be aowabe to the
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203(a), rt. 203(a)(7)- .
20
trust for that year, and the trust woud be ta abe on 508 ( 950
50- 392).
Inqures regardng ths mmeograph shoud refer to the number
thereof and to the symbos IT: CTR.
Gut T. evekno,
Commssoner.
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 203(a). N T INCOM O LI INSUR NC
COMP NI S: G N R L RUL .
rtce 203 (a) (7)-: Interest. 1938-25-9395
G. CM. 20200
R NU CT O 193 ND PRIOR R NU CTS.
The dscount aowed by a fe nsurance company on premums
whch are pad to t n advance of the due date does not represent
nterest pad on ndebtedness wthn the contempaton of secton
203(a)7 of the Revenue ct of 193 and the correspondng prov-
sons of pror Revenue cts.
n opnon s requested whether the dscount on premums whch
are pad to a fe nsurance company n advance of the due date repre-
sents nterest pad by the company on ndebtedness wthn the contem-
paton of secton 203 (a)7 of the Revenue ct of 193 and the corre-
spondng sectons of pror Revenue cts. Secton 203(a)7 provdes
as foows:
(a) Genera rue. In the case of a fe nsurance company the term net
ncome means the gross ncome ess

(7) Interest. nterest pad wthn the ta abe year on ts ndebtedness,
e cept on ndebtedness ncurred or contnued to purchase or carry obgatons
(other than obgatons of the Unted States ssued after September 24, 1917,
and orgnay subscrbed for by the ta payer) the nterest upon whch s whoy
e empt from ta aton under ths tte.
ach year many pocyhoders pay n advance premums whch fa
due n future months or years. In such cases the present worth of the
premum fang due n the future s determned and the amount so
determned s accepted n fu dscharge of the premum abty of
the pocyhoder for the perod nvoved. The dfferenta for one
year s ess than 1 per cent and for fve years t s ess than y2 per cent
per annum. It appears, however, that the varous State nsurance
departments requre the credt of the fu amount of the premum to
the premum account as of the due date of the premum. s the
amount of premum waved under these crcumstances represents a
sum whch the company must make up from earnngs, t s contended
that t shoud be aowed as an nterest deducton n determnng the
net ncome of the company.
The deducton aowed by secton 203(a)7 of the Revenue ct of
193 for nterest on ndebtedness n the case of a fe nsurance com-
pany s the same as that aowed corporatons other than nsurance
companes under the appcabe provsons of the edera Revenue
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207
211, rt. 211-7.
ct (See artce 203(a) (7)- of Reguatons 94 and the correspond-
ng artces of pror reguatons.)
In the opnon of ths offce, the queston presented n the nstant
case comes wthn the prncpe announced by the oard of Ta p-
peas n The atmore Oho Raroad Co. et a. v. Commssoner
(29 . T. ., 3 8), n whch the oard (page 372) sad:
(a) Despte the pettoner s characterzaton n the notce to sharehoders of
the subscrpton prce as the fu prce ess nterest, ths seems to us to be merey
a mathematca method of arrvng at the actua prce to be pad under each of
the two eectve methods of payment. There was no nterest pad or accrued
wthn the ta abe year on ts ndebtedness. What the pettoner dd, appar-
enty, was to fgure out a prce whch woud embody the far consderaton at
the dates of payment and the tme of ssuance n reaton to a basc fgure of
107.50 a share for fu cash before uy 21, 10 .83, and for part cash and part
deferred, 10 .85. That ths may have been arrved at by usng a menta concept
of nterest, or that mathematcay the fgures are the same as f par of 100
(Dot the assumed base fgure of 107.50) were pad and nterest thereon pad
before devery of the shares, s not determnatve. The statute requres that
there shoud be an ndebtedness, that there shoud be nterest upon t, and that
It shoud be pad or accrued wthn the ta abe year. formua Is not enough.
Commssoner v. Od Coony R. R. Co., 284 U. S., 552 enretta Ms, Inc., v.
Commssoner, 52 ed. (2d), 931 20 . T. ., 51 Dane ros. Co. v. Comms-
soner, 28 ed. (2d), 7 1 7 . T. ., 108 Car Lang, 3 . T. ., 417 Marsh f
Marsh, Inc., 5 . T. ., 902 nderson d Co., . T. ., 713.)
(See aso Inos Lfe Insurance Co. v. Commssoner, 30 . T. .,
11 0.)
It s, therefore, the opnon of ths offce that dscount on premums
whch are pad to a fe nsurance company n advance of the due date
does not represent nterest pad on ndebtedness of the company
wthn the contempaton of secton 203(a)7 of the Revenue ct of
193 and the correspondng provsons of pror Revenue cts. It s
further the opnon of ths offce that such tems, for edera ncome ta
purposes, are not deductbe under any other provsons of aw.
. P. Wence,
Chef Counse, ureau of Interna Revenue.
SUPPL M NT . NONR SID NT LI N INDI IDU LS.
S CTION 211. T ON NONR SID NT
LI N INDI IDU LS.
rtce 211-7: Ta aton of nonresdent aen 1938-3-9145
ndvduas. I. T. 3153
R NU CT O 103 .
ta of ony 5 per cent s requred to be wthhed by a wth-
hodng agent n the Unted States from dvdends pad to ,
a Canadan bank, the addressee beng a rtsh sub|ect resdng
n ngand.
dvce s requested by the M Company, a domestc corporaton,
whether 5 per cent or 10 per cent shoud be wthhed from dvdends
pad to , ank of , Canada, the addressee beng a rtsh
sub|ect resdng n ngand.
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211, rt. 211-7.
208
Under artce 3 of the reguatons prescrbed by Treasury Dec-
son 47 (C. . 1937-2, 158), reatng to the conventon between
the Unted States and Canada whch was ratfed ugust 13, 1937,
for the purpose of wthhodng, every ndvdua addressee n
Canada (ncudng a nonresdent aen ndvdua, fducary, or
partnershp) sha be consdered by Unted States wthhodng agents
as a resdent of Canada. rtce 4 of the reguatons provdes that
f the addressee n Canada s a nomnee or agent through whom the
ncome fows to a person who s not entted to the reduced rate of
5 per cent, that s, a nonresdent aen ndvdua who s not a res-
dent of Canada, or a nonresdent foregn corporaton not organzed
under the aws of Canada, the addressee n Canada from whom a ta
of ony 5 per cent was wthhed becomes a wthhodng agent, and s
requred to wthhod an addtona 5 per cent ta from dvdends
before transmttng the ncome.
Under the reguatons promugated by the Canadan Government
wth respect to the recproca ta conventon between the Unted
States and Canada, every Canadan addressee recevng ncome from,
sources wthn the Unted States s requred, whether ta abe or not,
to fe approprate ncome ta returns and to answer the foowng
questons :
Dd you receve an Income from sources wthn the Unted States for or on
account of
(a) Yoursef
(Yes or No.)
( ) ny other person resdent n Canada
(Yes or No.)
(c) ny other person not resdent n Canada
(Yes or No.)
If on fng the approprate returns the questons are not answered,
there w be mposed a penaty of 1 per cent of any ta payabe
(secton 77(4), ncome war ta act). so, f the questons are not
answered, the one n defaut w n due course be prosecuted for
faure to fe nformaton requred by aw. If (b) s answered
Yes, that s, f the Canadan addressee s a nomnee or agent and
has receved ncome for dstrbuton to other persons resdent n
Canada, he s requred to obtan a certan form and fe t wth the
Canadan nspector of ncome ta . If (c) s answered Yes, that
s, f the Canadan addressee s a nomnee or agent and has receved
any dstrbuton to, or for account of, persons who are nonresdents
of Canada, then he must deduct an addtona 5 per cent of the gross
ncome receved from sources wthn the Unted States, fe orm.
1042, and pay the amount of ta deducted to the coector of nterna
revenue, atmore, Md., at the tme prescrbed by the Unted States
Revenue ct of 193 .
, whose dvdend checks are sent to hm through the ank
of , Canada, s a Canadan addressee. Undoubtedy the bank s
charged wth the duty of ether transmttng the check to n ng-
and or credtng hs bank account wth the amount of the dvdend
check. In other words, some acton must be taken before receves
the dvdends. The bank whch ether forwards the dvdend check
to or credts hs account must compy wth the Canadan regua-
tons n furnshng the necessary nformaton to the nspector of
ncome ta and wthhodng the ta for the purposes of edera
ncome ta .
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209
251, rt. 2 1-1.
ccordngy, the M Company s requred by artce 3 of the regu-
atons prescrbed n Treasury Decson 47 , supra, to wthhod
ony 5 per cent from dvdends payabe to whose address s n
Canada, the addtona ta of 5 per cent beng requred to be wth-
hed under artce 4 of such reguatons by the person n Canada
who transmts the dvdend ncome to n ngand.
SUPPL M NT 1. POSS SSIONS O T UNIT D ST T S.
S CTION 251. INCOM ROM SOURC S WIT IN
POSS SSIONS O UNIT D ST T S.
btce 251-1: Ctzens of the Unted States and 1938-25-939
domestc corporatons dervng ncome from I. T. 3199
sources wthn a possesson of the Unted States.
R NU CTS O 1924, 1020, 1928, 1932, 1934, ND 1930.
The retrement pay of a ctzen of the Unted States, an offcer of
the Unted States Pubc eath Servce, who rendered servces
entrey wthn the Phppne Isands and who does not receve such
retrement pay wthn the Unted States, does not consttute Income
from sources wthn the Unted States.
L T. 2249 (C. . I -2, 92 (1925)) modfed.
dvce s requested whether retrement pay receved by , a ctzen
of the Unted States resdng n the Phppne Isands, s ncome from
sources wthn a possesson of the Unted States.
was an offcer of the Unted States Pubc eath Servce for
more than 30 years, durng whch tme he resded n the Phppne
Isands and a of hs servces n that capacty were rendered there.
Snce hs retrement severa years ago he has receved the amount of
e doars monthy as retrement pay, whch he reported n hs edera
ncome ta returns for the years 1930 to 193 , ncusve, and whch
consttuted hs entre ncome for those years. The retrement pay was
receved under the ct approved une 10, 1922 (42 Stat., 25), as
amended, entted n ct to read|ust the pay and aowances of the
commssoned and ensted personne of the rmy, Navy, Marne
Corps, Coast Guard, Coast and Geodetc Survey, and Pubc eath
Servce.
The ureau has hed that retrement pay consttutes addtona com-
pensaton for past servces rendered. (See O. D. 1029, C. . 5, 85
(1821) I. T. 1237, C. . 1-1, 70 (1922) I. T. 19 3, C. . III-, 104
(1924) and artce 22(a)-2, Reguatons 94.) The pace where the
servces are performed s the controng factor n determnng the
source of the ncome. (I. T. 228 , C. . -. 52 (192 ).) (See aso
secton 119 of the Revenue ct of 193 and tne correspondng prov-
sons of pror Revenue cts.) Under secton 251 of the Revenue ct
of 193 , ncome from sources wthn a possesson of the Unted States
receved by a ctzen of the Unted States (e cept amounts receved
n the Unted States) s e empt from ta aton, provded certan cond-
tons are met. (See aso artce 251-1 of Reguatons 94.)
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352, rt. 352-1.
210
It s hed that the retrement pay of , a ctzen of the Unted
States and an offcer of the Unted States Pubc eath Servce, who
rendered servces entrey wthn the Phppne Isands and who does
not receve such retrement pay wthn the Unted States, does not
consttute ncome from sources wthn the Unted States.
I. T. 2249, supra, beng nconsstent wth the above concuson, s
modfed accordngy.
TITL I . DDITION L INCOM T S.
S CTION 352. D INITION O P RSON L
OLDING COMP NY.
rtce 352-1: Defnton of persona hodng 1938-23-9374
company. I. T. 3195
R NU CTS O 193 ND 1937.
ppcaton of sectons 352 and 353(h), ncorporated n Tte
I of the Revenue ct of 193C by secton 1 of the Revenue ct of
1937, n determnng whether the M Coa Co. shoud be cassfed
as a persona hodng company.
dvce s requested whether the M Coa Co. shoud be cassfed
as a persona hodng company for the year 1937.
or that year the M Coa Co., whose stock was durng the entre
year owned by fve ndvduas, had a tota gross ncome of 90a
doars, a of whch conssted of royates receved from essees of
coa ands. The deductons aowabe therefrom are:
Doars.
Compensaton of offcers (sharehoders) .
Saares and wages of empoyees
Ta es 5. 5
Depeton 27
Other deductons consttutng msceaneous busness e penses 3#
42.5m
Secton 352, ncorporated n Tte I of the Revenue ct of 193
by secton 1 of the Revenue ct of 1937, provdes n part as foows:
(a) Genera rue. or the purposes of ths tte and of Tte I the term
persona hodng company means any corporaton f
(1) Gross ncome requrement. t east 80 per centum of ts gross ncome
for the ta abe year s persona hodng company ncome as defned In secton
353 but f the corporaton s a persona hodng company wth respect to any
ta abe year, then, for each subsequent ta abe year, the mnmum percentage
sha be 70 per centum n eu of 80 per centum, unt a ta abe year durng
the whoe of the ast haf of whch the stock ownershp requred by paragraph
(2) does not e st, or unt the e praton of three consecutve ta abe years n
each of whch ess than 70 per centum of the gross ncome s persona hodng
company ncome and
(2) Stock ownershp requrement. t any tme durng the ast haf of the
ta abe year more than 50 per centum n vaue of ts outstandng stock s owned,
drecty or Indrecty, by or for not more than fve ndvduas.
Secton 353, as ncorporated n Tte I of the Revenue ct of 193
by secton 1 of the Revenue ct of 1937, provdes n part that:
or the purposes of ths tte the term persona hodng company Income
means the porton of the gross ncome whch conssts of:
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211
353, rt. 353-1.
(h) Mnera, o, or gas royates. Mnera, o, or gas royates, uness (1)
consttutng 50 per centum or more of the gross ncome, and (2) the deductons
aowabe under secton 23(a) (reatng to e penses) other than compensaton
for persona servces rendered by sharehoders, consttute 15 per centum or more
of the gross ncome. Itacs supped.
Secton 23 of the Revenue ct of 193 provdes n part:
In computng net ncome there sha be aowed as deductons:
(a) penses. the ordnary and necessary e penses pad or ncurred
durng the ta abe year n carryng on any trade or busness, ncudng a rea-
sonabe aowance for saares or other compensaton for persona servces actu-
ay rendered traveng e penses (ncudng the entre amount e pended for
meas and odgng) whe away from home n the pursut of a trade or busness
and rentas or other payments requred to be made as a condton to the con-
tnued use or possesson, for purposes of the trade or busness, of property
to whch the ta payer has not taken or s not takng tte or n whch he has no
equty.
In appyng secton 353(h), supra, n determnng persona hod-
ng ncome, t shoud be noted that the offcers to whom compensa-
ton payments aggregatng a doars were made n 1937 were aso
sharehoders n the corporaton durng that year. The emnaton
of ths tem, requred by the specfc terms of the statute (secton
351(h)), and the emnaton of the tem of ta es 5.5a doars, and
the tem of Depeton 27a doars (such not beng deductons
aowabe under secton 23(a)) eave the foowng tems whch fa
wthn the scope of sectons 23(a) and 353(h)2, supra:
Doars.
Saares and wages of empoyees
Other deductons consttutng msceaneous busness e penses 3a
4w
Snce the aggregate amount of these tems (4a doars) s ess
than 15 per cent of the gross ncome (90a doars) for 1937, t s
apparent that the royaty payments receved n that year from the
essees of coa ands are to be ncuded as persona hodng ncome
under the provsons of secton 353(h), supra.
ccordngy, the gross ncome requrement specfed n secton
352(a) 1, supra, has been satsfed, as we as the stock ownershp re-
qurements of secton 352(a)2, more than 50 per cent of the capta
stock havng been owned durng the entre year 1937 by fve nd-
vduas. It s, therefore, hed that the M Coa Co. consttuted a per-
sona hodng company for the ta abe year 1937.
S CTION 353. P RSON L OLDING COMP NY
INCOM .
rtce 353-1: Persona hodng company ncome. 1938-23-9375
I. T. 319
R NU CTS O 193 ND 193T.
Where the ta payer has made a bndng eecton under the opton
granted by artce 23(m)-1 , Reguatons 94, and correspondng
provsons of pror reguatons to deduct Intangbe drng and
deveopment costs from gross ncome as an e pense rather than
charge them to capta account, the ta payer s entted to treat
such costs as aowabe deductons under secton 23(a) of the
Revenue ct of 193 n appyng the provsons of secton 353(h),
Incorporated In Tte I of the Revenue ct of 193 by secton 1
of the Revenue ct of 1937.
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503 Regs. 95, rt. 27.
212
dvce s requested whether ntangbe drng and deveopment
costs n connecton wth o and gas wes may be ncuded as aowabe
deductons under secton 23(a) of the Revenue ct of 193 for the
purpose of the appcaton of secton 353(h) of the Revenue ct of
193 , ncorporated n Tte I of the Revenue ct of 193 by secton 1
of the Revenue ct of 1937.
Durng the year 1937, the M Company e pended doars n dr-
ng o and gas wes, of whch doars consttutes ntangbe drng
costs whch the company must treat as e pense and take as a deducton
under the provsons of artce 23(m)-1 of Reguatons 94 for the
reason that t has eected to charge to e pense, rather than captaze,
ntangbe drng and deveopment costs.
Secton 353(h), Tte I , of the Revenue ct of 193 , supra, pro-
vdes that the term persona hodng company ncome means
Mnera, o, or gas royates, uness (1) consttutng 50 per centum
or more of the gross ncome, and (2) the deductons aowabe under
secton 23(a) (reatng to e penses) other than compensaton for
persona servces rendered by sharehoders, consttute 15 per centum
or more of the gross ncome.
Snce t appears that the ta payer, the M Company, has made a
bndng eecton under the opton granted by artce 23(m)-1 of
Reguatons 94 (and correspondng provsons of pror reguatons)
to deduct ntangbe drng and deveopment costs from gross ncome
as an e pense rather than charge them to capta account, and snce
the ony provson of the Revenue ct of 193 permttng the deduc-
ton of e penses s secton 23(a), the ta payer s entted to treat
such costs as aowabe deductons under secton 23(a) n appyng
the provsons of secton 353(h), ncorporated n Tte I of the
Revenue ct of 193 by secton 1 of the Revenue ct of 1937.
S CTION 358. DMINISTR TI PRO ISIONS.
R NU CT O 193 .
Informaton requred regardng the preparaton of ncome returns
under Tte I of the Revenue ct of 193 , as amended, for ta abe
perods endng on or after December 31, 1937. (See T. D. 4789,
page 1 4.)
TITL III. T ON UN UST NRIC M NT.
S CTION 503. DMINISTR TI PRO ISIONS.
Reguatons 95, rtce 27: Returns.
R NU CT O 1330.
Informaton requred regardng the preparaton of ncome returns
under Tte III, Revenue ct of 193 , for ta abe perods endng on
or after December 31,1937. (See T. D. 4789, page 1 4.)
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213 1523(b), rt. 23(b)-.
C. R NU CT O 1934.
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION O N T INCOM .
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 23 (a)-1: usness e penses.
R NU CT O 1934.
Insurance premums pad n advance for perod of more than one
year by ta payer on cash recepts and dsbursements bass. (See
G. C. M. 20307, page 157.)
S CTION 23(b). D DUCTIONS ROM GROSS
INCOM : INT R ST.
rtce 23(b)-: Interest. 1938-4-9158
L T.315
R NU CT O 1934.
The nterest pad by transferees n meetng the abty of the
transferor for edera ncome ta and nterest thereon s not
deductbe n the ncome ta returns of such transferees.
dvce s requested reatve to the deductbty for edera ncome
ta purposes of nterest pad n 1935 by , , and C on ncome ta
defcences assessed aganst them for the year 1930 as transferees of
the M Company.
The M Company was dssoved n 1931 and abty for the def-
cences n edera ncome ta was not fnay determned unt 1935.
The defcences were assessed under secton 311 of the Revenue ct
of 1934 aganst , , and C, respectvey, as transferees of the corpo-
raton and they pad the defcences and the nterest thereon n 1935.
The queston presented s whether the transferees are entted to the
deducton of such nterest.
When , , and C receved the assets of the M Company as trans-
ferees, the property n ther hands was mpressed wth a trust for
the payment of any ta and nterest thereon due from the company.
The nterest dd not grow out of ther persona obgatons but out
of obgatons restng upon them as recpents of assets of the cor-
poraton. In order for a deducton for nterest to be aowabe, the
nterest must have been pad on the payor s own ndebtedness. The
statutory deducton prescrbed by secton 23(b) of the Revenue ct
of 1934 does not embrace amounts pad to or for another person to
dscharge that person s nterest obgaton. avng receved the
assets of the corporaton wthout the payment of ta and nterest
due, the ta payers ( , , and C) were abe therefor as transferees
to the e tent of the vaue of the property receved, and t was ther
duty as transferees to pay the nterest as we as the ta es. owever,
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523 (k). rt. 23 (k)-3.
214
snce the nterest pad was not on ndebtedness of the payors (trans-
ferees), t s ceary not an aowabe deducton for edera ncome
ta purposes. (See generay een . Suzberger v. Commssoner,
33 . T. ., 1093.)
ccordngy, t s hed that the transferees are not entted to de-
duct the nterest n queston n ther ndvdua edera ncome ta
returns.
S CTION 23(c). D DUCTIONS OM GROSS
INCOM : T S G N R LLY.
rtce 23(c)-: Ta es.
R NU CT O 1934.
State of New York ta on net ncomes of unncorporated bus-
nesses. (See I. T. 31 9, page 134.)
rtce 23(c)-: Ta es.
R NU CT O 1034.
Modfcaton of I. T. 308 (C. . 1937-1, 77). (See I. T. 3170,
page 135.)
rtce 23(c)-: Ta es.
R NU CT O 1934.
Credt not aowabe because of restrctons or mtatons n secton
131 of the ct. (See G. C. M. 19727, page 255.)
rtce 23(c)-: Ta es.
R NU CT O 1934.
ranchse ta mposed1 by State of Inos on ordnary busness
corporatons. (See I. T. 318 ,.page 140.)
S CTION 23 (k). D DUCTIONS ROM GROSS
INCOM : D D TS.
rtce 23(k)-3: Uncoectbe defcency upon 1938-14-9275
sae of mortgaged or pedged property. G. C. M. 19573
R NU CT O 1934.
Where In the ta abe year 1034 mortgaged rea property stuated
In New York was, upon forecosure sae, bd In by the mortgagee
at ess than the mortgage ndebtedness and a defcency |udgment
was not and coud no onger be obtaned under State aw, a de-
ducton for a bad debt s aowabe to the mortgagee for such
year to the e tent that hs bass of the mortgage ndebtedness
e ceeds the forecosure sae proceeds, provded the debt was charged
off wthn that ta abe year.
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215
23(k), rt. 23(10-3.
In addton, oss or gan s reazed by the mortgagee under
artce 23(k)-3 of Reguatons S for the ta abe year n whch
the acquston of the property by the mortgagee becomes absoute
and ndefeasbe.
dvce s requested whether a mortgagee n the State of New York
s entted for edera ncome ta purposes for the caendar year
1934 to a bad debt deducton under the foowng crcumstances:
The ta payer nvested 12,500 n a frst mortgage on rea property
stuated n the State of New York. e bd n the mortgaged prop-
erty at forecosure sae n uy, 1934, for 2,000. e ncurred and
pad forecosure e penses of 150. The record shows that no de-
fcency |udgment was obtaned by the ta payer and that the perod
provded by the State aw for makng a moton therefor e pred
wthn the ta abe year 1934. The record aso dscoses that no for-
gveness of ndebtedness occurred.
Secton 1083-a of the Cv Practce ct of New York, as amended
by chapter 5 2, Laws of New York, 1934, effectve May 14, 1934,
reads n part as foows:
Lmtaton upon defcency |udgments durng emergency perod. No
|udgment sha be granted for any resdue of the debt remanng unsatsfed as
prescrbed by the precedng secton where the mortgaged property sha be sod
durng the emergency, e cept as heren provded. Smutaneousy wth the
makng of a moton for an order confrmng the sae or n any event wthn 90
days after the date of the sae, the party to whom such resdue sha be owng
may make a moton n the acton for eave to enter a defcency |udgment upon
notce to the party aganst whom such |udgment s sought or the attorney
who sha have appeared for such party n such acton. Such notce sha be
served personay or n such other manner as the court may drect. Upon such
moton the court, whether or not the respondent appears, sha determne, upon
affdavt or otherwse as t sha drect, the far and reasonabe market vaue
of the mortgaged premses as of the date of sae or such nearest earer date
as there sha have been any market vaue thereof and sha make an order
drectng the entry of a defcency |udgment. Such defcency |udgment sha
be for an amount equa to the sum of the amount owng by the party abe
as determned by the |udgment wth nterest, pus the amount owng on a
pror ens and encumbrances wth nterest, pus costs and dsbursements of
the acton ncudng the referee s fee and dsbursements, ess the market vaue
as determned by the court or the sae prce of the property whchever sha
be the hgher. If no moton for a defcency |udgment sha be made as heren
prescrbed the proceeds of the sae regardess of amount sha be deemed
to be n fu satsfacton of the mortgage debt and no rght to recover any
defcency |udgment n any acton or proceedng sha e st.
rtce 23(k)-3 of Reguatons 8 , reatng to the Revenue ct
of 1934, provdes as foows:
Uncoectbe defcency upon sae of mortgaged or pedged prop-
erty. If mortgaged or pedged property s awfuy sod (whether to the cred-
tor or another purchaser) for ess than the amount of the debt, and the
mortgagee or pedgee ascertans that the porton of the ndebtedness remanng
unsatsfed after such sae s whoy or partay uncoectbe, and charges t
off, he may deduct such amount (to the e tent that t consttutes capta or
represents an tem the ncome from whch has been returned by hm) as a
bad debt for the ta abe year n whch t s ascertaned to be whoy or partay
worthess and charged off. In addton, f the credtor buys n the mortgaged
or pedged property, oss or gan s reazed measured by the dfference between
the amount of those obgatons of the debtor whch are apped to the purchase
or bd prce of the property (to the e tent that such obgatons consttute cap-
ta or represent an tem the ncome from whch has been returned by hm)
and the far market vaue of the property. The far market vaue of the
property sha be presumed to be the amount for whch t s bd In by the
ta payer n the absence of cear and convncng proof to the contrary. If the
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41, rt. 41-1.
21
credtor subsequenty ses the property so acqured, the bass for determnng
gan or oss s the far market vaue of the property at the date of acquston.
ccrued nterest may be ncuded as part of the deducton ony f t has
prevousy been returned as ncome.
The queston presented s whether, snce after forecosure no
ega debt e sted under New York State aws, any bad debt shoud
be recognzed for ncome ta purposes n cases of ths knd n the
State of New York.
It s the opnon of ths offce that (where there s no forgveness
of ndebtedness nvoved) the effect for edera ncome ta purposes
of the State aw quoted above s to render worthess at the tme of
forecosure the mortgage ndebtedness remanng after appyng the
forecosure sae proceeds, e cept to the e tent of any coectbe de-
fcency |udgment obtaned or obtanabe under such aw. The por-
ton or a debt, to the e tent that t represents capta nvested or
ncome returned by the ta payer, whch s ascertaned to be whoy
or partay uncoectbe and s charged off s deductbe as a bad
debt for the ta abe year n whch t s ascertaned to be worthess
and charged off. (See frst sentence, artce 23 (k)-3, Reguatons
8 .) ccordngy, n the nstant case, where n the ta abe year
1934 a defcency |udgment was not and coud no onger be ob-
taned under the State aw, the mortgagee s entted for such ta abe
year to a deducton for a bad debt of 10, 50 (nvestment 12,500,
ess forecosure proceeds of 1,850, after deductng e penses of 150
from the bd-n prce of 2,000), provded the amount was charged
off wthn that ta abe year.
In addton, under the provsons contaned n the second and thrd
sentences of artce 23 (k)-3 of eguatons 8 , recognzed oss or
gan s reazed by the mortgagee of the dfference, f any, between
the amount of those obgatons of the debtor ( 2,000) apped to the
bd-n prce of the property and the far market vaue of the prop-
erty at the date of ts acquston by the mortgagee. The tme of
acquston of the property and reazaton of such oss or gan by
the mortgagee s when and for the ta abe year n whch the fore-
cosure sae becomes absoute and ndefeasbe. (Cf. G. C. M. 193 7,
C. . 1937-2,115.)
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 41. G N R L RUL .
rtce 41-1: Computaton of net ncome.
R NU CT O 1934.
Insurance premums pad n advance for perod of more than one
year by ta payer on cash recepts and dsbursements bass. (See
G. C. M. 20307, page 157.)
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217 .
P RT . R TURNS ND P YM NT O T .
S CTION 51. INDI IDU L R TURNS.
rtce 51-1: Indvdua returns.
R NU CT OP 1934.
Income from parapherna property of wfe where mercan ct-
zens are marred n the Phppne Isands and resde there. (See
I. T. 3173, page 1 0.)
S CTION 55. PU LICITY O R TURNS.
R NU CT O 1934.
Reguatons governng the nspecton of returns of ndvduas,
partnershps, estates, trusts, corporatons, assocatons, |ont-stock
companes, and nsurance companes. (See T. D. 4797, page 35 .)
P RT I. MISC LL N OUS PRO ISIONS.
S CTION 2. RUL S ND R GUL TIONS.
R NU CT O 1934.
Reguatons wth respect to the use of orgna, and the furnshng
of copes of, returns open to nspecton. (See T. D. 4798, page 3 4.)
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 101. MPTIONS ROM T
ON CORPOR TIONS.
rtce 101(9)-1: Soca cubs.
R NU CT O 1934.
Incdenta sae of property at proft. (See G. C. M. 19405, page
172.)
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 11 . CLUSIONS ROM GROSS INCOM .
R NU CT O 1934.
Ta abty of ncome derved by a essee ta payer under a ease
of State schoo ands. (See Mm. 4755, page 179.)
83421 38 8
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117, rt. 117-3. 218
rtce 11 -2: Compensaton of State offcers and empoyees.
R NU CT O 1934.
mendment of eguatons 8 , artce 11 -2. (See T. D. 4787,
page 181.)
rtce 11 -2: Compensaton of State offcers and empoyees.
R NU CT O 1934.
Ta abty of compensaton receved by offcers and empoyees of
a State or potca subdvson. (See Mm. 3838, revsed, page 181.)
S CTION 117. C PIT L G INS ND LOSS S.
rtce 117-1: Meanng of capta assets.
R NU CT O 1934.
ppcaton of secton 117 to cases nvovng debt ad|ustments.
(See I. T. 3159, page 188.)
rtce 117-3: Determnaton of perod for 1938-2-913
whch capta assets are hed. G. C. M. 19347
R NU CT O 1934.
Where a trust Is revocabe by the grantor durng hs fetme and
the grantor des wthout e ercsng hs power of revocaton, the
perod of hodng of capta assets by the trustee, under secton 117
of the Revenue ct of 1934, starts to run from the date of death of
the grantor and not from the date the assets were transferred to
the trustee under the terms of the trust Instrument.
n opnon s requested whether, n the case of a trust whch s
revocabe by the grantor who des wthout e ercsng the power of
revocaton, the perod of hodng of capta assets under secton 117
of the Revenue ct of 1934, reatng to capta gans and osses,
starts to run from the tme the property was transferred to the
trustee under the terms of the trust nstrument or from the date
of the grantor s death.
In 192 vountary conveyed certan property to a trustee (1)
to pay a the net ncome therefrom to hmsef durng hs fetme and
at hs death to hs wfe, and (2) upon the termnaton of the trust at
the death of the survvor of the grantor and hs wfe, to pay over and
dstrbute the prncpa of the trust, together wth any subsequent ac-
cumuatons of ncome, to the M Trust Co. for dstrbuton to certan
benefcares. y the terms of the trust agreement, the grantor re-
served the power to modfy or revoke the trust agreement at any
tme. Under ths power, whch he retaned unt hs death on
November , 1933, the grantor modfed the trust agreement on sev-
era occasons and added certan property to the trust corpus. In
the year 1934, the trustee sod certan assets transferred to the trust
n the years 1927, 1929, and 1930. s the net ncome was payabe to
the grantor for the perod of hs fe, and as he retaned unt hs
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219
117, rt. 117-3.
death on November , 1933, the power to revoke the trust, the bass
of the property n the hands of the trustee s, under secton 113 (a) 5
of the Revenue ct of 1934, the far market vaue of the property at
the tme of the grantor s death on November , 1933. Such vaue
was used by the trustee n computng proft from the sae of assets
reported n the return, orm 1040, fed for the year 1934. The date
of death was aso used by the trustee as the tme of acquston n
determnng the perod for whch capta assets were hed under
secton 117(c) of the Revenue ct of 1934. s a resut, 100 per cent
of the gan on such sae was taken nto account n computng the ta .
The contenton has now been rased that for the purpose of secton
117 of the Revenue ct of 1934 the perod for whch the assets were
hed by the trustee began to run from the dates the assets sod n 1934
were transferred to the trustee under the terms of the trust agree-
ment, that s, n 1927, 1929, and 1930.
In Mc eey v. Commssoner (29 U. S., 102,. Ct, D. 1040, C. .
I -2, 209 (1935)) and companon cases (these cases are herenafter
referred to as the Mc eey case or Mc eey v. Commssoner) the
Court construed and apped secton 101(c) 8 of the Revenue ct of
1928 whch, so far as was there matera, provdes that Capta
assets means property hed by the ta payer for more than two
years . The queston nvoved was whether property ac-
qured from a decedent through ntestacy, or a genera bequest, s,
wthn the meanng of secton 101(c) 8, hed by the ta payer from
the date of the decedent s death or from the date of dstrbuton.
In the Mc eey case, the ta payers who had acqured property
by genera bequests and under ntestate aws sod such property at a
proft more than two years after the death of the decedents from
whom tte was derved but ess than two years after dstrbuton
by the ega representatves of the estates. In each case, a ret urn was
made of the proft on the sae as capta net gan ta abe at 12/o per
cent but the ureau hed that the ta shoud be cacuated at the
norma ta and surta rates payabe on ordnary ncome. The pos-
ton of the ureau was that unt actua dstrbuton property can
not be sad to be hed by one havng an nterest n a decedent s
estate, and, even f ths be not true, secton 113 (a) 5, makng vaue
at the date of dstrbuton the bass for cacuatng gan n such cases,
requres that the word hed n secton 101(c)8 be construed to
set the same date as the tme at whch the hodng sha begn.
On the other hand, t was asserted by the ta payers that prop-
erty s, n contempaton of aw, hed from the date of acquston
and one dervng property from a decedent s estate through devse,
bequest, or ntestacy acqures the property at the date of death and
hods t from that date.
In dsposng of the Mc eey and companon cases, the Court sad
n part:
We concude that the date of the decedent s death Is that from
whch the perod of hodng shoud be computed.

In common understandng to hod property Is to own t. In order to own
or hod one must acqure. The date of acquston s, then, that from whch
to compute the duraton of ownershp or the eDgth of hodng: Whether under
oca aw tte to persona property passes from a decedent to the egatee or
ne t of kn at death sub|ect to a wthhodng of possesson for purposes of
admnstraton, or passes to the persona representatve for the purposes of
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117, rt. 117-3.
220
admnstraton the tte of the benefcary, though derved through the e ecu-
tor, reatng back to the date of death s for present purposes mmatera.
In ether case, the date of acquston wthn the ntent of the Revenue ct
s the date of death.
In ths connecton, t s proper to advert to the case of rewster .
Gage (280 U. S., 327, Ct. D. 148, C. . I -1, 274 (1930)). Whe
that case arose under earer Revenue cts and whe the queston
there decded was dstnct from the queston nvoved n the Mc eey
case, nevertheess the opnon there rendered s, so far as t concerns
the date of acquston, whch necessary bears on duraton of owner-
shp or the ength of hodng, authorty for the opnon handed down
n Mc eey v. Commssoner, supra. The opnon n the rewster
case reads n part as foows:
s defned n these aws . e., the Revenue cts of 1918 and 1921 ,
gross ncome ncudes gans derved from saes of property, but does not n-
cude the vaue of property acqured by bequest, devse or descent (Secton
213.) Secton 202(a) n each ct provdes that for the purpose of ascer-
tanng the gan derved or oss sustaned from the sae of property acqured
on or after March 1, 1913, the bass sha be ts cost. Ths provson s made
more defnte n the ct of 1921 by subdvson (3). It provdes that, n case
of property, acqured by bequest, devse, or nhertance, the bass sha be
the far market prce or vaue of such property at the tme of such acqus-
ton. It s necessary to construe the word acqured and the
phrase at the tme of such acquston to determne whether the vaue of
the stock at the tme of testator s death or ts vaue on the date of the decree
of dstrbuton shoud be used n the cacuaton.
Upon the death of the owner, tte to hs rea estate passes to hs hers or
devsees. dfferent rue appes to persona property. Tte to t does not
vest at once n hers or egatees. ut mmedatey upon the death
of the owner there vests n each of them the rght to hs dstrbutve share
of so much as sha reman after proper admnstraton and the rght to have
t devered upon entry of the decree of dstrbuton. Upon accept-
ance of the trust there vests n the admnstrators or e ecutors, as of the date
of the death, tte to a persona property beongng to the estate t s taken,
not for themseves, but n the rght of others for the proper admnstraton
of the estate and for dstrbuton of the resdue. The decree of dstrbuton
confers no new rght t merey dentfes the property remanng, evdences
rght of possesson n the hers or egatees, and requres the admnstrators or
e ecutors to dever t to them. The ega tte so gven reates back to the
date of the death.
Pettoner s rght ater to have hs share of the resdue vested mmedatey
upon testator s death.
Undoubtedy the bass for the ascertanment of gan or oss on the sae of
rea estate by an her or devsee s ts vaue at the tme of decedent s death.
That s the tme of such acquston. nd generay specfc be-
quests are handed over to the egatees soon after the death of the testator
and such property may be and often Is sod by them pror to the entry of the
decree for fna dstrbuton. In such cases gans or osses are to be cacuated
under these cts on vaue at the tme of death. No other bass s or reasonaby
coud be suggested.
Thus, the court substantay hed n the Mc eey and rewster
cases (1) that the rghts of the hers, egatees, or devsees n the
property of the decedent are acqured by them at the tme of dece-
dent s death, and (2) that the date of acquston s the date (a) from
whch to compute, under secton 101(c) 8 of the Revenue ct of 1928,
the duraton of ownershp or the ength of hodng and ( ) to be
used n ascertanng, under secton 202(a) of the Revenue cts of
1918 and 1921, the gan or oss on the sae of property by an her,
egatee, or devsee.
In the nstant case, there can be no queston that whe the reserved
powers remaned n effect the gft, from the pont of vew of sub-
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221
131, rt. 131-3.
stance, was nchoate and mperfect. The settor was free at any tme
to revest tte n hmsef. s to the corpus of the trust, the gft was
forma and unrea. It acqured substance and reaty for the frst
tme on November , 1933 when the decaraton of trust became
absoute through the termnaton of the reserved power by the
settor s death. (See urnet v. Guggenhem, 288 U. S., 280, Ct. D.
3 , C. . II-1, 374 (1933).) Pror to the death of the donor
the trust was revocabe and under secton 1 of the Revenue ct of
1934 the ncome and deductons of the trust were those of the grantor
the same as he woud have been entted to had the trust not been
created. ( rtce 1 -1 (c) of Reguatons 8 .) In L T. 2172
(C. . r -1, 44 (1925 ), nvovng a vountary revocabe trust, t was
stated n part that: Capta gans or osses shoud be treated as
capta gans and osses of the ndvdua grantor and shown on the
ndvdua return amagamated wth hs other ndvdua ncome.
It foows that any saes of property by the revocabe trust pror to
the death of the grantor woud not have been consdered, for ed-
era ncome ta purposes, as saes of trust property but as saes by
the grantor, and for the purposes of capta gans and osses on such
saes the bass woud have been the cost (or other proper bass) of
the property to the grantor and the perod of hodng woud have
been computed from the date the grantor acqured the property not
from the date on whch the property was transferred by hm to the
revocabe trust.
In vew of the foregong ths offce s of the opnon that n the
present case the hodng perod by the trustee under secton 117 of the
Revenue ct of 1934 was propery computed from the date of death
of the grantor on November , 1933.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
S CTION 119. INCOM ROM SOURC S WIT IN
UNIT D ST T S.
rtce 119-4: Compensaton for abor or persona servces.
R NU CT O 1934.
Retrement pay of a nonresdent aen ensted man of the Unted
States rmy. (See I. T. 3197, page 191.)
SUPPL M NT C CR DITS G INST T .
S CTION 131. T S O OR IGN COUNTRI S ND
POSS SSIONS O UNIT D ST T S.
rtce 131-3: Condtons of aowance of credt.
R ND CT OP 1934.
Credt for foregn ta es by husband and wfe n communty
property State. (See G. C. M. 19727, page 255.)
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1 7, rt. 1 7-1.
222
SUPPL M NT D- R TURNS ND P YM NT O T .
S CTION 143. WIT OLDING O T
T SOU C .
rtce 143-1: Wthhodng ta at source.
R NU CT O 1934.
ed or determnabe annua or perodca ncome pad to the
en Property Custodan. (See G. C. M. 19992, page 197.)
rtce 143-1: Wthhodng ta at source.
R NU CT O 1934.
Retrement pay of a nonresdent aen ensted man of the Unted
States rmy. (See I. T. 3197, page 191.)
SUPPL M NT . ST T S ND TRUSTS.
S CTION 1 7. INCOM OR N IT O GR NTOR,
rtce 1 7-1: Trusts n the ncome of whch 1938-24-9384
the grantor retans an nterest. G. C. M. 20070
R NU CT O 1934.
Where the Income of an Irrevocabe trust Is payabe to the wfe of
the grantor and the trust Instrument does not requre that she
e pend the Income for a partcuar purpose but where at her drec-
ton the trustees use part of the ncome to pay premums on fe
nsurance poces coverng the grantor s fe, such part of the In-
come so apped to the payment of premums Is ta abe to the grantor
under secton 1 7(a)3, Revenue ct of 1934.
n opnon s requested whether the ncome of a certan trust a
ta abe to the grantor or the benefcary.
On une , 1934, created an rrevocabe trust, namng the M
ank and as trustees. The trust nstrument, n so far as matera
here, reads as foows:
The trustor, for and n consderaton of the ove and affecton he hods for hs
wfe, C, does hereby rrevocaby gve, transfer, and dever unto sad trustees, In
trust for C, the foowng securtes, to wt:

Sad securtes, wth a addtons thereto and ncome therefrom, sha be hed In
trust and dsposed of as herenafter provded.

The trust estate heren and hereby created sha reman Intact for a perod of
twenty-fve (25) years from date hereof. Durng sad 25-year perod a the In-
come from sad trust estate sha, at convenent Intervas, be pad to O, her
e ecutors, admnstrators, or assgns. t the end of sad 25-year perod, sad
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223
1 7, rt. 1 7-1.
trust estate sha termnate, and the trustees sha pay over and dever to C,
her e ecutors, admnstrators, or assgns sad entre trust estate. Durng hor
fetme, or n her testamentary capacty, C sha have fu power and authorty
to e tend the duraton of, or to dspose of, ths trust estate, ether by transfer or
assgnment whe vng, or n her testamentary capacty.
The trust estate heren created sha be rrevocabe, but the rght s reserved
by the trustor, upon proper recepts from the trustees, to dever other property,
cash, or securtes to the trustees, n whch event sad addtons sha become
part of the trust heren created, wthout the necessty of creatng an addtona
trust
The trustees were gven fu power and authorty to do and perform
a acts of every knd and character ncdent to the management and
protecton of the trust estate, e cept that they coud not borrow funds
wthout the consent of the benefcary and then ony to the e tent of
doars at any one tme and e cept that the nvestments of the funds
of the trust estate were to be mted to such nvestments as sha bo
ega nvestments wthn the meanng of the aws of the State of R
pertanng to the nvestment of trust funds, provded, however, that
f the benefcary shoud authorze the trustees n wrtng to make
nvestments, such nvestments coud be made n any form regardess
of whether they comped wth the aws of the State of R pertanng
to the nvestment of trust funds. Pror to the creaton of the trust,
the ta payer (grantor) had, by absoute assgnments, rrevocaby re-
eased a ncdents of ownershp n certan of hs fe nsurance po-
ces and transferred a rght, tte, and nterest n such poces to hs
wfe, who thereafter pad a premums upon the poces so trans-
ferred. y etter dated une 1934, C (the benefcary) drected
the bank, as trustee, to pay the nsurance premums on the varous
poces and to charge the payments aganst her ncome from the trust
estate. In 1934 and 1935 amounts were pad by the trustees, pursuant
to the drecton of C (the benefcary), out of the ncome of the trust
for premums on the nsurance poces so transferred.
s aready ndcated, the queston nvoved s whether any porton
of the trust ncome s ta abe to the grantor under secton 1 7 of the
Revenue ct of 1934 whch, n so far as matera here, reads as foows:
(a) Where any part of the ncome of a trust

(3) s, or n the dscreton of the grantor or of any person not havng a substan-
ta adverse Interest n the dsposton of such part of the ncome may be, apped
to the payment of premums upon poces of nsurance on the fe of the grantor
(e cept poces of nsurance rrevocaby payabe for the purposes and n the
manner specfed In secton 23(o), reatng to the so-caed chartabe contrbu-
ton deducton)
then such part of the ncome of the trust sha be Incuded n computng the net
ncome of the grantor.
The facts n ths case are smar to those whch obtaned n the
appea of enry . . Dunnng v. Commssoner (3 . T. ., 1222,
nonacquescence reatng to other ssues, page 40, ths uetn), n
whch the oard hed that where ncome of certan trusts s payabe to
the wfe of the grantor of the trusts and the trusts do not requre that
she e pend the ncome for a partcuar purpose, but, at the suggeston
of the grantor, she apped a part of the trust ncome to pay premums
on fe nsurance poces on the grantor s fe, such ncome s ta abe to
the grantor under the e press terms of secton 1 7 (a) 3 of the Revenue
ct of 1932. Secton 1 7(a)3 of the Revenue ct of 1934 s amost
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203(a), rt. 203(a)(8)- .
224
dentca wth the correspondng secton of the Revenue ct of 1932.
In the course of ts opnon, the oard e pressed the foowng vews:
The trusts do not contan any provson requrng that ths ncome
be used by Mrs. Dunnng for any purpose or use. The ncome was the separate
ncome of Mrs. Dunnng. owever, pettoner has testfed that he suggested
to Mrs. Dunnng that she use part of the tota Income to pay premums on the
fe nsurance poces whch had been assgned to her. Mrs. Dunnng carred
out ths suggeston.
Regardng ths suggested use of ncome, strcty, we recognze that there
was no ega obgaton on Mrs. Dunnng to so use part of the ncome and
there s no evdence that before the trusts were created Mrs. Dunnng agreed
wth her husband to make such use of part of the ncome. Nevertheess, pet-
toner made the suggeston and there s ths evdence of an eement of contro
e ercsed, t s true, outsde of any requrement n the trust agreement. ur-
ther, secton 1 7(a)3 of the Revenue ct of 1932, quoted above (see aso
secton 219(h), Revenue ct of 192 ), specfcay ta es the grantor of a
trust, where any part of the ncome of a trust s apped to the
payment of premums upon poces of nsurance on the fe of the grantor,
upon such part of the ncome of a trust so used. The ntent of Congress In
enactng ths provson s we understood to have been to prevent avodance
of ta aton. The statute makes no restrcton that to ta Income the ncome
s apped to payment of premums upon poces of nsurance pursuant to the
requrements of the trust deed. The anguage of the statute s pan and
we understand t to be broad n ts appcaton.
Contnung, the oard sad:
We beeve the concuson reached upon the facts here s correct. Mrs. Dun-
nng had never pad premums on the poces before the trusts were created.
She dd so subsequenty at the suggeston of the grantor of the trusts. so,
outsde of the terms of the trust, the grantor dd e ercse an eement of contro
over part of the ncome pad to Mrs. Dunnng and the use of the ncome so as
to prevent a forfeture of the nsurance contracts by faure to pay premums
was a beneft to the pettoner. The argument that the trust ncome of
50,000 was Mrs. Dunnng s own property and that she was not egay bound
by her husband s suggeston s an argument based upon refnements of ega
tte whch the courts have been wng to ook through n recognton of the
reaty of the sodarty of the famy unt. (Cf. Renecke v. Smth, 289 D. S.,
172.)
In the opnon of ths offce, the decson of the oard n the Dun-
nng case s appcabe to the facts n the nstant case, and, consstent
therewth, t s hed that the ncome of the trust whch was apped
to the payment of premums upon poces of nsurance on the fe of
the grantor s ta abe to the grantor under the provsons of secton
1 7(a) 3 of the Revenue ct of 1934.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 203(a). N T INCOM O LI INSUR NC
COMP NI S: G N R L RUL .
rtce 203(a) (8)-: Interest.
R NU CT OP 1934.
Dscount on premums pad to a fe nsurance company n advance
of the due date. (See G. C. M. 20200, page 20 .)
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225 351, rt. 351-1.
UPPL M NT v POSS SSIONS O T UNIT D ST T S.
S CTION7 251. INCOM ROM SOURC S WIT IN
POSS SSIONS O UNIT D ST T S.
rtce 251-1: Ctzens of the Unted States and domestc
corporatons dervng ncome from sources wthn a
possesson of the Unted States.
R NU CT O 1034.
Retrement pay of a ctzen of the Unted States resdng n a pos
sesson of the Unted States. (See I. T. 3199, page 209.)
TITL I . DDITION L INCOM T S.
S CTION 351. SURT ON P RSON L
OLDING COMP NI S.
rtce 351-1: Surta on persona hodng 1938-1 -9298
companes. G. C. M. 19 19
R NU CT O 1934.
n assocaton organzed n a quas corporate form whch meets
the tests for ta aton as a corporaton and whch s otherwse
wthn the defnton of the term persona hodng company con-
taned n secton 351 of the Revenue ct of 1934 s ta abe under
that secton. In the computaton of the ta , no aowance may be
made for defcts e stng at the begnnng or end of the ta abe
year.
The ta abty of such an assocaton as a persona hodng
company for 1934 can not now be affected by the ncuson of ts
ad|usted net ncome n amended ndvdua returns of ts members.
n opnon s requested whether the M ssocaton, whch fed a
corporaton ncome ta return for the year 1934, s ta abe as a per-
sona hodng company under secton 351 of the Revenue ct of 1934.
If cassfed as a persona hodng company, advce s requested
whether, n the computaton of ts ta abty under secton 351,
the ta payer s entted to deductons by vrtue of a defct contnu-
ng throughout the year 1934, and whether the members of the asso-
caton may now fe amended returns ncudng theren ther pro
rata shares of the ad|usted net ncome of the assocaton n order to
avod the mposton of the surta on the assocaton.
The M ssocaton was organzed n 1929, at whch tme the
organzers pad nto the assocaton arge amounts of cash and secur-
tes. y the terms of a wrtten agreement e ecuted by the partes
at that tme, one of the members was named manager and gven
absoute power and dscreton to dea wth the propertes of the
assocaton and was vested wth ega tte thereto. ach contrbutor
obtaned an nterest theren proportonate to hs contrbuton, whch
nterest was assgnabe and passed to the representatve of the partc-
pant at hs death so that the agreement was not termnabe on the
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351, rt. 351-1.
22
death of any member e cept the manager of the assocaton. It
was specfcay provded that the partcpants shoud not be deemed
partners and that nether the partcpants nor the manager shoud
be personay abe under the agreement, but that for a debts
ncurred n management ony the manager shoud be abe as
such and then ony to the e tent of the assets of the assocaton.
ach partcpant was entted to make addtona contrbutons from
tme to tme wth the consent of the manager, and upon makng
such addtona contrbutons was entted to have hs nterest n
the assocaton read|usted to gve effect to such addtona contrbu-
tons on the bass of the far vaue of the assets of the assocaton
as of the date of such addtona contrbuton. Dstrbutons by
the assocaton to the partcpants were eft entrey to the dscre-
ton of the manager but each partcpant was entted to surrender
hs rght of partcpaton on gvng 0 days notce to the manager
and to receve the far vaue of hs nterest ether n cash or secur-
tes at the opton of the manager.
corporaton return ( orm 1120) was fed by the M ssocaton
for the year 1934 pursuant to a determnaton n 1932 by the revenue
agent n charge that the organzaton was an assocaton ta abe as
a corporaton. Under the crcumstances, the mere fng of a corpo-
raton return based on the determnaton of the revenue agent n
charge shoud not be deemed an admsson by the partes that the
organzaton was an assocaton ta abe as a corporaton. owever,
t nad many of the attrbutes of a corporaton, such as unty or
management, mtaton of abtes, and contnuty of e stence m-
was entered nto prmary for the proft of ts members to be derved
from conductng a busness and not prmary for the purpose of
qudatng hodngs or for other purposes normay assumed by
trusts. ence, the organzaton meets the tests of an assocaton ta -
abe as a corporaton as ad down by the Unted States Supreme
Court n Morssey et a. v. Commssoner (29 U. S., 344, Ct. D. 10 4,
C. . -1, 2 4 (193 )). In ert v. everng (92 ed. (2d), 491),
the court apped the tests set forth n the Morrssey case to facts
smar to those n the nstant case and hed that where nne nd-
vduas formed a syndcate and pooed ther stock hodngs for a
perod of three years, authorzng a trustee to dea wth property of
the syndcate as he shoud deem best, an assocaton was formed
whch was ta abe as a corporaton. On the foregong authortes, t
s hed that the M ssocaton was an assocaton ta abe as a cor-
poraton for the year 1934.
The queston remans whether the M ssocaton, whch s ta abe
as a corporaton, s aso ta abe as a persona hodng company under
the defnton of that term contaned n the foowng porton of sec-
ton 351(b) of the evenue ct of 1934:
Defntons. s used n ths tte
(1) The terra persona hodng company means any corporaton (other
than a corporaton e empt from ta aton under secton 101, and other than
a bank or trust company ncorporated under the aws of the Unted States or
of any State or Terrtory, a substanta part of whose busness Is the recept
of deposts, and other than a fe-nsurance company or surety company) If
( ) at east 80 per centum of ts gross ncome for the ta abe year s derved
from royates, dvdends, nterest, annutes, and (e cept n the case of reguar
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227
351, rt. 351-1.
deaers n stock or securtes) gans from the sae of stock or securtes, and
( ) at any tme durng the ast haf of the ta abe year more than 50 per
centum n vaue of ts outstandng stock s owned, drecty or ndrecty, by or
for not more than fve ndvduas.
or the year 1934 more than 80 per cent of the gross ncome of the
M ssocaton was derved from dvdends and durng the entre
year more than 50 per cent of the nterests n the assocaton was
owned by not more than fve ndvduas. The soe queston, then,
s whether the term corporaton, as used n the above secton of the
ct, ncudes assocatons, and whether the word stock, as used
theren, ncudes nterests n an assocaton. Secton 801 of the
Revenue ct of 1934 (Tte I Genera Provsons) contans the
foowng among ts defntons:
(a) When used In ths ct

(2) The term corporaton ncudes assocatons, |ont-stock companes,
and nsurance companes.
(8) The term stock ncudes the share n an assocaton, |ont-stock
company, or nsurance company.
(9) The term sharehoder ncudes a member n an assocaton, |ont-stock
company, or nsurance company.
Under the anguage of the statute, there appears no aternatve
to the concuson that an assocaton s ncuded n the defnton of
a persona hodng company. owever, the ta payer contends that
t was not the purpose of secton 351 of the ct to ta assocatons,
but that the ct was amed soey at corporatons as shown by the
foowng porton of the report of the Senate Commttee on nance
on the Revenue ct of 1934:
Perhaps the most prevaent form of ta avodance practced by ndvduas
wth arge ncomes s the scheme of the ncorporated pocketbook. That s,
an ndvdua forms a corporaton and e changes for ts stock hs persona
hodngs n stock, bonds, or other ncome-producng property. y ths means
the ncome from the property pays corporaton ta , but no surta s pad by
the ndvdua f the ncome s not dstrbuted. (Page 13, Senate Report No.
558 on . R. 7835, quotng from page 11 of ouse Report No. 704.)
Whe the above e cerpt from the report ndcates that the commt-
tee had n mnd curtang ta avodance enabed by the devce of
hodng property n a separate corporaton, yet the utmate purpose
was to prevent avodance of ndvdua surta abty by merey
payng the corporate ta on the ncome. In Wd v. Commssoner ( 2
ed. (2d), 777) the court hed that the ncome of an nvestment syn-
dcate coud not be ta ed as ncome to a member of the syndcate when
receved by the syndcate but was ta abe to such member ony after
beng dsbursed by the syndcate to hm. Thus, the theory of the
separate entty whch |ustfes the corporate ta on the ncome of an
assocaton prevents the mposton of the ndvdua ta on net ncome
unt t has been dstrbuted to the ndvdua. The same reason s,
therefore, present for ta ng an assocaton as a persona hodng com-
pany as n the case of a corporaton. In vew of the provsons of the
ct and n keepng wTth ts genera purpose, t s hed that the M
ssocaton was a persona hodng company for the year 1934 wthn
the meanng of secton 351 of the Revenue ct of 1934.
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351. rt. 351-1.
228
In computng, the undstrbuted ad|usted net ncome upon
whch the ta s assessed under secton 351 of the Revenue ct of 1934,
certan deductons are permtted from ad|usted net ncome. owever,
no deducton s permtted, nor e empton from ta granted, on account
of any defct of the corporaton ether at the begnnng or end of the
ta abe year. Consequenty, the e stence of a defct does not n any
manner affect the ta abty of the M ssocaton as a persona
hodng company for the year 1934. It does not appear that any debts
e sted for whch the assocaton was entted to set asde a reasonabe
amount for retrement, and the defct referred to dd not consttute a
debt of the assocaton. Such defct represents ony a shrnkage n
vaue of the shares of the members and there s no obgaton on the
part of the assocaton n ths respect other than to pay the members
ther pro rata shares of the assets as of the tme of dstrbuton.
The members of the M ssocaton now e press a wngness to
ncude ther pro rata shares of the ad|usted net ncome of the asso-
caton n ther ndvdua ncome ta returns for 1934, provded the
assocaton s granted the beneft of secton 351(d), whch reads n
part as foows:
(d) Payment of surta on pro rata shares. The ta Imposed by ths secton
sha not appy f a the sharehoders of the corporaton ncude (at the tme
of rng ther returns) n ther gross ncome ther entre pro rata shares,
whether dstrbuted or not, of the ad|usted net ncome of the corporaton
for such year.
The beneft granted by secton 351(d) s avaabe ony f the share-
hoders ncude n ther gross ncome such pro rata shares at the tme
of fng ther returns. The pro rata shares of the ad|usted net
ncome of the assocaton for 1934 were not ncuded n the respectve
returns of the members of the assocaton n ths case and such acton
s not permssbe at ths tme to enabe the M ssocaton to escape
abty as a persona hodng company. utomobe Loans, Inc., v.
Commssoner, 3C . T. ., 809.)
To summarze, the M ssocaton s an assocaton ta abe as a
corporaton and, therefore, wthn the defnton of the term per-
sona hodng company contaned n secton 351 of the Revenue ct
of 1934. The assocaton s, therefore, ta abe under that secton.
In the computaton of the ta , no aowance may be made for defcts
e stng at the begnnng or end of the ta abe year. The defct
does not consttute a debt for the retrement of whch amounts may
be set asde and deducted n computng the ta abty under that
secton. The ta abty of the M ssocaton as a persona hodng
company for 1934 can not now be affected by the ncuson of the
ad|usted net ncome of the assocaton for that year n amended
ndvdua returns of the members of the assocaton snce, n order
for the ta mposed by secton 351 not to appy, such ncome must be
ncuded at the tme of fng ther ndvdua returns.
. P. Wence,
Chef Counse, ureau of Interna Revenue.
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229 41, rt. 321.
INCOM T RULINGS. P RT II.
R NU CT O 1932.
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION O N T INCOM .
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
btce 121: usness e penses.
R NU CT OP 1932.
Insurance premums pad n advance for perod of more than one
year by ta payer on cash recepts and dsbursements bass. (See
G. C. M. 20307, page 157.)
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
btce 151: Ta es.
R NU CT O 1932.
Modfcaton of I. T. 308 (C. . 1937-1, 77). (See I. T. 3170,
page 135.)
rtce 151: Ta es.
R NU CT O 1932.
Credt not aowabe because of restrctons or mtatons n secton
131 of the ct. (See G. C. M. 19727, page 255.)
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 41. G N R L RUL .
btce 321: Computaton of net ncome.
R NU CT O 1932.
Insurance premums pad n advance for perod of more than one
year by ta payer on cash recepts and dsbursements bass. (See
G. C. M. 20307, page 157.)
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5101, rt. 503. 230
P RT . R TURNS ND P YM NT O T .
S CTION 51. INDI IDU L R TURNS.
rtce 381: Indvdua returns.
R NU CT O 1932.
Income from parapherna property of wfe where mercan ct-
zens are marred n the Phppne Isands and resde there. (See
I. T. 3173, page 1 0.)
S CTION 55 PU LICITY O R TURNS.
R NG CT O 1932.
Reguatons governng the nspecton of returns of ndvduas,
partnershps, estates, trusts, corporatons, assocatons, |ont-stock
companes, and nsurance companes. (See T. D. 4797, page 35 .)
P RT I. MISC LL N OUS PRO ISIONS.
S CTION 2. RUL S ND R GUL TIONS.
R NU CT O 1932.
Reguatons wth respect to the use of orgna, and the furnshng
of copes of, returns open to nspecton. (See T. D. 4798, page 3 4.)
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 101. C PIT L N T G INS
ND LOSS S.
rtce 503: Capta net oss. 1938-18-9318
Ct. D. 1331
INCOM T R NU CT O 1932 D CISION O COURT.
Deducton Capta Loss Tbansfeb of Stock Whether Sae ob
Gft.
Where the ta payer n 1932 transferred stock to Irrevocabe trusts
estabshed by hm n pror years for the beneft of hs chdren,
the transfer beng made through the ofce of a stock broker for
the admtted purpose of estabshng a oss for ncome ta pur-
poses, and the cash for the aeged purchase havng been furnshed
to the trustee by the ta payer, the transfer was not a sae wthn
the meanng of the ncome ta statutes, but was a gft, and the
ta payer was not entted to a deducton for capta oss sustaned
on the purported sae.
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231
101, rt. 503.
Dstrct Court of the Untkd States for the Dstrct op Deaware.
Irenee Du Pont, pantff, v. Ward . Deputy, Coector of Interna Revenue for
the Dstrct of Deaware, defendant.
23 . Supp., 33.
anuary 18, 1938.
OPINION.
Neds, ohn P., .: Indebtatus assumpst to recover 1 1,017.30 aeged
to nave been wrongfuy coected by defendant from pantff as ncome ta es
for the year 1932 and nterest.
The decaraton aeges that on December 9, 1929, pantff purchased 21,730
shares of the common stock of ubber Securtes Co. for 2,173,000 on Decem-
ber 30, 1932, pantff sod 1 ,000 shares of sad stock for 234,300 and thereby
sustaned a capta oss of 1,3 5, 40 that pantff fed a return of ncome
for 1932 and by ebruary, 1935, had pad as ta es on such ncome 129,538.52
n September, 1935, the Commssoner of Interna Revenue assessed aganst
pantff an addtona ta of 140,304.18 on account of ncome for 1932 together
wth nterest thereon of 20,713.12 and thereupon pantff pad to defendant
sad addtona amounts under protest October 14, 1935, pantff fed a cam
for refund of sad addtona amounts because the Commssoner refused to
aow as a deducton n computng ncome ta abty for 1932 sad capta
oss upon the sae of sad shares of common stock November 9, 1935, the
Commssoner dsaowed sad cam for refund of whch pantff receved
notce.
To the above decaraton defendant fed a speca pea aegng that the sae
of 1 ,000 shares of Rubber Securtes Co. stock on whch pantff camed a
capta oss of 1,305, 40 was not a sae but was a gft that sad stock was
transferred pursuant to the aeged sae from pantff to a trustee of two
trusts theretofore created by pantff for the beneft of hs chdren and that
the funds wth whch the aeged purchase of sad stock was made by the
trustee was donated to the trustee by pantff at or about the tme of the
aeged sae of sad stock. Wth ths pea pantff oned ssue.
The partes e pressy waved a |ury tra and agreed to submt the cause to
the court. t the same tme, the partes fed a stpuaton and agreement that
certan facts theren rected shoud be taken as true for the purposes of the case.
Substantay the facts so stpuated are the foowng:
Pantff s a resdent of Wmngton, De. Defendant s and snce September
1,1933, has been, the Unted States coector of nterna revenue for the dstrct
of Deaware. March 15, 1933, pantff fed hs edera ncome ta return
for the caendar year 1932 wth the coector of nterna revenue at Wmng-
ton, De. On ths return he camed a deducton for capta oss on the sae
of 1 ,000 shares of the common stock of Rubber Securtes Co. amountng to
1,3 5, 40. une 1 , 1933, pantff fed an amended return whch dffered
from the orgna return so far as ncome and ta are concerned ony n that
t ncuded an tem of 49,770.5 , representng Income from fducares, and the
ta was ncreased thereon from 55,507.84 to 77,929.47. The ta reported
on each of these returns was pad n due course and s not a part of the ta
sought to be recovered here. ebruary 4, 1935, pantff fed a waver e tendng
the perod n whch assessments coud be made to September 15, 1935. There-
ater, the Commssoner determned a defcency n ta of 51, 09.04, pus
defcency nterest of 5,597.11, whch was pad on anuary 5, 1935. Ts
defcency was due to certan ad|ustments proposed n a revenue agent s report
dated December 12, 1934. No part of the above assessments s sought to be
recovered n ths sut.
Subsequenty, varous conferences were had and thereafter a further revsed
defcency of 140,304.18, pus defcency nterest of 20,713.12 was determned
by the Commssoner and assessed ugust 31, 1935, pursuant to a quafed form
of waver of restrcton on assessment and coecton of defcences n ta
e ecuted by pantff. Ths amount was pad by pantff to defendant on
September 13, 1935. It had been assessed by the Commssoner on account of
the dsaowance n part of the camed oss on the sae of 1 ,000 shares of
Rubber Securtes Co. stock whch was determned by the Commssoner to
partake of the nature of a gft and not of a sae. cam for refund of the
defcency ta of 140,304.18, and nterest of 20,713.12 was fed by pantff wth
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101, rt. 503.
232
defendant on October 14, 1935. November 9, 1035, the Commssoner advsed
pantff that the cam for refund woud be dsaowed. December 2 , 1935,
t was formay re|ected.
anuary 30, 1920, pantff transferred to dety Trust Co. certan securtes
and smutaneousy dety Trust Co. e ecuted a decaraton of trust for the
beneft of the daughters of pantff. Ths trust s herenafter referred to as
the frst trust. October 17, 1927, dety Phadepha Trust Co., formery
dety Trust Co., pantff and Wmngton Trust Co. entered nto an agreement
substtutng Wmngton Trust Co. as trustee under the decaraton of trust
above mentoned. ebruary 15, 1923, pantff and Wmngton Trust Co. e e-
cuted an agreement of trust for the beneft of pantff s son. Ths trust s
herenafter referred to as the second trust. December 29, 1932, Wmngton
Trust Co., trustee under sad trusts, had on hand, n addton to assets n the
form of securtes, cash baances as foows: In the frst trust, 5,992.53 n
the second trust, 7 8.14.
December 29, 1932, pantff e ecuted suppements to the frst and second
trusts by whch the corpus of the frst trust was ncreased by 210,000, and
the corpus of the second trust was ncreased by 30,000. On the same day
pantff transferred (a) to Wmngton Trust Co., ns trustee under the terms
of the frst trust, 210,000 n cash, and ( ) to Wmngton Trust Co., as trustee
under the terms of the second trust, 30,000 In cash.
On the foowng day pantff sod through Lard Co., stock brokers, 1 ,000
shares of the common stock of Rubber Securtes Co. at 14. 475 per share, for
234,3 0. Of such shares Wmngton Trust Co. as trustee of the frst trust
bought 14,000 shares at 14.75 per share, for 20 ,500 and Wmngton Trust
Co. as trustee of the second trust bought 2,000 shares at 14.75 per share, for
29,500. The dfference between the prce receved by pantff and the prces
pad by the trustee represents transfer ta stamps at 4 cents per share on
1 ,000 shares 40, and broker s commsson at cents per share on 1 ,000
shares 1,000.
nne ed to the stpuaton are copes of the frst and second trusts. oth
trusts are rrevocabe and under no contngency can the corpus of ether trust
pass to pantff. The second trust contans a provson permttng pantff
to add to the trust estate from tme to tme. The frst trust makes no such
provson. Paragraph of the frst trust provdes that the trustee sha make
or change the nvestment of the prncpa of the trust fund and make new
nvestments of the corpus or prncpa of the trust estate ony wth the advce
and consent of one or more advsory trustees named theren. It provdes
further that the trustee may change or make any nvestments wth the wrtten
consent of one of the advsory trustees, and must make such change or nvest-
ment upon the wrtten request of both advsory trustees. y the terms of the
second trust, pantff reserved the rght to order and drect n wrtng the
sae of any securtes comprsng the trust estate and the purchase of other
securtes to be hed by the trust.
t the hearng pantff was the ony wtness. Defendant was content to rest
ts case upon the facts stpuated and upon pantffs testmony.
Pantff testfed:
. t the tme, December 29, 1932, that you made gfts of 210,000 and
30,000 to the Wmngton Trust Co. as trustee, w you te the court what
your prmary motve was
. There s no queston about my prmary motve. It was to crystaze a
oss, and of course It was a staggerng oss. I got too hgh a prce out, and
the ony way I coud ustfy that was to put n the necessary cash so that
there coud not be any queston ater about my havng robbed the trust. I
was the creator of that trust and I knew t was bona fde. he actua
vaue of the securtes was probaby ess than what I sod them for, but
nobody coud ob|ect, and the Government has not ob|ected to the prce sod,
and t was a very ampe prce, nnd t was a staggerng oss from what I pad
for t. To make that oss avaabe for ncome ta purposes, I woud have to
make an actua sae wth no strngs attached to t, and I had to part company
wth the securtes forever.
. No doubt, you dvested yoursef of a tte to the stock
. Yes, sr, that s what my endeavor was, and the ob|ect of puttng t
through Lard Co. and payng them a commsson was so as to eave a defnte
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233 101, rt. 503.
record of the transacton outsde of my offce, and there coud be no queston
about when t was done.
. are you fnshed
. I do not thnk I have any more to say. It was an open and shut propo-
ston and I recommended t. If the Interna Revenue wsh to consder ths as
a gft, and woud consder ths as a gft a the way through, I ponted out
that t woud be of beneft to the trust, and so great a beneft that I coud
afford to throw away 130,000 or 140,000 to get a beneft for my chdren.
. In order to have the record show some facts that are not stpuated,
but whch I mentoned n openng, on December 29, 1932, t s stpuated that
you dd make these gfts of cash and that you receved a etter from the
trustee. Who made ths suggeston or orgnated the suggeston for the pur-
chase by the trustee of the Rubber Securtes Co. stock
. There s no queston that I suggested t, athough I have not a defnte
recoecton of how t was done. It mght have been done through the broker,
or drect wth the Wmngton Trust Co., and I do not remember the detas,
but I know the thought orgnated wth me, and there s no queston about that.
. nd smary how dd the nstructon from Mr. Lammot Du Pont to the
trustee wth respect to the other trust, orgnate Dd you suggest to hm that
he wrte that etter
. I thnk I probaby spoke to hm at the tme f I had not, he woud have
come n and asked me about t when he had the suggeston from the Trust com-
pany, and there s no queston, that Lammot woud have conferred wth me.
. Mr. Du Pont, you stated on drect e amnaton that you desred to
crystaze a oss. You mean by that ths entre transacton, when you had
started n to gve the money to the trusts, t was your ntenton to carry out the
sae as t was carred out by the transfer of the securtes to the trust
. I thnk so.
. It was a one conceved pan. Tour dea was to take an ncome ta
oss
. Yes, sr.
. There s no queston about that
. o queston at a.
. nd t was conceved n your mnd and carred out competey by
you
. Yes. I tred to carry t out n accordance wth the aw and the rues of
the Interna Revenue Department whch I thought gave me e acty that rght
to do that thng.
. You dd what you thought was n accordance wth the aw
. Yes.
. You st drect and suggest nvestments to these two trusts
. I st what
. Drect and suggest a nvestments made by these two trusts whch you
have created for your chdren, do you not
. I am not sure about the grs trust, I do not reca havng any recenty,
but I probaby woud be consuted by the trustee.
. You have been n the past
. Certany, about Irenee s trust they have aways consuted wth me, and
they sad how much money they have to nvest, and what sha we nvest t n.
. ny purchases or nvestments whch mght be made by these trusts
woud be ether wth your consent or at your suggeston
I thnk so. I woud ke to ask Mr. vans that because he knows what
s n the trust, and he s the trust offcer.

. You do not know of any that were not, when you were not consuted
I dd not e amne the books of the trust. I do not know what has hap-
pened. I ought to know, but you can ask Mr. vans that. I have been con-
suted many tmes.
There s no ssue of fact n the case. The soe queston s one of aw. Dd
pantff se 1 ,000 shares of Rubber Securtes Co. stock to the trustee of the
two trusts for hs chdren and thereby ncur a capta oss whch shoud be
aowed as a deducton from gross ncome n computng net ncome for the
ta abe year 1932 Or dd pantff make a gft of the 1 ,000 shares to the
trusts
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101, rt. 503.
234
The statutes of the Unted States authorzng capta osses aowed as
deductons are:
Revenue ct of 1932 (ch. 209, 47 Stat, 1 9).
Sec. 23. Deductons from gross ncome. In computng net Income there
Sha be aowed as deductons:

(e) Losses by ndvduas. Sub|ect to the mtatons provded n subsec-
ton (r) of ths secton, In the case of an ndvdua, osses sustaned durng the
ta abe year and not compensated for by nsurance or otherwse
(1) If ncurred In trade or busness or
(2) f ncurred n any transacton entered nto for proft, though not con-
nected wth the trade or busness
Seo. 101. Capta net gans and osses.

(b) Ta n case of capta net oss. In the case of any ta payer, other than
a corporaton, who for any ta abe year sustans a capta net oss (as heren-
after defned n ths secton), there sha be eved, coected, and pad, n eu
of a other ta es mposed by ths tte, a ta determned as foows: a parta
ta sha frst be computed upon the bass of the ordnary net ncome at the
rates and n the manner as f ths secton had not been enacted, and the tota
ta sha be ths amount mnus 12 per centum of the capta net oss but n
no case sha the ta of a ta payer who has sustaned a capta net oss be
ess than the ta computed wthout regard to the provsons of ths secton.
(c) Defntons. or the purposes of ths tte
(1) Capta gan means ta abe gan from the sae or e change of capta
assets consummated after December 31, 1921.
(2) Capta oss means deductbe oss resutng from the sae or e -
change of capta assets.
(3) Capta deductons means such deductons as are aowed by secton
23 for the purpose of computng net ncome, and are propery aocabe to or
chargeabe aganst capta assets sod or e changed durng the ta abe year.
The decsve queston s whether or not what has been done s the thng
whch the statute ntended. ere there s no actua busness oss. The whoe
transacton was a scres of steps on sand. Strpped of the form the transacton
resuted In a gft of stock to the two trusts.
To what e tent deductons sha be aowed depends upon egsatve grace
and ony as there s cear provson therefor can any partcuar deducton be
aowed. Obvousy, therefore, a ta payer seekng a deducton must
be abe to pont to an appcabe statute and show that he comes wthn Its
terms. ( cr Coona Co. v. everng, 292 U. S., 435, 440 Ct. D. 841, C. .
III-1, 194 (1934) .)
The atttude of the court towards cases of ths knd s nfuenced by certan
genera consderatons. It s argued that n ncome ta cases the form and not
the substance of the transacton shoud be uphed. On the contrary, for the
purpose of determnng ta abty the courts ook through the form of the
transacton to the substance. (S. . Mac ueen Co. v. Commssoner, 7 . (2d),
857 (C. C. . 3) Ct. D. 830, C. . III-1, 2 (1934) .) Courts appy the
ma m quty ooks to the substance rather than to the form. The ma m
serves to defne the probem and drects the nqury nto the reates. Pantff
franky stated that hs prmary purpose was to crystaze what he consdered
a oss and to take an ncome ta deducton therefor. Such a transacton s care-
fuy scrutnzed. If the court fnds the transacton s not what t appears to be
t w be dsregarded. The courts hod that a snge transacton may not be
broken up nto varous eements to avod a ta . The varous steps do not change
the character of the transacton. Transacton s a word of fe be meanng.
It may comprehend a seres of many occurrences, dependng not so much upon
the mmcdateness of ther connecton as upon ther ogca reatonshp.
(Moora v. New York Cotton change, 270 U. S., 593, 10.)
The pan to reaze a capta oss was conceved, drected and controed by
pantff. The pan nvoved seven steps, a parte of a snge transacton and
was fuy e ecuted wthn two days. t the suggeston of pantff suppements
to the trust decaratons were prepared ncreasng the corpus of the frst trust
by 210,000 and the corpus of the second trust by 30,000 as w appear by
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235
101, rt. 503.
reference to copes of the suppements In footnotes 1 and 2. December 29, 1032,
both suppements were formay e ecuted by pantff and the trustee. On the
same day pantff transferred 210,000 n cash to the trustee under the terms
of the frst trust and 30,000 n cash to the trustee under the terms of the second
trust. t the suggeston of pantff and on the same day one of the advsory
under the frst trust wrote a etter to the trustee authorzng the pur-
1 by the trustee of 14,000 shares of Rubber Securtes Co. common stock as
w appear by reference to a copy of sad etter n footnote 3. t the suggeston
1 Whereas Irenes Do Pont, of Chrstana undred, New Caste County, State of Dea-
ware, has ths day pad unto Wmngton Trust Co., a Deaware corporaton, two hundred
and ten thousand doars ( 210,000) n cash, whch cash s to be added to the corpus or
prncpa of a certan trust fund created by a certan decaraton of trust e ecuted by
no t| Trust Co., a Pennsyvana corporaton, on anuary 30, 1920, and approved by
sad Irenee Du Pont, of whch trust sad Wmngton Trust Co. was substtuted as trustee
by a certan agreement dated October 17, 1927, between dety-Phadepha Trust Co.,
a Pennsyvana corporaton, successors to sad dety Trust Co., sad Irenee Du Pont
and sad Wmngton Trust Co.:
Now, therefore, n consderaton of the premses, as we as for and n consderaton of
the sum of one doar by sad Wmngton Trust Co. to sad Irenee Du Pont ths day pad,
the recept whereof s hereby acknowedged, t s agreed that sad cash was pad to sad
Wmngton Trust Co. n trust, to be added to the aforesad trust as a part of the corpus
or prncpa thereof and sub|ect to a of the uses, purposes, trusts, terms and condtons
ret forth n sad decaraton of trust of anuary 30, 1920, and sad agreement of October
17, 1927.
In wtness whereof, sad Wmngton Trust Co. has caused the hand of ts vce presdent
and ts corporate sea to be hereunto aff ed ths 29th day of December, 1932.
Wmngton Trust Co.
y wyn vans,
os Presdent.
ttest: . Seers ancroft,
ssstant Secretary.
I. Irenee Du Pont, do hereby approve of the provsons contaned n the foregong nstru-
ment of wrtng or decaraton of trust.
Wtness: Irenes Du Pont.
Wabben Mendenha.
December 29, 1932.
Ths suppementa trust agreement, made ths 29th day of December, 1932, between
Irenee Du Pont, of Chrstana und, New Caste County, De., patty of the frst part,
herenafter caed trustor, and Wmngton Trust Co., a Deaware corporaton, party
of the second part, herenafter caed trustee, wtnesseth :
Whereas, heretofore on the 1 th day of ebruary, 1923. trustor and trustee entered
Into an agreement creatng a trust of certan property theren descrbed and
Whereas, n paragraph Thrd of sad agreement trustor reserved the rght to add
other property to the trust fund and
Whereas, trustor now desres to e ercse sad rght and add to the trust fund the
property herenafter descrbed :
Now, therefore. In consderaton of the premses and trustee s agreement to undertake
the dutes of trustee wth respect to such addtona property herenafter provded trustor
has assgned, transferred, conveyed and devered, and by these presents does assgn, trans-
fer, convey and dever, unto trustee and ts successors a of hs rght, tte ana nterest
n and to the foowng descrbed property, that s to say :
Thrty thousand doars ( 80,000) n cash.
In trust, nevertheess, for the uses and purposes set forth In sad orgna agreement
and a amendments thereto, f any, between trustor and trustee dated ebruary 15, 1923
sub|ect to a the terms and condtons thereof as fuy and for a purposes as f sad
property had prevousy been descrbed and ncuded In sad orgna agreement and sad
amendments, f any, at the tme of makng and e ecuton thereof.
In wtness whereof, Irenee Du Pont, trustor, has hereunto set hs hand and sea, and
Wmngton Trust Co., trustee, n token of ts acceptance of sad trust, has caused ths
suppementa agreement to be sgned n ts name by one of ts vce presdents and ts
corporate sea to be hereunto aff ed by one of ts assstant secretares, a done n dup-
cate on the day and year frst above wrtten.
s Irenee Du Pont sea
Wmngton Trust Co.,
y wyn vans,
Wtness: ce Presdent.
Warren Mendenra.
ttest: . Seers ancroft,
ssstant Secretary.
December 29, 1932.
Wmngton Trust Co.,
Wmngton, De.
Ge temen : Ths s to sgnfy my approva of the purchase of 14,000 shares Rubber
Securtes Co. common stock, as an nvestment of avaabe funds n the trust of whch
you are trustee (formery dety Trust Co., trustee) for the seven daushters of Irenee
Du PonL
Tours very truy,
s Lammot Du Tont.
Wmngton Trust Co.,
Wmngton, De.
December 29, 1932.
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101, rt. 503.
23
of pantff and on the same day a vce presdent of the trustee addressed a etter
to pantff askng authorty to purchase 2,000 shares of Rubber Securtes Co.
common stock on behaf of the second trust as w appear by reference to a
copy of the etter n footnote 4. On the same day pantff ndorsed hs approva
on a copy of sad etter and returned the same to the trustee. On the foowng
day, December 30. 19.32, pantff transferred to the trustee through stockbrokers
1 0 0 shares of Rubber Securtes Co. common stock for 234,3 0 to eave a
defnte record of the transacton outsde of my offce. Of the 1 ,000 shares
transferred by pantff, the trustee of the frst trust acqured 14.000 shares for
200,500 and as trustee of the second trust acqured 2,000 shares for 29,500.
The dfference between the sum receved by pantff and the sum pad by
the trustee represents transfer ta stamps of 40 and a broker s commsson
of 1,000. The net resut of the transacton was that pantff receved back
the orgna 240,000 ess the broker s commsson, stamps and 4,000. The two
trusts for hs chdren acqured the stock.
The payment by the pantff of the 210,000 and the 30,000 to the trustee
under the two decaratons of trust was not a gft of cash to the two trusts.
It was a fund of 240,000 mpressed wth an e press trust to appy the same
In the purchase from Lard Co. of 1 ,000 shares of pantff s Rubber Se-
curtes Co. stock. The trustee was not free to Invest the fund under the
genera terms of the trust decaratons. ad t done so t woud have been
abe for breach of trust. The funds were gfts wth a strng to them and the
strng was hed by pantff. Ths s the pan mport of pantffs testmony
and there s no controversy whatever about t Moreover, there s another vta
deducton from the above stated facts. If the trustee was bound to purchase
the stock from pantff and to pay hm back the money receved there was no
sae of stock. sae mports a devery of goods for a consderaton passng
from the buyer. ere, the buyer was a trustee deverng back cash n e ecu-
ton of a trust. It was not a trustee nvestng funds of two trust decaratons
n the purchase of stock. Pantff receved back hs cash wth mnor deductons,
as he panned. t a tmes the funds beonged to pantff. e can not dea
wth hmsef and ca the transacton a sae. Pantff was dvested of hs
stock but that resut foows as effectvey from a gft of stock as from a sae
of stock. In vew of the proof n the case, pantff s testmony that he ntended
a sae s of no ega effect.
The reports furnsh no case where the facts are e acty ke the facts n
the nstant case. Much of the reasonng of the courts In the foowng cases
s appcabe: Commssoner v. Rggs (78 . (2d), 1004) Te -Penn O Co. v.
Commssoner (83 . (2d), 518) ohnson v. Commssoner (8 . (2d), 710
Ct. D. 1228, C. . 1937-1, 187 ) Commssoner v. Dyer (74 . (2d), 85 Ct.
D. 1037, C. . I -2, 233 (1935) ) St. Lous Unon Trust Co. v. Unted States
(83 . (2d), 1).
It s unnecessary to repeat as fndngs what the court has aready stated
n ths opnon. owever, the court makes the foowng fndngs of fact:
1. The net resut of the transacton was that the pantff, after the aeged
sae, had the same funds ess the broker s commsson, and stamps, and e cept
4,000. The trusts had the stock.
2. Pantff drected the trustee to acqure the stock and provde the funds
necessary therefor.
3. The transfer of the stock from pantff to the two trusts, regardess of
the means used, was not a sae of stock but was a gft of stock.
Mr. Ienee Pr Pont,
Du Pont udng,
Wmngton, De.
Pra Sr : You have to-day added to the trusts created by agreement wth you dated
ebruary 15, 1 23, for Irenee Pu Pont, r. (our trust #044) 30,000 n cash.
We suggest that ths money be nvested n Rubber Securtes Co. common stock. Wth
funds on hand we can buy appro matey two thousand (2.000) shares.
Under the terms of the trust agreement you as trustor have the rght to order and
drect us to purchase securtes.
If ts suggeston meets wth your approva, w you kndy gve us such a drecton
by sgnng the ncosed copy of ths etter and returnng t to us.
Yours very truy,
b wtn vans,
ce Presdent.
I hereby approve of the foregong suggeston and drect you to purchase two thousand
(2.000) shares of Rubber Securtes common stock for the aforesad trust under agree-
ment wth me dated ebruary 15, 11)23.
a Ibenee Pu Pont.
December 20, 1932.
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237
104, rt. 541.
CONCLUSIONS O L W.
L Pantff s not entted to deduct from hs gross ncome for the year 1932 the
sum of 1,3 5, 40 aeged oss on the purported sae of 1 ,000 shares of Rubber
Securtes Co. stock on December 30, 1032, for the purpose of computng hs
aabe net ncome.
2. The transfer of sad stock by pantff to sad trusts was not a sae con-
tempated by the statutes of the Unted States and s not a transacton enabng
pantff to deduct a oss n hs return of ncome for 1932.
INT R NTION.
March 30, 1937, Wmngton Trust Co., trustee n the frst and second trusts,
pettoned for eave to ntervene as partes pantff so that n ths proceedng
the determnaton of the sad ssue may be bndng and concusve for a tme,
upon a persons concerned wth sad ssue and who are or who may be
at any tme affected thereby, drecty or ndrecty, etc.
On the same day, counse for defendant beng present and not ob|ectng, the
crmrt granted pettoner eave to ntervene and ordered that the ssues between
the pantff and the defendant as framed by the peadngs heretofore fed
sha be deemed to consttute aso the ssues between the nterveners and the
defendant.
December 17, 1937, at the openng of the tra of ths case, defendant moved
to vacate the order and dsmss the ntervenng petton. In vew of the apse
of tme and the admsson that no n|ury can be occasoned thereby, Wmngton
Trust Co., as trustee, shoud be permtted to reman a party to the record.
In the e ercse of a sound dscreton defendant s moton must be dened.
Defendant s entted to |udgment wth costs aganst pantff.
ceptons, f any, may be fed wthn 10 days from the date hereof.
S CTION 103. MPTIONS ROM T
ON CORPOR TIONS.
rtce 530: Soca cubs.
R NU CT O 1932.
Incdenta sae of property at proft. (See G. C. M. 194C5, page
172.)
S CTION 104. CCUMUL TION O SURPLUS TO
D INT RN L-R NU T S.
rtce 541: Ta aton of corporaton utzed 1938-13-92 0
for evason of nterna revenue ta es. Ct. D. 1319
INCOM T R NU CTS O 1928 ND 1932 D CISION O COURT.
1. ccumuaton of Surpus to vade Surta es vdence
udca Revew.
The facts found by the oard of Ta ppeas were not ncon-
sstent wth, and were suffcent to support, ts utmate fndng of
fact that a famy corporaton was a persona hodng or nvestment
corporaton formed and avaed of for the purpose of preventng
the mposton of surta es upon ts sharehoders by permttng
gans to accumuate, durng the years 1931 and 1932, beyond
the reasonabe needs of ts busness Instead of beng dvded or ds-
trbuted, wthn the meanng of sectons 104 of the Revenue cts
of 1928 and 1932. The court may not nterfere wth the functon of
the oard as a fact-fndng trbuna, snce t gave the partes an
opportunty to be heard and dd not refuse to consder reevant
evdence, dd not proceed upon a mstake of aw, and ts fndngs
rest upon substanta evdence.
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104, rt. 541.
238
2. CONSTITUTION LITY.
Sectons 104 of the Revenue cts of 1928 and 1932, as apped
to the facts of ths case, are not unconsttutona.
8. Decson ffrmed.
Decson of the oard of Ta ppeas (35 . T. ., 1) affrmed.
4. Cebtobab Dened.
Petton for certorar dened anuary 10, 1938.
5. Rehearng Dened.
Petton for rehearng on dena of certorar dened ebru-
ary 7, 1938.
Unted States Cbcut Court of ppeas for the fth Crcut.
mours Securtes, Inc., pettoner, v. Commssoner of Interna Revenue,
respondent.
91 ed. (2d), 427.
Petton for revew of decson of Unted States oard of Ta ppeas (dstrct of
orda).
efore oster, utcheson, and omes, Crcut udges.
uy 21, 1937.
opnon.
omes, Crcut udge: Ths petton for revew was fed pursuant to the
provsons of the Revenue ct of 192 (ch. 27, 44 Stat., 9), sectons 1001-1003,
as amended by secton 1101 of the Revenue ct of 1932 (ch. 209, 47 Stat., 1 9)
and by secton 519 of the Revenue ct of 1934 (ch. 277, 48 Stat., 080).
The pettoner sought a redetermnaton by the oard of Ta ppeas of
defcency assessments aganst t, n ncome and proft ta es, for the caendar
years 1931 and 1932. The assessments, n the sum of 1,282,1 9.84 for 1931, and
778,852.14 for 1932, were made by the Commssoner of Interna Revenue under
the provsons of sectons 104 of the Revenue cts of 1928 and 1932 (and regu-
atons promugated thereunder), whch mpose an addtona ta of 50 per
cent upon the net ncome of any corporaton formed or avaed of for the pur-
pose of preventng the mposton of surta es upon ts sharehoders through
the medum of permttng ts gans and profts to accumuate nstead of beng
dvded or dstrbuted.
The oard uphed the assessments. Its opnon s reported n 35 . T. ., 1.
Whether there s substanta evdence to support ts fndngs of fact, and
whether sectons 104 of the Revenue cts of 1928 and 1932 are consttutona,
are the questons necessary to be decded.
The ta es n controversy are assessabe f the corporaton s ether formed
8 r avaed of for the purpose nterdcted by sad sectons. so, there s a
prma face presumpton that any corporaton whch s a mere hodng or
nvestment company or whch permts ts gans or profts to accumuate beyond
the reasonabe needs of ts busness has the purpose to escape the surta . The
presumpton arses upon the happenng of ether contngency, and s n addton
to the presumpton drawn from the acton of the Commssoner n makng the
assessment.
ccordng to the facts as found by the oard, the pettoner was a persona
hodng or nvestment corporaton, formed and avaed of for the nterdcted
purpose, n the foowng crcumstances:
In 192 , fred I. du Pont, a man 8 or 9 years of age, found hmsef
enormousy weathy, wth safe, qud stocks and securtes n e cess of 31,000,-
000, yedng hm an annua ta abe ncome of appro matey 3,000,000, derved
argey from dvdends of domestc corporatons. e was advsed to change
hs resdence from Deaware to orda, because the atter State had no ncome
or nhertance ta es. Thereafter, n November, 192 , under the aws of orda,
foowed the ncorporaton of the pettoner. Substantay a of ts capta
stock (e cept stock dvdends) was ssued for securtes owned by fred I.
du Pont, hs wfe, and brother-n-aw. It retaned neary a of these securtes,
and acqured others out of earnngs, through 1932. Durng the ess than two
months of ts e stence n 192 , t receved appro matey 315,000 as dvdends
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239
104, rt. 541.
on da Pont stock. No dstrbuton was made to ts then soe stockhoder, Mr.
do Pont
rom the date of organzaton unt the end of 1032, most of ts Income was
from dvdends upon shares of stock of . I. du Pont de Nemours, Inc., and from
sae of sad shares, ony a part of ts aggregate profts beng dstrbuted to
stockhoders as cash dvdends. The amounts so accumuated by pettoner
woud have ncreased the surta es of the stockhoders, f they had receved
the dvdends drecty from the securtes.
The ownershp of the tota outstandng common stock of pettoner on an-
uary 1, 1931, and the percentage of ownershp by the severa stockhoders
(whch dd not change durng the years 1031 and 1932) were as foows:
Shares. Per cent.
fred I. du Pont 338, 45 85.034
esse a du Pont (the wfe) 45,93 11.534
dward a (brother-n-aw) 12,987 3.030
Others 1, 57 .395
Tota outstandng 398,244
The tota earnngs of pettoner to December 31, 1932, were represented n Its
books of accounts as foows:
Cash dvdends 4,433, 93.05
Stock dvdends 7,724,037.00
Reserve , 000,000. 00
Undvded profts 1,305, 944.92
Tota earnngs 22,4 3, 74.97
ccumuated earnngs on December 31,1932 18,029,981. 92
Pettoner s operatons were conducted argey through subsdares, whch
were ooked after by Mr. du Pont and hs son-n-aw, Mr. a. fter a porton
of ts cash net earnngs was dstrbuted, the remander was permtted to accumu-
ate beyond the reasonabe needs of ts busness, and renvested, thereby savng
a arge amount of Income ta whch the stockhoder woud have been obged
to pay for the years n controversy.
Under a wrtten stpuaton of the partes fed wth the oard on October
19, 1931, the oard ordered and decded, as to pettoner, that there were
no defcences for the years 1927, 1928, and 1929. It further hed that pettoner
was not sub|ect to ta aton for the year 1930, under the provsons of secton
1M of the Revenue ct of 1928.
It s contended that each of these pror decsons s res ad|udcata as to the
present proceedng, but we deem t unnecessary to dscuss the reasons whch
caused the Commssoner to |on n the stpuaton and the oard to enter ts
orders, because t s not essenta that the pettoner shoud have been formed
for the nterdcted purpose. The oard found as a fact, upon substanta ev-
dence, that pettoner was avaed of durng the years 1931 and 1932 for that
purpose, and the oard s decson s sustanabe upon that ground aone.
(Unted State v. R. C. Tway Coa Saes Co., 75 . (2d), 33 . D. aengcr,
Inc., v. Commssoner, 84 . (2d), 23 Ct. D. 118 , C. . 1937-1, 20 , certorar
dened, 299 U. S., 577 R. d L., Inc., v. Commssoner, 84 . (2d), 721 Com-
mssoner v. sher sher, 84 . (2d), 99 Commssoner v. de Me Pro-
ductons (C. C. . 9), decded pr 1 ,1937 (90 . (2d), 12).)
Ths court shoud not nterfere wth the functon of the oard of Ta ppeas
as a fact-fndng trbuna, snce t gave the partes an opportunty to be heard
and dd not refuse to consder reevant evdence, dd not proceed upon a mstake
of aw, and ts fndngs rest upon substanta evdence. The oard s concusons
are not nconsstent wth the facts as found by t. vdentary facts may not
he used to overcome the fndng of utmate facts uness they compe an opposte
concuson as a matter of aw. (Trcon v. everng, 8 . (2d), 280.)
We concur n the concusons of the oard that, durng the years 1931 and
1932, the pettoner permtted ts profts to accumuate beyond the reasonabe
needs of ts busness, and, further, that pettoner was avaed of durng those
years for the purpose of preventng the mposton of surta es upon ts share-
hoders through the medum mentoned n sectons 104 of the Revenue cts of
1928 and 1932.
The ony remanng contenton s that the ta , as apped to pettoner, s
unconsttutona and vod. Sad sectons have been uphed when attacked upon
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115, rt. 21.
240
the same ground n former cases, and t s unnecessary to enter nto any
e tended dscusson of the queston. The sub|ect s wthn the consttutona
power of the egsatve department. It s the duty of the Congress to determne
what means are approprate to carry out the purpose of the Revenue cts.
The end beng egtmate and the means beng pany adapted to that end,
we thnk the aw s consttutona. (Unted usness Corporaton v. Comms-
soner, 2 . (2d), 754 Ct. D. 772, C. . III-1, 257 (1934) , certorar dened,
290 D. S., 35 eck Inv. Co. v. Commssoner, 77 . (2d), 244, certorar dened,
29 U. S., 33: Wams Inv. Co. v. Unted States, 3 . Supp., 225.)
The decson of the oard of Ta ppeas s affrmed.
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
rtce 21: Dvdends. 1938-18-9319
Ct.D. 1332
INCOM T R NU CT O 1932 D CISION O COU T.
Dvdends Nonta abe Reorganzaton Transferred Sub-
pus Dstrbutons bt New Corporaton n cess of Its
arnngs.
Where, n connecton wth a nonta abe reorganzaton n 1929,
a corporaton, athough contnung to do busness, transferred 0
per cent of ts assets, ncudng an account thereafter known as
transferred surpus, to a newy organzed corporaton whch
subsequenty made dstrbutons greaty n e cess of ts earnngs,
dstrbutons receved by a stockhoder n 1932 consttuted ta abe
dvdends n ther entrety, snce n the reorganzaton 0 per cent
of the post-1913 accumuated earnngs of the od corporaton
became earnngs of the new corporaton wthn the meanng of
secton 115(a) of the Revenue ct of 1932.
Dstrct Court of the Unted States fob the astern Dstrct of
Pennsyvana.
ohn ampton arnes, pantff, v. Unted States of merca, defendant.
22 ed. Supp., 282.
anuary 25, 1938.
opnon.
Mars, .: Ths s a sut under the Tucker ct to recover Income ta aeged
to have been erroneousy pad by the pantff for the year 1932. rom the
evdence I make the foowng speca fndngs of fact.
The pantff, who s a resdent of Devon, Chester County, Pa., n the year
1932 owned 1,000 shares of stock of Westmoreand, Incorporated, and receved
dvdends thereon durng the year 1932 n the sum of 1,400.
Westmoreand, Incorporated (herenafter caed the new company), was
organzed on une 3, 1929, n connecton wth a nonta abe reorganzaton of the
Westmoreand Coa Co. (herenafter caed the od company). In the reorgan-
zaton, whch took pace as of uy 1, 1929, the od company transferred to
the new company appro matey 0 per cent of ts net assets and the new com-
pany ssued ts entre capta stock, consstng of 200,000 (two hundred thou-
sand) shares wthout par vaue, to the stockhoders of the od company pro
rata. t the same tme the od company converted ts outstandng capta
stock, consstng of 200,000 shares of the par vaue of 50 each, nto an equa
number of shares wthout par vaue, but havng a stated vaue of 25 each.
s a resut of the reorganzaton the sharehoders of the od company receved
n e change for each share of the par vaue of 50 whch they hed, one share
of stock of the new company wthout par vaue and one share of stock of the
od company wthout par vaue.
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241
(5115, rt. 21.
On ny 1, 1929, pror to the transfer to the new company the od company
had earnngs or profts accumuated subsequent to ebruary 28, 1913, but un-
dstrbuted though avaabe for dstrbuton, n e cess of 2,058,000, eavng
cnt of account a stock dvdend of 2,500,000 whch had been dstrbuted n
1923. These accumuated earnngs were not shown on the books of the od
company, however. The od company contnued n busness after the reor-
ganzaton and on December 31, 1929, t had a book surpus of 1,528,320.75.
Dnrng the years 1930, 1931, and 1932 the od company earned 3 ,479.2 and
pad dvdend totang 195,115.
The assets transferred to the new company amounted to 10,105, 08.12, made
np as foows:
Cash 589, 459. 32
ccounts recevabe 370. 00
onds of varous States 305, 42.00
onds of the Unted States 8 3,885. 3
onds of domestc corporatons 45,8 .00
Prepad nsurance 21.1
Land 8,101,07 .90
udngs 2, 24. 4
Less reserve for deprecaton 131. 22
2,493. 24
Treasury stock 27,844. 45
ccrued nterest recevabe 8, 950.42
10,105, 08.12
s of uy 1, 1929, the od company transferred to the new company whch
assumed and entered on ts books abtes amountng to 9,320.42. Of the
e cess of the assets over the abtes so transferred, n other words ts net
worth, amountng on uy 1, 1929, to 10,09 ,287.70, 2,000,000 was credted on
ts books to the stated capta appcabe to ts 200,000 shares of stock, 4,201,-
52 .75 was credted to Coa and apprecaton, and 3,894,7 0.95 was credted
to Transferred surpus. Of the sum ast mentoned 894,7 0.95 represented
surpus transferred to the new company on the books of the od company.
Prom une 3, 1929, to October 1, 1931, ncusve, the new company earned
f95.80 .95 and pad dvdends totang 888,4 . 0. On anuary 1, 1932, the
undstrbuted profts of the new company earned by t snce ebruary 28, 1913
(n fact a earned snce October 1, 1931), amounted to 12, 85.08. etween
anuary 1, 1932, and October 1, 1932, the new company earned profts of 32,-
084.91. These earnngs or profts aggregatng 44,7 9.99 were a dstrbuted as
part of dvdends pad n 1982 on anuary 2, pr 1, uy 1, and October 1,
whch dvdends amounted n a to 2 8,953.80. The baance of these dvdends,
amountng to 224,183.81, were charged aganst the transferred surpus account
of the new company herenabove descrbed. Of the dvdends amountng to
1.4no receved by the pantff from the new company n 1932, 1 . 5 per cent or
233.10 was pad from profts of the new company earned by t snce ebruary
28, 1913, and 83.35 per cent or 1,1 .90 was pad from the transferred surpus
account of the new company herenabove descrbed.
On March 14, 1933, pantff fed hs ncome ta return for the year 1932,
ncudng theren as dvdends receved from the new company the sum of
223.80. The pantff dd not ncude n hs gross ncome the baance of sad
dvdends amountng to 1,17 .20. Upon the audt of hs return the Commssoner
rued that the entre amount of the dvdend, 1,400, was ta abe as such. e
accordngy determned a defcency aganst the pantff n the sum of 498. 5,
whch, together wth nterest of 45.94, was assessed aganst the pantff and
pad by hm on October 5, 1934. On March 28, 1935, pantff fed a cam for
the refund of the sum of 544.59 so pad by hm whch the Commssoner re|ected
on une 19, 1985. The pantff thereafter brought the present sut.
Other facts whch may be matera appear n the stpuaton of facts fed
by the partes whch s ncorporated heren by reference.
The queston presented by these facts s whether n the nonta abe reorganza-
ton of 1929 0 per cent of the post-1913 accumuated earnngs of the od com-
pany were transferred to the new company so as to consttute ts earnngs
wthn the meanng of secton 115(a) of the Revenue ct of 1932. The secton
In queston provdes that the term dvdend means any dstrbu-
ton made by a corporaton out of ts earnngs or profts accumuated
after ebruary 28, 1913.
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115, rt. 21.
242
If such accumuated profts of the od company, amountng to more than
1,234,800, were transferred to the new company and became Its earnngs and
profts, t necessary foows from the facts of the case that a the dvdends
receved by the pantff n 1932 were pad out of the earnngs or profts of the
new company and were, therefore, fuy ta abe as dvdends. If on the other
hand no part of the accumuated earnngs of the od company became earnngs
or profts of the new company then ony 1 . 5 per cent of the dvdends receved
by the pantff from the new company In 1932, or 233.10, represented ta abe
dvdends pad out of profts and the baance of the dvdends, amountng to
1,1 0.90, must be hed to represent a dstrbuton not out of profts whch under
paragraph (d) of secton 115 of the Revenue ct s to be apped n reducton
of the cost bass of the stock.
Were a porton of the accumuated earnngs of the od company transferred
In the reorganzaton to the new company so as to become ts earnngs for
dvdend purposes If ths queston were open, I woud, n accord wth the vews
aby e pressed by Member Lansdon of the oard of Ta ppeas n hs dssent-
ng opnon n Crocker v. Commssoner (29 . T. ., 773, 778), be ncned to
answer t n the negatve. Certany the anguage of paragraph (a) of secton
115 that the term dvdend means any dstrbuton made by a
corporaton out of ts earnngs or profts accumuated after ebruary
28, 1913, woud seem to refer to profts earned by the company n queston.
urthermore It woud appear that paragraph (d) of secton 115 makes e press
provson for a dstrbuton by a corporaton whch s not out of ts earnngs or
profts, and I fnd no provson n the ct e pressy authorzng the Comms-
soner to dsregard the corporate enttes to the e tent necessary to treat as
earnngs of the new company what s to t unquestonaby capta f ts corporate
entty s to be preserved.
owever, ths queston Is not open, for It has been squarey rued In favor
of the Government by the Crcut Courts of ppeas for the Second, fth, and
Nnth Crcuts and by the oard of Ta ppeas. (Commssoner v. Sansome,
0 . (2d), 931 (C. C. . 2) Ct. D. 07, C. . I-2, 175 (1932) , certorar dened,
287 U. S., 07 ncd States v. auffmann, 2 . (2d), 1045 (C. C. . 9) aker
v. Commssoner, 80 . (2d), 813 (C. C. . 2) Ct. D. 113 , C. . -2, 250
(193 ) urchson s state v. Commssoner, 7 . (2d), 41, 42 (C. C. . 5)
arter v. evcrng, 79 . (2d), 12 (C. C. . 2) Crocker v. Commssoner, 29
. T. ., 773.) Whe t has not been drecty passed on n ths crcut I am
constraned by the authorty of the cases cted to hod that the capta and surpus
receved by the new company n ths case ncuded earnngs or profts whch were
ts wthn the meanng of secton 115(a) athough earned by ts predecessor.
It s true that each of the cted cases nvoved a reorganzaton n whch the
od company, whose earnngs were hed to be transferred, dvested tsef of a
of ts assets and went out of busness, whe n the present case the od company
dvested tsef of ony 0 per cent of ts assets and contnued n busness wth
ts remanng property. The Government contends, however, that havng trans-
ferred 00 per cent of ts assets n a nonta abe reorganzaton, 0 per cent of ts
accumuated earnngs were necessary transferred aso. The Government ponts
to the fact that up to the end of 1982 the new company had dstrbuted n dv-
dends over 1,000,000 n e cess of ts own earnngs. Under these crcumstances
I thnk that the rue ad down n the cases to whch I have referred appes and
that earnngs n e cess of 1,234,S0() were transferred to the new company n
the reorganzaton. Certany the rue competey dsregards both corporate form
and fnanca condton as refected by the corporate books. It has regard ony
for the reates of the stuaton. ere the new company s actons ndcate that
t accepted the reaty of the transfer of earnngs as a bass for the payment of
dvdends. I accordngy hod under the facts of ths case, that the dvdends
pad to the pettoner n the year 1032 by the new company were pad n whoe
from ts earnngs or profts and were, therefore, ta abe dvdends wthn the
meanng of the Revenue ct of 1932. Consequenty the acton of the Comms-
soner n assessng and coectng an ncome ta upon these dvdends was proper
and the pantff s not entted to the refund thereof.
The four dstrbutons totang 1,400 made by Westmoreand, Incorporated, to
pantff n the year 1932 were n whoe dvdends wthn the meanng of secton
115(a) of the Revenue ct of 19 2 and were ta abe as such.
The addtona ncome ta for the year 1932, amountng wth nterest to
o44 pad by the pantff on October 5, 1934, n respect of these dvdends was
awtuy assessed and coected.
The pantff s not entted to recover the sum of 544.59 from the defendant
I accordngy fnd n favor of the defendant and aganst the pantff.
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243 11 , rt. 43.
S CTION 11 . CLUSIONS ROM GROSS INCOM .
rtce 42: Income of States.
R NU CT O 1932.
Ta abty of ncome derved by a essee ta payer under a ease
of State schoo ands. (See Mm. 4755, page 179.)
rtce 43: Compensaton of State offcers and empoyees.
R NU CT O 1932.
mendment of Reguatons 77, artce 43. (See T. D. 4787, page
181.)
rtce 43: Compensaton of State offcers and 1938-12-9248
empoyees. Ct D. 131
INCOM T R NU CTS O 1928 ND 1932 D CISION O SUPR M
COURT.
Income empton Compensaton Pad to Persons pponted
by State Offcers.
The edera Government has the power to ta compensaton pad
to persons apponted by State offcers, pursuant to statute, for serv-
ces rendered as qudators and attorneys for Insovent bankng
and Insurance corporatons, where the compensaton s pad from
corporate assets and not from funds beongng to the State. emp-
ton from edera ta aton does not e tend to every nstrumentaty
whch the State may see ft to empoy but depends upon the nature
of the undertakng.
Supreme Court or the Unted States.
128. Ouy T. everng, Commssoner of Interna Revenue, pettoner, v.
ohn . Therre, aso known as . . Therre.
129. Guy T. everng, Commssoner of Interna Revenue, pettoner, v.
Wam . Tunncffe.
Certorar to the Unted States Crcut Court of ppeas for the fth Crcut.
287. dward McLoughn, pettoner, v. Commssoner of Interna Revenue.
Certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
597. Ouy T. everng, Commssoner of Interna Revenue, pettoner, v.
Carence . reedman.
Certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut.
303 U. S., 218.
ebruary 28, 1938.
opnon.
Mr. ustce McReyno| b devered the opnon of the Court
as the edera Government power to ta compensaton pad to attorneys
and others out of corporate assets for necessary servces rendered about the
qudaton of an nsovent corporaton by a State offcer proceedng as requred
by her statutes
The opnons beow state the essenta facts not n dspute make adequate
references to the reevant statutory provsons and cte numerous authortes.
No. 128. Under orda statutes when a bank becomes Insovent The State
comptroer may appont a qudator sub|ect to dsmssa to take charge
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11 , rt. 43. 244
of the assets and affars of such bank who, under the drecton and
supervson of the comptroer, sha take possesson of the books and records
and assets of every descrpton and In hs name sha sue for and
coect a debts and cams beongng to t, and upon the order of the court of
competent ursdcton may se or compound a bad or doubtfu debts and on
ke order may se a rea and persona property and sue for and
enforce the ndvdua abty of the stockhoders. e sha pay a money
receved by hm to the State treasurer to be hed as a speca depost
sha make quartery reports, or when caed upon, to the comptroer. The
appontment must foow notce and be confrmed by the crcut court. Lquda-
ton e penses are payabe out of the corporate funds hed by the treasurer.
The compensaton of the qudator sha be f ed by the comptroer and sha
be based upon the amount of work actuay and necessary performed, and sha
n no case e ceed 5 per cent of the cash coected.
Respondent Therre, qudator for severa banks, devoted substantay a
hs tme to the work. e hed no commsson from the governor, took no oath
of offce but was formay apponted by the comptroer and gave bond. s
compensaton, for 1931 and 1932, pad from corporate assets, was assessed by
the Commssoner for edera Income ta es. The oard of Ta ppeas ap-
proved but the crcut court of appeas found Immunty under the edera
Consttuton.
No. 129. Respondent Tunncffe, qudator of nsovent banks apponted by
the comptroer of orda, was assessed for edera ncome ta es upon the sums
receved for servces durng 1931 and 1932. The oard of Ta ppeas approved
the crcut court of appeas rued otherwse upon ts opnon n No. 128. oth
causes present the same ponts.
No. 287. Pettoner McLoughn was empoyed by the nsurance department of
New York as ega counse n the qudaton bureau and receved for servces
durng 1932, 5,125. Ths bureau s n charge of a deputy superntendent of
nsurance a cv servce empoye whose saary Is pad by the State. It empoys
many persons superntendents, attorneys, bookkeepers, stenographers, ad|ust-
ers, accountants, etc.
Under the statutes the superntendent may appy to the court for an order
to take over the assets of an nsovent nsurance company and qudate ts
affars. When ths ssues the corporate charter s dssoved and the supern-
tendent must proceed to coect assets, ad|ust cams, etc. e determned pet-
toner s compensaton and caused It to be pad from assets of the severa com-
panes n qudaton accordng to the tme devoted to each.
The Commssoner assessed ths compensaton for edera ncome ta the
oard of Ta ppeas approved. The crcut court of appeas affrmed, and
defntey hed t was not e empted by the edera Consttuton.
No. 597. reedman, empoyed as an attorney n Pennsyvana s department
of |ustce, receved annua saary of 3,000. The attorney genera has power to
appont attorneys to represent any department, board or commsson of the State
and f ther compensaton. The secretary of bankng has broad powers over
banks. When one becomes unsound he may, after notce and hearng and wth
the attorney genera s consent, take possesson and wnd up ts affars.
necessary e penses, ncudng compensaton of attorneys, speca deputes, assst-
ants and others empoyed about the proceedngs, are pad from funds of the
corporaton.
Durng 1932 the respondent was assgned for ega work reatng to cosed
banks and was pad by the secretary of bankng out of ther funds. The Com-
mssoner assessed the sum so receved for edera ncome ta . The oard of
Ta ppeas approved the crcut court of appeas decared the saary e empt.
What mtatons does the edera Consttuton mpose upon the Unted
States n respect of ta ng nstrumentates and agences empoyed by a State
and. conversey, how far does t nhbt the States from ta ng nstrumentates
and agences utzed by the Unted States, are questons often consdered here.
McCuoch v. Maryand (1819), 4 Wheat., 31 Weston v. Cty of Chareston
(1829), 2 Pet., 449: Dobbns v. The Commssoners of re, 1 Pet., 435 Lane
County v. Oregon, 7 Wa., 71 caze ank v. cnno, 8 Wa., 533, 55 South
Carona v. Unted States, 199 U. S., 437, 457 Metcaf t ddy v. Mtche, 2 0
U. S., 514 T. D. 3824, C. . -, 218 (192 ) Indan Motocyce Co. v. Unted
tatcs, 283 U. S., 570 Ct. D. 354, O. . -, 439 (1931) urnet v. crgns
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11 , rt. 43.
Trust, 288 U. S., 08, 51 Ct D. 53, C. . II-1, 214 (1933) Oho v. er
m g, 292 U. S., 8 0, 3 8 Ct. D. 83 , C. . III-1, 531 (1934) everng v.
Powers, 293 U. S., 214 Ct. D. 900, C. . III-2, 213 (1934) Rogers v. Graves,
299 U. S., 401 rush v. Commssoner, 300 U. S., 352 Ct. D. 1212, C. . 1937-1,
217 .)
The Consttuton contempates a Natona Government free to use ts dee-
gated powers aso State governments capabe of e ercsng ther essenta
reserved powers both operate wthn the same terrtora mts consequenty
the Consttuton tsef, ether by word or necessary nference, makes adequate
provson for preventng confct between them.
mong the nferences whch derve necessary from the Consttuton are
these: No State may ta approprate means whch the Unted States may
empoy for e ercsng ther deegated powers the Unted States may not ta
nstrumentates whch a State may empoy n the dscharge of her essenta
governmenta dutes- that s those dutes whch the framers ntended each
member of the Unon woud assume n order adequatey to functon under the
form of government guaranteed by the Consttuton.
y defnton precsey to demt deegated powers or essenta govern-
menta dutes s not possbe. Controverses nvovng these terms must be
decded as they arse, upon consderaton of a the reevant crcumstances.
Notwthstandng dscordant vews whch have sometmes arsen because of vary-
ng emphass gven to one or another of such crcumstances, t s now setted
doctrne that the nferred e empton from edera ta aton does not e tend to
every nstrumentaty whch a State may see ft to empoy. empton depends
upon the nature of the undertakng t s cabned by the reason whch underes
the nference.
eoze ank v. enno, supra, sustaned a ta ad by the edera Govern-
ment upon notes ssued by State banks, notwthstandng the vew entertaned
by two ustces that t amounted to ta aton of the powers aud facutes of
the State governments, whch are essenta to ther soveregnty, and to the
effcent and ndependent management and admnstraton of ther nterna
affars.
South Carona v. Unted States, supra, gave occason for much consderaton
of the edera Government s power to ta nstrumentates utzed by a State.
It rued, aganst a stout dssent, that athough South Carona had the rght
to contro the sae of quors through the dspensary system nevertheess Con-
gress coud ta the dspensers who acted as agents of the State n makng saes.
Lookng, therefore, at the Consttuton n the ght of the condtons surround-
ng at the tme of ts adopton, t s obvous that the framers In grantng fu
power over cense ta es to the Natona Government meant that that power
shoud be compete, and never thought that the States by e tendng ther func-
tons coud practcay destroy t
urnet v. ergns Trust, supra, uphed a edera ta upon the recepts by the
essee of o ands whch beonged to the cty of Long each, Caf. The sub-
|ect of the ta s so remote from any governmenta functon as to render tho
effect of the e acton nconsderabe as respects the actvtes of the cty.
In Oho v. everng, supra, we hed that the agences and operatons of the
State of Oho n the conduct of ts department of quor contro were sub|ect to
e cse ta es prescrbed by Congress. Whenever a State engages In a busness
of a prvate nature It e ercses nongovernmenta functons and the busness,
though conducted by the State, s not mmune from the e ercse of the power
of ta aton whch the Consttuton vests n the Congress.
everng v. Powers, supra, rued that the compensaton of members of the
board of trustees of the oston evated Raway Co. was sub|ect to the ed-
era ncome ta notwthstandng they were apponted by the governor of the
State, confrmed by the counc, and endowed wth arge powers to reguate and
f fares, etc. The fact that the State has power to undertake such enterprses,
and that they are undertaken for what the State conceves to be the pubc
beneft, does not estabsh mmunty.
The cases ast referred to strkngy ustrate the outcome of efforts here
U) appy the recognzed doctrne n respect of ta ng State agences. ccordng
to them and others of ke nature due weght, we are unabe to concude that
the Commssoner erred n makng any one of the assessments nvoved n the
four cases presenty before us. e gave proper appcaton to the rue whch
we must recognze as estabshed. The compensaton of the ta payers was pad
from corporate assets not from funds beongng to the State. No one of them
was an offcer of the State n the strct sense of that term. The busness about
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11 , rt. 43.
24
whch they were empoyed was not one utzed by the State n the dscharge of
her essenta governmenta dutes. The corporatons n qudaton were prvate
enterprses ther funds were the property of prvate ndvduas.
It foows that the |udgments n Nos. 128, 129, and 597 must be reversed the
udgment n No. 287 must be affrmed.
rtce 43: Compensaton of State offcers and empoyees.
R NU CT O 1932.
Ta abty of compensaton receved by offcers and empoyees of
a State or potca subdvson. (See Mm. 3838, revsed, page 181.)
rtce 43: Compensaton of State offcers 1938-24-9385
and empoyees. Ct. D. 1343
ncome ta revenue act of 1932 decson of supreme court.
Income empton Saares of mpoyees of Port of New York
uthorty State Instrumentaty Consttutonaty of
Ta .
The mposton of a edera ncome ta for the caendar years
1932 and 1933 on saares receved by empoyees of the Port of New
York uthorty, a b-State corporaton created by compact between
New York and New ersey and approved by Congress, to acqure
and operate any termna or transportaton facty wthn a
specfed dstrct yng party wthn each State, does not pace an
unconsttutona burden upon those States. The ta nether pre-
cudes nor threatens unreasonaby to obstruct any functon essen-
ta to the contnued e stence of the State governments. So much
of the burden of the ta ad upon the empoyees ncome as may
reach the States s but a necessary ncdent to the coe stence
wthn the same organzed government of the two ta ng sov-
eregns, and hence s a burden the e stence of whch the Const-
tuton presupposes. The mmunty, f aowed, woud mpose to
an nadmssbe e tent a restrcton upon the ta ng power whch
the Consttuton has granted to the edera Government. (The
Court e presses no opnon whether a edera ta may be mposed
upon the port authorty tsef wth respect to ts recept of Income
or ts other actvtes.)
Supreme Court of the Unted States.
Guy T. evcrng, Commssoner of Interna Revenue, pettoner, . Php L.
Gerhardt.
Guy T. Ueverng, Commssoner of Interna Revenue, pettoner, y. ngs
WUson.
Guy T. Ueverng, Commssoner of Interna Revenue, pettoner, v. ohn .
Mucahy.
304 U. S., 405.
On wrts of certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
May 23, 1938.
opnon.
Mr. ustce Stone devered the opnon of the Court.
The queston for decson s whether the mposton of a edera ncome ta
for the caendar years 1932 and 1933 on saares receved by respondents, as
empoyees of the Port of New York uthorty, paces an unconsttutona burden
on the States of New York and New ersey.
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11 , rt. 43.
The port authorty s a b-State corporaton, created by compact between
Sew York and New ersey (Laws of New York, 1921, ch. 154 Laws of New
ersey, 1821, ch. 151), approved by the Congress of the Unted States by |ont
resouton of ugust 23, 1921 (ch. 77, 42 Stat, 174). The compact authorzed
the authorty to acqure and operate any termna or transportaton facty
wthn a specfed dstrct embracng the Port of New York and yng partay
wthn each State. It drected the authorty to recommend a comprehensve
pan for mprovng the port and factatng ts use, by the constructon and
operaton of brdges, tunnes, termnas and other factes. The authorty
made such a recommendaton n ts report of December, 1921, adopted by the
two States n 1922. (Laws of New York, 1922, ch. 43 Laws of New ersey,
1922, ch. 9.)
In conformty to the pan, and pursuant to further egsaton of the two
States, the authorty has constructed the Outerbrdge Crossng rdge, the
Goethas rdge, the ayonne rdge, and the George Washngton rdge, nter-
state vehcuar brdges a passng over waters of the harbor or ad|acent to t.
It has aso constructed the oand Tunne and the Lncon Tunne, nterstate
vehcuar tunnes passng under the udson Rver. These enterprses were
fnanced n arge part by funds advanced by the two States and by the port
authorty s ssue and sae of ts bonds. In addton, the authorty operates an
nterstate bus ne over the Goethas rdge. It has erected and operates the
Port uthorty Commerce udng n New York Cty, whch houses Inand
Termna No. 1, devoted to use as a freght termna n connecton wth a pan
to coordnate transportaton factes and reduce congeston. The termna
has no physca connecton wth any raroad factes, dock or per, but s used
as a transfer termna for nterchange of freght brought by truck from and
to the termna and to and from eght raroad termnas.
The port authorty coects tos for the use of the brdges and tunnes, and
derves ncome from the operaton of the bus ne and termna budng, but t
has no stock and no stockhoders, and s owned by no prvate persons or
corporatons. Its pro|ects are a sad to be operated n behaf of the two States
and n the nterests of the pubc, and none of ts profts nure to the beneft of
prvate persons. Its property and the bonds and other securtes Issued by It
are e empt by statute from State ta aton. The |ont resouton of Congress
consentng to the comprehensve pan of port mprovement, Pubc Resouton
No. , S ty-seventh Congress, ouse ont Resouton No. 337, uy 1, 1922,
decares that the actvtes of the port authorty under the pan w the
better promote and factate commerce between the States and between the
States and foregn natons and provde better and cheaper transportaton of
property and ad n provdng better posta, mtary, and other servces of
vaue to the Naton. Statutes of New York and New ersey reatng to the
varous pro|ects of the port authorty decare that they are n a respects
for the beneft of the peope of the two States, for the Increase of ther com-
merce and prosperty, and for the mprovement of ther heath and vng con-
dtons, and the port authorty sha be regarded as performng a governmenta
functon In undertakng the sad constructon, mantenance and operaton and
In carryng out the provsons of aw reatng to the sad (brdges and tunnes)
and sha be requred to pay no ta es or assessments upon any of the property
acqured by It for the constructon, operaton and mantenance of such brdges
and tunnes. (Laws of New ersey, 1925, ch. 37, secton 7 Laws of New York,
1925, ch. 210, secton 7 Laws of New ersey, 192 , ch. , secton 7 Laws of
New York, 192 , ch. 7 1, secton 7 Laws of New ersey, 1927, ch. 3, secton 7
Laws of New York, 1927, ch. 300, secton 7 Laws of New ersey, 1931, ch. 4,
secton 14 Laws of New York, 1931, ch. 47, secton 14.)
The respondents, durng the ta abe years n queston, were respectvey a
constructon engneer and two assstant genera managers, empoyed by the
authorty at annua saares rangng between 8,000 and 15,000. took oaths
of offce, athough nether the compact nor the reated statutes appear to have
created any offce to whch any of the respondents were apponted, or defned
ther dutes or prescrbed that they shoud take an oath. The severa re-
spondents havng faed to return ther respectve saares as ncome for the ta -
abe years n queston, the Commssoner determned defcences aganst them.
The oard of Ta ppeas found that the port authorty was engaged n the
performance of a pubc functon for the States of New York and New ersey,
and rued that the compensaton receved by the authorty s empoyees was
e empt from edera ncome ta . The Court of ppeas for the Second Crcut
affrmed wthout opnon on the authorty of rush v. Commssoner (85 . (2d),
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248
32, aff d, 300 U. S., 352 Ct. D. 1212, C. . 1937-1, 217 ) Commssoner v.
Ten yek (7 . (2d) 515), and New York ear re. Rogers v. Graves (299 U. S.,
401). We granted certorar because of the pubc Importance of the queston
presented. ( U. S., .)
The Consttuton contans no e press mtaton on the power of ether a
State or the Natona Government to ta the other, or ts nstrumentates.
The doctrne that there s an mped mtaton stems from McCuoch v.
Maryand (4 Wheat., 31 ), n whch t was hed that a State ta ad spe-
cfcay upon the prvege of ssung bank notes, and n fact appcabe aone
to the notes of natona banks, was nvad snce t mpeded the Natona
Government n the e ercse of ts power to estabsh and mantan a bank,
mped as an ncdent to the borrowng, ta ng, war and other powers spe-
cfcay granted to the Natona Government by rtce I, secton 8 of the
Consttuton. It was hed that Congress, havng power to estabsh a bank
by aws whch, when enacted under the Consttuton, are supreme, aso had
power to protect the bank by strkng down State acton mpedng ts opera-
tons and t was thought that the State ta n queston was so nconsstent
wth Congress s consttutona acton n estabshng the bank as to compe
the concuson that Congress ntended to forbd appcaton of the ta to the
edera bank notes.1 (Cf. Osborn v. ank of the Unted States, 9 Wheat.,
738, 8 5-8 8.)
In sustanng the Immunty from State ta aton, the opnon of the Court, by
Chef ustce Marsha, recognzed a cear dstncton between the e tent of the
power of a State to ta natona banks and that of the Natona Government
to ta State nstrumentates. e was carefu to pont out not ony that
the ta ng power of the Natona Government s supreme, by reason of the
consttutona grant, but that In ayng a edera ta on edera nstru-
mentates the peope of the States, actng through ther representatves, are
ayng a ta on ther own nsttutons and consequenty are sub|ect to potca
restrants whch can be counted on to prevent abuse. State ta aton of na-
tona nstrumentates s sub|ect to no such restrant, for the peope out-
sde the State have no representatves who partcpate n the egsaton and
n a rea sense, as to them, the ta aton s wthout representaton. The e -
ercse of the natona ta ng power s thus sub|ect to a safeguard whch does
not operate when a State undertakes to ta a Natona nstrumentaty.
It was perhaps enough to have supported the concuson that the ta was n-
vad, that t was amed specfcay at natona banks and thus operated to
dscrmnate aganst the e ercse by the Congress of a natona power. Such
dscrmnaton was ater recognzed to be n tsef a suffcent ground for hodng
nvad any form of State ta aton adversey affectng the use or en|oyment of
edera nstrumentates. (Mer v. Mwaukee, 272 U. S., 713 cf. The Paefc
Co., Ltd., v. ohnson, 285 U. S., 4S0, 493.) ut ater cases have decared that
edera nstrumentates are smary mmune from nondscrmnatory State
ta aton from the ta aton of obgatons of the Unted States as an nterference
1 It foows that n consderng the mmunty of edera Instrumentates from State
ta aton two factors may be of mportance whch are ackng In the case of a camed
mmunty of State Instrumentates from edera ta aton. Snce the cts of Congress
wthn ts consttutona power are supreme, the vadty of State ta aton of edera
nstrumentates must depend (a) on the power of Congress to create the nstrumentaty
and ( ) Its ntent to protect t from State ta aton. Congress may curta an mmunty
whch mght otherwse be mped ( an en v. The fsensors, 3 Wa.. 573). or enarge
t beyond the pont where. Congress beng sent, the Court woud set ts mts. ( ank
v. Supervsor , 7 Wa., 20, 30, 31 see Thomson v. Pacfc Raroad, 9 Wa., 79, 588,
590 Shaw v. oton- /.ahnser O Corporaton, 27 U. 8., 575, 581, and cases cted
kones v. Dravo Contract Inn Co., 302 T . S.. 134, 1 1.)
The anayss s comparabe where the queston Is whether edera corporate Instru-
mentates are mmune from state |udca process. ( edera Land ank v. Prddy,
295 D. S.. 229. 234-235.)
The peope of a the States have created the Genera Government, and have conferred
upon t the genera power of ta aton. The peope of a the States, and the States them-
seves, are represented n Congress, and, by ther representatves, e ercse ths power.
When they ta the chartered nsttutons of the States, they ta ther consttuents and
these ta es must be unform. ut, when a State ta es the operatons of the Government
of the Unted States, It acts upon nsttutons created, not by ther own consttuents, but
by peope over whom they cam no contro. It acts upon the measures of a Government
created by others as we as themseves, for the beneft of others n common wth them-
seves. The dfference Is that whch aways e sts, and aways must e st, between the
acton of the whoe on a part, and the acton of a part on the whoe between the aws
of a government decared to be supreme, and those of a government whch, when In
opposton to those aws. Is not supreme. (Chef ustce Marsha In McCuoch v.
Maryand, 4 Wheat., 310, 435-43 .)
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249
I 11 , rt. C43.
wth the borrowng power (Wetton v. Chareston, 2 Pet., 449) and from a ta on
offces eved upon the offce of a captan of a revenue cutter. (Dobbns v.
re County, 1 Pet, 435. )s
That the ta ng power of the edera Government s nevertheess sub|ect to
an mped restrcton when apped to State nstrumentates was frst decded
n Coector v. Day (11 Wa., 113), where the saary of a State offcer, a probate
|udge, was hed to be mmune from edera ncome ta . The queston there
presented to the Court was not one of nterference wth a granted power n a
fed n whch the edera Government s supreme, but a mtaton by mpca-
ton npon the granted edera power to ta . In recognzng that mpcaton for
the frst tme, the Court was concerned wth the contnued e stence of the State
as governmenta enttes, and ther preservaton from destructon by the Natona
ta ng power. The Immunty whch t mped was sustaned ony because It
was one deemed necessary to protect the States from destructon by the edera
ta aton of those governmenta functons whch tey were e ercsng when the
Consttuton was adopted and whch were essenta to ther contnued e stence.
The Court ponted out that the States were n e stence as such enttes when
the Consttuton was adopted that the Consttuton guaranteed to them a repub-
can form of government and undertook to protect them from nvason and
domestc voence that t presupposes the contnued e stence of the States
and ther contnued performance, free of nhbton by the natona ta ng power,
of the hgh and responsbe dutes assgned to them n the Consttuton .
nd, more especay, those means and nstrumentates whch are the creaton of
ther soveregn and reserved rghts, one of whch s the estabshment of the
|udca department, and the appontment of offcers to admnster ther nws.
Wthout ths power, and the e ercse of t, the Court decared, we rsk noth-
ng n sayng that no one of the States under the form of government guaranteed
by the Consttuton coud ong preserve ts e stence. despotc government
mght. We have sad that one of the reserved powers was that to estabsh
a |udca department . of the 13 States were n the possesson of
ths power, and had e ercsed t at the adopton of the Consttuton and It s
not pretended that any grant of t to the Genera Government s found n that
nstrument. (11 Wa., 125, 128.)
We need not stop to nqure how far, as ndcated n MrCuorh v. Maryand,
supra, the mmunty of edera nstrumentates from State ta aton rests on
a dfferent bass from that of State nstrumentates or whether or to what
degree t s more e tensve. s to those questons, other consderatons may be
controng whch are not pertnent here. It s enough for present purposes that
the State mmunty from the natona ta ng power, when recognzed n Coector
v. Day, supra, was narrowy mted to a State |udca offcer engaged n the
performance of a functon whch pertaned to State governments at the tme
the Consttuton was adopted, wthout whch no State coud ong preserve ts
e stence.
There are cogent reasons why any consttutona restrcton upon the ta ng
power granted to Congress, so far as t can be propery rased by mpcaton,
shoud be narrowy mted. One, as was ponted out by Chef ustce Marsha
In those cases, and partcuary In Wetton v. Chareston (2 Pet.. 449), as In UrCuoch
. Maryand, emphass was ad on the fact that by State acton an Impedment was
ad upon the p erd.se of a power wth respect to whch the Natona Government was
supreme. In Weston t. Chareston, snpra. Chef ustce Marsha sad (pages 405, 400) :
Can anythng be more dangerous, or more In|urous, than the admsson of a prncpe
whch authorzes every State and every corporaton In the Unon whch possesses the
tght of ta aton, to burthen the e ercse of ths power (the borrowng power) at ther
dscreton
If the rght to Impose the ta e sts, It Is a rght whch In ts narnre acknowedges
no mts. It may be carred to any e tent wthn the |ursdcton of the State or cor-
poraton whch mposes t, whch the w of each State and corporaton may prescrbe.
power wh h s gven by the whoe mercan peope for ther common food, whch s
to be e ercsed at the most-crtca perods for the most Important purposes, on the free
e ercse of whch the Interests certany, perhaps the berty of the whoe may depend
ar be burthened, mpeded, f not arrested by any of the organzed parts of the confed-
eracy. (Compare omes, ., n Panhande O Co. . no , 277 D. S., 218. 223.)
In 1S71, when Coector v. Day was decded, the Court had not yet been caed on
to determne how far the Cv War amendments had broadened the edera power at
the e pense of the States. The Saughterhouse Cases (1 Wa,, 30). had not yet been
decded, athough they bad aready been once before the Court on moton for supersedeas.
I0 Wa., 141.) The fact that the ta ng power had recenty been used wth destructve
eect upon a State Instrumentaty ( eaze, ank v. enno (8 Wa., 533) had suggested
the possbty of smar attacks upon the e stence of States themseves. (Compare
Lane County v. Oregon, 7 Wa., 71, 70-77 Saughterhouse Cases, 10 Wa.. 3 , 82.)
83421 38 9
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11 , rt. 43.1
250
In McCuoch v. Maryand, supra, 435-43 , and Weston y. Chareston, supra, 4 5-
4 , s that the peope of a the States have created the Natona Government
and are represented In Congress. Through that representaton they e ercse
the Natona ta ng power. The very fact that when they are e ercsng t they
are ta ng themseves, serves to guard aganst Its abuse through the possbty
of resort to the usua processes of potca acton whch provdes a reader and
more adaptabe means than any whch courts can afford, for securng accommo-
daton of the competng demands for Natona revenue, on the one hand, and for
reasonabe scope for the ndependence of State acton, on the other.
nother reason rests upon the fact that any aowance of a ta mmunty for
the protecton of State soveregnty s at the e pense of the soveregn power of
the Naton to ta . nargement of the one nvoves dmnuton of the other.
When enargement proceeds beyond the necessty of protectng the State, he
burden of the mmunty s thrown upon the Natona Government wth beneft
ony to a prveged cass of ta payers. (See Metcaf t ddy v. MtcheU, 2 9
U. S., 514 T. D. 3824, C. . -, 238 (192 ) cf. Thomson v. Pacfc Raroad,
9 Wa., 579, 588, 590.) Wth the steady e panson of the actvty of State
governments nto new feds they have undertaken the performance of functons
not known to the States when the Consttuton was adopted, and have taken over
the management of busness enterprses once conducted e cusvey by prvate
ndvduas sub|ect to the Natona ta ng power. In a compe economc socety
ta burdens ad upon those who drecty or ndrecty have deangs wth the
States, tend, to some e tent not capabe of precse measurement, to be passed
on economcay and thus to burden the State government tsef. ut f every
edera ta whch s ad on some new form of State actvty, or whose economc
burden reaches n some measure the State or those who serve t, were to be set
asde as an nfrngement of State soveregnty, t s evdent that a restrcton
upon Natona power, devsed ony as a shed to protect the States from cur-
tament of the essenta operatons of government whch they have e ercsed
from the begnnng, woud become a ready means for strkng down the ta ng
power of the Naton. (See South Carona v. Unted States, 199 U. S., 437,
454-455.) Once mpared by the recognton of a State mmunty found to be
e cessve, restoraton of that power s not key to be secured through the
acton of State egsatures for they are wthout the nducements to act whch
have often persuaded Congress to wave Immuntes thought to be e cessve.8
In tact recognton of the mtaton whch the very nature of our edera
system mposes on State mmunty from ta aton n order to avod an ever
e pandng encroachment upon the edera ta ng power, ths Court has refused
to enarge the mmunty substantay beyond those mts marked out n Co-
ector v. Day, supra. It has been sustaned where, as n Coector v. Day, the
functon nvoved was one thought to be essenta to the mantenance of a
State government: as where the attempt was to ta ncome receved from the
nvestments of a muncpa subdvson of a State (Unted States v. Raroad Co.,
17 Wa., 322) to ta ncome receved by a prvate nvestor from State bonds,
and thus threaten mparment of the borrowng power of the State (PoI oc v.
armers Loan tt Trust Co., 157 U. S., 429 cf. Weston v. Chareston, supra,
4 5-4 ) or to ta the manufacture and sae to a muncpa corporaton of
equpment for ts poce force (Indan Motocyce Co. v. Unted States, 283 U. S.,
570 Ct. D. 354, C. . -, 439 (1931) ).
ut the Court has refused to e tend the mmunty to a State-conducted quor
busness (South Carona v. Unted States, supra Oho v. everng, 292 T . S.,
3 0 Ct.D.83 , C. . III-1, 531 (1934) ), or to a street raway busness
taken over and operated by State offcers as a means of effectng a oca pubc
pocy ( everng v. Powers, 293 U. S., 214 Ct D. 900, C. . III-2, 213 (1934) ).
It has sustaned the mposton of a edera e cse ta ad on the prvege
of e ercsng corporate franchses granted by a State to pubc servce com-
panes. ( nt v. Stone Tracy Co., 220 . S., 107, 157.) In each of these cases
t was ponted out that the State functon affected was one whch coud be
carred on by prvate enterprse, and that therefore t was not one wthout
whch a State coud not contnue to e st as a governmenta entty. The
mmunty has been st more narrowy restrcted n those cases where some
part of the burden of a ta , coected not from a State treasury but from
ndvdua ta payers, s sad to be passed on to the State. In these cases the
Compare notes 1 and 2, supra.
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2 )1
11 , rt. 043.
fanoton hns been ether hed or assumed to be of such n character that ts
performance by the State Is Immune from drect edera nterference yet the
ndvduas who personay derved proft or compensaton from ther empoyment
n carryng out the functon were deemed to be sub|ect to edera ncome ta .
In a perod marked by a constant e panson of government actvtes and
the steady mutpcaton of the compe tes of ta ng systems, t s perhaps
to much to e pect that the |udca pronouncements markng the boundares
of State mmunty shoud present a competey ogca pattern. ut they dscose
no purposefu departure from, and ndeed defntey estabsh, two gudng
prncpes of mtaton for hodng the ta mmunty of State nstrumentates
to Its proper functon. The one, dependent upon the nature of the functon
beng performed by the State or In ts behaf, e cudes from the mmunty
actvtes thought not to be essenta to the preservaton of State governments
even though the ta be coected from the State treasury. The State tsef was
ta ed for the prvege of carryng on the quor busness n South Carona v.
rntcd Sates, supra, and n Oho v. Ucverng, supra and a ta on the ncome
of a State offcer engaged n the management of a State-owned corporaton
operatng a street raroad was sustaned In evcrng v. Powers, supra, because
t was thought that the functons dscouraged by these ta es were not nds-
|ensabe to the mantenance of a State government. The other prncpe, e em-
pfed by those cases where the ta ad upon ndvduas affects the Stnte ony
as the burden s passed on to t by the ta payer, forbds recognton of the
mmunty when the burden on the State s so specuatve and uncertan that f
aowed t woud restrct the edera ta ng power wthout affordng any cor-
respondng tangbe protecton to the State government even though the func-
ton be thought mportant enough to demand mmunty from a ta upon the
State tsef, t s not necessary protected from a ta whch we may he
substantay or entrey absorbed by prvate persons. (Meteaf ddy v.
Mtche, supra Wcuts v. Dunn, 282 U. S., 21 .)
Wth these controng prncpes n mnd we turn to ther appcaton n the
crcumstances of the present case. The chaenged ta es ad under secton 22.
Revenue ct of 1932 (ch. 209, 47 Stat, 1 9, 178). are upon the net ncome of
respondents, derved from ther empoyment n common occupatons not shown
to be dfferent n ther methods or dutes from those of smar empoyees n
prvate ndustry. The ta payers en|oy the benefts and protecton of the aws
of the Unted States. They are under a duty to support ts Government and are
not beyond the reach of ts ta ng power. nondscrmnatory ta ad on
ther net ncome, n common wth that of a other members of the communty,
coud by no reasonabe probabty be consdered to precude the performance
of the functon whch New York and New ersey have undertaken, or to obstruct
t more than ke prvate enterprses are obstructed by our ta ng system. ven
though, to some unascertanabe e tent, the ta deprves the States of the
advantage of payng ess than the standard rate for the servces whch they
engage, t does not curta any of those functons whch have been thought
htherto to be essenta to ther contnued e stence as States. t most It may
be sad to Increase somewhat the cost of the State governments because, n an
The foowng casses of ta payers have been hed sub|ect to edera Income ta
notwthstandng Its possbe economc burden on the State: Those who derve Income or
profts from ther performance of State functons as Independent engneerng contractors
tfetrof rf ddy v. Mtche, 209 U. 8., 514 T. D. 3824, C. . -, 218 (192 ) ), or from
the resae of State bonds (Wcuts v. unn, 282 U. S., 21 Ct. D. 280, C. . -. 309
(1931)1) : those engaged as essees of the State In producng o from State ands, the
royates from whch, payabe to the State, are devoted to pubc purposes (Group o. 1
O Corporaton v. aas, 283 . S., 279 Ct, D. 330, C. . -, 153 (1931)1 urnet .
Ingnt Trust, 288 ( . S., 508 Ct. D. 053, C. . II-1, 214 (1933)1 No. 388, ankne
O Co. v r omm s(oner Ct. D. 1323, page 30 , ths uetn , and No. 00. Ucverng .
ouna Prodwcm Corporaton Ct. 1). 1321. page 343, ths uetn), both decded March
1938, overrung urnet v. Coronado O d Gas Co., 285 . S., 393). Smary
edera ta aton of property transferred at death to a State or one of Its muncpates
was uphed In Snyder v. ettman (190 U. S., 349), cf. Orener v. Lewefn (258 . S., 384
IT. U. I . . o, C. . 1-1, 4 7 (1922) ) and a edera ta on the transportaton of mreehan-
dse n performance of a contract to se and dever It to a county was sustaned In
Whreer Lumber rdge rf Suppy Co. . Unted States (281 D. S., 572 Ct T . 19 . C. .
I -2, 417 (1930) ): cf. Indan otocyce Co. v. Unted States (283 U. 8., 570).
edera e cse ta on corporatons, measured by ncome. Incudng Interest receved from
State bonds, was uphed n nt v. Stone Tracy Co. (220 U. S., 107. 1 2, et seq.) see
.Natona Lfe Insurance Co. . Unted States (277 U. S.. 508. 527 IT. D. 4200, ( . .
II-2, 29 (1928) ) compare the dscusson In ducatona ms Corporaton v. Ward
282 U. S, 379, 389), and In Pacfc Co., Ltd., v. ohnson (285 D. S., 480, 490).
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110, rt. 43.
252
nterdependent economc socety, the ta aton of ncome tends to rase (to some
e tent whch economsts are not abe to measure, see Indan Motocyce Co. v.
Unted States, supra, page 581, footnote 1) the prce of abor and materas.
The effect of the mmunty f aowed woud be to reeve respondents of ther
duty of fnanca support to the Natona Government, n order to secure to the
State a theoretca advantage so specuatve n ts character and measurement as
to be unsubstanta. ta mmunty devsed for protecton of the States as
governmenta enttes can not be pressed so far.
The fact that the e penses of the State government mght be essened f a
those who dea wth t were ta e empt was not thought to be an adequate
bass for ta Immunty n Metcaf f ddy v. Mtche, supra, n Group No. 1
O Corporaton v. ass (283 U. S., 279), n urnet v. ergns Trust (288 U. S.,
508) or n cverng v. Mountan Producers Corporaton, No. 00, decded March
7, 1938 Ct. D. 1321, page 343, ths uetn . When mmunty s camed from a
ta ad on prvate persons, t must ceary appear that the burden upon the
State functon s actua and substanta, not con|ectura. (Wcuts v. unn,
supra, 231.) The e tent to whch saares n busness or professons whose
standards of compensaton are otherwse f ed by compettve condtons may be
affected by the mmunty of State empoyees from ncome ta s to a hgh degree
con|ectura.
The bass upon whch consttutona ta mmunty of a State has been sup-
ported s the protecton whch t affords to the contnued e stence of the State.
To attan that end t s not ordnary necessary to confer on the State a com-
pettve advantage over prvate persons n carryng on the operatons of ts
government. There s no such necessty here, and the resutng mparment of
the edera power to ta argues aganst the advantage. The State and Natona
Governments must coe st. ach must be supported by ta aton of those who
are ctzens of both. The mere fact that the economc burden of such ta es
may be passed on to a State government and thus ncrease to some e tent, here
whoy con|ectura, the e pense of ts operaton, nfrnges no consttutona m-
munty. Such burdens are but norma ncdents of the organzaton wthn the
same terrtory of two governments, each possessed of the ta ng power.
Durng the present term we have hed that the compensaton of a State
empoyee pad from the State treasury for hs servce n qudatng an nsovent
corporaton, where the State was rembursed from the corporate assets, was sub-
|ect to ncome ta . (McLaughn v. Commssoner, No. 287, decded ebruary
28, 1938 Ct. D. 131 page 243, ths uetn .) ut the Court has never rued
e pressy on the precse queston whether the Consttuton grants mmunty from
edera ncome ta to the saares of State empoyees performng, at the e pense
of the State, servces of the character ordnary carred on by prvate ctzens.
The Revenue ct of 1917, consdered n Metcaf t ddy v. Mtche, supra, e -
empted the saares of a State empoyees from ncome ta . ut t was hed n
that case that nether the consttutona mmunty nor the statutory e empton
e tended to ndependent contractors. In rush v. Commssoner, supra, the
appcabe Treasury reguaton upon whch the Government reed e empted
from ncome ta the compensaton of State offcers and empoyees for
servces rendered n connecton wth the e ercse of an essenta governmenta
functon of the State. The soe contenton of the Government was that the
mantenance of the New York Cty water suppy system was not an essenta
governmenta functon of the State. The Government dd not attack the regu-
aton. No contenton was made by t or consdered or decded by the Court
that the burden of the ta on the State was so ndrect or con|ectura as to
be but an Incdent of the coe stence of the two governments, and therefore not
wthn the consttutona mmunty. If determnaton of that pont was mpct
n the decson t must be mted by what s now decded.
The pertnent provsons of the reguaton appcabe n the rush case
were contnued n Reguatons 77, artce 43, under the 1932 Revenue ct,
unt anuary 7, 1938, when they were amended to provde that Compensaton
receved for servces rendered to a State s to be ncuded n gross ncome
uness the person receves such compensaton from the State as an offcer or
empoyee thereof and such compensaton s mmune from ta aton under the
Upon fu consderaton, the same prncpe was recenty apped In ames v. Dravo
Contractng Co. (302 U. S., 134), athough the mtaton there was upon the mmunty of
the edera Government.
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11 , rt. G43.
Consttuton of the Unted States. The appcabe provsons of secton 110 of
the 1932 ct do not authorze the e cuson from gross ncome of the saares
of empoyees of a State or a State-owned corporaton. If the reguaton be
deemed to embrace the empoyees of a State-owned corporaton such as the
port authorty, t was unauthorzed by the statute. ut we thnk t pan that
empoyees of the port authorty are not empoyees of the State or a potca
subdvson of t wthn the meanng of the reguaton as orgnay promugated,
an addtona reason why the reguaton, even before the 1938 amendment, was
Ineffectua to e empt the saares here nvoved.
The reasonng upon whch the decson n Indan Motocyce Co. v. Unted
Statet, supra, was rested s not controng here. Ta aton of the sae to a
State, whch was thought suffcent to support the mmunty there, s not now
nvoved. Whether the actua effect upon the performance of the State functon
dffered from that of the present ta we do not now nqure. (Compare Wheeer
Lumber rdoe t Suppy Co. v. Unted Staes, 281 U. S., 572 Ct. 1). 12 , C. .
I -2, 417 (1930) .)
s was ponted out n Meteaf t ddy v. Mtche, supra, 524, there may be
State agences of such a character and so ntmatey assocated wth the per-
formance of an ndspensabe functon of State government that any ta aton of
t woud threaten such nterference wth the functons of government tsef as
to be consdered beyond the reach of the edera ta ng power. If the ta
consdered n Coector v. Day, supra, upon the saary of an offcer engaged n
the performance of an ndspensabe functon of the State whch can not be
deegated to prvate ndvduas, may be regarded as such an nstance, that
s not the case presented here.
pressng no opnon whether a edera ta may be mposed upon the port
authorty tsef wth respect to ts recept of ncome or ts other actvtes,
we decde ony that the present ta nether precudes nor threatens unrea-
sonaby to obstruct any functon essenta to the contnued e stence of the
State government. So much of the burden of the ta ad upon respondents
ncome as may reach the State s but a necessary ncdent to the coe stence
wthn the same organzed government of the two ta ng soveregns, and
hence s a burden the e stence of whch the Consttuton presupposes. The m-
munty, f aowed, woud mpose to an nadmssbe e tent a restrcton upon the
ta ng power whch the Consttuton has granted to the edera Government.
Reversed.
Mr. ustce Cabdozo and Mr. ustce Reed took no part n the consderaton
or decson of ths case.
M , USTIC L C , CONCURRING.
I agree that ths cause shoud be reversed for the reasons e pressed n that
part of the opnon |ust read pontng out that: respondents, though empoyees
of the New York Port uthorty, are ctzens of the Unted States the ta eved
upon ther Incomes from the authorty s the same as that pad by other ctzens
recevng equa net ncomes and payment of ths nondscrmnatory ncome ta
by respondents can not mpar or defeat n whoe or n part the governmenta
operatons of the State of New York. ctzen who receves hs ncome from a
State, owes the same obgaton to the Unted States as other ctzens who
draw ther saares from prvate sources or the Unted States and pay edera
ncome ta es.
Whe I beeve these reasons, wthout more, are adequate to support the ta ,
I fnd t dffcut to reconce ths resut wth the prncpe announced n Coector
v. Day (11 Wa., 113) and ater decsons appyng that prncpe. Ths eads
me to the concuson that we shoud revew and ree amne the rue based upon
Coector v. Day. That course woud ogcay requre the entre sub|ect of nter-
governmenta ta mmunty to be revewed n the ght of the effect of the
s teenth amendment authorzng Congress to evy a ta on ncomes from what-
ever source derved and, n that event, the decsons nterpretng the amend-
ment woud aso be ree amned.1
See rushaber v. Unon Pacfc R. R. Co. (2-10 U. S.. 1 T. D. 2290 ) : Peck f Co. v.
Love (247 D. S.. 1 5, 172 T. D. 2720 ) sner v. Maeomhrr (2.12 . S., ISO T. P. 3010,
C- . 3, 25 (1920) ) vans v. Core (253 U. S., 215 T. D. 3037. C. . 3, 93 (1920) ).
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11 . rt. 43.
254
rom tme to tme, ths Court has reed upon a doctrne evoved from Coector
v. Day, under whch ncomes receved from State actvtes thought by the Court
to be nonessenta are hed ta abe, whe ncomes from actvtes thought to be
essenta are hed nonta abe. The opnon of the Court n ths case refers to that
doctrne. ppcaton of ths test has created a zone of debatabe ground
wthn whch the cases must be put upon one sde or the other of the ne by
what ths Court has caed the gradua process of hstorca and |udca Incu-
son and e cuson. ( rush v. Commssoner, 300 U. S., 352, 3 5 Ct D. 1212,
C. . 1937-1, 217 .) Under ths rue the ta status of every State empoyee
remans uncertan unt ths Court passes upon the cassfcaton of hs partcu-
ar empoyment. The resut s a confuson n the fed of ntergovernmenta ta
Immunty whch I beeve coud be carfed by compete revew of the sub|ect.
Testng ta abty by |udca determnaton that State governmenta functons
are essenta or nonessenta, contrbutes much to the e stng confuson. I
beeve the present case affords occason for approprate and necessary abandon-
ment of such a test, partcuary snce recent decsons have aready sub-
stantay advanced toward a ree amnaton of the doctrne of ntergovernmenta
Immunty.
The present controversy ustrates the necessty for further ree amnaton.
New York created the port authorty wth power to engage n actvtes whch
that State beeved to be essenta. Yet, under ths test. New York s determna-
ton s not fna unt revewed n a ta tgaton between the Government and
a snge ctzen.
Conceptons of essenta governmenta functons vary wth ndvdua
phosophes. Some beeve that essenta governmenta functons ncude
ownershp and operaton of water pants, power and transportaton systems, etc.
Others deny that such ownershp and operaton coud ever be essenta govern-
menta functons on the ground that such functons coud be carred on by
prvate enterprse. edera Income ta eved aganst the manager of the
State-operated eevated raway company of oston was sustaned even though
ths manager was a pubc offcer apponted by the governor of Massachusetts
wth the advce and consent of the counc. On the other hand, the edera
Government was dened athough wth strong dssent the rght to coect an
ncome ta from the chef engneer n charge of New York Cty s muncpay
owned water suppy. n mped consttutona dstncton whch ta es ncome
of a offcer of a State-operated transportaton system and e empts ncome of the
manager of a muncpa waterworks system manfests the uncertanty created
by the essenta and nonessenta test.
There s not, and there can not be, any unchangng ne of demarcaton between
essenta and nonessenta governmenta functons. Many governmenta func-
tons of to-day have at some tme n the past been nongovernmenta. The genus
of our Government provdes that, wthn the sphere of consttutona acton, the
peope actng not through the courts but through ther eected egsatve
Representatves have the power to determne as condtons demand, what
servces and functons the pubc wefare requres.
Surey, the Consttuton contans no mperatve mandate that pubc empoyees
or others drawng equa saares (ncome) shoud be dvded nto ta payng
and nonta payng groups. Ordnary such a resut Is dscrmnaton. Un-
form ta aton upon those equay abe to bear ther far shares of the burdens
of government s the ob|ectve of every |ust government The anguage of the
s teenth amendment empowerng Congress to coect ta es on Incomes from
whatever source derved gven ts most obvous meanng Is broad enough
to accompsh ths purpose.
See ames v. The Dravo Contractng Co. (302 U. S., ) everng v. ahkne O
Co. (302 U. S.. ) I r verng v. Mountan Producers Corporaton (302 D. S., ) (over-
runs ae pe v. Okahoma (257 . 8., 501) and urnet v. Coronado OO f Gas Co. (285
U. S., 393) Ct. D. 485. C. . I-1, 2 5 (1932)
514)
S., 393) Ct. D. 485. C. . I-1. 2 5 (1932) ).
everng v. Powers (293 U S., 214, 222, 223) Ct. D. 900, C. . II1-2, 213 (1934)1.
rush v. Commssoner (300 U. S., 352) cf. Metcaf ddy v. Mtche (2 9 U. S.,
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131, rt. 93
SUPPL M NT C CR DITS G INST T .
S CTION 131. T S O OR IGN COUNTRI S ND
POSS SSIONS O UNIT D ST T S.
rtce 93: Condtons of aowance of credt. 1938-13-9259
( so Secton 23(c), rtce 151.) G. C. M. 19727
R NU CTS O 1932, 1934. ND 193 .
Where husband and wfe domced In n communty property
State fe separate ncome ta returns, ncome ta pad to a foregn
country wth respect to communty ncome consstng of the per-
sona earnngs of the husband may be dvded and credt for one-
haf thereof aowed to each spouse, sub|ect to the mtatons
contaned n secton 131(b) of the Revenue ct of 1932.
Income ta es pad to a foregn country shoud ether be aowed
as a credt aganst Unted States ncome ta , sub|ect to the mta-
tons contaned n secton 131 of the Revenue cts of 1932, 1934,
and 193 , or aowed as a deducton from gross ncome under secton
23(c) of those cts. Where the ta payer s rghts were unknown
to hm at the tme of fng hs return, the condton prescrbed n
the statute that he sgnfy n hs return hs desre to cam
such ta es as a credt s not appcabe. G. O. M. 13909 (C. .
III-2, 1 1 (1934)) revoked, and It s recommended that non-
acquescence n Raph Lese Raymond v. Commssoner (34 . T. .,
1171, C. . -2, 44 (193 )) be wthdrawn.
n opnon s requested (1) whether husband and wfe domced
n a communty property State n the year 1933 may, for the pur-
pose of the credt for foregn ncome ta es under secton 131 of the
Revenue ct of 1932, dvde foregn ncome ta es pad wth respect
to communty ncome consstng of the persona earnngs of the hus-
band, and (2) whether a ta payer shoud be dened a credt for
foregn ncome ta es where at the tme of fng hs edera ncome
ta return he dd not know of hs abty for such foregn ta es
and consequenty dd not sgnfy n hs return hs desre to cam
such ta es as a credt.
Ths offce s of the opnon that where husband and wfe domced
n a communty property State fe separate ncome ta returns the
ncome ta pad to a foregn country wth respect to communty n-
come consstng of the persona earnngs of the husband may be
dvded and credt for one-haf thereof aowed to each spouse, sub-
|ect to the mtatons contaned n secton 131(b) of the Revenue
ct of 1932. Ths concuson s based on the theory that the foregn
ncome ta es pad wth respect to the communty ncome are n sub-
stance pad by the husband and wfe, or chargeabe aganst hs gross
ncome and her gross ncome n equa parts.
The other queston presented reates to the restrcton appearng
for the frst tme n secton 131 (a) of the Revenue ct of 1932 readng
as foows:
Sec. 131. Ta es of oregn Countres and Possessons of Unted States.
(a) owance of credt. If the ta payer sgnfes n hs return hs desre to
have the benefts of ths secton, the ta mposed by ths tte sha be credted
wth:
(1) Ctzen and domestc corporaton. In the case of a ctzen of the Unted
States and of a domestc corporaton, the amount of any ncome, war-profts,
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131, rt. 93.1
25
and e cess-profts ta es pad or accrued durng the ta abe year to any foregn
country or to any possesson of the Unted States and

(3) en resdent of Unted States. In the case of an aen resdent of the
Unted States, the amount of any such ta es pnd or accrued durng the ta abe
year to any foregn country, f the foregn country of whch such aen resdent
s a ctzen or sub|ect, n mposng such ta es, aows a smar credt to ct-
zens of the Unted States resdng n such country . Itacs supped.
Ths provson of aw shoud be consdered n connecton wth sec-
ton 23(c) of the Revenue ct of 1932 whch provdes that n com-
putng net ncome there sha be aowed as deductons:
(c) Ta es generay. Ta es pad or accrued wthn the ta abe year, e cept

(2) ncome, war-profts, and e cess-profts ta es mposed by the authorty of
any foregn country or possesson of the Unted States but ths deducton
sha be aowed n the case of a ta payer who does not sgnfy n hs return hs
desre to have to any e tent the benefts of secton 131 (reatng to credt for
ta es of foregn countres and possessons of the Unted States) | .
I Itacs supped.
In G. C. M. 13909 (C. . III-2, 1 1 (1934)), t was hed that
where a ta payer at the tme of fng hs return for the caendar year
1932 dd not know of hs abty to pay foregn ncome ta es for
that year and, therefore, dd not sgnfy n hs return hs desre to
have the benefts of secton 131 of the Revenue ct of 1932, he s not
entted to receve a credt for such ta es.
In Raph Lese Raymond v. Commssoner (34 . T. ., 1171,
nonacquescence, C. . -2 44 (193 )), the oard of Ta ppeas
hed that where a ta payer fed a nonta abe return and the net oss
camed theren was dsaowed, the credt for foregn ncome ta es
shoud not be dened merey because the ta payer dd not sgnfy n
hs return hs desre to have such ta es credted aganst hs Unted
States ncome ta . In that case the oard stated n part as foows:
The broad purpose of secton 131 s to aow a ctzen of the Unted States, at
hs eecton, a credt for ncome ta es pad or accrued to a foregn country.
The eecton becomes apparent when secton 131 s consdered n con|uncton
wth secton 23. The ta payer may ether cam the foregn ta es as a credt
under the former secton or as a deducton under the atter.
In Connor v. Unted States (19 ed. Supp., 97), the Dstrct Court
of the Unted States for the Dstrct of New ampshre hed that
where a ta payer was not aware of hs abty for Canadan ncome
ta and dd not sgnfy n hs return hs desre to have the benefts
of secton 131(a) of the Revenue ct of 1932, he was not barred from
recevng credt for foregn ta es merey because ths formaty of the
statute was not observed. The court stated n part as foows:
Counse for the Government argues that such faure s concusve and an
absoute bar to any recovery n ths case.
I can not accept the nterpretaton put on the change n the statute by counse
for the Government. It s my opnon that t was not desgned as a prohbton
or a mtaton. Its ob|ect s to effect a more speedy admnstraton of the aw
and an eary determnaton of Government revenues. The aw shoud not be so
Interpreted as to requre the mpossbe.
In that case the court quoted wth approva from the decson of the
oard of Ta ppeas n Raymond v. Commssoner, supra. though
n both cases amended returns were fed by the ta payers, ths offce s
of the opnon that such acton n tsef has tte, f any, bearng on
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257
143, rt. 7 1.
the queston. Those cases were decded on the broad prncpe that a
ta payer who pays foregn ncome ta es shoud be aowed ether a
credt or a deducton for such ta es. That s, he shoud have the
beneft of one or the other, and where the ta payer s rghts were un-
known to hm at the tme of fng hs return, he had no opton n the
matter and the condton requred by the statute that he sgnfy n
hs return hs desre to have the benefts of secton 131 s not appcabe.
In other words, as stated by the court n the Connor case, the aw
shoud not be nterpreted to requre the mpossbe.
It s stated that cases have arsen where the cam for credt of
foregn ncome ta es has been dsaowed n ts entrety due to restrc-
tons and mtatons contaned n secton 131 of the ct. or e am-
pe, a ta payer who was an aen resdent of the Unted States n
1933 camed a credt for ta es pad to a foregn country and at a ater
date t deveoped that he was a sub|ect of a foregn country whch
does not grant to ctzens of the Unted States resdng n such coun-
try a credt for foregn ncome ta es smar to that provded by
secton 131 (a)3 of the Revenue ct of 1932. It s the opnon of
ths offce that where an aen resdent of the Unted States pays
foregn ncome ta es and cams a credt for such ta es, but the cred .t
s dsaowed for the reason that he s a ctzen or sub|ect of a foregn
country whch does not grant a smar credt to ctzens of the Unted
States, the foregn ta es shoud be aowed as a deducton. s nd-
cated above, the purpose of the statute apparenty was not to penaze
a ta payer by dsaowng both a credt for foregn ncome ta es and a
deducton for such ta es. It was ntended that such ta es shoud
ether be aowed as a credt aganst the Unted States ncome ta .
sub|ect to the mtatons contaned n secton 131 of the Revenue ct
of 1932, or aowed as a deducton from gross ncome under secton
23(c) of that ct.
In vew of the foregong, G. C. M. 13909, supra, s revoked, and
t s recommended that nonacquescence n Raph, Lese Raymond v.
Commssoner, supra, be wthdrawn.
Ths rung s aso appcabe under the Revenue cts of 1934 and
193 .
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
SUPPL M NT D. R TURNS ND P YM NT OP T .
S CTION 143. WIT OLDING O T
T SOURC .
rtce 7 1: Wthhodng ta at source.
R NU CT OP 1032.
ed or determnabe annua or perodca ncome pad to the
en Property Custodan. (See G. C. M. 19992, page 197.)
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182, rt. 902.
258
SUPPL M NT . P RTN RS IPS.
S CTION 182. T O P TN RS.
rtce 902: Dstrbutve shares of partners. 1938-1 -9299
Ct. D. 1327
ncome ta revenue act of 1932 decson of supreme court.
1. Income Partnershp Deceased Partner s Dstrbutve
Share ccountng Perod Partnershp sca Tear Part-
neb s Caendar Year.
deceased partner s ta abe Income for the caendar year 1933
Incudes hs share of partnershp profts from the begnnng of the
partnershp fsca year on ugust 1, 1933, to the date of hs death
(December 1 ) n the same year, n addton to hs share of the
partnershp profts for ts fsca year endng uy 31, 1933, under
the provsons of sectons 41, 48, 181, and 182(a) of the Revenue
ct of 1932, even though such share was earned n an accountng
perod not whoy wthn the year, and though hs return was on
the cash recepts and dsbursements bass.
2. Decson ffrmed.
Decson of the Crcut Court of ppeas, Second Crcut (1937)
(89 ed. (2d), 92), reversng decson of the oard of Ta
ppeas (193 ) (34 . T. ., 384), af rmed.
Supreme Coubt of the Unted States.
Guaranty Trust Co. of New York, ecutor, state of Lamar L. emng,
Deceased, pettoner, v. Commssoner of Interna Revenue.
303 U. S., 493.
On wrt of certorar to tne Unted States Crcut Court of ppeas for the Second Crcut.
March 28, 1938.
opnon.
Mr. ustce Stone devered the opnon of the Court.
Whether a deceased partner s ta abe ncome for the caendar year 1933
ncudes hs share of partnershp profts from the begnnng of the partnershp
fsca year on ugust 1, 1933, to the date of hs death In the same year, n
addton to hs share of the partnershp profts for ts fsca year endng
uy 31, s the queston for decson.
Pettoner s testator, who ded December 1 , 1933, was a member of a New
York partnershp whose fsca year e pred on uy 31, 1933. The partnershp,
wth the addton of a new partner, was renewed, by agreement, for one
year from ugust 1. fter hs death the survvng partners, by a further
agreement, contnued the partnershp busness from that date unt uy 31
of the ne t year, as of whch date profts were to be determned, and there-
after from year to year. Decedent kept hs books on the cash recepts and
dsbursements bass and fed hs return for ncome ta for each caendar
year on that bass. The partnershp kept ts books on a ke bass, but
made ts returns for a fsca year endng uy 81,
Upon a partnershp accountng as of the date of decedent s death, hs share
of the profts from ugust 1 to that date was ascertaned and n the foowng
anuary and ebruary was pad to pettoner, as e ecutor. In makng return
for ta aton of decedent s ncome for 1939, pettoner ncuded decedent s
share of the frm profts accrung for the year endng uy 31, but omtted to
return hs share of the frm profts earned between that tme and hs death.
The Commssoner s determnaton of a defcency based on the omtted n-
come, was set asde by the oard of Ta ppeas. (34 . T. ., 3S4.) The
oard s order was reversed by the Court of ppeas for the Second Crcut,
whch hed that decedent s share of the partnershp profts for the year endng
uy 31 and for the ensung perod endng December 1 , 1933, was ncome
of decedent n 1933 and ta abe as such for that year. (89 . (2d), 92.) We
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182, rt. 902.
granted certorar ( U. S., ), the queston beng of mportance In the
admnstraton of the revenue aws, and the decson beng chaenged by
pettoner as not In harmony wth urnet v. Sanford rooks Co. (282 U. S.,
359 Ct. D. 277, C. . -, 3 3 (1931) ).
oth by the practca constructon gven to the partnershp agreement by pet-
toner and the survvng partners, and by the appcabe provsons of the New
York Partnershp ct,1 decedent s death dssoved the partnershp, termnated
hs rght to share n the profts, and f ed the date as of whch the survvng
partners were bound to account for the profts. (Darcy v. Commssoner, .
(2d), 581 Ct. D. 814, O. . III-1, 238 (1934) .) Decedent s estate In fact
receved the profts accrued on the date of hs death, and partnershp profts thus
accrued and dstrbutabe by reason of the death of a partner are hs ncome,
ta abe as such. ( u v. Unted States, 295 U. S., 247 Ct. D. 9 9, C. . I -1,
310 (1935) .) ut pettoner nssts that here they can not be ncuded n
decedent s 1933 Income for purposes of ta aton, snce n that case hs partner-
shp profts both for the fu year endng uy 31, 1933, and for the ensung four
and one-haf months perod endng wth hs death n December, woud be ta ed
as hs profts for a snge year. Ths t s sad offends aganst the pocy of the
Revenue cts to assess ncome ta es annuay on the bass of 12-month perods
and, so offendng, confcts wth the approprate constructon of the appcabe
provsons of sectons 181, 182 of the Revenue ct of 1932 (47 Stat., 1 9),
reatng to the ta aton of partnershp profts.
Under the ct of 1932, as wth earer Revenue cts, partnershps are not
ta ed upon ther ncome. y secton 189 they are requred to fe Informaton
returns showng the partnershp profts and the respectve shares of the partners
n the profts. ut secton 181 provdes that the partners sha be abe for
ncome ta ony n ther ndvdua capacty, and secton 182(a) reads:
Genera rue. There sha be Incuded In computng the net ncome of each
partner hs dstrbutve share, whether dstrbuted or not, of the net ncome of
the partnershp for the ta abe year. If the ta abe year of a partner Is dffer-
ent from that of the partnershp, the amount so ncuded sha be based upon
the ncome of the partnershp for any ta abe year of the partnershp endng
wthn hs ta abe year.
Snce the partnershp s not a ta payer, t has no ta abe year In a tera
sense. ut as used n ths secton ta abe year of the partnershp means
ts fsca year, for ta abe year Is defned by secton 48 as ncudng In ts
meanng a fsca year upon the bass of whch the net ncome Is
computed and fsca year s defned as an accountng perod of 12 mouths
endng on the ast day of any month other than December. ta abe year,
t s decared, ncudes the perod for whch a return Is made when, under the
provsons of the ct or reguatons, a return for a fractona part of a year s
requred. s a partner s profts are ascertanabe ony on an accountng for
stch perods as may be f ed by aw or by the partnershp tsef, and as the
fsca year or accountng perod of the partnershp may dffer from that of the
ta abe year of the partner, secton 182(a), as a matter of convenence to ta -
payers, authorzes and provdes for ths dfference by requrng n that case that
the partner s dstrbutve share of the profts ascertaned at the end of the
partnershp fsca year sha be ncuded n hs ta abe ncome for the year n
whch the fsca year of the partnershp ends.
Pettoner does not compan of the ta aton of decedent s share of the partner-
shp profts for the year endng uy 31 as 1933 Income. ut It contends thnt
the reference n secton 182(a) to the ta abe year of the partnershp, and
the requrement that the amount of the partner s ta abe ncome sha be
based upon the Income of the partnershp for any ta abe year of the psrtner-
New York Partnershp ct (Laws of 1919, ch. 408) :
Sec. 0. Dssouton defned. The dssouton of a partnershp s the change n the rea-
ton of the partners caused by any partner cpasng to be assocated n the carryng on as
dstngushed from the wndng up of the busness.
Sec. 1. Partnershp not termnated by dssouton. On dssouton the partnershp s
not termnated, but contnues unt the wndng up of partnershp affars s c ompeted.
Sec. 2. Causes of dssouton. Dssouton s caused :

4. y the death of any partner

Sec. 74. 4cerua of actons. The rght to an account of hs nterest sha accrue to any
tanner, or hs ega representatve, as aganst the wndng up partners or the survvng
partner or the person or partnershp contnung the busness, at the date of dssouton,
h the absence of agreement to the contrary.
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5182, rt. 902.
2G0
shp endng wthn hs ta abe year, read n ther conte t and In the ght of
the practce ong estabshed by the Revenue cts, of ta ng ncome for 12-month
perods, contempate that a partner returnng ncome for a caendar year sha
be ta abe n that year ony upon hs ncome from hs frm for a snge partner-
shp year. Ths s sad to be the case even though the ncome derved by a
partner from the frm busness between the end of the partnershp fsca year
and the date of hs death n the same year can not be ta ed n any other.
Ths argument s, we thnk, based upon a msconcepton of the pocy of the
ct and a mstaken constructon of secton 182(a). It s true that the cts of
Congress ta ng ncome have consstenty ad the ta upon the net ncome re-
ceved by or accrued to the ta payer n a ta abe year, whch s ether the
caendar year or a dfferent fsca year, as the ta payer may eect. ut they
have never undertaken to mt the ncome ta abe n any one year to that derved
from the ta payer s actvtes occurrng In that or any other snge year. The
tems of gross ncome and of aowed deductons to be ncuded n the ncome
return, are those of the ta payer for hs ta abe year, even though they may
have resuted from or be affected by hs busness transactons of other years.
( urnet v. Sanford d rooks Co., supra, 3 4, 3 5.) Crcumstances whoy for-
tutous may determne the year n whch ncome, whenever earned, s ta abe,
and may thus affect the amount of ta . Recept of ncome or accrua of the
rght to receve t wthn the ta year s the test of ta abty, not the tme t
has taken the ta payer to earn t nor the duraton of hs nvestments whch
have fnay resuted n proft. (Lucas v. e ander, 279 U. S., 573 Ct. D. 7 , C. .
I11-2, 273 (1929) .)
The Revenue cts have consstenty adhered to that pocy n ta ng the
ncome of a partner. Snce the partner s entted to profts ony upon a partner-
shp accountng at the end of an accountng perod, hs profts become sub|ect
to ncome ta when and as they are thus ascertaned. s n the case of a other
ta payers, the partner s net ncome Is requred by the genera provsons of sec-
ton 41 to be computed on the bass of the ta payer s annua accountng perod,
here the caendar year, so as ceary to refect the ncome. nd secton 182(a)
commands that the dstrbutve share of each partner n the partnershp profts
sha be ncuded n computng hs ta , whether dstrbuted or not.
y these provsons the ta abe ncome of a partner s mted to that share
of the partnershp earnngs to whch he becomes entted wthn hs ta abe year,
but t ncudes a the dstrbutve share of the partnershp ncome whch accrues
to hm n that year even though earned n an accountng perod not whoy
wthn the year, and though hs return, as n the case of decedent, s on the cash
recepts and dsbursements bass. If the provsons stood aone t woud seem
pan that the profts accrung to decedent from the two partnershp accountngs
wthn hs ta abe year woud be ta abe n that year, even though the accountng
perods aggregated more than 12 months. We thnk the concudng sentence
of secton 182(a), whch provdes for the case where the partner s ta abe year
dffers from that of the partnershp, does not ca for any dfferent resut.
We need not nqure too metcuousy whether the partnershp ta abe year,
wthn the meanng of secton 182(a), ncudes n the speca crcumstances of
ths ease an accountng perod of ess than 12 months, here from uy 31 to the
death of decedent. Pettoner makes no contenton that t does not, nor coud
we do so, for f not so ncuded t s not wthn the phrase any ta abe year
of the partnershp, occurrng In the second sentence of secton 182(a), on whch
pettoner rees to e cude the ncome for that perod from ta aton otherwse
mposed by the genera provsons of secton 41 and the frst sentence of secton
182(a). The argument s that the year endng uy 31, 1933, was one partnershp
fsca year or accountng perod, and that the ensung perod unt the death of
decedent was another, and that the ncuson of the ncome for both perods n
decedent s ta abe Income s precuded by the use of the phrase any ta abe
year n secton 182(a), whch t s sad must be taken to mean any one account-
ng perod of the partnershp.
ut we thnk the sentence must be read as suppementng the precedng one and
secton 41, and not as mtng them. We can dscern esewhere In the ct no
ndcaton of any congressona purpose to reeve busness Income from ta aton
n the year when, under the appcabe provsons of the statute, It Is dstrbutabe
to a partner. Sectons 11 and 12 decare n a-ncusve terms that ncome ta es
sha be eved, coected, and pad for each ta abe year upon the ncome of
every ndvdua. It woud requre more precse words than those of secton
182(a) drectng that the ta abe ncome of a partner sha be based on partner-
shp ncome for any accountng perod of the partnershp endng wthn Its
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2 1
251, rt. 1131.
ta abe year, to restrct the broad sweep of sectons n, 12, and 41. (Cf. encr v.
Coona Trust Co., 275 U. S., 232. 234, 235 T. r . 4112, C. . II-1, 207 (1928)
eccrng v. Stockhom nskda ank. 203 LT. S., 84, 89 Ct. D. 887, C. . III-2,
299 (1934) Unted States v. Safety Car eatng d Lghtng Co., 297 U. S.. RS,
93 Ct. D. 1073, C. . -1, 294 (193 ) : crerng v. Govrran, 302 U. S., 238,
LM3. 244 Ct D. 1292, page 300, ths buetn .)
The purpose of secton 182(a) when read, as t must be, wth these other sec-
tons, s obvousy not to reeve a partner from ta aton of auy part of the ds-
trbutve share of the partnershp ncome durng the year n whch t s ds-
trbutabe. The ob|ect s rather to make certan that the amount so ncuded
n a partner s ta abe ncome sha be based upon the ncome of the partner-
shp dstrbutabe durng the partner s ta abe year, even though an accountng
perod of the partnershp endng n that year may not be whoy wthn t.
Ths concuson s supported by the egsatve hstory of the second sentence
of secton S2(a). The provson frst appeared n secton 218(a) of the Revenue
ct of 1918. s orgnay ntroduced, that secton of the ouse b whch
became the Revenue ct of 1918 provded for the ta aton of the partner s ds-
trbutve share of the net ncome of the partnershp for the ust annua account-
ng perod of the partnershp, endng wthn hs ta abe year. y amendment
the quoted phrase was strcken from the b and the words any accountng
perod of the partnershp substtuted. (See . R. 12S03, S ty-ffth Congress,
thrd sesson (Commttee prnt as agreed to n conference).) The amendment
was obvousy nconsstent wth any purpose to mt the amount of the ta abe
ncome to that of any snge or partcuar accountng perod of the partnershp
endng wthn the partner s ta abe year. The phrase was changed by secton
2(a) of the Revenue ct of 1928 to ts present form, any ta abe year of the
partnershp. The contnued use of the word any as quafyng the phrase
ta abe year n the 1928 and 1932 cts, does not precude the present ta f
ta abe year be taken to mean a partnershp accountng perod of ess than
12 months. Reasons have aready been gven why, f t means an accountng
perod of a fu year, the present ta s nevertheess due under secton 41 and
he frst sentence of secton S2(a).
ffrmed.
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 203. N T INCOM O LI
INSUR NC COMP NI S.
rtce 971: Ta -e empt nterest and reserve funds.
R NU CT OP 1932.
Dscount on premums pad to a fe nsurance company n advance
of the due date. (See G. C. M. 20200, page 20 .)
SUPPL M NT . POSS SSIONS O T UNIT D ST T S.
S CTION 251. INCOM ROM SOURC S WIT IN
POSS SSIONS O UNIT D ST T S.
rtce 1131: Ctzens of the Unted States and domestc
corporatons dervng ncome from sources wthn a
possesson of the Unted States.
R NU CT OP 1932.
Retrement pay of a ctzen of the Unted States resdng n a
possesson of the Unted States. (See I. T. 3199, page 209.)
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272, rt. 1171.
2 2
SUPPL M NT L. SS SSM NT ND COLL CTION O D ICI NCI S.
S CTION 272. PROC DUR IN G N R L.
rtce 1171: ssessment of a defcency. 1938-20-9343
Ct. D. 1335
INCOM T R NU CTS O 1932 ND 1934 D CISION O COURT.
1. oabd of Ta ppeas ursdcton Teegeapho Petton
Recept fter usness ours on Last Day for ng.
The communcaton of a teegraphc petton by teephone to the
charman of the oard of Ta ppeas at hs resdence n Wash-
ngton, D. C-, after busness hours on the ast day of the statutory
perod for fng and the devery of the teegram at the offce of the
oard on the foowng day do not consttute a proper fng wthn
the meanng of secton 272 of the Revenue ct of 1932, as amended
by secton 501 of the Revenue ct of 1934, and the oard therefore
had no |ursdcton to entertan the petton.
2. Decson ffrmed,
Decson of the oard of Ta ppeas (193 ) (34 . T. ., 125 )
affrmed.
Unted States Crcut Court of ppeas for the Nnth Crcut.
dward arron state Co. (o Corporaton), pettoner, t. Commssoner of
Interna Revenue, respondent.
93 ed. (2d), 751.
Upon petton to revew a decson of tbe Unted States oard of Ta ppeas.
efore Garbecht, Mathews, and aney, Crcut udges.
December 31, 1937.
OPINION.
aney, Crcut udge: Ths appea s from a decson of the oard of Ta
ppeas wheren by order, upon moton, pettoner s aeged petton for rede-
termnaton of a defcency found by the Commssoner n ts ncome ta for the
year 1932, n the sum of 43,279. 7, was dsmssed, for ack of |ursdcton.
On September 4, 1935, the Commssoner of Interna Revenue maed to the
ta payer a notce of defcency n ncome ta es for the caendar year 1932 n
the amount of 43,279. 7. The statutory perod of 90 days from such mang
wthn whch a petton for redetermnaton coud be fed under the provsons
of secton 272(a) of the Revenue ct of 1932, as amended by secton 501 of the
Revenue ct of 1934, e pred on December 3, 1935.
On December 3, 1935, at 5.10 p. m.. Pacfc standard tme, the pettoner,
through ts presdent, devered to the Western Unon Teegraph Co. at ts
San rancsco offce a teegram, comprsng the skeeton of a petton for rede-
termnaton of the above defcency, addressed to ugene ack, Charman
U. S. oard Ta ppeas, Washngton, D. C, wth nstructons accompanyng
the same, as foows: (phone and dever wre to Mr. ugene ack at 520
Coorado venue, NW, Wash. D. C. report devery).
The offce of the oard of Ta ppeas, herenafter caed the oard, coses
at 4.30 p. m., eastern standard tme.
t 9 p. m., eastern standard tme, on sad day, ugene ack was caed to
the teephone at hs resdence, n Washngton, D. C, and the sad teegram
read to hm. The operator mmedatey upon competng the readng of the
teegram, asked Charman ack f he desred the teegraph company to dever
the teegram to hm at hs home address, and he reped, No, send t to the
offcer n the mornng.
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272, rt. 1171.
On December 4, 1935, nt 7.45 a. m., a copy of the teegram n queston was
devered to that room n the Interna Revenue udng whch s used by the
Government for the recept and devery of offca teegrams for certan Gov-
ernment offces, ncudng the oard of Ta ppeas, but whch has no connec-
ton wth the offce of the oard. Such offca teegrams are receved at sad room
on a machne known as a Smpe Prnter whch machne s connected wth
the teegraph company by drect wre. Government empoyee n that room
then copes the message as t s typed on the sad machne, and such copy
s then forwarded by Government messenger to the offce for whch the same
s ntended. Ths teegraph room Is open from 7.30 a. m. to 7 p. m.
On December 4, 1935, upon hs arrva at the offce of the oard, Charman
ack was handed ths copy of the teegram, whch bore on t the teegraph
company s notaton that t had been teephoned to hm. Upon readng t he
recognzed t as the one whch had been read to hm over the teephone the
evenng before, and he nstructed the chef deputy cerk to fe and docket the
sad teegram as receved by the oard on December 3, 1935, whch was done.
t that tme. Charman ack dd not know that December 3 was the nneteth
and ast day for the fng of sad petton.
On December 4, 1935, the ta payer forwarded by regstered ma to the oard
an amended petton, together wth ts check for 10 n payment of the
fng fee for the orgna petton, whch had not theretofore been pad, bot
of whch were thereafter receved at the offce of the oard.
The queston for our consderaton s one of |ursdcton. Dd the ta payer
compy wth the requrements of the appcabe statutes Revenue ct of
1932, secton 272 provdes as foows:
(a) If n the case of any ta payer, the Commssoner determnes that then-
s a defcency n respect of the ta mposed by ths tte, the Commssoner
s authorzed to send notce of such defcency to the ta payer by regstered
ma. Wthn 0 days (amended to rend 90 days by secton 501 of the Revenue
ct of 1934, ch. 277) after such notce s maed (not countng Sunday as the
s teth day) (amended to read (not countng Sunday or a ega hoday In the
Dstrct of Coumba as the nneteth dny) by secton 501 of the Revenue ct
of 1934. ch. 277), the ta payer may fe a petton wth the oard of Tu
ppeas for a redetermnaton of the defcency.
(c) If the ta payer does not fe a petton wth the oard wthn the tme
prescrbed n subsecton (a) of ths secton, the defcency, notce of whch has
been maed to the ta payer, sha be assessed, and sha be pad upon notce
and demand from the coector.
If the ta payer fed a petton as requred by the ct, askng redetermnaton
of a defcency theretofore determned by the Commssoner wthn the perod
mted by the ct, supra, then the oard had ursdcton to consder the
petton. If such petton was not so fed wthn the tme mted by the ct
the oard was wthout ursdcton to consder the matter. The requrement
that pettons for redetermnatons be fed wthn a specfed perod after the
mang of the defcency notce s statutory and |ursdctona and not merey
procedura. (LewU- a Iron Works v. ar ( pp. D. C), 23 . (2d), 972,
974, certorar dened, 277 U. S., 592.)
The oard has power to prescrbe rues of pructce and procedure under the
provsons of secton 907(a) of the Revenue ct of 1924, as amended by sec-
ton 01 of the Revenue ct of 1928, whch provdes as foows:
The proceedngs of the oard and ts dvsons sha be conducted n
accordance wth such rues of practce and procedure (other than rues of
evdence) as the oard may prescrbe and n accordance wth the rues of
evdence appcabe n courts of equty n the Dstrct of Coumba
ctng under the authorty of secton 907(a), supra, the foowng rues of
practce have been prescrbed by the oard:
Rue 1. The offce of the oard at Washngton, D. C, w be open each
busness day from 9 o cock a. m. to 4.30 o cock p. m.
Rue 7. n orgna and four cear copes of the petton, ether prnted or
typewrtten , sha be fed wth the oard at Washngton, D. C.
Rue 1. when the tme for performng any act s prescrbed by
statute nothng n these rues sha be deemed to he a mtaton or e tenson
of the statutory tme f ed.
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322, rt. 1257.
2(34
Nothng In secton 907(a), supra, nor In the rues of practce and pro-
cedure prescrbed thereunder, authorzes the oard to vary or amend the
statute conferrng ursdcton upon the oard to hear and determne ta -
payers pettons.
The oard was wthout power to dspense even on equtabe grounds wth
the statutory requrement that a petton be fed wth the oard of Ta
ppeas wthn the tme aowed. (Poynor v. Commssoner (C. C. . 5),
81 . (2d), 521 Ct. D. 1145, C. . -2, 172 (1930) .) To smar effect, see
Yturbde s ecutors v. Unted States ( 3 U. S., 290), and Muckeroy v. adwn
(C. C. . 8) (70 . (2d), 728).
It s sad n Poynor v. Commssoner, supra, at 522:
paper s fed when t s devered to the proper offca and by hm
receved to be kept on fe.
The oard seems n other proceedngs to have accepted notce by a teegraphc
petton n skeeton form as a compance wth the statute and ts rues, pro-
vded that an orgna and four copes of the petton be fed wthn a rea-
sonabe tme thereafter, and the fng fee pad. (See ppea of . O. Stater,
27 . T. ., 342.)
Wthout attemptng now to defne what consttutes a petton for the pur-
ose of determnng ths cause, t s enough to say that to gve effect to the
congressona provson whereunder the ta payer may seek a redetermnaton
of the Commssoner s fndng before the oard, that somethng havng the
form and substance of a petton must be by the ta payer fed wth the oard
wthn the tme mted by the ct.
petton s not fed wth the oard by gvng teegraphc notce to an
ndvdua member of the oard of an ntenton to compy wth the statute.
Under the facts set forth n the stpuaton of facts before us we must and
do hod that the record does not show that pettoner fed a petton wth the
oard seekng a redetermnaton of the defcency wthn the tme mted by
the ct.
To hod that the stpuated facts before us consttute a compance wth
the statutory provson whereby |ursdcton s conferred upon the oard to
redetermne the Commssoner s fndng, w be to open the door wde for any
and a so-c ed e cusabe faures on the part of the ta payers whose rght to
a consderaton by the oard Is not absoute but s mted by the terms of the
ct whch prescrbes a tme wthn whch the ta payer may appy to the
oard for a redetermnaton of the Commssoner s fndng.
The decson of the oard s affrmed.
INCOM T R NU CTS O 1928 ND 1932 D CISION O COURT.
Sut Recovery of Defcency Ta Waver.
Where the ta payer e ecuted the standard form of waver of
restrctons on assessment and coecton of defcency n ta ,
whch, In addton, contaned a stpuaton that, f accepted, the
ta payer agreed not to fe thereafter any cam for refund and
woud e ecute a fna cosng agreement under secton 0 of the
Revenue ct of 1928 upon request of the Commssoner, such
waver was a bndng contract, and, havng been accepted and
acted upon by the Commssoner, was a bar to an acton for
recovery of the ta pad.
SUPPL M NT O. O RP YM NTS.
S CTION 322. R UNDS ND CR DITS.
rtce 1257: Lmtatons upon the credtng
and refundng of ta es pad.
193 -5-9174
Ct D. 1302
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( 322, rt. 1257.
Osred States Dstrct Court fob the Southern Dstbct or New York,
rank . adwn v. oseph T. ggn .1
une 23. 1937.
opnon.
beuzzo, D. .: The pantff, a ta payer, has nsttuted ths sut to recover
the sum of 20,940.75 wth nterest, aegng that an unawfu assessment n
that sum was made by the defendant on hs ncome for the year 1932. The
ncome ta return n dspute was fed by the pantff on March 14, 1933.
The facts as stpuated by the partes may be brefy summarzed as foows:
On November 1, 1929, the pantff oaned to hs son, uan . adwn, the
sum of 144,890. 9. uan . adwn was empoyed by Sprngs Co., a Wa
Street frm, as a customer s man at an annua saary of 14,000. s evdence
of ths oan, the son sgned two promssory notes, payabe November 1, 1930, one
n the sum of 79,890. 9 and the other n the sum of 5,000. oth of these
notes were ndorsed by the debtor s wfe.
On December 23, 1929, the son pad to the pantff, hs father, the sum of
12.500 on account of these notes. When these notes matured on November 1,
1930, they were e tended by the pantff to November 1, 1931. No ndorsement
was requred of the debtor s wfe and the notes not havng been protested, she
was reeased from her obgaton.
On uy 7, 1931, uan . adwn ded. The ta payer fed hs cam wth
the attorneys for the e ecutr for the money due hm, but as the estate was
Insovent for a practca purposes no money coud be reazed from that source
by the pantff. Undoubtedy, the money oaned to the son was used to boster
up a stock account whch the son had wth hs empoyer, Sprngs Co. The
pantff consuted an attorney and engaged an accountant to ascertan whether
or not hs son ded eavng any assets ted up n an account wth hs empoyer.
Sprngs Co. It deveoped that uan . adwn had an account wth that
frm under an assumed name but an e haustve nvestgaton reveaed that there
were no assets n ths account.
The ta payer dd not deduct these moneys as a worthess debt from hs ncome
ta n 1931. In 1932, he was advsed by the attorneys for the estate that the
tota assets dd not e ceed 500. e thereupon deducted the moneys oaned to
hs son from hs return for 1932, fed on March 14, 1933.
bout October 2 , 1934, the coector of nterna revenue dsaowed the camed
deducton and by reason thereof a proposed defcency ta of 28,57 .31 for 1932
was recommended. The pantff protested ths proposed defcency ta . Nego-
tatons were had wth respect to the proposed defcency ta and on pr 25,
1935. the ta payer e ecuted the waver and consent ( orm 870) marked hbt
G, whch reads as foows:
orm 870. Treasury Department. Interna Revenue Servce. Revsed December 1032.1
IT: :RRR In re: rank . adwn,
318 West 100th Street,
New York, N. Y.
(Date Receved.)
Wave of Restrctons on ssessment and Coecton of Defcency n Ta .
Pursuant to the provsons of secton 274(d) of the Revenue ct of 192 ,
and/or secton 272(d) of the Revenue ct of 1928, and/or secton 272(d) of the
evenue ct of 1932, the undersgned ta payer waves the restrctons provded
n secton 274(a) of the Revenue ct of 192 , and/or secton 272(a) of the
Revenue ct of 1928, and/or secton 272(a) of the Revenue ct of 1932, and
consents to the assessment and coecton of a defcency n ncome ta for the
caendar year 1932 n the sum of 18,101.57, year ended
n the sum of , year ended n the sum of
, amountng to the tota sum of , together wth nterest
thereon as provded by aw.
Ths waver of restrctons s sub|ect to acceptance on the bass of the
ad|usted abty as herenabove proposed and f not thus accepted, t w be
of no force or effect.
Not pubshed In edera Reporter.
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322, rt. 1257.
2
If ths proposa s accepted, the ta payer agrees not to fe thereafter any
cam for refund of ta es for the year 1032, and, upon request of the Comms-
soner, w e ecute at any tme a fna cosng agreement as to the ta abty
for the sad year under the provsons of secton 0 of the Revenue ct of 1928.
rank . adwn,
318 W. 100th St., New York Cty.
Date p 25th, 1935
Note. The e ecuton and fng of ths waver at the address shown In the
accompanyng etter w e pedte the ad|ustment of your ncome ta abty aa
ndcated above. It s not, however, a fna cosng agreement under secton 0
of the Revenue ct of 1928 and does not, therefore, precude the asserton of a
further defcency n the manner provded by aw shoud It subsequenty be
determned that addtona ta s due, nor does t e tend the statutory perod
of mtaton for refund, assessment, or coecton of the ta .
Where the ta payer s a corporaton, the waver sha be sgned wth the
corporate name, foowed by the sgnature and tte of such offcer or offcers of
the corporaton as are empowered to sgn for the corporaton, n addton to
whch, the sea, f any, of the corporaton must be aff ed.
U. S. Government Prntng Offce: 1D32 2-13175
-
y ths nstrument, the assessment was reduced to 18,101.57. Payments
were made under ths waver on pr 10, 1935, through September 18, 1935.
The ta payer commenced proceedngs for an abatement of the unpad ta es
and for a refund of the moneys aready pad n. Numerous hearngs were
hed and addtona payments were made to compete the payment of the fu
assessment On March 12, 1930, the cam for refund was dsaowed and on
March 31, 193 , ths acton was Insttuted.
The pantff s contenton s that the deducton of 144,390.09 as a bad debt
n the return fed by hm on or about March 14, 1933, was |ustfabe and
proper and shoud have been aowed. The ta payer cams (a) that t was a
bona fde debt and ( ) that he ascertaned t to be worthess In 1932 and
(c) that he charged off the debt wthn the same ta abe year.
The defendant sets up as a bar to the pantff s recovery numerous defenses.
e contends that the waver and consent agreement ( orm 870, hbt G )
e ecuted by the pantff s a ega bar to any recovery and that there has been
an accord and satsfacton of the dsputed ndebtedness whch bars the pan-
tff s cause of acton. The defendant aso contends that the pantff s barred
from prosecutng ths cause of acton because of hs eecton to compromse hs
ta abty, and further that by reason of the pantff s sgnng and agreeng
to the payment of a ta of 18,101.57, t paced the pantff n a poston
wheren the statute of mtatons has run. The defendant cams he reed
upon the pantff s agreement to compromse and pay ths ta , otherwse the
ta payer woud escape a ta abty because of the statute of mtatons.
The defendant aso cams that the pantff s estopped from mantanng
ths acton because of e ecutng the waver and consent agreement ( orm 870,
hbt G ).
The burden of proof s on the pantff to overcome the presumpton of the
vadty of the ta and to show ceary that he does not owe t. (Nes ement
Pond Co. v. Unted States, 281 U. S., 357 0 S. Ct., 251, 74 L. d., 901, 8 m.
ed. Ta Rep., 10S95 Ct. D. 1S5, C. . I -1, 295 (1930) Unted States v.
nderson, 2 9 U. S., 422 4 S. Ct., 131, 70 L. d., 347, 5 m. ed. Ta Rep.,
5 74 T. D. 3S39, C. . -, 179 (192 ) .) To sustan ths burden he must
overcome the presumptons n favor of the Commssoner s acts and show that
he does not owe the money he s seekng to get back. (Dtffn v. Lucas, 55 .
(2d), 78 10 m. ed. Ta Rep., 11 7 .)
In connecton wth the burden of proof, the defendant aso contends that
the pantff as faed to estabsh that the sum receved by the son was a
oan nstead of a gft. The defendant s contenton s that the transacton
nvoved was a persona gft, for whch there can be no deducton because such
a deducton s not authorzed by the statute. ( urnet v. Thompson, 283 U. S.,
301. 304 51 S. Ct.. 41S, 75 L. d., 1019, 9 m. ed. Ta Rep., 1434 Ct. D. 331,
C. . -, 390 (1931) .)
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322, rt. 1257.
It Is aso urged by the defendant that the Revenue ct permts a deducton
from a gross Income of a debt ascertaned and charged off as worthess wthn
the ta abe year to wt, 1931 (47 Stat., 180, secton 21(| 2 U. S. C. ., sec-
ton 955(7), 1925 d. 2 U. S. C. ., secton 23 (1934 d.) ). The pantff
kept no reguar books of account other than hs bankbook and checkbook
(Spu. par. 13) and the defendant cams that the ta payer has tred to meet
the ega stuaton but he has faed to brng hmsef wthn the secton pro-
vdng for the deducton of a worthess debt charged off wthn the ta abe
year (McOney Corporaton v. Commssoner, 82 . (2d), 50, 57 ( 5 C. C. .)
17 m. ed. Ta Rep., 533 ).
There s some mert to these two atter contentons of the defendant.
urthermore, the pantff can not succeed In a recovery of the ta pad and
s not entted to the redress camed by hm because of hs e ecuton of the
waver and consent agreement ( orm 870, hbt G ). There s no con-
tenton that ths agreement was obtaned by fraud or msrepresentaton. On
the contrary, t appears that t was defntey a free and vountary act. The
ta payer was represented by counse at the tme of the e ecuton of ths nstru-
ment and to a appearances was fuy cognzant of the nature of the paper.
ta of 28, 04.31 was assessed and a compromse reached after many confer-
ences n the sum of 18,101.57, whch, together wth nterest, brngs the amount
up to 20,940.75, the sum sought to be recovered.
The pantff was apparenty satsfed at the tme wth the arrangement,
doubtess feeng that he had saved practcay 10,000 by ths compromse.
The ta payer now argues that the waver and consent agreement ( hbt
G ) must fa because t contans no specfc e praton date and therefore
must be regarded as havng e tended the statutory perod for a reasonabe
tme. e further contends that t was not a fna cosng agreement and ctes
as hs authorty otany Worsted Ms v. Unted States (278 U. S., 282 49
8. Ct, 129, 73 L. d., 379, 7 m. ed. Ta Rep., 8847 Ct D. 39, C. . III-1,
279 (1929) ).
In that case, an agreement was reached based on fgures whch were setted
n a conference, the agreement beng ora. The Court hed n that case the
ta payer was not estopped from proceedng because of ths nforma settement
as t dd not consttute a bndng agreement.
Such s not the case here. The waver and consent agreement ( orm 870,
hbt G ) s a bndng contract and t was accepted and acted upon by
the Commssoner. (Stearns v. Unted States, 291 T . S., 54, 1- 2 Ct. D. 780,
C. . III-1, 321 (1934) ackus v. Unted States, 59 . (2d), 242 Ct. D. 504,
C. . I-1. 200 (1932) Waker v. amo oods Co., 1 . (2d), 94 T. D.
39S4, C. . I-1, 274 (1927) .)
urthermore, t woud seem unconsconabe and nequtabe to permt the
pantff to sustan a recovery based on hs own broken promses. Ths s an
eqntabe acton and a sut based thereunder seeks abstract |ustce. (Unted
States v. efferson ectrc Co., 291 U. S., 38 . 402-103 Ct D. 803, C. . III-1,
293 (1934) .)
udgment s therefore rendered accordngy n favor of the defendant.
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2 8
INCOM T RULINGS. P RT IIL
R NU CT O 1928.
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION O N T INCOM .
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
rtce 81: cusons from gross ncome.
1938-22 -93 2
Ct. D. 1339
INCOM T R NU CT O 1028 D CISION O COURT.
Income Payment by State to Prvate Corporaton for Man-
tenance of Pubc erry empton.
n amount pad monthy by a State to a prvate corporaton for
the mantenance of a pubc ferry servce and used by t ke other
ncome consttuted addtona ncome to the corporaton as ds-
tngushed from a contrbuton to capta. S eh ncome s ta abe
to the corporaton nasmuch as the recept thereof from a State
does not cothe t wth mmunty from ta aton. nondscrm-
natory ta on the net ncome of a prvate corporaton can not be
condemned as a burden upon the State smpy because the pay-
ments were made as compensaton or part compensaton for a
servce whch the State tsef mght have performed.
Unted States Crcut Court of ppeas for the ourth Crcut.
Guy T. evcrng, Commssoner of Interna Revenue, pettoner, v. Cabornc-
nnapos erry Co. of nnapos, d., a ody Corporate, respondent.
93 ed. (2d), 875.
On petton to revew the decson of the Unted States oard of Ta ppeas.
efore Parker and Soper, Crcut udges, and McCntc, Dstrct udge.
Pakeu, Crcut udge: Ths s a petton to revew a decson of the oard
of Ta ppeas. The respondent ta payer s a prvate corporaton engnged In
operatng a ferry across the Chesapeake ay between nnapos on the west-
ern shore and Caborne and Metapeake on the eastern shore. The dstance
across the bay at ths pont s 23 mes and ta payer receved from the State of
Maryand for the mantenance of the ferry durng the year 1931 the sum of
23,000, or 1.000 per me, whch was pad n monthy nstaments. Ta payer s
net ncome for the year 1931, e cusve of the amount pad t by the State,
was 93,118.29, and was earned for the most part n the transportaton of
automobes, passengers and trucks. The amount receved from the State
was used for the operaton of the ferry and was not segregated from other
ncome. The oard hed that ths amount was not ncome wthn the mean-
ng of the s teenth amendment, but was a contrbuton to capta by the State
to encourage, promote and mantan a ferry servce n the pubc nterest, and,
as such, was not propery ncudbe n pettoner s gross ncome for ta
purposes. Two questons are presented for our consderaton: (1) whether
the -3,000 receved from the State was ncome or was contrbuton to capta,
and (2) whether, f ncome, t was e empt from ta aton because a con-
trbuton by the State towards the mantenance of the pubc ferry.
On the frst queston, we thnk that the amount receved by ta payer from
the State was ceary ncome as dstngushed from contrbuton to capta.
anuary 4, 1938.
OPINION.
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22(b), rt. 81.
It was pad to the ta payer by the State n consderaton of the mantenance
of the ferry and was as truy earned by the operaton of that enterprse as
were the tos coected from vehces and passengers. It was used ke other
ncome for operatng e penses and the accumuaton of a fund from whch
dvdends shoud be pad and no part of t, so far as the record shows, went
nto the nvested capta of the enterprse. Income, says the Supreme
Court, may be defned as gan derved from capta, from abor or from
both combned, provded t be understood to ncude proft ganed through a sae
or converson of capta assets. ( sner v. acomber, 252 U. S., 189, 207 T.
D. 3010, C. . 3, 25 (1920) .) Certany, the amount receved from the State
for the mantenance of the ferry was gan to the ta payer and t was gan
derved from the capta Invested n the ferry and the abor nvoved n ts
operaton.
The amount receved by ta payer from the State was n no sense a gft,
whch s a transfer wthout consderaton (Noe v. Parrott (C. C. . 4), 15 ed.
(2d), 9 T. D. 3908, C. . -2, 149 (192 ) or/ardus v. Commssoner,
U. 8., , 58 S. Ct. 1 Ct. D. 1281, C. . 1937-2, 258 ). It was made n con-
sderaton of the mantenance of the ferry servce t was pad monthy
and ts payment woud not have been contnued from month to month f the
servce had not been mantaned. ountes granted by a government are
never pure donatons, but are aowed ether n consderaton of servces ren-
dered or to be rendered, ob|ects of pubc nterest to be obtaned, producton or
manufacture to be stmuated, or mora obgaton to be recognzed. ( Zcn v.
Smth, 173 U. S., 389, 402.)
nd t s equay cear that the amount pad by the State was not ntended
by anyone as a contrbuton towards or an addton to the capta nvestment
of the ta payer. Ta payer s capta was nvested n wharves and ferryboats
and the payment by the State was ntended, not to remburse ta payer for
e pendtures t had made n ther purchase or equpment, but to compensate t
n part for ther operaton. s stated above, t was treated n a respects ke
other ncome and was avaabe for operatng e penses or for the payment of
dvdends. The case of dwards v. Cuba Raroad (2 8 U. S., 28 T. D. 3728,
C. . r -2, 122 (1925) ), upon whch ta payer chefy rees, s ready ds-
tngushabe. In that case the subsdy payments made by the Cuban Govern-
ment were used for capta e pendtures. The Court sad: Reyng on the
contract for parta rembursement, pantff found the money necessary to
construct the raroad. The subsdy payments were proportonate to meage
competed and ths ndcates a purpose to remburse pantff for capta e -
pendtures. the physca propertes and the money subsdes were gven
for the same purposes. It can not reasonaby be hed that one was contrbuton
to capta assets and that the other was proft, gan or ncome. Nether the
aws nor the contracts ndcate that the money subsdes were to be used for
the payment of dvdends, nterest or anythng ese propery chargeabe to or
payabe out of earnngs or ncome. The subsdy payments ta ed were not
made for servces rendered or to be rendered. The subsdy pad ta payer by
the State of Maryand was more neary anaogous to the case of addtona
compensaton awarded the raroads by the Government durng the perod
of edera contro, whch has been hed propery ta abe as ncome of the ra-
roads. (Sou. Ry. Co. v. Commssoner (C. C. . 4), 74 ed. (2d), 887. 893,
and cases there cted.) Such addtona compensaton was dstngushed
n those cases from the aowance made the raroads for undermuntennncc,
whch, ke the subsdy n the Cuba Raroad case, was treated as a restoraton
of capta and not ta abe as ncome.
On the second queston, there can be no queston but that the operaton of
a pubc ferry as a nk n the State hghway system s a proper functon of
the State and that the proceeds of such operaton by the State tsef woud
not be sub|ect to the edera ncome ta ( amestown tf Newport erry Co. v.
Commssoner (C. C. . 1), 41 ed. (2d), 920) but t by no means foows
that the ncome of a prvate corporaton engaged n operatng such a ferry
woud not be sub|ect to such ta . (Cf. Susquehanna Power Co. v. State Ta
Commsson of Maryand, 283 U. S., 291, 293 road Rver Power Co. v. uery,
288D. S., 178, 181, Id., 52 ed. (2d), 515, 52 .) Nor s the payment made by the
8tate to a prvate corporaton necessary e empt from such ta because made
as compensaton or part compensaton for a servce whch the State tsef
mght have performed. (Meteaf d ddy v. Mtche, 2 9 U. S., 514 T. D. 3S24,
C. . -, 218 (192 ) Underwood v. Commssoner (C. C. . 4), 5 ed. (2d),
.)
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270
The ta payer here was a prvate corporaton engaged n the operaton of a
pubc ferry. The greater part of ts ncome was derved from tos coected
from vehces and passengers transported. The subsdy pad by the State
ncreased ts annua ncome n the same manner as ts ncome woud have been
ncreased by a contract entered nto wth the State for the performance of any
other pubc servce and the ta was mposed wthout dscrmnaton as to
whether ts ncome was derved from charges made to prvate ndvduas or
from the State subsdy. Such ta can not be sad, n the ght of the facts to
whch we have adverted, to mpar n any substanta manner ta payer s
abty to dscharge ts obgatons to the State or the State s abty to procure
the servces of prvate ndvduas to ad n the undertakng. The case ceary
fas, therefore, wthn the rue ad down n Met caf ddy v. Mtche, supra,
n whch the queston nvoved was the ta abty of that porton of the ncome
of consutng engneers derved from contracts wth States or muncpates.
The Supreme Court n that case ad down the prncpe here appcabe as
foows:
ust what nstrumentates of ether a State or the edera Government
are e empt from ta aton by the other can not be stated n terms of unversa
appcaton. ut ths Court has repeatedy hed that those agences through
whch ether Government mmedatey and drecty e ercses ts soveregn
powers, are mmune from the ta ng power of the other. When,
however, the queston s approached from the other end of the scae, t s ap-
parent that not every person who uses hs property or derves a proft, n hs
deangs wth the Government, may cothe hmsef wth mmunty from ta aton
on the theory that ether he or hs property s an nstrumentaty of govern-
ment wthn the meanng of the rue. (Thomson v. Pacfc Raroad, 9 Wa.,
579 Raroad Co. v. Penston, 18 Wa., 5 atmore Shpbudng Co. v.
atmore, 195 U. S., 375 romer v. Standard Dredgng Co., 224 U. S., 3 2,
371 dety f Depost Co. v. Pennsyvana, 240 U. S., 319 Choctaw, O. t .
R. R. Co. v. Mackay, 25 U. S., 531.) s cases arse, yng between the two
e tremes, t becomes necessary to draw the ne whch separates those actv-
tes havng some reaton to Government, whch are nevertheess sub|ect to
ta aton, from those whch are mmune. perence has shown that there s
no formua by whch that ne may be potted wth precson n advance. ut
recourse may be had to the reason upon whch the rue rests, and whch must
be the gudng prncpe to contro ts operaton. Its orgn was due to the
essenta requrement of our consttutona system that the edera Government
must e ercse ts authorty wthn the terrtora mts of the States and t
rests on the convcton that each government, n order that t may admnster
ts affars wthn ts own sphere, must be eft free from undue nterference
by the other. (McCuoch v. Maryand, supra Coector v. Day Dobbn v.
Commssoners of re County, supra.) ut here the ta s mposed
on the ncome of one who s nether an offcer nor an empoyee of government
and whose ony reaton to t s that of contract, under whch .there s an
obgaton to furnsh servce, for practca purposes not unke a contract to
se and dever a commodty. The ta s mposed wthout dscrmnaton
upon ncome whether derved from servces rendered to the State or servces
rendered to prvate ndvduas. In such a stuaton It can not be sad that
the ta s mposed upon an agency of Government n any technca sense, and
the ta tsef can not be deemed to be an nterference wth government, or an
mparment of the effcency of ts agences n any substanta way.
(See aso ames v. Dravo Contractng Co., U. S., (decded December ,
1937) ward v. ohnson, 282 U. S., 509, 514 dety d Depost Co. v. Pennsy-
vana, 240 U. S., 319.)
The ta here s not upon any contract between the State and the ta payer.
It s not upon any specfc sum receved from the State. It s eved upon the
ta payer s net ncome after a e penses are pad and osses ad|usted, and after
the recpent of the ncome s free to use t as he chooses. (Peck t Co. v. Lowe,
247 U. S., 105 T. D. 272 (1918) .) We can say of t, as the Supreme Court sad
of the appcaton of the edera ncome ta to ncome derved from o ands
eased by a State, The remote and ndrect effects upon the one government of
such a nondscrmnatory ta by the other have never been consdered adequate
grounds for thus adng the one at the e pense of the ta ng power of the other.
(Group No. 1 O Corporaton v. ass, 283 U. S., 279 Ct. D. 330, C. . -, 153
(1931) . See aso Indan Terrtory Iumnatng O Co. v. oard of quaza-
ton, 288 T . S., 325 Wcuts v. unn, 282 U. S., 21 , 22 Ct. D. 280, C. . -, 309
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271
44, rt. 351.
(1931) Tatter v. Indan Terrtory Iumnatng O Co., 300 . S., 1. 57 S. Ct,
334.) In the case ast cted the Supreme Court, speakng through Chef ustce
ughes, sad: Our decsons dstngush between a nondscrmnatory ta upon
the property of an agent of government and one whch mposes a drect bur-
den upon the e erton of governmenta powers. In the former case where
there s ony a remote, f any, nfuence upon the e ercse of governmenta func-
tons, we have hed that a nondscrmnatory ad vaorem ta s vad, athough
the property s used n the operatons of the governmenta agency. Certany,
f a nondscrmnatory ad vaorem ta on the property used n the operaton of a
governmenta agency s not to be condemned as a drect burden upon the e erton
of governmenta powers, a nondscrmnatory ta on the net ncome of a prvate
corporaton can not be so condemned because earned n the operaton of such
agency. (See ames v. Dravo Contractng Co., supra, and Ctzens Water Co. v.
Commssoner (C. C. . 8), 87 ed. (2d), 874.)
or the reasons stated the decson of the oard of Ta ppeas w be
reversed.
Reversed.
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 121: usness e penses.
NC CT O 1928.
Insurance premums pad n advance for perod of more than one
year by ta payer on cash recepts and dsbursements bass. (See
G. C. M. 20307, page 157.)
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 41. G N R L RUL .
rtce 321: Computaton of net ncome.
R NU CT O 1928.
Insurance premums pad n advance for perod of more than one
year bv ta payer on cash recepts and dsbursements bass. (See
G. C. M. 20307 157.)
S CTION 44. INST LLM NT SIS.
etce 351: Sae of persona property on 1938-7-919
nstament pan. Ct. D. 1307
INCOM T R NU CT O 1928 D CISION O COURT.
Sae Instament ass stoppe.
ta payer reportng the sae of one-fourth of an addtona mem-
bershp n the New York Stock change as a cosed cash transacton
n 1929 and payng the ta accordngy s estopped to ater cam that
the sae was an nstament transacton upon whch he receved
ony a porton of the purchase prce In 1929, where a change n treat-
ment of the transacton woud throw the baance receved n 1930
nto Income for that year and enabe the ta payer to evade ta a-
bty thereon, because the 1930 return showed a net oss.
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44, rt. 351.
272
Unted States Dstrct Court for the Southern Dstrct of New York.
rc . Marks, pantff, v. The Unted States of merca, defendant.
18 ed. Supp.,911.
L March 81, 1037.
OPINION.
Mandebaum, Dstrct udge: Ths sut was Insttuted to recover 0,248.41 wth
nterest, an aeged overpayment of pantffs ncome ta for the year 1929.
Ths consttutes pantff s frst cause of acton (a second cause of acton peaded
n ths compant was wthdrawn durng tra).
The evdence together wth the e hbts reveaed the foowng: The pantff
sod one-fourth of an addtona membershp n the New York Stock change n
1020 for the sum of 120,000 the cost prce was 19,920 the net cash gan on the
transacton therefore beng 100,080. The pantff reported ths transacton In
hs return for 1029 as a cosed cash transacton and pad the ncome ta thereon.
On une 10, 1932, the pantff fed a cam for refund aegng as a snge ground
therefor that the sae of the one-fourth membershp was an nstament trans-
acton wthn the provsons of secton 44(b) of the Revenue ct (secton 44-b,
2 U. S. C. .) upon whch he receved but 45,000 of the purchase prce n 1929
nstead of the fu purchase prce as reported. Subsequenty, he ted another
cam for refund on May 1 , 1933, settng forth n the aternatve an addtona
ground that the baance of 75,000 due on the purchase prce had no far market
vaue n 1929, and for that reason the transacton had been erroneousy reported
n hs return for 1929.
The defendant mantans that there can be no recovery on the frst cause of
acton based upon the cam for a refund fed May 1 , 1933, because that was
not an amendment of the cam fed une 10, 1932, but a new and orgna cam
aganst whch the statute of mtatons had run (Revenue ct of 1928, secton
322, Treasury Department Decson 42 5 C. . III-1, 110 (1929) ).
The court dsagrees wth the defendant n ths regard and hods that the cam
of May 1 , 1933, s an amendment of the frst cam fed rather than a new and
orgna cam (Unted States v. Memphs Cotton O Co., 288 U. S., 2 Ct. D. 2 ,
C. . II-1, 307 (1933) Unted States v. actors d nance, 288 U. S., 89 Ct D.
28, C. . II-1, 315 (1933) cms ros. ag Co. v. Unted States, 289 U. S., 28
Ct. D. 49, C. . II-1, 338 (1933) and ndrews v. Unted States, decded eb-
ruary 8, 1937, by the Court of Cams, No. 43181 373 C. C. ., par. 909 ).
The defendant further contends as a bar to ths acton, that t was prema-
turey brought aegng there was no proof of the re|ecton by the Comms-
soner of Interna Revenue of the part of the cam to whch ths sut reates.
The court can not uphod ths contenton and fnds that a forma re|ecton was
unnecessary. etter dated December 21, 1933, wrtten by the Commssoner
to the pantff ceary shows, f not drecty then by an unmstakabe nference,
that the nstant cam was dsaowed e cept as to the e tent of ony 7 .59,
about whch there s no dspute.
urther proof offered by the pantff, n addton to what as aready been
ndcated, showed that athough the sae prce of the one-fourth membershp
n the New York Stock change was 120,000, the purchaser made an nta
payment of ony 20,000 (and an addtona payment of 25,000 thereafter),
and agreed to pay the baance n nstaments as and when convenent to hm,
In accordance wth the terms of a subordnaton agreement.
n e amnaton of ths agreement shows from ts very terms that the pan-
tff had no rght to enforce the payment of the baance. In fact, ths agree-
ment provdes for nether an nta payment on the purchase prce nor for any
payments on the purchase prce n nstaments or otherwse. Wth regard to
ths subordnaton agreement, the pantff offered opnon evdence that sad
agreement had no far market vaue n 1929. It woud, therefore, appear that
the pantff reported a capta gan 100,080 on the transacton, athough the
tota of the cash receved by hm n 1929 was ony 45,000.
The frst cam for refund fed by the pantff on une 10, 1932, requested
that the transacton be treated as one on an nstament bass. Thereafter, on
May 1 , 1933, a cam was submtted by the pantff as an amendment to the
orgna one askng that as addtona and aternatve reef, the Commssoner
take notce that the baance due the ta payer had no far market vaue n
1929, and, accordngy, the proft on the transacton be reduced to 25,080.
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273
44, rt. 351.
owever, the court deems t unnecessary to determne whether ths subord-
naton agreement had or had not a far market vaue n 1929, snce the pantff
has by estoppe precuded hmsef from treatng ths transacton as anythng
ese but a cosed cash sae.
Tbe 1929 return reported the transacton as a cosed cash sae and the
pantff pad hs ta accordngy. Ths payment was accepted by the Com-
mssoner who In conformty wth the rues reguatng ths type of transacton
assessed an addtona ta of 70 whch was pad by the pantff on October 20,
1932.
The pantff testfed that n 1930 he receved the sum of 75,000 (baance
of the purchase prce of the one-fourth membershp seat as evdenced by a
promssory note) from one Mortmer W. Loew, the assgnee of the subordna-
ton agreement. Ths sum was not reported n the pantff s ncome ta return
for 1030. whch showed that he suffered a net oss of ,917 1.
The pantff, n attemptng to e pan hs faure to report the recept of ths
money, testfed n substance that upon recevng payment, he entered nto a
verba agreement wth Loew to reoan a or any part of that amount. The
court s not mpressed wth the pantff s e panaton and hence can gve
ths porton of hs testmony no credence.
The defendant very apty ponts out that to permt the pantff
to change hs treatment of the transacton woud be to throw ths 75,000 tem
of ncome nto the year 1930 and thereby enabe hm to evade a ta abty
thereon because hs 1930 return shows he suffered a net oss of 10 ,917. 4.
change by a ta payer n the treatment of a transacton whch woud enabe
hm to escape ts abty woud be grossy nequtabe and never permtted.
The court fees that under the crcumstances, an eecton on the part of the
pantff had been made to treat ths transacton as a cosed cash sae and he
s consequenty estopped from assertng rghts whch are nconsstent wth
the poston heretofore taken bv hm. (R. . Stearns Co. v. Unted States,
291 U. S., 54, 1 Ct. D. 780, C. . III-1, 321 (1034) : Raston Purna Co. v.
nted States. 58 . (2d), 10 5 Ct. D. 584. C. . I-2, 340 (1932)1, cer. dened.
289 C. S., 732: Naumkeao Steam Cotton v. Unted. States, 2 . Supp., 120. 135,
cer. dened. 289 U. S., 749: ameda Investment Co. v. McLaughn, 33 . (2d),
120 Ct. I). 101, C. . I1I-2, 32 (1929) Rose v. Grant, 39 . (2d), 340. 341.)
n acton to recover an aeged overpayment of Income ta es s governed
by equtabe prncpes. In owhert v. orrf (72 . (2d), 753 Ct. D. 937,
C. . I -1, 2 4 (1935) (rehearng dened November 2. 1934), an acton was
nsttuted to recover the amount of the cam as an overpayment of ta es.
udgment was rendered for the pantff Norrs. The crcut court of appeas,
In reversng the |udgment sad at page 755:
Ths s an acton n assumpst to recover money had and receved. ut
an assumpst of ths knd s governed by equtabe prncpes. (Unted States
f. efferson ectrc Co.. 291 U. S., 38 Ct. D. 803, C. . III-1, 393 (1934) ,
and cases cted.) It woud be grossy nequtabe to permt the payment of the
ta of 178.14, representng ess than 4 per cent of the en|oyed proft, aocate
the baance to the years 1919 and 1920 where t woud be free from abty
under the statute of mtatons, and by means of recovery heren evade a
ta aton on t. or that reason such a shft can not be made. (Commssoner
v. foore (C. C. .), 48 . (2d), 52 .)
To the same effect Myers v. urey Motor Co. (273 U. S., 18, 24) New York
Lfe Insurance Co. v. nderson (2 3 ., 527).
or the foregong reasons the compant Is dsmssed and |udgment rendered
In favor of the defendant.
INCOM T R NU CT O 1028 D CISION O SUPR M COURT.
Income: Gan or Loss Sae of Stock Proft Reported on Com-
peted Transacton Rather than Instament ass Cam
for Refund.
ta payer who reported the entre proft from the sae of
stock n 1929 and pad the ta thereon upon the bass of a competed
transacton s not entted to a refund of the ta pad, cam for
rtc|e 351: Sae of persona property on
nstament pan.
1938-21-9354
Ct. D. 1338
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14, rt. 353.
274
whch was fed n 10: 2 on the ground that he was entted to
report the sae on the nstament bass. Pacfc Natona Co. v.
Wech, Coector, decded by ths Court on May 2, 1938 Ct. D. 1337,
beow , foowed.
2. Decson Reversed.
Decson of the Unted States Court of Cams (1937) (IS .
Supp., 9 5) reversed.
Supreme Court of the Unted States.
Unted States of merca, pettoner, v. arry . apan.
304 U. S., 195.
On wrt of certorar to the Court of Cams.
May 2, 1938.
OPINION.
Mr. ustce uteb devered the opnon of the Court.
Respondent and hs wfe n a |ont return of ncome ta for 1929 reported a
proft of 194,000 from the sae of 25 shares of the stock of No. 1100 Park
venue, and dscosed ta of 2,084.20 whch was pad. The ta abe ncome
was ess than the proft n queston. It resuted from the sae by hm, pr
11, 1929, for a net prce of 240,000 of stock bought n 1928 for 4 ,000. The
buyer agreed to pay 25,000 cash and the baance n nstaments of 1,875 a
month. or 1930, respondent and hs wfe fed a return showng no ta abe
Income. or 1931 and 1932, respondent fed no returns. In 1932 he fed a
cam for refund of the entre 1929 ncome ta . The ground for the cam
was that he was entted to report the sae on the nstament bass. The fnd-
ngs ndcate that the deferred payments were worth ess than face vaue
after respondent and hs wfe (to whom he assgned the contract) had receved
55,000, they agreed to accept 75,000 more as fu payment. The Commssoner
re|ected the cam and ths sut foowed. The Court of Cams gave respondent
|udgment. (18 . Supp., 9 5.) Ths Court granted a wrt of certorar because
of confct between the decson and that of the Crcut Court of peas for
the Nnth Crcut n Pacfc Natona Co. v. Wech (91 . (2d), 590 Ct D.
1337, beow ), ths day affrmed. The queston here presented s the same as
the one decded n that case. The |udgment of the court beow must be reversed.
It s so ordered.
Mr. ustce Cardozo and Mr. ustce Reed took no part n the consderaton
or decson of ths case.
rtce 353: Sae of rea property on nsta- 1938-21-9355
mert pan. Ct. D. 1337
ncome ta revenue act of 1928 decson of supreme court.
1. Income Gan ob Loss Sae of Rea state Profts Re-
ported on Deferred Paymknt Rather than Instament
ass Cam for Refund ecton.
ta payer who reported a proft from the sae of rea estate n
1929 and pad the ta thereon n accordance wth the deferred
payment method, as authorzed by the Revenue ct of 1928 and
appcabe reguatons, s not entted to a refund of the entre ta
under a cam fed n 1931 on the ground that the proft shoud
have been reported on the nstament bass. though ether
method mght have been chosen, by reportng accordng to the de-
ferred payment method the ta payer made an eecton whch be-
came bndng upon the e praton of the tme aowed for fng the
return.
2. Dkcbon ffrmed.
Decson of the Unted Sates Crcut Court of ppeas, Nnth
Crcut (1937) (91 ed. (2d), 590) affrmed.
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44, rt. 353.
Supreme Court of the Unted States.
Pacfc Natona Co., pettoner, v. Gaen . Wech, ormer Coector of Interna
Revenue for the S th Dstrct of Caforna.
304 U. S., 191.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut.
May 2, 1938.
OPINION.
Mr. ustce uter devered the opnon of the Court.
March 14, 1929, pettoner fed ts ncome ta return for 1928. The return
reported 137,007.17 as proft resutng from saes of ots n that year. That
fgure was arrved at by addng to the cash pad n 1928, on account of the
saes, the amounts ater to be pad, and by deductng from the tota the cost
of ots and mprovements and e penses of the saes.
In 1931 pettoner fed a cam for refund of the entre ta on the ground
that the saes had been made on the nstament bass, but the profts had
been reported as f the saes were for cash, and that ths was erroneous. The
cam was re|ected. Pettoner sued tra by ury havng been waved, the
dstrct court made fndngs of fact and hed that pettoner reported ncome as
authorzed by the Revenue ct of 1928 and appcabe reguatons, and thereby
made an eecton whch became bndng on the e praton of the tme aowed
for fng the return. ccordngy t gave |udgment for respondent. Upon
the same ground the crcut court of appeas affrmed. (91 . (2d), 590.) The
decson beow beng n confct wth that of the Court of Cams n apan .
Unted Sfafe (18 . Supp., 9 5), we granted a wrt of certorar. ( U. S .)
Under the appcabe statutes and reguatons, pettoner coud have chosen
ether of two methods for the ascertanment and report of gan or oss on the
saes. The Revenue ct of 1928 (45 Stat., 791) estabshes both. Defnng one,
the deferred payment method, t decares that gross ncome ncudes profts
from saes (secton 22(a)) reguates the computaton of gan or oss (sec-
ton 22(e)) defnes gan to be the e cess of the amount reazed over the
bass (sectons 111(a), 113) and provdes that the amount reazed sha
be the sum of any money receved pus the far market vaue of property (other
than money) receved (secton 111(c)). (Reguatons 74, artce 352.) De-
fnng the other, the nstament method, t provdes that, n the case of a
casua sae or other casua dsposton of persona property for a prce e ceed-
ng 1,000 or n the case of sae or other dsposton of rea property. If pay-
ments receved durng the ta abe year n whch the sae was made do not
e ceed 40 per cent of the seng prce, the Income may, under reguatons pre-
scrbed, be returned on the nstament method (secton 44(b)) . e., the ta -
payer may return n any ta abe year that proporton of the nstament pay-
ments actuay receved n that year whch the gross proft reazed or to be
reazed when payment s competed bears to tota contract prce. (See secton
44(a).)
eguatons 74 permt the vendor to return ncome from Instament saes
on the straght accrua or cash recepts bass when so reported the saes are
treated as deferred payment saes not on the nstament pan. ( rtce 353.)
In ascertanng the amount of proft or oss from that cass of saes, the ob-
gatons of the purchaser to the vendor are taken at ther far market vaue
f they have none, the payments n cash or other property havng a far market
vaue sha be apped aganst and reduce the bass of the property sod, and f
In e cess of such bass, sha be ta abe to the e tent of the e cess. Gan or
oss s reazed when the obgatons are dsposed of or satsfed, the amount
beng the dfference between the reduced bass and the amount reazed therefor.
( rtce 354.)
The queston s whether, havng fed a return accordng to the deferred
payment method, the ta payer by fng cam for refund s entted to have the
proft from the saes computed on the nstament method.
Pettoner contends that the Instament method aone dscoses ts ncome
from the saes of ots and that the deferred payment method faed ceary to
refect ncome.
Concedng that ts return mght have been made n accordance wth ether
method, pettoner says that, beng gnorant of both, t treated the saes as f
made for cash at fgures mentoned n the contracts. Its argument, therefore,
rests upon the asserton, whch we assume to be true, that the promses of
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55.
27
purchasers to pay nstaments were worth ess than face vaue. ut that fact
has no bearng upon the queston whether proper appcaton of the deferred
payment method woud ceary refect ncome, for that method permts nsta-
ments to be taken at market vaue and, f they have no market vaue, aows
postponement of ascertanment of gan or oss unt reazed. Whe petton-
er s return may have been an nept appcaton of the deferred payment method,
there Is nothng n t or the statement of cam for refund that gves any
support to the dea that, f rghty apped, that method woud not ceary
refect ncome.
The partes agree that, f aowed to change to the nstament method, pet-
toner woud be entted to a refund n some amount. ut that fact has no
tendency to dscredt the deferred payment method as nappcabe. The
amount of the ta for the year n queston s ony one of many consderatons
that may be taken nto account by the ta payer when decdng whch method
to empoy. The one that w produce a hgher ta may be preferabe because
of probabe effect on amount of ta es n ater years. In case of overstatement
and overpayment, the ta payer may obtan refund cacuated accordng to the
method on whch the return was made. Change from one method to the other,
as pettoner seeks, woud requre recomputaton and read|ustment of ta
abty for subsequent years and mpose burdensome uncertantes upon the
admnstraton of the revenue aws. It woud operate to enarge the statutory
perod for fng returns (secton 53(a)) to ncude the perod aowed for
recoverng overpayments (secton 322(b)). There s nothng to suggest that
Congress ntended to permt a ta payer, after e praton of the tme wthn
whch return s to be made, to have hs ta abty computed and setted
accordng to the other method. y reportng ncome from the saes n queston
accordng to the deferred payment method, pettoner made an eecton that s
bndng upon hm and the Commssoner.1
ffrmed.
Mr. ustce Cardozo and Mr. ustce Reed took no part n the consderaton
or decson of ths case.
P RT . R TURNS ND P YM NT O T .
S CTION 51. INDI IDU L R TURNS.
rtce 381: Indvdua returns.
R NU CT OP 1028.
Income from parapherna property of wfe where mercan ct-
zens are marred n the Phppne Isands and resde there. (See I. T.
3173, page 1 0.)
S CTION 55. PU LICITY O R TURNS.
R NU CT O 1928.
Reguatons governng the nspecton of returns of ndvduas, part-
nershps, estates, trusts, corporatons, assocatons, |ont-stock com-
panes, and nsurance companes. (See T. D. 4797, page 35 .
Commssoner v. Moore (48 . (2d), 520. 528, certorar dened, 284 U. S., 020 Ct D
407, C. . -2. 233 (1031) Ma,ks v. Unted States (18 . Supp., O, 013 Ct. D 1307
page 271, ths uetn ) Syva S. Strauss (33 , T. ., 835, affrmed, 87 (2d) 1018) :
Ma aut (30 . T. .. 4(0. C1) Sarah rary (20 . T. 2.TG 258) Lous Wrrter
Saw M Co. (2 . T. ., 141, 144-145) Lberty Reaty Corp.rraton (2 T
1119) Morgan Runde (21 . T. .. 1010) ohnson Reaty Trut.1 (21 . T. . , 1333)
(Cf. Unted States v. I ettc/rec, 81 . (2), GOO Ct. D. 1133. C. . -2, 222 (1930)1 :
Itosev. Grant, 30 . (2d) 340: ameda Inv. Co. v. McLaughn, 33 . (2d), 120 Ct D
101, C. . III-2. 320 (1929) utoph v. Commssoner, 29 . (2d), 095: Safety ec .
a -tf - - y ,eh er 0- TO . (2d), 439 Dr. Pepper ottng Co. v. Commssoner,
300 (193 ) | adant Gass Co v. urnet. 54 . (2d), 718 Ct. D. 583, C. . I-2,
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277 101, rt. 501.
P RT I. MISC LL N OUS PRO ISIONS.
S CTION 2. RUL S ND R GUL TIONS.
R NU CT O 1928.
Reguatons wth respect to the use of orgna, and the furnshng
of copes of, returns open to nspecton. (See T. D. 4798, page 3G4.)
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 101. C PIT L N T G INS ND LOSS S.
rtce 501: Defnton and ustraton of 1938-3-914
capta net gan. Ct. D. 1297
INCOM T R NU CT O 1928 D CISION O COURT.
Income Capta Gan mount Receved by Retrng Member
of Partnershp.
The amount pad to the ta payer, upon hs retrement from a
partnershp engaged In the practce of aw, for hs proportonate
share of the earnngs accrued pror to retrement, s ta abe as ord-
nary ncome rather than as a capta gan.
Unted States Cracurr Court of ppeas for the Second Crcut.
Guy T. everng, Commssoner of Interna Revenue, appeant, v. eber Smth,
appeee.
90 ed. (2d), 590.
efore Manton, L. and, and ugustus N. and, Crcut udges.
une 7, 1937.
opnon.
Petton by the Commssoner of Interna Revenue to revew an order of the
oard of Ta ppeas aowng the ta payer to compute hs ta as a capta net
gan under secton 101 (a) of the Revenue ct of 1928.
L. and, Crcut udge: The Commssoner appeas from a rung by the oard
of Ta ppeas, aowng the ta payer to compute hs ta under secton 101(a)
of the Revenue ct of 1928 that s to say, hodng that the transacton nvoved
resuted n a capta net gan (secton 101 (c)5), derved from the sae of
capta assets (secton 101(c)8). Ths ssue arose from the foowng stua-
ton. The ta payer, on anuary 1, 1925, had become a member of a frm of at-
torneys n New York Cty, and so contnued unt December 31, 1929, when he
retred, and the frm was dssoved. The frm property conssted of furnture
and fttngs such as awyers use, and a aw brary but chefy of accounts re-
cevabe, some of whch had been bed to cents, and some of whch were
for servces rendered, not yet rpe for coecton. The artces provded that upon
dssouton whch mght be at the w of any partner the ma|orty of those
remanng shoud qudate the frm, and that any retrng partner shoud not
be entted to any part of any earnngs for servces performed after
such dssouton, but to receve n fu satsfacton ony
snch partner s due proporton of a earnngs actuay coected and
of a earnngs for servces performed. The ease
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101, rt. 501.
278
and a furnture and fttngs and a records, and the aw brary
were to beong to those who contnued the busness, and the retrng partner
got nothng for hs share n the good w. The ta payer, who, ke the frm, fed
hs returns upon a cash bass, reeased hs partners from a abty for a cash
payment of 125,C00, whch rected that he had receved a earnngs
actuay coected pror to sad dssouton and that the amount of hs pro-
porton of sad earnngs receved after such dssouton for servces performed
pror thereto has been estmnted at the sum of 125,000. e had contrbuted
nothng to the frm when he entered t fve years before.
The cause was tred upon a stpuaton whch decared that the remanng
partners had oray agreed that they woud purchase hs nterest n the frm
for a ump sum of 125,000 whch was carred out when he retred from
the frm and receved payment of sad 125,000 of whch documentary
proof s to be submtted at the hearng. The stpuaton spoke of ths trans-
acton as a Sae of partnershp nterest. The oard adopted the ta payer s
theory that hs nterest n the frm was merey a cam aganst t as an entty,
and that, as he had hed t for more than two years, t was capta assets
(secton 101(c)8). The Commssoner nssted that the cam was a ncome,
and the payment merey an mmedate qudaton of future Income.
The unform partnershp act, whch s the aw of New York, dd not, as the
ta payer supposes, make the frm an ndependent |urstc entty. The comms-
son dd ndeed start out to do so, and f Dean mes had ved, consderng hs
partaty for the mercante concepton of a partnershp (Cory on ccounts,
1S39), he mght have succeeded n mpressng that pattern on the act. ut after
hs death, the conference n 1911 after a very fu dscusson chose to retan the
purastc noton of the frm, as the ngsh chanceors had panfuy worked
t out from the bare common aw, whch recognzed ony |ont owners and |ont
obgors. ( arrs v. Commssoner, 39 ed. (2d), 54 cvcrng v. Wabrdgc, 70
ed. (2d), 83.) That was proceduray fu of dffcutes, and permtted some
In|ustces, both of whch t was the purpose of the act to abate but the essentas
of the od mode were preserved. Indeed, many of the supposed nnovatons
were not such for e ampe, the mtaton upon a partner s power to assgn
frm property (secton 25(2)b), the decaraton that hs nterest n t s hs
share of the proft and surpus (No. 2 ), and the e tent of an assgnee s nterest
acqured by the assgnment, had a been aw before, at east n some |ursdcton,
as the commssoners notes bear wtness. Wth ths hstory before us, t woud
be a papabe perverson to understand the act as creatng a new |urstc person,
whch owned the frm property and was obgor of the frm debts, aganst whch
the partners had ony a chose n acton, and to whch they were abe as
guarantors.
Moreover, the Revenue ct gves no coor to such a theory, but was framed
on precsey the opposte pan. rom the outset the ta had been Imposed on
the partners, and ther ta abe ncome has ncuded ther dstrbutve shares,
whether dstrbuted or not. It s true that when the dstrbuton s of ncome,
the ta upon t may be computed n dsregard of the Items whch make t up
gnorng whether they may be the resut of capta gans made by the frm.
( ohnston v. Commssoner, 8 ed. (2d), 732 (C. C. . 2) Ct. D. 1247, C. .
1937-2, 238 ). In that case we hed n substance that the dstrbuton shoud
be treated as an ndvsbe tem of ncome, e cept so far as the statute e -
pressy carred over ts composte character, and aowed the partner to trace
the severa factors back nto the frm transactons from whch they resuted.
So far ndeed we dd treat the share as though t was a payment by the frm
but we dd not hod, and no court has hed, so far as we can fnd, that the share
s no more than a rght of acton aganst a |urstc entty. Indeed, even f t
were, t woud st be necessary to ook nto the frm transactons to earn how
far t was made up of capta, and how far of ncome |ust as t s necessary
when a company decares a dvdend on shares. Once so much be conceded, t
can make no dfference that the dstrbuton s a fna dvdend, nstead of beng
pad n course. That can not change ts quaty a partner, havng no nta
capta contrbuton to amortze, receves a hs dstrbutons as ncome whether
t be a part of the wndng up or whe the busness contnues.
ut t s argued that the transacton was not merey the payment of a wndng
up dvdend, but the purchase of the ta payer s nterest n the frm assets, nnd
that as such t was a capta transacton. It s of course possbe to measure the
purchase prce of a partner s nterest, by hs former proporton of future frm
profts for a perod of years. In v. Commssoner (38 ed. (2d), 1 5 (C. C. .
1)), such a purchase was treated as a capta transacton, and u v. Unted
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279
104, rt. 541.
States (29 T . S., 247, 254 Ct D. 9 9, C. . I -1, 310 (1935) ) approved the
decson and repeated the doctrne. owever, that s qute a dfferent transac-
ton and the retrng or deceased partner s conceved as havng an nterest n
the frm assets, and the payments are not mted to what he woud be entted
to anyway upon an accountng, however they are computed. The artces at bar
dd not so provde they gave the ta payer no nterest n future earnngs as con-
sderaton for hs surrender. The transacton was not a sae because he got
nothng whch was not hs, and gave up nothng whch was. cept for the
purchase and reease, a hs coectons woud have been ncome the reman-
ng partners woud merey have turned over to hm hs e stng nterest n earn-
ngs aready made. s he kept hs books on a cash bass, t s true that he woud
have been ta ed ony as he receved the accounts n drbets, but he woud have
been ta ed upon them as ncome. The purchase of that future ncome dd not
turn t Into capta, any more than the dscount of a note receved n consdera-
ton of persona servces. The commuted payment merey repaced the future
ncome wth cash. Indeed, ths very stuaton was suggested n u v. Unted
States, supra, 25 , 257 (295 U. S., 247), and deat wth as we say. Nobody
woud suggest that the sae of a decared dvdend payabe n the future turns
the cash receved nto capta.
Order reversed defcency renstated.
S CTION 103. MPTIONS ROM T
ON CORPOR TIONS.
rtce 530: Soca cubs.
R NU CT O 1928.
Incdenta sae of property at proft. (See G. C. M. 194 5, page
172.)
S CTION 104. CCUMUL TION O SURPLUS TO
D SURT S.
btcue 541: Ta aton of corporaton utzed for
evason of surta .
R NU CT O 1928.
amy corporaton. (See Ct. D. 1319, page 237.)
btce 541: Ta aton of corporaton utzed 1938-23-937
for evason of surta . Ct. D. 1341
INCOM T R NU CT O 1928 D CISION O SUPR M COURT.
1. ccumuaton or Surpus to vade Surta es Consttuton-
a|tt of Statute Constructon.
Secton 104 of the Revenue ct of 1928 s not unconsttutona
even as apped to a egtmate busness corporaton f the corpora-
ton Is avaed of for the forbdden purpose of preventng the
mposton of surta es upon Its sharehoders. In determnng the
ssue of fact as to whether accumuaton of profts was n e cess of
the reasonabe needs of the busness, the hodng by the oard of
Ta ppeas that there were gans and profts durng the ta abe
year was not a msconstructon of the statute. though the market
vaue of securtes whch the corporaton contnued to hod had
deprecated, such deprecaton does not, as a matter of aw, pre-
cude a fndng that the accumuaton of profts was n e cess of
the reasonabe needs of the busness.
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5104, rt. 541.
280
2. vdence oweb op Court.
Independenty of the presumpton prescrbed In secton 104(b),
there was ampe evdence before the oard to support Its fndngs
that the accumuaton of earnngs was In e cess of the reasonabe
needs of the busness and that the corporaton was avaed of for
the purpose of preventng the mposton of surta upon Its soe
stockhoder. The court was wthout power to make an ndependent
determnaton of the matters whch had been n ssue before the
oard, and the record does not |ustfy the vew of the court that
the oard faed to consder reevant and controng facts, that It
reed upon mproper evdence n reachng ts concuson, and that
t faed to make the fndngs requred by the statute.
3. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, Thrd
Crcut (1937) (92 ed. (2d), 931), reversng decson of the oard
of Ta ppeas (193 ) (35 . T. ., 1 3), reversed.
Supreme Court of the Unted States.
Guy T. evetag, Commssoner, etc., pettoner, v. Natona Grocery Co.
304 U. S., 282.
On certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut.
May 1 , 1938.
OPINION.
Mr. ustce randes devered the opnon of the Court.
Natona Grocery Co. s a New ersey corporaton, whch operates chan
stores. Snce 1911 t has had 200,000 capta stock, a owned benefcay by
enry oh. In the year endng anuary 31, 1931, the corporaton s books
showed a net proft of 82,850.38, after payng 104,000 to oh as saary and
the reguar edera corporaton ncome ta of 12 per cent. Its surpus, as
shown by ts books, ncreased durng the year from 7,245,824.2 to 7,938,905.54
that s 93,141.28. It pad no dvdend.
Secton 104 of the Revenue ct of 1928 (ch. 852, 45 Stat., 814) provdes
(a) If any corporaton, however created or organzed, s formed or avaed
of for the purpose of preventng the mposton of the surta upon ts share-
hoders through the medum of permttng ts gans and profts to accumuate
Instead of beng dvded or dstrbuted, there sha be eved, coected, and pad
for each ta abe year upon the net ncome of such corporaton a ta equa to
50 per centum of the amount thereof, whch sha be In addton to the ta
mposed by secton 13 .
(b) The fact that the gans or profts are permtted to accumu-
ate beyond the reasonabe needs of the busness, sha be prma face evdence
of a purpose to escape the surta .
The Commssoner of Interna Revenue, havng found that the corporaton
had been avaed of for the purpose of preventng the mposton of the surta
upon oh by permttng the gans and profts to accumuate, assessed upon t,
under secton 104, a defcency ta of 177,322.81 for the ta year, n addton
to the reguar corporaton ncome ta , whch had been pad. Ths amount,
together wth 37.87 admttedy due, consttutes the tota defcency assessment
of 477,3 0.08.
The corporaton pettoned for a redetermnaton by the oard of Ta p-
peas. efore the oard a arge voume of evdence was ntroduced whch had
not been submtted to the Commssoner. It detaed, among other thngs, the
fnanca hstory of the busness from ts ncepton. There were 35 eaborate
e hbts, many of them prepared from the books wth the cooperaton of the
counse for the corporaton and for the Commssoner. Twenty-four of the
e hbts were ntroduced by the ta payer 11 by the Commssoner. The ta -
payer aso presented as wtnesses oh and the treasurer of the corporaton,
who testfed oray to the hstory of the busness, ts practces and ams oca
bank offcas who testfed as e perts to the wsdom of accumuatng the profts
and other e perts who testfed to the deprecaton n 1930 of the market vaue
of the securtes hed by the corporaton and of ts rea estate. The oard,
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281
104, rt. 541.
by a bare ma|orty,1 sustaned the Commssoner s determnaton. In statng
ts concusons, t found as foows:
We fnd as a fact that the pettoner s accumuaton of earnngs was far
In e cess of the reasonabe needs of the corporate busness.
We are aso of opnon that the evdence of record does not rebut the
prma face presumpton created by the statute that the accumuaton of earn-
ngs beyond the reasonabe needs of the busness was for the purpose of
preventng the mposton of the surta upon ts soe stockhoder.
Upon the evdence before us we have made the fndng that the pettoner
was avaed of durng the fsca year ended anuary 31, 1931, for the purpose
of preventng the mposton of the surta upon Its soe stockhoder through
he medum of permttng ts gans and profts to accumuate nstead of beng
dvded or dstrbuted.
The corporaton then pettoned for a revew by the crcut court of appeas.
It reversed the order of the oard and dd so on the ground that there was
before the oard no proof, substanta or otherwse, to support ts mposton
of the ta . Certorar was sought by the Commssoner, who urged that n so
decdng the court had departed from the accepted and usua course of udca
proceedngs. We granted certorar because of the mportance n the admn-
straton of the revenue aws of the matter presented. (302 U. S., .)
The corporaton makes here two contentons n support of the |udgment whch
were not dscussed by the court of appeas. It chaenges the consttutonaty
of the statute and aso urges that n hodng that there were gans and
profts the Commssoner and the oard of Ta ppeas msconstrued the
statute. These contentons w be consdered before e amnng the aeged ack
of evdence to support the fndngs of the oard.
rst. The Natona Grocery Co. concedes that secton 104 s consttutona
as apped to a corporaton organzed for the purpose of preventng the m-
poston of surta es upon ts sharehoders 2 but urges fve reasons why t
shoud be hed vod as apped to a egtmate busness corporaton whch s
avaed of for the forbdden purpose. None of these reasons s sound.
1. It s sad that the statute voates the tenth amendment because t nter-
feres wth the power to decare or to wthhod dvdends a power whch the
State conferred upon the corporaton. The statute n no way mts the
powers of the corporaton. It merey ays the ta upon corporatons whch
use ther powers to prevent mposton upon ther stockhoders of the edera
surta es. Congress n rasng revenue has ncdenta power to defeat ob-
structons to that ncdence of ta es whch t chooses to Impose. (Unted
usness Corporaton v. Commssoner, 2 . (2d), 754, 75 Ct. D. 772, C. .
III-1, 257 (1934) .)
oh s persona ncome ta for the caendar year 1931 was 32,034.74. If
he had ncuded n hs persona return of ta abe Income the corporaton s
entre net ncome for the fsca year 1930-31, an addtona ta upon hm of
over 115,000 woud have been due and no ta woud have been assessabe
aganst the corporaton under secton 104. or the statute e pressy provdes,
n paragraph (d), that the corporaton sha not be so ta ed, f the stockhoders
make the return requred to nsure the surta :
(d) The ta mposed by ths secton sha not appy f a the sharehoders
of the corporaton ncude (at the tme of fng ther returns) n ther gross
1 Mr. Meott, who stated the vews of the mnorty, sad : Ths beng a fact case, t
a wth some reuctance that I reach a concuson at varance wth that of the member
who heard the testmony of the wtnesses and had the advantage ot observng ther
manner and demeanor whe testfyng.
Ctng Unted usness Corporaton v. Commssoner (02 . (2d), 754 (C. C. . 2))
4. 1 . Sarnger, Inc., . Commssoner (84 . (2d), 23 (C. C. . 5) Ct. D. 118 , C. .
1937-1, 20( ) mours Securtes, Inc., v. Commssoner (91 . (2d), 427 (C. O. . 5)
Ct D. 1319, page 2: 7, ths uetn ) Wams Inv. Co. v. I nted States (3 . Supp., 225
(Ct. CL)). (See aso Unted States v. R. C. Tway Coa Co., 75 . (2d), 33 (C. C. . )
eck Inv. Co. v. Commssoner, 77 . (2d), 244 (C. C. . 9).)
It s not possbe to cacuate what oh s e act addtona surta abty woud have
been had he ncuded the corporaton s ncome for 19. 0-31 n hs persona return for 1931,
ance that return s not n evdence. mnmum fgure, however, may be obtaned. The
corporaton s net ncome. as defned n secton 104. was 9. )4.R4. .0_ . There must be
deducted from ths 103, 54.47 for corporaton ncome ta and 100,000 was dstrbuted
as a dvdend n 1931 and Incuded n computng the ta pad by oh n that year. ven
assumng that the remanng 750,991.15 woud have consttuted hs entre net ncome for
1931, and that the ma mum deducton of 15 per cent of ths amount for chartabe con-
trbutons coud have been taken, a surta of 119,328.00 woud have been due,
83421 38 10
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104. rt. 541.
282
Income ther entre dstrbutve shares, whether dstrbuted or not, of the net
ncome of the corporaton for such year. ny amount so ncuded In the gross
ncome of a sharehoder sha be treated as a dvdend receved. ny subse-
quent dstrbuton made by the corporaton out of the earnngs or profts for
such ta abe year sha, f dstrbuted to any sharehoder who has so ncuded
In hs gross Income hs dstrbutve share, be e empt from ta n the amount
of the share so ncuded.
2. It Is sad that the statute s unconsttutona because the abty Imposed
Is not a ta upon ncome, but a penaty desgned to force corporatons to ds-
trbute earnngs n order to create a bass for ta aton aganst the stockhoders.
If the busness had been carred on by oh ndvduay a the year s profts
woud have been ta abe to hm. If, havng a partner, the busness had been
carred on as a partnershp, a the year s profts woud have been ta abe to
the partners ndvduay, athough these had been retaned by the partnershp
undstrbuted. (See ener v. Meon, Nos. 144 and 145, decded May 1 , 1938.)
oh, the soe owner of the busness, coud not by conductng t as a corporaton,
prevent Congress, f t chose to do so, from ayng on hm ndvduay the
ta on the year s profts.4 If t preferred, Congress coud ay the ta upon the
corporaton, as was done by secton 104. The pena nature of the mposton
does not prevent ts beng vad, as the ta was otherwse permssbe under
the Consttuton. (Compare everng v. Mtche, 303 U. S., Ct. D. 1320,
page 317, ths uetn .)
3. It Is sad that secton 104 s unconsttutona because the abty s ad
upon the mere purpose to prevent Imposton of the surta es, not upon the
accompshment of that purpose and that, thus, t s a drect ta on the state
of mnd. ut ths s not so. The ta s ad upon the net ncome of such
corporaton. The e stence of the defned purpose s a condton precedent to
the Imposton of the ta abty, but ths does not prevent t from beng a
true ncome ta wthn the meanng of the s teenth amendment. The nstances
are many n whch purpose or state of mnd determnes the ncdence of an
Income ta .
4. It Is sad that secton 104 as apped deprved the corporaton of ts
property wthout due process of aw that t s unreasonabe, arbtrary and
caprcous n that no standard or formua Is specfed to gude the Commssoner
n assessng, or the corporate drectors n avodng, the addtona ta that
It s assessed retroactvey and that t s unfar to nonassentng mnorty stock-
The frst statute whch provded for ta aton where corporate profts are accumuated
for the purpose of preventng the Imposton of surta es upon stockhoders was the Tarff
ct of 1913, secton 2 , subdvson 1 (38 Stat.. 100). In that ct, n the Revenue ct
of 1910, secton 3 (39 Stat., 758). and In the Revenue ct of 1918. secton 220 (40 Stat.,
1072), the ta was ad upon the sharehoder. In a ater Revenue cs, the ta Is ad
upon the corporaton. (1921 ct, secton 220. 42 Stat., 247 1924 ct, secton 220, 43
Stat., 277 192 ct, secton 220. 44 Stat.. 34 1928 ct, secton 104, 45 Stat., 814 1932
ct, secton 104, 47 Stat., 195 1934 ct, secton 102, 48 Stat.. 702 193 ct, secton 102,
49 Stat., 107 .)
The Revenue cts of 1918 and 1921, sectons 218(e) and 218(d), respectvey, aso
ta ed the sharehoders of persona servce corporatons ke partners. Secton 112(k)
of the Revenue ct of 1932 and secton 112(1) of the cts of 1934 and 1930 provde for
the dsregard of the corporate entty In certan cases where foregn corporatons ae used
for the purpose of avodng edera ta es. nd secton 201 of the Revenue ct of 1937
(50 Stat.. 818) provdes that the ad|usted undstrbuted net ncome of foreen persona
hodng companes must be Incuded In the gross Income of ther Unted States sharehod-
ers. (Compare aso Souther n Pac Co. v. Lowe, 247 T . S.. 330, 33 ut O Corporaton
v. Leweyn, 248 D. S., 71 Gregory v. everng. 293 U. S.. 4 5 Ct D. 911, C. . I -1,
193 (1935)1.)
or e ampe, secton 293(b) of the Revenue ct of 1928 provdes that If any part of a
defcencv Is due to fraud wth Intent to evade ta , there sha be an addton to the
ta of 50 per cent of the defcency. ( everng v. Mtche, 303 U. S., .) Whether
a payment receved s compensaton wthn secton 22(a) or Is a gft wthn secton 22(b)3
Is argey a matter of Intenton. (Compare ogardua v. Commssoner, 302 U. S., 34, 48
Ct. D. 1281, C. . 1937-2. 258).) Smary, the deductbty of osses under secton
3(e) may depend upon whether the ta payer s motve n enterng nto the transacton
was prmary proft. (Compare ener v. Tnde. 27( U. S.. 582 T. D. 4212, C . I-2,
272 (1928) : Stuart v. Commssoner, 84 . (2d), 3 8 (C. C. . 1) Ct. D. 1204, C. .
1937-1, 10f Oodsborough v. urnet. 4 . (2d). 432 (C. C. . 4) eaumont v. ffe -
verng, 7.3 . (2d), 110, 113 ( pp. D. C.) Ct D. 924. C. . I -1, 217 (1935)1 Dresser
v. Unted States, 55 . (2d), 499 (Ct. CI.) Ct. D. 503. C. . I-1, 2 7 (1932) .) nd
secton 112(k) of the Revenue ct of 1932 (and secton 112(1) of the cts of 1934 and
193 ) provdes that a foregn corporaton sha not be consdered as a corporaton for
purposes of certan of the nonrecognton provsons of that secton uness t has been
estabshed to the satsfacton of the Commssoner that such e change or dstrbuton s
not In pursuance of a pan havng as one of Its prncpa purposes the avodance of edera
Income ta es.
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283
104, rt. 541.
hoders. The prescrbed standard Is not too vague. s udge Learned and
sad n Unted usness Corporaton v. Commssoner ( 2 . (2d), 754, 75 ) :
Standards of conduct, f ed no more defntey, are common n the aw
the whoe aw of torts Is pervaded by them much of ts commands are that
a man must act as the occason demands, the standard beng avaabe to a.
The vce of f ng ma mum prces s that t requres recourse to standards
beyond ascertanment by seers, by whch therefore they can not n practce
reguate ther deangs. That Is not true of the reasonabe needs of a busness,
whch s mmedatey wthn the ken of the managers, the supposttous stand-
ard, though ndeed ob|ectve, beng as accessbe as those for e ampe of the
prudent drvng of a motor car, or of the dgence requred n makng a shp
seaworthy, or of the e tent of proper nqury nto the sovency of a debtor.
Ceary retroactve assessment s no more ob|ectonabe here than n the case
of penates for fraud or neggence. ( cvcrng v. Mtche, supra.) nd snce
no mnorty stockhoders are here nvoved, the Inst ob|ecton need not be
consdered. (Casto v. McConnco, 1G8 U. S., 74, 80 tantc Refnng Co. v.
rgna, 302 U. S., 22, 27.)
5. It s sad that secton 104 s vod because t deegates to the Commssoner
egsatve power. The statute provdes that f the corporaton s avaed of for
the forbdden purpose, the ta sha be eved, coected, and pad and certan
facts are made prma face evdence of the e stence of ths purpose. No
power s deegated to the Commssoner save that of fndng facts upon evdence.
Second, The corporaton contends, as a matter of statutory constructon,
that secton 104 was not appcabe becnuse there were no gans and profts
wthn the ta year. Concedng that net ncome of 8 3,787.22 was earned,
t asserts that there were no gans and profts because the deprecaton n
the securtes owned, none of whch were sod, e ceeded 2,000,000. The argu-
ment s that the word gans was not used as synonymous wth profts,
but to e press contempated unreazed Increases or accesson n net worth of
the assets and that assessabty under secton 104 depends not upon gans or
profts but upon the aggregate of gans (or osses) and profts, snce prudent
drectors woud take these nto consderaton n determnng whether a dvdend
shond be decared. Deprecaton n any of the assets s evdence to be con-
sdered by the Commssoner and the oard n determnng the ssue of fact
whether the accumuaton of profts was n e cess of the reasonabe needs of
the busness. ut obvousy deprecaton n the market vaue of securtes
whch the corporaton contnues to hod does not, as matter of aw, precude
a fndng that the accumuaton of the year s profts was n e cess of the
reasonabe needs of the busness.
Thrd. There was ampe evdence to support the fndngs of the oard of Ta
ppeas. The corporaton hed on anuary 31, 1930, bonds and stocks vaued
at 2,779,718.07 on anuary 31, 1931, t hed 2,989.452.74 an ncrease of
209,734. 7. The st of these bonds and stocks showed that they were n no
way reated to a grocery busness. That there was no need of accumuatng
any part of the year s earnngs for the purpose of fnancng the busness was
shown bv the baance sheet Comparng the cash on hand wth the outstandng
ndebtedness, t appears that the 1,332,332.28 cash on hand anuary 31, 1930,
e ceeded the 1,1 1,121.9 accounts payabe, notes and mortgage, by 171,210.32.
On anuarv 31, 1931, the e cess of cash over accounts payabe was 1,130,820.55.
These were then ony 2 9,140.49 and the cash on hand was 1,405,9 1.04.
The notes payabe and the mortgage bad been dscharged.
That the purpose of accumuatng ths huge surpus was to escape the m-
poston upon oh of surta es, was Indcated by the foowng facts. The
1,3 5,413.78 aggregate of bonds, stocks, and e cess cash anuary 31, 1931,
represents about four-ffths of the tota accumuaton of the surpus profts
(urng the ast 10 years, whch amounted to 5,742,455.35. If the surpus
profts of the fsca year 1930-31 had been dstrbuted as dvdends, the ad-
The corporaton reported In Its return an Income of 8 3,471. 7. Ths was ncreased
by the Commssoner to 803 787.22 and Is not now dsputed
The stock hod anuary 31. 1931, of the aggregate cost of 2, 70,0 1.47, conssted of
Issues of 147 dfferent corporatons. Of ndustras there were 01. Of pubc uttes. 27.
Of Insurance companes, 18. Of nvestment trusts, 13. Of banks and trust companes, 28.
There were, besdes. Government, muncpa, raroad, pubc utty. Industra and msce-
aneous bonds whch cost 313,391.27.
The profts for these years (after deductng edera corporaton ncome ta es pad)
are sted In note 9, Infra.
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104, rt. 541.
284
dtona surtaes payabe thereon by oh In the year 1931 woud have been
at east 00,744.5 , and for the precedng nne years woud have aggregated
1,240,852.30.
urther evdence to support the oard s fndngs that In tne ta year dvdends
were omtted and the surpus accumuated n order to enabe oh to escape
these surta es s furnshed by the foowng facts: oh drew hs saary of
104,000 a year and that sum, as an e pense of the busness, was deducted
before cacuatng the corporaton s proft on whch t pad ta es under secton
13. e needed personay further sums and took these In the form of oans.
In the ta year oh borrowed from the corporaton 140,000. s aggregate
ndebtedness on anuary 31, 1931, for borrowngs durng seven years, was
010,000. s was stted n Unted usness Corporaton v. Commssoner
(supra, page 755) : These oans are ncompatbe wth a purpose to strengthen
the fnanca poston of the pettoner, but entrey accord wth a desre to get
the equvaent of hs dvdends under another guse. 10
Snce oh was the soe owner of the corporaton, the busness woud have
been as we protected aganst une pected demands for capta, and assured of
capta for the purpose of any possbe e panson, by hs persona ownershp of
the securtes as by the corporaton s ownng them. Moreover, no concevabe
e panson coud have utzed so arge a surpus. The hgh ta es were frst
mposed n 1019. fter that tme no dvdend was pad unt after the cose of
the ta abe year here nvoved.
Thus, ndependenty of the presumpton prescrbed n secton 104(b) there
wns ampe evdence to support the oard s fndngs.
ourth. The court of appeas, nstead of mtng ts revew to ascertanng
whether there was evdence to support the oard s fndngs and decson, made
on a the evdence, as upon a tra de novo, n effect, an ndependent determna-
ton of the matters whch had been n ssue before the oard. The court was
wthout power to do so. ( everng v. Rankn, 295 U. S., 123, 131-132 Ct. D.
9G , C. . I -1, 1C0 (1935) .) To draw nferences, to wegh the evdence and
oh s Indvdua returns were made on a caendar year cash bass. or the fsca year
here In queston, anuary 31, 1930, to anuary 31, 1931, the corporaton s books showed a
proft of 82,850.38 after deductng oh s saary and the 12 per cent corporaton Income
ta pad. dvdend of 1110.000 was pad n 1931. ad the remanng 8 . .850.38 been
entrey dstrbuted n that year. oh woud have Incurred an addtona surta abty
of 90,744 5 , even f It be assumed that the addtona dstrbuton woud have const-
tuted hs entre net ncome fo that year and that the 15 per cent ma mum chartabe
contrbutons deducton coud have been taken. (It s mpossbe to cacuate what hs
e act surta nb ty for 1931 woud have been, Inasmuch as hs persona return for that
year s not n evdence.) (Compare note 3. supra.)
If the corporaton had dstrbuted ts profts for each fsca year mmedatey after ts
cose on anuary 31, oh s addtona surta abty for the nne precedng years woud
have been as foows :
ook profts
sca year n whch dstrbu-
ton was earned by corpora-
ton.
of corpora-
ton ess
oh s com-
puted net
ncome n-
cudng ds-
trbuton.
oh s com
puted sur-
ta .
Surta
actuay
pad.
Year.
edera cor-
poraton
Dfference.
ncome ta
pad.
1930
1929
1928
1927
192
1925
1924
1923
1922
an. 31, 1928- an. 31, 1930
713,181. 2
7 9.945. 9
707,239. 0
498,879. 08
508.837.0
28, 022. 34
547, 483. 80
4 1,10 .88
324.908. 3
703,972. 52
839, 7 . 18
775, 3 3. 34
5 9.440.88
584,937. 44
14,044. 9
4 ,921.87
441.832. 17
3 2,98 .22
132.454. 0
159. 13.24
14 , 732. 7
105. 48. 18
108, 47.49
114,4 8.94
188. 788. 75
191,87 .09
152,453. U
8,022.37
8,441. 14
8,411. 75
8, 481. 21
9.113. 1
9.004.24
2, 820. (10
2.0 9 50
3,3 .70
124,432.13
151. 172. 10
138. 320. 92
97. 0 . 97
99. 34. 33
105. 4 4. 70
185.9 8. 15
S9.Mf.59
149. 08 . 41
an. 31, 1928- an. 31, 1929
an. 31, 1927- an. 31, 1928.
an. 31, 192 - an. 31, 1927
an. 31, 1925- an. 31, 192
an. 31, 1924- an. 31, 1925
an. 31, 1923- an. 31, 1924
an. 31, 1922- an. 31, 1923
an. 31, 1921- an. 31, 1922
1.24a 852. 30
Compare . D. Saenqer, Inc., v. Commssoner (84 . (2d), 23 (C. C. . )) : Unted
tatert v. . C. Ttcay Coa Co. (75 . (2d). 33G, 340 (C. C. )).
u In the 10 years the number of stores n the chan had been Increased from 3 S to 815.
ven on o.s own estmate that ncudng everythng you have to have about Ooo
per store, ths e panson coud account for ony S2.2S5.000 of the 5,742,455.35 of profta
accumuated over that perod.
12 The Revenue ct of 1018 (40 Stat., 1057), whch was not enacted unt ebruary 24,
1019, Imposed a surta of as much as 05 per cent on ncome In e cess of 1,000,000. The
ma mum rate under the Revenue ct of 191 (39 Stat., 75 ) was ony 13 per cent on
Income n e cess of 2,000,000.
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285
112, rt. 575.
to decare the resut was the functon of the oard. ( nburd v. Commssoner,
29 U. S-.. 300. 30 Ct. D. 10o , C. . -1, 320 (193 ) mhurst Cemetery
Co. y. Commssoner, 300 U. S., 37, 40 Ct. D. 1202, C. . 1937-1, 209 .)
fth. The court e pressed the opnon that the oard faed to consder ree-
vant and controng facts, that t reed upon mproper evdence n reachng
ts concuson, and that t faed to make the fndngs requred by the statute.
There Is nothng n the record to |ustfy that vew. The fndngs quoted above
are specfc. The oard was not obged to accept as true oh s statement of
hs ntenton and purposes or to accept as sound the opnon of hs e perts.
It was error to reverse the decson of the oard. There s no occason to
remand the case to t for further consderaton.
Reversed.
Mr. ustce Cakdozo and Mr. ustce Reed took no part n the consderaton
or decson of ths case.
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 112. COGNITION O G IN OR LOSS.
rtce 575: changes n reorganzatons for stock 1938-1 -9300
or securtes and other property or money. Ct. D. 1328
INCOM T R NU CT O 1028 D CISION O SUPR M COURT.
1. Income empton Rkoroanzaton Rkcoonton of Gan
ssumpton and Payment by Transferee of Labtes of
Transferor.
The assumpton and payment, pursuant to a pan of reorganza-
ton, by a transferee corporaton of the bonded ndebtedness of the
transferor, resuted n a gan whch does not fu wthn the e emp-
ton of secton 112 of the Revenue ct of 1928, snce the gan or
ncome was nether receved as stock or securtes nor dstrbuted
to stockhoders n pursuance of the pan of reorganzaton. The
transacton s to be regarded n substance as though the payment
had been drecty to the transferor, the dscharge of whose abty
by such payment consttuted ta abe gan.
2. Decson Reversed.
Decson of the Crcut Court of ppeas, ourth Crcut (1937)
(91 ed. (2d), 80), affrmng decson of the Dstrct Court,
Dstrct of Maryand (193 ) (17 ed. Supp., 558), reversed.
Supreme Court of the Unted States.
Unted States of merca, pettoner, v. L. Manue ander, as Transferee of
Creameres, Inc. ( ormery ender Creamery Co., Inc.).
303 U. S., 5 4.
3n wrt of certorar to the Unted States Crcut Court of ppeas for the ourth Crcut.
March 28, 1938.
opnon.
Mr. ustce ack devered the opnon of the Court.
The Revenue ct of 1928 mposed a ta upon the annua net ncome of
corporatons. It defned net ncome as gross ncome ess the
deductons aowed , and gross ncome as ncudng gans, profts,
and ncome derved from trades or saes, or deangs n
property, or gans or profts and ncome from any source
whatever.
Secton 112 of the ct e empts certan gans whch are reazed from a
reorganzaton smar to, or n the nature of, a corporate merger or consoda-
Revenue ct of 1928 (ch. 852, 45 Stat., 791, secton 13).
Id., sectons 21-22.
Id., secton 112.
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112, rt. 577.
28
ton. Under ths secton, such gans are not ta ed f one corporaton, pursuant
to a pan of reorganzaton e changes ts property soey for stock or
securtes, n another corporaton, a party to the reorganzaton. ut, when a
corporaton not ony receved stock or securtes n e change for ts property,
but aso receves other property or money n carryng out a pan of
reorganzaton,
(1) If the corporaton recevng such other property or money dstrbutes
t n pursuance of the pan of reorganzaton, no gan to the corporaton sha be
recognzed from the e change, but
(2) If the corporaton recevng such other property or money does not
dstrbute t n pursuance of the pan of reorganzaton, the gan, f any, to the
corporaton sha be recognzed ta ed .
In ths case, there was a merger or reorganzaton of the orden company
and the ender Creamery Co., Inc., resutng n gans of more than ,000,000
to the ender Co., Inc., a corporaton of whch respondent s transferee. The
court of appeas, beevng there was an e empton under secton 112, affrmed
the |udgment f the dstrct court hodng a ender gans nonta abe.
Ths controversy between the Government and respondent nvoves the assump-
ton and payment pursuant to the pan of reorganzaton by the orden
company of 534,297.40 bonded Indebtedness of the ender Creamery Co., Inc.
We are unabe to agree wth the concuson reached by the courts beow that the
gan to the ender company, reazed by the orden company s payment, was
e empt from ta aton under secton 112.
It was contended beow and t s urged here that snce the ender company
dd not actuay receve the money wth whch the orden company dscharged
the former s ndebtedness, the ender company s gan of 534,297.40 s not
ta abe. The transacton, however, under whch the orden company assumed
and pad the debt and obgaton of the ender company s to be regarded n
substance as though the 534,297.40 had been pad drecty to the ender com-
pany. The ender company was the benefcary of the dscharge of ts ndebt-
edness. Its gan was as rea and substanta as If the money had been pad
t and then pad over by t to ts credtors. The dscharge of abty by the
payment of the ender company s ndebtedness consttuted ncome to the
ender Company and s to be treated as such.
Secton 112 provdes no e empton for gans resutng from corporate re-
organzaton nether receved as stocks or securtes, nor receved as
money or other property and dstrbuted to stockhoders under the pan of
reorganzaton. In Mnnesota Tea Co. v. everng (302 U. S., Ct. D. 1305,
page 2 8, ths uetn ), t was sad that ths e empton contempates a dstr-
buton to stockhoders, and not payment to credtors. The very statute upon
whch the ta payer rees provdes that If the corporaton recevng such other
property or money does not dstrbute t n pursuance of the pan of reorganza-
ton, the gan, f any, to the corporaton sha be recognzed ta ed .
Snce ths gan or ncome of 534,297.40 of the ender company was nether
receved as stock or securtes nor dstrbuted to ts stockhoders n pur-
suance of the pan of reorganzaton t was not e empt and s ta abe gan
as defned n the 1928 ct. Ths 534,297.40 gan to the ta payer does not fa
wthn the e emptons of secton 112, and the |udgment of the court beow a
INCOM T R NU CT OP 1928 D CISION O SUPR M COURT.
1. Gan or Loss Recognton change of Stock fob Stock
and Other Propbty Party to a Reorganzaton.
Pursuant to a pan conceved by Corporaton and consum-
mated by ndvduas representng , three of ts compettor cor-
poratons were consodated nto a new corporaton whch became
the owner of practcay a the stock and a the assets of the com-
pettors became the owner of a the preferred and 57 per cent of
01 . (2d), e,80: certorar granted. U. S., .
17 ed. Sunn., fns
Reversed.
rtce 577: Defntons.
1938-4-9159
Ct. D. 1299
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287
112, rt. 577.
the common stock of the new corporaton and each stockhoder of
the three compettor corporatons receved, n e change for hs
stock, common stock n the new subsdary of , preferred and
common stock of , and cash. Under these facts, was not a
party to the reorganzaton wthn the meanng of secton 112(1)2
of the Revenue ct of 1928, and the stock of acqured by the ta -
payer, a former stockhoder of one of the compettors, was other
property on whch gan was ta abe under the provsons of
secton 112(c) of the ct. ue n roman v. Commssoner
( D. S., ). decded by ths Court November 8, 1937 Ct. D.
1283, C. . 1G37-2, 28C) , foowed.
2. Decson Reveesed.
Decson of the Crcut Court of ppeas, Thrd Crcut (87 ed.
(2d), 827), afrmng decson of the oard of Ta ppeas (33
. T. ., 10), reversed.
Supreme Court of the Unted States.
Guy T. ererng, Commssoner of Interva Revenue, pettoner, v. Raymond I.
ashford.
302 U. S., 454.
On certorar to the Unted States Court of ppeas for the Thrd Crcut.
anuary 3, 1938.
OPINION.
Mr. ustce randes devered the opnon of the Court.
Whether ashford s abe for a defcency n the ncome ta es assessed for
the year 1930 depends upon whether tas Powder Co. was, as defned by sec-
ton 112()2 of the Revenue ct of 1928, a party to the reorganzaton of
the Peeress posves Co.
tas Powder Co. desred to emnate the competton of three concerns
Peeress posves Co., Unon posves Co., and ack Damond Powder Co.
Deemng t unwse to do so by buyng ether ther stock or ther assets, tas
conceved and consummated a pan for consodatng the three compettors nto
a new corporaton, wth tas to get a ma|orty of ts stock. To ths end
hoders of the stock of the three companes were duy approached by ndvduas
who represented tas ther agreements to carry out the pan were obtaned
the new corporaton was formed and became the owner practcay of a
the stock, and a the assets, of the three compettors tas became the owner
of a the preferred stock and 57 per cent of the common stock of the new cor-
poraton and n e change for the stock n the three companes each of the
former stockhoders receved some common stock n the new company, some
tas stock, and some cash whch tas supped.
ashford, one of the stockhoders n Peeress, receved n e change for hs
stock 2,720.08 shares of the common stock of the new corporaton, 25,303. 7
n cash, 25 shares of tas preferred, and 1,344 shares of tas common. In hs
ncome ta return for the year 1 )30 he ncuded a the cash, but dd not n-
cude the gan on stock of ether the new corporaton or tas. The Com-
mssoner concedes that gan on the stock n the new corporaton was propery
omtted, snce the new company was a reorganzaton of Peeress. e
nssts that the tas stock shoud have been ncuded, as t was other
property on whch gan was ta abe under secton 112(c) 1 of the Revenue
ct of 1928, snce tas was not a party to the reorganzaton. The oard
of Ta ppeas (33 . T. ., 10) hed that tas was a party to the reor-
ganzaton, and hence that gan on ts stock was propery omtted by ashford.
The Crcut Court of ppeas for the Thrd Crcut affrmed that |udgment
(87 . (2d), 827.) ecause of aeged confct of the decson wth Commssoner
v. roman (8 . (2d), 70), we granted certorar n both cases.
In Groman v. Commssoner, decded by us November 8, 1937 Ct. D. 1285, C. .
1937-2, 28 , we gave the foowng constructon to the reorganzaton sectons
here nvoved:
Where, pursuant to a pan, the nterest of the stockhoders of a corpora-
ton contnues to be defntey represented n substanta measure n a new or
dfferent one, then to the e tent, but ony to the e tent, of that contnuty of
nterest, the e change s to be treated as one not gvng rse to present gan
or oss.
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112, rt. 577.
283
ppyng the rue, we hed there that the Gdden stock receved by Groman
was other property ad he. therefore, abe on the defcency assessment
because the Gdden company was not a party to the reorganzaton, athough
t had, pursuant to agreement wth the stockhoders of the Indana corporaton,
caused t to be reorganzed as an Oho corporaton had taken for tsef a the
common stock of Oho and had dstrbuted among the former stockhoders of
Indana the Oho preferred stock and some Gdden stock, as we as cash, whch
t supped. ppyng the rue here, we hod kewse that the tas stock was
other property and ashford, therefore, abe on the defcency assessment
because the tas Powder Co. was not a party to the reorganzaton.
ashford contends that there s a cear dstncton n the facts between the
case at bar and the Groman case whch shoud ead to a dfferent concuson here.
The dfferences many reed upon are these:
1. In the Groman case, the Court found that Gdden dd not acqure a ma|orty
of the shares of the votng stock and a ma|orty of the shares of a other casses
of stock nvoved, whereas here the facts were as foows: tas acqured uot
ony a ma|orty of the votng stock and a ma|orty of the stock of a other casses
of another corporaton (the new company) n the reorganzaton, but of a the
other corporatons (Peeress and Unon) n the reorganzaton.
2. tas acqured as part of the pan, substantay a of tbe shares of Peer-
ess and Unon n drect e changes wth the ta payers and the other stockhoders
of those companes n part consderaton for whch t devered to the sharehod-
ers ,318 shares of tas preferred stock and 8.712 a shares of common.
3. tas, unke Gdden was a party to a the e changes, whe the new
company was a party ony to e changes wth tas.
4. The stockhoders of Peeress and Unon dd not partcpate n the contract
or e change between tas and the new company.
ny drect ownershp by tas of Peeress, ack Damond, and Unon was
transtory and wthout rea substance t was part of a pan whch contempated
the mmedate transfer of the stock or the assets or both of the three reorganzed
companes to the new tas subsdary. ence, under the rue stated, the above
dstnctons are not of ega sgnfcance. The dfference In degree of stock con-
tro by the parent company of ts subsdary and the dfference n the method or
means by whch that contro was secured are not matera. The partcpaton of
tas n the reorganzaton of ts compettors nto a new company whch became
a subsdary dd not make tns a party to the reorganzaton. The contnuty
of tterest requred by the rue s ackng.
Reversed.
rtce 577: Defntons. 1938- -918
Ct D. 1305
INCOM T R NU CT O 1928 D CISION O SUPR M COURT.
1. Gan or Loss Recognton Payment op Corporate Debts bt
Stockhoders Under Reorganzaton Pan Dstrbuton of
Dvdends.
Where the stockhoders of a corporaton by approprate resou-
ton assumed the debts of the corporaton n consderaton of the
dstrbuton to them, rataby and n the proporton of ther respec-
tve stock hodngs of a moneys receved by the corporaton on
the sae of ts assets under a pan of reorganzaton, the devery of
cash to the stockhoders to the e tent of the amount of the cor-
porate debts dd not consttute a dstrbuton of dvdends wthn
the meanng of secton 112(d) (1) and (2) of the Revenue ct of
1928. but consttuted ta abe gan to the corporaton.
2. Decson ffrmed.
Decson of the Crcut Court of ppeas, ghth Crcut (89
ed. (2d), 711), reversng decson of the oard of Ta ppeas
(34 . T. ., 145), affrmed.
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289
(112. rt. 77.
Supreme Court or the Unted States.
Mnnesota Tea Co., pettoner, v. Guy T. e oerng, Commssoner of Interna
Revenue.
302 U. S., 09.
On wrt of certorar to the Unted States Crcut Court of ppeas for the ghth
Crcut
anuary 17, 1938.
OPINION.
Mr. ustce Sutherand devered the opnon of the Court.
Pettoner, n 1928, brought about the organzaton of the Peterson Investment
Co., and transferred to t certan assets n e change for the entre capta
stock of that company. The stock was mmedatey dstrbuted to pettoner s
stockhoders. Soon thereafter, pettoner transferred ts remanng assets to
Grand Unon Co. n e change for 18,000 shares of that company s stock and
42 ,842.52 n cash. The cash was mmedatey transferred to and dvded
among pettoner s stockhoders, n proporton to ther stock hodngs, n pur-
suance of a pan of reorganzaton. The oard of Ta ppeas, upon ts frst
consderaton of the case, hed that no reorganzaton had been effected under
secton 112()( ) of the Revenue ct of 1928. (28 . T. ., 591.) The crcut
court of appeas concuded otherwse, reversed the oard, and remanded the
case to the oard for further consderaton. (7 . (2d), 797.) Upon revew,
pursuant to a wrt of certorar, we affrmed the |udgment of the crcut court
of appeas. ( cvcrng v. Mnnesota Tea Co., 29 U. S., 378 Ct. D. 10 0, C. .
-1, 1S9 (193 ) .)
Upon the remand, the oard, after consderaton, refused to foow the rung
of the Commssoner that 10 ,471.73 of the 42 ,842.52 consttuted ta abe
assets n the hands of pettoner. (34 . T. ., 145.) The court beow, revers-
ng the acton of the oard, sustaned the vew of the Commssoner (89 . (2d),
711) and the case agan comes here upon wrt of certorar. (302 U. S., .)
The facts are not n dspute. In addton to those aready stated, t appears
that mmedatey before the recept by pettoner of the 42(1,842.52, ts stock-
hoders, at a speca meetng, adopted the foowng resouton:
Resoved further that a moneys receved by Mnnesota Tea Co. on such
sae of ts assets and In consderaton thereof, whenever receved, sha be mme-
datey dstrbuted to the stockhoders of Mnnesota Tea Co. rataby and n the
proporton of ther respectve stock hodngs n Mnnesota Tea Co. upon the
assumpton by the stockhoders of a the corporate debts of Mnnesota
Tea Co. n order to enube the company to hod a the corporate stock or
securtes receved by t for ts assets on such sae thereof wthout beng
compeed to se any part of the same, and the board of drectors are hereby
authorzed and drected to so dstrbute the sad moneys as aforesad and n
behaf of the company enter nto a wrtten agreement wth the stockhoders,
gned and e ecuted by the company and a the stockhoders whereby sad
stockhoders, n consderaton of such dstrbuton and for the purpose of en-
abng the company to contnue to hod the sad corporate stock and securtes
wthout beng compeed to se any part thereof for the payment of e stng
debts, agree to pay a the corporate debts of the Mnnesota Tea Co. whether
due and payabe or not and whether certan or contngent.
When the cash was dstrbuted, pettoner s debts amounted to 10 ,471.73,
about ,500 of whch was owng to the stockhoders themseves. In pursuance
of the resouton, the stockhoders pad a the debts, retanng sums, aggregatng
about ,500, necessary to dscharge the amount of pettoner s Indebtedness
to them.
The queston for determnaton s whether the devery of the 10 ,471.73 by
pettoner to the stockhoders, an equa sum thereafter beng apped by them
to the payment of pettoner s debts n pursuance of the resouton, consttuted
a dstrbuton wthn the meanng of the provsons of secton 112(d) (1) and
(2) of the Revenue ct of 1928, coped n the margn.1
Md) Same gan of corporaton. If an e change woud hp wthn the provsons of
nbsecton (b)(4) of ths secton If It were not for the fact that the property receved In
e change conssts not ony of stock or securtes permtted by such paragraph to be
receved wthout the recognton of gan, hut aso or other property or money, then
(1) If the corporaton recevng such other property or money dstrbutes t n pur-
suance of the pan of reorganzaton, no gan to the corporaton sha be recognzed from
the e change, but
(2) If the corporaton recevng such other property or money does not dstrbute
It In pursuance of the pan of reorganzaton, the gan. If any, to the corporaton sha
be recognzed, but n an amount not In e cess of the sum of such money and the far
market vaue of such other property so receved, whch s not so dstrbuted.
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5113, rt. 59 .
290
These provsons pany estabsh that, n respect of any cash receved and
not dstrbuted, there was a ta abe gan to pettoner. nd, qute as pany,
payment of the debts by pettoner, f made drecty by pettoner to the credtors,
woud not have been a dstrbuton under the statute for that contempates
a dstrbuton to stockhoders, and not payment to credtors. If, then, pettoner
had foowed the smpe course of retanng n ts own hands the sum here n
queston, and subsequenty payng t drecty to the credtors, t necessary
woud resut that abty of pettoner for a ta on the amount of gan coud
not be avoded. nd, obvousy, ths s the effect of what was done, athough
crcutousy.
The money was receved by pettoner and was avaabe for the payment of
ts debts. It was put nto the hands of the stockhoders upon the e press
understandng, as shown by the resouton heretofore quoted, that they woud
assume a the corporate debts of pettoner, and woud enter nto a wrtten
agreement wth pettoner whereby sad stockhoders, n consderaton of
such dstrbuton and for the purpose of enabng the company to contnue to
hod the corporate stock and securtes whch t had receved n the reor-
ganzaton wthout beng compeed to se any part thereof for the payment
of e stng debts, agree to pay a the corporate debts of the Mnnesota Tea
Co.
In pursuance of the resouton, the stockhoders receved the money from
pettoner to the e tent of 10 ,471.73, not as a dstrbuton for ther beneft
but as a fund the equvaent of whch they were bound to pass on, and dd
pass on, to the credtors. The concuson s nescapabe, as the court beow very
ceary ponted out, that by ths roundabout process pettoner receved the
same beneft as though t had retaned that amount from dstrbuton and
apped t to the payment of such ndebtedness. Payment of ndebtedness,
and not dstrbuton of dvdends, was, from the begnnng, the am of the
understandng wth the stockhoders and was the end accompshed by carryng
that understandng nto effect. gven resut at the end of a straght path
s not made a dfferent resut because reached by foowng a devous path.
The premnary dstrbuton to the stockhoders was a meanngess and un-
necessary ncdent n the transmsson of the fund to the credtors, a aong
ntended to come to ther hands, so transparenty artfca that further ds-
cusson woud be a needess waste of tme. The reaton of the stockhoders
to the matter was that of a mere condut. The controng prncpe w be
found n Gregory v. everno (293 U. S., 4 5. 4 9-470 ICt. D. 911. C. . I -1,
193 n93T))) and appyng that prncpe here, the udgment of the court beow
Is affrmed.
Mr. ustce Cardozo took no part n the consderaton or decson of ths case.
S CTION 113. SIS OR D T RMINING
G IN OR LOSS.
rtce 59 : Property transmtted at death. 1938-15-9289
( so Secton 204, rtce 1594.) G. C. M. 19884
R NU CT O 1928 ND PRIOR R NU CTS.
In vew of the decson of the Roard of Ta ppeas n Wam .
Sack. r., v. Commssoner (3 . T. ., 105. acquescence, page 28,
ths uetn), hodng that where, under the w of a decedent who
ded pror to March 1, 1913. rea property was devsed to a person
suh|ect to an ntervenng fe estate and the property was sod n
1930 by the remanderman after the death of the fe tenant, the far
market vaue of the property on March 1, 1913 (whch was greater
than the vaue at decedent s death), undmnshed by the vaue of
the fe estate, consttutes the proper bass for determnng gan or
oss, t s recommended that O. D. 91 (C. . 3, 53 (1920)) be re-
voked and that I. T. 11 5 (C. . 1-1, 30 (1922)) and I. T. 1 22 (C. .
II-, 135 (1923)) be modfed. S. O. 35 (C. . 3, 50 (1920)) s re-
voked and S. M. 3781 (C. . -2, 21 (1925) ), G. C. M. 811 (C. .
I -1, 13 (1930)), G. C. M. 102G0 (C. . I-1, 79 (1932)), G. C. M.
10 98 (C. . I-2, 10 (1932)), and a other rungs of ths offce n
confct wth the oard decson are modfed to conform therewth.
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291
113, rt. 599.
In Wam, . Sack, r., v. Commssoner (3 . T. ., 105, acqu-
escence, pge 28, ths uetn), the queston presented for consdera-
ton before the oard of Ta ppeas was as foows:
Where, under the w of a decedent who ded n 1891, a fe estate
and a remander were created n rea property, and the atter was sod
n 1930 after the demse of the fe tenant, s the bass for measurng
the gan on the sae (1) the far market vaue of the property as of
March 1, 1913 (that vaue beng greater than at the date of the testa-
tor s death), reduced by the then vaue of the fe tenant s nterest (as
contended by the Commssoner), or (2) the far market vaue of the
property as of March 1, 1913, wthout reducton for the fe estate
(as contended by the ta payer)
On une 15, 1937, the oard hed that under secton 113 (a) 5 and
(b) of the Revenue ct of 1928 the proper bass n such a case s the
far market vaue of the property as of March 1, 1913, undmnshed
by the vaue of the fe estate, that s, the vaue of the property on
March 1, 1913, and not the vaue of the vested remander. That de-
cson harmonzes wth the opnons of the Court of ppeas for the
Dstrct of Coumba n uggett v. urnet ( 4 ed. (2d), 705) and the
Crcut Court of ppeas for the S th Crcut n Lucas v. dety rf
Coumba Trust Co. (89 ed. (2d), 945 (1937)).
cquescence n the decson of the oard n the Sack case was
announced n I. . . 1938-14, 1 page 28, ths uetn . Snce the
concuson there reached s n confct wth a number of decsons of
the ureau, t s recommended that O. D. 94 (C. . 3, (1920)) be
revoked and that I. T. 11 5 (C. . 1-1, 30 (1922)) and I. T. 1 22
(C. . II-, 135 (1923)) be modfed. S. O. 35 (C. . 3, 50 (1920))
s revoked and S. M. 3781 (C. . I -2, 21 (1925)), G. C. M. 811
(C. . I -1, 13 (1930)), G. C. M. 102 0 (C. . I-1, 79 (1932)),
G. C. M. 10 98 (C. . I-2,10 (1932)), and a other rungs of ths
offce n confct wth the oard decson are modfed to conform
therewth.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
rtce 599: Property acqured after December 1938-7-9197
31, 1920, by a corporaton. Ct. D. 130
INCOM T R NU CTS O 192 ND 1928 D CISION O COURT.
1. Income ffated Corporatons Sae by ffate of
Dvdend Stock cqured Prom Stockhoders of nother
Memrer of ffaton Gan or Loss ass.
Pursuant to a trust agreement entered Into between a bank, ts
stockhoders, and certan trustees, speca stock dvdends were
decared and ssued to the trustees, as agents of the stockhoders,
for the purpose of organzng and assstng an affate of the bank,
the stockhoders beng entted to benefca nterests n the stock
of the affate rataby n proporton to ther bank hodngs. The
trustees then transferred the dvdend shares to the affate, whch
n turn ssued ts own stock to them to be hed upon the same
condtons as the orgna stock. Under these facts, the bass for
determnng gan or oss upon ater saes by the affate of the
dvdend stock thus acqured was the same as that of ts trans-
feror, and profts reazed therefrom consttuted ta abe ncome.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (33 . T. ., 2 ) affrmed.
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113, rt. 599.
292
Unted States Crcut Court of ppeas for the Nnth Crcut.
Securty Company, pettoner, v. Commssoner of Interna Revenue, respondent.
90 ed. (2d). 951.
Upon petton to revew a decson of the Unted States oard of Ta ppeas.
efore Wbur, Mathews, and anky, Crcut udges.
une 21, 1937.
OPINION.
aney, Crcut udge: Pettoner has pettoned ths court to revew a dec-
son of the oard of Ta ppeas whch sustaned a defcency determnaton of
the Commssoner for the years 1927 and 1928, n the amounts of 93,353.11),
and 10 ,111.80.
Pettoner was a corporate affate of the Securty Trust Savngs ank,
herenafter referred to as the bank, throughout the years 1927 and 1928, and
consodated ncome ta returns were fed for those years, and were accepted
by respondent.
Pettoner was organzed n 1922 pursuant to a certan trust agreement sgned
by the bank, ts stockhoders and certan trustees, by whch the stockhoders of
the bank agreed that f the bank decared a speca dvdend for that purpose,
that dvdend shoud be pad to the trustees nstead of to the stockhoders of
the bank, and the trustees agreed to organze a corporaton and appy the
dvdends to payment of the capta and surpus of the new corporaton and to
hod the stock of the new corporaton thus pad for upon trust.
The trust agreement provded that each stockhoder of the bank subscrbng
to the agreement shoud become entted to a benefca nterest n a stock of
the new corporaton rataby, n proporton to the number of shares of the
stock of the bank whch he hed, and that the benefca nterest of a stockhoder
n such capta stock shoud be transferabe ony by the transfer of the shares
of capta stock of the bank hed by hm. The then stockhoders of the bank
aso agreed, n the trust nstrument that any further and future speca dv-
dends decared by the board of drectors of the bank for the purpose of suppy-
ng addtona capta or surpus of the Securty Company mght kewse be
pad to sad trustees upon trust for the use of the Securty Company. bank
stock was ndorsed to show ths agreement.
Stock dvdend shares of the bank were ssued three tmes durng the year
1925 and 1927, and ssued drecty to the trustees, who transferred them to the
Securty Company, whch n turn ssued addtona shares of ts own stock to
the trustees to be hed by them upon the same condtons as the orgna
stock.
Durng 1927 and 1928 the pettoner sod 3,834 and 3,445 shares, respectvey,
of the stock of the bank thus acqured, and t was stpuated by the partes be-
ow, that:
If the sae by pettoner, as a member of the affated group, of shares of
the capta stock of ts affate, the Securty Trust Savngs ank
whch shares were receved by pettoner pursuant to the trust agreement dated
uy 1, 1922. was such a transacton as gave rse to the recept of ta abe n-
come, then the amount thereof for each of sad years s as foows:
or the year 1927, 015,275.30.
or the year 1928, 50,151.3 .
The oard of Ta ppeas hed that the stpuated profts whch the pettoner
reazed upou the sae of the stock ssued as a dvdend by the bank, whch the
pettoner had acqured pursuant to the herenabove descrbed agreement of
uy 1, 19 2, were aso ta abe. Pettoner has fed a petton to revew that
decson.
Secton 203(b)4 of the Revenue ct of 192 , and secton 112(b)5 of the Reve-
nue ct of 1928, provde that:
No gan or oss sha be recognzed f property s transferred to a corpora-
ton by one or more persons soey n e change for stock or securtes In such
corporaton, and mmedatey after the e change such person or persons are n
contro of the corporaton .
Secton 204(a)8 of the 192 ct, and secton 113(a)8 of the 1928 ct provde
that n that case, the bass for gan or oss sha be the same as t woud be n
the hands of the transferor.
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293
114, rt. 11.
The pettoner contends that:
(1) Intercompany transactons and ntercompany hodngs are requred to
be emnated n order to refect the true ncome of the group as an ncome com-
putng or ta computng unt and
(2) pettoner and the bank were affates, and that therefore pettoner,
havng acqured ths stock from ts affate, the transacton was a capta trans-
acton and no ta abe ncome resuted.
oth of these contentons are based upon the assumpton that the transacton
by whch the pettoner acqured the bank stock was one between the bank and
the pettoner. On the contrary, the stock n queston was ssued as dvdends
payabe to the stockhoders. The stockhoders had, however, by a pror agree-
ment empowered the trustees, as ther agents, to receve the same for the pur-
poses of organzng, and ater of assstng, the pettoner. When a dvdend s
decared, t beongs to the stockhoders, regardess of the fact that they may
have desgnated some one ese to receve t. (Lonsdae v. Commssoner (C. C.
. 8), 32 . (2d), 537 Ct. D. 93, C. . III-2, 237 (1929) , certorar dened,
280 U. S., 575.) Smary, n aock v. Georga Raway d ectrc Co. (C. C.
. 5), 24 ed., 387), t was sad: credtor as truy receves payment of
what s due hm when, pursuant to bs drecton, the debtor makes payment to
another, as he does when payment s made drecty to hmsef. Ths case was
cted wth approva n Od Coony Trust Co. v. Commssoner (279 U. S., 71 ,
730 Ct. D. 80, C. . III-2, 222 (1929) ).
Inasmuch as the ndvdua stockhoders of the bank woud have a gan or
oss on the sae of the stock dvdends receved by them, t foows therefore
that the pettoner n ths case, takng on the same bass as ts transferor, aso
has a gan or oss from the sae of ths bank stock.
ar v. Commssoner (300 D. S., 5 Ct. D. 1205, C. . 1937-1, 175 ) can be
dstngushed, for there the assgnees were not actng for the assgnor, but were
the recpents of a percentage of the assgnor s tota nterest, hodng that
porton wth a the concomtants of ownershp, on ther own behaf ony.
The stuaton here s much more smar to that presented n Ward v. Com-
mssoner (C. C. . 9) (58 . (2d), 757 Ct. D. 42, C. . -1, 201 (1933) , cer-
torar dened, 287 U. S., 57). for the ownershp of the bank stock remaned
aways n the hands of the stockhoders. They merey transferred ther rght
to receve certan stock dvdends to be ssued upon that stock.
The pettoner, assumng that ths was a transacton between the bank and
tsef, presented some questons whch, therefore, we do not need to pass upon:
(1) Is a transacton between affates owned by the same nterests, but not
parent and subsdary, makng a consodated ncome ta return, consdered
an ntercompany transacton to be emnated n computng the ncome of the
group
(2) Is such transacton aso to be emnated n computng the ta of the
ndvdua affate, who s a member of such a consodated ncome ta group
ffrmed.
S CTION 114. SIS OR D PR CI TION
ND D PL TION.
rtce 11: ass for aowance of depre- 1938-14-927
caton and depeton. Ct. D. 1322
INCOM T R NU CT O 1028 D CISION O StTR M COURT.
1. Depeton ass Sae of Oh and Gas Propertes.
Cash payments receved by the ta payer for the sae of a rght,
tte, and nterest n and to certan o and gas propertes dd not
consttute gross ncome from the property wthn the meanng of
secton 114(b)3 of the Revenue ct of 1928 so as to entte t to an
aowance for depeton, notwthstandng the fact that the purchaser
agreed to pay monthy one-thrd of the net profts from the produc-
ton and operaton of the wes. The words gross ncome from the
property, as used n the secton, mean gross ncome frotn the opera-
ton of o and gas wes by one who has a capta nvestment
theren not Income from the sae of the o and gas propertes
themseves.
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114, rt. 11.
294
2. Decson Reversed.
Decson of the Crcut Court of ppeas, Nnth Crcut (1937)
(91 ed. (2(1), 127), reversng decson of the oard of Ta ppeas
(1930) (34 . T. ., 333), reversed.
Supreme Court of the Unted States.
Guy T. everng, Commssoner of Interna Revenue, pettoner, v. be O
Land Deveopment Co.
303 U. S., 872.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut.
March 7, 1938.
OPINION.
Mr. Chef ustce ughes devered the opnon of the Court.
The queston s whether certan payments receved by respondent n the
years 1928 and 1929 consttuted gross Income from the property, wthn
the meanng of that phrase as used n reaton to o and gas wes n secton
114(b)3 of the Revenue ct of 1928, so as to entte reswndent to the prescrbed
depeton aowance. The crcut court of appeas, reversng the decson of
the oard of Ta ppeas (34 . T. ., 333 , sustaned ettoner s cam.
(91 . (2d), 127.) Certorar was granted ( U. S., ) because of an asserted
confct wth the decson of the Crcut Court of ppeas for the fth Cr-
cut In Commssoner v. emng (82 . (2d), 324).
Respondent Is a Caforna corporaton whch acqured certan propertes
consstng of o and gas prospectng permts, drng agreements, eases and
equpment. Deveopment work resuted n the dscovery of o. On October
3, 1927, respondent conveyed a ts rght, tte and Interest n the descrbed
propertes to the onouu Consodated O Co. The atter agreed to pay to
respondent 350,000 upon the e ecuton of the agreement and. If the onouu
company shoud not eect to abandon the purchase (n accordance wth one of
the stpuatons), the addtona sums of 400,000 n each of the years 1928,
1929. and 1930, and the further sum of 450,000 n 1931. fter the tme when
the onouu company had been fuy rembursed as provded n the agreement
for a ts e pendtures n the acquston, deveopment and operaton of the
propertes, respondent was to receve monthy one-thrd of the net profts resut-
ug from the producton and operaton. fter carefu stpuatons wth respect
to such rembursement and the computaton of net profts, the agreement
provded:
nythng In ths agreement contaned to the contrary notwthstandng, It
Is the ntenton of the partes to ths agreement that the fu ownershp, posses-
son and contro of a the propertes, the sub|ect of ths agreement, and of a
of the persona property acqured and/or used on nnd n connecton wth the
operaton and deveopment of the propertes, the sub|ect of ths agreement,
sha be vested n onouu, and be sha have no nterest In or to sad
propertes or n or to any persona property used on or In connecton wth
the operaton or deveopment of the sad propertes or n or to the savage vaue
of any thereof, e cept as provded by paragraph 9 reatng to abandonment
of the purchase and reconveyance 1.
The frst payment of 3 0,000 was receved by respondent n 1927 and beng
greater than the cost of a the propertes transferred, respondent reported as
ta abe ncome the dfference between that cost bass and the amount receved.
In ts ncome ta returns for the years 1928 and 1929, respondent reported
the payments of 4 0.000 receved n each of the years and camed 27 /| per
cent thereof as an aowance for depeton. Ths s the cam whch has been
sustaned beow.
We agree wth the concuson of the oard of Ta ppeas that the contract
between the respondent and the onouu company provded for an absoute
sae of a the propertes n queston, ncudng a the o and gas In pace, and
that respondent dd not retan any nterest or nvestment theren. The aggre-
gate sum of 2,000,000 was pad as an agreed purchase prce to whch was to
be added the one-thrd of the net profts payabe on the condtons specfed.
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295
115, rt. 23.
We are unabe to concude that the provson for ths addtona payment qua-
fed In any way the effect of the transacton as an absoute sae or was other
than a persona covenant of the onouu company. (See cverng v. O Don-
neU, decded ths day Ct. D. 1324, page 337, ths uetn .) In ths vew,
nether the cash payments nor the agreement for a share of subsequent profts
consttuted an advance royaty, or a bonus n the nature of an advance
royaty, wthn the decsons recognzng a rght to the depeton aowance wth
respect to payments of that sort. Such payments are made to the recpent
as a return upon hs capta nvestment n the o or gas n pace. (See
urnet v. arme, 287 U. S., 103, 111, 112 Ct. D. 11, O. . I-2, 210 (1932)
Murphy O Co. v. urnet, 287 U. S., 299, 302 Ct. D. 19, C. . II-1, 231
(1933) .) Payments of the purchase prce whch are receved upon a sae of
o and gas propertes are n a dfferent category. The words gross ncome
from the property, as used n the statute governng the aowance for depe-
ton, mean gross ncome receved from the operaton of the o and gas wes
by one who has a capta nvestment theren not ncome from the sae of the
o and gas propertes themseves. (See Darhy-Lyndc Co. v. e ander, 51 .
(2d), 5 , 59 Ct D. 395, C. . -2, 224 (1931) .) We concude that as re-
spondent dsposed of the propertes, retanng no nvestment theren, t was
not entted to make the deducton camed for depeton. (Pamer v. ender,
287 D. S., 551, 557 Ct. D. 41, C. . II-1, 235 (1933) cverng v. Twn
e Syndcate, 293 U. S., 312, 321 Ct. D. 905. C. . I -1, 253 (1935)
Thomas v. Perkns, 301 U. S., 55, 1 Ct. D. 1237, C. . 1937-1, 1 2 evcr-
ng v. ank-ne O Co., supra (Ct. D. 1323, page 30 , ths uetn , everng
v. O Donne, supra.)
The |udgment of the crcut court of appeas s reversed and the cause s
remanded for further proceedngs n conformty wth ths opnon.
It s so ordered.
rtce 11: ass for aowance of deprecaton and
depeton.
R NU CT O 1928.
Processor of casnghead gasone from natura gas devered by o
producers. (See Ct. D. 1323, page 30 .)
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
rtce 023: Dstrbutons out of earnngs or 1938-8-9204
profts accumuated, or ncrease n vaue of Ct. D. 1308
property accrued, pror to March 1, 1913.
ncome ta revenue act of 1928 decson of supreme court.
Dvdend Whetheb Pad from abnnos ccumuated efore or
fter March 1, 1913 ffect of Dstruuton n Parta
Lqudaton of Stock.
dvdend pad by a corporaton n 1930 s not ta e empt as
representng corporate earnngs accumuated before March 1, 1913,
on the theory that a dstrbuton made n 1929 to cance and qu-
date a porton of ts capta stock had e hausted post-1913 earn-
ngs. The 1929 dstrbuton was propery chargeabe to capta
account under the provsons of secton 115(c) of the Revenue ct
of 1928, regardess of bookkeepng mngng of corporate earnngs
and profts made before and after March 1, 1913. Congress pany
ntended that corporate funds dstrbuted under the crcumstances
here shown shoud be chargeabe to capta account and that stock
purchases of the type here nvoved shoud not be consdered for
the purpose of determnng the ta abty of subsequent dstrbu-
tons. The use of bookkeepng terms and accountng forms and
devces can not be permtted to devtaze vad ta aws.
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115, rt. 23.
29
SUT M COU T O T UNIT D ST T S.
en|amn . oster and Robert R. Todd, ecutors of the state of nna
oster ord, Deceased, pettoners, v. The Unted States.
303 D. 8.. 118.
On petton for wrt of certorar to the Court of Cams.
anuary 31, 1938.
OPINION.
Mr. ustce ack devered the opnon of the Court.
Pettoners rght (as e ecutors) to an ncome ta refund depends upon
whether a dvdend pad by the oster Lumber Co. n 30 s ta e empt
as representng corporate earnngs accumuated before March 1, 1913. Tns
dvdend s ta abe under the Revenue ct of 19281 f pad from earnngs
accumuated after 1913. The Court of Cams found the dvdend ta abe.
Pettoners contend that the 1930 dvdend was traceabe to the company s
pre-1913 accumuatons because ts post-1913 earnngs had been e hausted by
a dstrbuton n 1929. The crcumstances of the 1929 dstrbuton and the
1930 dvdend were:
The oster Lumber Co. was a famy corporaton, organzed n 189 wth
a capta stock of 200,000. March 1, 1913, when the edera ncome ta
became effectve, the ncreased vaue of the company s property and ts unds-
trbuted profts were more than 3,725,000. Pettoners nsst that a dstrbu-
ton of 1,025,000 on October 10. 1929, competey e hausted the 330,578.98
tota undstrbuted profts whch had accumuated snce March 1, 1913. Ths
1929 dstrbuton, however, was not a dvdend. It was pad by the company
to cance and qudate 500 shares of ts own 100 par vaue stock and
represented payment of 2,050 per share, the agreed vaue as of March, 1913.
ebruary 11. 1930, the company decared a 225,000 dvdend and ths refund
s sought for the ta pad upon a sharehoder s part of ths dvdend. etween
October 10, 1929 (the date of the 1,025,000 stock purchase), and ebruary
11, 1930 (the date of the 225,000 dvdend), the company s earnngs amounted
to ony 82,758.17. Pettoners take the poston that ony 82,758.17 of ths
225,000 dvdend of 1930 can be ta ed, urgng that the baance s ta e empt
because t must be treated as representng pre-1913 accumuatons.
Subsecton (a) of secton 115 of the Revenue ct of 1928 defnes dvdend,
for ncome ta purposes, as any dstrbuton made by a corporaton to ts
sharehoders, out of ts earnngs or profts accumuated after eb-
ruary 18, 1913.
Subsecton (b) of ths Income ta aw e empts corporate earnngs and profts
accumuated before March 1, 1913. Ths subsecton aso provdes that for
Income ta purposes a dstrbutons are pad from the most recenty ac-
cumuated earnngs or profts. The obvous purpose of the provson was to
prevent corporatons from attrbutng dvdend payments to pre-1913 accumu-
atons to avod ta es mposed upon profts earned after March, 1913. Pet-
toners contenton s that the 330,578.98 earned after 1913. as the most
recenty accumuated earnngs or profts was automatcay e hausted In part
payment of the 1,025,000 stock purchase and thus escaped ta aton. In ths
manner, pre-1913 corporate nonta abe earnngs coud be used to avod ta es
on corporate profts earned after 1913.
Wo have prevousy sad that subsectons (a) and (b), supra, construed
together, dscose egsatve purpose that pre-1913 accumuatons sha not be
dstrbuted n such a fashon as to permt profts accumuated after that date
to escape ta aton. Pettoners ask that we now construe these provsons
n a way whch woud factate the escape of such profts from ta aton and
thereby defeat the undoubted purpose of Congress. We are urged so to e -
pand and broaden an e empton granted by Congress as a concesson to the
equty of stockhoders that such concesson woud n reaty serve to nufy
and defeat the ta on corporate profts earned after 1913. Courts shoud con-
strue aws In harmony wth egsatve ntent and seek to carry out egsatve
purpose. Wth respect to the ta provsons under consderaton, there Is no
Ch. 852, 45 Stat.. 791.
SO S 1 Supp 101 (suPt,e enta opnon) 18 ed. Supp.. 790. Certorar granted,
Revenue ct of 1928 (ch. 8.12. 45 Stat., 791, 822).
rrerng v. Can fed (291 D. S.. 103, 1 8 ft. D. 783, C. . I1I-1, 170 (1934) ).
Lynch v. ornby (247 U. S., 339, 340 T. D. 2731 ).
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297
( 115, rt. 25.
uncertanty as to the egsatve purpose to ta post-1913 corporate earnngs.
We must not gve effect to any contrvance whch woud defeat a ta Congress
pany ntended to mpose. The use of bookkeepng terms and accountng forms
and devces can not be permtted to devtaze vad ta aws.
The transacton under whch ths company pad 1,025,000 cash for ts own
stock of T 0,000 par vaue does not fa wthn subsectons (a) and (b) of
secton 115. Its character and effect are determned by subsectons (c) and (h)
whch reate to dstrbutons In compete or parta corporate qudaton.
Subsecton (c). governng ths stock purchase transacton, drects that
In the case of amounts dstrbuted n parta qudaton
the part of such dstrbuton whch s propery chargeabe to capta account
sha not be consdered a dstrbuton of earnngs or profts wthn the meanng
of subsecton ( ) for the purpose of determnng the ta abty of
subsequent dstrbutons . 1 Itacs supped.
Ths provson of the Revenue ct of 1928 aso substantay obtaned n the
Revenue ct of 1924. Pror even to the 1924 ct, ths Court had determned
that, for ncome ta purposes, earnngs of a corporaton accumuated pror to
1913 are to be consdered capta. In the ght of these decsons, Congress
obvonsy ntended that corporate funds dstrbuted under the crcumstances
here shown shoud be chargeabe to capta account and that stock purchases
of the type here nvoved shoud not be consdered for the purpose of deter-
mnng the ta abty of subsequent dstrbutons by the corporaton.
cceptance of pettoners contenton woud permt corporate profts accumu-
ated snce March, 1913, to escape ta aton, contrary to the provsons and
purpose of the 1928 evenue ct. The bookkeepng mngng of corporate
earnngs and profts made before and after March 1, 1913, does not ater the
ct nor can such acton render ta abe profts nonta abe. In ths case, the
dstrbuton of 1,025,000 was propery chargeabe to capta account and
was not pad out of profts earned snce March 1, 1913.
The 1,025,000, pad for the company s stock, can not, therefore, be con-
sdered for the purpose of determnng the ta abty of subsequent dstrbu-
tons by the corporaton and ths purchase of stock dd not e haust any part
of the 330,578.98 profts accumuated snce 1913. It foows that the tota
dvdend of 1930 receved by pettoners decedent s ta abe and the udgment
of the Court of Cams s affrmed.
btce 25: Dstrbutons n qudaton. 1938-2-913T
Ct. D. 1295
INCOM T R NU CT O 1928 D CISION O COURT.
1. Dstrbuton bt Corporaton Lqudaton ssets cqured
n change for Surrender of Stock Gan to Dstrbute.
Where a corporaton purchased for cash the entre capta stock
of another corporaton and thereafter, pursuant to agreement, ac-
qured a of the assets and assumed a of the abtes of the
atter n e change for the surrender and canceaton of a of the
stock so purchased, the transacton was a dstrbuton of assets n
compete qudaton of the seer corporaton, resutng n ta -
abe gan to the dstrbutee n the amount of the e cess of the
Det vaue of such assets over the cost of the stock surrendered.
Ct fUmrh v. eman (27 U. S.. 233, 237 rT. D. 4217 C II-2. 238 (10 8).
Subsecton h) (Revenue ct of 1928, supra, at 823) : Defnton of parta quda-
ton. used In ths secton the term amounts dstrbuted n parta qudaton
meant a dstrbuton by a corporaton n compete canceaton or redempton of a part of
t stork, or one of a seres of dstrbutons In compete canceaton or redempton of a
or a porton of Its stock.
Secton 201(c) (ch. 234. 43 Stat., 253. 255).
we are bnnnd to consder accumuatons that accrued to a corporaton
Pror to anuary 1. 1913. as capta, . (So. Pac. Co. v. f.oce, 247
t. S., 335 (1917).) so, see 1/mch v. Turrsh (247 C. S., 221) Dm/e v. Mtche fros.
Co. (247 D. S., 179 (1917) T. D 2723) I what Is caed the stockhoder s
Ihare n the accumuated proft of the company s capta, ( Uner v. Macnmber,
252 D. 8., 189. 219 (1920) T. D. 3010. C. 3. 25 (1920)1.) Cf.: nc ome
(receved) pror to the adopton of the s teenth amendment
o d become capta pror to the adopton of the amendment . (Od Coonu R.
Co. T. Commnnoner. 284 U. S.. 557 ICt. D. 45 . C. . I-1. 274 (1832)1) and
the accumuated profts, as they stood on .March 1, 1913. consttuted capta
ofthe company . ( everng v. Canfcd, 291 U. S., 1 7 Ct. D. 783. C. .
n-1. 17 (1934) .)
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115, rt. 25.
298
2. Decson ffrmed.
Decson of the oard of Ta ppeas (29 . T. ., 1) affrmed.
3. Certorar Dened.
Petton for certorar dened October 11, 1937.
Unted States Crcut Court of ppeas for the S th Crcut.
The rance Co., pettoner, v. Commssoner of Interna Revenue, respondent.
88 ed. (2d), 917.
Petton to revew an order of the Unted States oard of Ta ppcaa.
efore cks, Smons, and en, Crcut udges.
March 9, 1937.
OPINION.
cks, Crcut udge: Petton by the rance Co. to revew the decson of
the oard of Ta ppeas affrmng the acton of the Commssoner of Interna
Revenue n nssessng a defcency n pettoner s ncome ta es for the year end-
ng December 31, 1929, n the sum of , 83.99.
The pettoner s busness was the operaton of mestone quarres and the sae
of the products thereof. Durng the years 1924 and 1925, t acqured for 29,100
the entre capta stock of the ascom uarres Co. (heren caed ascom) oper-
atng a smar busness. Ths stock conssted of 400 shares of the par vaue
of 100 each.
Pettoner hed the ascom stock unt 1929. The offcers of the two com-
panes were argey the same and ther busness was conducted from the same
offce by the same men.
t the annua meetng of the stockhoders of ascom on anuary 2, 1929.
an agreement for the sae of ts assets to pettoner was authorzed, and after
requste authorty from the stockhoders of pettoner voted on anuary 18,
1929, the agreement was formay e ecuted as of the 2d day of anuary,
1929. ascom was desgnated theren as the seer and pettoner as the
purchaser.
The contract contaned the foowng provsons:
1. The seer agrees to and does hereby se to the purchaser and the pur-
chaser agrees to and does hereby purchase from the seer, the entre assets
and property of the seer ncudng accounts recevabe and cash on hand e st-
ng at the cose of busness on December 31, 1928.
2. The seer w accept and the purchaser w pay for such assets and
property the sum of 51,598.90 payabe as foows: 40,000 thereof by the ndorse-
ment and surrender for canceaton to the seer of 400 shares of ts common
capta stock beng a of the outstandng shares of the seer, and the baance
of sad purchase prce by the assumpton and payment of the Indebtedness due
and owng by the ascom uarres Co. at the cose of ts busness on December
31, 1928, amountng to 11,598.90. The purchaser w aso assume, do and
perform a of the obgatons agreed to be done and performed by the seer
n any and a contracts that sha be assgned by the seer to the purchaser
pursuant to the terms of ths agreement.
Paragraph 3 provded for the e ecuton of nstruments of conveyance and n
paragraph 4 the purchaser agreed upon ther recept to surrender the stock
certfcates.
In anuary and ebruary, 1929, pendng the e ecuton and devery of the
nstruments. ascom contnued to make saes, ssue checks and Incur e penses.
The profts from these operatons were not segregated from pettoner s ncome
but were embraced n ts return for the year 1929 wthout demarcaton. n
entry on pettoner s books recordng the transfer to t of the assets and a-
btes of nscom was made on ebruary 21, 1929 and on March 1, 1929, a
second entry credted pettoner wth ascom s check for 2,1 0.13. Ths entry
was to transfer busness transacted by the ascom uarres Co. for the rance
Co. from anuary 1 to ebruary 28, 1929. ascom conducted no operatons n
ts own name after March 1.
On pr 15. 1929, ascom acknowedged a b of sae as of ths 2d day
of anuary . D. 1929, transferrng to pettoner a ts assets of cash, accounts
recevabe, equpment, and, budngs, etc., and on the same date e ecuted a
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299
115, rt. 25.
deed transferrng Its rea estate. The capta stock was canceed n October.
The ascom stockhoders and drectors ratfed the conveyances of ts property
on October 29, 1929, and aso passed a resouton to dssove the corporaton
and drected the offcers to take the necessary steps to that end.
It can not be doubted that these transactous effected a compete qudaton
of ascom. Such was ther purpose. Therefore the assets whch were dstrb-
uted to the pettoner, the soe stockhoder, must be treated n fu payment
for the 400 shares of ascom stock whch were devered n e change therefor.
(Revenue ct, 1928, ch. 852, 45 Stat., 791, secton 115(c).) Secton 112 of the
ct provdes that the entre amount of the gan to pettoner n such a trans-
acton sha be recognzed. y secton 111(a) (c) and secton 113(a) of the ct
the gan to pettoner for the ndorsement and surrender of ts stock s the
ecess of the amount reazed therefrom over ts cost.
ccordng to pettoner s |ourna the net book vaue of the assets transferred
to t n e change for the 400 shares of ascom was 89,803.53. Ths refected
a gan over the cost of the stock of 00,7 3.53 and the resutng defcency.
Pettoner paced other nterpretatons upon the transacton. One conten-
ton s that nstead of beng a dstrbuton t represents a bargan sae of
the ascom assets. Tapn v. Commssoner (41 ed. (2d), 454 (C. C. . ))
and Commssoner v. Yan orst (59 ed. (2d), 77 (C. C. . 9)) are cted
n support.
In the Tapn case stock of the Standard Co. vaued at 30 a share was
owned and sod by the Ceveand Co. to a few of ts stockhoders at 7 per
share, the cost to t. Mnorty stockhoders receved none of the stock. In
the Instant case there was ony one stockhoder, the pettoner, and the assets
of ascom went to t as stock owner and not as a favored recpent. fur-
ther sgnfcant dstncton between the two cases s that the Ceveand Co.
contnued busness after the bargan sae, whereas ascom dssoved.
In the an orst case the corporaton sod to ts prncpa stockhoder
certan rea estate at a very favorabe reducton under the market vaue.
ere agan the other stockhoders dd not partcpate and there was no evdence
that the corporaton thereafter underwent dssouton.
Pettoner nssts that there was no devery of the ascom assets to t
unt the b of sae and deed were e ecuted on pr 15, 1929 that up to
that tme ascom was the owner of ts assets and abe n that year for
the ta accrung on the profts thereof.
Pettoner msses the pont. The ta nvoved was not assessed on the
profts of any part of the year s busness but upon the gan derved from the
dstrbuton of assets. The oard found that ths dstrbuton was made
as of anuary 2. 1929, and as ndcated above, there was ampe evdence
to support the fndng.
Pettoner urges that t and ascom were affated corporatons (Revenue
ct, 1928. secton 142(c)) and that t was therefore entted to have ts
return for 1029 treated as a consodated return and when so treated t
woud be entted to the beneft of Treasury Reguatons 75, artce 37(a),
promugated pursuant to secton 141(b) of the Revenue ct of 1929: but
ts dffcuty s that t dd not tsef consder the 1920 return as a consodated
one. It fed a separate return for 1929 and made no effort theren to segregate
the ncome from the busness of the two companes. To the queston on the
form, Is ths a consodated return of two or more corporatons It answered
No. To the ne t queston, Dd the corporaton fe a consodated return
for the precedng ta abe year It answered No.
ascom adopted the same atttude. It fed a separnte return for 1929,
reportng no ncome and no deductons. It wrote on the margn ns of
anuary 1, 1929, the rance Co. acqured a of the assets and assumed a
of the ndebtedness of ths corporaton, by surrenderng for canceaton a
of ths corporaton s outstandng stock. Ths corporaton was dssoved
durng 1929.
The makng of a consodated return s a prvege (Revenue ct, 1928,
ch. 852 secton 141(a), 45 Stat.. 791. 831) and the observance of the reguatons
authorzed by the ct and promugated by the Commssoner (Reguatons 75,
artces 10(a), 12(0) ( . and 31) was a condton precedent to the rght to
fe such return. (See Wnhnck-Tumpcrr v. e verng. 77 ed. (2d), 774, 779,
U. S. C. of .) Ct. D. 100 , C. . -1, 234 (19: 0)1.) Nether corporaton
made any pretense of compyng wth these reguatons. Ther atttude was
entrey consstent wth the poston of the Commssoner, uphed by the oard,
that 1929 was not a consodated return perod that the contract between
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115, rt. 29.
300
pettoner and aseom termnated affaton and no rght to fe a consodated
return e sted thereafter. To support ts contenton that ts 1929 return
shoud he treated as a consodated one, pettoner ctes mercan Pacfc
Whang Co. v. Commssoner (74 ed. (2d), 13 (C. C. . 9)), hut n that
case the court e pressy hed on the facts that the ownershp of the Wash-
ngton (affated) Company remaned n that company unt t was ds-
soved and that the ncome of the parent was attrbutabe to the Wash-
ngton. There s no such nference here.
The order of the oard of Ta ppeas s affrmed.
rtce 29: Dstrbuton n redempton or can- 1938-1-9123
ceaton of stock ta abe as a dvdend. Ct. D. 1292
INCOM T R NU CT O 1928 D CISION O SUPR M COURT.
1. Income -Stock Dvdend Sae Gan or Loss ass Capta
sset.
dvdend n preferred stock receved by the owner of common
stock (there beng both casses of stock outstandng at the tme of
the dvdend payment) s not ta abe as ncome n vew of secton
115(f) of the Revenue ct of 1928 but upon the sae of such pre-
ferred stock wthn the year the entre proceeds are ta abe, as the
cost thereof to the stockhoder was zero. Snce the stock was hed
for ess than two years, t was uot a capta asset and the pro-
ceeds were ta abe at the norma ta and surta rates appcabe
to ordnary ncome.
2. udca Revew ass of Zero Theory ffrmance of
Decson, If Correct, Though Wrong Reasons ssgned
Rght of Ta payer to stabsh ddtona acts.
Where the utmate queston before the crcut court of appeas
was whether, upon the facts stpuated, the oard of Ta ppeas
had erred n affrmng the Commssoner s determnaton that ad-
dtona ta es were due, the Government was entted to argue ts
bass of zero theory n support of the oard s decson, athough
that theory was not presented to the oard, snce, f the Com-
mssoner was correct n hs determnaton, the oard propery
affrmed t even f the reasons assgned were wrong, and, kewse,
the oard s affrmance of t shoud have been sustaned by the
court even f the oard gave a wrong reason for ts acton. Upon
acceptance of the theory by the Supreme Court, the ta payer has
the rght to appy to the court beow for opportunty to estabsh
addtona facts before the oard.
3. Decson Reversed.
Decson of the Crcut Court of ppeas, Seventh Crcut (87
ed. (2d), 125), reversng decson of the oard of Ta ppeas
(32 . T. ., 820) wth drectons to proceed n conformty wth
ts opnon, reversed.
Supreme Court of the Unted States.
Guy T. everng, Commssoner of Interna Revenue, pettoner, v. . O.
Gocran.
302 U. S., 238.
On certorar to the Unted States Crcut Court of ppeas for the Seventh Crcut.
December , 1937.
OPINION.
Mr. ustce randes devered the opnon of the Court.
The questons for decson concern the ta aton as ncome of a dvdend n
preferred stock and the proceeds receved on ts sae.
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301
5115. rt. 29.
On une 29, 1929, the amton Manufacturng Co., a Wsconsn corporaton,
bad outstandng preferred stock of the par vaue of 100 a share and common
stock wthout par vaue. On that day the drectors decared from the surpus
earnngs a dvdend of 14 a share on the common stock, payabe on uy 1,
1929, n preferred stock at ts par vaue. Gowran, as owner of common stock,
receved as hs dvdend 533 and a fracton shares of the preferred. On or about
October 1, 1929, the company acqured hs preferred stock and pad hm therefor,
at 100 a share, 53,371.50. In hs ncome ta return for the year Gowran dd
not treat ths sum as ta abe ncome, but ncuded 27,2 2.72 as capta net
gan on the shares receved and sod, computng the gan under artces 58 and
00 of Reguatons 74, then n force. The Commssoner re|ected that treatment
of the matter determned that the 53,371.50 receved was ncome ta abe
under the Revenue ct of 1928 (secton 115(g), 45 Stat., 791, 822), as a stock
dvdend redeemed and assessed a defcency of 5,831. 7.
The ta payer sought a redetermnaton by the oard of Ta ppeas.
dvson of the oard concuded, upon testmony and stpuated fucts, that
there had been no canceaton or redempton of the preferred stock so as to
make t a ta abe dvdend under secton 115(g) that the transacton by whch
the company acqured t consttuted a sae. The Commssoner secured a
reconsderaton of the case. e then contended that, uuder the rue decared
n Commssoner of Interna Revenue v. Totson Mfg. Co. (7 . (2d), 1S9), the
stock dvdend was ta abe, because t had resuted n a change of Gowran s
proportonate Interest n the company. That contenton was sustaned by the
oard and, on that ground, t affrmed the Commssoner s determnaton of a
defcency. (32 . T. ., 820.)
The ta payer sought a revew by the crcut court of appeas. The Comms-
soner agan urged that the stock dvdend was ta abe and then, for the frst
tme, contended that, even f t was not ta abe, the determnaton of the
defcency shoud be affrmed, because wthn the ta year the stock had been
sod at ts par vaue and, as ts cost had been zero, the entre proceeds const-
tuted ncome. The court of appeas recognzed that, snce the dvdends n pre-
ferred stock gave to Gowran an nterest dfferent n character from that whch
hs common stock represented, t was consttutonay ta abe under oshand v.
cverng (298 U. S.. 411) Ct D. 1124, C. . -1, 219 (19o ) but t hed
that the dvdend coud not be ta ed as ncome, snce by secton 115(f) Congress
had provded: stock dvdend sha not be sub|ect to ta . nd t hed
further that no part of the proceeds coud be ta ed as ncome, snce there
was no proft on the sae, t beng agreed that the far market vaue of the
tock, both at the date of recept and at the date of the sae, was 100 a share.
(87 . (2d), 125.)
ecause of the Importance of the questons presented n the admnstraton
of the revenue aws, certorar was granted (301 U. S., .)
rst. The Government contends that secton 115(f) shoud be read as pro-
hbtng ta aton ony of those stock dvdends whch the Consttuton does
not permt to be ta ed and that, snce by the dvdend Gowran acqured an
nterest n the corporaton essentay dfferent from that theretofore represented
by hs common stock, the dvdend was ta abe. In support of that construc-
ton of secton 115(f), t s urged that Congress has n ncome ta egsaton
manfested generay ts ntenton to use, to the fu e tent, ts consttutona
power ( everng v. Stockhom ank, 293 U. S., 84, 89 Ct. D. 887. C. . III-2,
299 (1934) Dougas v. Wcuts, 29 U. S., 1. 9 Ct. D. 1041, C. . I -2, 250
(1935) ) : that ths Court hods grants of mmunty from ta aton shoud a-
ways be strcty construed (fuct/ c Co. v. ohnson, 2S5 U. S., 4S0, 491) and
that the ony reason for e emptng stock dvdends was to compy wth the
Consttuton.
Ths preferred stock had substantay the same attrbutes as that nvoved
In the oshand case. There the dvdend was of common stock to a pre-
ferred stockhoder, t Is true but we are of opnon that under the rue there
decared Congress coud have ta ed ths stock dvdend. Nevertheess, by
secton 115(f) t enacted n 1928, as It dd n earer and ater Revenue cts,
that a stock dvdend sha not be sub|ect to ta . The prohbton s com-
prehensve. It Is so ceary e pressed as to eave no room for constructon. It
e tends to a stock dvdends. Such was the constructon consstenty gven
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115, rt. 29.
302
tc It by the Treasury Department.1 The purpose of Congress when enactng
secton 115(f) may have been merey to compy wth the requrement of the
Consttuton ns nterpreted n sner v. Macombcr (252 U. S., 189 T. D. 3010.
C. . 3, 25 (1920) ) and the comprehensve anguage n secton 115(f) may have
been adopted n the erroneous beef that under the rue decared n that case no
stock dvdend coud be ta ed. ut suc facts woud not |ustfy the Court n
departng from the unmstakabe command emboded n the statute. Congress
decared that the preferred stock shoud not be ta ed as a dvdend.
Second. The Government contends that, even f secton 115(f) be construed
as prohbtng ta aton of the preferred stock dvdend, the decson of the
oard of Ta ppeas affrmng the Commssoner s determnaton of a de-
fcency shoud be sustaned, because the gan from sae of the stock wthu
the year was ta abe ncome and the entre proceeds must be deemed ncome,
snce the stock had cost Gowran nothng. The crcut court of appeas re-
|ected that contenton. It hed that there was no ncome, because, as stpu-
ated, there was no dfference between the vaue of the stock when receved
and ts vaue when sod. The court kened a nonta abe stock dvdend to
a ta -free gft or egacy and sad: One who receves a ta -free gft and
ater ses t, n the absence of statute provdng otherwse, s ta ed upon the
proft arsng from the dfference n ts vaue at the tme he receves t and
the sae prce. Smary one who receves a ta -free bequest, when seng t,
s ta ed upon the proft arsng from any e cess of the sae prce over ts
far market vaue at the tme of recept. (Compare Taft v. owers, 278
U. S., 470 Ct. D. 49, C. . I1I-1, 22 (1929) .)
The cases are not anaogous. Unke earer egsaton, secton 113(a)2 of
the Revenue ct of 1928 prescrbes specfcay the bass for determnng the
gan on ta -free gfts and egaces. It provdes that: If the property was
acqured by gft after December 31, 1920, the bass sha be the same as
t woud be n the hands of the donor or the ast precedng owner by whom
t was not acqured by gft. nd the bass for the computaton on property
transmtted at death s provded for n paragraph (5). ut the method of
computng the ncome from the sae of stock dvdends consttutonay ta abe
s not specfcay provded for. urthermore, unke secton 22(b)3, e cudng
from gross ncome the vaue of gfts and egaces, secton 115(f) can not, n
vew of ts hstory, be taken as a decaraton of congressona ntent that the
vaue of a stock dvdends sha be mmune from ta not ony when receved
but aso when converted nto money or other property. Gan on them s,
therefore, to be computed as provded n sectons 111 and 113, by the e cess
of the amount reazed over the cost of such property to the ta payer.
s the cost of the preferred stock to Gowran was zero, the whoe of the
proceeds s ta abe.
Gowran asserts that f ths bass of zero theory s accepted, the proceeds
are ta abe not as determned by the Commssoner but as a capta gan at a
dfferent rate and under dfferent reguatons. Ths depends upon whether
the preferred stock receved as a dvdend was a capta asset, defned by
secton 101 (c)8 as property hed by the ta payer for more than two years.
The record s sent as to when Gowran acqured the common stock upon whch
the preferred was ssued as a dvdend, but t may be assumed that he had
1 sner v. Mnenmorr was decded March 8, 1920. Soon thereafter, the Treasury
Department decared, n a seres ot decsons and reguatons, that no stock dvdend was
ta abe. (T. I). 3052. C. . 3, 38 ( ugust 4, 1020) T. D. 3059. C. . 3, 38 ( ugust 1 ,
1920) : O. D. 7 ,2, C. . 3. 39 (October 28. 1920).t Offce DecRon 801 (C. . 4. 24
( anuary 5, 1921)) provded: stock dvdend pad n true preferred stock Is e empt
from te ta the same as though the dvdend were pad n common stock. Then
foowed egsaton n the precse form emboded In secton 115(f) of the Revenue ct of
1928. (See secton 201(d) of the Revenue ct of 1921, 42 Stat., 227, 228 secton
201(f) of the Revenue ct of 1024, 43 Stat.. 253, 255 secton 201(f) of the Revenue
ct of 192 , 44 Stat., 9, 11 : secton 115(f) of the Revenue ct of 1932, 47 Stat., 1 9,
204: secton 115(f) of the Revenue ct of 1934, 48 Stat., 0S0, 712.) rtce C28 of the
reguatons n force In 1928 provded: Stock dvdends. The ssuance of ts own stock
by a corporaton as a dvdend to ts sharehoders does not resut n ta abe Income to
such sharehoders, but gan may be derved or oss sustaned by the sharehoders from
the sae of such stock. The amount of gan derved or oss sustaned from the sae of
such stock, or from the sae of the stock n respect of whch t s ssued, sha be deter-
mned as provded n artces 5 1 and C00.
onMand v. Uererng (298 U. S., 441 (Ct. D. 1121, C. . -1, 219 (193 )) was
decded May 18, 193 . On une 22. 19: , Congress, n enactng the Revenue ct of 193 ,
provded n secton 115(f): 1. Genera rue. dstrbuton made by a corporaton to
ts stockhoders n ts stock or In rshts to acqure ts stock sha not be treated as a
dvdend to the e tent that t does not consttute ncome to the sharehoders wthn the
meanng of the s teenth amendment to the Consttuton. (49 Stat., 1 48, 1 88. See
aso secton 115(h).)
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303
115, rt. G29.
hed It for more than two years. or that fact Is Immatera snce the dv-
dend stock had been hed for ony three months. Whether ta ed by Congress
or not, t was ncome, substantay equvaent for ncome ta purposes to
cash or property, and under secton 115(b) was presumed to have been made
out of earnngs or profts to the e tent thereof, and from the most recenty
accumuated earnngs or profts. In no sense, therefore, can t be sad to
have been hed by Gowran pror to ts decaraton. Snce the proceeds were
therefore not capta gans, they were ta abe at the norma and sur ta
rates appcabe to ordnary ncome.
Thrd. Gowran contends here that the Government shoud not have been
permtted by the court of appeas to argue ts bass of zero theory, because
that theory rased an ssue not peaded, tred, argued or otherwse referred to
n the proceedngs before the oard. It s true that the theory was frst
presented by the Commssoner In the court of appeas. ut t does not appear
by the record that ob|ecton to the consderaton of ths theory was made
beow. The ony ob|ecton made there, as dscosed by the opnon, was that
the oard was wthout ursdcton to decde the case upon a pont not urged
by the Commssoner. s to that ob|ecton, the court, after statng that the
ony questons submtted are those of aw, sad: The oard approved the
Commssoner s assessment, but dd so upon a ega theory dfferent from hs.
We are of opnon that the oard acted wthn ts powers. It s
mmatera whether the Commssoner proceeded upon the wrong theory. The
burden s upon the pettoner to show that the assessment s wrong upon any
proper theory otherwse he must fa.
In the revew of |udca proceedngs the rue s setted that If the decson
beow s correct, t must be affrmed, athough the ower court reed upon a
wrong ground or gave a wrong reason. ( rey Son, Inc., v. Cudahy Packng
Co., 25 U. S., 208 Unted States v. mercan Ry. ep. Co., 2 5 U. S., 425
Unted States v. ot State ank. 270 U. S., 49, 5 Langnes v. Green, 282 U. S.,
531 Steos Co. v. osery Motor-Mend Corporaton, 295 U. S., 237, 239 cf.
Unted States v. Wam , 278 U. S., 255.) Ths appes aso to the revew of
decsons of the oard of Ta ppeas. ( everng v. Rankn, 295 U. S., 123,
132-133 Ct. D. 9 , C. . I -1. 1 0 (1935) cf. Genera Uttes d Operatng
Co. v. everng. 29 U. S., 200, 20 TCt. D. 1055, C. . -1, 214 (193 )1. )
The ta payer sought revew of the oard s decson by the court of appeas.
The utmate queston before that court was whether, upon the facts stpu-
ated, the oard had erred n affrmng the Commssoner s determnaton that
the addtona ta es were due. If the Commssoner was rght n hs deter-
mnaton, the oard propery affrmed t, even f the reasons whch he had
assgned were wrong. nd. kewse, f the Commssoner s determnaton
was rght, the oard s affrmance of t shoud have been sustaned by the
court of appeas, even f the oard gave a wrong reason for ts acton. y
ths rue the Government was entted to urge n the court of appeas that on
the undsputed facts the oard s decson was correct because of the bass
rtce 501 of Reguatons 74 states that f the ta payer has hed for more than
two years stoek upod whch a stock dvdend has been decared, both the orgna and
dvdend shares are consdered to be capta assets. ut ths was based upon the
erroneous premse that stock dvdends coud not re ncome, and was part of an admn-
stratve scheme to apporton some of the cost of the orgna shares to the stock
receved by way of dvdend. Ths arrangement we decared In oshand v. everng
(298 U. S., 441), to be wthout statutory authorty, and the same must be sad of the
reguaton nvoved here.
See urnet v. armc (287 . S., 103, 105-10 Ct. D. 11, C. . I-2, 210
(1932)1) everng v. ett York Trust Co. (2U2 U. S., 455. 4 3 Ct. D. 840, C. .
III-1, 188 (1934))) Mc eey v. Commssoner (29 D. S., 102, 10 -107 Ct. D. 1040,
C. . I -2, 209 (1935) ).
See aso urwtz v. Commssoner (45 P. (2d), 780 (C. C. . 2)) Superheater Co. v.
Commssoner (38 . (2d). 9 (C. C. . 2)) Commssoner v. Lnderman (84 P. (2d),
727 (C C. . 3)) Dckey v. urnet (5 P. (2d), 917 (C. C. . 8)) Lews- a Iron
Works v. ar (23 . (2d), 972 ( pp. D. C.)) cf. Dobbns v. Commssoner (31 P. (2d),
935 (C C. . 3)) Seufert ros. Co. v. Lucas (44 . (2d), 528 (C. C. . 9)) ughes v.
Commssoner (38 . (2d), 755 (C. C. . 10)).
Compare Darcy v. Commssoner ( . (2d), 581 (C. C. . 2) Ct. D. 814, C. .
238 (1934) ) everng v. Gregory ( 9 P. (2d), 809 (C. C. . 2). affd. 293
U. 8.. 4 5 Ct. D. 911, C. . I -1, 193 (1935)1) e ander Sprunt Son, Inc., v.
Commssoner ( 4 . (2d), 424 (C. C. . 4)) everng v. Iowen (88 P. (2d), 92
(C. C. . 4)) tanta Casket Co. v. ose (22 . (2d), 800 (C. C. . 5) T. D. 4139,
C . II-1, 28 (192 ))) . t O. tsrhu Tobacco Co. v. Commssoner (42 P. (2d),
09 (C. C. . 5)) Crowe v. Commssoner ( 2 P.. 51 (C. C. . )1 S htcctzer v.
Commssoner (75 . (2d). 702 (C. C 7), rev d on other grounds, 29 U. S.. 551)
Chrstopher v. urnet ( 5 P. (2d), 527 ( pp. D. C.) Ct. D. 530, C. . I-2, 1 7
(1933) ) eaumont v. everng (73 P. (2d), 110 ( pp. D. C.) Ct. D. 924, C. .
I -1, 217 (1 35) ).
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115, rt. 29.
304
of zero theory. nd snce that court re|ected the theory, the Government
was entted to assert Its contenton here. Nothng n Genera Uttes
Operatng Co. v. everng, supra, or n everng v. Savage (297 U. 8., 10
Ct. D. 1075, C. . -1, 207 (193 ) ), Is opposed to such procedure.
If the court of appeas had accepted the theory, t woud have been open
to the ta payer to urge, n vew of the new ssue presented that he shoud
have the opportunty to estabsh before the oard addtona facts whch
woud affect the resut. s we accept the new theory, eave s granted Gowran
to appy to the ower court for that purpose.
Reversed.
rtce 29: Dstrbuton n redempton or can- 1938-1-9124
ceaton of stock ta abe as a dvdend. Ct. D. 1293
ncome ta revenue act of 1928 decson of sutreme court.
1. Income Stock Dvdend.
dvdend n preferred stock receved by a hoder of common
stock (there beng both casses of stock outstandng at the tme
of the dvdend payment) s not ta abe as ncome n vew of sec-
ton 115(f) of the Revenue ct of 1928. everng v. Gowran,
decded by ths Court on December , 1937 Ct. D. 1292, page 300,
ths uetn , foowed.
2. udca Revew Cross- ppea.
The crcut court of appeas propery refused to consder the
contenton of the Commssoner that that porton of the proceeds
from sae or redempton n 1931 of dvdend stock receved n 1928
was ta abe on the ground that the cost of the stock was zero,
where the Commssoner dd not rase the ssue before the oard.
Whe a decson beow may be sustaned wthout a cross-appea
athough t was rested upon a wrong ground, an appeee can not
wthout a cross-appea attack a |udgment entered beow. The
same rue appes to a decson of the oard of Ta ppeas.
3. Remand of Case to oard or Ta ppeas cquescence by
Commssoner.
Where the Commssoner has acquesced n the decson of the
oard of Ta ppeas, the Court w not remand the case to
the oard to determne whether redempton n 1931 of stock re-
ceved n 1928 was made at such tme and n such manner as to be
essentay equvaent to the dstrbuton of a ta abe dvdend
under secton 115(g) of the Revenue ct of 1928.
Supreme Court of the Unted States.
Guy T. everng, Commssoner of Interna Revenue, pettoner, v. nne SI.
Pfcffcr.
302 U. S., 247.
On certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
December , 1937.
OPINION.
Mr. ustce randes devered the opnon of the Court.
Ths case presents questons of ncome ta aton appcabe to stock dvdends.
In 1931, nne M. Pfeffer, a hoder of common stock In Wam R. Warner
Corporaton, receved as a dvdend thereon ,291 shares of ts preferred
stock. She aso receved from the corporaton n that year 200,000 cash n
e change for 2,000 shares of ts preferred stock whch she had reecved as a
dvdend n 1928. In her ncome ta return for 1931, she dd not ncude as
ta abe ncome ether the preferred stock or the 200,000 cash. She dd not
ncude the preferred stock receved n that year, because she deemed t e empt
Compare. I oodrard v. oston Lastng Machne Co. ( 0 ed., 283, 3 ed., 009
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305
115, rt. 29.
from ta aton under secton 115(f) of the Revenue ct of 1928. She dd not
ncude the 200,000 cash as ta abe ncome, because she consdered t the
proceeds from the sae of a capta asset. ut she dd ncude 18 U00 thereof
as ta abe capta gan on the sae, computng the gan n accordance wth the
then effectve Treasury reguatons. nd she pad a ta of 22,512.50 on such
capta gan.
The Commssoner assessed a defcency on each tem. e determned that the
.291 shares of preferred stock vaued at 29,125, were ta abe ncome of
1 31. because not e empt under secton 115(f) and that the 200.(00 cash were
the proceeds of a redempton under secton 115(g), and hence ta abe ncome.
e emnated the ta abe capta gan reported and assessed a defcency on
each of the tems.
The ta payer sought a revew by the oard of Ta ppeas. It affrmed the
Commssoner s determnaton that the preferred stock receved n 1931 was
ta ahe ncome but reversed hs determnaton as to the proceeds of the 2,000
shares, and sad:
The Commssoner hed that the redempton of the 2,000 shares n 1931
was at such tme and n such manner as to be substantay equvaent to a
ta abe dvdend n 1931, wthn the meanng of secton 115(g) of the Revenue
ct of 1928. e erred n ths snce the dstrbuton was sub|ect to ta as a
dvdend n 1928 (see cases above cted). Thereafter the shares had a bass for
gan or oss to the pettoner of 100 each, and they were redeemed wthout
gan or oss to the pettoner at 100 each n 1931.
The Commssoner acquesced n the oard s decson. The ta payer sought
a revew by the crcut court of appeas. It reversed the oard s decson as to
the 1931 stock dvdend, on the ground that secton 115(f) e empted that dv-
dend from ta aton: and t affrmed the oard s decson that the 200,000 cash
was not ta abe ncome of 1931, sayng (88 . (2d), 3, 5) :
The appeee argues that the proceeds from the redempton n 1931 of 2.000
shares of preferred stock dstrbuted as a stock dvdend n 1928 shoud be
consdered ether (a) sub|ect to a ta as a capta gan or (h) sub|ect to ta a-
ton as the equvaent of the dstrbuton of a ta abe dvdend pursuant to
secton 115(g) of the Revenue ct. The queston of ta abty as capta gan
of the 200,000 or any part thereof was not n ssue before or decded by the
oard of Ta ppeas. The contenton that we have authorty to sustan
the defcency pro tanto even though the Issue was not rased before the oard
nor decded by t nor assgned as error n the petton to ths court for a
revew of the oard s decson s untenabe. Genera UtUte t Onerntnn Co.
v. everng. 29 T . S., 200. Ct. D. 1055. C. -1. 214 (193 )1
Severng v. Savage. 297 U. 8., 10 , Ct. D. 1075, C. . -1. 20
(193 ) .) The oard hed that ths stock dvdend redeemed n 1931 at 100
peT share was ta abe n the year 1928 when receved and was therefore not
ta abe under secton 115(g) : that It had a bass for gan or oss of 100 per
share: and that therefore there was no ta abe Income from the redempton.
The Commssoner dd not fe a cross-appea. y the provsons of secton
115(g) the proceeds of the redempton of the stock can he ta ed ony If t
occurs at such tme and n such manner as to make the redempton essentay
equvaent to the dstrbuton of a ta abe dvdend. Snce the oard dd not
so fnd, we can not support ths contenton.
The Commssoner s petton for certorar was granted In connecton wth
that n everng v. Oowran, No. 27, decded ths day Ct. D. 1292. page 300, ths
uetn .
rst. s to the 1931 dvdend n preferred stock, the Commssoner contends
that the mmunty from ta aton conferred by secton R(f1 drt not e tend to
t We hod, for the reasons stated In paragraph frst of everng v. Oowran,
that t was e empt from ta aton.
Second. s to the 200,000 receved n 1931, the Commssoner contends that
te crcut court of appeas erred In fang to hod t ta abe Income, snce
under the rue decared In everng v. nrran. the cost was zero.
We are not at berty to entertan that contenton. The oard of Ta
ppeas decded that the 200000 was not ta ahe ncome of 1031. s the
Commssoner dd not seek a revew of that decson, whch was adverse to hm,
the crcut court of appeas properv refused to consder the contenton. (Gen-
era tte d Operatng Go. v. Iverng. 20 U. S.. 200. 20 .) Whe a
decson beow may be sustaned, wthout a cross-appea, athough t was rested
upon a wrong ground (see everng v. Oowran), an appeee can not wthout a
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30
cross-appea attack a |udgment entered beow. (Compare Unted States v.
mercan Raway press Co., 2 5 U. S., 425, 435 Morey Constructon Co.
v. Maryand Casuaty Co., 300 U. S., 185.1) The same rue appes to a decson
of the oard of Ta ppeas.
Thrd. The Commssoner requests that, f we hod that the oard erred n
decarng that the 2,000 shares receved n 1928 were then ta abe and refuse
to revew ts decson that the proceeds receved n 1931 were not ta abe, we
shoud remand the case to the oard to determne whether redempton of the
2,000 shares was made at such tme and n such manner as to be essentay
equvaent to the dstrbuton of a ta abe dvdend under secton 115(g). The
Commssoner acquesced n the decson of the oard. No good reason s shown
for dsturbng t.
ffrmed.
S CTION 11 . CLUSIONS ROM GROSS INCOM .
rtce 42: Income of Staes. 1938-14-9277
( so Secton 114, rtce 11.) Ct.D. 1323
INCOM T R NU CTS O 192 ND 1928 D CISION O SUPR M
COURT.
1. Deducton Depeton Processor Under Contract Wth O
Producers.
processor under contracts wth o producers to e tract casng-
head gasone from natura gas devered to t by the producers s
not entted to the statutory aowance for depeton provded for
In sectons 204(c)2 and 234(a)8 of the Revenue ct of 192 and
sectons 23(1) (m) and 114(b)3 of the Revenue ct of 1928. -
though the processor obtaned an economc advantage from the
producton of the gas, t had no capta nvestment n the mnera
depost whch suffered depeton and, hence, no nterest n the
gas n pace.
2. empton State Instrumentaty Lease or State O and
Gas Lands.
Income receved from operatons under a ease of State o and
gas ands s not e empt from edera ncome ta . s the essee
was engaged n ts own busness n producng the o, such a ta
does not consttute an unconsttutona burden upon a State nstru-
mentaty. urnet v. erans Trust (1933) (288 U. S., 508 Ct. D.
53, C. . II-1, 214 (1935) ) foowed.
3. Decson Reversed n Part and ffrmed n Part.
Decson of the Crcut Court of ppeas, Nnth Crcut (1937)
(90 ed. (2d), 899), reversng decson of the oard of Ta p-
peas (193 ) (33 . T. ., 910), as to frst ssue, reversed and as
to second ssue, affrmng the oard s decson, affrmed.
Supreme Court of the Unted States.
387. Ouy T. eccrng, Commssoner of Interna Revenue, pettoner, .
anknc O Co.
388. ancnc O Co., pettoner, v. Commsso cr of Interna Revenue.
303 U. S., 3 2.
On wrts of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut.
March 7, 1938.
opnon.
Mr. Chef ustce ughes devered the opnon of the Court.
No. 3N7. Ths case presents the queston whether respondent, the nnkue
OM o.. s entted to an aowance for depeton wth respect to gas produced
t, Spp 1 0 e t 7, Ia Morgan (94 U. S., 599): Mount Peasant v. ecku th (100
ono-,,51 nt,ed States v. aekfrather 155 . S., 180): Landram v. ordan
(203 U. S., 50) Southern Pne Lumber Co. v. Ward (208 U. S.. 12 . 137) : tche v
rown (211 U. S., 321, 329) othtce v. Unted States (254 U. S., 231).
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from certan o and gas wes. The rung of the oard of Ta ppeas that
the ta payer had no depetabe Interest (33 . T. ., 010) was reversed by the
crcut court of appeas. (90 . (2d), S09.) ecause of an asserted confct
wth the prncpes appcabe under the decsous of ths Court, we granted
certorar. ( U. S., .)
Respondent n the years 1927 to 1930 operated a casnghead gasone pant
n the Sgna o fed, Los ngees County, Caf. Respondent had entered
nto contracts wth o producers for the treatment of wet gas by the e tracton
of gasone. The oard of Ta ppeas made the foowng fndngs:
Natura gas, commony known as wet gas as t ows from the earth, s
not a saabe commodty. It s ony through processng by separaton of the
gasone therefrom renderng t dry, that t may be sod for commerca uses.
Conversey, t s ony through the separaton of dry gas from wet gas that the
gasone s saabe. It s ths process that produces casnghead gasone. The
content of gasone n wet gas vares from one-haf gaon to gaons a thou-
sand cubc feet of gas produced, de -ndug upon ts rchness. Respondent s
contracts provded, generay, that t shoud nsta and mantan the necessary
ppe nes and connectons from casngheads or traps at the mouth of the we
to ts pant, through whch the producer agreed to dever the natura gas
produced at the we and that respondent shoud e tract the gasone there-
from, respondent to pay the producer 33 per cent of the tota gross proceeds
derved from the sae of gasone e tracted from wet gas, or, at producer s
opton, to dever to the producer 33 per cent of the saabe gasone so e -
tracted. sghty dfferent type of contract provded for the outrght pur-
chase from the producer of a natura gas produced at a gven we, the
respondent payng 33 per cent of the gross proceeds receved by t from the
sae of the gasone e tracted from such gas. Some of the dry gas remanng
after remova of the gasone was bown to the ar and wasted because there
was no market for t, whe some was sod to pubc uttes and In that case
respondent accounted to the producer for a proporton of the proceeds provded
for under the contract and some was returned to the wes to be used for
pressure purposes.
The Government mantans that under the contracts respondent took no part
n the producton of the wet gas, conducted no drng operatons upon any of
the producng premses, dd not pump o or gas from the wes, and had no
nterest as essor or essee, or as subessor or subessee, In any of the producng
wes.
Respondent states that In accordance wth the provsons of the contracts t
attached ppe nes to the varous wes, carred the gas from those wes to ts
pant, where the gas from the wes of the dfferent producers was commn-
ged, and removed the gasone therefrom. The gasone was sod and respond-
ent accounted to each producer for one-thrd of the proceeds of the producer s
pro rata of the gasone made. Respondent contends that t was entted to
deduct for depeton 27 per cent of the dfference between the prce whch It
pad for the wet gas and ts far market vaue at the mouths of the wes.
Respondent took the prevang royaty, whch t deemed to be estabshed
by the evdence, as that market vaue, and treated the dfference between the
amount respondent pad and the greater prevang royaty as respondent s gross
ncome for the purpose of appyng the statute. (Revenue cts of 102 , secton
204(c)2, secton 234(a)8 1928, secton 23(1) (m), secton 114(b)3.)
The crcut court of appeas was of the opnon that respondent had acqured
an economc nterest n the wet gas n pace and was entted to an aowance
for depeton. ut as no fndng had been made of the market vaue of the wet
gas, or of respondent s net Income from the property, the court remanded the
case to the oard of Ta ppeas to the end that respondent mght suppement
ts proof and that an aowance for depeton shoud be made In accordance wth
the evdence produced.
In order to determne whether respondent s entted to depeton wth respect
to the producton n queston, we must recur to the fundamenta purpose of the
statutory aowance. The deducton s permtted as an act of grace. It s per-
mtted n recognton of the fact that the mnera deposts are wastng assets
and s ntended as compensaton to the owner for the part used up n produc-
ton. (Untrt State v Lw eu. 274 U. S.. 2n.r . 302 T. D 404 . C. . I-2, 157
(1927) .) The grantng of an arbtrary deducton, In the case of o and gas
wes, of a percentage of gross ncome was n the nterest of convenence and
n no way atered the fundamenta theory of the aowance. (Unted States v.
Dakota-Montana O Co.. 288 U. S., 4.r 9, 4 7 Ct. D. 55. C. . II-1, 243
(1933) .) The percentage s of the gross ncome from the property a phrase
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11G, rt 42.
30S
whch ponts ony to the gross ncome from o and gas. ( cvcrng |. Twn
e Syndcate, 293 U. S., 312, 321 Ct. D. 905, C. . I -1, 253 (1935) .) The
aowance s to the recpents of ths gross ncome by reason of ther capta n-
vestment n the o or gas n pace. (Pamer v. ender, 287 U. S., 551, 557 Ct. D.
41, C. . II-1, 235 (1933) .)
It Is true that the rght to the depeton aowance does not depend upon
any partcuar form of ega nterest n the mnera content of the and. We
have sad, wth reference to o wes, that t s enough f one has an economc
nterest n the o, n pace, whch s depeted by producton that the an-
guage of the statute s broad enough to provde, at east, for every case n whch
the ta payer has acqured, by nvestment, any nterest n the o n pace, and
secures, by any form of ega reatonshp, ncome derved from the e tracton of
the o, to whch he must ook for a return of hs capta. (Pamer v. ender,
supra.) ut the phrase economc nterest s not to be taken as embracng
a mere economc advantage derved from producton, through a contractua rea-
ton to the owner, by one who has no capta nvestment n the mnera depost.
(See Thomas v. Perkns, 301 U. S., 55, C 1 Ct. D. 1237, O. . 1937-1, 1 2 .)
It s pan that, apart from ts contracts wth producers, respondent had no
nterest n the producng wes or n the wet gas n pace. Respondent s a proc-
essor. It was not engaged n producton. Under ts contracts wth producers,
respondent was entted to a devery of the gas produced at the wes, and to
e tract gasone therefrom, and was bound to pay to the producers the stpu-
ated amounts. Some of the contracts, rectng that the producer was the owner
of the gas produced, provded for ts treatment by respondent. Other contracts
were couched n terms of purchase. In ether case the gas was to be devered
to respondent at the casngeads or gas traps nstaed by the producer. Re-
spondent had the rght to have the gas devered, but dd not produce t and
coud not compe ts producton. The ppe nes and equpment, whch respond-
ent provded, factated the devery of the gas produced but the agreement
for ther nstaaton granted no nterest n the gas n pace. Nor was such an
nterest created by the provson for payment for the gas devered, whether the
payment was made n money out of the proceeds of the gasone e tracted or
by devery of the agreed porton of the gasone. Whether or not the wet gas
had a market vaue and, f t had, whether that vaue was greater than the
amount respondent pad, s n no sense determnatve. Respondent was st a
processor, payng for what t receved at the we s mouth. s the oard of
Ta ppeas sad: It s safe to say, we beeve, that ths pettoner (respond-
ent) had no enforceabe rghts whatsoever under ts contracts pror to the
tme the wet gas was actuay paced n ts ppe nes, . e., after t had passed
beyond the casngheads and gas traps supped by the producer nto the ppe
ne, e cept the rght, perhaps, to demand that the producer dever whatever
was produced through ts ppe nes for treatment durng the perod of con-
tractua reatonshp.
Undoubtedy, respondent through ts contracts obtaned an economc advan-
tage from the producton of the gas, but that s not suffcent. The controng
fact s that respondent had no nterest n the gas n pace. Respondent had no
capta nvestment n the mnera depost whch suffered depeton and s not
entted to the statutory aowance.
The |udgment of the crcut court of appeas n ths reaton s reversed and
the decson of the oard of Ta ppeas s affrmed.
No. 388 In 19:29. the State of Caforna eased to . . arneson o and
gas ands n Santa arbara County, reservng a royaty. We assume, for the
purposes of ths case, as t was assumed beow, that the ease was of tdeauds
owned by the State. arneson acted on behaf of pettoner, the ankne O
Co., n obtanng the ease, whch was duy assgned to pettoner and approved
by the State. Camng that the ncome receved from operatons under the
ease was e empt from the edera ncome ta , upon the ground that such
a ta woud consttute an unconsttutona burden upon a State Instrumentaty,
pettoner brought sut to recover the ta pad for the year 1930. The crcut
court of appeas, affrmng the decson of the oard of Ta ppeas (33 . T. .,
910), overrued pettoner s contenton. (90 . (2d), 899.) In vew of the m-
portance of the queston, certorar was granted. ( U. S., .)
We are of opnon that the decson of the crcut court of appeas was rght.
s pettoner was engaged n ts own busness In producng the o, t was bound
to pay a edera ncome ta upon ts profts even though ts operatons were
conducted on State ands. We are unabe to fnd any substanta dstncton
between the nstant case and that of urnet v. ergns Trust (288 U. S., 508
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309
131, rt. 91.
Ct D. 53, 0. . II-1. 214 (1933)1), where the cty of Long each, Caf.,
made an o and gas ease to a prvate party coverng part of a tract owned
by the cty, the proceeds of the o and gas saes beng dvded between the cty
and the essee. The cam of Immunty by the essee as an nstrumentaty of
the State, actng through the cty, was hed to be untenabe.
So far as the case of urnet v. Coronado O rf Gas Co. (2S5 T . S., 393 Ct. D.
485, C. . I-1, 2 5 (1U32) ), whch was dstngushed n urnet v. ergns
Trust, supra, may be regarded as supportng a dfferent vew, t s dsapproved.
(See ererng v. Mountan Producers Corporaton, decded ths day Ct. D.
1321, page 343, ths uetn .)
The |udgment of the crcut court of appeas wth respect to pettoner s In-
come from the ease s affrmed.
udgment n No. 387 reversed n No. 388 affrmed.
rtce 42: Income of States.
R NU CT O 1928.
Ta abty of ncome derved by a essee ta payer under a ease
of State schoo ands. (See Mm. 4755, page 179.)
rtce 43: Compensaton of State offcers and empoyees.
R NU CT O 1928.
mendment of Reguatons 74, artce 43. (See T. D. 4787, page
181.)
rtce 43: Compensaton of State offcers and empoyees.
R NU CT O 1928.
Compensaton pad to persons apponted by State offcers. (See
Ct. D. 131 , page 243.)
rtce 43: Compensaton of State offcers and empoyees.
R NU CT O 1928.
Ta abty of compensaton receved by offcers and empoyees of a
State or potca subdvson. (See Mm. 3838, revsed, page 181.)
SUPPL M NT C CR DITS G INST T .
S CTION 131. T S O OR IGN COUNTRI S
ND POSS SSIONS O UNIT D ST T S.
rtce 91: nayss of credt for ta es. 1938-5-9175
Ct. D. 1303
INCOM T R NU CT O 1928 D CISION O SUPR M COURT.
1. Gross Income Credt Deducton Ta es Pad to orkgn
Country Domestc Stockhoders of oregn Corporatons
Departmenta Rungs.
Ctzens of the Unted States who are stockhoders In rtsh cor-
poratons are not requred to ncude n gross ncome n ther Unted
States ncome ta returns the amounts of rtsh ncome ta appro-
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. 131, rt. 91.
310
prnte to dvdends receved from such corporatons, whch amounts,
n addton to the amount of dvdends actuay receved, are re-
qured to be reported n ther rtsh returns as ncome sub|ect to
surta athough pad by the corporatons on ther own profts and
they are not entted to deducton or credt under the provsons of
sectons 23(c)2 and 131 of the Revenue ct of 1928 for the amounts
of ta approprate to the dvdends, snce, measured by the stand-
ards of the Unted States statutes, the stockhoder of a rtsh cor-
poraton does not pay the ta whch Is ad upon and coected from
the corporaton. Departmenta rungs sustanng such deductons
or credts have no bndng effect, snce they rest upon an Interpreta-
ton of the nature nnd effect of the rtsh aw. Where a statute
s unambguous, ts subsequent reenactment by Congress does not
consttute adopton of an erroneous admnstratve nterpretaton.
2. Decsons ffrmed and Reversed.
Decson of the Crcut Court of ppeas, Second Crcut (8 ed.
(2d), 718), affrmng decson of the oard of Ta ppeas (33
. T. .. 127), affrmed, and decson of the Crcut Court of p-
peas, Thrd Crcut (91 ed. (2d), 534), reversng the decson of
the oard, reversed.
Supreme Court of the Unted States.
No. 53. Mary Duke dde, pettoner, v. Commssoner of Interna Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
No. 505. Guy T. everng, Commssoner of Interna Revenue, pettoner, .
George W. kns.
302 U. S., 573.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut.
anuary 10, 1938.
opnon.
Mr. ustce Stone devered the opnon of the Court
In ther rtsh ncome ta returns, stockhoders n rtsh corporatons are
requred to report as ncome, n addton to the amount of dvdends actuay
receved, amounts whch refect ther respectve proportons of the ta pad by
the corporaton on ts own profts. The prncpa queston rased by these pet-
tons s whether these amounts consttute ncome ta es pad or
accrued durng the ta abe year to a foregn country so as to entte the
stockhoders, f they are ctzens of the Unted States, to credts of those amounts
upon ther Unted States ncome ta , by vrtue of secton 131 (a) 1 of the Revenue
ct of 1928. further queston s whether.any of the amounts not so avaabe
as a credt may be deducted from gross ncome under secton 23(c) 2 of the ct
for the purpose of ascertanng the net ncome sub|ect to ta .
Pettoner n No. 55 and respondent n No. 505, hereafter caed the ta payers,
receved cash dvdends durng the ta abe years 1929 and 1931, respectvey, on
ther stock n three rtsh corporatons. ach of the corporatons havng tsef
pad or become abe to pay the rtsh ta on the profts thus dstrbuted, no
further e acton at the standard (norma) rate was due the rtsh Govern-
ment on account of the dstrbuton from cther the stockhoders or the corpora-
ton.1 Ony n the case of ndvduas whose ncome e ceeds a stated amount
s a surta eved. In these crcumstances the corporatons are drected to
certfy to sharehoders, at the tme of sendng out warrants for the dvdends,
the gross amount from whch the ncome ta approprate thereto s deducted,
rtsh Income Ta ct 1018 (8 and 9 Goo. , ch. 40), as amended by secton 38,
nance ct of 1027 (17 and 18 Geo. , ch. 10) Genera rue 1 of the 1918 act provdes,
very body of persons sha be chargeabe to ta In ke manner as any person s charge-
abe under the provsons of ths act. y secton 237 of the 1918 act body of persons
Incudes any company whether corporate or not corporate.
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311
131, rt. 91.
the rate and amount of the ncome ta approprate to the gross amount, and the
net amount actuay pad.
The ta approprate to the dvdend s computed by appyng the standard
rate for the year of dstrbuton, to the vaue of the money or other property
dstrbuted. The amount so computed w equa the ta pad at the standard
rate by the corporaton on ts profts f, but ony f, the ta rate s the same n
the year when the profts are earned as In the year when they are dstrbuted.
One of the companes avaed tsef of the statutory permsson to decare a
gross dvdend, from whch t deducted the ta before actua dstrbuton, cer-
tfyng to the ta payers that the dvdend woud be pad ess ncome ta . The
other two companes decared the dvdend n the amount dstrbuted to stock-
hoders and certfed that t was free of ta . The certfcates of the atter
dd not purport to show any deducton of ta from a gross dvdend, but dd nd-
cate the amount of the ta approprate to the dvdend and showed the same
oet return to stockhoders as f the ta had been deducted from a computed
gross dvdend.
In ther returns transmtted to the Department of Inand Revenue of the
rtsh Government, the ta payers reported as Income sub|ect to surta the
amount of ncome ta es approprate to ther dvdends, n addton to the money
actuay receved, and pad surta es on that tota sum. In ther Unted States
ncome ta returns for those years, the ta payers Incuded In gross ncome the
entre sums so reported n the rtsh returns. Up to the mt set by secton
131(b). they camed as credts aganst the ta payabe to the Unted States
the amount of rtsh ta approprate to the dvdends as we as the amount
of surta pad. deducton from gross ncome was camed under secton
23(r)2 for the amount by whch the mt was e ceeded.
Defcency assessments of the ta payers were brought to the oard of Ta
ppeas for revew. There the ssues were narrowed to the questons now before
as, whether the ta payers, after addng to gross ncome the amounts ncuded
to the rtsh returns as ta es approprate to the dvdends receved, were then
entted to deduct those amounts from the ta as computed, to the e tent per-
mtted by secton 131(b), and whether the e cess was a permssbe deducton
from gross ncome.
The oard hed that the sums n dspute shoud not have been Incuded In gross
Income, because they represented nether property receved by the ta payers nor
the dscharge of any ta es owed by them to the rtsh Government. It hed
further that secton 131 (a)1 of the Revenue ct of 1928, whch drects that the
ncome ta be credted wth the amount of any Income ta es pad
or accrued durng the ta abe year to any foregn country s nap-
pcabe because the Unted ngdom fas to ta dvdends at the norma rate,
and hence the ta es approprate to dvdends were pad by the corporatons
rather than the ta payer stockhoders.
In No. 55 the Court of ppeas for the Second Crcut affrmed the determ-
naton of the oard (8 . (2d), 718) snce foowed by that crcut n . W.
Wt|ocorth Co. v. Unted States (91 . (2d), 973), and the Court of ppeas
for the Thrd Crcut, n No. 505, reversed (91 . (2d), 534), foowng a decson
of the Court of ppeas for the rst Crcut In Unted Shoe Machnery Corpora-
ton v. Whte (89 . (2d), 3 3). We granted certorar ( U. S., ), to
resove ths confct of decson, and because of the mportance of the queston
to the admnstraton of the revenue aws.
t the outset t s to be observed that decson must turn on the precse
meanng of the words n the statute whch grants to the ctzen ta payer a
credt for foregn ncome ta es pad. The power to ta and to grant the
Secton 33, nance ct of 1924 (14 and 15 Oeo. , ch. 21).
Th act or 1918 prescrbes genera rues for the assessment and coecton of ta es
on profts from propery, trade or busness. y genera rue 20 t s provded that the
ta Is to be pad on the fu amount of the proft before any dvdend thereof Is made
In respect of any share and the body of persons payng such dvdend sha be
entted to deduct the ta approprate thereto. The In approprate to a dvdend
Payment Is the standard rate or ta for the enr In whch the dvdend Is decared, regard-
ess of the rate at whch the amount dstrbuted was n fact ta ed when It was receved
by the company. ( amton v. Commssoners of Inand Uevenue, ( rtsh Ta Cuses,
213. 229. 234 Neumann v. Oommunoners of Inand Revenue, 18 rtsh Ta Cases, 832,
35U, 381.)
Genera rue 20. Income ta of 1918.
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131, rt. 91.
312
credt resdes In Congress, and It s the w of Congress whch contros the
appcaton of the provsons for credt. The e presson of ts w n egsaton
must be taken to conform to ts own crtera uness the statute, by e press
anguage or necessary mpcaton, makes the meanng of the phrase pad or
accrued, and hence the operaton of the statute n whch t occurs, depend upon
ts characterzaton by the foregn statutes and by decsons under them.
(Cf. Crete Levck Co. v. Pennsyvana, 245 U. S., 292, 294 Wess v. Wener, 279
U. S., 333, 337 Ct. D. 0, C. . III-1, 257 (1929) urnet v. arme, 287 U. S.,
103, 110 Ct. D. 11, C. . I-2, 210 (1932) .)
Secton 131 does not say that the meanng of ts words s to be determned
by foregn ta ng statutes and decsons, and there s nothng n ts anguage
to suggest that n aowng the credt for foregn ta payments, a shftng
standard was adopted by reference to foregn characterzatons and cassf-
catons of ta egsaton. The phrase ncome ta es pad, as used n our own
revenue aws, has for most practca purposes a we understood meanng to be
derved from an e amnaton of the statutes whch provde for the ayng and
eoectou of ncome ta es. It s that meanng whch must be attrbuted to t as
used n secton 131.
ence the oard s fndng, supported as t s by much e pert testmony, that
the stockhoder recevng the dvdend s regarded n the ngsh ncome ta
acts as havng pad by deducton or otherwse the ta approprate to the
dvdend s not concusve. t most t s but a factor to be consdered n
decdng whether the stockhoder pays the ta wthn the meanng of our own
statute. That must utmatey be determned by ascertanng from an e amna-
ton of the manner n whch the rtsh ta s ad and coected what the stock-
hoder has done n conformty to rtsh aw and whether t s the substanta
equvaent of payment of the ta as those terms are used n our own statute.
We are here concerned ony wth the standard or norma ta . The scheme
of the rtsh egsaton s to mpose on corporate earnngs ony one standard
ta , at the source, and to avod the doube ta aton of the corporate ncome
as t passes to the hands of ts stockhoders, e cept as they are sub|ect to
surta whch the corporaton does not pay. The corporaton pays the standard
ta and aganst t the remedes for nonpayment run. It has been ntmated
that the sharehoder may be hed to payment of the ta n the event of the
corporaton s defaut ( amton v. Commssoners of Inand Revenue, 1 rtsh
Ta Cases, 213, 23 ), but the contrary vew fnds more support n |udca opnon
(d. at 230 Dagety t Co., Ltd., v. Commssoners of Inand Revenue, 15 rtsh
Ta Cases, 21 , 238 Neumann v. Commssoners of Inand Revenue, 18 rtsh
Ta Cases, 341, 345, 358, 3 2-303, 308), and was adopted by the ta payers e pert.
though the corporaton, n the Unted ngdom as here, pays the ta and Is
bound to pay t, the ta burden n pont of substance s passed on to the stock-
hoders n the same way that t s passed on under our own ta ng cts
where the ta on the corporate ncome s charged as an e pense before any
part of the resutng net proft s dstrbuted to stockhoders. (See Mag,
Ta abe Income, 24 et seq.) Whether the ta s deducted from gross profts
before a dvdend s decared, or after, when the deducton s taken from the
gross dvdend, the net amount receved by the stockhoder s the same. Under
ether system, f no dvdend s decared no ta s pad by the stockhoder. If a
dvdend s decared t must be pad, however the deducton s made, from
what s eft after the corporaton has pad ta es upon ts earnngs. The
dfferences n the two methods of deducton are to be found ony n the forma
bookkeepng data whch, n the rtsh system, are communcated to the
stockhoders, not for the purpose of ayng or coectng the ta whch the cor-
poraton has aready pad or must pay, but to ad the stockhoders n computng
ther surta aud n securng the beneft of any refund of the ta .
The stockhoders surta s computed upon the gross dvdend, the dvdend
whch he actuay receves pus the ta deducted. If the stockhoder s ncome
a e empt or ess than the mnmum amount sub|ect to the ta , refund s made
to hm of the proportonate share of the ta pad by the corporaton. It s
Cf. Dagety f- Co., Ltd., . Commssoners of Ivnnd Revenue (15 rtsh Ta Cases.
21 , 238) Neumann v. Commssoners of Inand Revenue (IS rtsh Ta Cases, 341, 345,
358, 302-3 3, 3 8).
amton v. Commssoners of Inand Revenue (1 rtsh Ta Cases, 213, 229, 234)
Neumann v. Commssoners of Inand Revenue (18 rtsh Ta Cases, 332, 345, 358 3 0,
SOU.
7 Income Ta ct of 1018 (sectons 20(1), 55(1), 211(1)) as amended by nance ct.
1020 (secton 27(1)).
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313
131, rt. 91.
upon these features of the rtsh system that the ta payers chefy rey to
support ther argument that the stockhoder pays the ta . or these mted
purposes, whch do not affect the assessment and payment of the ta . t s
true that the rtsh acts treat the stockhoder as though he were the
ta payer. ut wth respect to the surta the stockhoder pays t and the ta -
payers here have receved for ts payment the credt whch our statute
aows. Incuson of the deducted amount n the base on whch surta s
cacuated, together wth the provsons for refund of the ta to the stock-
boder who, In any event, bears ts economc burden, are ogca recogntons
of the rtsh concepton that the standard ta pad by the corporaton s
passed on to the stockhoders.
Our revenue aws gve no recognton to that concepton. though the ta
burden of the corporaton s passed on to ts stockhoders wth substantay
the same resuts to them as under the rtsh system, our statutes take no
account of that fact n estabshng the rghts and obgatons of ta payers.
Unt recenty they have not ad a ta , e cept surta , on dvdends, but
they have never treated the stockhoder for any purpose as payng the ta
coected from the corporaton. Nor have they treated as ta payers those upon
whom no ega duty to pay the ta s ad. Measured by these standards our
statutes afford no scope for sayng that the stockhoder of a rtsh corpora-
ton pays the ta whch s ad upon and coected from the corporaton, and
no bass for a decson that secton 131 e tends to such a stockhoder a credt
for a ta pad by the corporaton a prvege not granted to stockhoders n
our own corporatons. It can hardy be sad that a ta pad to the Crown by
a rtsh corporaton sub|ect to Unted States ncome ta s not a ta pad
wthn the meanng of secton 23(c)2, of the 1928 ct, whch aows a deduc-
ton from gross ncome for ta es pad to a foregn country (cf. Wech v. St.
eens Petroeum Co., Ld., 78 . (2d), 31), or that ts stockhoders coud
take credt under secton 131 for ther share of the ta on the theory that
they aso had pad t.
The ta payers urge that departmenta rungs sustanng credts or deduc-
tons by stockhoders of rtsh corporatons (S. M. 3040, C. . I -1, 198
1925 S. M. 53 3, C. . -, 89 192 I. T. 2401, O. . II-1, 12 1928
G. C. M. 3179, C. . II-1, 240 1928 ), have taken on the force of aw
by vrtue of the reenactment of the deducton and credt provsons carred
nto sectons 23 and 131 of the 1928 ct. Layng asde the fact that depart-
menta rungs not promugated by the Secretary are of tte ad n nterpretng
a ta statute ( everng v. New York Trust Co., 21)2 U. S., 455, 407 1 8 Ct.
D. 840, C. . III-1, 188 (1934) ) these rungs rest for ther concusons as
to the appcaton of secton 131 upon ther nterpretaton of the nature and
effect of the rtsh egsaton. The presumpton that Congress, In reenactng
a statute, can ascertan the course of admnstratve Interpretaton and, know-
ng ts own ntent, w correct the admnstratve rung f mstaken, can not
appy to rungs upon the ntent of other egsatve bodes. So far as the
rungs wth whch we are now concerned sought to state the force and effect
of rtsh aw they can have no more bndng effect on courts than n the case
of any determnaton of fact whch cas nto operaton the ta ng statutes.
So far as they have construed our own statute as adoptng the rtsh char-
acterzaton, they pany msnterpret an unambguous provson. Where the
aw s pan the subsequent reenactment of a statute does not consttute adop-
ton of ts admnstratve constructon. Isen v. Unted States, 270 U. S., 245
T. D. 3S4 , C. . -, 305 (192 ) Lousve N. R. Co. v. Unted States,
282U. S-, 740 ccrny v. cc York Trust Co., supra.)
What we have sad s decsve of the second queston, whether any of the
amounts not avaabe for credt under secton 131 may bo deducted from gross
ncome for the purpose of arrvng at ta abe net ncome. y secton 23(c)2
of the 1928 ct the deductons of ncome ta es mposed by the au-
thorty of any foregn country are mted to ta es pad or accrued. Snce
we have hed that the ta payer has not pad or become sub|ect to the foregn
ta here n queston, the secton by ts terms s nappcabe.
No. 55 s affrmed.
No. 505 Is reversed.
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142. rt. 732.
314
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 142. CONSOLID T D R TURNS O CORPOR -
TIONS T L Y R 1928.
rtce 732: When corporatons are affated 1938-20-9344
for 1928. Ct.D. 133
ncome ta revenue acts of 192 and 1928 decson of court.
ffaton Stock Ownershp Corporaton n Recevershp
Prorty of Cam for Ta es.
Where the ncome ta abty of a transferee corporaton n
recevershp depended upon whether the transferor corporaton and
another were affated durng the fsca year ended anuary 31,
1928, and the determnaton of that queston rested upon the ega
effect of a contract dated anuary 15, 1927, whereby the two cor-
poratons agreed to purchase certan assets of a partnershp and to
consodate the two busnesses by ater transferrng the assets to a
new corporaton (the busness n the meantme to be operated by
trustees to whom the stockhoders conveyed ther stock nterests),
the facts presented by the recevers of the transferee corporaton
faed to estabsh that the acton taken by the corporatons
amounted to such a change n stock ownershp as to be deemed
an affaton wthn the meanng of secton 240(d) of the Revenue
ct of 192 and secton 142(c) of the Revenue ct of 1928,
the new corporaton not n fact havng been formed unt the
subsequent year. The transferee s therefore abe to the Unted
States for the ta es and nterest assessed, and the amount thereof
Is aowabe as a preferred cam n the recevershp proceedngs.
Unted States Dstrct Court for the Southern Dstrct or Oho, Westerw
Dvson.
sher Mnery Co., pantff, v. The . C. Denton Stores Co., defendant.
December 30, 1937.
opnon.
Nevn, Dstrct udge: On May 28, 1934, on ts moton prevousy fed by the
dstrct attorney for the southern dstrct of Oho, the Unted States of mer-
ca was made a party defendant n ths acton and granted eave to pead
heren. On uy 7, 1934, the Unted States, by T. . Conner, coector of nterna
revenue for the frst dstrct of Oho, fed ts ntervenng petton, wheren t
prays |udgment n the sum of 5,917.23, pus nterest, and that the recevers
n ths cause be drected to pay the cam of the Unted States and that
sad cam be decared a preferred cam and be pad before other cams are
pad.
On October 5, 193 , ames . Maone, recever of the . C Denton Stores Co.,
fed hs answer to the ntervenng petton of the Unted States. The cause was
submtted to the court on an greed statement of facts and the ora test-
mony of Mr. . C. Denton, whch was taken on December 3, 193 , and there-
after transcrbed n the form of a record.
It s stpuated n the ngreed statement of facts, among other thngs, as
foows: 1-e. The soe ssue n ths case s whether the dward Wren Co.
and the Dcnton- onap Co. were affated corporatons wthn the meanng
of the Revenue cts of 192(5 and 1928, durng the fsca year ended anuary 31,
1928. If sad companes were affated for sad fsca year no ta s due and
owng by ths recever for sad fsca year to the Unted States. If sad com-
panes were not affated for sad fsca year sad ta as assessed, together wth
nterest, s due and owng the Unted States by the dward Wren Co., and the
. C. Denton Stores Co. s abe for such ta es and Interest as a transferee of
the dward Wren Co. and the Government s cam shoud be aowed as a
1 Not pubshed In edera Reporter.
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315
142, rt. 732.
pror cam n ths recevershp n the prncpa amount of 4,825.25, together
wth assessed nterest of 1,11S.55, tota 5,703.80, together wth nterest on the
sum of 5,703.80 from pr 20, 1933, the date of the assessment, at the rate
of per cent per annum unt payment s made.
The statutes nvoved are secton 240(d) of the Revenue ct of 192 , and
secton 142(c) of the Revenue ct of 1928, whch, however, s practcay
dentca wth secton 240(d) of the Revenue ct of 192 . Secton 240(d)
of the Revenue ct of 192 , reads as foows:
or the purpose of ths secton two or more domestc corporatons sha
be deemed to be affated (1) f one corporaton owns at east 95 per centum
of the stock of the other or others, or (2) f at east 95 per centum of the
stock of two or more corporatons s owned by the same nterests. s used
n ths subdvson the term stock does not ncude nonvotng stock whch
s mted and preferred as to dvdends. Ths subdvson sha be appcabe
to the determnaton of affaton for the ta abe year 192 and each ta abe
year thereafter.
The cam whch the Government asserts n ths case s for addtona n-
come ta es for the fsca year ended anuary 31, 1928. The ta es were
orgnay assessed aganst the dward Wren Co. n assessment was ater
made aganst the . C. Denton Stores Co. as transferee of the dward Wren Co.
It woud serve no usefu purpose to set forth a of the facts In deta, be-
cause they are, as aready ndcated (e cept as to such matters as may have
been brought out n the testmony of Mr. Denton), contaned n the agreed
statement of facts, whch the court adopts as ts fndngs of fact. The cams
of the respectve partes have been thoroughy brefed by ther counse.
Counse for Maone, recever (now recevers), state that wth much that s
sad n the Government s bref they do not dsagree, and that n ther opnon
(br., p. 3) most of the prncpes of aw theren dscussed are correcty
stated. They submt, however, that they beeve that the facts show that
95 per cent of the stock of each of the two corporatons heren nvoved was
owned by the same nterests. Counse further state that they do not con-
tend that on the bass of the record stock hodngs, wthout more, those n-
dvduas, who owned 95 per cent of the Denton stock, owned 95 per cent of the
dward Wren stock, but they submt we are not here deang wth the
queston of contro of stock. We are deang wth ototcrshp by the same
nterests.
The bass of the case rests upon a contract dated anuary 15, 1927. In
ther bref (p. 3) counse for the recever state ther poston to be as fo-
ows: The bass for our case rests upon the contract of anuary 15, 1927,
the rato of equtes whch was worked out and agreed to at that tme, and
the facts subsequenty occurrng, as set out n the agreed statement and the
testmony. Smpy stated, t s our poston that the same nterests owned
95 per cent of the stock of the two corporatons that the words same nter-
ests do not mean same ndvduas, but ncude a group, a the members
of whch share the same benefts and burdens, and fnay that these persons
consttuted the same nterests because of the contract of anuary 15, 1927.
The Government contends that the ony ega effect of the agreement of
anuary IS, 1927, was that the sgners of such agreement agreed to purchase
certan assets of a partnershp and that there shoud be a consodaton ater
of the two companes, together wth the partnershp assets and that the three
busnesses shoud be consodated as an economc unt foowng the purchase
of the partnershp assets. It Is submtted ths does not amount to affaton
uness the stock ownershp Is changed to meet the requrements of the statute
pror to the purchase thereof. n e ecutory contract has been hed not to
be a sae and the mere agreement to purchase the assets of the . onap Co.
s not such a transacton from whch proft or oss coud be determned. (Lucas
v. orth Te as Lumber Co., 281 U. S., 11 Ct. D. 1 9, C. . I -1, 204 (1930) .)
The mere agreement to change the stock ownershp of the two companes coud
not be effectve unt the same was carred out. ny equtabe ownershp by
the stockhoders n the assets of the new company to be formed shoud be
dstngushed from the actua ownershp of the stock. ( . . Rshc urnture
Co.. 9 . T. ., 287 Peyton Dupont Securtes Co. v. Commssoner, . (2d),
18, C. C. . 2. 1933.)
number of authortes are cted by counse upon each sde, whch counse
submt support ther respectve contentons. Counse seek aso to dstngush
certan cted cases from the case at bar. In ther bref (page 2 ) counse for the
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203, rt. 971.
31
recever say: we beeve that the ony queston here Is whether these two
groups of stockhoders consttuted the same Interests, and ths Is essentay
a queston of fact, for whch support must be found In the stpuaton and the
ora testmony and agan (page 4) Indeed, It Is submtted that a of the
reevant facts, necessary for a determnaton of ths Issue are contaned In the
agreed statement even wthout reference to the ora testmony. In the case
of ank of Itay (13 . T. ., 122 ), the oard of Ta ppeas sad: Counse
for the respectve partes have cted to us many of our decsons where the per-
centage of ownershp or contro of stock has vared, and where the percentage
s ess or greater than In the Instant proceedng, they are reed upon as author-
ty for ther poston, and as decsve of the case at bar. The probem of aff-
aton s not one where rues of genera appcaton can be ad down. ach case
Is a separate probem. The facts and crcumstances of the organzaton, cond-
tons surroundng the acquston of stock, operaton of the companes and the
resut to be accompshed must be gven ther proper sgnfcance.
The court agrees wth the vews |ust above e pressed, and upon a consder-
aton of the whoe of the record fnds that upon the facts n the nstant case
the recever (recevers) has faed to estabsh that the dward Wren Co. and
the Denton- onap Co. were affated corporatons wthn the meanng of the
Revenue cts of 192 and 1928, durng the fsca year ended anuary 31, 1928.
The court further fnds, therefore, In accordance wth the agreement contaned
In the agreed statement of facts (1-e) that snce the companes were not
affated, the ta as assessed, together wth Interest, s due and owng the
Unted States by the dward Wren Co., and the . C. Denton Stores Co. s a-
be for such ta es and nterest as a transferee of the dward Wren Co. and
the Government s cam shoud be aowed as a pror cam n ths recevershp
In the prncpa amount of 4,825.25, together wth assessed nterest of 1,118.55,
tota 5,703.80, together wth nterest on the sum of 5,703.80 from pr 20.
1933, the date of the assessment, at the rate of per cent per annum unt
payment Is made.
The court further fnds that n accordance wth the prayer n the Intervenng
petton of the Unted States of merca contaned, the recevers shoud be
drected to pay the cam of the Unted States, and that sad cam be decared
a preferred cam and be pad before other cams are pad.
n order may be drawn accordngy.
S CTION 144. WIT OLDING O T
T SOURC .
rtce 7 1: Wthhodng ta at source.
R NU CT O 1028.
ed or determnabe annua or perodca ncome pad to the
en Property Custodan. (See G. C. M. 19992, page 197.)
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 203. N T INCOM O LI
INSUR NC COMP NI S.
rtce 971: Ta -e empt nterest and reserve funds.
R NU CT OP 1928.
Dscount on premums pad to a fe nsurance company n advance
of the due date. (See G. C. M. 20200, page 20 .)
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317 293 (b)
SUPPL M NT . POSS SSIONS O T UNIT D ST T S.
S CTION 251. INCOM ROM SOURC S WIT IN
POSS SSIONS O UNIT D ST T S.
rtce 1131: Ctzens of the Unted States and domestc
corporatons dervng ncome from sources wthn a
possesson of the Unted States.
R NU CT O 1028.
Retrement pay of a ctzen of the Unted States resdng n a
possesson of the Unted States. (See I. T. 3199, page 209.)
SUPPL M NT M. INT R ST ND DDITIONS TO T T .
S CTION 293(b). DDITIONS TO T T IN
C S O D ICI NCY: R UD.
Secton 293(b). 1938-13-92 1
Ct. D. 1320
INCOM T R NU CT O 1928 D CISION O SUPR M COURT.
1. ssessment of ddton to Defcency Not arred by c-
qutta on Indctment for Wfu ttempt to vade and
Defeat Ta Statutory Constructon.
The assessment of a 50 per cent addton to the defcency under
secton 293(b) of the Revenue ct of 1928 s not barred by the
acqutta of the ta payer on an ndctment under secton 14 (b)
of the same ct for wfu attempt to evade and defeat the ta .
Secton 293(b) mposes a cv admnstratve sancton, whe the
sancton prescrbed by secton 14 (b) s a crmna one. Congress
may mpose both a crmna and a cv sancton n respect to the
same act or omsson.
2. Decson Reversed n Part.
Decson of the Crcut Court of ppeas, Second Crcut (80
ed. (2d), 873), reversng decson of the oard of Ta ppeas
n so far as t reates to the queston here nvoved (32 . T. .,
1003), reversed.
Supreme Court of the Unted States.
Guy T. cverng, Commssoner of Interna Revenue, pettoner, v. Chares .
Mtche.
303 U. S 391.
On certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
March 7, 1938.
Mr. ustce randes devered the opnon of the Court.
Revenue ct of 1928 (ch. 852, secton 293, 45 Stat., 791) provdes, n deang
wth assessment of defcences n Income ta returns:
(b) raud. If any part of any defcency Is due to fraud wth ntent to
evade ta , then 50 per centum of the tota amount of the defcency (n add-
ton to such defcency) sha be so assessed, coected, and pad, .
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1293(b).
318
The queston for decson s whether assessment of the addton s barred by
the acqutta of the defendant on an ndctment under secton 14 (b) of the
same ct for a wfu attempt to evade and defeat the ta .
The Commssoner of Interna Revenue found that Chares . Mtche of
New York had, n hs ncome ta return for the year 1929, frauduenty deducted
from admtted gross ncome an aeged oss of 2,872,305.50 from a purported
sae of 18,300 shares of Natona Cty ank stock to hs wfe that he had
frauduenty faed to return the sum of 0 , . 7 receved by hm as a ds-
trbuton from the management fund of the Natona Cty Co., of whch he was
charman and that these frauduent acts were done wth ntent to evade the
ta . On December 8, 1933, the Commssoner notfed Mtche that there was
a defcency In hs ta return of 728,709.84 and, on account of the fraud, a
50 per cent addton thereto In the sum of 3 4,354.92.
Mtche appeaed to the oard of Ta ppeas, whch sustaned the Com-
mssoner s determnaton. (32 . T. ., 1093.) Upon a petton for revew,
the crcut court of appeas concuded that there was ampe evdence to sup-
port the oard s fndngs that Mtche had frauduenty made deducton of
the oss and that he had frauduenty faed to return the amount receved from
the management fund and that, despte the facts hereafter stated, the oard
was free to fnd the facts accordng to the evdence. It accordngy affrmed
the assessment of the defcency of 728,709.84. ut t reversed the oard s
approva of the addtona assessment of 3 4,354.92, because of the foowng
facts:
efore the defcency assessment was made Mtche had been ndcted In the
edera Court for Southern New York under secton 14 (b) of the Revenue
ct of 1928, whch provdes:
ny person who wfuy attempts n any manner to evade or
defeat any ta mposed by ths tte or the payment thereof, sha, n addton
to other penates provded by aw, be guty of a feony and, upon convcton
thereof, be fned not more than 10,000, or mprsoned for not more than 5
years, or both, together wth the costs of prosecuton.
The frst count charged that Mtche unawfuy, wfuy, knowngy, feon-
ousy, and frauduenty dd attempt to defeat and evade an Income ta of, to wt,
728,709.84, upon hs net ncome for 1929. e was tred on the ndctment
and acqutted on a the counts. The tem of 728,700.84 set out n the frst
count s the same tem as that nvoved n the defcency assessed and both
arose from the same transactons of Mtche. ut the addton of 3 4,354.92
by reason of fraud was not Invoved n the ndctment
The crcut court of appeas hed that the pror |udgment of acqutta was
not a bar under the doctrne of res |udcata and hence t affrmed the assess-
ment of the 728,709.84. ut t hed that our decsons n Coffey v. Unted States
(11 U. S., 43 ) and Unted States v. La ranca (282 U. S., 5 8) requred t to
treat the mposton of the penaty of 50 per cent as barred by the pror
acqutta of Mtche n the crmna acton. (89 . (2d), 873.) Mtche s
petton for certorar to revew so much of the |udgment as uphed the assess-
ment of the defcency of 728,709.84 was dened. (302 U. S., .) The Com-
mssoner s petton to revew so much of the |udgment as dened the 50 per cent
n addton was granted, because of the mportance n the admnstraton of the
revenue aws of the questons presented and aeged confct n decsons. (302
U. S., .)
rst. Mtche contends that the cam for the 50 per cent Is barred by the
doctrne of res |udcata. e asserts that a the facts and ntents requste to
the mposton of the 50 per cent addton to the defcency were put In ssue and
determned aganst the Government n the crmna tra, and that hence, under
the doctrne of res |udcata the |udgment of acqutta bars t from obtanng a
second |udgment based upon the same facts and ntents. Snce ths proceedng
to determne whether the amount camed s payabe as a ta s a proceedng
dfferent n ts nature from the ndctment for the crme of wfuy attemptng
to evade the ta , the contenton that the doctrne of estoppe by |udgment ap-
pes rests whoy on the asserton that the ssues here presented were tgated
and determned n the crmna proceedng. (Compare Tat v. Western Mary-
and Ry., 289 U. S., 20, 23 Ct D. 83, C. . II-1, 351 (1933) .) ut ths a
not true.
The dfference n degree of the burden of proof n crmna and cv cases pre-
cudes appcaton of the doctrne of res |udcata. The acqutta was merey
an ad|udcaton that the proof was not suffcent to overcome a rea-
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319
5293(b).
sonabe doubt of the gut of the accused. (Lews v. rck 233 U. S., 201, 302.)
It dd not determne that Mtche had not wfuy attempted to evade the ta .
That acqutta on a crmna charge s not a bar to a cv acton by the Govern-
ment, remeda n ts nature, arsng out of the same facts on whch the crmna
proceedng was based has ong been setted. (Stone v. Unted States, 1 7 U. S.,
178, 188 Murphy v. Unted States, 272 U. S., 30, 31, 32. Compare Chantangco
v. baroa, 218 U. S., 47 , 481, 482.1) Where the ob|ectve of the subsequent
acton kewse s punshment, the acqutta s a bar, because to entertan the
second proceedng for punshment woud sub|ect the defendant to doube |eop-
ardy and doube |eopardy s precuded by the ffth amendment whether the
verdct was an acqutta or a convcton. (Murphy v. Unted States, 272 U. S.,
G30, 32.)
The Government urges that appcaton of the doctrne of res |udcata s pre-
cuded aso by the dfference n the ssues presented n the two cases that a-
though the ndctment and ths proceedng arse out of the same transactons and
facts, the ssues n them are not the same that on the ndctment the ssue was
whether Mtche had wfuy attempted to evade or defeat the ta that
whether he had done so frauduenty was not there an Issue (Unted States v.
Sharton. 285 U. S., 51S compare Unted States v. Murdoch, 290 U. S., 389, 397)
and that n ths proceedng the ssue s specfcay whether the defcency was
due to fraud. (Compare urton v. Unted States, 202 U. S., 344, 380.) Snce
there was not even an ad|udcaton that Mtche dd not wfuy attempt to
evade or defeat the ta , t s not necessary to decde whether such an ad|udca-
ton woud be decsve aso of ths ssue of fraud. (Compare anby v. Com-
mssoner, 7 . (2d), 125, 129 Ct. D. 823, C. . III-1, 329 (1934) .)
Second. Mtche contends that ths proceedng s barred under the doctrne
of doube |eopardy because the 50 per cent addton of 3 1,354.92 s not a ta ,
but a crmna penaty ntended as punshment for aegedy frauduent acts.
Uness ths sancton was ntended as punshment, so that the proceedng s
essentay crmna, the doube |eopardy cause provded for the defendant n
crmna prosecutons s not appcabe.
1. In assessng ncome ta es the Government rees prmary upon the ds-
cosure by the ta payer of the reevant facts. Ths dscosure t requres hm
to make n hs annua return. To nsure fu and honest dscosure, to ds-
courage frauduent attempts to evade the ta , Congress mposes sanctons. Such
sanctons may confessedy be ether crmna or cv. s stated n Oceanc
Mfam Navgaton Co. v. Stranahan (214 U. S., 320, 339) :
In accord wth ths setted |udca constructon the egsaton of Congress
from the begnnng, not ony as to tarff but as to nterna revenue, ta aton and
other sub|ects, has proceeded on the concepton that t was wthn the com-
petency of Congress, when egsatng as to matters e cusvey wthn ts con-
tro, to mpose approprate obgatons and sancton ther enforcement by rea-
sonabe money penates, gvng to e ecutve offcers the power to enforce such
penates wthout the necessty of nvokng the |udca power.
Congress may mpose both a crmna and a cv sancton n respect to the
fame act or omsson for the doube |eopardy cause prohbts merey punshng
twce, or attemptng a second tme to punsh crmnay, for the same offense.
The queston for decson s thus whether secton 293(b) mposes a crmna
sancton. That queston s one of statutory constructon. (Compare Murphy v.
Unted States, 272 U. S., 30, 32.)
Remeda sanctons may be of varyng types. One whch s characterstcay
free of the puntve crmna eement s revocaton of a prvege vountary
granted orfeture of goods or ther vaue and the payment of f ed or
Tarabe sums of money are other sanctons whch have been recognzed as
enforcbe by cv proceedngs snce the orgna revenue aw of 1789. ( ct of
uy 31, 1789, ch. 5, secton 3 , 1 Stat., 29, 47.) In spte of ther comparatve
1 Unted State v. Warner ros. Pctures, Inc. (13 . Supp., 14 ( . D. Mo.), affrmed
on other grounds, 298 . S., 43) Unted States . Donddson-Schutz Co. (148 ed.,
581 (C. C. . 4)) Unted Mates v. Schneder (35 ed.. 107 (C. C. D. Oreg.)) Sandcn
T. Morgan (225 ed., 200, 2 8-2 0 (S. D. N. Y.)).
Typca of ths cass of sanctons Is the deportaton of aens. ( ong Yue Tna v.
Unted States, 149 U. S., 98 Low Wah Sucy v. ackus, 225 U. S 400 Zakonate v.
Wof, 22 U. S., 272: uffa|ewtz v. dams. 228 U. S., 85 Ng ung o v. Whte, 2 S9
. s 27 Unted States e ret. okumsky v. Tod, 2 3 . S., 149.) Dsbarment s
kewse a sancton of ths type. ( a parte Wa, 107 U. S.. 2 5. Compare nsn Ifacker
v. . eto York, 170 U. S.. 189, 190. 19U-200 oard of Trade v. Waace, 07 . (2d), 402,
407 (C. C. . 7) armers Lvestock Commsson Co. . Unted States, 04 . (2d),
375. 378 ( . D. 11L).)
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293(b).
320
severty, such sanctons have been uphed aganst the contenton that they are
essentay crmna and sub|ect to the procedura rues governng crmna
prosecutons. (Passavant v. Unted States, 148 U. S., 214 Unted Staes v.
Zucker, 1 1 U. S., 475 cpner v. Unted States, 213 U. S., 103 Oceanc Steam
Navgaton Co. v. Stranahan, 214 U. S., 320 Chcago, . . Ry. v. Unted
States, 220 U. S., 559, 578 Unted States v. Regan, 232 U. S., 37 Grant ros.
Constructon Co. v. Unted States, 232 T . S., 47, 00 Murphy v. Unted States,
272 U. S., 30 arous Items v. Unted States, 282 U. S., 577 Loyd Sabaudo
Soceta v. tng, 287 U. S., 329, 334. )
2. The remeda character of sanctons mposng addtons to a ta has been
made cear by ths Court n passng upon smar egsaton. They are provded
prmary as a safeguard for the protecton of the revenue and to remburse
the Government for the heavy e pense of nvestgaton and the oss resutng
from the ta payer s fraud.1 In Stockce v. Unted States (13 Wa., 531, 537,
551) the Court sad of a provson whch added doube the vaue of the goods:
It must therefore be consdered as remeda, as provdng Indemnty for
oss. nd t s not the ess so because the abty of the wrongdoer s meas-
ured by doube the vaue of the goods receved, conceaed, or purchased, nstead
of the snge vaue. The act of abstractng goods egay Imported, recevng,
conceang or buyng them, Interposes dffcutes n the way of a Government
sezure, and mpars, therefore, the vaue of the Government rght It s, then,
hardy accurate to say that the ony oss the Government can sustan from
conceang the goods abe to sezure s ther snge vaue, or to assert that the
abty mposed by the statute of doube the vaue Is arbtrary and wthout
reference to ndemnfcaton. Doube the vaue may not be more than compete
Indemnty.
The ct of 1823 was, as we have sad, remeda n Its nature. Its purpose
was to secure fu compensaton for nterference wth the rghts of the Unted
States.
3. In sectons 27 and 293 It s provded that coecton of the 50 per cent
addton, ke that of the prmary ta tsef, may be made by dstrant
as we as by a proceedng n court. If the secton provded a crmna sanc-
ton, the provson for coecton by dstrant woud make t unconsttutona.
(Compare Lpke v. Lederer, 259 U. S., 557 T. D. 1354 Rega Drug Corporaton
v. Warden, 2 0 U. S., 38 . See aso Unted States v. Chouteau, 102 U. S.,
03, 11 oyd v. Unted States, 11 U. S., 1 Lees v. Unted States, 150
U. S., 47 Unted States v. La ranca, 2S2 U. S., 5 8.) That Congress pro-
vded a dstncty cv procedure for the coecton of the addtona 50
per cent ndcates ceary that t ntended a cv, not a crmna, sancton.
Cv procedure s ncompatbe wth the accepted rues and consttutona guar-
antes governng the tra of crmna prosecutons, and where cv procedure
s prescrbed for the enforcement of remeda sanctons, those rues and
guarantes do not appy. Thus the determnaton of the facts upon whch 11a-
See aso notes 7 to 13, Infra. The dstncton here taken between sanctons that are
remeda and those that are puntve has not generay been specfcay enuncated. In
determnng whether partcuar rues of crmna procedure are appcabe to cv actons
to enforce sanctons, the cases havo usuay attempted to dstngush between the tvpe of
procedura rue Invoved rather than the knd of sancton beng enforced. Thus epner
v. Unted States (213 U. 8., 303, 111-112), hodng that a verdct may be drected for the
Government, and Unted States v. Regan (232 U. S., 37, 50), hodng that the Government
need not prove Its case beyond a reasonabe doubt, dstngushed oyd v. Unted States
(11 U. S., 01 ), and Lees v. Unted States (150 17. S., 470), hodng that the defendant
coud not be requred to bo a wtness aganst hmsef, on the ground that the guaranty
In the ffth amendment to the Consttuton aganst compusory sef-ncrmnaton
Is of broader scope than are the guarantes n rtce III and the s th amendment gov-
ernng tras In crmna prosecutons. (232 U. S., at 50. Compare aso Perce v.
Unted States, 255 U. S., 398, 401.)
Tayor v. Unted States (3 ow., 197,210) artett v. ane (1 ow., 2 3, 274)
C quot s Charnpar|ne (3 Wa., 114, 145) Dorshemer v. Unted States (7 Wa., 1 , 173) :
Passavant v. Unted States (148 D. 8., 214, 221). Compare McDowe v. ener (9 .
(2d), 120 (W. D. Pa.) T. D. 3808, C. . -, 349 (192 )1), affrmed on opnon beow
(15 . (2d), 1015 (C. C. . 8)) Do v. vans (7 ed. Cas. No. 8,9 9 (C. C. . D. Pa.))
Stearns v. Unted States (22 ed. ( as. No. 13,341 (C. C.)).
Compare Unted States v. Cafn (97 D. 8., 54 . 552-553).
ven though Congress may not provde cv procedure for the enforcement of pun-
tve sanctons, nothng n the Consttuton prevents the enforcement of dstncty remeda
sanctons by a crmna Instead of a cv form of proceedng. Compare Unted States v.
Stevenson (215 U. S., 190) wth Unted States v. Refan (232 T . 8., 37), both enforcng
the sancton prescrbed In 34 Stat., 8118. The fact that a crmna procedure Is prescrbed
for the enforcement of a sancton may be an ndcaton that It Is ntended to be puntve,
but can not be deemed concusve If aternatve enforcement by a cv proceedng Is
sustaned.
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321
293(b).
bty Is based may be by an admnstratve agency nstead of a |ury, or f
the prescrbed proceedng s n the form of a cv sut, a verdct may be
drected aganst the defendant 3 there s no burden upon the Government to
prove ts case beyond a reasonabe doubt, and t may appea from an adverse
decson 10 furthermore, the defendant has no consttutona rght to be con-
fronted wth the wtnesses aganst hm, or to refuse to testfy 12 and nay,
n the cv enforcement of a remeda sancton there can be no doube |eopardy.
4. The fact that the Revenue ct of 1928 contans two separate and dstnct
provsons mposng sanctons, and that these appear n dfferent parts of
te statute, heps to make cear the character of that here nvoked. The
sancton of fne and mprsonment prescrbed by secton 14 (b) for wfu
attempts n any manner to evade or defeat any (ncome) ta , ntroduced
nto te ct under the headng Penates, s obvousy a crmna one. The
sancton of 50 per cent addton f any part of any d feency s due to fraud
wth ntent to evade ta , prescrbed by secton 293(b), ntroduced nto the ct
nnder the headng ddtons to the ta , was ceary ntended as a cv
one Ths sancton, and other addtons to the ta are set forth n Suppe-
ment SI, entted Interest and addtons to the ta . The suppement ncudes,
besdes secton 293(b), sectons 291, 292, 293(a), and 294. Secton 291 pre-
sc-rbes a 25 per cent addton for faure to make and fe a return secton
Pastavant v. Unted States (148 T . S., 214) Oceanc Steam Navgaton Co. v.
Stranohan (214 T . S., 320) tng v. North German Loyd (2S7 . S., 324, 327-328)
Loyd Sabaudo Soceta v tng (287 U. S., 329, 334) ef. amburg- mercan Lne v.
Cnted Staffs (291 U. S., 420) Osaka Shosen anha Lne v. Unted State (300 T . S.,
9S). Compare aso San Souc v. Compagne rancase de Navgaton apeur (71 .
(2d), 51, 53 (C. C. . 1)) Loyd Roya ege, S. . v. tng ( 1 . (2d), 745, 747
IC. C. . 2)) Navga:one Lbera Trestna v. Unted Statn (3 . (2d), 31, 33
(C C. . 9)) Cay v. Stcope (38 ed., 39 (C. C. D. y.)). nd see cases cted In note
2. supra.
dmnstratve determnaton of sanctons mposed by the ncome ta aws has kewse
bwn uphed. ( ern v. Commssoner, 59 . (2d), 99 , 997 (C. C. . 2) Ct. D. 43,
C . II-1, 207 (1933) McDowe v. ener, 9 . (2d), 120 (W. D. Pa ), aff d on
opnon beow. 15 . (2d), 1015 (C. C. . 3 oard . Commssoner, 51 . (2d), 73, 7
(( . C. . ) : Wekham v. Commssoner, 05 . (2d), 27, 531-532 (C. C. . 8) Ct. D.
739. C. . II-2, 241 (1933) Ltte . everng, 75 . (2d). 43 , 439 (C. C. . 8)
Ifothcrt v. Commssoner. 77 . (2d), 35, 38 (C. C. . 10) Ct. D. 1018, C. . I -2,
203 (1935) Do v. vans, ed. Cas. No. 3,9 9 (C. C. . D. Pa.)).
efner v. Unted States (213 U. 8., 103) our Packages v. Unted States (97 U. S..
404, 412) : Chcago . . Ry. . Unted States (220 D. S., 559, 578). Compare Unted
Sf fe v. Thompson (41 ed., 28 (C. C. S. D. N. Y.)) Unted States v. tantc Coast
Lne Ry. (182 ed.. 284 (S. D. Ga.)).
Lentha s Tobacco v. Unted States (97 T . S., 237. 2 5-2 7, 271) Unted States v.
Sevan (232 T . S., 37) : Grant ros. Const. Co. . Unted States (232 T . S., 47, 00).
Compare New York Cent. . R. R. R. . Unted States (1 5 ed., 833, 839 (C. C. . 1))
dran Dstery No. 8 v. Unted States (204 ed., 429 (C. C. . 4)) Pocahontas Dstng
Co. v. Unted States (218 ed., 782. 78 (C. C. . 4)) Unted States v. Lousve f N.
. (1 2 ed.. 185 (S. D. a.), aff d, 174 ed., 1021 (C. C. . R) St. Lous-8. W. Ry.
v. Unted States (183 ed., 770, 771 (C. C. . 5)) Unted States v. Inos Cent. Ry.
(170 ed., 542, 545-540 (C. C. . )) tchson, T. d S. . Ry. v. Unted States (178 ed.,
12, (C. C. . 8)) Mssour. . T. Ry. v. Unted States (178 ed.. 15, 17-18 (C. C. .
S ). Compare aso ct of March 2, 1799 (ch. 22, secton 71, 1 Stat., 27, 78) Locke
v. rntcd States (7 Crancb, 339. 348) Cauot s Champagne (3 Wa., 11-1. 143-144).
Compare pnred States v. Cafn (97 U. S., 540) Unted States v. Zucker (101 T . S.,
475) Unted States v. Regan (232 T . S., 37). See aso Unted States v. atmore d
0. S. W. Ry. (159 ed., 33, 38 (C. C. . ), modfed, 220 T . S.. 94) Unted States r.
Lousve t N. Ry. (1 7 ed., 300, 307-308 (C. C. . )) Unted States v. Inos Cent.
y. (170 ed.. 542, 545 (C. C. . )). Compare Unted States v. Sanges (144 T . S.. 310).
Smarv, f the Government Is successfu t may recover costs as n other cv suts,
((front ros. Const. Co. v. Unted States, 232 T . S., 47, G 5. See aso Unted States v.
Southern Pac. Co.. 172 ed., 909, 911 (C. C. D. Oreg.) Unted States v. Mnneapos,
St. P. 8. 8. M. Ry., 235 ed., 951, 952-953 (D. Mnn.).)
uC(ed Stares v. Zucker (1 1 T . S., 475) Grant ros. Constructon Co. v. Unted
States (232 U. S.. 47, 00).
Compare Unted States e re. okumsky v. Tod (2 3 T . S., 149, 1 5). We do not
construe oyd v. Unted States (11 T . S., 1 ), or Lees v. Unted States (150 T . S., 470),
s hodng to the contrary where the sancton Invoved Is remeda, not puntve. See
note 3. supra.
Murphy v. Unted States (272 T . S., 30) : arous Items v. Unted States (282 D. S.,
577). Compare gner v. Unted States (1 . (2d), 597 (C. C. . 3)) ood v. Unted
States (204 ed., 55, 7 (C. C. . 4)) Unted States v. St. Lous-S. W. Ry. (181 ed.,
28. 32 (C. C. . 5)) Scfc v. Unted States (1 . (2d), 897. 898 (C. C. . 7)). See aso
uted States v. Three Copper Sts (47 ed., 495, 499 (D. y.)) Unted States v. Osen
(57 ed., 579, 582-58 (N. D. Ca.)) Caste . Unted States (17 . Supp., 515, 518 520
(Ct. CI.)). Compare anby v. Commssoner ( 7 . (2d), 125 (C. C. . 4) Ct. I). 823,
C , 1I1-1, 329 (1934) ).
u The oard of Ta ppeas sad In Mtche v. Commssoner (32 . T. ., 1003, 113 ) :
carefu study of the two sectons convnces us that they are bascay dfferent n
character and were enacted for whoy dfferent purposes. The anguage of the two sec-
tons dffers wdey and contempates stuatons whch may requre entrey dssmar
proof.
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322, rt. 1254.
322
292 prescrbes nterest at the rate of 8 per cent per annum upon the defcency
from the date prescrbed for payment of the ta secton 293(a), an addton
of 5 per cent f the defcency s due to neggence, or ntentona dsregard
of rues and reguatons but wthout ntent to defraud and secton 294
prescrbes an addton to the ta of 1 per cent per month n case of nonpay-
ment. Obvousy a of these ddtons to the ta were ntended by
Congress as cv ncdents of the assessment and coecton of the ncome ta .
Thrd. Mtche nssts that Coffey v. Unted States (11 U. S., 43 ) requres
affrmance of the |udgment the Government argues that ths case s dstn-
gushabe, and, f not, that t shoud be dsapproved. The crcut court of ap-
peas, ctng Stone v. Unted States (1 7 U. S., 178, 18 -189) and ater cases,
recognzed that the rue of the Coffey case dd not appy to a stuaton where
there had been an acqutta on a crmna charge foowed by a cv acton
requrng a dfferent degree of proof but construng secton 293(b) as mpos-
ng a penaty desgned to punsh frauduent ta dodgers and not as a mere
preventve measure, t thought that the Coffey case and Unted States v. La
ranca (282 U. S., 5 8) requred t to treat the mposton of the penaty of 50
per cent as barred by the pror acqutta of Mtche n the crmna acton.
Snce we construe secton 293(b) as mposng a cv admnstratve sancton,
nether case presents an obstace to the recovery of the 3 4,354.92, the 50 per
cent addton here n ssue.
Reversed.
SUPPL M NT O. O RP YM NTS.
S CTION 322. R UNDS ND CR DITS.
btce 1254: Cams for refund by ta payers. 1938-4-91 0
Ct. D. 1300
ncome ta revenue act of 1928 decson of supreme court.
1. Cam for Refund mendment Lmtaton.
cam for the refund of a defnte amount based upon a specfc
ground s not susceptbe of amendment before re|ecton by the fng
of a second cam, after the e praton of the statute of mtaton,
to recover a greater sum on a new and unreated ground.
2. Decson Reversed.
Decson of the Court of Cams of the Unted States (17 . Supp,
980) reversed.
Supreme Court of the Unted States.
The Unted States, pettoner, v. Mabe 8. ndrews, ecutr of the state of
Matthew ndrews, Deceased.
302 U. S., 5 7.
On wrt of certorar to the Court of Cams.
anuary 3, 1938.
OPINION.
Mr. ustce Roberts devered the opnon of the Court.
In ths case we are caed upon to determne whether a cam for refund
of ncome ta , askng repayment of a defnte sum upon a specfc ground, s
susceptbe of untmey amendment to recover a greater sum on a new and
unreated ground.
u Secton 104 Imposes a somewhat smar addtona ta of 50 per cent of the net ncome
In the case of corporatons formed or avaed of for the purpose of avodng surta on ther
sharehoders through mproper accumuaton of surpus. (Compare Unted u nett Cor-
poraton v. Commstoner, 2 . (2d), 754 (C. C. . 2) Ct. D. 772, C. . I1I-1, 25T
(1934) .)
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323
322, rt. 1254.
The respondent, on behaf of the estate she represented, pad the ncome ta
shown to be due by her return, whch e hbted an Item of gross Income of
110.S91 as dvdends from domestc corporatons. Of ths tota 30,750 was
erroneousy reported as dvdends from the M. . anna Co. Ths amount was
pad her pursuant to a recaptazaton of the company n whch the estate
owned preferred stock and, nstead of beng returned as a dvdend, shoud
have been treated as gvng rse to a capta gan of 7,411.50.
In December, 1931, the respondent was advsed by an nterna revenue agent
that her return, reportng the recept as a dvdend, was consdered correct,
sub|ect to the approva of the ureau In Washngton, and that f ater Infor-
maton shoud Indcate a matera change In the amount of ta the statutes
woud requre a redetermnaton of ta abty. October , 1032, as a resut
of conferences wth representatves of the anna company, the Commssoner
of Interna Revenue advsed the agent n charge at Ceveand, Oho, that the
cash receved by preferred stockhoders n the recaptazaton of the company
represented proceeds from a sae and that gan or oss therefrom shoud be
determned upon the bass of the cost of the orgna stock. The respondent
was not notfed of the rung unt ugust 22, 1934.
ebruary 1, 1933, respondent fed a cam for the refund of 995.52, based
upon an aeged oss n the ta abe year due to the worthossness of stocks of
two corporatons. Consderaton and acton thereon were deayed pendng the
outcome of tgaton whch woud affect the soundness of the cam. In 193
ths cam was re|ected In part but aowed to the e tent of 1 0, whch was
refunded.
une 29, 1934, after e praton of the statutory perod for fng refund cams,1
the respondent presented a cam for ,454.09 n whch she stated that t was
fed as an amendment and ampfcaton of cam for refund fed ebruary 1,
1933, and asserted that the sum of 30,750 reported as a dvdend was not such
but represented the proceeds of sae of stock of the anna company at a proft
of 7,411.50 and that the error n the return resuted n an overpayment of
,454.09.
November 2, 1935, the Commssoner advsed the respondent that, whe an
overpayment had been made, a refund woud be dened because the cam of
une, 1934, was whoy unreated to that of ebruary 1, 1933, beng an nde-
pendent demand based upon an entrey dfferent ground. Pursuant to the
Commssoner s hodng that the atter cam was not fed wthn the perod
prescrbed by aw and, therefore, coud not be aowed, offca notce of re|ec-
ton was maed December 1 , 1035. The respondent brought sut n the Court
of Cams whch gave |udgment for her n the amount of 5,53 .97.
I pon pettoner s representaton that the decson s n confct wth decsons
of ths Court and of two crcut courts of appeas we granted the wrt of cer-
torar. We hod that the so-caed amendment was n fact a new cam and ts
aowance was barred by the statutory provson mtng the tme for presenta-
ton of cams for refund.
Notwthstandng the reance of each of the partes on recent decsons of
ths Court none of them rues the precse queston now presented. They pont
the way, however, to a correct decson.
In Unted States v. Memphs Cotton O Co. (288 U. S., 2 Ct. I). 2 , C. .
II-1, 307 (1933) ) the cam merey stated that there had been an erroneous
overpayment the amount of whch was shown by statng the ta payer s true net
ncome, the ta due thereon, and the amount prevousy pad. The cam asked
repayment of the dfference or any greater sum whch mght be found to be
due. Upon the footng of ths genera cam a compete audt of the ta payer s
books was made and an overpayment n e cess of the amount camed was de-
termned. fter notfcaton of ths fact, but before re|ecton, the ta payer
amended the cam by makng t specfc and settng forth the supportng facts
n deta. The amendment was hed effectve.
In Unted States v. actors d nance Co. (288 U. S., 89 Ct. D. 28, C. .
II-1, 315 (1933) ), addtona assessments were made subsequent to payment
of the amount shown to be due by the respondent s return. fter payng part of
the sum so assessed the ta payer fed a cam for abatement of the unpad ba-
ance. In connecton wth that cam the Commssoner ordered a fu e amna-
1 Revenue ct of 1028 (ch. 852, secton 322(b), 45 Stat., 701, 8 1).
17 . Supp., 080.
S e aso Moore Ice Cream Co. v. Rose (280 U. S., 873, 884 Ct. D. 7 , C. . II-1, 841
(1933) ).
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322, rt. 1254.
324
ton of the ta payer s affars, whch was made. Whe ths audt was n progress
the ta payer fed a cam for refund, couched n genera terms, statng that, as
there had been no fna audt of ts return, the purpose of the cam was to save
the ta payer s rghts under the statutes and permt the Commssoner to refund
any e cess pad beyond the amount found to be due. No statement of grounds for
the cam was ncuded. fter the perod of mtatons had e pred an amended
cam was ted settng forth the grounds n deta and askng speca assessment
under secton 210 of the Revenue ct of 1917. In the nterva between the fng
of the frst and the amended cam the Commssoner had dsposed of the cam
for abatement but not of the cam for refund. fter the recept of the amend-
ment the Commssoner consdered the case on the merts and found that the
ta payer s nvested capta coud not be satsfactory ascertaned and that a
speca assessment shoud have been made under secton 210 but he re|ected the
cam on the ground that the amendment was not tmey. We hed the amend-
ment permssbe. The opnon ponts out that the very generaty of the orgna
Iam requred that the Commssoner s audt go Into the queston of nvested
capta and that, therefore, the more specfc amendment caed attenton to no
new matter not covered by the nvestgaton the Commssoner had to make n
e amnng the cam as orgnay fed.
In each of these cases the cam faed to compy wth a Treasury reguaton
requrng that the grounds for the reef demanded shoud be set forth under
oath and n deta. We hed that whe the Commssoner mght prompty have
re|ected the cams for faure to compy wth the reguaton such compance was
a matter he coud wave and, f he consdered the merts, the cam was sus-
ceptbe of any amendment whch woud not amount under the rues of peadng
n actons at aw, to an ateraton of the cause of acton and woud not requre
the Commssoner to make a new and dfferent nqury than that whch he was
caed upon to make n order to consder the genera grounds asserted n support
of the cam as presented.
In ems ros. ag Co. v. Unted States (2S0 D. S., 28 Ct. D. 49, C. . II-1,
338 (1933) ), the ta payer, n ts orgna cam for refund, requested a speca
assessment under sectons 327 and 328 of the Revenue ct of 1918 and submtted
a supportng statement as to ts affars wheren t sought reef on three dstnct
grounds specfed n the sectons n queston and submtted facts and arguments
n support of each of the grounds. Two of these grounds caed the Comms-
soner s attenton to the fact that the ta payer s nvested capta had been erro-
neousy computed. fter consderaton of the cam the Commssoner notfed
the ta payer that there was no bass for reef under secton 327(b), whch fur-
nshed one of the grounds put forward by the ta payer, but he apparenty over-
ooked the crcumstance that reef was aso camed under subdvsons (a) and
(c) of that secton. The ta payer fed a protest and an amendment, whch made
no change of any mportance n the facts and arguments aready submtted, but
asked that computaton of the ta under secton 328 be granted or, n the ater-
natve, certan tems the Commssoner had strcken from nvested capta be
restored. Snce the orgna notce to the Commssoner was to the effect that
vauabe assets had been omtted from nvested capta t woud have been open to
the ta payer n the frst nstance to ask for reef under sectons 327 and 328 or,
n the aternatve, for a recomputaton of ts nvested capta n accordance wth
the facts set forth n the orgna cam. The mere addton of the prayer for
aternatve reef was not a departure from the cam and dd not amount to a
new and untmey cam but consttuted a proper amendment.
In Unted States v. enry Prentss Co., Inc. (288 U. S., 73 Ct D. 27, O. .
II-1, 311 (1933) ), a stuaton materay dfferng from those nvoved In the
foregong cases was presented. There the ta payer s cam for refund asserted
that, owng to abnorma condtons affectng nvested capta and ncome, there
coud be no far computaton of the ta by the apprasa of the cash vaue of ts
property under secton 32 of the Revenue ct of 1918 and t shoud, therefore,
have the beneft of a speca assessment under sectons 327 and 328, whch pro-
vde for computaton of the ta n such cases wthout reference to the vaue of
the nvested capta and for determnaton of the ta accordng to the rato whch
the average ta of representatve corporatons engaged n a smar busness
boars to ther average net ncome. In response to the cam the Commssoner
advsed the ta payer that he coud not consder the proprety of a speca assess-
ment unt the statutory net ncome and nvested capta were determned and
asked the ta payer, therefore, to acquesce n the net ncome and Invested capta
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325
322, rt. 1254.
shown In the revenue agent s report or submt auy e ceptons t mght have
thereto. The ta payer fed no such e ceptons but apparenty acquesced n
the determnaton. The Commssoner then proceeded ou the bass of the facts
he had ascertaned and advsed the ta payer the case was not one for speca
assessment and the cam woud be re|ected. Thereafter, at an ora hearng
accorded by the Commssoner before fna re|ecton of the cam, the ta payer
presented an amendment n whch t set forth that, n ascertanng ts nvested
capta, rea estate had been undervaued and certan ntangbes had been m-
propery e cuded from the computaton. Ths Court hed that such an amend-
ment, fed after the e praton of the perod of mtatons, coud not be con-
sder.. , frst, because t totay changed the ta payer s cause of acton, f the
anaoges of peadng were to be regarded, and, second, because the orgna cam
dd not chaenge the Commssoner s determnaton of nvested capta, and an
amendment whch attacked ths determnaton, fundamenta to the ta payer s
contenton, was n effect a new cam based upon a compete reversa of the
ta payer s former poston.
In a these cases the Court found the anaoges of peadng hepfu n decd-
ng whether the cam was n such form as to be sub|ect to the proffered amend-
ment at a tme when a cam whoy new woud have been barred but the
opnons pont out that the anaogy to peadng at aw s not to be so savshy
foowed as to gnore the necesstes and reates of admnstratve procedure.
Where a cam whch the Commssoner coud have re|ected as too genera, and
as omttng to specfy the matters needng nvestgaton, has not msed hm
but has been the bass of an nvestgaton whch dscosed facts necessury to hs
acton n makng a refund, an amendment whch merey makes more defnte the
matters aready wthn hs knowedge, or whch, n the course of hs nvestga-
ton, he woud naturay have ascertaned, s permssbe. On the other hand, a
cam whch demands reef upon one asserted fact stuaton, and asks an
nvestgaton of the eements approprate to the requested reef, can not be
amended to dscard that bass and nvoke acton requrng e amnaton of other
matters not germane to the frst cam.
Wth these setted prncpes n mnd we turn to the crcumstances dscosed
n the present case. The cam here was not genera but specfc. It dd not
assert generay that ncome, gross or net, had been overapprased or, generay,
that the ta payer was entted to deductons not taken or granted. On the
contrary, t ponted to two specfc Items of deducton whch had not been taken
and to whch the ta payer camed to be entted. It stated that durng the
ta abe year the ta payer s hodngs of stock n two named corporatons had
become worthess, entang a deductbe oss of 995. Whe the cam added the
phrase that the ta payer camed the sum named, or any greater sum whch
mght be ascertaned to be due, ths dd not ca upon the Commssoner to make
a compete reaudt of the ta payer s return. The fact that he mght have done
so s mmatera. e coud have acted on the cam, as apparenty he dd, by
nvestgatng the affars of the two corporatons. It was ascertaned that t-
gaton was n process upon the outcome of whch woud depend a decson as
to the aeged worthessness of some of the shares n queston. e, therefore,
naturay postponed acton on the cam unt the termnaton of that tgaton.
Whe matters were n ths posture, and after the perod of mtaton had
e pred the respondent presented a so-caed amendment of her cam havng no
reaton whatever to the tems set forth n the orgna cam but deang wth a
whoy dstnct tem of 3 ,750 reported as dvdends receved and askng that
It be emnated from that category and that the transacton be recassfed as
capta gan upon a bass whch woud resut n a reducton of ta by some
,000. Ths s not a case where the Commssoner waved the reguaton wt
respect to the partcuarty wth whch the grounds of the cam must be set
forth. There was no need for hm to do so. The cam was not genera ke
that n the Memphs Cotton O case and the others foowng n ts tran. It
was as specfc as t coud be made and ponted unerrngy to the tems the
Commssoner must consder. It caed for no genera audt of the ta payer s
affars and apparenty none was made. n nvestgaton of the tems desgnated
coud not have the east reaton to that attempted to be opened n the untmey
amendment. The respondent urges that these consderatons are of no ega
sgnfcance, snce the cam not ony caed for redress of a specfed grevance
but demanded genera reef as we. She nssts we have kened a cam for
refund to an acton for money had and receved and have requred the Comms-
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322, rt. 1257.
32
soner to accept nnd act upon a b of partcuars furnshed hm before actua
re|ecton of the cam athough the perod of mtaton has e pred. ut, as
we sad n Unted States v. enry Prentss t Co., Inc., supra, page 84, Ths does
not mean that a peader who abandons the common count and states the par-
tcuar facts out of whch hs grevance has arsen retans unfettered freedom to
change the statement at hs peasure.
Were t not for the presence n the orgna cam of the demand for refund
of any other or greater sum whch mght be found due the ta payer, we thnk t
coud not even be suggested that the cam was a genera one for money had
and receved. Save for that cause the demand was of a specfc amount based
upon a specfc transacton. Whether ad|udcaton n strct anaogy to the raes
of peadng woud permt the amendment we need not determne for the necess-
tes and reates of admnstratve procedure precude any such resut. (Unted
States v. enry Prentss t Co., Inc., supra, page 85.) The very specfcaton of
the tems of compant woud tend to confne the nvestgaton to those Items
and there s no evdence that the e amnaton was more e tended.
Nor can the respondent gan advantage from the Commssoner s rung com-
muncated to hs agent at Ceveand. There s no fndng that, pror to the
attempted amendment, the Commssoner knew the respondent was a stockhoder
of the anna company or, f he dd, that hs attenton was caed to the fact
that the reported recept of dvdends had reference to what the ta payer
receved n respect of preferred stock of that company.
These vews accord wth the decsons of two crcut courts of appea. The
respondent rees upon two decsons of the Court of Cams: Youngstown Sheet
d Tube Co. v. Unted States (7 . Supp., 290) and Con. P. Curran Prntng Co. v.
Unted States (15 . Supp., 153). In the frst a cam for addtona deprecaton
depeton and amortzaton of an nvestment n mnng propertes was tmey
made. s a resut of ths cam a genera audt of the ta payer s affars was had
and resuted n the determnaton of a defcency much greater than the amount
of refund camed. Upon appea to the oard of Ta ppeas the defcency was
set asde nnd the oard found an overassessment due to faure to aow the
camed deducton and aso deductons for deprecaton of other assets. The Com-
mssoner agreed that the overpayment found by the oard was correct. There-
upon the ta payer fed, out of tme, an amendment to cam addtona specfc
deductons n accordance wth the fndngs of the oard. The Commssoner
aowed a refund of the tem orgnay camed but refused a refund of the
others on the ground that the amendment sought to Introduce new and dstnct
matters. In an acton for recovery of the overpayment found by the oard, and
camed n the orgna and amended cams, the Court of Cams gave |udgment
for the ta payer. We e press no opnon as to whether the resut may be sus-
taned by the fact that whe the orgna cam was pendng the Commssoner
was fuy apprsed of the tems of deducton utmatey camed n the amend-
ment by two compete audts of the ta payer s affars and accounts. smar
stuaton s dscosed In the second case. The decsons were, however, put by
the Court of Cams upon the same ground as n the nstant case that a cam
mted to a specfed tem mght be amended out of tme to seek a refund on
account of other and unreated tems a vew we hod untenabe.
The |udgment s reversed.
rtce 1257: Lmtatons upon the credtng and
refundng of ta es pad.
R NU CT O 1928.
greement n waver not to fe cam for refund. (See Ct. D. 1302,
page 2 4.)
ryant Paper Co. v. oden (03 . (2d), 370 Ct. D. 39. C. . II-1, 335 (1933) 1).
5 . (2d), 1012 Ct. D. 72 , C. . II-2, 2 1 (1933)1) Swedsh Iron tec Corpora-
ton v. dward (1 . Supp., 335 Ct. D. 15, C. . I-2. 415 (1932) , affrmed 9 .
(2d), 1018) Unted States v. Rchards (79 . (2d), 797) New York Trust Co. v. Unted
States (87 . (2d), 889).
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327 09.
TITL I DMINISTR TI PRO ISIONS.
S CTION 09. RRON OUS CR DITS.
Secton 09. 1938-2 -9408
Ct. D. 1347
INCOM ND C SS PRO ITS T R NU CT OP 1928 UDICI L COD
D CISION O SUPR M COURT.
Sut Recovery of eged Overpayment or Ta Credt ganst
arred Defcency ursdcton of Court.
The dstrct courts of the Unted States have no ursdcton un-
der secton 24(20) of the udca Code of a sut brought aganst
the Unted States to recover Income and e cess profts ta es, when
the recovery sought Is of an aeged overpayment for 1917, effected
by the Commssoner s approva of a credt of a part of an overpay-
ment for 1918, n an amount e ceedng 10,000, aganst a defcency
for 1917 the coecton of whch was then barred by the statute of
mtaton. The amendment of secton 24(20), n provdng for sut
aganst the Unted States n eu of one aganst the coector,
makes coecton by the coector the sne qua non of |ursdcton.
Supreme Court of the Unted States.
Lowe ros. Co., pettoner, v. Unted States.
304 U. S., 302.
On wrt of certorar to the Unted States Crcut Court of ppeas for the S th Crcut
May 10, 1938.
OPINION.
Mr. ustce Stone devered the opnon of the Court.
The queston for decson s whether the dstrct courts of the Unted States
have |ursdcton, under secton 24(20) of the udca Code, of a sut brought
aganst the Unted States to recover ncome and e cess prots ta es In an
amount In e cess of 10,000 when the recovery sought s of an overpayment of
ta es for one year, effected by credtng aganst a barred defcency for that
year an overpayment for another year.
Pettoner1 overpad Income and e cess profts ta es for 1918. The Comms-
soner, on May 15, 1924, sgned a schedue of overpayments by whch he ap-
proved a credt as of pr 24, 1924, of a part of the 1918 overpayment, n an
amount e ceedng 10,000, aganst a ta defcency of pettoner for 1917, the
coecton of whch was then barred by the statute of mtatons. The coector
In offce In 1924, when the credt was aowed, havng retred, pettoner brought
the present sut aganst the Unted States, n the Dstrct Court for Southern
Oho, to recover the amount of the credt The petton aeges overpayment of
the 1917 ta by reason of the credt, and demands ts recovery. Pettoner has
nether aeged nor proved any cam for refund of the 1918 overpayment, re-
covery of whch, wthout such cam, was barred by mtaton.
The tra court, construng the sut as one to recover an overpayment of 1917
ta es, as pettoner conceded In open court, gave udgment dsmssng the pet-
ton on the ground that the credt of the 1918 overpayment upon the barred
defcency for 1917 was not a payment of the 1917 ta snce the credt s vod
under the appcabe sectons, 07 and 09, of the evenue ct of 1928. The
Court of ppeas for the S th Crcut affrmed on a dfferent ground, hodng
that the dstrct court was wthout |ursdcton, under the provsons of secton
24(20) of the udca Code (28 U. S. C, secton 41(20)), whch confers |ursdc-
ton on the dstrct court of suts aganst the Unted States to recover ta es
s pettoner stands n the pace of ts corporate predecessor by vrtue of a merger,
and as ther rghts and nterests n the present sut may be treated as dentca, both w
be referred to a pettoner.
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328
erroneousy assessed or coected In e cess of 10,000, ony f the coector by
whom the ta was coected Is dead or Is not In offce when the sut Is brought.
(92 . (2d), 905.) We granted certorar ( U. S., ), upon a petton present-
ng the snge queston of the |ursdcton of the dstrct court, n order to re-
sove an asserted confct between the decson beow and that of the Court of
ppeas for the ourth Crcut n Unted States v. Pedmont Mfg. Co. (89 .
(2d), 29 ).
The court of appeas, foowng Unted States v. Pedmont Manufacturng Co.,
supra, and ts own decson n Unted States v. ohn Gaagher Co. (83 . (2d),
8 8), thought that the credt of the 1918 overpayment of the 1917 ta was not
vod, but vodabe ony at the eecton of the ta payer and was consequenty an
overpayment of 1917 ta es for whch recovery mght be had n a court havng
|ursdcton. ut foowng ts own decson n Unted States v. Reeves ros.
Co. (83 . (2d), 121 Ct. D. 1179, C. . -2, 28 (193 ) ) and that of the
Court of ppeas for the Second Crcut n Moses v. Unted States ( 1 . (2d),
791 Ct. D. 73, C. . II-1, 328 (1933) ), t hed that the dstrct court was
wthout |ursdcton because the coecton of the 1917 ta , effected by the aow-
ance of the credt, was not made by a coector and thus dd not satsfy the
|ursdctona requrement
The Court of Cams has |ursdcton of suts aganst the Unted States
brought to recover nterna revenue ta es erroneousy coected wthout regard
to the amount nvoved. (Secton 145 . C, 28 U. S. C, secton 250.) efore
the amendment of 1921 (ch. 13 , 42 Stat., 311) (contnued by Revenue ct of
1924, 44 Stat, 121), secton 24(20) of the udca Code gave |ursdcton to the
dstrct courts, concurrent wth the Court of Cams, of suts aganst the Unted
States to recover cams not e ceedng 10,000 founded upon any
aw of Congress or upon any contract e press or mped, wth the
Government of the Unted States . (Ch. 231, 3 Stat., 109a) oth
before and after the amendment dstrct courts aso had |ursdcton of suts
aganst a coector of nterna revenue brought to recover, n any amount, nter-
na revenue ta es whch he had erroneousy coected. (Secton 24(5) . C, 28
U. S. C, secton 41(5).) Such suts brought aganst the coector survve hs
retrement from offce and do not abate upon hs death. (Patton v. rady,
184 U. S., 08 Smetanka v. Indana Stee Co., 257 U. S., 1 Ct. D. 17, C. . 5,
251 (1921) Unon Trust Co. v. Warden, 258 U. S., 537 T. D. 3338, C. . 1-2,
810 (1922) .)
y the amendment of secton 24(20) the |ursdcton of dstrct courts was
e tended so as to embrace suts aganst the Unted States to recover ta es even
If the cam e ceeds 10,000, f the coector of nterna revenue by whom such
ta was coected s dead or s not n offce as coector of Interna
revenue at the tme such sut or proceedng s commenced. Snce the sut
aowed aganst the coector before the amendment was based on hs persona
abty (Sage v. Unted States, 250 U. S., 33 Smetanka v. Indana Stee Co.,
supra), no such sut w e uness he has coected the ta . The obvous pur-
pose of the amendment was to permt a substtuton of a sut aganst the Unted
States for the sut prevousy aowed aganst the coector whenever the amount
camed e ceeds 10,000 and the coector s out of offce. Ths s made evdent
by the words of the amendment whch authorze the substtuton ony when the
coecton s made by the coector when n offce.
s we thnk t pan that no sut coud have been mantaned aganst the coec-
tor to recover the aeged overpayment, t foows that the dstrct court was
wthout |ursdcton to entertan the present sut. If the 1917 ta can be sad to
have been coected at a, as to whch we e press no opnon, t was coected by
the acton of the Commssoner n credtng aganst the 1917 defcency the 1918
overpayment. In 1924, the year of the camed overpayment, the coector re-
ceved no overpayment of pettoner s ta for any year. If the 1917 ta es were
then coected t was by vrtue of the appcaton to the 1917 defcency of
moneys arendy n the Treasury. The coector was wthout authorty to make
such appcaton. It was the Commssoner s approva of the schedue of
overpayments whch was effectve for that purpose. Grard Trust Co. v.
Unted Staes, 270 . S.. 1 3, 170, 171 T. D. 3919, C, . -2, 209 (192 )
Unted States v. Swft f Co., 282 U. S., 4 8 Ct. D. 290, C. . -, 283 (1930) .)
The certfcaton of the overpayment by the coector to the Commssoner, a
mere mnstera net, coud sub|ect the coector to no persona abty.
It s true that under the statutes of the Unted States the coector s reeved
from persona abty e cept n the case where the dstrct court s of opnon
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329
10.
that he acted wthout probabe cause (Sage v. Unted States, supra, 37), and
that such suts aganst the coector are commony but a means of coectng the
OTerpayment from the Unted States. (Moore Ice Cream Co. v. Rose, 289 U. S.,
873, 382 Ct. D. 7 , C. . II-1, 341 (1933) .) ut no statute has enarged
the coector s common aw abty to sut, and we can not gnore the words of
the amendment of secton 24(20) whch, n provdng for a sut aganst the
Unted States n eu of one aganst the coector, make coecton by hm the
tne qua non of |ursdcton.
Graham oster v. Ooodce (282 U. S., 409 Ct. D. 287, C. . -, 191
(1931) ) dd not dea wth the pont here consdered. The ony one of the
severa cases decded there nvovng a credt of an overpayment for one year
aganst a defcency for another ( oston Pressed Meta Co. v. Unted States
Ct.D. 200, C. . I -2, 15 (1930) ) was a sut brought n the Court of Cams
for ess than 10,000.
ffrmed.
Mr. ustce Cakdozo took no part In the consderaton or decson of ths case.
S CTION 10. R CO RY O MOUNTS
RRON OUSLY R UND D.
Secton 10. 1938-15-9290
Ct. D. 1325
INCOM T R NU CT O 1928 D CISION O SUPR M COURT.
Sut Recoyeey of rboneous Refund Lmtaton.
The 2-year perod of mtaton provded by secton 10 of the
Revenue ct of 1928 for the commencement of a sut by the Unted
States to recover an erroneous refund begns to run from the date
of payment of such refund and not from the date when the Com-
mssoner aowed the refund by sgnng the schedue of over-
assessments.
Supbeme Court of the Unted States.
The Unted States of merca, pettoner, v. Robert . Wurts.
303 U. S., 414.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut.
March 14, 1938.
opnon.
Sr. ustce ack devered the opnon of the Court.
Under the Revenue ct of 1928, forbddng sut by the Unted States to re-
cover an erroneous ta refund uness brought wthn two years after the
makng of such refund, does the 2-year mtaton begn when the refund Is
aowed or when t s pad
The court of appeas affrmed the dstrct court s |udgment hodng the Gov-
ernment barred by ths mtaton because the present sut was not brought
wthn two years after the Commssoner aowed the refund by sgnng the
schedue of overassessments.
The facts show that:
March 15, 1932, the Commssoner erroneousy approved a refund of ta es
pad by respondent for the year 1029. pr 30, 1932, a check was maed
tn the ta payer for ths erroneous refund. pr 2 , 1934, more than two years
after the aowance of the refund, but ess than two years after actua payment,
the Government brought ths sut to recover the erroneous refund.
Revenue ct of 1028 (ch. 852, 45 Stat., 791, ecton 10).
91 . (2d), 547 certorar granted, U. S., .
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10.
330
The Government by approprate acton can recover funds whch ts agents
have wrongfuy, erroneousy, or egay pad. No statute s necessary to
authorze the Unted States to sue n such a case. The rght to sue s nde-
pendent of statute, . (Unted States v. ank of the Metropos, 15 Pet.,
877, 401.) Secton 10 of the 1928 ct, reed upon as barrng recovery of ths
erroneous and unwarranted ta refund, does not grant the Government a new
rght, but s a mtaton of the Government s ong-estabshed rght to sue for
money wrongfuy or erroneousy pad from the Pubc Treasury. Ordnary,
recovery of Government funds, pad by mstake to one havng no |ust rght to
keep the funds, s not barred by the passage of tme. There s no contenton
here that respondent has any rght to retan ths refund erroneousy pad by
the Government. s defense s that the statutory bar prevents recovery. The
Government s rght to recover funds, from a person who receved them by
mstake and wthout rght, s not barred uness Congress has ceary manfested
ts ntenton 1 to rase a statutory barrer.
Secton 10 urged by respondent as a statutory barrer requres that the
Government brng sut before the e praton of two years after the makng of
such erroneous refund. Respondent contends that the Revenue
ct of 1932 ndcated congressona ntent to desgnate the date of aowance of
a refund (the date the Commssoner sgns the schedue of overassessments) as
the date of refund for computng the perod of mtatons under secton 10.
The 1932 ct provdes:
Where the Commssoner has (before or after une , 1932) sgned a schedue
of overassessments n respect of any nterna revenue ta mposed by the Reve-
nue ct of 1932 or any pror Revenue ct, the date on whch he frst sgns such
schedue (f after May 28, 1928) sha be consdered as the date of aowance of
refund or credt n respect of such ta . Ths ct n no manner reates to m-
tatons on suts for erroneous refunds. It has no purpose n common wth sec-
ton 10 of the 1928 ct. The 1932 ct throws no ght on the meanng of secton
10.
Secton 10 s cear when ts words are gven ther commony accepted mport.
Congress may we be supposed to have used anguage n accordance wth the
common understandng. Webster s New Internatona Dctonary (2d d.,
Unabrdged) defnes refund as that whch s refunded and defnes the
transtve verb as: to return (money) n resttuton, repayment
Ony by gnorng the common understandng of words coud makng
(a) refund be consdered synonymous wth aowng a refund.
That Congress had n mnd the separate and dstnct meanngs of these two
e pressons Is ceary demonstrated n ouse Report No. 2, Seventeth Congress,
frst sesson, pages 34, 35, contanng the commttee report on the Revenue ct
of 1928:
The secton ( 10) provdes that any erroneous refund, may be
recovered by sut brought In the name of the Unted States f such sut s begun
wthn two years after the makng of the refund.
Immedatey foowng, n referrng to secton 14, the report stated:
The prncpa change made n e stng aw s that n the case of a refund the
nterest perod now termnates wth the aowance of the refund, a date whch
often precedes the actua makng of the refund .
The Commssoner s sgnature on a schedue of overassessments does not
fnay estabsh a camant s rght to a refund and does not precude further
Investgaton and consderaton of the cam. The Commssoner coud ater take
hs sgnature from the schedue and as ponted out by ths Court mght even
after a check was sgned and maed cance the payment and revoke the au-
thorty of payment erroneousy made.8
It woud requre anguage so cear as to eave room for no other reasonabe
constructon n order to nduce the beef that Congress ntended a statute of
mtatons to begn to run before the rght barred by t has accrued. Obvousy,
Wsconsn Centra Raroad v. Unted States (1C4 . S., 190, 212) see Unted Statu
v. urchard (125 U. S., 170. 180, 181).
Grand Trunk Western Raway Co. v. Unted Sfnfes (252 U. S.. 112. 121).
Compare Unted Mate v. ashve, etc., Raway Co. (11S U. S., 120, 125).
Revenue ct of 10. 2 (rt. 209. 47 Stnt., 109, secton 1104).
Unon Pacfc R. R. Co. v. a (01 II. S., 343. 347).
Daube v. Unted States (289 U. S., 3 7, 372 Ct. D. 77, C. . II-1, 340 (1933) ).
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331
( 701, rt. 1314.
the Government had no rght to sue ths ta payer to recover money before money
had been pad to hm. The constructon urged by respondent woud aow the
statute of mtatons to begn to run aganst recovery on an erroneous payment
before any such payment s made. s sad by a ouse commttee n reportng
on a statute of mtatons contaned n a Revenue ct, Logcay the perod of
mtaton shoud run from the date of payment, snce t s at that tme that the
rght accrues.
We are of opnon that Congress dd not ntend the mtatons of secton 10
to run aganst the Government unt the Government s rght has accrued n a
shape to be effectuay enforced. 10
Ths statute does not begn to run aganst the Government when a cam s
erroneousy aowed. It begns to run from the date of payment. The |udgment
beow Is not n accord wth ths constructon of the statute and s
Reversed.
TITL . G N R L PRO ISIONS.
S CTION 701. D INITIONS.
rtce 1314: ssocaton dstngushed from 1938-10-9227
trust. Ct. D. 1312
INCOM T R NU CT OP 1928 D CISION O COU T.
L Trusts Ta abe as ssocatons.
Trusts created to fnance the acquston and promoton of a rea
estate subdvson are ta abe as assocatons wthn the meanng
of secton 701 of the Revenue ct of 1928 and artces 1312 and
1314 of Reguatons 74, where the trust benefcares furnshed funds
for purchase of the tracts and for payment of ta es, speca as-
sessments, nterest, etc., receved certfcates defnng ther specfc
nterests, and shared n the profts n proporton to ther nvest-
ments the trust agreement provdng that ega tte was to be
taken n the name of the trustee and that each benefcary s
nterest was deemed to be persona property and not an nterest n
rea estate as such. The trustee and benefcares were actvey
engaged n an enterprse nvovng a wde range of busness actvty,
notwthstandng that certan powers were deegated to and certan
actve dutes were performed by a reaty company whch managed
the trusts.
2. Decson Reversed.
Decson of the oard of Ta ppeas (32 . T. ., 7 0) reversed.
3. Decsons oowed.
Morrssey v. Commssoner (Ct. D. 10 4, C. . -1, 2 4 (193 )
29 U. S., 344), Scanson v. Commssoner (Ct. D. 10 5, C. . -1,
270 (193 ) 29 U. S., 352), Commssoner v. Combs (Ct. D. 10 ,
C. . -1, 272 (193 ) 29 U. S., 3 5), and Commssoner v. Coe-
man-Obert ssocates (Ct. D. 10 7, C. . -1, 201 (193 ) 29
U. S., 3 9), foowed.
4. Certorar Dened.
Petton for certorar dened October 11, 1937.
ons Report No. 179, SI ty-egt h Congress, frst sesson, page 27.
Cf. orer v. Chapman (119 . S., 587. 02).
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701, rt. 1314.1
332
Unted States Crcut Coubt or ppeas foe the Seventh Crcut.
Commssoner of Interna Revenue, pettoner, v. The ghand vanston-
Lnconwood Subdvson, rst ddton Trust No. 154 , Centra Repubc
Trust Co.. as Successor Trustee by Consodaton, respondent.
Commssoner of Interna Revenue, pettoner, v. The ghands vanston-I n-
couwood Subdvson Trust So. 1521, Centra Repubc Trust Co., as Successor
Trustee by Consodaton, respondent.
88 ed. (2d), 355.
On pettons for revew of decsons of the Unted States oard of Ta ppeas.
efore Stars, Crcut udge, and Lndet an rqqe, Dstrct udges.
ebruary 1 , 1937.
OPINION.
rcgt , Dstrct udge: The queston for consderaton s whether re-
spondent trusts are assocatons wthn the meanng of secton 701 of the
ovpnue ct of 1928 ( 45 Stat., 791, 2 U. S. C. ., secton 1 9 ). The oard
of Ta ppeas hed they were not and for that reason reeved them from
an assessment made by the Commssoner for ncome ta es for the years 1929,
1930, and 1931.
The facts: In 1925 the Paramount Reaty Corporaton was organzed for
the purpose of promotng a subdvson. It desred to acqure a 10-acre tract
of and at 0,000, and a 20-acre tract at 110,000. Not havng suffcent funds
wth whch to meet the nta payments of 25,000 n the case of the 10-acre tract
and 50,000 n the case of the 20-acre tract, varous ndvduas were socted
for funds. n amount suffcent for the nta payments was coected from a
number of ndvduas, herenafter referred to as the benefcares, and trust
agreements were entered nto. The agreement n regard to the 10-acre tract,
known as Trust No. 1521, and that reatng to the 20-acre tract and known as
Trust No. 154 , a e n a essentas smar and w be treated as one. The
trust agreement provded that the benefcares woud furnsh suffcent cash
to meet the nta payments and woud subscrbe the baance of the purchase
prce wthn 0 days. They aso agreed to furnsh any funds requred to pay
ta es, speca assessments, nterest, etc. The agreement f ed the proportonate
Interest of each benefcary and provded that ega tte to the property was
to be taken n the name of the trustee (now appeee heren), and t was
authorzed to have the ands subdvded and patted under the drecton of the
reaty company. The reaty company was to be the manager of the trusts
and was empowered to se ots at f ed prces to aggregate not ess than
200,000 for the 10-acre tract and 400,000 for the 20-acre tract n the case of
cash saes the reaty company was to retan one-thrd of the sae prce and the
baance was to be pad to the trustee for the benefcares of the trust n
Instament saes the down payment (not to e ceed 25 per cent of sae prce) was
to be retaned by the reaty company and subsequent nstaments were to be
coected by the trustee and hed, two-thrds for the use of the benefcares
and one-thrd for the reaty company. Upon payment to the benefcares of
105,000 n the case of the 10-acre tract and 200,000 n the case of the 20-acre
tract, wth nterest, a rghts of the benefcares termnated and a nterest
In the property and n the proceeds of saes vested n the reaty company and
the trustee was obged to account soey to t.
It was further provded n the agreement that upon competon of saes the
trustee woud make conveyance of the respectve ots to the purchasers and
make dstrbuton of the proceeds as noted. It contaned a provson that the
Interest of each benefcary was to be deemed persona property and no bene-
fcary was to have any tte or nterest n the rea estate as such, but each was
to have a power of drecton and a rght to receve proceeds. The trustee was
to dea wth the property ony on wrtten drecton of the reaty company or
of the benefcares. ach benefcary receved a certfcate defnng hs spe-
cfc nterest n the trust, descrbed as a proportonate nterest n the net
Income, proceeds and avas of the property of sad trust, and each was to
receve benefts n proporton to hs nvestment. The reaty company proceeded
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333
701, rt. 1314.
wth a marketng of the subdvson, empoyed a corps of saesmen, and entered
nto varous contracts of purchase, forwardng the orgna of each contract
to the trustee.
Later suppementa agreements were entered nto, whch, among other thngs,
provded that the trustee shoud pay a e penses of admnsterng the trust,
ncudng trustee s fees, costs of ssung deeds, cost of guarantee poces, ta es
and assessments on unsod ots and on those under contract of sae where the
purchaser had faed to pay (such payments, however, to be charged aganst
the nterest of the reaty company), accumuate a sdewak fund and approve
bds for sdewaks.
Secton 701 of the Revenue ct of 1928 provdes that for the purpose of the
ct the term corporaton ncudes assocatons, |ont stock companes and
nsurance companes and Treasury Reguatons 74 1 promugated under such
ct defnes an assocaton and dstngushes between an assocaton and a
trust
The queston of what consttutes an assocaton for the purpose of the
Revenue ct has been before the courts on dfferent occasons and some confct
has e sted n the decsons. To carfy such stuaton the Supreme Court took
and consdered four separate cases Morrsscy v. Commssoner (29 U. S., 344)
Stcanson v. Commssoner (29 U. S., 3 2) Commssoner v. Combs (29 U. S.,
3 5): and Commssoner v. CoU-man-Obert (29 U. S., 3 )), a decded De-
cember 1 , 1935. In the Morrssey case the Court anayzed wth great care the
hstorca background of the varous cts and reguatons promugated by the
Treasury Department n the constructon of the same, revewed prevous dec-
sons, and estabshed the genera prncpes to be foowed n the determna-
ton of whether, under a gven state of facts, a trust s to be reated as a pure
trust or as an assocaton wthn the meanng of the ct.
We need ony say that a study of the facts n the nstant case convnces us
that they fa wthn the defnton of an assocaton as we gather t from those
cases. The trustee and the benefcares were, we thnk, actvey engaged n
the acquston and deveopment of a subdvson from whch they were to
derve a very substanta proft an enterprse nvovng a wde range of bus-
ness actvty. The nterest of the benefcares was no passve nterest but was
a very actve one, and each was to share n the profts of the venture n pro-
porton to the sum he nvested. That certan powers were deegated to and
certan actve dutes performed by the reaty company does not ater the stua-
ton. That ponts of dssmarty to a corporaton are present does not change
ths concuson. (Reneckc v. aempfer, 72 ed. (2d), 4 9.) (See aso Pcton v.
Commssoner, 82 ed. (2d), 473.) We thnk the trust bore the substanta
quates of a corporaton as defned n artce 1312, Reguatons 74, supra.
The oard dd not have the beneft of the four Supreme Court decsons
referred to at the tme of ts decson of ths case. In a more recent decson
n the case of Centra Repubc ank Trust Co. v. Commssoner (34 . T. .,
391), on facts somewhat smar t hed that the trust was ta abe as an asso-
caton.
The order of the oard s reversed and the cause remanded for further
proceedngs n conformty herewth.
Reversed and remanded.
rt. 1312. ssocaton. ssocatons and ont-stock companes Incude assocatons,
common aw trusts, and organzatons by whatever name known, whch act or do busness
In an organzed capacty, whether created under and pursuant to State aws, agreements,
decaratons of trust, or otherwse, the net Income of whch, f nny, Is dstrbuted or
dstrbutabe among the sharehoders on the bass of the capta stock whch each hods,
or, where there Is no capta stock, on the bass of the proportonate share or capta
whch each has or has nvested n the busness or property of the organzaton. cor-
poraton whch has ceased to e st n contempaton of aw but contnues ts busness n
quas-corporate form s an assocaton or corporaton wthn the meanng of secton 701.
rt. 1314. ssocaton dstngushed from trust. Where trustees merey hod property
for the coecton of the Income and Its dstrbuton among the benefcares of the trust,
and are not engaged, ether by themseves or n connecton wth the benefcares, n the
carryng on of any busness, and the benefcares have no contro over the trust, athough
ther consent may be requred for the fng of a vacancy among the trustees or for a
modfcaton of the terms of the trust, no assocaton e sts, and the trust and the bene-
fcares thereof w be sub|ect to ta as provded by sectons 101-170 and by artces
8 1-891. If, however, the benefcares have postve contro over the trust, whether
through the ght perodcay to eect trustees or otherwse, nn assocaton e sts wthn
the meanng of secton 701. ven n the absence of any contro by the benefcares,
fchere the trustees are not restrcted to the mere coecton of funds and ther payment
to the benefcares, but are assocated together wth smar or greater powers than the
drectora In a corporaton for the purpose of carryng on some busness enteprse. the trust
s an assocaton wthn the meanng of the ct.
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201, rt. 1545. 334
INCOM T RULINGS. P RT I .
R NU CT O 192 ND PRIOR CTS.
TITL II. INCOM T .
P RT. I. G N R L PRO ISIONS.
S CTION 201. DISTRI UTIONS Y CORPOR TIONS.
rtce 1545: Dstrbutons n qudaton. 1938-10-9228
Ct. D. 1313
INCOM T R NU CT O 192 D CISION O COURT.
1. Gan or Loss Dstrbuton n Lqudaton ont Stock sso-
caton Treated as Corporaton.
n unncorporated |ont stock assocaton s treated for edera
ncome ta purposes as a corporaton durng ts e stence and aso
In Its dssouton, rrespectve of oca aw, and ta abe gan Is
reazed by members or sharehoders thereof upon qudaton and
dstrbuton of assets.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (34 . T. ., 707) affrmed.
3. Certorar Dened.
Petton for certorar dened November 15, 1937.
Unted States Crcut Court of ppeas for the fth Crcut.
W. C. Tyrre, pettoner, v. Commssoner of Interna Revenue, respondent.
een R. McO and Ruth R. Steves, ecutves of the state of Tnne T.
Rorck, Deceased, pettoners, v. Commssoner of Interna Revenue, respond-
ent.
sther L. Garth, pettoner, v. Commssoner of Interna Revenue, respondent.
91 ed. (2d), 500.
Pettons for revew of decsons of Unted States oard of Ta ppeas (dstrct of Te as).
efore oster, utcheson, and omes, Crcut udges.
uy 9, 1937.
opnon.
utcheson, Crcut udge: Pettoners, ctzens of Te as, were unt 1927
members of the W. C. Tyrre Trust, a |ont stock assocaton wthout Ind-
vdua abty to sharehoders. In that year they competey dssoved t, and
dstrbuted ts assets to the assocates.
The Commssoner, appyng secton 201(c) of the Revenue ct of 192 1 to
pettoners ncome ta returns, determned defcences accordngy. The oard
of Ta ppeas affrmed (34 . T. ., 707).
Pettoners make two ponts aganst the oard s order. They urge, rather
fanty, that vewed generay, the secton must be regarded as havng appca-
1 Sec. 201. (c) mounts dstrbuted n compete qudaton of a corporaton sha be
treated as n fu payment n e change for the stock.
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335
201, rt. 1 45.
ton ony to corporatons proper, that s, duy ncorporated assocatons that t
may not be apped to unncorporated assocatons.
The argument here s that though such an assocaton whe e stent, s enough
ke a corporaton to be ta ed as such, n dssouton t s whoy unke t
It s argued that the secton n queston was taken from the 1924 Revenue ct,
that ts pace n that ct, the commttee reports accompanyng ts passage, the
nsstence of the ct that qudaton be regarded as a sae of stock to the corpo-
raton, make It cear that the Congress was deang here wth a corporaton
as a ega entty, whoy dstnct and apart from ts sharehoders, and not wth
assocatons, whch, though hayng some of the attrbutes of a corporaton, do
not have ts dstnctve one, that of ega enttyshp.
They urge more frmy that whatever the case esewhere, ths secton may not
be apped to unncorporated assocatons n Te as, where an assocaton s not
an entty, but a partnershp, and the assocates are abe as partners. The
argument here s that hed under Te as aw to be a partnershp, ts assocates
abe as partners, they must n dssouton be regarded as such, and the conse-
quences of partnershp rather than of corporate dssouton, must be ascrbed
to the termnaton of the trust and the dstrbuton of ts assets.
We can not agree wth ether of these postons. Secton 2(a)2 of the 192
Revenue ct provdes comprehensvey and wthout e cepton, that when used
n the ct the term corporaton Incudes assocatons, |ont stock companes,
and nsurance companes. The defnton gven to the term corporaton
appes to the entre ct The anguage of the secton presents no ambguty.
In none of the many decsons n Te as and esewhere, uphodng the ta aton
as corporatons of |ont stock assocatons, s ether the e stence or none stence
of mted abty or of ega enttyshp regarded as controng. (Cf. urk-
Waggoner ssocaton v. opkns, supra Lucas v. tenson O Co., 47 ed.
(2d), 5 usch v. Commssoner, 50 ed. (2d), 800.)
Morrsscy v. Commssoner ceary and forcefuy ponts out why trust estates,
whch take corporate form for the purpose of carryng on busness enterprses,
are propery cassed for ta ng purposes and ta ed as corporatons.
What, then, are the saent features of a trust when created and man-
taned as the medum for the carryng on of a busness enterprse and sharng
ts gans whch may be regarded as makng t anaogous to a corporate organ-
saton corporaton, as an entty, hods the tte to the property embarked
n the corporate undertakng. Trustees, as a contnung body, wth provson
for successon, may afford a correspondng advantage durng the e stence of
the trust Corporate organzaton furnshes the opportunty for a centrazed
management through representatves of the members of the corporaton. The
desgnaton of trustees, who are charged wth the conduct of an enterprse who
act n much the same manner as drectors may provde a smar scheme,
wth correspondng effectveness. Whether the trustees are named n the trust
nstrument wth power to seect successors, so as to consttute a sef-perpetuatng
body, or are seected by, or wth the advce of, those benefcay nterested n
the undertakng, centrazaton of management anaogous to that of corporate
actvtes may be acheved. n enterprse carred on by means of a trust may
be secure from termnaton or nterrupton by the death of owners of benefca
nterests and In ths respect ther nterests are dstngushed from those of
partners and are akn to the nterest of members of a corporaton. nd the
trust type of organzaton factates, as does corporate organzaton, the transfer
of benefca nterests wthout affectng the contnuty of the enterprse, and
aso the ntroducton of arge numbers of partcpants. (29 U. S., 309 Ct.
D. 10 4, C. . -1, 2 9 (193 ) .) -
Pettoners are no better off on ther second pont, that because, uuder Te as
decsons, ther enterprse, though n form a trust assocaton, was n aw
a partnershp, the dstrbuton must fa under the reguaton that If a partner-
shp dstrbutes ts assets n knd, and not n cash, the partner reazes no gan
or oss unt he dsposes of the property receved n qudaton, for the decsons
have competey forecosed ths contenton. They make t cear that for the
purpose of edera ta aton the Congress s not mted by the concepton of
urk-Waggoner ssocaton v. opkns (2 9 U. S., 110 T. D. 3790, C. . -, 147
(1920)1).
Thompson v. Sehmtt (115 Te .. 3, 274 S. W.. 554) : urk-Waggoner ssn. v. opkns
(2 9 U. S.. 110).
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204, rt. 1 02.
33G
reatons entertaned under State aws. Wthn ts powers t may determne for
tsef what ta es to evy, and how and when they sha fa. urnet v. arme,
287 U. S., 103 Ct. D. O, C. . I-2, 210 (1932) urk-Waggoner v. opkns,
supra errng v. Commssoner, 293 U. S., 322 Ct. D. 904, C. . I -1, 303
(1935) Commssoner v. Lard, 91 ed. (2d), 498.)
Under setted aw the Tyrre Trust, a |ont stock assocaton, was for ta ng
purposes a corporaton durng ts e stence. Under the same setted aw t
was, for ta ng purposes, a corporaton n ts dssouton. The resut of the
dssouton under the provsons of secton 201(c) was, as to each pettoner,
a reazed ta abe gan.
The order of the oard s affrmed.
S CTION 204. SIS OR D T RMINING G IN OR
LOSS, D PL TION, ND D PR CI TION.
rtce 1594: Property acqured by gft or transfer n
trust on or before December 31, 1920, or by bequest,
devse, or nhertance.
R NU CTS O 1018 ND 1024.
Revocaton of S. O. 35 (C. . 3, 50 (1920)) and modfcaton of
S. M. 3781 (C. . I -2, 21 (1925)). (See G. C. M. 19884, page 290.)
rtce 1594: Property acqured by gft or trans- 1938-15-9291
fer n trust on or before December 31,1920, or by I. T. 3181
bequest, devse, or nhertance.
R NU CTS O 1018 ND 1021.
In vew of G. C. M. 19884 (see page 290), O. D. 94 (C. . 3, 53
(1920)) s revoked and I. T. 11 5 (C. . 1-1, 30 (1922)) and I. T.
1 22 (C. . II-, 135 (1923)) are modfed to conform thereto.
rtce 1598: Property acqured after December 31,
1920, by a corporaton.
R NU CT O 1920.
Stock of affate acqured from ts stockhoders. (See Ct. D. 130 ,
page 291.)
rtce 1G02: ass for aowance of depeton and
deprecaton.
R NU CT O 192 .
Incuson of cost of producton defrayed by purchaser of o n
gross ncome of seer for depeton purposes. (See Ct. D. 1321,
page 343.
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204, rt. 1 02.
btce 1 02: ass for aowance of depeton 1938-14-9278
and deprecaton. Ct. D. 1324
INCOM T R NU CT O 192 D CISION O SUPR M COURT.
1. Depeton ass Sae of Stock n O and Gas Company.
n ndvdua who sod hs hodngs of stock n an o and gas
company, recevng as consderaton the agreement of the purchaser
to acqure the o and gas propertes of the company and to pay
hm one-thrd of the net profts from ther deveopment and opera-
ton, had no capta nvestment n the o and gus n pace, and
was not entted to the statutory aowance for depeton provded
by sectons 204(c)2 and 214(a)9 of the Revenue ct of 192 . The
agreement was a persona covennnt and dd not purport to grant an
nterest n the propertes themseves.
2. Decson Reversed.
Decson of the Crcut Court of ppeas, Nnth Crcut (1937)
(90 ed. f2d), 907), affrmng decson of the oard of Ta ppeas
(1935) (32 . T. ., 1277), reversed.
Supreme Court of the Unted States.
Guy T. everttg, Commssoner of Inferna Revenue, pettoner, v. Thoma .
O Donne.
303 U. S., 370.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut.
March 7,1938.
opnon.
Mr. Chef ustce ughes devered the opnon of the Court.
Respondent, Thomas . O Donne, owned one-thrd of the capta stock of the
San Gabre Petroeum Co. y contract of anuary 9, 1918, ho sod ths stock
to the Petroeum Mdway Co., Ltd. s consderaton, the Mdway company
agreed to pay to respondent one-thrd of the net profts from the deveopment
and operaton of the o and gas propertes then owned by the San Gabre com-
pany and whch the Mdway company agreed to acqure. That acquston was
made, the propertes thus acqured were deveoped and operated, and one-thrd
of the net profts thus derved were pad to respondent to ugust 4, 192 .
Wth respect to such payments n the years 1925 and 192 , respondent camed
deducton for depeton, whch the oard of Ta ppeas aowed, overrung the
Commssoner of Interna Revenue. (32 . T. ., 1277.) The crcut court of
appeas affrmed the decson of the oard. (90 . (2d), 907.) We granted
certorar. ( T . S., .) (See everng v. ankne O Co., decded ths
day Ct. D. 1323, page 30 , ths uetn .)
The queston s whether respondent had an nterest, that s, a capta nvest-
ment, n the o and gas n pace. (Revenue ct of 192 , secton 204(c)2
secton 214(a)9.) (Pamer v. ender, 287 U. S., 551, 557 Ct. D. 41, C. .
II-1, 235 (1933) everng v. Twn e Syndcate, 293 U. S., 312, 321 Ct. D.
905, C. . I -1, 253 (1935) Thomas v. Perkns, 301 U. S., 55, 1 Ct. D.
1237, C. . 1937-1, 1 2 everng v. ankne O Co., supra.) s a mere
owner of shares In the San Gabre company, respondent had no such nterest.
(Treasury Reguatons No. 9, artce 201.) The ownershp of the o and gas
propertes was n the corporaton. When the Mdway company acqured these
propertes from the San Gabre company and operated them, the Mdway com-
pany became the owner of the o and gas produced. It was the owner of the
gross proceeds or Income upon whch the statutory aowance for depeton was
to be computed. everng v. Twn e Syndcate, supra.) The agreement to
pay respondent one-thrd of the net profts derved from the deveopment and
operaton of the propertes was a persona covenant and dd not purport to grant
respondent an nterest n the propertes themseves. If there were no net
profts, nothng woud be payabe to hm. No trust was decared by whch
respondent coud cam an equtabe nterest n the res. s consderaton for
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520 , rt. 1 21.
338
the sae of hs stock In the San Gabre company respondent barganed for and
obtaned an economc advantage from the Mdway company s operatons but
that advantage or proft dd not consttute a depetabe nterest n the o and
gas n pace. Pamer v. ender, supra everng v. ankne O Co., supra.)
The |udgment of the crcut court of appeas s reversed and the cause s
remanded for further proceedngs n conformty wth ths opnon.
It s so ordered.
btce 1 02: ass for aowance of depeton and
deprecaton.
R NU CT O 102 .
Processor of casnghead gasone from natura gas devered by o
producers. (See Ct. D. 1323, page 30 .)
S CTION 20 . N T LOSS S.
rtce 1 21: Net osses, defnton and 1938-11-9239
computaton. Ct. D. 1315
INCOM T R NU CT O 192 D CISION O COURT.
1. Deducton Net Losses Sae of Tbust Corpus Dstrhuton
of Trust Income Wrrour Deducton for Deprkcaton.
testamentary trustee who dstrbuted a the ordnary trust
ncome for the years 1024, 11)25, and 192 wthout deducton for
deprecaton s not entted to carry forward as net osses the
amount of deprecaton sustaned n 192-1 and 1925, n determnng
ta abty upon a proft reazed n 192 from sae of a porton
of trust corpus. The addtona deducton of the amount of ncome
currenty dstrbuted, provded for n secton 219(b)2 of the
Revenue ct of 192 n determnng net ncome, can not be taken
nto consderaton n determnng net oss under the provsons of
secton 20 , whch specfcay mts the deductons to those aowed
by secton 214 or 234.
2. Certorar Dened.
Petton for certorar dened December , 1937.
Unted States Crcut Court of ppeas for the Seventh Crcut.
The Unted States of merca, appeant, v. rst Natona ank of Chcago
( ormery rst Unon Trust t Savngs ank) as Trustee Under the Lust
W and Testament of Lucus O. sher, Deceased, appeee.
90 ed. (2d), 91.
ppea from the Dstrct Court of the Unted States for the Northern Dstrct of Inos,
astern Dvson.
une 22, 1937.
OPINION.
Ma|or, Crcut udge: Ths appea s from a |udgment based upon a cam
for refund of edera ncome ta es pad for the year 192 . The facts, so far
as here pertnent, are as foows:
ppeee s the successor trustee provded for n the w of Lucus O. sher,
who ded n 191 . The trustee durng the years 1924, 1925, and 192 coected
the ncome from the trust estate, whch conssted argey of rea estate n the
cty of Chcago. The Superor Court of Cook County n an approprate acton
entered a decree on May , 1927, decarng that a the ncome of the trust
estate must be dstrbuted to the benefcares wthout deducton for depreea-
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339
520 , rt. 1 21.
ton. the ordnary ncome for the years 1924, 1925, and 192 was thus
dstrbuted. The orgna ncome ta returns fed by the trustee for the two
former years reported no ta abe ncome to the estate as the same had been
dstrbuted to the benefcares, and no deducton for deprecaton was camed.
In 192 the trustee sod a certan porton of the corpus of the estate for a
substanta proft, and n the ncome ta return fed by appeee for that
year reported as ncome of the estate a substanta capta gan and kewse
a substanta ta whch was pad n nstaments, the frst of whch was pad
March 15, 1927, and the ast, December 15, 1927. Lkewse, no deducton for
deprecaton was taken n ths return.
On une 10, 1927, appeee, as trustee, fed amended Income ta returns for
each of these three years. The amended returns for 1924 and 1925 reported
no ta abe ncome, but each ncuded a deducton for deprecaton on budngs
of 50,232.81. The amended return for 192 camed a deducton for depreca-
ton on budngs n ke amount and camed as net osses the tota amount
of the deprecaton camed for the two precedng years. The Commssoner
of Interna Revenue, n determnng appeee s ta abe net ncome for the year
192 , aowed the deducton camed for deprecaton n 192 , but dsaowed the
deducton of the camed net osses advanced from 1924 and 1925. fter-
wards certan ad|ustments, not here matera, were made wth the ta payer,
and the cam for refund nvoved n ths controversy Is based upon the
dsaowance for 192 of the tems above referred to as net osses sustaned
durng the two precedng years.
The basc queston presented s whether appeee In the years 1924 and 1925
sustaned net osses whch t was entted to have deducted n computng
ts net ncome for the year 192 . The appcabe provsons of the Revenue
ct are set forth n the footnote.1 It Is the poston of appeee that t s
entted to the beneft of the net oss provson of the statute (208 (a)
and (b)), whe appeant contends to the contrary. If appeee s poston s
correct t was, of course, entted, under the crcumstances presented, to carry
forward the amount of deprecaton whch t sustaned n the years of 1924
and 1925, and have same deducted from ts net Income for the year 192 . Ths
was the vew adopted by the dstrct court
1 evenue ct of 192 (ch. 27, 44 Stat., 9) :
N T LOSS S.
Sc. 20 . (a) s used In ths secton the term net oss means the e cess of the
deductons aowed by secton 214 or 234 over the gross Income, .

(b) If. for any ta abe year, It appears upon the producton of evdence satsfactory
to the Commssoner that any ta payer has sustaned a net oss, the amount thereof
sha be aowed as a deducton n computng the net ncome of the ta payer for the
succeedng ta abe year (herenafter n ths secton caed second year ), and f such
net oss s n e cess of such net Income (computed wthout such deducton), the amount
of such e cess sha be aowed as a deducton n computng the net ncome for the
ne t succeedng ta abe year (herenafter n ths secton caed thrd year ) the
deducton n a cases to be made under reguatons prescrbed by the Commssoner wth
the approva of the Secretary.

(g) The beneft of ths secton sha be aowed to an estate or
trust .
D DUCTIONS LLOW D INDI IDU LS.
Sc. 214. (a) In computng net ncome there sha be aowed as deductons:

(8) reasonabe aowance for the e hauston, wear and tear of property used n
the trade or busness, .
ST T S ND TRUSTS.
Sc. 219. (a) The ta mposed by Parts I and II of ths tte sha appy to the Income
of estates or of any knd of property hed n trust, ncudng

(a) (2) Income whch s to be dstrbuted currenty by the fducary to the benef-
cares, .

(b) cept as otherwse provded In subdvsons (g) and (h), the ta sha be
computed upon the net ncome of the estate or tru t, ana sha be pad by the fducary.
The net Income of the estate or trust sha be computed In the same manner and on
the same bass as provded n secton 212, e cept that

(b) (2) There sha be aowed as an addtona deducton In computng the net
ncome of the estate or trust the amount of the ncome of the estate or trust for ts
ta abe year whch 1 to be dstrbuted currenty by the fducary to the benef-
cares,
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340
There have been caed to our attenton no court decsons, nor have we by our
own research been abe to fnd any whch are controng. The oard of Ta
ppeas, however, n the qute recent case of Spadng Trust v. Commssoner of
Intrrna Revenue (34 . T. ., 7 2), where the facts are amost dentca wth
those before us, passed upon the queston here presented. In dscussng the n-
voved sectons of the Revenue ct as they reate to each other, t s on page 7 7
sad:
Secton 20 (a) of the Revenue ct of 192 defnes the term net oss as
meanng the e cess of the deductons aowed by secton 214 or 234 over the
gross ncome, wth certan e ceptons and mtatons not presenty matera.
Secton 234 deas wth deductons aowed corporatons, whe secton 214 spec-
fes the deductons aowed ndvduas. Secton 219 provdes that the net ncome
of a trust sha be computed n the same manner and on the same bass as pro-
vded In secton 214, whch reates to the computaton of net ncome of nd-
vduas, and further provdes that there sha be aowed as an addtona deduc-
ton n computng the net ncome of a trust the amount of the Income for ts
ta abe year whch s to be dstrbuted currenty by the fducary to the
benefcares.
Then foows the oard s concuson as to the aw:
It s pan that under the above provsons of the statute the net oss of a
trust estate must be computed n the same manner as In the case of an ndvdua
ta payer. net oss n the case of an estate, therefore, s the e cess of the
deductons aowed by secton 214 over the gross ncome, wthout takng nto
consderaton the addtona deducton of the amount of ncome currenty
dstrbutabe to the benefcares aowed by secton 219.
We thnk the oard reached the proper concuson to hod otherwse s to
gnore the pan unambguous anguage of the ct n queston. Secton 20 (a)
specfcay prescrbes the formua by whch the net oss may be determned.
The ony deductons whch may be taken nto consderaton are those aowabe
by secton 214 or 234. The deducton camed by appeee, however, does not arse
from ether of sad sectons but s based upon secton 219. In other words, to
sustan the poston of appeee the court must read nto secton 20 (a) the words
or secton 219, whch we can fnd no |ustfcaton for dong. s was sad In
Unted States v. roy Lumber Co. (284 U. S., 1, 3 Ct. D. 420, C. . -2, 35
(1931) ), f we take words n ther pan popuar meanng as they shoud be
taken here n determnng a net oss under ths statute ony such deductons
may be consdered as are specfcay provded for. Legsaton permttng the
ta payer to take deductons for osses suffered n precedng years has been gven
a very mted constructon by the courts. In New Coona Ice Co. v. cverng
(292 U. S., 435 Ct. D. 841, C. . III-1, 194 (1934) ), on page 440 the Court
says:
Whether and to what e tent deductons sha be aowed depends upon egs-
atve grace and ony as there s cear provson therefor can any partcuar
deducton be aowed.
The statutes pertanng to the determnaton of ta abe ncome have pro-
ceeded generay on the prncpe that there sha be a computaton of gans and
osses on the bass of a dstnct accountng for each ta abe year and ony In
e ceptona stuatons ceary defned, has there been provson for an aowance
for osses suffered n an earer year. Obvousy, therefore, a ta payer
seekng a deducton must be abe to pont to an appcabe statute and show that
he comes wthn ts terms.
Smary t was sad n Wooford Reaty Co. v. Rose (28 U. S., 319 Ct. D.
493, C. . I-1, 154 (1932) ), on page 32 :
The genera prncpe underyng the ncome ta statutes, ever snce the
adopton of the s teenth amendment, has been the computaton of gans and
osses on the bass of an annua accountng for the transactons of the year.
( urnet v. Sanford d rooks Co., 282 U. S., 359, 3C3 Ct. D. 277, C. . -, 3 3
(1931) .) ta payer who eeks an aowance for osses suffered n an earer
year must be abe to pont to a s ecfc provson of the statute permttng the
deducton and must brng hmsef wthn ts terms. Uness he can do ths, the
operatons of the current year must be the measure of hs burden.
ppeee makes a rather pausbe argument that uness t s aowed the
beneft of secton 20 (b) t w be paced n an soated poston as compared
wth other ta payers, and such refusa woud produce nequaty and dscrm-
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20 , rt. 1 21.
naton. ven though ths argument s not wthout mert t s one whch shoud
be drected to the egsatve branch of Government rather than the |udcary.
There are some ndcatons that Congress undertook to correct ths very stua-
ton, for n the Revenue ct of 1928 we fnd the term net oss defned as the
e cess of the deductons aowed by ths tte over the gross ncome n
pace of the e cess of deductons aowed by secton 214 or 234 over the gross
ncome as s found n the ct of 192 . In other words, n the ct of 1928 t
woud seem the deductons referred to mght ncude those aowabe by any
secton of the tte, whe n the 192 ct they were e pressy confned to those
aowabe by the two sectons theren mentoned.
It s our concuson that the addtona deducton provded for n secton
219(b)2 can not be taken nto consderaton n determnng the net oss as
defned n secton 20 (a), that secton 20 (b) s not appcabe and therefore
appeee was not entted to a deducton n 192 for osses occurrng n prevous
years. In vew of the concuson reached, other questons rased by appeant
are mmatera.
udgment s reversed.
INCOM T R NU CT O 192 D CISION O COURT.
Deducton Net Losses Consodaton or Mkbger.
Where, n accordance wth a merger agreement entered nto In
192 by two banks under the provsons of the Natona ankng
ct, the contnung bank contrbuted ts agreed proporton of assets,
and, because of the defacaton, dscovered n 192 , of an offcer of
the merged bank the stockhoders of the atter were obged to
contrbute cash to make up ts proporton of assets, the contnung
bank was not entted to a deducton from gross ncome for 192 ,
1927, and 1928 for the osses of ts predecessor, under the provsons
of the Revenue ct of 192 . Under the agreed facts, there was no
consodaton, no oss was shown n 192 recoverabe by any ta -
payer, and the merger agreement f construed as assgnng to the
contnung bank ts predecessor s rght to a refund or deducton,
woud be nvad.
Unted States Dstrct Court at no vu e, Tenn.
erbert Pearson, Recever, oston- non Natona ank of no ve, Tenn., v.
The Unted States of merca.1
Tayor, Geobqd 0., .: Ths sut s by the recever of the oston-Unon
Natona ank, and seeks to recover from the defendant Unted States ncome
ta es pad by the Thrd Natona ank. The contenton of the pantff s
that certan osses of the Thrd, due to defacaton of one of ts offcers, were
ceary deductbe, and not heretofore deducted, from ts gross ncome, and
that the rght to make the deductons and obtan the benefts to be derved
therefrom passed to the oston under the facts whch are stpuated by the
partes.
The pantff contends that the resut of the stpuated facts was to effect
a consodaton of the Thrd and the oston as authorzed by the ct of
November 7, 1918 (U. S. C, Tte 12, subsecton 2, secton 34), and that, there-
fore, an appcaton of the ncome ta statutes and reguatons pursuant thereto
n effect at the tme of the camed consodaton enttes the consodated bank
to the beneft of the deducton. (Revenue ct 192 , secton 2(a), (1), (2), (9)
secton 20 (c), 240 (a) and (b).)
The facts, whch are a stpuated, need not be stated further than deemed
matera to a decson. There s no confct as to the meanng of the terms
Not pubshed In edera Reporter.
rtce 1 21: Net osses, defnton and com-
putaton.
1938-19-9331
Ct. D. 13 3
October 8, 1937.
OPINION.
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342
of the stpuaton as amended and suppemented. The questons arse out of
the contentons of the partes as to the ega effect of the facts and matters
stpuated.
In September, 192 , the two banks entered nto a wrtten agreement under
the terms of whch the oston was to ncrease ts capta stock to 00,000
to be In 00 shares of 1,000 each. The agreement provded that It shoud
become operatve when approved by two-thrds of the sharehoders of each
of the banks, and that ts capta, surpus and undvded profts shoud then be
1,350,000. The 00 shares were to be dstrbuted among the sharehoders of
the two banks on the bass of three-fourths of one share for each share str-
rendered. The agreement provded that the oston shoud contrbute accept-
abe net assets of 843,750 and the Thrd n the net vaue of 50 ,250, and In
the event ether bank coud not contrbute Its share of corporate assets, then
ts sharehoders woud make up the dfference n cash. ny assets n ether
bank n e cess of Its requred contrbuton were to be the property of that
bank s sharehoders. The contract was carred nto effect n September, 192 ,
and to make good ts contrbuton of acceptabe assets, the sharehoders of the
Thrd were obged to contrbute more than 200,000. The assets of the oston
deemed acceptabe e ceeded the amount requred by more than a quarter of a
mon doars, and that e act amount was passed to Its sharehoders as
dvdends.
Other provsons of the agreement provded for the organzaton of a trust
company wth 200,000 capta. The tota capta of the oston and the
Thrd was 800,000. ach sharehoder of the two banks receved one-fourth
share of the trust company stock for each one share of bank stock surrendered.
The stpuaton shows that the oston fed ts 192G return from anuary 1
to December 31, ncudng that part of the year after the consodaton or
merger, camng theren no oss sustaned by the Thrd pror to the 1st of
October.
Under these facts was there such consodaton as under appcabe statutes
gves the oston the rght to appy any oss of the Thrd shown to have
occurred n 1920 n reducton of ts gross ncome for 192 , and the second
and thrd year (1927 and 1928)7
The case mght be decded upon the faure of the stpuaton to e pressy or
by facts stpuated show that the oss nvoved n fact occurred n 192 . It was
then dscovered. Ths stpuated fact, wthout more, coud not support the
concuson that t occurred then. ( ectrc Reducton Co. v. Leweyn, 11 ed.
(2d), 493 T. D. 3739, C. . I -2, 208 (1925) arsh f Co. v. Commssoner,
31 ed. (2d), 79 urnet v. ouston, 283 U. 8., 223 Ct. D. 328, C. . -,
343 (1931) .)
consodaton, such as here contended for, contempates a perpetuaton
of the banks consodated under such condtons as that the consodated bank
suffers from the oss to the same e tent that the osng bank woud have
suffered had the consodaton never occurred.
Under the terms of the agreement the oss, had t occurred n 192 , and had
t been dscovered before the merger or consodaton became effectve woud
not have changed the assets of the merged or consodated oston. The
Thrd was requred to contrbute 50 ,250 by way of acceptabe assets. What
t had n e cess enured to the beneft of ts sharehoders, not to the oston.
What t ost of ts assets through ts offcer s defacatons was suffered by Its
sharehoders. ad the osses not occurred the sharehoders woud not have
been requred to contrbute cash or ts accepted equvaent more than 200,000,
but woud have receved some amount by way of trustee s dvdends on assets
qudated as not requred to make up the Thrd s contrbuton.
The effect of the transacton, whe nether a pure merger or consodaton,
was more neary a merger. There was not a compete merger, as nether
bank s assets were whoy taken over by the other. There was no consodaton
n the sense that the two banks, when the agreement became effectve, were
carred n the form of another and freshy created entty. The oston under
the terms of the agreement dd not cease to e st, but merey caused Its grant
of authorty to be amended and ssued addtona stock to compensate share-
hoders of the Thrd for ther certfcates n the Thrd whose assets, In part,
became the assets of the oston. That there was an affate created by the
organzaton of the trust company does not ater the stuaton. There was
not then or thereafter a reatonshp between the oston and the Thrd whch
coud possby be termed an affaton.
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213(b), rt. 87.
The court s of opnon, under the agreed facts, that there was no consoda-
ton that the stpuaton shows no oss n 19 C recoverabe by any ta payer
that the merger agreement, f construed as assgnng to the oston Natona
ank the Thrd Natona ank s rght to a refund or deducton woud be nvad.
udgment for defendant and aganst pantff may be prepared for approva
and entry under the rues.
P RT II. INDI IDU LS.
S CTION 212. N T INCOM O INDI IDU LS
D IN D.
rtce 22: Computaton of net ncome.
R NU CT O 192 ND PRIOR R NU CTS.
Insurance premums pad n advance for perod of more than one
year by ta payer on cash recepts and dsbursements bass. (See
G. C. M. 20307, page 157.)
S CTION 213(b). GROSS INCOM D IN D:
CLUSIONS.
rtce 87: Income of States. 1938-13-92 2
( so Secton 204, rtce 1 02.) Ct. D. 1321
ncome ta revenue act of 192 decson of supreme court.
1. Gkoss Income Deducton Depeton owance ass.
Where an o company contracted for sae of o at an agreed
prce, the purchasng company to have the free use of equpment
and to conduct a deveopment and producton operatons, the
amount of gross ncome of the seng company for the purpose of
the statutory aowance for depeton, under sectons 204(c)2 and
234(a)8 of the Revenue ct of 192 , does not ncude the cost of
producton defrayed by the purchaser under the contract, but s
the tota cash payment receved. The term gross ncome from
the property means gross ncome from the o and gas and shoud
be taken n ts natura sense. theoretca gross ncome may not
be constructed by recourse to the e penses of producton operatons.
2. empton State Instrumentaty O and Gas Lease or
Schoo Lands.
Income receved under a trust agreement wth the owner of
an o and gas ease from the State of Wyomng, essor of certnn
schoo ands, Is not mmune from edera ncome ta . The ta
on such ncome does not consttute any drect and substanta nter-
ference wth the e ecuton of the trust whch the State has
assumed.
8. Decsons Overrued.
Gespe v. Okahoma (1922) (257 T . S., 501) and urnet v.
Coronado O d a Co. (285 U. S., 393 Ct. D. 485, O. . I-1, 2 5
(1932) ) overrued.
4. Decson Reversed.
Decson of the Crcut Court of ppeas, Tenth Crcut (92 ed.
(2d), 78), reversng decson of the oard of Ta ppeas (34
. T. , 409), reversed.
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344
Supreme Coubt op the Unted States.
uy T. everng, Commssoner of Interna Revenue, pettoner, v.
Mountan Producers Corporaton.
303 U. S., 37 .
On wrt of certorar to the Unted States Crcut Court of ppeas for the Tenth Crcut
March 7, 1938.
OPINION.
Mr. Chef ustce ughes devered the opnon of the Court.
Respondent, Mountan Producers Corporaton, owned a the capta stock of
the Wyomng ssocated O Corporaton and fed a consodated Income ta
return for the year 1925. Two dstnct questons are nvoved wth respect to
the ta abe ncome of the above-mentoned affate. These are (1) as to the
amount of the gross ncome of the affate for the purpose of the statutory
aowance for depeton In the case of o and gas wes (Revenue ct of 19 ,
secton 204(c)2, secton 234(a)8) and (2) as to a cam of e empton from
ta aton of Income receved by the affate under a trust agreement wth the
owner of an o and gas ease from the State of Wyomng. The oard of Ta
ppeas decded aganst respondent upon both ponts (34 . T. ., 409) and ts
decson was reversed by the crcut court of appeas. (92 . (2d), 78.)
ecause of an asserted confct wth a decson of the Crcut Court of ppeas
for the Nnth Crcut n the case of ankne O Co. v. Commssoner (90 .
(2d), 899) (see evcrng v. ankne O Co., decded ths day), we granted-
certorar. ( T . S., .)
rst. Wyomng ssocated, organzed n 1919, hed certan pacer mnng
cams, eases and operatng agreements n the Sat Creek o fed n Natrona
County, Wyo. Pursuant to the O and Gas Leasng ct of Congress of ebru-
ary 25, 1920, the company e changed Its pacer cams for Government eases
and ater certan e changes were made wth the Mdwest O Co. and the
Wyomng O eds Co. In 1923, Wyomng ssocated made a contract wth
the Mdwest Refnng Co. by whch the former agreed to se to the atter a
the o produced by t n the Sat Creek o fed and the Refnng company
agreed to purchase such o unt anuary, 1934, upon a sdng scae of prces
bused upon the average prce receved by the Refnng company for gasone and
kerosene. Wyomng ssocated agreed to gve the Refnng company free
use of a storage factes, ppe nes, budngs and equpment, and so much
of the o and gas produced as mght be reasonaby necessary for producton
purposes. The Refnng company agreed, as part of the prce of the o thus
purchased, to dr, case and mantan a wes, suppy water, nsta and
operate pumps, and conduct a deveopment and producton operatons. The
Reung company agreed to take devery of the purchased o at the outet
gates of the measurng tanks ocated at or near the wes.
Respondent contended that the gross ncome of Wyomng ssocated from Its
propertes durng the ta abe year, for the purpose of the statutory aowance
for depeton, conssted of the tota cash payments receved by Wyomng sso-
cated, pus the cost of producton defrayed by the Refnng company under ts
contract The amount of that cost was shown by stpuaton. The oard of
Ta ppeas mted the gross ncome of Wyomng ssocated to the cash pay-
ments receved. The crcut court of appeas was of the opnon that the cost
of producton ncurred by the Refnng company shoud be added In the vew
that, had Wyomng ssocated produced the o at ts own e pense, Its gross
Income woud have been the amount whch t receved for the o sod and t
woud thus have obtaned n cash the proportonate amount whch represented
the cost of the producton.
Layng emphass upon the provson of the contract that the Refnng com-
pany shoud perform ts servces as a part of the purchase prce of the o,
respondent contends that t s rreevant that the Refnng company acted for
ts own beneft that the producton and ftng servces were performed pror
to devery of the o, and that the Refnng company was actng as the agent
for Wyomng ssocated down to the pont of devery and not unt then be-
came a vendee that thus Wyomng ssocated dd not se o under the
ground but o severed from the ground and treated for devery that It was
not essenta for respondent to show that the tota prce under the contract
must be ether above or beow the market prce at any specfed tme, and that
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213(b), rt. 87.
the prce as f ed by the contract controed the deangs and the ta es of the
partes. Respondent agrees that an nterest n o or gas or some type of own-
ershp s essenta to the rght of deducton for depeton and assumes that no
one but Wyomng ssocated owned any nterest n the o and gas n pace.
The Government argues that the cash prce receved for the o s the seer s
entre gross ncome from the property where, as n ths nstance, the o s
purchased under a contract by whch a refner agrees to defray the e pense of
the deveopment and producton operatons and to pay a cash prce based on
the prces t obtans for the products t ses at ts refnery that the o produc-
ton operatons were conducted by the Refnng company for ts own beneft
n order to obtan the o at a prce t deemed to be favorabe that the method
of determnng the purchase prce under the contract was not reated to the
fed market prce of o but was e pressy reated to a dfferent bass, whch
mght be greater, that s, to a bass consstng of the current prces obtaned
by the Refnng company for ts gasone and kerosene that f the deveopment
operatons had been unsuccessfu and no o had been produced, the servces of
the Refnng company woud st have been pad for by the owner s promse to
se at a f ed prce whatever o mght be produced, and that ths shoud be
taken to be the meanng of the provson that the Refnng company shoud
perform ts servces as part of the prce for o purchased that the owner of o
n pace, nstead of preparng t for devery and sae, may prefer to essen hs
work, ower hs prce and thus decrease hs gross ncome from the property
and n such case the servces whch the buyer may perform are not to be
regarded as part of that ncome.
We thnk that the Government s argument s sound. The evdent purpose
of the statutory provson contros. It s a unque provson to meet a speca
case. naoges sought to be drawn from other appcatons of the Revenue
cts may be deusve and ead us far from the ntent of Congress n ths
nstance. Congress has recognzed that n farness there shoud be compen-
saton to the owner for the e hauston of the mnera deposts n the course of
producton. (Unted States v. Ludey, 274 U. S., 295, 302 T. D. 404 , C. . I-2,
157 (1927) .) ut to apprase the actua e tent of depeton on the par-
tcuar facts n reaton to each ta payer woud gve rse to probems of con-
sderabe perpe ty and woud create admnstratve dffcutes whch t was
ntended to overcome by ayng down a smpe rue whch coud be easy
apped. To ths end, the ta payer was permtted to deduct a specfed per-
centage of hs gross ncome from the property. (See Unted States v. Dakota-
Montana O Co., 288 U. S., 459, 4 1 Ct. D. 55, C. . II-1, 243 (1933) .) Con-
gress was free to gve such an arbtrary aowance as the deducton was an
act of grace. In answer to the contenton that the provson may produce
un|ust and unequa resuts, we have remarked that ths s key to be so
-wherever a rue of thumb s apped wthout a detaed e amnaton of the
facts affectng each ta payer. ( evernff v. Twn e Syndcate, 293 U. S.,
312, 321 Ct. D. 905, O. . I -1, 253 (1935) .)
The rue beng of ths sort for obvous purposes of admnstratve convenence,
we must appy t n the smpe manner t contempates. The 27 per cent
aowed s a f ed factor, not to be Increased or essened by asserted equtes.
The term gross ncome from the property means gross ncome from the o
and gas ( everng v. Twn e Syndcate, supra) and the term shoud be
taken n ts natura sense. Wth the motves whch ead the ta payer to be
satsfed wth the proceeds he receves we are not concerned. If, n ths In-
stance, the deveopment operatons had faed to produce o, t woud hardy
be sad that the e pense of drng, borne under contract by another, con-
sttuted gross Income of the ta payer wthn the meanng of the statute.
Nor, when o or gas s produced, does the statute base the percentage on
market vaue. The gross ncome from tme to tme may be more or ess than
market vaue accordng to the bearng of partcuar contracts. We do not
tnk that we are at berty to construct a theoretca gross ncome by recourse
to the e penses of producton operatons. The Refnng company for ts own
purposes undertook the e pense of those operatons, and Wyomng ssocated
was content to receve as ts own return the cash payments for the o pro-
duced, eavng to the Refnng company the rsks of producton.
We are of the opnon that the cash payments made by the Refnng com-
pany consttuted the gross ncome of Wyomng ssocated and was the bass
for the computaton of the depeton aowance.
83421 88 a
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213(b), rt. 87.
34
Second. The State of Wyomng, In 1919, made a ease for the term of fve
years to the Mdwest O Co. coverng a secton of schoo and (secton 3 ,
townshp 40 north, range 79 west) for the purpose of producng o and gas,
reservng a royaty to the State. The ease was superseded n 1923 by another
ease of ke mport, runnng from 1924, the royaty to the State beng f ed
at 5 per cent of o and gas produced. In 1923, the Mdwest O Co. e ecuted
a decaraton of trust, that t hed an undvded 50 per cent nterest n the ease,
and n the net proceeds to be reazed therefrom, and a renewas thereof, for
the beneft of Wyomng ssocated. In 1925, the State receved the agreed
royaty of the o produced and the proceeds of the sae of the remanng o
were dvded between Wyomng ssocated and the Mdwest O Co.
The queston s whether Wyomng ssocated s sub|ect to a edera ncome
ta wth respect to the amount t thus receved. Immunty s camed upon
the ground that n ths reaton Wyomng ssocated s a State Instrumentaty.
y the enabng ct, the and n queston was granted to the State of Wyomng
for educatona purposes, the proceeds to consttute a permanent schoo fund.
uthorty was gven to ease such and for not more than fve years. ( ct of
uy 10, 1890, ch. 4, sectons 4, 5, 2 Stat., 222, 223.) part from the fact
that the cam s made by Wyomng ssocated by vrtue of the decaraton of
trust, and not by the essee, the case woud fa drecty wthn the decson n
urnet v. Coronado O Gas Co. (285 U. S., 393 Ct. D. 485, C. . I-1, 2 5
(1932) ), reatng to a edera ta upon net ncome derved by a essee under a
ease of schoos ands by the State of Okahoma. In urnet v. ergns Trust
(288 U. S., 508 Ct. D. 53, C. . II-1, 214 (1933) ), we mted the appcaton
of the Coronado case, sayng that the doctrne nvoked was to be apped
strcty. ut a dstncton soey upon the ground that the Income n the Instant
case was receved under a decaraton of trust by the essee, and not by the essee
tsef, does not appear to be substanta and we are of the opnon that the
Coronado case and the decson upon whch It rested shoud be reconsdered n
the ght of our other decsons as to the ta ng power.
The Coronado case was decded as a cor ary to the case of Gespe v. Oka-
homa (257 U. S., 501). The court there dened to Okahoma the rght to enforce
ts ta upon net ncome derved by a essee from saes of hs share of o and
gas receved under eases of restrcted Indan ands. (See Choctaw, Okahoma
Guf R. R. Co. v. arrson, 235 U. S., 292 Indan Terrtory Iumnatng O
Co. v. Okahoma, 240 U. S., 522.) s Okahoma was thus barred from enforcng
Its ta upon the ncome of a edera essee of Indan ands, the Court In the
Coronado case hed that a smar prncpe shoud be apped to the enforcement
of a edera ta upon the Income of the State s essee of schoo ands. In such
a case, as the State was e ecutng a trust mposed by Congress as a condton
of the State s enterng the Unon, the cases n whch the State had engaged n
busness enterprses, apart from what shoud be deemed to be ts essenta gov-
ernmenta functons, were thought to be nappcabe. (285 U. S., 400.)
The ground of the decson n the Gespe case, as stated by Mr. ustce
omes n speakng for the Court, was that a ta upon the eases was a ta
upon the power to make them, and coud be used to destroy the power to make
them (240 U. 8., 530) and that a ta upon the profts of the eases was a
drect hamper upon the effort of the Unted States to make the best terms that
t can for ts wards. In the ght of the e pandng needs of State and Naton,
the nqury has been pressed whether ths concuson has adequate bass
whether n a case where the ta s not ad upon the eases as such, or upon the
Government s property or nterest, but s mposed upon the gans of the essee,
ke that ad upon others engaged n smar busness enterprses, there Is n
truth such a drect and substan.a nterference wth the performance of the
Government s obgaton as to requre mmunty for the essee s Income. We have
hed that the rung n the Gespe case shoud be mted strcty to cases
cosey anaogous (. urnet v. Coronado O d Gas Co., supra), and the dstnctons
thus mantaned have attenuated ts teachng and rased grave doubt as to
whether t shoud onger be supported.
In numerous decsons we have had occason to decare the competng prn-
cpe, buttressed by the most cogent consderatons, that the power to ta shoud
not be crpped by e tendng the consttutona e empton from ta aton to
those sub|ects whch fa wthn the genera appcaton of nondscrmnatory
aws, and where no drect burden s ad upon the governmenta nstrumentaty
and there s ony remote, f any, nfuence upon the e ercse of the functons of
government. ( Wcuts v. unn, 282 U. S., 21 , 225 Ct. D. 280, C. . -, 309
(1931) and ustratons there cted.) Thus we have hed that the compensa-
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347
213(t ), rt. 87.
ton pad by a State or a muncpaty to a consutng engneer for work on
pubc pro|ects may be sub|ected to a edera ncome ta (Uctcaf d ddy v.
Mtche, 2 9 U. S., 514, 524 T. D. 3824. C. . -, 218 (192 ) ) and tha the
ncome of Independent contractors engaged n carryng on Government enter-
prses may be ta ed. ( ames v. Dravo Contractng Co., decded December ,
1937.) We have aways recognzed that no consttutona mpcatons prohbt
a nondscrmnatory ta upon the property of an agent of government merey
because t s the property of such an agent and used n the conduct of the
agenfs operatons and necessary for the agency. (MtCuoch v. Maryand, 4
Wheat., 310, 43 : Raroad Company v. Pcnston, 18 Wa., 5, 33 card v. ohn-
on, 2S2 U. S., 509, 514.) The Congress may ta State banks upon the average
amount of ther deposts, athough deposts of State funds by State offcers are
ncuded. (Manhattan Company v. ake, 148 U. S., 412.) oth the Congress
and the States have the power to ta transfers or successons n case of death,
and ths power e tends to the ta aton by a State of bequests to the Unted
Srates and to the ta aton by the Congress of bequests to States or ther munc-
pates. (Unted States v. Perkns, 1 3 U. S., 25 Snyder v. ettman, 190
C. S., 249, 253, 254.) Whe a ta on the nterest payabe on State and munc-
pa bonds has been hed to be nvad as a ta bearng drecty upon the e ercse
of the borrowng power of the Government (Weston v. Chareston, 2 Pet., 449,
4 8, 4 0 Poock v. anners Loan d Trust Co., 157 U. S., 429, 58 ), the sae of
the bonds by ther owners after tey have been ssued by the State or munc-
paty s regarded as a transacton dstnct from the contracts made by the
Government n the bonds themseves, and the profts of such saes are sub|ect
to the edera ncome ta . (Wcuts v. unn, supra, 227. See, aso, urnet v.
ergns Trust, supra Icvcrng v. Therre, decded ebruary 28, 1937 TCt. D.
131 page 243, ths uetn and everng v. ankne O Co., decded ths
day.)
In Group No. 1 O Corporaton v. ass (283 U. S., 279 Ct D. 330, C. . -,
153 (1031) ) profts derved by a essee from the sae of o and gas produced
nnder a ease from the State of Te as were hed not to be mmune from edera
ta aton. Ths decson was dstngushed In the Coronado case upon the nar-
row ground that under the aw of Te as the eases effected a present sae to
the essee of the o and gas In pace. In Indan Terrtory O Co. v. oard (288
U. S., 325), the Court sustaned a nondscrmnatory ad vaorem ta mposed by
the State of Okahoma on o e tracted from restrcted Indan ands under
eases approved by the Secretary of the Interor, where the o had been removed
from the ands and stored n the owner s tanks and the Indans had no further
nterest n t.
These decsons n a varety of appcatons enforce what we deem to be
the controng vew that Immunty from nondscrmnatory ta aton sought
by a prvate person for hs property or gans because he s engaged n opera-
tons under a Government contract or ease can not be supported by merey
theoretca conceptons of nterference wth the functons of government. Re-
gard must be had to substance and drect effects. nd where t merey
appears that one operatng under a Government contract or ease s sub|ected
to a ta wth respect to hs profts on the same bass as others who are engaged
In smar busnesses, there s no suffcent ground for hodng that the effect
upon the Government s other than ndrect and remote. We are convnced
that the rungs n Gespe v. Okahoma, supra, and urnet v. Coronado O
das Co., supra, are out of harmony wth correct prncpe and accordngy
they shoud be, and they now are, overrued.
In the nstant case, we fnd no ground for concudng that the ta upon the
profts of Wyomng ssocated derved under ts ease from the State consttuted,
any drect and substanta nterference wth the e ecuton of the trust whch
the State has assumed, and the decson of the crcut court of appeas to the
contrary must be reversed.
Reversed.
rtce 87: Income of States.
R NU CT O 102 .
Prvate operatons under eases of State o and gas ands. (See
Ct. D. 1323, page 30 .)
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215, rt. 291.
348
rtce 87: Income of States.
R NU CT O 192 ND PRIOR R NU CT8.
Ta abty of ncome derved by a essee ta payer under a ease of
State schoo ands. (See Mm. 4755, page 179.)
rtce 88: Compensaton of State offcers and empoyees.
mendment of Reguatons 9, artce 88. (See T. D. 4787, page
181.)
rtce 88: Compensaton of State offcers and empoyees.
Ta abty of compensaton receved by offcers and empoyees of
a State or potca subdvson. (See Mm. 3838, revsed, page. 181.)
S CTION 214(a) 1. D DUCTIONS LLOW D INDI-
IDU LS: USIN SS P NS S.
R NU CT O 1921.
Deductbty of e pendtures for purchase of baseba unforms.
In vew of G. C. M. 19790 (see page 118), I. T. 1488 (C. . 1-2
145 (1922)) s revoked n so far as t hods that e pendtures or
baseba payers for the purchase of baseba unforms used soey
n the wearer s busness are persona e penses and nondeductbe for
ncome ta purposes. Such tems are therefore aowabe deductons
from gross ncome.
rtce 101: usness e penses.
Insurance premums pad n advance for perod of more than one
year by ta payer on cash recepts and dsbursements bass. (See
G. C. M. 20307, page 157.)
S CTION 215. IT MS NOT D DUCTI L .
rtce 291: Persona and famy e penses.
R NU CT O 1921.
Modfcaton of I. T. 1488 (C. . 1-2,145 (1922)). (See I. T. 317 ,
above.)
R NU CT O 192 .
R NU CT O 192 .
rtce 101: usness e penses.
( so Secton 215, rtce 291.)
1938-13-92 3
I. T. 317
R NU CT O 192 ND PRIOR R NU CTS.
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349 5218, rt. 321.
S CTION 218. P RTN RS IPS ND P RSON L
S R IC CORPOR TIONS.
rtce 321: Partnershps. 1938-25-9397
Ct. D. 1345
INCOM T R NU CT O 1918 D CISION O SUPR M COURT.
L Income Profts from Saes of Partnershp ssets Lquda-
ton Ta abe Profts Determned nnuay.
The net profts from saes made In 1920 by two partnershps
organzed In 1918 for the purpose of qudatng certan corpora-
tons were In ther nature ta abe ncome for that year, athough
qudaton was not competed unt 1925. Profts made n the
busness of qudaton are ta abe n the same way and to the
same e tent as If made n an e pandng busness, and the queston
whether ta abe profts have been made s determned annuay
by the resut of the operatons of that year.
2. Dssouton of Partnershp Labty of Survvng Partners.
The fact that the partnershps had been dssoved by the death
of a partner pror to 1920 does not affect the ta abty of the
survvng partners, snce under the State aw a partnershp con-
tnues unt the wndng up of ts affars s competed. Technca
dssouton does not operate to captaze the nterest of a partner
In future partnershp profts.
3. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, Thrd
Crcut (193T) (89 ed. (2d), 141), reversed.
Supreme Court of the Unted States.
144. D. . ener, pettoner, v. Pau Meon et a., ecutors.
145. D. . Sener, pettoner, v. enne ng Meon et a.. ecutors.
304 U. S., 271.
On certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut.
May 1 , 1938.
OPINION.
Mr. ustce randes devered the opnon of the Court.
These cases, tred beow n the edera Court for Western Pennsyvana and
argued together here, arse from the same facts and present the same questons
of aw. ach acton was brought aganst D. . ener, as former coector of
nterna revenue and ndvduay, to recover an amount pad under protest
by the ta payer n 1927 upon a defcency assessment of hs 1920 ncome ta .
The amounts ta ed as addtona ncome were the dstrbutve shares of certan
profts aeged to have been earned by each n 1920 as a partner n two frms.
Due demand for a refund was made. In No. 144 the ta payer was . W.
Meon n No. 145, R. . Meon. oth havng ded, the suts are by ther
e ecutors. In No. 144, the dstrct court entered udgment for 202,502.22 wth
nterest (14 . Supp., 424) n No. 145 for 1S7,787.17 wth nterest. These
|udgments were affrmed by the court of appeas. (89 . (2d), 141.) Certorar
was granted because of aeged confct as to appcabe rues of aw mportant
n the admnstraton of the revenue aws. (303 U. 8., .)
There Is no dspute as to the reevant facts. Pror to December 12, 1918,
. W. Meon, R. . Meon and C. rck each owned one-thrd of the entre
capta stock of two dstng corporatons . Overhot Co. and West Overton
Dstng Co. On that day those three ndvduas formed two partnershps
n whch each partner was to have a one-thrd nterest. In anuary, 1919,
they caused to be transferred to the partnershp caed . Overhot Co. a
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218, rt. 321.
350
the assets of the corporaton of that name and to the partnershp caed West
Overton Dstng Co., a the assets of that corporaton. These assets ncuded
arge whsky nventores n bonded warehouses. Nether corporaton had ds-
ted any whsky after 1910. Lqudaton of the busnesses of each had been
started by the two corporatons n 1918 and the partnershps had been organ-
zed for the purpose of qudatng them. The busness of each partnershp
n 1920, had, ke ts busness n 1919, conssted n the sae of whsky certfcates
and the storage, bottng, casng and sae of the stock of whsky. It was not
unt 1925 that the assets of the partnershps then remanng were sod n buk,
and the proceeds dstrbuted among those entted thereto.
rek ded December 2, 1919 but throughout 1920 the busnesses of . Over-
hot Co. and of West Overton Dstng Co. were conducted, and ther books
were kept, n the same manner as the busnesses had been conducted and books
had been kept by the partnershps n 1919, and by the corporatons n 1918.
or 1920 the partnershp returns of the two concerns dscosed facts from
whch t appeared that substanta gans had been made from the sae of
whsky. ut the amounts were not reported as ncome of the partnershps
and nether . W. Meon nor R. . Meon ncuded n ther ncome ta returns
for 1920 any amount on account of them. The Commssoner of Interna Reve-
nue determned that these sums were dstrbutve profts that the returns of
ta abe ncome of . W. Meon and of R. . Meon for the year 1920 shoud
have ncuded one-thrd of the profts n that year of each frm from the sae
of whsky and made a defcency assessment on . W. Meon of 1190,419.70
and on R. . Meon of 175,259.70.
The Revenue ct of 1918 governs ta aton of 1920 ncome. Secton 218(a)
of the ct provdes that ndvduas carryng on busness n partnershp sha
be abe n ther ndvdua capactes for the Income ta on profts earned
theren, and that n computng the net ncome of each partner there sha be
ncuded hs dstrbutve share, whether dstrbuted or not, of the net ncome
of the partnershp for the ta abe year. Secton 224 provdes that the partner-
shp sha fe an nformatona return settng forth the tems of ts gross
ncome, the deductons aowed and the dstrbutve share of net ncome to
whch each partner s entted.
The two Meons fed ther ndvdua returns for 1920, and aso the Informa-
tona partnershp returns for that year. Whe the Meons camed that they
were not ta abe on ther share of the profts from whsky sod n 1920, they
recognzed that they were ta abe for ther shares of these other profts of
the concerns earned n 1920 The partnershp returns In the case of each con-
cern showed a gan arsng from storage, bottng and casng operatons, saes
of barres, nterest and rentas. One-thrd of each of these profts was entered
by each of the Meons In hs ndvdua return as hs dstrbutve share of the
profts of the two partnershps.
rst. The prmary queston for decson s whether the net profts made
by the two partnershps n 1920 from the saes of whsky were n ther nature
ta abe ncome. Throughout 1920, . Overhot Co. and the West Overton
Dstng Co. were engaged n busness. The mere fact that the purpose of the
partnershps was to qudate the assets taken over from the corporatons a
not of ega sgnfcance. ProLcs made n the busness of qudaton are
ta abe n the same way and to the same e tent as f made n an e pandng
busness. Nor s t of ega sgnfcance that the qudaton was not competed
unt 1925 and that unt competon of the qudaton t coud not be known
whether the busness venture, taken as a whoe, had been proftabe. The
edera ncome ta system s based on an annua accountng. Under that
aw the queston whether ta abe profts have been made s determned annuay
by the resut of the operatons of the year.
Purchasng rea estate, subdvdng and seng t In parces s, In essence, a
qudatng busness. The cam has been repeatedy made that no ncome
ct ot ebruary 24, 1919 (eh. 18, 40 Stat., 1057).
n-net v. Ranford f rooks Co. (282 U. S., 359, 3 5 Ct. D. 277, C. . -, 3 3
(1931) ) urnet v. Thompson O Gas Co. (283 U. S., 301, 30 Ct. D. 331, C. . -.
390 (1931)1) Wooford Reaty Co. v. ose (28 U. S., 319 32 Ct. D. 493. C. . I-1,
154 (1932) ) rown v. ererng (291 U. S.. 193, 198-199 Ct. D. 78 . C. . III-1, 22
(1934) ) : ererng v. Morgan s. Inc. (293 . S., 121, 12 -127 Ct. D. 888, C. . III-2.
207 (1034) 1) : Guaranty Trust Co. v. Commssoner (303 U. 8., , decded March 28,
1938 Ct. D. 1327, page 238, ths uetn .
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351
218, rt. 321.
was reazed unt the nvestment was recouped but the oard of Ta ppeas
has unformy hed In accord wth artce 43 of Reguatons 45 (and ater
reguatons) that the cost of the rea estate must be apportoned among a the
ots, and ncome returned upon the saes n each year, regardess of the number
of ots remanng undsposed of at the cose of the ta year. ke rue has
been apped where the ta payer had purchased persona property In a bock
and was engaged n seng t n parces. The cam that there was no ta abe
ncome unt the capta had been returned was re|ected.4
The fact that t mght prove that when the busness was fuy qudated the
profts of 1920 were offset by heavy oss of Inter years s mmatera. Losses
suffered by a ta payer n a ater year may be deducted from profts, f any,
earned by hm n that ater year but the ta on a year s ncome may not be
wthhed because osses may thereafter occur. If . Overhot Co. and West
Overton Dstng Co. had remaned corporatons they woud have been obged
to make each year return of the profts made theren and pay ta es annuay
throughout the perod of qudaton athough t mght utmatey prove that the
osses of the ater years e ceeded the profts of the earer ones. Lkewse, f
the concerns had each been owned by a snge Indvdua, the fact that hs soe
busness was qudatng the concern woud not have reeved htm from payng
annuay ta es on the net profts. No good reason s suggested why a dfferent
rue shoud appy to partnershps.
We concude that gans from the sae of whsky n 1920 were Income of that
year. The amount of the ncome was determnabe from the partnershp books.
Secton 212(b) of the Revenue ct of 1918 provdes that the net ncome sha be
computed n accordance wth the method of accountng reguary empoyed n
keepng the books of the ta payer, and t s not shown that the method empoyed
ceary faed to refect net ncome.
Second. The fact that the partnershps had been dssoved by rck s death
before 1920 does not affect the abty of the Meons as survvng partners for
ncome ta es on ther dstrbutve shares of the net profts made n that year.
(Compare Rossmoore v. nderson, 1 . Supp., 35 (S. D. N. Y.), affrmed, 7 .
(2d), 1009 (C. C. . 2) Ct D. 593, C. . I-2, 272 (1932)1 Rossmore v.
Commssoner. 7 . (2d), 520 (C. C. . 2) Ct. D. 1009, C. . I -2. 278 (1935) .)
The busness of . Overhot Co. dd not termnate on rck s death. though
dLssoved. the partnershps and the busness contnued, snce, as stated n the
Pennsyvana Unform Partnershp ct: On dssouton the partnershp Is not
termnated, but contnues unt the wndng up of the partnershp affars Is
competed. Throughout the year 1920, the busness of seng stock on hand
and dervng ncome therefrom was carred on precsey as t had been thereto-
fore, and for the same purpose. rtce 424 of Reguatons 45 recognzes that
even n the hands of a recever a partnershp must fe a return.
Thrd. The Meons contend, and the court beow hed, that the partners
nterests n the partnershps were captazed upon dssouton so that unt
the qudaton returned to them the cost of ther Interests, no ta abe Income
was receved that artce 1570 of Reguatons 45 so provdes and that ths
dd not take pace before 1925. ut, as aready ponted out, technca dssou-
. 8. Cu nan (5 . T. ., 99 , 19 . T. .. 930) Thomas . very (11 . T. ., 958)
roe O. Sae (19 . T. ., 427) rederka Sknner (20 . T. ., 491). (See aso
. S. Roberts, 7 . T. ., 11 2: annba Mssour Land Co., 9 . T. ., 1072: P. O.
Carke, 22 . T. ., 314, 325 tscayne ay Isands Co., 23 . T. ., 731 deares Rea
state Trust, 25 . T. ., 1115. Compare Perkns . Thomas, 8 . (2d). 954, 95
(C. C. . 5), affrmed on other grounds. 301 D. S.. 5 Ct. D. 1237. C. W37 -1. 18_ )
ee aso mhurst Cemetery Co. v. Commssoner, 300 U. S., 37 Ct. D. 1202, C. . 1937-1,
209).)
Santa Mara Gas Co. (10 . T. ., 1412) mercan Industra Corporaton (20 . T. .,
188) anctay Corporaton (34 . T. ., 494). (Compare Wcser ros., Inc., 12 . T. .,
1394 C. . Swft d Sons, Inc., 13 . T. ., 138 Deer Isand Longng Co., 14 . T. .,
1027 O. U meck, 32 . T. ., 792.)
See Reguatons 45, artce 547: Tazewe ec. Lght f Power Co. v. Strother (84 P.
(2d). 327 (C. C. . 4)) orthwent Uttes Securtes Corporaton v. e re rng ( 7 .
(2d). 19 (C. C. . 8)) rst Nat. ank of Greeey v. Unted States (8 . (2d). 839
(C. a . 10)). (Compare urnet v. Le ngton Ice f Cod Storage Co.. 2 . (2d), 90
(C. C. . 4) Ct. D. 707, C. . II-2, 234 (1933)1 Tayor O Gas Co. v. Commssoner,
47 . (2d), 108 (C. C. . 5) eebush v. Commssoner, 5 . (2d). 902 (C. C. . )
Ct. D. 77 , C. . III-1, 2 8 (1934) : Whtney Reaty Co. v. Commssoner, 80 . (2d),
Pennsyvana Laws, 1915, No. 15, secton 30. a. Stat. nn. (Purdon, 1930), Tte 59,
secton 92.
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218, rt. 321.
352
ton does not affect the abty of a partner under secton 218 for ta es on hs
dstrbutve share of the partnershp s Income and artce 1570 does not estab-
sh any rue that dssouton captazes the nterest of a partner n future
partnershp profts. The artce provdes:
When a partner retres from a partnershp, or t Is dssoved, he reazes a
gan or oss measured by the dfference between the prce receved for hs
nterest and the cost to hm or (f acqured pror thereto) the far maket
vaue as of March 1, 1913, of hs nterest n the partnershp, ncudng n snch
cost or vaue the amount of hs share n any undstrbuted partnershp net
ncome earned snce ebruary 28, 1913, on whch ncome ta has been
pad.
Ths artce Is n no way nconsstent wth the ta aton of a partner on hs
share of the ncome of the partnershp earned n a snge year after dssouton
but before competon of qudaton and dstrbuton. It deas ony wth rhe
determnaton of a partner s gan or oss on hs nvestment when he competey
severs hs connecton wth the partnershp and ts assets. The gan or osa s
determned substantay ke that on any other busness venture of the Ind-
vdua, treated as a whoe. On the other hand, the profts from the sae of
whsky n 1920 were current Income of the partnershp for that year, not df-
ferent n ther nature from the profts from storage, bottng, casng, and smar
operatons whch the Meons returned as ncome. rtce 1570 does not dea
wth ths stuaton.
ourth. The Meons contend that because the partnershps were dssoved
by the death of rck n 1919, W. Meon and R. . Meon, beng survvng
partners, became by operaton of aw qudatng trustees that any ncome
earned n 1920 from operatons of the dssoved partnershps was ncome to the
Meons ony In ther fducary capacty as such trustees that under secton
219 of the Revenue ct of 1918 the trust estate was a separate ta abe entty
that f any ncome ta was due, It was therefore due from the trust, and that
Its assessment s now barred by the statute of mtatons.
We do not fnd t necessary to determne whether assessment of the ta on
ths theory s now outawed, or whether, as the coector urges, recovery s pre-
cuded n any event under the doctrne of Stone v. Whte (301 U. S., 532 Ct. D.
1232, C. . 1937-1, 224 ) for we are of the opnon that the Meons are not
trustees wthn the meanng of secton 219. The fact that they may be so
denomnated by the aw of Pennsyvana s not concusve. It s we setted
that n the nterpretaton of the words used n a edera Revenue ct, oca
aw Is not controng uness the edera statute by e press anguage or
necessary Impcaton, makes ts own operaton dependent upon State aw.
The State aw creates ega nterests, but the edera statute determnes when
and bow they sha be ta ed. ( urnet v. arme. 287 U. S., 103 110 Ct. D.
11, C. . I-2. 210 (1932) .) We thnk It s cear that under the crcum-
stances set forth, the ncome earned n 1920 was ncome of a partnershp
carryng on busness wthn the meanng of secton 218 rather than of a trust
under secton 219.
The obgaton of the Meons to pay, under the edera aw, ta es on the
profts made n 1920 from saes of whsky s In no way affected by ther
fducary obgaton under the aw of the State to account to the rck estate
for ts nterest n the two partnershps beng qudated. The survvng part-
ners contnued durng 1920 to conduct the busness from whch they earned
profts. On such Income the edera aw requred that ta es be pad. It dd
not requre that the payments be made from the partnershp assets. ow
the assets sha be dsposed of, and what sha be done wth the proceeds when
See aso urke-Waggoner O ssocaton v. opkns (2 9 D. S., 110, 113, 114 T. D.
3790, C. . -, 147 (192 ) ) : Pamer v. ender (287 . S., 551, 555-C5 Ct. D. C41,
C. . II-1, 235 (1033) ) Thomas v. Perkns (301 U. 8., 55, 59 Ct. D. 1237, C.
1037-1, 1 2 ) dde v. Commssoner (302 C. S. , Ct. D. 1303. page 300, ths u-
etn ). Compare Chcago oard of Trade v. ohnson (2 4 D. S., 1, 8-11) Unted States
v. Iobbns (2CU U. S.. 315. 327-328 T. D. 3817, C. . -, 188 (192 ) ) Corss v.
owers (281 U. 8., 37 , 378 Ct. D. 188. C. . I -1. 2 4 (1930) ) Tyer v. Unted States
(281 . S., 497, 503 Ct. D. 190. C. . I -1, 383 (1030) ). See aso art v. Commt-
toner ( 4 . (2d), 848, 851 (C. C. . 1)) dety-Phadepha Trust Co. v. Comms-
soner (47 . (2d). SR. 38 (C. C. . 3)) otenbergcr v. UeCaughn (25 . (2d). 99
(C. C. . 3) T. D. 4171, C. . II-2, 253 (1928)1) agan . Commssoner (43 . (2d),
881, 883 (C. C. . )) rts v. Commssoner (7 . (2d), 4 0, 4 1-4 2 (a C. . )
Ct D. 1008. C. . I -2. 274 (1935) ).
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353
221, rt. 3 1.
reazed, are matters whch may be determned by the aw of the State or by
agreement of the partners. ut however the assets are requred by the aw
of the State to be dsposed of, or the proceeds apped, the edera aw requres
that ta es be pad f, n dsposng of them wthn the year the busness s
conducted and profts are made.
fth. The Meons contend that under the aw of Pennsyvana no dstrbu-
ton of profts coud awfuy have been made by the survvng partners as
qudatng trustees unt a debts and abtes, contngent or otherwse, had
been pad or satsfed, and the partners capta returned and that athough
the busness of the partnershps had been carred on after dssouton precsey
as before, and the partnershp accounts for the year 1920 showed arge profts
earned, ther respectve shares of them were not dstrbutabe and coud not
be deemed ta abe ncome of the partners.
Secton 218(a) of the Revenue ct of 1918 provdes that There sha be
ncuded n computng the net ncome of each partner hs dstrbutve share,
whether dstrbuted or not, of the net ncome of the partnershp for the ta abe
year. If dstrbutve meant currenty dstrbutabe under State
aw, the contentons made by the Meons mght have some force. ut t
does not rtce 322 of Reguatons 45 (and correspondng artces of subse-
quent reguatons) defnes dstrbutve as meanng proportonate. (Com-
pare nre v. Commsnoner, 38 . (2d), 9 5, 9 7-9 8 (C. C. . 1) Ct. D. 24 ,
C. . I -2, 3 3 (1930) .) nd secton 220 of the Revenue ct of 1918, ta ng
to the sharehoders the ncome of a corporaton mpropery accumuatng ts
gans and profts for the purpose of avodng surta , assumes that the two words
are synonymous. The ta s thus mposed upon the partner s proportonate
share of the net ncome of the partnershp, and the fact that t may not be
currenty dstrbutabe, whether by agreement of the partes or by operaton
of aw, s not matera. No cam s made that the proportonate nterests
of tbe survvng partners was mpropery determned by the Commssoner.
S th. nay, the Meons contend that In 1928 and 1929 the Commssoner
determned that no proft was reazed unt fna qudaton of the partnershps
In 1925, and that ncome ta es for that year have been coected on ths theory
and not yet refunded. The Commssoner s aeged change of poston s not
here mportant It s not shown that refund of these ta es s now barred.
Nor s t necessary for us to consder the cost to the Meons of ther nterests
In these partnershps, or whether the Meons 1925 ncome ta es were erro-
neousy assessed and coected, or whether the Commssoner correcty setted
the ta abty of the rck estate. None of these questons has any bearng
upon the determnaton of the case before us.
Reversed.
Mr. ustce Ca dozo and Mr. ustce Reed took no part n the consderaton
or decson of ths case.
S CTION 221. P YM NT O INDI IDU L S
T T SOURC .
rtce 3G1: Wthhodng ta at source.
R NU CT OP 1928 ND PRIOR R NU CTS.
ed or determnabe annua or perodca ncome pad to the
Men Property Custodan. (See G. C. M. 19992, page 197.)
Compare ore vL Commssoner (38 P. (2d), 9 5 (C. C. . 1)) | v. Commssoner
Compare are v. Commssoner (38 . (2d), 9 0 (C. C. . 1)) v. Commssoner
(38 P. (2d), 1 5, 1 8 (C. C. . 1)) Pope v. Commssoner (39 . (2d), -420 (C. C. . 1)) :
Rvprecht . Commssoner (39 P. (2d), 458 (C. C. . 5) Ct. D. 212, C. . I -2. 3 2
(1830))): enedct v. Prce (38 . (2d), 309 ( . D.
. T. ., 0). (See aso O. D. 187 (C. . 1, 171 (1019)).)
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222, rt. 381.
354
S CTION 222. CR DIT OR T S IN C S
O INDI IDU LS.
rtce 381: nayss of credt for ta es. 1938-1 -9301
G. C. M. 19902
R NU CT O 102 ND PRIOR R NU CTS.
In vew of the decson of the Unted States Supreme Court In
ddc v. Commssoner (58 Sup. Ct, 379, Ct. D. 1303, page 309. ths
uetn), n whch t was hed that a ctzen of the Unted States
who receves dvdends from a rtsh corporaton s not entted
to a credt for the rtsh ncome ta es pad by the corporaton
whch are approprate to such dvdends, and that such ta es are
not deductbe n computng the net ncome of the ta payer, S. M.
3040 (C. . I -1, 198 (19125)) s revoked, and S. M. 53 3 (C. .
-, 89 (192 )) and G. C. M. 3179 (C. . II-1, 240 (1928)) are
modfed.
Recommended that I. T. 2401 (O. . II-1,12 (1928)) be revoked.
In the case of dde v. Commssoner, decded by the Unted States
Supreme Court on anuary 10, 1938 (58 Sup. Ct. 379, Ct. D. 1303,
page 309, ths uetn), t was hed that a ctzen of the Unted States
who receves dvdends from a rtsh corporaton s not entted
to a credt for the rtsh ncome ta es pad by the corporaton whch
are approprate to the dvdends, and that such ta es are not
deductbe n computng the net ncome of the ta payer snce the ta -
payer nether pad, nor became sub|ect to, the foregn ta es.
Pror to that decson the ureau had taken the poston n S. M.
3040 (C. . I -1,198 (1925)) that where a ta s pad to the rtsh
Government by a rtsh corporaton on the bass of ts profts and
gans, whch ta s deductbe by the corporaton from the dvdends
pad to ts sharehoders, such ta s a ta aganst the sharehoders
and may be taken as a credt by a ctzen sharehoder aganst hs
Unted States ncome ta . urthermore, t was hed n ST M. 53 3
(C. . -, 89 (192 )) that a ta deducted from profts dstrbuted
as dvdends by a rtsh corporaton s a ta aganst the sharehoder,
and that the porton of the rtsh ncome and profts ta es actuay
borne by a rtsh corporaton whch s aocabe to ncome from
sources wthn the Unted States may be deducted from gross ncome
n determnng ncome from sources wthn the Unted States. The
ureau aso rued n I. T. 2401 (C. . II-1, 12 (1928)) that an
mercan corporaton ownng the ma|orty of stock n a rtsh sub-
sdary may cam as a credt aganst ts Unted States ncome ta
the amount of rtsh ncome ta pad on profts dstrbuted to t as
dvdends by the rtsh corporaton. In G. C. M. 3179 (C. . II-1,
240 (1928)) t was hed that n determnng the aowance of a deduc-
ton for rtsh ncome ta es pad by a nonresdent aen on Unted
States ncome, the gross ncome of a. rtsh ta payer, on whch t
mght be necessary to compute a ratabe part of e penses, shoud
be determned by takng nto account the ncome ta deducted at the
source or upon payment of ncome.
In vew of the decson of the Unted States Supreme Court n
Mary Duke dde v. Commssoner, supra, S. M. 3040 s revoked and
S. M. 53 3 and G. C. M. 3179 are modfed to accord wth the rue ad
down n that case. It s recommended that I. T. 2401 be revoked.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
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355
245, rt. 81.
S CTION 223. INDI IDU L R TURNS.
rtce 401: Indvdua returns.
R NU CT O 1928 ND PRIOR R NU CTS.
Income from parapherna property of wfe where mercan ctzens
are marred n the Phppne Isands and resde there. Modfcaton
of L T. 1297 (C. . 1-1, 235 (1922)). (See I. T. 3173, page 100.)
P RT III. CORPOR TIONS.
S CTION 231. CONDITION L ND OT R
MPTIONS O CORPOR TIONS.
btc e 520: Soca cubs.
R NU CT O 1920.
Incdenta sae of property at proft. (See G. C. M. 194 5, page
172.)
S CTION 238 CR DIT OR T S IN C S
O CORPOR TIONS.
rtce 12: Domestc corporaton ownng a ma- 1938-1 -9302
|orty of the stock of foregn corporaton. I. T. 3183
R NU CT O 1920.
In vew of G. C. M. 19902 (see page 354), I. T. 2401 (C. . TI-1,
12 (1928)) s revoked.
S CTION 240. CONSOLID T D R TURNS
O CORPOR TIONS.
rtce 33: When corporatons are affated.
R NU CT O 1920.
Two corporatons agreeng to purchase assets of partnershp and to
consodate the busnesses bv ater transferrng the assets to a new
corporaton. (See Ct. D. 133 , page 314.)
S CTION 245. T S ON INSUR NC COMP NI S.
rtce 81: Reserve funds.
R NU CT O 192 ND TRIOR R NU CTS.
Dscount on premums pad to a fe nsurance companv n advance
of the due date. (See G. C. M. 20200, page 20G.)
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257. 35
P RT I . DMINISTR TI PRO ISIONS.
S CTION 257. R TURNS TO
PU LIC R CORDS.
1938-14-9285
T.D. 4797
INSP CTION O R TURNS.
Reguatons governng the nspecton of returns of ndvduas,
partnershps, estates, trusts, corporatons, assocatons, |ont-stock
companes, and nsurance companes, made pursuant to the requre-
ments of the Revenue ct of 193 the Revenue ct of 1935 Tte
I of the Soca Securty ct the Revenue ct of 1934 sectons
215 and 21 , Tte II, Natona Industra Recovery ct the Revenue
ct of 1932, as amended by secton 218, Tte II of the Natoua
Industra Recovery ct Tte I of the Revenue ct of 1932
Tte I of the Revenue ct of 1928 Tte II of the Revenue ct of
192 and ncome, profts, and capta stock ta returns under the
pror Revenue cts, or under any such ct as amended.
Treasury Department,
Washngton, D. C.
Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 55 (Tte I) of the Revenue ct of 193
provdes n part:
(a) Returns made under ths tte sha be open to nspecton n the same
manner, to the same e tent, and sub|ect to the same provsons of aw, ncudng
penates, as returns made under Tte II of the Revenue ct of 192 and a
returns made uuder ths ct sha consttute pubc records and sha be open
to pubc e amnaton and nspecton to such e tent as sha be authorzed
In rues and reguatons promugated by the Presdent.
Par. . Secton 351 (Tte L ) of the Revenue ct of 193
(reatng to surta on persona homng companes) provdes n part:
(c) dmnstratve provsons. provsons of aw (ncudng penates)
appcabe n respect of the ta es mposed by Tte I of ths ct, sha Insofar
as not nconsstent wth ths secton, be appcabe n respect of the ta mposed
by ths secton .
Par. C. Secton 503 (Tte III) of the Revenue ct of 193
(reatng to ta on un|ust enrchment) provdes n part:
(a) provsons of aw (ncudng penates) appcabe wth respect to
ta es mposed by Tte I of ths ct, sha, n so far as not nconsstent wth
ths tte, be appcabe wth respect to the ta es mposed by ths tte .
Pak. D. Secton 105 (Tte I) of the Revenue ct of 1935
(reatng to capta stock ta ) provdes n part:
(e) Returns requred to be fed for the purpose of the ta Imposed by ths
secton sha be open to nspecton n the same manner, to the same e tent,
and sub|ect to the same provsons of aw, Incudng penates, as returns made
under Tte II of the Revenue ct of 192 .
Pah. . Secton 10 (Tte I) of the Revenue ct of 1935
(reatng to e cess-profts ta ) provdes n part:
(c) provsons of aw (ncudng penates) appcabe n respect of the
ta es mposed by Tte I of the Revenue ct of 1934, as amended, sha, n so far
as not nconsstent wth ths secton, be appcabe n respect of the ta mposed
by ths secton .
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357
257.
Pah. . Secton 905 (Tte I ) of the Soca Securty ct
(reatng to ta on empoyers of eght or more) provdes n part:
(c) Returns fed under ths tte sha be open to nspecton n the same
manner, to the same e tent, and sub|ect to the same provsons of aw, ncudng
penates, as returns made under Tte II of the Revenue ct of 192G.
Par. G. Secton 55 (Tte I) of the Revenue ct of 1934, as
amended by the ct approved pr 19, 1935 (Pubc, No. 40, Seventy-
fourth Congress, frst sesson), provdes n part:
(a) Returns made under ths tte sha be open to nspecton n the same
manner, to the same e tent, and sub|ect to the same provsons of aw, ncud-
ng penates, as returns made under Tte II of the Revenue ct of 192 and
a returns made under ths ct sha consttute pubc records and sha be
open to pubc e amnaton and nspecton to such e tent as sha be author-
zed n rues and reguatons promugated by the Presdent.
Pah. . Secton 351 (Tte I ) of the Revenue ct of 1934 (reat-
ng to surta on persona hodng companes) provdes n part:
(c) dmnstratve provsons. provsons of aw (Incudng penates)
appcabe n respect of the ta es mposed by Tte I of ths ct, sha n so
far as not nconsstent wth ths secton, be appcabe n respect of the ta
mposed by ths secton .
Pah. I. Secton 701 (Tte ) of the Revenue ct of 1934 (reat-
ng to capta stock ta ) provdes n part:
(e) Returns requred to be fed for the purpose of the ta mposed by ths
secton sha be open to nspecton n the same manner, to the same e tent,
and sub|ect to the same provsons of aw, ncudng penates, as returns
made under Tte II of the Revenue ct of 192 .
Pah. . Secton 702 (Tte ) of the Revenue ct of 1934 (reat-
ng to e cess-profts ta ) provdes n part:
(b) provsons of aw (ncudng penates) appcabe n respect of the
ta es mposed by Tte I of ths ct, sha, n so far as not nconsstent wth
ths secton, be appcabe In respect of the ta mposed by ths secton .
Par. . Secton 55 (Tte I) of the Revenue ct of 1932, as
amended by secton 218(h), Tte II, of the Natona Industra
Recovery ct, approved une 1 , 1933, provdes:
Returns made under ths tte sha be open to nspecton n the same manner,
to the same e tent, and sub|ect to the same provsons of aw, Incudng pena-
tes, as returns made under Tte II of the Revenue ct of 192 and a
returns made under ths ct after the date of enactment of the Natona In-
dustra Recovery ct sha consttute pubc records and sha be open to
pubc e amnaton and nspecton to such e tent as sha be authorzed n
tues and reguatons promugated by the Presdent.
Par. L. Secton 215, Tte II, of the Natona Industra Recovery
ct (reatngto capta stock ta ) provdes n part:
(e) Returns requred to be fed for the purpose of the ta mposed by ths
secton sha be open to nspecton n the same manner, to the same e tent, and
sub|ect to the same provsons of aw, ncudng penates, as returns made
under Tte II of the Revenue ct of 192 .
Par. M. Secton 21 , Tte II, of the Natona Industra Recovery
ct (reatng to e cess-profts ta ) provdes n part:
(b) The ta mposed by ths secton sha be assessed, coected, and pad
n the same manner, and sha be sub|ect to the same provsons of aw (n-
cudng penates), as the ta es mposed by Tte I of the Revenue ct of 1932.
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257.
358
Par. N. Secton 55, Tte I, of the Revenue ct of 1932 provdes:
Returns made under ths tte sha be open to Inspecton In the same
manner, to the same e tent, and sub|ect to the same provsons of aw, ncud-
ng penates, as returns made under Tte II of the Revenue ct of 192 .
Par. O. Secton 55, Tte I, of the Revenue ct of 1928 provdes:
Returns made under ths tte sha be open to nspecton n the same manner,
to the same e tent, and sub|ect to the same provsons of aw, ncudng pen-
ates, as returns made under Tte II of the Revenue ct of 1920.
Par. P. Secton 257, Tte II, of the Revenue ct of 192 , provdes
n part:
(a) Returns upon whch the ta has been determned by the Commssoner
sha consttute pubc records but, e cept as herenafter provded n ths
secton and secton 1203, they sha be open to Inspecton ony upon order of the
Presdent and under rues and reguatons prescrbed by the Secretary and
approved by the Presdent
Pursuant to the above-quoted provsons of aw, t s hereby ordered
that the returns of ndvduas, partnershps, estates, trusts, corpora-
tons, assocatons, |ont-stock companes, and nsurance companes,
made pursuant to the requrements of the Revenue ct of 193 , the
Revenue ct of 1935 Tte I of the Soca Securty ct, the
Revenue ct of 1934 sectons 215 and 21 , Tte II, Natona Indus-
tra Recovery ct the Revenue ct of 1932, as amended by secton
218, Tte II of the Natona Industra Recovery ct Tte I of
The Revenue ct of 1932 Tte I of the Revenue ct of 1928 Tte II
of the Revenue ct of 192 and ncome, profts, and capta stock ta
returns under the pror Revenue cts, or under any such ct as
amended, sha be open to nspecton n accordance and upon com-
pance wth the foowng rues and reguatons:
rtce 1. Scope of reguatons. These reguatons dea ony wth nspecton
of returns n so far as such nspecton s permssbe ony upon order of the
Presdent and under rues and reguatons approved by the Presdent Other
uses to whch returns may he awfuy put, wthout acton by the Presdent,
are not covered by these reguatons.
P RT L
Income, Profts, and Capta Stock Ta Returns and Returns Under Ttus I
of the Soca Securty ct.
rtce 1. Return. The word return when used n Part I of these regu-
atons sha Incude ony ncome and profts ta returns speca e cse ta
returns of corporatons made pursuant to secton 1000 of Tte of each of the
Revenue cts of 1918 and 1921 and secton 700 of Tte II of the Revenue ct
of 1924 capta stock ta returns made pursuant to secton 215 of Tte II
of the Natona Industra Recovery ct, secton 701 of Tte of the Revenue
ct of 1934, and secton 105 of the Revenue ct of 1935 and returns under
Tte I of the Soca Securty ct. ny other word or term used n these
reguatons whch s defned by the Revenue cts, the Natona Industra Re-
covery ct, or the Soca Securty ct, sha be gven the respectve defnton
contaned n the ct under whch the partcuar return s made.
rt. 2. Corporaton. The word corporaton when used n these regua-
tons ncudes assocatons, |ont-stock companes, and nsurance companes.
rt. 3. Partnershp. The word partnershp when used n these reguatons
Incudes a syndcate, group, poo, |ont venture, or other unncorporated organ-
zaton, through or by means of whch any busness, fnanca operaton, or
venture s carred on, and whch Is not, wthn the meanng of the ncome ta
aws, a trust or estate or a corporaton.
rt. 4. Stock. The word stock Incudes the shares n an assocaton,
ont-stock company, or nsurance company and the word sharehoder n-
cudes a member n an assocaton, |ont-stock company, or nsurance company.
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359
5257.
bt. 5. Return of ndvdua. The return of an ndvdua sha be open
to nspecton (a) by the person who made the return, or by hs duy const-
tuted attorney n fact ( ) f the maker of the return has ded, or become
egay Incompetent, by the admnstrator, e ecutor, trustee, or guardan of hs
estate, or by the duy consttuted attorney n fact of such admnstrator, e ecu-
tor, trustee, or guardan (c) n the dscreton of the Commssoner of Interna
Revenue, by any her at aw, ne t of kn, or benefcary under the w, of
such deceased person, or by the duy consttuted attorney n fact of such her at
aw, ne t of kn, or benefcary, upon a showng that such her at aw, ne t
of kn, or benefcary, has a matera nterest whch w be affected by nfor-
maton contaned n the return (d) as to returns under Tte I of the Soca
Securty ct n the dscreton of the Commssoner and at such tme and n
such manner as the Commssoner may prescrbe for the nspecton, by an
offcer of any State havng a aw certfed to the Secretary of the Treasury by
the Soca Securty oard as havng been approved n accordance wth secton
903 of the Soca Securty ct, upon wrtten appcaton sgned by the governor
of such State under the sea of the State, desgnatng the offcer to make the
nspecton and showng that such nspecton s soey for purposes of admn-
sterng such State aw and (e) as to returns for any ta abe year begun pror
to anuary 1, 1935, n the dscreton of the Commssoner of Interna Revenue,
and at such tme and n such manner as the Commssoner may prescrbe for
the nspecton, by an offcer or empoyee of any State hnvng a aw mposng an
ncome ta upon the ndvdua, or a ta upon ntangbe property owned by
the ndvdua, measured by the ncome derved therefrom, upon wrtten app-
caton sgned by the governor of such State under the sea of the State, desg-
natng the person to make the nspecton and showng that the nspecton s
soey for such State ncome or ntangbe property ta purposes. Wth respect
to Inspecton on behaf of States, or potca subdvsons thereof, of ncome
returns for ta abe years begnnng on or after anuary 1, 1935, see artces
55(b)- to 55(b)-4, ncusve, of Reguatons 8 , as substtuted by Treasury
Decson 4 2 (C. . -1, 1, 71 193 ), and artces 55(b)- to 55 (bM,
ncusve, of Reguatons 94, both as amended by Treasury Decson 4732 (C. .
1937-1, 145).
bt. . ont return of husband and cfe. ont return of a husband
and wfe ha be open to nspecton (a) by ether spouse for whom the return
was made, upon satsfactory evdence of such reatonshp beng furnshed, or by
hs or her duy consttuted attorney n fact ( ) f ether spouse has ded, or
become egay ncompetent, by the admnstrator, e ecutor, trustee, or guardan
of hs or her estate, or by the duy consttuted attorney n fact of such ad-
mnstrator, e ecutor, trustee, or guardan (c) n the dscreton of the Com-
mssoner of Interna Revenue by any her at aw, ne t of kn, or benefcary
under the w, of such deceased spouse, or by the duy consttuted attorney n
fact of such her at aw, ne t of kn, or benefcary, upon a showng that
snch her at aw, ne t of kn, or benefcary has a matera nterest whch
w be affected by nformaton contaned In the return and (d) for any
ta abe year begun pror to anuary 1, 1935, n the dscreton of the Comms-
soner of Interna Revenue, and at such tme and n such manner as the
Commssoner may prescrbe for the nspecton, by an offcer or empoyee of
any State havng a aw mposng an ncome ta upon ether spouse or a ta
upon Intangbe property owned by ether spouse, measured by the ncome de-
rved therefrom, upon wrtten appcaton sgned by the governor of such
State under the sea of the State, desgnatng the person to make the nspecton
and showng that the nspecton s soey for such State ncome or ntangbe
property ta purposes. Wth respect to nspecton on behaf of States or pot-
ca subdvsons thereof of Income returns for ta abe years begnnng on or
after anuary 1, 1935, see artces 55(b)- to 55(b)-4, Incusve, of Reguatons
8 , as substtuted by Treasury Decson 4 2 (C. . -1, 1, 71 193 ), and
artces 55(b)- to 55(b)-4, Incusve, of Reguatons 94, both as amended by
Treasury Decson 4732 (C. . 1937-1, 145).
rt. 7. Partnershp return. The return of a partnershp sha be open to
nspecton (a) by any ndvdua who was a member of such partnershp durng
any part of the tme covered by the return, or by hs duy consttuted attorney
In fact, upon satsfactory evdence of such fact beng furnshed ( ) f a member
of such partnershp durng any part of the tme covered by the return has ded,
or become egay Incompetent, by the admnstrator, e ecutor, trustee, or guard-
an, of hs estate, or by the duy consttuted attorney n fact of such admns-
trator, e ecutor, trustee, or guardan (c) n the dscreton of the Commssoner
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5257.
3 0
of Interna Revenue, by any her at aw, ne t of kn, or benefcary under the
w, of such deceased person, or by the duy consttuted attorney In fact of such
her at aw, ne t of kn, or benefcary, upon a showng that such her at aw,
ne t of kn, or benefcary has a matera Interest whch w be affected by Infor-
maton contaned n the return (d) as to returns under Tte I of the Soca
Securty ct n the dscreton of the Commssoner and at sucb tme and n such
manner as the Commssoner may prescrbe for the nspecton, by an offcer of
any State havng a aw certfed to the Secretary of the Treasury by the Soca
Securty oard as havng been approved n accordance wth secton 903 of the
Soca Securty ct, upon wrtten appcaton sgned by the governor of such
State under the sea of the State, desgnatng the offcer to make the nspecton
and showng that such nspecton s soey for purposes of admnsterng such
State aw and (e) as to returns for any ta abe year begun pror to anuary 1,
1935, n the dscreton of the Commssoner of Interna Revenue, and at such
tme and In such manner as the Commssoner may prescrbe for the nspecton,
by an offcer or empoyee of any State havng a aw Imposng an ncome ta upon
the partnershp or upon any member thereof n respect of Income therefrom or
a ta upon ntangbe property owned by the partnershp, measured by the n-
come derved therefrom, upon wrtten appcaton sgned by the governor of such
State under the sea of the State, desgnatng the person to make the nspecton
and showng that the nspecton s soey for such State ncome or ntangbe
property ta purposes. Wth respect to nspecton on behaf of States or potca
subdvsons thereof of Income returns for ta abe years begnnng on or after
anuary 1, 1935, see artces 55(b)- to 55(b)-4, ncusve, of Iteguatons 8 , as
substtuted by Treasury Decson 4 2 (C. . -1, 1, 71 193 ), and artces
55(b)- to 55(b)-4, Incusve, of Reguatons 94, both as amended by Treasury
Decson 4732 (C. . 1937-1, 145).
bt. 8. states. The return of an estate sha be open to nspecton (a)
by the admnstrator, e ecutor, or trustee of such estate, or by hs duy const-
tuted attorney n fact ( ) n the dscreton of the Commssoner of Interna
Revenue, by any her at aw, ne t of kn, or benefcary under the w, of the
deceased person for whose estate the return s made, or by the duy consttuted
attorney n fact of such her at aw, ne t of kn, or benefcary, or f any such
her at aw, ne t of kn, or benefcary has ded or become egay ncompetent,
by hs admnstrator, e ecutor, trustee, or guardan of hs estate, or by the duy
consttuted attorney n fact of such admnstrator, e ecutor, trustee, or guardan,
upon a showng of matera nterest whch w be affected by nformaton con-
taned In the return (c) as to returns under Tte I of the Soca Securty ct
n the dscreton of the Commssoner and at such tme aud n such manner as the
Commssoner may prescrbe for the nspecton, by an offcer of any State havng
a aw certfed to the Secretary of the Treasury by the Soca Securty oard
as havng been approved n accordance wth secton 903 of he Soca Securty
ct, upon wrtten appcaton sgned by the governor of such State under the
sea of the State, desgnatng the offcer to make the Inspecton and showng that
such nspecton s soey for purposes of admnsterng such State aw and (d)
as to returns for any ta abe year begun pror to anuary 1, 1935, n the ds-
creton of the Commssoner of Interna Revenue, and at such tme and n such
manner as the Commssoner may prescrbe for the nspecton, by an offcer or
empoyee of any State havng a aw mposng an ncome ta upon the estate
or upon any benefcary of the estate n respect of ncome therefrom, or a ta
upon Intangbe property owned by the estate, measured by the Income derved
therefrom, upon wrtten appcaton sgned by the governor of such State under
the sea of the State, desgnatng the person to make the nspecton and showng
that the Inspecton s soey for such State ncome or ntangbe property ta
purposes. Wth respect to nspecton on behaf of States or potca subdvsons
thereof of ncome returns for ta abe years begnnng on or after anuary 1,
1935, see artces 55(b)- to 55(b)-4, ncusve, of Reguatons 8 , as substtuted
by Treasury Decson 4 2 (C. -1, 1, 71 193 ), and artces 55(b)- to
55(b)-4, ncusve, of Reguatons 94, both as amended by Treasury Decson
4732 (C. . 1937-1, 145).
bt. 9. Trusts. The return of a trust sha be open to nspecton (o) by
the trustee or trustees, |onty or severay, or the duy consttuted attorney
n fact of such trustee or trustees ( ) by any Indvdua who was a benef-
cary of such trust durng any part of the tme covered by the return, or by
hs duy consttuted attorney n fact, upon satsfactory evdence of such fact
beng furnshed (c) f any ndvdua who was a benefcary of such trust
durng any part of the tme covered by the return has ded, or become egay
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3 1
257.
ncompetent, by the admnstrator, e ecutor, trustee, or guardan, of hs estate,
or by the duy consttuted attorney n fact of such admnstrator, e ecutor,
trustee, or guardan (d) n the dscreton of the Commssoner of Interna
Revenue, by any her at aw, ne t of kn, or benefcary under the w, of
such deceased person, or by the duy consttuted attorney n fact of such her
at aw, ne t of kn, or benefcary, upon a showng that such her at aw, ne t
of kn, or benefcary has a matera nterest whch w be affected by nfor-
maton contaned n the return (e) as to returns under Tte I of the Soca
Securty ct n the dscreton of the Commssoner and at such tme and n
such manner as the Commssoner may prescrbe for the nspecton, by nn
offcer of any State havng a aw certfed to the Secretary of the Treasury
by the Soca Securty oard as havng been approved n accordance wth
secton 903 of the Soca Securty ct, upon wrtten appcaton sgned by the
governor of such State under the sea of the State, desgnatng the offcer to
make the nspecton and showng that such nspecton s soey for purposes
of admnsterng such State aw and (/) as to returns for any ta abe year
begun pror to anuary 1, 1935, n the dscreton of the Commssoner of
Interna Revenue, and at such tme and n such manner as the Commssoner
may prescrbe for the nspecton, by an offcer or empoyee of any State havng
a aw mposng an ncome ta upon the trust or upon any benefcary of the
trust n respect of ncome therefrom, or a ta upon ntangbe property owned
by the trust, measured by the Income derved therefrom, upon wrtten app-
caton sgned by the governor of such State under the sea of the State, desg-
natng the person to make the nspecton and showng that the nspecton s
soey for such State Income or ntangbe property ta purposes. Wth respect
to nspecton on behaf of States or potca subdvsons thereof of ncome
returns for ta abe years begnnng on or after anuary 1, 19:15, see artces
55(b)- to 55(b)-4, ncusve, of Reguatons 8 S, as substtuted by Treasury
Decson 4 2 (C. . -1. 1, 71 193 ), and artces 55(b)- to 55(bM,
ncusve, of Reguatons 94, both as amended by Treasury Decson 4732 (C. .
1937-1, 145).
bt. 10. Corporatons. The return of a corporaton sha be open to In-
specton (a) by any person desgnated by acton of ts board of drectors, or
other smar governng body, upon submsson of satsfactory evdence of such
acton, or ( ) by any offcer or empoyee of such corporaton upon wrtten re-
quest to the Commssoner of Interna Revenue sgned by any prncpa offcer
and attested by the secretary, or other offcer under the corporate sea, f any,
or (c) by the duy consttuted attorney n fact of such corporaton. The
return of a corporaton whch has snce been dssoved, sha, n the dscreton
of the Commssoner of Interna Revenue, be open to nspecton by any person
who under these reguatons mght have nspected the return at the date of
dssouton.
Returns of corporatons under Tte I of the Soca Securty ct, n the
dscreton of the Commssoner, and at such tme and In such manner as the
Commssoner may prescrbe, sha be open to Inspecton by an offcer of any
State havng a aw certfed to the Secretary of the Treasury by the Soca
Securty oard as havng been approved n accordance wth secton 903 of
the Soca Securty ct, upon wrtten appcaton sgned by the governor of
such State under the sea of the State, desgnatng the offcer to make the
Inspecton and showng that such nspecton s soey for purposes of admn-
sterng such State aw.
P RT n.
state and Gft Ta Returns ed fter une 1 , 1933, Under the Revenue
ct of 1932, or Under the Revenue ct of 1932 as mended.
state ta returns and notces, and gft ta returns, sha be treated as
prveged communcatons and sha not be nspected nor ther contents
dscosed, e cept as herenafter provded.
rtce 1. Upon appcaton to the coector, Interna revenue agent n charge,
or Commssoner, an estate ta return or notce, may be nspected by the e ecu-
tor, or hs successor In offce, or by hs duy authorzed attorney n fact. Upon
ke appcaton a gft ta return may be nspected by the donor or hs duy
authorzed attorney n fact.
rt. 2. n nterna revenue offcer engaged n an offca nvestgaton of
an estate ta or gft ta abty may dscose the returned vaue of any tem
or the amount of any specfc deducton, or other mted nformaton, f such
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257.
3 2
dscosure s necessary In order to verfy the same or to arrve at a correct
determnaton of the ta . Ths rght of dscosure, however, s mted to the
purposes of the nvestgaton, and n no case e tends to such nformaton as
the amount of the estate, the amount of ta , or other genera data.
bt. 3. return or notce may be e hbted, or nformaton contaned theren
may be dscosed, to nn offcer of any State, for offca use n connecton wth
an estate, nhertance, egacy, successon, gft, or other ta of the State, pro-
vded a ke cooperaton s gven by the State to the Commssoner of Interna
Revenue or hs representatves for use n the admnstraton of the edera
ta aws. Such offcer may aso be permtted to nspect schedues, sts, and
other statements desgned to be suppementa to or to become a part of, the
orgna return, and other records and reports whch contan nformaton
ncuded or requred by statute to be ncuded n the return.
kt. 4. If any other person has a matera nterest n ascertanng any fact
dscosed by the return, or n obtanng nformaton as to the payment of the
ta , he may make a wrtten appcaton to the Commssoner of Interna Reve-
nue for such nformaton, settng forth the nature of hs nterest and the
purpose of the appcaton. Thereupon, the Commssoner may permt an
nspecton of, or furnsh a copy of the return, or may furnsh such nformaton
as he deems advsabe.
P RT .
Genera Provsons.
The foowng provsons, uness otherwse stated, are appcabe to a
returns referred to n Parts I and II of these reguatons:
ktce 1. Permsson to nspect. The Commssoner of Interna Revenue,
upon wrtten appcaton settng forth fuy the reasons for the request, may
grant permsson for the nspecton of returns n accordance wth these regu-
atons.
rt. 2. Treasury Department offcas and empoyees. The offcers and em-
poyees of the Treasury Department whose offca dutes requre Inspecton
of returns may nspect any such returns wthout makng such wrtten app-
caton. If the head of a bureau or offce In the Treasury Department, not a
part of the Interna Revenue ureau, desres to nspect, or to have an em-
poyee n hs bureau or offce nspect a return, n connecton wth some matter
offcay before hm, for reasons other than ta admnstraton purposes, the
nspecton may, n the dscreton of the Secretary, be permtted upon wrtten
appcaton to hm by the head of such bureau or offce, showng n deta
why the nspecton s desred.
rt. 3. Inspecton by branch of Government other than Treasury Depart-
ment. cept as provded n artce 4, f the head of an e ecutve department
(other than the Treasury Department), or of any other estabshment of the
Unted States Government, desres to nspect or to have some other offcer
or empoyee of hs branch of the servce nspect a return n connecton wth some
matter offcay before hm, the nspecton may, n the dscreton of the Sec-
retary of the Treasury, be permtted upon wrtten appcaton to hm by the
bead of such e ecutve department or other Government estabshment. The
appcaton sha be sgned by such head and sha show n deta why the In-
specton s desred, the name and address of the ta payer who made the return,
and the name and offca desgnaton of the person t s desred sha Inspect
the return.
rt. 4. Inspecton by Government attorneys. ny return sha be open to
nspecton by a Unted States attorney or by an attorney of the Department of
ustce where necessary In the performance of hs offca dutes. The request
for nspecton sha be In wrtng and, e cept as provded n artce 7, sha be
addressed to the Commssoner, and sha state the purpose for whch nspecton
s desred. It may be sgned by the ttorney Genera, the ssstant to the
ttorney Genera, an ssstant ttorney Genera, or a Unted States attorney.
rt. 5. Informaton returns. Informaton returns, schedues, sts, and other
statements desgned to be suppementa to, or to become a part of, the returns
sha be sub|ect to the same rues and reguatons as to nspecton as are the
returns themseves. In any case where nspecton of the return s authorzed
by these reguatons, the Commssoner may, n hs dscreton, permt nspec-
ton of other records and reports whch contan Informaton ncuded or requred
by statute to be ncuded n the return.
rt. . Pace of nspecton. Generay, returns may be Inspected ony n the
ureau of Interna Revenue, Washngton, D. C, uness such returns are In
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257.
the custody of a coector of Interna revenue or nterna revenue agent In
charge, n whch event the returns may be Inspected n the offce of such co-
ector or agent In charge, but ony n the presence of an nterna revenue
offcer, desgnated by the coector or agent for that purpose.
kt. 7. ppcatons for nspecton. cept as provded n artce 3, and as
herenafter provded, a appcatons for permsson to nspect returns must
be made n wrtng to the Commssoner of Interna Revenue. When a return
s n the custody of a coector of nterna revenue or nterna revenue agent
n charge, such coector or revenue agent In charge, upon wrtten appcaton
to hm, s authorzed to permt the nspecton of such return by a Unted States
attorney, or an attorney n the Department of ustce, or by the ta payer or hs
duy authorzed attorney n fact, n accordance wth these reguatons.
bt. 8. Penates. Secton 31 7, Revsed Statutes, as amended by the Revenue
ct of 1918, and reenacted wthout change by secton 1115 of the Revenue ct
of 192 . makes t a msdemeanor, punshabe by fne not e ceedng 1,000,
or by mprsonment not e ceedng one year, or both, at the dscreton of the
court, for any person to prnt or pubsh n any manner whatever not provded by
aw nformaton contaned n any ncome return, and further provdes that
f the offender be an offcer or empoyee of the Unted States he sha be ds-
mssed from offce or dscharged from empoyment The penates provded n
secton 31 7, Revsed Statutes, are appcabe aso to dscosure of nformaton
contaned n e cess-profts and capta stock ta returns and returns made
under Tte I of the Soca Securty ct.
rt. 9. ormer reguatons revoked. ormer reguatons ssued wth the ap-
prova of the Presdent n respect of nspecton of returns, e cept reguatons
reatng to the nspecton of returns by commttees of Congress, reguatons re-
atng to overassessments contaned n Treasury Decson 4583 C. . I -2,
318 (1935)1, and reguatons governng the nspecton of ncome ta returns,
orm 1042 . by the Department of Natona Revenue, Ottawa, Canada, are
hereby revoked to the e tent that they are nconsstent wth ths Treasury
decson.
. MORG NT T , r.,
Secretary of the Treasury.
pproved March 25, 1938.
rankn D. Roosevet,
The Whte ouse.
( ed wth the Dvson of the edera Regster March 28, 1038, 1.02 p. m.)
CUTI ORD R UT ORIZING T INSP CTION O INCOM , C SS
PRO ITS, ND C PIT L STOC T R TURNS, ST T ND GI T T
R TURNS IL D T R UN 18, 1933, ND R TURNS UND R TITL I O
T IS SOCI L S CURITY CT.
y vrtue of and pursuant to the authorty vested n me by secton
257(a) of the Revenue ct of 192 (44 Stst.. 9, 51) secton 55 of the
Revenue ct of 1928 (45 Stat., 791, 809): secton 55 of the Revenue ct
of 1932 (47 Stat., 1 9, 189), as amended by secton 218(h) of the Na-
tona Industra Recovery ct (48 Stat., 195, 209) sectons 215(e)
and 21 (b) of the Natona Industra Recovery ct (48 Stat., 195,
208) sectons 55(a), 701(e), and 702(b) of the Revenue ct of
1934 (48 Stat., 80, 98, 770) sectons 105(e) and 10 (c) of the
Revenue ct of 1935 (49 Stat., 1014, 1018, 1019) secton 905 of
the Soca Securty ct (49 Stat., 20, 41) and sectons 55(a),
851(c), and 503(a) of the Revenue ct of 193 (49 Stat., 1 48, 1 71,
1733, 1738), t s hereby ordered that (1) ncome, e cess profts, and
capta stock ta returns made under the Revenue ct of 193 , the
Revenue ct of 1935, the Revenue ct of 1934, the Natona Industra
Recovery ct, the Revenue ct of 1932, the Revenue ct of 1932 as
amended by the Natona Industra Recovery ct, and under the pror
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1257.
3 4
Revenue cts, (2) estate and gft ta returns made under the Revenue
ct of 1932 or the Revenue ct of 1932 as amended, and fed after
une 1 ,1933, (3) returns made under Tte I of the Soca Securty
ct, and (4) returns made under any of the sad cts as amended,
sha be open to nspecton n accordance and upon compance wth
the rues and reguatons prescrbed by the Secretary of the Treasury
n the Treasury decson reatng to the nspecton of such returns,
approved by me ths date.
rankn D. Roosevet.
The Whte ouse,
March 25,1938.
(7849)
( ed wth the Dvson of the edera Regster March 28, 1938, 11.14 a. m.)
1938-14-928
T. D. 4798
Income, e cess-profts, capta stock, estate, gft ta returns
returns made under Tte III of the Revenue ct of 193 and
returns made under Tte I of the Soca Securty ct.
Use of orgna returns open to nspecton n accordance wth
Treasury Decson 4797 page 35 ths uetn furnshng of
copes of returns nspecton of returns of corporatons by State
offcers and sharehoders and Inspecton of estate and gft ta
returns.
Tbeast|rt Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
Coectors of Interna Revenue and Others Concerned:
y ecutve Order dated March 25, 1938, the Presdent ordered
that ncome, e cess-profts, and capta stock ta returns, estate and
gft ta returns made under the Revenue ct of 1932 and fed after
une 1 ,1933, and returns made under Tte I of the Soca Securty
ct, sha be open to nspecton n accordance and upon compance
wth the rues and reguatons promugated n a Treasury decson
4797 approved by the Presdent on the same date. That Treasury
decson deas wth the nspecton of returns ony n so far as nspec-
ton s permssbe ony upon order of the Presdent and under
reguatons approved by the Presdent. Under authorty of aw,
and wthout acton by the Presdent, returns of corporatons e cept
ncome and e cess profts ta returns and returns for the purpose of
surta on persona hodng companes for years begnnng after
December 31, 1934, are open to nspecton by the proper offcers of
any State a returns of corporatons are open to nspecton by bona
fde sharehoders of record ownng 1 per cent or more of the out-
standng stock and a returns under Tte III of the Revenue ct
of 193 (or copes thereof are open to nspecton by any offca,
body or commsson, awfuy charged wth the admnstraton of any
State ta aw, f the nspecton s for the purpose of such admnstra-
ton or for the purpose of obtanng nformaton to be furnshed to
oca ta ng authortes.
Pursuant to sectons 2, 351(c), and 503(a) of the Revenue ct of
193 , secton 105(d) of the Revenue ct of 1935, sectons 2, 351(c),
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3G5
15257.
and 701(d) of the Revenue ct of 1934, sectons 2, 403, and 530 of
the Revenue ct of 1932, secton 2 of the Revenue ct of 1928,
sectons 257 and 1101 of the Revenue ct of 192 , secton 905(c) of
the Soca Securty ct, and sectons 215(e) and 21 (b) of the Na-
tona Industra Recovery ct, the foowng reguatons are hereby
prescrbed wth respect to the use of orgna, and the furnshng of
copes of, returns open to nspecton n accordance wth Treasury
Decson 4797, or otherwse wth respect to e amnatons by share-
hoders of the returns of corporatons by State offcers of returns
of corporatons made under the ncome, capta stock, or e cess-
profts ta provsons of the Revenue ct of 192 , the Revenue ct
of 1928, the Revenue ct of 1932, sectons 215 and 21 of the Na-
tona Industra Recovery ct, the Revenue ct of 1934, the Reve-
nue ct of 1935, the Revenue ct of 193 , and under Tte I of the
Soca Securty ct, e cept ncome and e cess-profts ta returns and
returns for the purpose of surta on persona hodng companes
for years begnnng after December 31, 1934 wth respect to the
nspecton of returns under Tte III of the Revenue ct of 193
by any offca, body, or commsson, awfuy charged wth the ad-
mnstraton of any State ta aw and wth respect to the nspecton
of estate and gft ta returns made under the Revenue ct of 1932
and fed pror to une 17, 1933, and made under the Revenue ct
of 192 and under pror Revenue cts. or nspecton by State
ta ng offcas of ncome returns other than returns under Tte III
of the Revenue ct of 193 , for any ta abe year begnng after
December 31, 1934, see artces 55(b)- to 55(b)-4, ncusve, of
Reguatons 8 , as substtuted by Treasury Decson 4 2 (C. .
-1, 1, 71 193 ) and artces 55(b)- to 55(b)-4, ncusve of
Reguatons 94, both as amended by Treasury Decson 4732 (C. .
1937-1, 145).
P RT I.
Income and cess Profts Ta Returns, cept Returns Under Tte III
of the Revenue ct op 193 , Capta Stock Ta Returns, and Returns
Under Tte I of the Soca Securty ct.
rtce 1. Defnton . When used In Part I of these reguatons
(a) the term return means the orgna return e cept a return under
Tte III of the Revenue ct of 1930, made for ncome, e cess-profts, or
capta stock ta purposes, or for purposes of the ta mposed by Tte I of
the Soca Securty ct
(1) the term corporaton ncudes assocatons, |ont-stock companes, and
nsurance companes
(c) the term partnershp Incudes a syndcate, group, poo, |ont venture,
or other unncorporated organzaton, through or by means of whch any
busness, fnanca operaton, or venture s carred on, and whch Is not, wthn
the meanng of the edera ta aws, a trust or estate or a corporaton
d) the term stock Incudes shares n an assocaton, |ont-stock company,
or Insurance company and the term sharehoder Incudes a member In an
assocaton, |ont-stock company, or Insurance company.
rt. 2. ccess to returns hy State offcers. (1) The proper offcers of a
State are entted as of rght upon the request of ts governor to have access
to the returns of a corporaton or to an abstract thereof, showng ts name and
Income.
(2) The request or appcaton of the governor must be n wrtng, sgned
by hm under the sea of hs State, and must show why access Is desred, and
the names and offca postons of the offcers desgnated to have the access.
The request or appcaton shoud be addressed to the Commssoner, who
w set a convenent tme and pace for the access to the returns (or to an
abstract thereof as he may determne).
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257.
3
(3) ccess sha bo gven ony In the offce of the Commssoner, uness such
returns are n the custody of a coector of nterna revenue or Interna revenue
agent n charge, n whch event the return may be Inspected n the offce of such
coector or agent, but ony n the presence of an nterna revenue offcer desg-
nated by the coector or agent for that purpose.
rt. 3. amnaton of returns by sharehoders. bona fde sharehoder of
record ownng 1 per cent or more of the outstandng stock of a corporaton sha
be entted as of rght, upon makng request of the Commssoner, to e amne the
returns of such corporaton and of ts subsdares. s request for permsson
to e amne such returns must be made n wrtng, and must be n the form of an
affdavt showng hs address, the name of the corporaton, the perod of tme
covered by the return he desres to nspect, the amount of the corporaton s
outstandng capta stock, the number of shares owned by hm, the date when
ho acqured them, and whether he has the benefca as we as the record tte
to such shares. It must aso show that he has not acqured hs shares for the
purpose of the e amnaton of the returns of the corporaton. If he has acqured
them for such purpose, he s not a bona fde sharehoder wthn the meanng of
the statute. The appcaton must be supported by satsfactory evdence show-
ng that the appcant s a bona fde sharehoder of record of the requred
amount of stock of the corporaton. The supportng evdence may be n the form
of a certfcate sgned by the presdent or vce presdent of the corporaton and
countersgned by the secretary under the corporate sea. Upon beng satsfed
from the evdence presented that the appcant has fuy met these condtons,
the Commssoner w grant the permsson to e amne the returns and set a
convenent tme and pace for the e amnaton. Ths prvege s persona and
w be granted ony to the sharehoder, who can not deegate t to another. In
the case of a corporaton whch has been dssoved, the returns may be e amned
by any person who woud have been entted to e amne them at the date of
dssouton.
rt. 4. Penates for dscosure of returns. Secton 31 7, Revsed Statutes,
as amended by the Revenue ct of 1918 and reenacted wthout change by
secton 1115 of the Revenue ct of 192 , makes t a msdemeanor punshabe by
a fne not e ceedng 1,000 or by mprsonment not e ceedng one year, or both,
at the dscreton of the court, for any person to prnt or pubsh n any manner
whatever not provded by aw nformaton contaned n any ncome return, and
further provdes that f the offender be an offcer or empoyee of the Unted
States he sha be dsmssed from offce or dscharged from empoyment. The
penates provded n secton 31 7, Revsed Statutes, are appcabe aso to
dscosure of nformaton contaned n e cess-profts and capta stock ta
returns and returns made under Tte I of the Soca Securty ct.
P RT II.
Returns Under Tte III of the Revenue ct op 193 .
rtce 1. Inspecton of returns by State ta ng offcas. Orgna returns of
ta es mposed by Tte III sha be open to nspecton, at convenent tmes and
paces, by any offca, body, or commsson awfuy charged wth the admnstra-
ton of any State ta aw, or by the representatves of such offca, body, or
commsson desgnated n wrtng by the governor of the State, for the purpose
of such admnstraton, or for the purpose of obtanng nformaton to be
furnshed to oca ta ng authortes, as provded n secton 55(b) (1) and (2) of
the Revenue ct of 193 . Requests for permsson to nspect the returns must
be n wrtng sgned by the governor under the sea of hs State, and must be
addressed to the Commssoner of Interna Revenue, Records Dvson, Washng-
ton, D. C. The request must state (a) the knd of returns t s desred to
nspect, ( ) the ta abe year or years covered by the returns t s desred to
nspect, (c) the name of the offca, body, or commsson by whom or whch the
nspecton s to be made, ( f) the name of the representatve of such offca, body,
or commsson, desgnated to make the nspecton, (e) by specfc references, the
State ta aw whch such offca, body, or commsson s charged wth admns-
terng and the aw under whch he, she, or t s so charged, (f) the purpose for
whch the nspecton s to be made, and ((/) f the nspecton s for the purpose
of obtanng nformaton to be furnshed to oca ta ng authortes, (1) the
name of the offca, body, or commsson of any potca subdvson of the State,
awfuy charged wth the admnstraton of the ta aws of such potca
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3 7
I 257.
subdvson, If any, to whom or to whch the Informaton secured by the nspec-
ton s to be furnshed, and (2) the purpose for whch the nformaton s to be
used by such offca, body, or commsson.
rt. 2. amnaton of returns by sharehoders. bona fde sharehoder
of record ownng 1 per cent or more of the outstandng stock of a corporaton
sha be entted as of rght, upon makng request of the Commssoner, to
e amne the returns of such corporaton and of ts subsdares. s request
tor permsson to e amne such returns must be made n wrtng, and must be
n the form of an affdavt showng hs address, the name of the corporaton,
the perod of tme covered by the return he desres to Inspect, the amount of
the corporaton s outstandng capta stock, the number of shares owned by hm,
the date when he acqured them, and whether he has the benefca as we as
the record tte to such shares. It must aso show that he has not acqured hs
shares for the purpose of the e amnaton of the returns of the corporaton.
If he has acqured them for such purpose, he s not a bona fde sharehoder
wthn the meanng of the statute. The appcaton must be supported by
satsfactory evdence showng that the appcant s a bona fde sharehoder of
record of the requred amount of stock of the corporaton. The supportng
evdence may be n the form of a certfcate sgned by the presdent or vce
presdent of the corporaton and countersgned by the secretary under the cor-
porate sea Upon beng satsfed from the evdence presented that the appcant
has fuy met these condtons, the Commssoner w grant the permsson to
e amne the returns and set a convenent tme and pace for the e amnaton.
Ths prvege s persona and w be granted ony to the sharehoder, who
can not deegate t to another. In the case of a corporaton whch has been
dssoved, the returns may be e amned by any person who woud have been
entted to e amne them at the date of dssouton.
P T UL
state and Grrr Ta Returns ed on ob efore une 1 , 1933.
state ta returns and notces, and gft ta returns, sha be treated ns
prveged communcatons and sha not be nspected nor ther contents ds-
cosed, e cept as foows:
rtce 1. Inspecton by e ecutor or donor. Upon appcaton to the Comms-
soner an estate ta return or notce may be nspected by the e ecutor, or hs
successor n offce, or by hs duy authorzed attorney n fact. Upon ke app-
caton a gft ta return may be nspected by the donor or by hs duy author-
zed attorney n fact
rt. 2. Dscosure of nformaton by revenue offcer. n nterna revenue
offcer engaged n an offca nvestgaton of an estate ta or gft ta abty
may dscose the returned vaue of any tem or the amount of any specfc de-
ducton or other mted nformaton, f such dscosure s necessary n order
to verfy the same or to arrve at a correct determnaton of the ta . Ths
rght of dscosure, however, s mted to the purposes of the nvestgaton, and
In no case e tends to such nformaton as the amount of the estate, the amount
of ta , or other genera data.
rt. 3. Inspecton by State offcers. Upon wrtten appcaton to the Com-
mssoner, a return or notce may be e hbted, or nformaton contaned
theren may be dscosed, to an offcer of any State, for offca use n con-
necton wth an estate, nhertance, egacy, successon, gft or other ta of the
State, provded a ke cooperaton s gven by the State to the Commssoner
of Interna Revenue or hs representatves for use n the admnstraton of
the edera ta aws. Such offcer may aso be permtted to nspect schedues,
sts, and other statements desgned to be suppementa to or to become a part
of, the orgna return, and other records and reports whch contan nformaton
ncuded or requred by statute to be ncuded n the return.
rt. 4. Inspecton by person havng matera nterest. If any other per-
son has a matera nterest n ascertanng any fact dscosed by the return,
or n obtanng nformaton as to the payment of the ta , he may make a
wrtten appcaton to the Commssoner of Interna Revenue for such nfor-
maton, settng forth the nature of hs nterest and the purpose of the appca-
ton. Thereupon, the Commssoner may permt an nspecton of, or furnsh a
copy of the return, or may furnsh such nformaton ns he deems advsabe.
rt. 5. Inspecton by Government attorneys. Returns sha be open to n-
specton by a Unted States attorney or by an attorney of the Department
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257.1
3 8
of ustce n the course of hs offca dutes. The request for nspecton sha
be n wrtng and, e cept as provded n artce , sha be addressed to the
Commssoner, and sha state the purpose for whch nspecton s desred.
It may be sgned by the ttorney Genera, the ssstant to the ttorney
Genera, an ssstant ttorney Genera, or a Unted States attorney.
bt. . Returns n custody of coector or revenue agent In charge. When
the return s n the custody of a coector or nterna revenue agent n charge,
such coector or agent n charge may, upon ke wrtten request made to hm,
permt nspecton thereof by a Unted States attorney or an attorney of the
Department of ustce. Upon wrtten appcaton to hm such coector or
agent n charge may aso permt nspecton by the e ecutor or hs successor
n offce, or hs duy authorzed attorney n fact, n case of estate ta returns,
or the donor or hs duy authorzed attorney n fact n case of gft ta returns,
n accordance wth these reguatons.
P RT I .
Genera Provsons.
rtce 1. Use of returns n tgaton. The return of an ndvdua, partner-
shp, corporaton, or fducary, or a copy thereof, may be furnshed to a Unted
States attorney for offca use In proceedngs before a Unted States grand
|ury or n tgaton n any court, where the Unted States s nterested n the
resut, or for use n preparaton for such proceedngs or tgaton or to an
attorney of the Department of ustce, for ke use, upon wrtten request of
the ttorney Genera, the ssstant to the ttorney Genera, or an ssstant
ttorney Genera. When a return or copy s thus furnshed, t must be mted
n use to the purpose for whch t s furnshed and s under no condton to be
made pubc e cept to the e tent that pubcty necessary resuts from such
use. The orgna return w be furnshed ony n e ceptona cases, and
then ony when t s made to appear that the ends of |ustce may otherwse
be defeated. Nether the orgna nor a copy of a return desred for use n
tgaton In court w be furnshed where the Unted States Government s
not nterested n the resut, but ths provson s not a mtaton on the use
of copes of returns by the persons entted thereto.
rt. 2. urnshng of copes of returns. copy of a return may be
furnshed to any person who s entted to nspect such return upon wrtten
appcaton therefor and the submsson of evdence satsfactory to the Com-
mssoner of hs rght to receve the same, e cept that when a return s n the
custody of a coector or of an nterna revenue agent n charge, such coector
or agent n charge may furnsh a copy of such return to a Unted States at-
torney, or an attorney of the Department of ustce, or to the ta payer or hs
duy authorzed attorney n fact, n accordance wth these reguatons. Cert-
fed copes w be furnshed ony upon specfc request therefor sent to the
Commssoner at Washngton.
The Commssoner may prescrbe a reasonabe fee for furnshng copes of
returns.
rt. 8. Suppementa documents, records and reports. Persons entted to
nspect returns may have access to nformaton returns, schedues, sts, and
other statements desgned to be suppementa to, or to become a part of, the
returns to whch they are gven access, and the Commssoner may, n hs
dscreton, permt such persons to nspect other records and reports whch
contan nformaton ncuded or requred by statute to be ncuded n the
return.
Gur T. evernq,
Commssoner of Interna Revenue.
pproved March 25, 1938.
. MoRG NT U, r.,
Secretary of the Treasury.
( ed wth the Dvson of the edera Regster March 28, 1038, 1.07 p. m.)
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3 9
257, rt. 1090.
btce 1090: Inspecton of returns. 1938-17-9314
T.D.4800
Reguatons governng the Inspecton of Income, e cess-profts,
and capta stock ta returns made under the Revenue ct of 1935,
as amended, the Revenue ct of 193 , and the Revenue ct of
193 . as amended, by the Speca Commttee to Investgate Lobbyng
ctvtes, Unted States Senate.
Treasury Department,
Washngton, D. 0.
Coectors of Interna Revenue and Others Concerned:
Pursuant to the provsons of secton 257(a) of the Revenue ct of
192 secton 55 of the Revenue ct of 1934 sectons 105(e) and
10 (c) of the Revenue ct of 1935 and secton 55 of the Revenue
ct of 193 , ncome ta returns made under the Revenue ct of 193 ,
and the Revenue ct of 193 , as amended, and capta stock and
e cess-profts ta returns made under the Revenue ct of 1935, as
amended, may be nspected by the Speca Commttee to Investgate
Lobbyng ctvtes, Unted States Senate, or any duy authorzed sub-
commttee thereof, for the purpose of, and to the e tent necessary n
the nvestgaton of obbyng actvtes n connecton wth the so-caed
hodng company b, or any other matter or proposa affectng
egsaton, whch the commttee or an authorzed subcommttee there-
of s authorzed and drected to make by Senate Resouton 1 5
(Seventy-fourth Congress, frst sesson), passed uy 11, 1935.
The nspecton of returns heren authorzed may be by the commt-
tee or a duy authorzed subcommttee thereof, actng drecty as a
commttee or a subcommttee, or by or through such e amners or
agents as the commttee or subcommttee may desgnate or appont.
Upon wrtten notce by the charman of the commttee or of the
authorzed subcommttee to the Secretary of the Treasury, gvng the
names and addresses of the ta payers whose returns t s necessary
to nspect and the ta abe perods covered by the returns, the Secre-
tary and any offcer or empoyee of the Treasury Department sha
furnsh such commttee or subcommttee wth any data reatng to
or contaned n any such return, or sha make such return avaabe
for nspecton by the commttee or subcommttee or by such e amners
or agents as the commttee or subcommttee may desgnate or appont,
n the offce of the Commssoner of Interna Revenue. ny nforma-
ton thus obtaned by the commttee or the subcommttee thereof,
whch s reevant or pertnent to the purpose of the nvestgaton, may
be submtted by the commttee or the subcommttee to the Senate.
ROSW LL MaGILL,
ctng Secretary of the Treasury.
pproved.
rankn D. Roosevet,
The Whte ouse, pr 18,1938.
( ed wth the Dvson of the edera Regster pr 19, 1938, 2.37 p. m.)
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284, rt. 1305.
370
CUTI ORD R INSP CTION O INCOM , C SS-PRO ITS, ND C PIT L
STOC T R TURNS Y TII SP CI L COMMITT TO IN STIG T
LO YING CTI ITI S. UNIT D 8T T S S N T .
y vrtue of the authorty vested n me by secton 257(a) of the
Revenue ct of 192 (44 Stat., 9, 51) secton 55 of the Revenue ct
of 1934 (48 Stat., G80, 98) sectons 105(e) and 10 (c) of the Reve-
nue ct of 1935 (49 Stat., 1014, 1018, 1019) and secton 55 of the
Revenue ct of 193 (49 Stat., 1 48, 1 71), t s hereby ordered that
ncome, e cess-profts, and capta stock ta returns made under the
Revenue ct of 1935, as amended by the Revenue ct of 193 , the
Revenue ct of 193 , and the Revenue ct of 193 , as amended by the
Revenue ct of 1937, sha be open to nspecton by the Speca Com-
mttee to Investgate Lobbyng ctvtes, Unted States Senate, or
any duy authorzed subcommttee thereof, for the purpose of, and to
the e tent necessary n, the nvestgaton of obbyng actvtes n
connecton wth the so-caed hodng company b, or any other
matter or proposa affectng egsaton, whch such commttee or sub-
commttee s authorzed and drected to make by Senate Resouton
1 5, passed uy 11, 1935 (Seventy-fourth Congress, frst sesson)
such nspecton to be n accordance and upon compance wth the
rues and reguatons prescrbed by the Secretary of the Treasury n
the Treasury decson reatng to the nspecton of returns by that
commttee, approved by me ths date.
Ths order sha be pubshed n the edera Regster.
rankn D. Roosevet.
The Whte ouse,
pr 18,1938.
(7809)
S CTION 2 2. INCOM ROM SOURC S WIT IN T
POSS SSIONS O T UNIT D ST T S.
rtce 1135: Ctzens of the Unted States dervng
ncome from sources wthn a possesson of the
Unted States.
R NU CTS O 1924 ND 102 .
Retrement pay of a ctzen of the Unted States resdng n a
possesson of the Unted States. (See I. T. 3199, page 209.)
P RT . P YM NT, COLL CTION, ND R UND O
T ND P N LTI S.
S CTION 284. CR DITS ND R UNDS.
rtce 1305: Lmtatons upon the credtng 1938-4-91 1
and refundng of ta es pad. Ct. D. 1301
INCOM T R NU CT O 192 D CISION O SUPR M COURT.
1. Cam fob Refund mendment Lmtaton uthorty of
Commssoner.
statement fed subsequent to the e praton of the statutory
perod for fng cams for refund, for the aeged purpose of per-
fectng and competng a tmey cam for refund, was not a per-
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371
284, rt. 1305.
mssbe amendment of the orgna cam where the ground for re-
covery set for,th n the statement was totay dfferent from and
nconsstent wth the specfc grounds upon whch the orgna cam
was buoed. It was a new cam, untmey fed, and the Comms-
soner was wthout power, under the statute, to consder t.
2. Decson Reversed.
Decson of the Crcut Court of ppeas, Nnth Crcut (89 ed.
(2d), 749), reversed.
SUPR M COC T O T UNIT D ST T S.
The Unted States of merca, pettoner, v. Oarbutt O Co.
302 U. S., 528.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Nuth Crcut.
anuary 3, 1938.
OPINION.
Mr. ustce Roberts devered the opnon of the Court.
The ssue n ths case s smar to that presented n Unted States v. ndrews,
supra, page , decded ths day Ct. D. 1300, page 322, ths uetn . The acton
was brought by the respondent n the Dstrct Court tor Soutnern Caorua to
recover an aeged overpayment of ncome ta es for 1919. There s no contro-
versy as to the facts found by the tra court. The respondent, a Caforna
corporaton, acqured a ease of o property October 3, 1907. pr 10, 1911, the
drectors resoved that a o produced after anuary 1 of that year shoud be
transferred n knd to the essors to the e tent of ther royaty nterest and to
te company s stockhoders pro rata to ther respectve hodngs, so ong as the
atter shoud pay cas for money necessary to defray the company s e penses.
The resouton remaned n effect to and ncudng the year 1919 and dstrbuton
of a o produced was made accordngy. In ts books of account and te return
for ncome ta the respondent recorded at market vaue the o produced and
treated the dfference between that vaue and the cost of producton as ncome.
The Commssoner of Interna Revenue foowed the same method n computng
ta abe ncome. In ts 1919 return the respondent dscosed a net ncome of
1 ,928. 1 and a ta abty of 2,072. 8 whch was pad durng the year 1920.
The Commssoner, as the resut of an audt, assessed an addtona ta of
3,105. 5 whch was pad pr 3. 1925.
March 30, 1929, wthn the 4-year perod of mtatons prescrbed by the ap-
pcabe statute, the respondent ted a cam for the return of the addtona
ta so pad, based upon two grounds: frst, that the respondent was entted to an
addtona deducton of 12,500 for the amortzaton of the cost of a drng con-
tract wth Unon O Co. by whch the tatter, n consderaton of 200,000 par
vaue of respondent s stock, agreed to provde e penses of deveopng the eased
o property, rembursement to be made ony out of o produced and, second,
that, n respect of e cess profts ta , ts nvested capta had been understated by
faure to ncude the unrecovered cost of the same contract n the sum of
109,375. Whe ths cam was pendng, but subsequent to the e praton of
the perod of mtaton, the respondent fed a Statement of Garbutt O
Co. for the purpose of perfectng and competng cam for refund cov-
erng aeged overpayment of ncome ta for the caendar year 1919. Theren
the respondent asserted that t now deveops that a further reason e sts n
support of the pendng cam snce, by dstrbuton of o n knd, the respond-
ent reazed no ta abe ncome durng 1919, and that t therefore foows that
even though the specfc grounds set forth n the cam for refund are dened -sad
cam shoud, nevertheess, be aowed n fu, for the reasons set forth n the
statement. Refund was demanded of the entre ta pad for 1919 ( 5,178 33)
or so much thereof as s propery refundabe wthn the statute of mtatons.
ugust 12, 1929 the Commssoner wrote the respondent, concernng the merts
of the orgna cam and the amendment, statng that a refund of 3,105. 5 W |ud
not be aowed but that a hearng coud be had upon the proposed re|ecton If
requested n wrtng. On October 4, 1929, a conference was hed but t does not
Revenue ct of 192 (ch. 27, secton 284(a) (b) (1) (2), 44 Stat., 9. CG).
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284, rt. 1305.
372
appear whether the merts of the amendment were dscussed. November 13,
1 929, the Commssoner advsed the respondent that the cam woud be re|ected
on the merts and that the new contenton emboded n the statement fed woud
be re|ected as t was not referred to n the tmey cam and was presented ony
after the e praton of the perod of mtatons and after the e praton of the
tme aowed to perfect nforma cams, pursuant to a Treasury decson.
orma re|ecton of the cam was made November 21, 1929.
The respondent brought sut for the recovery of the 3,105. 5 t beng ad-
mtted that the remander of the ta pad for the year 1919 coud not be recov-
ered because not camed wthn the 4-year perod specfed n the statute. t
the tra the grounds of the refund cam orgnay fed were abandoned and
recovery was sought upon the bass of the statement ed after the e praton
of the statutory perod of mtaton. The court hed that the atter dd not
consttute an amendment of the cam orgnay fed and came too ate athough
t aso found that the Commssoner had consdered the ate contenton on ts
merts. udgment was entered n favor of the Unted States. The crcut court
of appeas reversed, hodng the statement fed as an ameudment was germane
to the orgna refund cam and that both were grounded n substantay the
same facts.1 We granted certorar to resove aeged confct of decson.
In vew of what has been sad n Unted States v. ndrews (supra), t s neces-
sary ony to nqure n the Instant case whether the orgna cam was specfc
and the so-caed amendment competey shfted to a totay dfferent ground for
refund.
The transactons of the ta payer whch gave rse to ts ta abty were
e ceedngy smpe due to the fact that t had resorted to dstrbuton of a
the o produced, party to ts essors as royaty and party to ts stockhoders
n return for ther advancng the corporate e penses. If t was abe for
ncome ta the method of cacuaton t adopted was apparenty the correct one.
Cam for refund was not fed unt 1929 when the statute of mtatons had
barred refund of a payments made by the respondent e cept the amount of
the addtona assessment pad n 1925. In an effort to recover that much of
the ta pad for the year 1919 the cam set out two grounds: frst, that a deduc-
ton of 12,500 shoud be aowed for amortzaton of a drng contract whch
the company had and, second, that ts nvested capta shoud have been n-
creased by more than 100,000 to embrace the unrecovered cost of ths drng
contract. The cam drected the Commssoner s attenton to these two tems
ony. It gave hm no notce that the ta payer camed not to have been n
recept of any ncome whatever for the ta abe year. The documents woud
not naturay suggest any such cam for, as n Unted States v. enry Prentss d
Co., Inc. (288 U. S., 73 Ct. D 27, C. . II-1, 311 (1933) ), the ground asserted
In the ater demand was totay nconsstent wth and Invoved a negaton of
that specfed n the cam for refund. efore the Commssoner had acted on
the cam for refund the respondent, In an effort to evdence contnuty and
dentty of cam, fed ts so-caed statement perfectng and competng the
cam for refund. Ths abandoned the grounds orgnay aeged n support
of the cam. The poston taken n the amendment was that the ta payer had
no Income whatever and that f the Commssoner refused refund on the bass
of a re|ecton of the deductons camed from gross Income n the orgna demand,
he shoud fnd that the ta payer s operatons were not productve of any ncome
to t
In defense of the amendment the respondent says that t was camng ony
the 3,105. 5 pad In 1929 pursuant to the addtona assessment that n no
event coud t recover the entre ta pad that f the orgna grounds for
camng refund of payment of the sum n queston had been hed vad ths
woud have been suffcent to requre the refund of the whoe of the sum, and
the amended cam woud have no dfferent resut. Ths contenton s advanced
to persuade us that, after a, the cause of acton n ths case was for the recovery
of 3,105. 5 as money had and receved to the respondent s use, and that, there-
fore, there s no departure and no new cause of acton asserted by the amend-
ment To adopt ths vew woud be to dsregard what was sad n earer cases
to the effect that the anaoges of peadng must not be pressed to such an e tent
as to dsregard the reates of admnstratve procedure. The cam as fed
89 . (2d). 719.
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373
284, rt. 1305
caed for no Investgaton of the queston whether the ta payer s transactons
gave rse to ncome On the contrary, the grounds advanced assumed the recept
of ncome. The cam beng thus specfc the Commssoner was entted to take
t at face vaue and to e amne ony the ponts to whch t drected hs attenton.
It woud be to dsregard the natura course of procedure n the ureau to
suppose that grounds thus specfcay asserted woud drect attenton to another
at war wth them.
The respondent urges that athough the amendment was not tmey, the
Commssoner, n consderng the merts of the poston taken theren, waved
any ob|ecton whch mght have been avaabe to hm that ths poston was
not dscosed n the orgna cam. The contenton s bottomed upon the fact
that, n hs etter of ugust 12, 1929, the Commssoner refers to the reasons
advanced n the untmey statement. The argument confuses the power of the
Commssoner to dsregard a statutory mandate wth hs undoubted power to
wave the requrements of the Treasury reguatons. The dstncton was
ponted out n Unted States v. Memphs Cotton O Co. (288 U. S., 2, 71 Ct. D.
2 , C. . II-1, 307 (1933) ), wheren t was sad: The ne of dvson must
be kept a sharp one between the functon of a statute requrng the presence
of a cam wthn a gven perod of tme, and the functon of a reguaton makng
provson as to form. The functon of the statute, ke that of mtatons gen-
eray, s to gve protecton aganst stae demands. The functon of the regua-
ton s to factate research. In the cted case, and others decded at about
the same tme, we hed that, whe the Commssoner mght have enforced the
reguaton and re|ected a cam for faure to compy wth t n omttng to state
wth partcuarty the grounds on whch the cam was based, he was not bound
to do so, but mght wave the requrement of the reguaton and consder a
genera cam on ts merts. Ths was far from hodng that after the perod
set by the statute for the fng of cams he had power to accept and act upon
cams that comped wth or voated hs reguatons. Tucker v. e ander (275
D. S., 228), cted by the respondent, s ceary dstngushabe. There a tmey
cam was fed and dsaowed. It aeged two specfc grounds for refund. Sut
was brought to recover the aeged overpayment and agan reance was paced
on the same two specfc grounds. t the tra of the acton, and wthn the
perod of mtatons, the ta payer abandoned the grounds aeged n ts
cam and compant and asserted a new ground. Counse for the Government
stated that the new queston brought forward was the ony one nvoved n
the case and stpuated as to the amount to be recovered f the tra court
shoud hod n favor of the ta payer on ths new ground. The court dd so.
On appea the Government, for the frst tme, rased the pont of the nsuff-
cency of the cam for refund and the court of appeas hed that the new bass
for the cam dd not sustan recovery because reference had not been made
to t n the refund cam. Ths Court decded that there was an e press waver
as to the form and contents of the cam and that counse representng the
Government had power, pror to the e praton of the perod of mtaton, to
wave the ob|ecton that the supposed bass for refund was not dscosed n the
cam. In so hodng the Court adverted to the fact that the Commssoner was
not deceved or msed by the defcency of the cam and that t was n the n-
terest of ustce that n the crcumstances the camant be not remtted to the
resort of fng a new cam and pursung t through the ureau and the courts.
The opnon e pressy recognzed that no offcer of the Government has power
to wave the statute of mtatons and cted, n support of the proposton, nn
v. Unted States (123 D. S., 227), sayng: Such wavers, f aowed, woud
defeat the ony purpose of the statute and mpose a abty upon the Unted
States whch otherwse woud not e st consequences whch do not attach to
the waver here.
The statement fed after the perod for fng cams had e pred was not a
permssbe amendment of the orgna cam presented. It was a new cam
untmey fed and the Commssoner was wthout power, under the statute, to
consder t.
The |udgment s reversed.
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1107. 374
TITL L G N R L DMINISTR TI PRO ISIONS.
S CTION 1107. DMINISTR TI R I W.
Secton 1107: dmnstratve revew. . 1938-11-9240
Ct. D. 1314
ncome ta revenue acts of 1924, 1920, and 1928 decson op court.
1. raud urden of Proof.
Where the Commssoner determned ncome ta defcences based
on the dsaowance of certan tems and asserted a fraud penaty
predcated upon the same tems, the burden of provng the fraud
ssue rested upon the Commssoner, but the burden st remaned
upon the ta payer to overcome the presumptve correctness of the
Commssoner s determnaton of the amount of the defcences.
The Commssoner havng Introduced n evdence copes of the
returns n order to Impeach them for fraud, he was not bound by
the rectas theren on account of hs faure to state that they
were offered for that purpose ony, where the ssues were cear
before any evdence was ntroduced and faure to estabsh fraud
dd not prove that the specfc tems upon whch the charge was
predcated were correct
2. Certorar Dened.
Petton for certorar dened October 25, 1937.
Unted States Crcut Court of ppeas for the fth Crcut.
Sne Ise, Inc., pettoner, v. Commssoner of Interna Revenue, respondent.
90 ed. (2d), 481.
Petton for revew of decson of Unted States oard of Ta ppeas (dstrct of
orda).
efore oster, Sbey, and utcheson, Crcut udges.
une 9, 1937.
opnon.
oster, Crcut udge: The Commssoner of Interna Revenue determned
defcences n ncome ta es of pettoner for the fsca years endng pr SO,
192 , to pr 30, 1929, both ncusve, amountng to 34,894.54. Deemng the
returns were frauduent he aso assessed a penaty of 50 per cent n addton.
Pettoner appeaed to the oard of Ta ppeas. The Commssoner answered,
affrmatvey peadng fraud n the preparaton and fng of the returns. The
oard found that the Commssoner had not sustaned the burden of provng
fraud and decded aganst hm on that ground. ut the oard aso hed that
pettoner hnd faed to overcome the presumpton n favor of the correctness
of the Commssoner s determnaton of the defcences and affrmed the rung
of the Commssoner n that respect
It appears from the record that when the case was heard before the oard
counse for pettoner nssted that the Commssoner had the burden of proof
and shoud take the ead n puttng n hs evdence. The member presdng
rued that pettoner had the burden of proof to show there was no defcency.
Counse for pettoner then moved that the Commssoner be requred to pro-
ceed wth hs proof upon the fraud queston because pettoner s evdence was
n the nature of rebutta. The moton wns overrued. n e cepton was taken
to the rung but that s not assgned as error. Pettoner ntroduced three
documents, whch are conceded to be mmatera and whch we are unabe to
ocate n the record, and rested. The Commssoner then offered photostatc
copes of pettoner s ncome ta returns and the evdence of one wtness and
rested. Pettoner offered no further evdence. Ths was a that was before
the oard.
Pettoner contends that havng assessed penates for the fng of frauduent
returns, the burden was on the Commssoner not ony to show fraud but aso
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375
1113, rt. 1351.
to show that the returns as made were otherwse not correct, on the ground
that the defcences determned were based on dsaowances of certan Items
pon whch the charge of fraud was aso predcated.
The case before the oard presented two questons for decson (1) whether
the returns truy refected the Income of pettoner sub|ect to ta aton and,
(2) whether they were aso frauduenty made. It s eementary that a rung
of the Commssoner assessng Income ta es Is presumed to be correct and a
ta payer dsputng the assessment has the burden of overcomng ths presump-
ton. Ths was true as to a fndng of fraud by the Commssoner, pror to
the adopton of the Revenue ct of 1924, secton 907, contnued n subsequent
cts (2 D. S. C. ., secton 12), whch puts the burden of provng fraud upon
the Commssoner. We are not aware of any reported case construng the
statute but, consderng the presumpton, constructon s not dffcut.
efore the adopton of the statute, n many cases, overcomng of the pre-
sumpton of fraud was not a hardshp. Necessary, f the ta payer was abe
to prove the correctness of hs return the charge of fraud fe. On the other
hand, f the ta payer faed to adequatey support hs return, and t was
erroneous through gnorance n keepng hs records or mstake of aw or fact,
t was e tremey dffcut to overcome an arbtrary mposton of penates
from fraud. Ceary t was the ntenton of Congress to reeve the ta payer
of ths burden n cases where there was no actua fraud but the ct goes no
further. The burden st remans on the ta payer to overcome the presump-
ton arsng from the Commssoner s rung as to the amount of ta es actuay
dne. Nether the etter nor ntenton of the ct w support the concuson
that the entre burden Is cast upon the Commssoner when he determnes fraud
and assesses a penaty.
Pettoner further contends that when the Commssoner Introduced the
returns, wthout mtng the offer to a specfc purpose, he was bound by them
and, havng faed to show fraud as to the specfc tems, ther correctness was
proved and pettoner was reeved of the necessty of ntroducng any evdence
at aU.
It s the genera rue that a party, Introducng a document In evdence s
bound by Its rectas for a purposes. ut ths rue does not appy where
a document Is ntroduced for the purpose of mpeachng t on the ground of
fraud. It Is usua In offerng a document for a specfc purpose to mt the
ofTer In some way but where the Issues before the court are cear that s not
aways necessary. (10 R. C. L., 1089, vdence (secton 289) unce v. Gaa-
gher, 4 ed. Cas. No. 8,133 Remngton v. Lnthcum, 14 Peters, 83.)
It was necessary that the returns be ntroduced n evdence n order to
mpeach them for fraud but t was unnecessary to mt the purpose for whch
they were ntroduced by any statement of counse. The ssues were ceary
made by the peadngs and by the rungs of the oard before any evdence was
ntroduced. There coud have been no mstake as to where the burden of
proof rested and as to the Issues before the oard. Pettoner was represented
by counse and aware of what was necessary to be proven on ts behaf. It can
not escape abty through an unsubstanta techncaty.
The petton s dened and the |udgment of the oard s affrmed.
S CTION 1113. LIMIT TIONS UPON SUITS ND
PROC DINGS Y T T P Y R.
rtce 1351: Suts for recovery of ta es 1938-17-9311
erroneouay coected. Ct. D. 1329
federa ta es revenue act of 192 tdcker act, as amended
decson of supreme codrt.
1. Sut Recovery of Ta es ursdcton of Dstrct Court
Sut egun When Petton ed Wth Court.
Sut In the dstrct court, as we as n the Court of Cams,
s begun, wthn the meanng of secton 1113 of the Revenue ct
of 192 , when the duy verfed petton s fed wth the court as
requred by the Tucker ct of March 3, 1887, as amended, and sut
thus begun wthn two years after dsaowance of a refund cam
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1113, rt. 1351.
37
was tmey, even though the petton was served on the Unted
States attorney and copy maed to the ttorney Genera four
days after the statutory mtaton perod. (Under these crcum-
stances, the court dd not consder what woud be the effect of
ack of dgence n obtanng servce.)
2. Decson Reversed.
Decson of the Crcut Court of ppeas, rst Crcut (1937) (93
ed. (2d), 721), affrmng decson of the Dstrct Court, Dstrct
of Massachusetts (1937) (19 ed. Supp., 52 ), reversed.
Supreme Couet of the Unted States.
ates Manufacturng Co., pettoner, v. Unted States of merca.
303 U. S., 5 7.
On wrt of certorar to the Unted States Crcut Court of ppeas for the rst Crcut.
March 28, 1938.
opnon.
Mr. ustce ack devered the opnon of the Court.
The Revenue ct of 192 1 provdes that No sut sha be man-
taned n any court for the recovery of any nterna-revenue ta aeged to
have been erroneousy or egay assessed or coected, uness such
sut s begun wthn two years after the dsaowance of
such cam .
The Tucker ct of March 3, 1887, as amended, gves concurrent |ursdcton
to the dstrct courts and the Court of Cams n suts aganst the Unted
States ncudng those for recovery of erroneous or egay coected ta es.
Secton 5 of the Tucker ct requres a pantff brngng sut aganst the Gov-
ernment n the dstrct court to fe a petton, duy verfed wth the cerk
of the respectve court havng |ursdcton of the case. Secton requres
that the pantff cause a copy of hs petton to be served
upon the dstrct attorney , and ma a copy to the
ttorney Genera , and cause to be fed wth the cerk of the
court affdavt of such servce and mang .
March 22, 1927, the pettoner s cam for ta refund was dsaowed. March
21, 1929, wthn two years after the dsaowance, a duy verfed petton was
fed n the dstrct court camng the refund. March 25, 1929, two years and
four days after the dsaowance, the petton was served on the Unted States
attorney and maed to the ttorney Genera.
The dstrct court hed sut was not begun by fng the verfed petton
and dsmssed the cause of acton.4 The court of appeas affrmed.
It s conceded that sut n the Court of Cams s begun when the pet-
ton s fed. Yet, t s Inssted that sut s not begun n the dstrct court
when the petton s fed athough the Court of Cams and the dstrct courts
are gven concurrent |ursdcton by the Tucker ct. Consderaton of the
hstory and anguage of the statute eads us to a dfferent concuson.
Secton 10 of the ct of March 13, 18 3. provdes That every cam aganst
the Unted States, cognzabe by the Court of Cams, sha be forever barred
uness the petton settng forth a statement of the cam be fed wth-
n s years after the cam frst accrues .
When the Tucker ct n 1887 greaty e panded the ursdcton of the Court
of Cams and gave dstrct courts concurrent |ursdcton n a cases nvovng
certan amounts, ts mtaton n both the Court of Cams and the dstrct courts
provded:
no sut aganst the Government of the Unted States sha be
aowed under ths ct uness the same sha have been brought wthn s yeart
after the rght accrued .
The substanta rghts of camants are to be governed ake whether sut
s brought n the Court of Cams or the dstrct court The author of the
Ch. 87, 44 Stat., 9, secton 1113.
Ch. 359, 24 Stat., 505. 50 .
U. S C.. Tte 28. secton 41(20) ( udca Code, secton 24(20), as amended).
19 ed. Supp.. 52 (1937).
93 . (2d). 721 (1937).
12 Stat, 7 5, 7 7.
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377
1113, rt. 1351.
Tucker ct In decarng the statute of mtatons appcabe ake to any
or a of the cases arsng under the ct drew no dstncton between suts
brought n the dstrct court and In the Court of Cams.
The purpose of gvng the dstrct courts concurrent |ursdcton wth the
Court of Cams was to provde addtona opportunty for the consderaton
and determnaton of cams that had ong pressed upon the consderaton
of Congress and to permt sut to be brought n the dstrct where the partes
resde. fter dscussng the benefts of prevous egsaton creatng and
e tendng the |ursdcton of the Court of Cams, the Commttee on the
udcary reported to the ouse:
The hstory of ths egsaton and Its resuts have been gven to show
how much of beneft has been done n the satsfactory decsons of cams aganst
the Government and n reef of the Congress. ut It has ong been fet that the
benefts coud be made much greater by e tendng the |ursdcton of the
court It s needess to say more than has aready been ntmated as
to the genera pocy of ths egsaton. The arge mass of busness now
before Congress growng out of prvate cams consumes ts tme year after
rear n commttee work, rendered useess by the ack of tme to consder and
pass upon them. ust cams are panfuy deferred wthout nterest, and the
credt of the Government, so strcty uphed upon ts- bonded debt, s |usty
censured n respect to ts honest and prvate cams.
In response to the needs dscosed by ths report Congress passed the Tucker
ct, manfesty ntendng to provde adequate opportunty for e pedtous and
ordery determnaton of cams aganst the Government. Ths ct not ony
e panded the |ursdcton of the Court of Cams, but, for the frst tme, gave
dstrct courts genera authorty to hear and determne cams aganst the Gov-
ernment Reef of e stng cam congeston and preventon of future congeston
obvousy demanded an ntegrated |ursdctona pan by whch the Court of
Cams and dstrct courts coud afford equa opportuntes for e pedtous and
far tras of ke cams wthn the |ursdctona amount of the dstrct courts.
The erecton of barrers to recovery n the dstrct courts whch dd not e st n
the Court of Cams woud have tended to defeat the prme ob|ectves of the ct.
Unformty and equaty In substanta rghts and prveges for camants In
both forums were essenta features n the system. Dstnctons between the
opportuntes for recovery afforded In the two forums woud have tended to mar
the symmetry of the pan and to mpar Its effectve and successfu operaton.
s to substanta rghts, Congress evdenty meant to gve camants an dentca
status n both courts where the amount n controversy was Incuded In the |urs-
dcton of both. We fnd no support n the background or ob|ectve of the ct
for a constructon under whch a camant s rghts woud be preserved by fng a
petton n the Court of Cams, but woud be ost wthout addtona acton
n the dstrct court.
s sad by ths Court n Unted States v. Greathouse (1 T . S., 01, 0 ) :
t was not contempated that the mtaton npon suts aganst the
Government In the dstrct courts of the Unted States shoud be dffer-
ent from that appcabe to ke suts In the Court of Cams.
s used n ths statute the word begun shoud be gven ts ordnary and
accustomed meanng. To begn Is to start to nsttute to ntate to com-
mence. Ths sut was begun wthn two years after the refund cam was ds-
aowed when the petton was fed In court n good fath. Notce was maed
the ttorney Genera and the dstrct attorney was prompty served both wthn
four days after the verfed petton was fed. Under these crcumstances, we
do not consder what woud be the effect of ack of dgence n obtanng servce.
The |udgment In the court beow was not In harmony wth the vews here
e pressed and Is
Reversed.
Congressona Record and ppend , orty-nnth Congress, second sesson, March 3,
paee 2C79.
ouse Report No. 1077, orty-nnth Congress, frst sesson, by Mr. Tucker on the
Tucker b.
Congressona Record and ppend . orty-nnth Congress, second sesson, March 3,
pase 2 79.
ouse Report No. 1077, supra, pages 3-4.
u Compare I nn Tmber Co. v. Unted Stores (23 D. 8., 74, 78).
83421 38 13
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T S UND R SOCI L S CURITY CT ND
C RR RS T ING CT O 1937.
SOCI L S CURITY CT.
TITL III. T S WIT SP CT TO MPLOYM NT.
Reguatons 91, rtces 1 (d). 2, 5, 13,15 (a), 50 . 1938-19-9332
( so Carrers Ta ng ct of 1937 Reguatons T.D.4801
100, rtces 703 and 704.)
Servces e cepted from empoyment under Tte III of the
Soca Securty ct by reason of the provsons of secton 9(a) of the
Carrers Ta ng ct of 1037. Reguatons 91, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
Secton 11 of the Carrers Ta ng ct of 1937, approved une 29,
1937 (Pubc, No. 174, Seventy-ffth Congress 50 Stat., 435), provdes
n part:
The provsons of ths ct are n substtuton for the provsons of the ct
of ugust 29, 1935, as amended, entted n ct to evy an e cse ta upon
carrers and an ncome ta upon ther empoyees, and for other purposes, whch
s hereby repeaed.
Secton 9(a) of the Carrers Ta ng ct of 1937 provdes:
The term empoyment, as defned n subsecton (b) of secton 811 of Tte
III of the Soca Securty ct, sha not Incude servce performed by an n-
dvdua as an empoyee as defned n secton 1(b) or servce performed as an
empoyee representatve as defned n secton 1(c).
Secton 7(e) of the Carrers Ta ng ct of 1937 provdes:
ny ta pad under ths ct by a ta payer wth respect to any perod wth
respect to whch he s not abe to ta under ths ct sha be credted aganst
the ta , f any, mposed by Tte III of the Soca Securty ct upon such ta -
payer, and the baance, f any, sha be refunded. ny ta pad under Tte
III of the Soca Securty ct by a ta payer wth respect to any perod wth
respect to whch he s not abe to ta under such Tte III sha be credted
aganst the ta , f any, mposed by ths ct upon such ta payer, and the baance,
f any, sha be refunded.
In order to accord wth the provsons of aw quoted above, Regua-
tons 91, approved November 9, 193 , as amended, reatng to the
empoyees ta and the empoyers ta under Tte III of the Soca
Securty ct, are further amended as foows:
(1) The provson of aw under the capton Secton 11 of the
Carrers Ta ng ct mmedatey precedng artce 1 s hereby de-
eted, together wth the capton, and the foowng s nserted n eu
thereof:
(378)
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379
Regs. 91, rt. 1(d), etc.
Secton 9(a) of the Carrers Ta ng ct of 1937.
The term empoyment, as defned n subsecton (b) of secton 811
of Tte III of the Soca Securty ct, sha not Incude servce per-
formed by an Indvdua as an empoyee as defned In secton 1(b) or
servce performed as an empoyee representatve as defned n secton
1(c).
(2) rtce 1(d) s amended to read as foows:
(d) Carrers Ta ng ct of 1931 means the ct approved une 29, 1937 (Pub-
c, No. 174, Seventy-ffth Congress 50 Stat, 435).
(3) rtce 2 s amended by strkng out secton 11 of the Car-
rers Ta ng ct n the frst sentence and by nsertng n eu thereof
secton 9(a) of the Carrers Ta ng ct of 1937.
(4) rtce 5 s amended by strkng out secton 11 of the Car-
rers Ta ng ct n the frst sentence and by nsertng n eu thereof
secton 9(a) of the Carrers Ta ng ct of 1937.
(5) The provsons of aw under the capton Sectons 1 (a), (b),
and (c), and 11 of the Carrers Ta ng ct mmedatey precedng
artce 13 are hereby deeted, together wth the capton, and the
foowng s nserted n eu thereof:
Sectons 1 and 9(a) of the Carrers Ta ng ct of 1937.
Secton 1. That as used In ths ct
(a) The term empoyer means any carrer (as defned n sub-
secton () of ths secton), and any company whch s drecty or
ndrecty owned or controed by one or more such carrers or under
common contro therewth, and whch operates any equpment or
facty or performs any servce (e cept truckng servce, casua serv-
ce, and the casua operaton of equpment or factes) n connecton
wth the transportaton of passengers or property by raroad, or the
recept, devery, eevaton, transfer n transt, refrgeraton or Icng,
storage, or handng of property transported by raroad, and any
recever, trustee, or other ndvdua or body, |udca or otherwse,
when n the possesson of the property or operatng a or any part
of the busness of any such empoyer: Provded, however, That the
term empoyer sha not ncude any street, nterurban, or suburban
eectrc raway, uness such raway s operatng as a part of a gen-
era steam-raroad system of transportaton, but sha not e cude
any part of the genera steam-raroad system of transportaton now
or hereafter operated by any other motve power. The Interstate
Commerce Commsson s hereby authorzed and drected upon request
of the Commssoner of Interna Revenue, or upon compant of any
party nterested, to determne after hearng whether any ne operated
by eectrc power fas wthn the terms of ths provso. The term
empoyer sha aso ncude raroad assocatons, traffc assoca-
tons, tarff bureaus, demurrage bureaus, weghng and nspecton
bureaus, coecton agences and other assocatons, bureaus, agences,
or organzatons controed and mantaned whoy or prncpay by
two or more empoyers as herenbefore defned and engaged n the
performance of servces n connecton wth or ncdenta to raroad
transportaton and raway abor organzatons, natona n scope,
whch have been or may be organzed In accordance wth the prov-
sons of the Raway Labor ct, as amended, and ther State and
Natona egsatve commttees and ther genera commttees and ther
nsurance departments and ther oca odges and dvsons, estabshed
pursuant to the consttuton and by-aws of such organzatons.
(b) The term empoyee means any person n the servce of one
or more empoyers for compensaton: Provded, however. That the
term empoyee sha ncude an empoyee of a oca odge or dvson
defned as an empoyer n subsecton (a) ony If he was n the servce
of or n the empoyment reaton to a carrer on or after ugust 29,
1935. n ndvdua s n the empoyment reaton to a carrer f he
Is on furough, sub|ect to ca for servce wthn or outsde the Unted
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Regs. 91, rt. 1(d), etc.
380
States and ready and wng to serve, or on eave of absence, or absent
on account of sckness or dsabty a n accordance wth the estab-
shed rues and practces n effect on the carrer: Provded further.
That an ndvdua sha not be deemed to have been on ugust 29,
1935, n the empoyment reaton to a carrer not conductng the prn-
cpa part of ts busness n the Unted States uness durng the ast
pay-ro perod n whch he rendered servce to t pror to sad date, he
rendered servce to t n the Unted States.
(c) The term empoyee representatve means any offcer or offca
representatve of a raway abor organzaton other than a abor organ-
zaton ncuded n the term empoyer as defned n secton 1(a),
who before or after the enactment hereof was n the servce of an
empoyer as defned n secton 1(a) and who s duy authorzed and
desgnated to represent empoyees n accordance wth the Raway Labor
ct, as amended, and any ndvdua who s reguary assgned to or
reguary empoyed by such offcer or offca representatve n connec-
ton wth the dutes of hs offce.
(d) n ndvdua s n the servce of an empoyer whether hs servce
s rendered wthn or wthout the Unted States f he s sub|ect to the
contnung authorty of the empoyer to supervse and drect the man-
ner of rendton of hs servce, whch servce he renders for compen-
saton : Provded, however, That au ndvdua sha be deemed to be
n the servce of an empoyer not conductng the prncpa part of ts
busness n the Unted States ony when he s renderng servce to
It n the Unted States.

(f) The term Unted States when used n a geographca sense
means the States, aska, awa, and the Dstrct of Coumba.
(g) The term company ncudes corporatons, assocatons, and
|ont-stock companes.
(h) The term empoyee ncudes an offcer of an empoyer.
() The term carrer means an e press company, seepng-car
company, or carrer by raroad, sub|ect to part I of the Interstate
Commerce ct.
(|) The term person means an ndvdua, a partnershp, an asso-
caton, a |ont-stock company, or a corporaton.
Sec. 9. (a) The term empoyment, as defned n subsecton (b)
of secton 811 of Tte III of the Soca Securty ct, sha not n-
cude servce performed by an ndvdua as an empoyee as defned n
secton 1(b) or servce performed as an empoyee representatve as
defned n secton 1(c).
( ) rtce 13 s amended to read as foows:
kt. 13. mpoyees and empoyee representatves under the Carrers Ta ng
ct of 1937. Servces performed by an ndvdua as an empoyee or as an
empoyee representatve, as those terms are defned n the above-quoted
provsons of the Carrers Ta ng ct of 1937, are e cepted. See aso Regu-
atons 100. artces 3 and 4, for defntons of empoyee and empoyee representa-
tve under such ct.
(7) rtce 15(a) s amended by strkng out secton 11 of the
Carrers Ta ng ct and by nsertng n eu thereof secton 9(a)
of the Carrers Ta ng ct of 1937.
(8) Chapter s amended by nsertng after artce 505 thereof
the foowng:
Secton 7(e) of the Carrers Ta ng ct of 1937.
ny ta pad under ths ct by a ta payer wth respect to any perod
wth respect to whch he s not abe to ta under ths ct sha be
credted aganst the ta , f any, mposed by Tte III of the Soca
Securty ct upon such ta payer, and the baance, f any, sha be
refunded. ny ta pad under Tte III of the Soca Securty ct
by a ta payer wth respect to any perod wth respect to whch he a
not abe to ta under such Tte III sha he credted aganst the
ta , f any, mposed by ths ct upon such ta payer, and the baance,
If any, sha be refunded.
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381
Regs. 91, rt. 201.
st. 50 . Credt or refund under Carrers Ta ng ct of 1937. See Regua-
tons 100. artces 703 and 704, for method of obtanng credt and refund of
ta es pad under Tte III of the Soca Securty ct for any perod durng
whch abty e sted under the Carrers Ta ng ct of 1937 or of ta es pad
under the Carrers Ta ng ct of 1937 for any perod durng whch abty
e sted under Tte III of the Soca Securty ct.
Ths Treasury decson s prescrbed under the authorty contaned
n secton 808 of the Soca Securty ct.
Gut T. everng,
Commssoner of Interna Revenue.
pproved pr 28, 1938.
ROSW LL M GILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster pr 30, 1938, 11.27 a. m.)
Secton 801: Income ta on empoyees. 1938-8-9205
Reguatons 91, rtce 201: Measure of empoyees S. S. T. 2 2
ta .
The empoyees ta mposed under Tte III of the Soca
Securty ct attaches wth respect to the tota wages of a marred
empoyee n Te as rrespectve of the fact that such wages con-
sttute communty property of the husband and wfe.
The queston has been presented whether the empoyees ta m-
posed by secton 801, Tte III, of the Soca Securty ct attaches
wth respect to the tota wages of a marred empoyee n the State
of Te as.
Secton 801 of the Soca Securty ct provdes that there sha
be eved, coected, and pad upon the ncome of every ndvdua a
ta equa to a specfed percentage of the wages (as defned n sec-
ton 811) receved by hm after December 31, 193 , wth respect to
empoyment (as defned n secton 811) after such date. Secton
802(a) provdes that the ta mposed by secton 801 sha be coected
by the empoyer of the ta payer by deductng the amount of the
ta from the wages as and when pad. Under artce 201 of Regua-
tons 91, construng secton 801, supra, t s provded that The
empoyees ta s measured by the amount of wages actuay or con-
structvey receved on and after anuary 1, 1937, wth respect to
empoyment on and after such date.
In Te as a property acqured by ether the husband or wfe dur-
ng marrage through the efforts of ether or both of the spouses
s deemed to be the common property of the husband and wfe.
( rtce 4 19, Revsed Cv Statutes of Te as, 1927.) The Unted
States Supreme Court n opkns v. acon (282 U. S., 122, Ct. D.
2 0, C. . I -2, 201 (1930)) hed that the nterest of a wfe n
communty property n Te as s propery characterzed as a present
vested nterest, equa and equvaent to that of her husband, and
that one-haf of the communty ncome s therefore ncome to the
wfe. The genera theory of communty property n Te as s that
ut s acqured durng coverture through the efforts of one or the
other spouse, or through the |ont efforts of both, and to some appre-
cabe e tent the sk, abor, or supervson of one or both the spouses
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Regs. 91, Chap. I .
382
was e pended n the producton or acquston of the property.
(See G. C. M. 8209, C. . I -2, 32 (1930) and cases cted theren.)
It s setted that n a communty property State, f separate
edera ncome ta returns are fed, ony one haf of the husband s
earnngs are ta ed to hm, the other haf beng ta ed to the wfe.
owever, the porton of the ncome to whch the wfe s entted
as her own s not receved by her as the resut of her empoyment
but as the resut of the communty property aws. Whe secton
801 of the Soca Securty ct provdes that the ta mposed there-
under sha be upon the ncome of the ndvdua, t w be noted
that secton 802(a) of that ct specfes that the ta sha be coected
from the wages of the ndvdua, and that secton 811(a) specfes
that the term wages means a remuneraton for empoyment,
sub|ect to a mtaton not here matera. Whe the ta s mposed
upon the ncome of the ndvdua, t s measured by the amount
of wages receved by hm (artce 201, supra). There appears no
proper nference from the anguage of secton 801 or from the
anguage of Tte III read as a whoe that Congress ntended the
ta to be measured by the amount of wages whch consttutes ncome
to the ndvdua for edera ncome ta purposes.
ccordngy, the empoyees ta mposed by secton 801 of the ct
attaches wth respect to the tota wages of a marred empoyee n
Te as rrespectve of the fact that such wages consttute communty
property of the husband and wfe.
Secton 807: Coecton and payment of ta es. 1938-23-9380
Reguatons 91, Chapter I : Returns, payment S. S. T. 297
of ta , and records.
( so Secton 905 Reguatons 90, Chapter I .)
Procedure to be foowed n appeang from a rung of the ureau
of Interna Revenue that ta abty s ncurred under Ttes III
and I of the Soca Securty ct. The oard of Ta ppeas s
wthout |ursdcton.
dvce s requested reatve to the procedure to be foowed n
appeang from a rung of the ureau of Interna Revenue that ta
abty s ncurred under Ttes III and I of the Soca Securty
ct, and whether such an appea may be made to the oard of Ta
ppeas.
Secton 01, Tte 2 of the Unted States Code, reatng to the
oard of Ta ppeas, provdes:
ursdcton. The oard and ts dvsons sha have such |urs-
dcton as s conferred on (hem by Tte II and Tte III of the Revenue ct
of 192 or by subsequent aws. ( ebruary 2 , 192 , ch. 27, secton 1000, 44 Stat,
10 .)
There e sts no provson of aw ether n the Soca Securty ct
or esewhere whch confers upon the oard of Ta ppeas |urs-
dcton over matters reatng to the ta es mposed under Ttes III
and I of that ct. ccordngy, as a resut of a determnaton
made by the Commssoner that abty for the ta es mposed under
Ttes II and/or I of the Soca Securty ct has been ncurred,
the empoyer w be requred to ncude such ta es n hs returns
fed under those ttes and to pay the amount thereof to the coector
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383
Regs. 91, Chap. I .
of nterna revenue for the dstrct n whch s ocated the prncpa
pace of busness of the empoyer.
efore a sut or proceedng may be mantaned n any court for
the recovery of any soca securty ta aeged to have been erro-
neousy or egay assessed or coected, a cam for refund or credt
must be fed wth the Commssoner of Interna Revenue accordng
to the provsons of aw n that regard, and the reguatons of the
Secretary of the Treasury estabshed n pursuance thereof. No such
sut or proceedng may be begun before the e praton of s months
from the date of fng such cam uness the Commssoner renders
a decson thereon wthn that tme, nor after the e praton of two
years from the date of mang by regstered ma by the Comms-
soner to the ta payer of a notce of dsaowance of the part of the
cam to whch such sut or proceedng reates. (Secton 322 , R. S.)
Secton 807: Coecton and payment of ta es.
Reguatons 91, Chapter I : Returns, payment of
ta , and records.
( so Secton 905 Reguatons 90, Chapter III
and Carrers Ta ng ct of 1937, Secton 7
Reguatons 100, Chapter .)
Power of attorney form for use In grantng authorty to e ecute
and fe returns under Ttes III and I of the Soca Securty
ct and the Carrers Ta ng ct of 1937.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, une 1, 1938.
Coectors of Interna Revenue, Interva Revenue gents n Charge,
Other Offcers and mpoyees of the ureau of Interna Revenue,
and Others Concerned:
The attached form of power of attorney s to be used by ta payers
n grantng to an attorney n fact authorty confned to the e ecuton
and fng of returns under the ta ng provsons of the Soca Se-
curty ct or under the Carrers Ta ng ct of 1937. Such form
sha be used n eu of any power of attorney form prevousy pre-
scrbed for such purposes. owever, new powers of attorney author-
zng the e ecuton and fng of returns w not be requred to
repace those aready propery e ecuted on forms heretofore pre-
scrbed.
The form of power of attorney prescrbed n ths mmeograph s
to be used by the ta payer ony to deegate authorty to an attorney
n fact to e ecute and fe the returns desgnated. It s not to be
used, and w not be accepted, for other or addtona purposes, such
as the deegaton of authorty to sgn cams or to otherwse act for
the ta payer.
Pursuant to the provsons of Mmeograph 4 37 (C. . 1937-2, 4 ),
whch modfed mmeograph 4507 (C. . -2, 540 (193 )), the
statement reatve to fees to be fed wth each power of attorney w
not be requred n ths nstance.
Coectors shoud mmeograph a suffcent quantty of the form of
power of attorney to meet the needs n ther respectve dstrcts.
1938-2 -9409
Mm. 4780
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Regs. 91, Chap. I .
384
Correspondence n regard to the contents of ths mmeograph
shoud be addressed to the Commssoner of Interna Revenue, atten-
ton C: S: .
Gur T. everng,
Commssoner.
Tower of ttorney for ecutng and ng Returns Under Ttes III
and I of the Soca Securty ct and the Carrers Ta no ct of 1937.
now a men by these presents, That
(Name.)
ocated at
(State whether ndvdua, partnershp, or corporaton, etc.)
has made,
( ddress.)
consttuted, and apponted, and by these presents does hereby make, consttute,
and appont ,
(Name.) ( ddress.)
(ts) (my) true and awfu attorney for (It) (me) and n (ts) (my) name,
pace and stead to e ecute and to fe on (Its) (my) behaf, returns requred
under
(Indcate whether under Tte III or I of the Soca Securty ct or under
the Carrers Ta ng ct of 1937.)
In deegatng authorty to the attorney n fact heren desgnated to e ecute
and fe the returns specfed above, t s understood that each return e ecuted
by such attorney n fact must ncude the ta abe remuneraton of a em-
poyees of the empoyer-ta payer for the ta abe perod covered by the return,
regardess of where the empoyees servces are performed, and that each
return must be fed wth the coector of nterna revenue at
, n whose dstrct the ta payer s prncpa pace of busness s
ocated.
Dated at ths day of ,
19...
(Name of ta payer.)
y
(See nstructons.)
(Tte.)
(If a corporaton aff sea.)
ttest:
(Sgnature.)
ecuted n the presence of:
(Wtness.)
(Wtness.)
cknowedged before me ths day of , 19 .
(Sgnature of offcer admnsterng oath.)
(Tte.)
notara sea.
nstructons.
Ths form must be fed by the attorney n fact wth the frst ta return
e ecuted by hm as such attorney n fact s ths form of power of attorney
s not vad for the purpose of representng the ta payer generay before the
Treasury Department, t w not be necessary that a statement reatve to fees
accompany t.
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385
Regs. 91, rt. 204.
power of attorney In the case of an ndvdua must be sgned by such
ndvdua n the case of a partnershp, or other unncorporated organzaton,
ether by a responsbe and duy authorzed member or by an offcer havng a
knowedge of ts affars and n the case of a corporaton, by an offcer of the
corporaton havng authorty to bnd same and be attested by the secretary
of the corporaton over the corporate sea. In the event the corporaton has
no sea, a certfed copy of a resouton duy passed by the board of drectors
of the corporaton authorzng the offcers to grant the power of attorney must
accompany the power of attorney. The power of attorney must aso ether be
wtnessed by two dsnterested ndvduas, or be acknowedged before a notary
pubc or other offcer authorzed to take acknowedgments.
The ta payer and the agent are responsbe for the return, or returns, as
made and ncur abty for the penates provded for fase or frauduent
returns.
Secton- 807: Coecton and payment of ta es. 1938-22-93 3
Reguatons 91, rtce 204: Coecton of, and S. S. T. 294
abty for, empoyees ta .
The amount of empoyees ta Imposed by secton 801 of the Soca
Securty ct deducted by the O Company from the wages of ts
empoyees pror to the date t was ad|udcated bankrupt consttutes
a speca fund hed n trust for the Unted States and not a part of
the assets of the bankrupt s estate.
dvce s requested whether amounts of empoyees ta , mposed by
secton 801 of the Soca Securty ct, deducted pursuant to secton
802(a) of that ct by the O Company from the wages of ts empoyees
pror to the date t was ad|udcated bankrupt are sub|ect to the prov-
sons of secton 4(b) of the Natona ankruptcy ct (30 Stat., 544),
as amended (44 Stat., ), whch provdes that the wages due work-
men, cerks, traveng or cty saesman, or servants, whch have been
earned wthn three months before the date of the commencement of
the proceedng and not e ceedng 00 to each camant sha have
prorty over ta es payabe to the Unted States, State, county, dstrct,
or muncpaty.
It s stated that durng the month of May, 1937, the O Company
made reguar wage payments to ts empoyees, wthhodng therefrom
the amount of the empoyees ta mposed by secton 801 of the
Soca Securty ct wth respect to such wages. owever, on une
, before the tme prescrbed for fng the return on orm SS-1
for the month of May and payng the empoyees ta so deducted,
the company wras ad|udcated bankrupt and a recever apponted.
The assets of the bankrupt s estate were found to be nsuffcent to
pay the wages due the empoyees of the company.
Secton 807(c) of the Soca Securty ct provdes as foows:
provsons of the aw, ncudng penates, appcabe wth respect
to any ta mposed by secton 00 or secton 800 of the Revenue ct of 1920,
and the provsons of secton 07 of the Revenue ct of 1934, sha, nsofar
as appcabe and not Inconsstent wth the provsons of ths tte, be appcabe
wth respect to the ta es mposed by ths tte.
Secton 07 of the Revenue ct of 1934 provdes n part
Whenever any person s requred to coect or wthhod any nterna-revenue
ta from any other person and to pay such ta over to the Unted States, the
amount of ta so coected or wthhed sha be hed to be a speca fund n
trust for the Unted States. The amount of such fund sha be assessed,
coected, and pad In the same manner and sub|ect to the same provsons
and mtatons (ncudng penates) as are appcabe wth respect to the
ta es from whch such fund arose.
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Regs. 91, rt. 401(5).
38
Pursuant to the above-quoted provsons of the aw, t s hed that
the amount of empoyees ta mposed by secton 801 of the Soca
Securty ct deducted by the O Company from the wages of ts
empoyees pror to the date t was ad|udcated bankrupt consttutes
a speca fund hed n trust for the Unted States and not a part
of the assets of the bankrupt s estate. ccordngy, such amount s
not sub|ect to the provsons of secton 4(b) of the Natona ank-
ruptcy ct and shoud be pad to the coector of nterna revenue.
Secton 807: Coecton and payment of ta es. 1938-23-9379
Reguatons 91, rtce 401( ): Perodca nfor- Mnn. 47
maton returns.
Returns on orm SS-a under Tte III of the Soca Securty
ct n the case of empoyers who are engaged n seasona actvtes
ony or who pay ta abe wages ony at nfrequent ntervas. Mme-
ograph 4597 (0. . 1937-1, 3 8) revoked.
Treasury Department,
Offce or Commssoner of Interna Revenue,
Washngton, D. C, May 12,1938.
Coectors of Interna Revenue and Others Concerned:
1. rtce 402 of Reguatons 91, as amended by Treasury Dec-
son 4778 (C . 1937-2, 374) provdes n part that very
empoyer sha make a ta and nformaton return on orm SS-a
for the frst quarter after December 31, 1937, wthn whch ta abe
wages are pad to hs empoyee or empoyees, and for each subse-
quent quarter whether or not ta abe wages are pad theren.
unt he ceases to be an empoyer and fes a fna return
as requred by the provsons of artce 404. Treasury Decson
4778 aso amended artce 404 of Reguatons 91 to provde n part
that, . Persons whose status as empoyers s ony tempo-
rary suspended, ncudng persons engaged n seasona actvtes,
sha not fe fna returns by reason of such temporary suspenson.
2. Under the provsons of the reguatons quoted above, every
empoyer sub|ect to Tte III of the Soca Securty ct, ncudng
those engaged n seasona actvtes and those who pay ta abe
wages ony at nfrequent ntervas, s requred to make a return on
orm SS-a for the frst quarter after December 31, 1937, wthn
whch ta abe wages are pad to hs empoyee or empoyees, and for
each subsequent quarter whether or not ta abe wages are pad theren.
na returns are requred n accordance wth artce 404 of Regua-
tons 91 when a person ceases to be an empoyer, but persons whose
status as empoyers s ony temporary suspended, ncudng persons
engaged n seasona actvtes, sha not fe fna returns by reason
of such temporary suspenson.
3. Mmeograph 4597 (C. . 1937-1, 3 8), reatng to the procedure
to be foowed n fng returns by empoyers who ether pay no
ta abe wages or who pay such wages ony durng certan perods
of the year, s revoked.
4. ny correspondence reatng to the contents of ths mmeograph
shoud refer to the number thereof and to the symbos C.
Gut T. evkrno,
Commssoner.
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387
Regs. 91, rt. 402.
Secto 807: Coecton and payment of ta es. 1938-25-9400
Reguatons 91, rtce 402: Returns for perods S. S. T. 300
wthn the caendar year 1938 and subsequent
years.
( so rtce 410.)
Informaton concernng the preparaton of returns on orms SS-a
and SS-b and payment of the ta es mposed under Tte III of
the Soca Securty ct.
Severa nqures have been presented reatve to the procedure of
preparng returns on orms SS-a and SS-b and payment of the
ta es mposed under Tte III of the Soca Securty ct. The
questons and the answers thereto foow:
ueston 1. What nformaton shoud be entered under tem 20 of
orm SS-a or SS-b wth respect to empoyees who are empoyed
onv one or two days each month
nswer. The nstructons on the reverse sde of orm SS-a
provde n part
Item tO. Separaton date. nter n ths coumn for ench empoyee who
receved ta abe wages durng the quarter, but who was not n your empoy at
the end of the quarter, the month and day upon whch such empoyee eft your
servce.
or the purpose of ths tem, an ndvdua who performs nter-
mttent servces for an empoyer durng the course of the caendar
year s not consdered to have eft the servce of the empoyer unt
t s antcpated that hs servces w not agan be utzed. In ths
event, the fna date on whch such ndvdua performed servces
shoud be entered under tem 20 of orm SS-a or orm SS-b as hs
separaton date.
ueston 2. Where an empoyer empoys ndvduas n more than
one State and such ndvduas are transferred at varous tmes from
one State to another, what State or States shoud be entered under
tem 21 of orm SS-a or SS-b
ns oer. The nstructons on the reverse sde of orm SS-a
provde
Item 21. State. In case of an empoyee workng outsde the State of the
empoyer s prncpa pace of busness, enter the name of the State where
empoyed.
It s not necessary for the empoyer to segregate and report sepa-
ratey the amount of wages pad to an empoyee for servces rendered
n each State n whch hs headquarters are ocated durng a quartery
perod. The empoyer shoud enter under tem 21 the State to whch
the ast wages (ncuded under tem 19) pad to the empoyee were re-
qured to be reported under a State unempoyment compensaton aw.
If there s any doubt as to the requrements of the State aw n ths
respect, or f for any reason the wages are not requred to be reported
under any State unempoyment compensaton aw, the empoyer shoud
enter under tem 21 the State n whch he consders the ast headquar-
ters of the empoyee durng the quarter to be ocated. In makng the
entres n queston, the nstructons appearng n paragraph 4 on the
reverse sde of orm SS-b, wth respect to settng up separate sec-
tons of Schedue , must be observed f more than one State s
nvoved.
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Regs. 91, rt. 402
388
ueston 3. If a check or money order s to be used n payng the
ta es mposed under Tte III of the ct, to whom shoud t be made
payabe
nswer. The check or money order shoud be made payabe to U. S.
Coector of Interna Revenue.
Secton 807: Coecton and payment of ta es. 1938-1-9132
Reguatons 91, rtce 402 4: Ta abe wages T. D. 478
when to be reported.
Reportng of ta abe wages under Tte III of the Soca Secur-
ty ct. Reguatons 91, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 91, approved November 9, 193 , reatng to the em-
poyees ta and the empoyers ta under Tte III of the Soca
Securty ct, as amended, are further amended by nsertng the fo-
owng new artce mmedatey after artce 402 thereof:
rt. 402 . Ta abe wages when to be reported. Ta abe wages sha be
reported n the ta return for the perod In whch they are actuay pad uness
they were constructvey pad n a pror ta -return perod, n whch case such
wages sha be reported ony n the return for such pror perod e cept that If
ta abe wages for a pay ro perod endng wthn a ta -return perod pror to
anuary 1, 1940, are actuay or constructvey pad after such return perod hut
before the return for such perod s fed, the empoyer mny report such wages
n the return for such perod.
Ths Treasury decson s prescrbed under the authorty contaned
n sectons 807 and 808 of the Soca Securty ct.
Chab. T. Russe,
ctng Commssoner of Interna Revenue.
pproved December 29, 1937.
ROSW LL M GILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster December 31, 1937, 11.31 a. m.)
Secton 807: Coecton and payment of ta es. 1938-19-933
Reguatons 91, rtce 402y2: Ta abe wages S. S. T. 288
when to be reported.
Reportng of ta abe wages under Tte III of the Soca Securty
ct n cases where the wages are pad n the month foowng
a quartery return perod.
dvce s requested whether under Tte III of the Soca Securty
ct ta abe wages of empoyees may propery be reported by an em-
poyer on a return for a perod wthn whch the wages were nether
actuay nor constructvey pad.
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389
Regs. 91, rt. 410.
rtce 402 of Reguatons 91, as added by Treasury Decson
478 page 388, ths uetn), provdes as foows:
Ta abe wages sha be reported In the ta return for the perod
n whch they are actuay pad uness they were constructvey pad n a
pror ta -return perod, n whch case such wages sha be reported ony n the
return for such pror perod e cept that f ta abe wages for a pay ro
perod endng wthn a ta -return perod pror to anuary 1, 1940, are actuay
or constructvey pad after such return perod but before the return for such
perod s fed, the empoyer may report such wages n the return for such
perod.
The e cepton contaned n artce 402 , supra, s appcabe ony
n those cases where ta abe wages for a pay ro perod endng
wthn one return perod are not pad, ether actuay or con-
structvey, durng such return perod but are pad before the fng
of the return for such perod. In a other cases ta abe wages
must be reported n the return for the return perod wthn whch they
were actuay pad, uness they were constructvey pad wthn a
pror return perod, n whch event they must be reported n the
return for such pror return perod. In other words, e cept as pro-
vded n artce 402 , ta abe wages under Tte III of the ct
must be reported n the ta return for the return perod wthn whch
they are frst pad, whether actuay or constructvey. The foow-
ng e ampes w serve to ustrate the appcaton of the provsons
of artce 402 under certan crcumstances:
ampe 1. The M Company, whch pays ts empoyees monthy,
made ts wage payment for the month of March, 1938, on pr 5,
pror to the tme t fed the return on orm SS-a for the perod
anuary 1 to March 31, 1938. The pay ro perod ended on March
31, whch was wthn the return perod for the frst quarter of the
year| and the wages were not pad ether actuay or constructvey
wthn the frst quarter but were actuay pad pror to the tme the
return for the frst quarter was fed. The M Company may at ts
opton report such wages ether n the return for the frst quarter
or n the return for the second quarter.
ampe 2. The N Company, whch pays ts empoyees weeky,
pad ta abe wages to ts empoyees on pr 2, 1938, for servces
performed durng the week ended on that date. Under such cr-
cumstances, the empoyer does not have the opton of reportng such
wages n the return for the frst quarter of the year, wthn whch
return perod wages were earned n part, because the pay ro perod
dd not end wthn such return perod. ccordngy, the N Com-
pany must report such wages n the return for the second quarter
return perod of the year, snce they were actuay pad wthn that
perod.
Secton 807: Coecton and payment of ta es.
Reguatons 91, rtce 410: Payment of ta .
Preparaton of returns and payment of ta es. (See S. S. T. 300,
page 387.)
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Regs. 91, rt. 412.
390
Secton 807: Coecton and payment of ta es. 1938-22-93 4
Reguatons 91, rtce 412: Records. S. S. T. 295
ppcaton of tbe provsons of Tte III of the Soca Securty
ct and of Reguatons 91 to servces performed by substtute
empoyees and assstants to sked workers engaged by such
workers.
dvce s requested reatve to the appcaton of the provsons
of Tte III of the Soca Securty ct and of Reguatons 91,
ssued pursuant thereto, wth respect to servces performed by sub-
sttute empoyees and assstants to sked workers.
It s stated that n many ndustres and ocates t s a common
practce for an empoyee, wth ether the e press or mped consent
of hs empoyer, to engage a substtute for hmsef and pay the sub-
sttute out of hs own remuneraton. In other nstances a sked
worker w kewse hre and pay one or more hepers or assstants
and the records of the empoyer w refect ony the tota amount
of the remuneraton pad to the sked worker. The queston pre-
sented reates to the procedure to be foowed by the empoyer n
mantanng the proper records and preparng the proper returns
under Tte III of the Soca Securty ct so as to ncude theren
the wages pad to the substtute or heper.
very empoyer abe for the ta es mposed under Tte III of
the ct s requred to keep accurate records of a remuneraton pad
to hs empoyees after December 31, 193 , for servces performed for
hm after such date. Such records must show wth respect to each
empoyee
(1) the name and address of the empoyee and the account number
assgned to the empoyee under the ct,
(2) the occupaton of the empoyee,
(3) the tota amount (ncudng any sum wthhed therefrom as
ta or for any other reason) and date of each remuneraton payment
and the perod of servces covered by such payment,
(4) the amount of such remuneraton payment whch consttutes
wages sub|ect to ta , and
(5) the amount of empoyees ta wthhed or coected wth re-
spect to such payment, and, f coected at a tme other than the tme
such payment was made, the date coected.
If the tota remuneraton payment and the amount thereof wuch
s ta abe are not equa, the reason therefor must be made a matter
of record. ccurate records of the detas of every ad|ustment of
empoyees ta or empoyers ta must aso be kept, ncudng the
date and amount of each ad|ustment. No partcuar form s pre-
scrbed for keepng the requred records. ach empoyer may use
such forms and systems of accountng as w enabe the Comms-
soner to ascertan whether the ta es for whch the empoyer s abe
are correcty computed and pad. ( rtce 412, Reguatons 91.)
The ureau has consstenty hed n cases where an empoyee, wth
ether the e press or mped consent of hs empoyer, engages other
ndvduas to perform servces n connecton wth hs empoyment
by such empoyer that such other ndvduas are aso empoyees of
hs empoyer wthn the meanng of the ta ng provsons of the
Soca Securty ct. (S. S. T. 35, C. . -2, 407 (193 ) S. S. T. 70,
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391
Regs. 91, rt. 412.
C. . 1937-1, 387 S. S. T. 77, C. . 1937-1, 371 S. S. T. 233, C. .
1937-2,457 S. S. T. 2 7, page 402, ths uetn.)
In S. S. T. 77, supra, t was hed that a reef or substtute moton
pcture machne operator s an empoyee of the theater company for
purposes of the ta es mposed under Ttes III and I of the ct.
The workng hours and saary of the reguar operator, who s an
empoyee of the theater, are f ed by a contract between the theater
and a abor unon. oth the reguar operator and the substtute
operator are under the contro of the theater durng the respectve
perods of ther empoyment. The theater, however, pays the reguar
operator for the fu amount of empoyment and the reguar operator
pays to the abor unon that part of the amount receved whch s
appcabe to the servces performed by the substtute. The abor
unon n turn pays the substtute operator for hs servces. Under
that rung, the theater s requred to deduct from the wages pad
by t the amount of ncome ta on empoyees mposed by secton 801
of de ct and to pay the e cse ta mposed by secton 804 wth
respect to the wages pad to both empoyees wth a proper aocaton
of the ta to cover the wages receved by each. The theater s aso
requred to carry both men as ts empoyees and to keep such records
and make such reports as w show the empoyment of both
operators.
In S. S. T. 233, supra, where an empoyee of a company, wth ts
mped consent, hred two offce cerks to assst hm n the perform-
ance of hs servces for the company and pad them out of the tota
remuneraton pad hm by the company, the offce cerks were hed
to be empoyees of the company even though ther names dd not
appear on ts pay ro. Under that rung, the amount of wages
or the prncpa empoyee s computed by deductng from hs gross
remuneraton the amount of the wages pad by nm to hs two
assstants. The company s requred to deduct and pay the em-
poyees ta mposed by secton 801 of the ct and pay the empoyers
a mposed by secton 804 wth respect to the wages of the assstants
as we as those of the prncpa empoyee and keep proper records
n connecton therewth. It s necessary, of course, for the prncpa
empoyee to account to the company for the amount of the remunera-
ton pad by hm to each of hs assstants n order that proper records
may be mantaned.
It s thus evdent that f the reatonshp of empoyer and empoyee
e sts n any partcuar case, the fact that such reatonshp may
have come nto e stence other than by drect contact between the
partes concerned does not reeve the empoyer from keepng the
records requred by artce 412, supra, snce such artce specfcay
provdes that the records so requred sha show the data enumerated
theren wth respect to each empoyee. ccordngy, where a so-caed
substtute empoyee or sked worker s heper s hred by an em-
poyee of an empoyer wth ether the e press or mped consent of
the atter, the provsons of aw and the reguatons appcabe to
empoyees generay aso appy to each such substtute empoyee
or heper. The empoyees ta mposed by secton 801 must be de-
ducted from the wages of such an ndvdua, a statement of the ta
so deducted must be furnshed hm n accordance wth artce 200 of
Reguatons 91, proper records must be kept as outned n artce
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Regs. 91, rt. 2.
392
412, supra, and the returns on orm SS-a under Tte III of the
ct must propery refect hs ta abe wages. No partcuar pro-
cedure s prescrbed for obtanng the nformaton necessary for
keepng the requred records. ach empoyer may use such pro-
cedure as w enabe hm to secure the necessary data.
Snce, under Tte I of the ct, ony the tota wages pad or
payabe by an empoyer for the caendar year to a of hs empoyees
s requred to be reported, e cept for the necessty of ncudng a
substtute empoyees or sked workers hepers n the tota num-
ber of ndvduas empoyed for the purpose of compyng wth
artce 307 (3) c of Reguatons 90, the present probem presents no
queston under that tte.
Secton 811: Defntons. 1938-9-921
Reguatons 91, rtce 2: mpoyment. S. S. T. 2 4
( so Secton 907 Reguatons 90, rtce 20 .)
Servces performed for the M Company on a barge whe outsde
the boundary of the State of R and not wthn the boundary mts
of any other State do not consttute empoyment wthn the
meanng of Ttes III and I of the Soca Securty ct
dvce s requested whether servces performed on a barge of the
M Company are sub|ect to the ta es mposed under the Soca Securty
ct.
The servces n queston are performed on a barge owned by the M
Company and permanenty anchored 5 mes outsde the boundary
mts of the State of R and not wthn the boundary mts of any
other State.
Ttes III and I of the Soca Securty ct mpose ta es wth
respect to empoyment, whch s defned as foows:
The term empoyment means any servce, of whatever nature,
performed wthn the Unted States by an empoyee for hs empoyer .
Secton 1101, Tte I, of the ct provdes n part as foows:
Sec. 1101. (a) When used n ths ct
(1) The term State ncudes aska, awa, and the Dstrct
of Coumba.
(2) The term Unted States when used n a geographca sense means the
States, aska, awa, and the Dstrct of Coumba.
To consttute empoyment the servces must be performed wthn
the Unted States, that s, wthn any of the severa States, the Dstrct
of Coumba, or the Terrtory of aska or awa. ( rtce 2,
Reguatons 91: artce 20 , Reguatons 90.) It s evdent that the
term Unted States as used n the ct e cudes a terrtory outsde
of the States as defned.
ccordngy, t s hed that servces performed for the M Company
on the barge whe outsde of the boundary of the State of R and not
wthn the boundary mts of any other State are not servces per-
formed n an empoyment wthn the meanng of the ta ng pro-
vsons of the Soca Securty ct. Labty, therefore, s not n-
curred for the ta es mposed under ether Tte III or Tte I of
the ct wth respect to such servces.
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393
(Regs. 91, rt. 3.
Secton 811: Defntons.
Reguatons 91, rtce 2: mpoyment.
Status of empoyee of oca odge of raway abor organzaton.
(See C. T. 8, page 482.)
Secton 811: Defntons.
Reguaton s 91, rtce 2: mpoyment.
Status of ndvdua performng servces for an empoyer
(under Carrers Ta ng ct of 1937) and aso for person who s not
such an empoyer. (See C. T. 10, page 483.) (
Secton 811: Defntons. 1938-4-91 2
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 249
( so Secton 907 Reguatons 90, rtce 205.)
The branch managers of the N Lfe Insurance Co. are empoyees of
that company wthn the meanng of Ttes III and I of the
Soca Securty ct The soctng agents engaged n performng
servces for the company are ndependent contractors and not
empoyees.
dvce s requested whether the branch managers and soctng
agents of the N Lfe Insurance Co. are empoyees of that company
wthn the meanng of Ttes III and I of the Soca Securty ct.
It s stated that the N Lfe Insurance Co. empoys severa nd-
vduas n the management of ts branch ofces throughout the Unted
States. ach manager s requred to resde wthn the terrtory com-
posng hs agency and to devote hs entre tme to supervsng and
ncreasng the company s busness theren. The company e pressy
reserves the rght to dscharge the manager, to enarge or reduce the
terrtory assgned to hm, or to transfer a part thereof from one
agency to another. ach agency offce s mantaned for the conduct
of the busness of the N Lfe Insurance Co. ony and the manager s
not aowed to use the offce for any other busness. The manager s
responsbe to the company for a the detas connected wth the
securng and handng of soctng agents and of new busness. e
s requred to be famar wth the aws regardng agents censes
whch have been or may be enacted by the State or States n whch
such manager operates. The company from tme to tme ssues et-
ters, crcuars, teegrams, and other nstructons to the manager to
whch he s requred to conform. The manager s requred to work
from 9 n the mornng unt 5 n the afternoon each week day, one
hour beng aowed for unch. e s granted a vacaton wth pay
each year not e ceedng one month. The seecton, promoton, trans-
fer dsmssa, and compensaton of agency cashers, ther assstants,
and other empoyees n the agency rest wth the company, and the
manager may make no changes wthout specfc authorty. The man-
ager s requred to notfy the company by wre of any accdenta
n|ury, ether fata or otherwse, to any empoyee whe engaged n
carryng out the company s busness, and of any accdenta n|ury to
persons or property resutng from the acton of any empoyee whe
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Regs. 91, rt. 3.
394
engaged n carryng out the company s busness. The manager s
compensated on a saary and commsson bass, the basc compensa-
ton beng a saary whch may be ncreased by commssons depend-
ng upon the amount of busness estabshed by the soctng agents
n the terrtory under hs supervson, and contngent upon the man-
tenance of the agency at a standard of effcency satsfactory to the
company. The amount of the saary and the scae of commssons
are f ed by the company n each ndvdua case.
very ndvdua s an empoyee wthn the meanng of Ttes I
and I of the Soca Securty ct f he performs servces n an
empoyment as defned n sectons 811(b) and 907(c), respectvey.
owever, the reatonshp between the person for whom such servces
are performed and t e ndvdua who performs such servces must, as
to those servces, be the ega reatonshp of empoyer and empoyee.
Generay, such reatonshp e sts when the person for whom servces
are performed has the rght to contro and drect the ndvdua who
performs the servces not ony as to the resut to be accompshed by
the work but aso as to the detas and means by whch that resut s
accompshed. That s, an empoyee s sub|ect to the w and contro
of the empoyer not ony as to what sha be done but how t sha be
done. The rght to dscharge s aso an mportant factor ndcatng
that the person possessng that rght s an empoyer. Other factors
characterstc of an empoyer but not necessary present n every case
are the furnshng of toos and the furnshng of a pace to work to
the ndvdua who performs the servces. ( rtce 3, Reguatons
91- artce 205, Reguatons 90.)
Consderng the dutes of the branch managers n queston and the
detaed supervson whch the company e ercses over ther actvtes,
t s concuded that the company e ercses such contro over the man-
ner n whch the managers perform ther servces as to estabsh the
reatonshp of empoyer and empoyee. ccordngy, such managers
are empovees of the N Lfe Insurance Co. for the purpose of Ttes
III and I of the ct. Ths rung does not confct wth G. C. M.
18705 (C. . 1937-2, 379), snce n that case the M. Lfe Insur-
ance Co. nether e ercsed nor had the rght to e ercse the contro
prescrbed by Reguatons 91 and 90, reatng to Ttes III and I
of the ct, respectvey, as beng necessary to estabsh the ega rea-
tonshp of empoyer and empoyee.
The soctng agents of the N Lfe Insurance Co. are engaged by
that company under contract to perform servces n connecton wth
securng poces of fe nsurance. mong other thngs, the contract
provdes that the agent w be requred to pay to the company a
premums or advance payments as soon as coected. The agent s
not permtted to make a rebate on any premum. e s not permtted
to represent any other fe nsurance company. Under the contract,
the agent does not obtan any e cusve rght to terrtory or estabsh
any cam to commssons on busness secured by or through other
agents uness by prevous wrtten agreement. e s not authorzed to
ncur any ndebtedness n the company s name or to sgn the name of
the company to any contract. The company has no rght to prescrbe
rues governng the manner n whch the agent must secure poces
of nsurance, the tme or pace of soctaton, or otherwse contro or
drect the manner n whch servces are performed. The agents are
:
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395
Regs. 01, rt. 3.
not requred to spend a f ed amount of tme n workng for the com-
pany. The contract may be termnated by ether party upon 30 days
notce.
The queston to be decded s whether the soctng agents have
such ndependence n ther operatons that they shoud be cassed as
ndependent contractors rather than empoyees under the ta ng pro-
vsons of the Soca Securty ct. It s the opnon of the ureau
that, as n the case of G. C. M. 18705, supra, the company does not
e ercse, or have the rght to e ercse, the contro prescrbed by the
reguatons as necessary to estabsh the reatonshp of empoyer and
empoyee. It s, therefore, hed that such agents are ndependent
contractors and not empoyees wthn the meanng of Ttes III
and I of the Soca Securty ct.
Secton 811: Defntons. 1938-5-917
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 254
( so Secton 907 Reguatons 90, rtce 205.)
Where C, the e ecutor of s estate, performs certan servces for
the estate outsde the scope of hs offca dutes, he s, wth respect
to such servces, an empoyee of the estate for the purpose of Ttes
III and I of the Soca Securty ct.
dvce s requested reatve to the ta abe status under Ttes III
and I of the Soca Securty ct of the e ecutor of s estate who,
pursuant to the terms of s w, performs certan servces for the
estate outsde the scope of hs offca dutes as e ecutor.
The w of contans the foowng provsons:
I do hereby drect that my sad e ecutor sha annuay receve as compensa-
ton for hs servces such fees as are from tme to tme aowed by the aws of
the State of R to e ecutors admnsterng estates of decedents, but nothng
heren contaned sha be construed so as to prevent my sad e ecutor from per-
formng certan ncdenta servces n connecton wth matters pertanng to my
estate and when so empoyed to receve addtona compensaton as may n ha
opnon be |ust and proper.
C, who was named e ecutor of s estate, s performng certan
sendees for the estate outsde the scope of hs offca dutes as e ecu-
tor. s remuneraton for these servces, C receves from the estate
the sum of doars per month, whch amount s n addton to hs
fees as e ecutor. The queston presented s whether C s an em-
poyee as to such servces.
very ndvdua s an empoyee wthn the meanng of Ttes III
and I of the ct f he performs servces n an empoyment as defned
n sectons 811(b) and 907(c), respectvey. ( rtce 3, Reguatons
91 artce 205, Reguatons 90.) n empoyer may be an ndvdua,
a corporaton, a partnershp, a trust, or an estate. In the case of an
estate or trust, however, a fducary, whether recever, trustee n bank-
ruptcy, or an admnstrator or e ecutor of an estate, s not an em-
poyee wthn the meanng of Ttes III and I of the ct wth
respect to those servces rendered n a strcty fducary capacty n
the ordnary management or qudaton of the estate or trust. In
so far as e ecutors act n a strcty fducary capacty, the ta es m-
posed by Ttes III and I of the ct are not appcabe to the
remuneraton receved by them as such fducares.
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Regs. 91, rt. 3.
39
In the nstant case, however, C, pursuant to the terms of the w, s
engaged n renderng speca servces n connecton wth matters per-
tanng to the estate outsde the scope of hs dutes as fducary. c-
cordngy, t s hed that C s an empoyee of s estate wth respect
to such servces and that the remuneraton he receves therefor con-
sttutes wages under Ttes III and I of the Soca Securty ct.
Secton 811: Defntons. 1938-5-9177
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 255
( so Secton 907 Reguatons 90, rtce 205.)
Where , the e ecutor of the M estate, engages to perform
certan of s offca dutes n the admnstraton of the estate, s,
as to such servces, an empoyee of for the purpose of Ttes III
and I of the Soca Securty ct.
dvce s requested whether or the M estate s the empoyer of
who s engaged by to perform certan of s offca dutes as
e ecutor of the estate.
It s stated that due to the nature of the assets of the M estate, con-
sstng of property, stocks, bonds, etc., t was deemed necessary to em-
poy a fnanca agent and bookkeeper and that , the e ecutor,
empoyed to act for hm as fnanca agent and bookkeeper to hande
personay the affars of the estate sub|ect to s drecton and ap-
prova. The contract between and the e ecutor of the M estate
requres to take charge of the books, to keep a record of a recepts
and dsbursements of the estate, to attend to the makng of both State
and edera reports and ta returns, to keep a record of a stocks,
bonds, and other securtes beongng to the estate, and to see that such
records are carefuy preserved. s pad by from the commssons
whch receves as e ecutor.
very ndvdua s an empoyee wthn the meanng of Ttes III
and I of the ct f he performs servces n an empoyment as de-
fned under those ttes. owever, the reatonshp between the person
for whom such servces are performed and the ndvdua who per-
forms such servces must as to those servces be the ega reatonshp
of empoyer and empoyee. ( rtce 3, Reguatons 91 artce 205,
Reguatons 90.)
It was hed n S. S. T. 120 (C. . 1937-1, 375) that under the ta ng
ttes of the Soca Securty ct estates managed by a fducary shoud
be hed generay to be the empoyer of persons engaged to assst n
the conduct of the estate s affars. owever, n the present case t s
apparent that the contract between and was s ega obgaton
as an ndvdua. (See generay 24 C. ., pages 3- 5, and cases there
cted.) Moreover, snce , the e ecutor, personay pays s compen-
saton out of hs commssons, t s apparent that consders hmsef
to be s empoyer.
It s hed, therefore, that s the empoyee of n carryng out
those dutes of whch he woud ordnary perform hmsef. s an
empoyee of the M estate, however, wth respect to servces whch he
performs for the estate outsde of those customary performed by an
e ecutor.
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397
Regs. 91, rt. 3.
Secton 811: Defntons.
Reguatons 91, rtce 3: Who are empoyees.
amy empoyment. (See S. S. T. 258, page 4G8.)
Secton 811: Defntons. 1938- -9187
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 259
( so Secton 907 Reguatons 90, rtce 205.)
Indvduas engaged under contract n the dstrbuton of mk for
the M Dary Co. are empoyees of that company for the purpose of
the ta es Imposed under Ttes III and I of the Soca Securty
ct
dvce s requested -whether ndvduas who are engaged under
contract n the dstrbuton of mk for the M Dary Co. are empoyees
of that company wthn the meanng of Ttes III and I of the
Soca Securty ct.
It s stated that pror to une, 19 , the M Dary Co. empoyed men
to act as drvers of trucks owned by t and pad them on a saary or
commsson bass. owever, due to the dffcuty of fndng effcent
men, t was decded on and after une 1, 19 , to se the products to
persons who mght dstrbute them n varous terrtores. The com-
pany has now estabshed saes ponts where, between the hours of
2 and 8 a. m., the dstrbutors purchase the products they w need
durng the day. The day prce at whch products are sod to the
dstrbutor s computed by takng the prevang reta market prce
and aowng a dscount provded for n the contract.
Under the contract the dstrbutor s assgned a terrtory wheren
he has the soe and e cusve rght to the sae of mk produced by
the M Dary Co. The dstrbutor s not permtted to se, dever, or
dspose of any of the company s products outsde of such terrtory,
nor may he hande any compettve products wthn the terrtory.
Upon the termnaton of the contract, the dstrbutor must furnsh
the company a compete st of the names and addresses of each
person usng the products n the terrtory. The dstrbutor s not
permtted to transfer or dscose to any person the name or address
or any nformaton reatng to the purchasers n the terrtory. The
company has the rght to enarge, reduce, modfy, or change the
terrtory. The dstrbutor must dspose of the company s products
n hs terrtory at the prevang reta prce for such products. If
any purchaser makes a compant based upon the purty or quaty
of merchandse sod by the company, the dstrbutor s requred to
notfy the company of such cam and of the amount, f any, gven
n settement. The company w aow the dstrbutor credt for the
amount of any vad cam actuay pad, but such cams may not
n any gven day e ceed per cent of the dstrbutor s saes for that
day. The dstrbutor agrees to mantan an accurate route book of
a purchasers served by hm. records of nformaton pertanng
to such purchasers are open to nspecton by the agents of the com-
pany at any tme. The dstrbutor s requred to prepare a new
route book at the end of each caendar month and to surrender the
od route book to the company at that tme. The dstrbutor agrees
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Regs. 91, rt. 3.
398
to purchase and mantan at hs own cost and e pense a truck of
such make and body desgn as sha be approved by the company.
The truck must present a neat appearance and must promnenty
dspay the company s name. Contracts may be termnated by the
company by gvng to the dstrbutor two weeks wrtten notce and
may be termnated by the dstrbutor by gvng the company four
weeks wrtten notce. Durng the perod between the tme such
notce s gven and the termnaton of the contract, the dstrbutor s
requred to show a successor dstrbutor, or any party desgnated by
the company, the terrtory and do a n hs power to acquant hm
wth the purchasers theren n order that the good w of such
purchasers may be preserved and ther patronage retaned by the
company. The dstrbutor agrees to gve hs persona and actve
attenton to the trade n the terrtory, carng for t n a busness-
ke manner and carryng on a systematc campagn of soctaton
for busness theren. e agrees to soct not ess than three pros-
pectve customers day, reportng names, addresses, and resuts to the
company day to keep hs cothng neat and cean and to treat a
purchasers n a courteous and busness-ke manner. e must, at hs
own e pense, wear durng busness hours such tems of wearng
appare as the company may desgnate. Nether the dstrbutor nor
any ndvdua engaged n performng servces under hs drecton
may use nto catng quors durng performance of hs servces,
nor use tobacco n such manner as to offend customers. The
busness deveoped by the dstrbutor n the terrtory assgned to
hm may be handed and served by hm ony so ong as te con-
tract remans n force and effect. The dstrbutor has no rght to
se, assgn, transfer, or dspose of such busness to any other person.
The devery of a merchandse purchased by the dstrbutor must
be made from such pont or ponts as the producer sha determne
from tme to tme.
In determnng whether for the purpose of the ta ng provsons of
the Soca Securty ct the reatonshp of empoyer and empoyee
e sts n any case, the foowng e cerpt from artce 3 of Reguatons
91, ssued pursuant to Tte III of the ct, s pertnent:
Generay such reatonshp e sts when the person for whom serv-
ces are performed has the rght to contro and drect the ndvdua who per-
forms the servces, not ony as to the resut to be accompshed by the work
but aso as to the detas and means by whch that resut s accompshed.
That s, an empoyee s sub|ect to the w and contro of the empoyer not ony
as to what sha be done but how t sha be done. In ths connecton, t s
not necessary that the empoyer actuay drect or contro the manner n whch
the servces are performed : t s suffcent f he has the rght to do so. The
rght to dscharge s aso an mportant factor ndcatng that the person pos-
sessng that rght s an empoyer. Other factors characterstc of an empoyer,
but not necessary present n every case, are the furnshng of toos and the
furnshng of a pace to work, to the ndvdua who performs the servces. In
genera, If an ndvdua s sub|ect to the contro or drecton of another merey
as to the resut to be accompshed by the work and not as to the means and
methods for accompshng the resut, he s an ndependent contractor. n
Indvdua performng servces as an ndependent contractor s not as to such
servces an empoyee.
rtce 205, Reguatons 90, ssued pursuant to Tte I of the
ct, contans substantay smar provsons.
Consderng the provsons of the contract here under consdera-
ton, t s apparent that the company retans a substanta rght of
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399
Regs. 91, rt. 3.
contro over the actvtes of the dstrbutors n seng the products
of the company. The actvtes of each dstrbutor are confned to a
certan desgnated terrtory and he may not hande competng prod-
ucts or engage n any other busness or occupaton. The busness
deveoped by the dstrbutor may be handed and served by hm ony.
The company retans the rght to enarge, modfy, or reduce the
terrtory at any tme. The dstrbutor s bound to dspose of the
products at the prevang reta prce. The contract contans pro-
vsons for keepng the route books and other records n the manner
prescrbed by the company and mantanng a truck satsfactory to
the company. The contract s termnabe by ether party at any tme
provded requste notce s gven, n whch case the dstrbutor
must acquant a successor wth hs route or perform such other
servce for the successor dstrbutor or company as ether sha nd-
cate. The dstrbutor must soct not ess than three prospectve
customers each day, wear such tems of appare as the company may
desgnate, and otherwse conform hs persona conduct to company
standards.
In vew of the amount of drecton and contro whch the M Dary
Co. retans over the dstrbutors n the performance of ther servces,
t s hed that the company and ts dstrbutors stand n the reaton-
shp of empoyer and empoyee for the purposes of Ttes III and
I of the Soca Securty ct. The fact that the transacton be-
tween the dstrbutor and the company s desgnated a purchase and
sae and tte to the products of the company may pass to the ds-
trbutors when such products are devered to them s not decsve of
the queston at ssue.
Secton 811: Defntons. 1938- -9188
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 2 0
( so Secton 907 Reguatons 90, rtce 205.)
Indvduas desgnated as e change reporters engaged by
the M Partnershp are not empoyees of the partnershp wthn
the meanng of Ttes III and I of the Soca Securty ct.
dvce s requested whether e change reporters who perform
servces for the M Partnershp are empoyees of that partnershp
wthn the meanng of Ttes III and I of the Soca Securty
ct
The M Partnershp does a genera aw reportng busness for
courts, governmenta bodes, attorneys, and other persons. It man-
tans a roster desgnated as a reporters ca st on whch t car-
res the names of court reporters n the cty. When the frm receves
an order from a cent t cas the reporter ne t n ne on the ca
st n order to ascertan whether that reporter w accept the par-
tcuar |ob. The reporter s at berty to accept or re|ect any as-
sgnment. If he accepts, the M Partnershp nforms hm where to
report for duty. Subsequenty, ether the reporter or the partner-
shp receves nstructons from the cent as to the number of copes
of the transcrpt requred. The reporters mantan ther offces at
ther own e pense, hre and dscharge ther hep, and offer ther
servces to the pubc n genera. The frm has no rght to nstruct
the reporters n the performance of ther work other than to advse
them where to go and the number of copes of the transcrpt desred
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Regs. 91, rt. 3.
400
by the cent. The reporter s servces termnate when he fnshes an
assgnment and he s engaged agan ony when hs name s reached
on the ca st.
The term empoyment s defned n sectons 811(b) and 907(c)
of the Soca Securty ct as any servce, of whatever nature, per-
formed wthn the Unted States by an empoyee for hs empoyer,
wth certan e ceptons not here matera. very ndvdua s an
empoyee wthn the meanng of Ttes III and I of the ct f he
performs servces n an empoyment as so defned. owever, the
reatonshp between the person for whom servces are performed
and the ndvdua who performs such servces must as to those serv-
ces be the ega reatonshp of empoyer and empoyee. In genera,
f an ndvdua s sub|ect to the contro or drecton of another
merey as to the resut to be accompshed by the work and not as to
the means and methods for accompshng the resut, he s an nde-
pendent contractor. n ndvdua performng servces as an nde-
pendent contractor s not as to those servces an empoyee. ( rtce
3, eguatons 91 artce 205, Reguatons 90.)
ased on the facts presented, t s hed that the M Partnershp does
not e ercse, nor have the rght to e ercse, the contro contempated
by artces 3 and 205, supra, to estabsh the ega reatonshp of
empoyer and empoyee. ccordngy, the e change reporters n
queston are not empoyees of the M Partnershp wthn the meanng
of Ttes III and I of the Soca Securty ct.
Secton 811: Defntons. 1938-9-9217
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 2C5
( so Secton 907 Reguatons 90, rtce 205.)
Under the ta ng provsons of the Soca Securty ct, the M
Company s not the empoyer of servants whch t furnshes to
prvate homes.
dvce s requested whether the mads, buters, etc., furnshed to
prvate homes by the M Company are empoyees of that company
wthn the meanng of Ttes III and I of the Soca Securty ct.
It s stated that the M Company suppes domestc hep to home
owners upon request. arous servants eave ther names and tee-
phone numbers wth the M Company and when a home owner re-
quests a servant, the M Company cas one of those on ts st and
ssues nstructons where to report for work. The company ssues no
further nstructons to the servant, whose servces are controed en-
trey by the home owner for whom he s engaged. Under the verba
contract between the home owner and the M Company, the former
agrees to pay the company for the servant s servces and the atter
deducts per cent from the amount so pad, turnng the baance over
to the servant. When a servant s not engaged n performng servces
for a cent of the M Company, he s free to accept other work.
Under Ttes III and I of the Soca Securty ct, the reaton-
shp of empoyer and empoyee e sts when the person for whom
servces are performed has the rght to drect and contro the person
who performs the servces not ony as to the resut to be accompshed
by the work but aso as to the detas and means by whch that
resut s accompshed. ( rtce 3, Reguatons 91 artce 205, Reg-
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401
Regs. 91, rt. 3.
uatons 90.) Under the facts stated, the M Company merey advses
the servant where work s avaabe. If the servant s aready work-
ng esewhere, he s at berty to re|ect the offer. On the other hand,
t s evdent that the home owner for whom a servant s performng
servces has the rght to drect and contro the servant n the rend-
ton of hs servces. It s hed, therefore, that the servants perform-
ng servces under the crcumstances set forth are not empoyees of
the M Company for the purpose of the ta es mposed under the
Soca Securty ct.
In vew of the e cepton accorded domestc servce n a prvate
home under sectons 811(b)2 and 907(c)2 of the ct, no abty
arses on the part of the home owners wth respect to the servces
n queston f performed n or about ther prvate homes. If, how-
ever, the servces are not performed n or about the prvate home of
an empoyer, such servces are not e cepted from the ta ng
provsons of the ct.
Secton 811: Defntons. 1938-10-9229
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 2
( so Secton 907 Reguatons 90, rtce 205.)
, the essee of a gasone servce staton owned by the M
Company, a producer of o and gasone, who purchases hs sup-
pes, f es hs sae prces, hres and dscharges hs own hep, and
pays a the e penses of operaton a not an empoyee of that
company wthn the meanng of Ttes III and I of the Soca
Securty ct.
dvce s requested whether , the essee of a gasone servce
staton owned by the M Company, a producer of o and gasone, s
an empoyee of that company wthn the meanng of Ttes III and
I of the Soca Securty ct.
eases a servce staton from the M Company, whch staton he
operates as hs own busness. The ease entered nto between and
the company s for successve perods of months sub|ect to term-
naton by ether party upon notce n wrtng to the other party at
east 10 days pror to the e praton of any -month perod. The
rent for the staton s a defntey stated amount payabe each month
n advance. s not requred by the company to mantan any
records or to keep any books, and f he mantans such records or
hooks, the company has no rght to e amne them.
In addton to the ease agreement, has entered nto a reseer s
contract wth the company under whch the atter agrees to make
deveres of ts gasone to n such amounts and at such tmes
as may drect. agrees to pay for the gasone n cash at the
tme of devery. The prce whch the company charges for gaso-
ne s the same as that charged the deaers who do not enter nto
eases wth the company. The prce at whch gasone s sod by
s not determned by the company and he may vary the seng prce
f he desres. s not requred under the reseer s contract to pur-
chase any products from the company and he may, f he so desres,
cose the staton wthout voatng the terms of the ease. The
contract contans specfc provsons to the effect that the essee s
entrey free to carry on the busness of the servce staton wthout
any drecton or contro on the part of the company. s not re-
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Regs. 91, rt. 3.
402
qured to attend any of the company s tranng schoos or saes
meetngs. e s prohbted from empoyng any ndvduas n the
name of or on behaf of the company and the company possesses
no rght of contro over the persons whom engages to assst hm
n hs busness. s notprohbted from seng products supped
by compettors of the M Company and does n fact se merchandse
whch s not supped by the company, ncudng os, candy, cod
drnks, and cgarettes. profts derved from the operaton of
the busness beong to and are not reported or accounted for to
the company n any way. The company does not pay any of the
e penses of operaton of the staton, a such e penses, ncudng ta es
and censes, beng borne by the essee. s not requred to st the
staton n the teephone or other drectory under the name of the
company. The company furnshes advertsng terature to but
a advertsng by s on hs own account and s not sub|ect to the
approva of the company. Nether nor hs empoyees are requred
to wear any partcuar unform, athough a speca type of unform
s avaabe for sae to any person who handes the company s prod-
ucts. may honor credt cards ssued by the company but he s not
requred to do so. ny bonuses or przes whch may be pad to
by the company to stmuate saes are made avaabe to other essees
under smar contract eases as we as to other deaers. s not
entted to partcpate n the company s retrement ncome pan.
Under Ttes III and I of the Soca Securty ct, an ndvd-
ua s an empoyee f he performs servces n an empoyment as
defned n sectons 811(b) and 907(c), respectvey. owever, the
reatonshp between the person for whom servces are performed and
the ndvdua who performs the servces must, as to those servces,
be the ega reatonshp of empoyer and empoyee. Generay, such
reatonshp e sts f the person for whom servces are performed
has the rght to drect and contro the ndvdua who performs the
servces not ony as to the resut to be accompshed by the work but
aso as to the detas and means by whch that resut s accompshed
that s, an empoyee s sub|ect to the w and contro of the em-
poyer not ony as to what sha be done but how t sha be done.
( rtce 3, Reguatons 91 | artce 205, Reguatons 90.)
Under the facts stated, t s apparent that the M Company does
not e ercse, or have the rght to e ercse, over the servces of ,
the contro whch s prescrbed by artces 3 and 205, supra, as beng
necessary to estabsh the reatonshp of empoyer and empoyee.
ccordngy, s not an empoyee of the M Company for the pur-
pose of the ta es mposed under Ttes III and I of the ct.
s, however, the empoyer of those ndvduas engaged by hm n
the operaton of the servce staton.
Secton 811: Defntons. 1938-10-9230
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 2 7
( so Secton 907 Reguatons 90, rtce 205.)
, the operator of a gasone servce staton owned by the O O Co.,
who s restrcted as to the prce at whch he must se petroeum prod-
ucts, s not permtted to se compettve products on the premses,
and s requred to perform such servces as the company may drect,
s an empoyee of the O O Co. wthn the meanng of Ttes III
and I of the Soca Securty ct.
I
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403
Regs. 91, rt. 3.
dvce s requested whether , the operator of a gasone servce sta-
ton owned by the O O Co., who performs servces under crcum-
stances herenafter stated, s an empoyee of that company wthn the
meanng of Ttes III and I of the Soca Securty ct.
eases a servce staton from the O O Co. for the purpose of se-
ng and dstrbutng petroeum products supped by the company.
Under the saes contract between and the O O Co., the former
agrees to coect a moneys that may be due the company for goods
sod by hm to care for a property of the company that may be
paced n hs charge to keep the servce staton premses n a cean,
heathfu, and attractve condton to the satsfacton of the company
and propery to dspay a advertsng matter supped to hm. e s
requred to make such reports and perform such other dutes n con-
necton wth the operaton of the staton as may be requested of hm
by the company, and fathfuy and accuratey to account for a funds,
goods, products, and property of every knd beongng to the com-
pany comng nto hs possesson or under hs contro. s requred
to hre at hs e pense such aborers and assstants as are necessary to
accompsh hs work, and s requred to pay a e penses ncdent to
the proper operaton and mantenance of the servce staton, ncud-
ng the e pense of eectrc ght and power, teephone, fue, ce, and
water. saes made by must be consummated at prces f ed by
the company and sha be for cash ony, or on credt at such tmes and
n such amounts as may be specfcay authorzed n wrtng by the
company. The servce staton premses may be used by ony for the
advertsement, storage, and sae of products of the company and no
compettve products may be advertsed, stored, or sod on such
premses. The company pays or credts wth a stated dfferenta
for each gaon of a partcuar quaty of gasone sod by hm based
on the quantty of such gasone sod by hm durng any caendar
month. The saes contract may be termnated at the w of the com-
pany wthout notce.
Under the ease agreement between and the company, the former
agrees to pay the company a renta of 1 cent for each gaon of
gasone or motor fue devered to the premses, payabe on the date
of devery of such gasone to s storage tanks. s not permtted
to make ateratons or addtons to the premses of the company wth-
out the company s consent. e may not assgn the ease agreement
or subet the premses, mprovements, or equpment, or any part
thereof, wthout the wrtten consent of the company. The ease
agreement may be termnated by ether party at the e praton of
any caendar month by 30 days prevous notce to the other party
n wrtng, e cept that upon any breach of the provsons of the
ease agreement the company reserves the rght mmedatey to ter-
mnate the agreement wthout notce and to repossess the premses,
mprovements, and equpment.
very ndvdua s an empoyee wthn the meanng of Ttes
TII and I of the ct f he performs servces n an empo| ment
as defned n sectons 811(b) and 907(c), respectvey. Generay the
reatonshp of empoyer and empoyee e sts f the person for whom
servces are performed has the rght to drect and contro the nd-
vdua who performs the servces not ony as to the resut to be
accompshed by the work, but aso as to the detas and means by
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Regs. 91, rt. 3.
404
whch that resut s accompshed. ( rtce 3, Reguatons 91
artce 205, Reguatons 90.)
In S. S. T. 2G page 401, ths uetn t was hed that , the
essee of a gasone servce staton owned by the M Company, who
urchases hs suppes, f es hs seng prces, hres and dscharges
s own hep, and pays a the e penses of operaton s not an em-
poyee of that company wthn the meanng of Ttes III and I
of the ct. In the nstant case, however, the prces at whch the
products are sod are f ed by the company and the company pre-
scrbes the condtons under whch credt may be e tended. s
requred to render detaed statements to the company and to perform
such other servces as the company may drect. s not permtted
to se any compettve products on the premses nor may ne nsta
any structures, mprovements, or equpment the|reon. Upon the
bass of the facts n ths case, t s hed that the O O Co. e er-
cses, or retans the rght to e ercse, the degree of drecton and
contro over the performance of servces by whch s prescrbed
by the reguatons under Ttes III and I of the ct as beng
necessary to estabsh the reatonshp of empoyer and empoyee
for the purpose of those ttes. It s concuded, therefore, that
s an empoyee of the O O Co. wthn the meanng of the ta ng
provsons of the ct.
The ureau has hed that n cases where an empoyee of a com-
pany, wth ether the e press or mped consent of that company,
empoys other ndvduas to assst hm n the performance of hs
servces for the company, such other ndvduas are aso empoyees
of the company. (See S. S. T. 35, C. . -2, 407 (193 ), and
S. S. T. 70. C. . 1937-1, 387.) Therefore, snce s an empoyee
of the O O Co., any ndvduas engaged by hm wth the e press
or mped consent of the company to perform servces n connecton
wth hs empoyment by the company are aso, to that e tent, em-
poyees of the company wthn the meanng of the ta ng provsons
of the ct. The ta abe wages of and the ndvduas engaged
by hm n the operaton of the staton shoud be computed n accord-
ance wth the rues contaned n S. S. T. 233 (C. . 1937-2, 457).
Secton 811: Defntons. 1938-12-9249
Reguatons 91, rtce 3: Who are empoyees. Mm. 4730
( so Secton 907 Reguatons 90, rtce 205.)
Informaton requred to be submtted to the ureau In doubtfu
cases nvovng the queston as to whether fe nsurance agents are
empoyees for purposes of the ta es mposed under Ttes III and
I of the Soca Securty ct.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, ebruary 17, 1938.
To Coectors of Interna Revenue and Others Concerned:
Ths offce s n recept of numerous nqures from fe nsurance
companes and other nterested partes reatve to the nformaton
whch t s necessary to submt to the ureau n order to obtan ru-
ngs as to whether agents engaged n soctng appcatons for n-
surance and performng other servces for such companes are em-
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405
Regs. 91, rt. 3.
poyees or ndependent contractors for purposes of the ta es mposed
under the Soca Securty ct. These requests are prompted by the
fact that the ureau, under the ct and the provsons of artces
3 and 205 of Reguatons 91 and 90, respectvey, ssued pursuant to
Ttes III and I thereof, s wthout authorty to make so-caed
banket rungs whch woud have appcabty n the case of
a fe nsurance agents rrespectve of the crcumstances under whch
they perform ther servces.
s stated n the afore-mentoned artces of the reguatons,
whether the reatonshp of empoyer and empoyee e sts w n
doubtfu cases be determned upon an e amnaton of the partcuar
facts of each case. Ths provson of the reguatons s controng
n any case where doubt e sts as to whether, for purposes of the ta es
mposed under the ct, the reatonshp of empoyee and empoyer
e sts between an ndvdua performng servces and the person
for whom they are performed. ccordngy, the ony nstance where
a rung made by the ureau n the case of an agent of a partcuar
fe nsurance company may be deemed appcabe n the case of
other agents of the same or of a dfferent company, s where the facts
and crcumstances n the case of such other agents do not dffer n
any matera respect from those e stent n the case upon whch the
ureau s rung was predcated. To ths e tent, rungs heretofore
made by the ureau wth respect to the status of agents of a par-
tcuar fe nsurance company may be foowed by other companes,
provded such other companes are abe to substantate ther concu-
sons n the matter f caed upon to do so.
In the case of any fe nsurance company whch entertans doubt
as to whether ts agents come wthn the scope of any prevous de-
cson made by the ureau and whch s desrous of obtanng a
specfc rung n the matter, t w be necessary that the foowng
nformaton be submtted by the company or by ts duy authorzed
attorney or agent who s enroed to practce before the Treasury
Department:
. photostatc or certfed copy of the e ecuted contract (n-
cudng any suppementa agreements, rders, etc.), pursuant to whch
servces are actuay beng performed by a partcuar agent whose
stans s typca of the cass of agents wth respect to whch a ru-
ng s desred. If rungs are desred wth respect to more than one
cass of agents (such as genera agents, managers, dstrct agents,
soctng agents, speca agents, part-tme agents, brokers, etc.), ths
data shoud be submtted wth respect to a representatve member
of each cass. If the form of contract or contracts now beng used
by the company have undergone substanta changes snce anuary
1, 193 , photostatc or certfed copes of e ecuted contracts entered
nto on the form as t appeared pror to such changes shoud aso
be submtted. Mnor changes, such as changes n rates of comms-
son, types of poces whch may be ssued, etc., may be e paned n
a separate statement wthout the necessty for submttng copes of
the contracts as they appeared pror thereto. In the event the con-
tract s oray made, a statement gvng n deta the compete terms
and condtons thereof and an e panaton of any changes made
theren snce anuary 1,193 , together wth copes of the appcaton
for an agency, etters of appontment, and other correspondence
and data reatng thereto shoud be submtted.
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Regs. 91, rt. 3.
40
. descrpton of the agency organzaton of the company, ncud-
ng a statement as to (1) whether the company operates under the
genera agency system, under the branch offce system, under both
such agency pans, or under some other system, and a fu e pana-
ton thereof (2) the dfferences n the condtons and crcumstances
under whch servces are performed by any agents whch the com-
pany may consder to be ts empoyees for purposes of the ta es
mposed under the Soca Securty ct and those under whch serv-
ces are performed by agents whch the company contends are not
ts empoyees for such purposes (3) the tota number of agents n
each cass wth respect to whch a rung s desred, ndcatng n the
case of each such cass, the number of corporatons, partnershps, or
unncorporated organzatons actng as agents and (4) the names
and addresses of a representatve number of agents n each cass,
specfyng whch are corporatons, partnershps, unncorporated or-
ganzatons, ndvduas operatng under trade names, etc.
C. n e panaton of the varous provsons of each contract sub-
mtted whch the company deems necessary for an understandng
thereof, n consderaton of the manner n whch such provsons have
been carred out n actua practce and n the ght of the customs and
usages of the busness.
D. Copes of a rues, reguatons, nstructons, and manuas ssued
by the company to the partcuar agents whose contracts are submtted,
specfyng n a separate statement attached thereto the e tent, f any,
to whch such rues and reguatons, etc., prescrbe the means and
methods the agents are requred to foow, or may be requred to fo-
ow, n the conduct of ther servces.
. In the case of the partcuar genera agent (or other ndvdua
occupyng a status n the company s organzaton smar to that of a
genera agent, rrespectve of how he may be desgnated) whose con-
tract s submtted, a statement settng forth n deta the condtons
and crcumstances under whch he performs servces for the company.
Ths statement shoud ncude, n the case of such genera agent or
other ndvdua, nformaton wth respect to the matters outned
beow. If the company vares ts genera practce n regard to any
of such matters n partcuar cases, such varatons, together wth the
reasons therefor, shoud be noted.
(1) Compete and comprehensve nformaton as to the e tent, f
any, to whch, and the crcumstances under whch, the company
furnshes the genera agent wth offce or desk space, furnture, equp-
ment, factes, etc., or contrbutes n any way to the e penses ncurred
by the genera agent n connecton wth hs agency operatons, specfy-
ng whether the genera agent s requred to account to the company
for any part of such e penses. In the event the offce of the genera
agent s eased n the name of the company, or the company has the
rght to take over the genera agent s offce at any tme, a fu e pana-
ton thereof shoud be gven.
(2) The e tent to whch the company furnshes the genera agent
wth forms, statonery, advertsng matter, and other smar suppes.
(3) Whether the company requres the genera agent to keep records
of any nature. If so, submt nformaton wth respect to ther char-
acter and specfy the crcumstances, f any, under whch they are open
to nspecton by the company.
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407
Regs. 91, rt. 3.
(4) Whether the genera agent s requred to submt reports of any
nature to the company, ether on forms prescrbed by the company
or otherwse. If so, ndcate ther character fuy and specfy as to
the frequency wth whch they are requred to be furnshed.
(5) Whether the genera agent performs any servces n connecton
wth the coecton of premums other than frst year premums, and,
f so, whether he receves addtona compensaton therefor, such
as coecton fees, a hgher commsson rate, etc. aso whether the
company empoys a casher n the offce of the genera agent to hande
coectons.
( ) Whether the genera agent s requred to servce poces n any
manner, and, f so, the nature of the reports he s requred to make
n connecton therewth.
(7) Whether the genera agent s furnshed wth eads by the
company, and, f so, whether he s requred to foow up such eads
and make reports thereon.
(8) Whether the company furnshes the genera agent wth hs
means of transportaton or prescrbes the mode of such transporta-
ton. In the event the genera agent s not furnshed wth the means
of transportaton, specfy whether he s rembursed for traveng
e penses.
(9) Whether the genera agent may advertse n hs own name or
whether he s requred to use the name of the company. In ether
event, specfy whether the advertsng matera to be used by the
agent s requred to be submtted to the company for ts approva
pror to pubcaton.
(10) pan fuy the manner n whch the genera agent s ap-
ponted aso ndcate whether he s requred or e pected to undergo
any speca perod of tranng, take correspondence courses, attend
casses, saes meetngs, conferences, etc.
(11) Whether the genera agent engages cerca, stenographc, or
other offce assstants. If so, whether such ndvduas are empoyed,
compensated, and sub|ect to dscharge by the agent on hs own ac-
count, by the company drecty, or by the agent actng for and on
behaf of the company. pan fuy.
(12) detaed e panaton of the manner n whch the genera
agent s compensated. If a drawng account or advance of any knd
aganst unearned commssons s aowed, compete nformaton rea-
tve thereto shoud be furnshed.
(13) Whether a specfed terrtory s assgned to the genera agent,
and, f so, whether he has e cusve rghts theren.
(14) Wether the genera agent s requred to produce a mnmum
voume of busness n hs terrtory, and, f so, a statement of the acton
taken, or whch may be taken, by the company n cases where a suff-
cent voume s not so produced.
(15) Whether or not the genera agent s requred to devote any
partcuar amount of tme to the company s busness. In ether event,
specfy whether the genera agent s permtted to represent other
nsurance companes, whether compettve or noncompettve, or to
engage n other types of busness.
(1 ) Whether the genera agent has any propretary nterest n the
nsurance wrtten by hm (or by hs subagents ) whch he may se,
assgn, or otherwse dspose of wthout the consent of the company.
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Regs. 91, rt. 3.
408
(17) State n genera some of the causes whch have prompted the
company to termnate contracts wth genera agents smar to the
contract of the agent whose case s submtted.
. In the case of each subagent (ncudng, for purposes of
ths questonnare, agents denomnated as dstrct agents, speca
agents, soctng agents, part-tme agents, brokers, etc ) whose con-
tract s submtted, a statement settng forth n deta the condtons
and crcumstances under whch hs servces are performed. Ths
statement shoud ncorporate n the case of each such subagent
nformaton smar to that requested n the case of the genera agent,
as set forth n paragraph above (sub|ect, of course, to such modf-
caton as the dfference n ther respectve postons n the company s
agency organzaton may requre), and shoud ncude not ony nfor-
maton n regard to the reatonshp e stng between the partcuar
subagent and the company wth respect to the matters outned
under such paragraph , but aso nformaton n regard to the rea-
tonshp e stng between such subagent and the genera agent or
other superor agent by whom he s apponted or under whose super-
vson he performs servces, provded such atter nformaton s wthn
the knowedge of the company.
G. compete e panaton of the coecton system mantaned by
the company, f such nformaton has not been prevousy furnshed
n response to any of the above questons.
. Whether the company empoys supervsors or other ndvduas
to act generay as contact men between t and the varous agents.
If so, submt a comprehensve statement of the dutes of such
ndvduas.
I. n affdavt e ecuted by each partcuar genera agent and sub-
agent whose contract s submtted certfyng that he s n agree-
ment wth the company s representaton of the facts n hs case or
specfyng the partcuars wth whch he s not n accord and hs
reasons therefor.
. In addton to the foregong, the company s prveged, f t
so desres, to submt such other pertnent data wth respect to the
status of ts agents as t may wsh. Such other data, whe not
requred to be furnshed, may take the form of brefs on the re-
atonshp whch the company contends e sts between t and ts
varous casses of agents resumes of rungs ssued by the varous
State unempoyment compensaton commssons on the status of such
agents references to any commsson hearngs, court decsons, or
proceedngs n whch the status of such agents has been, or s beng,
consdered etc.
The nformaton furnshed n response to such of the above ques-
tons as reate to the company s practces and organzaton and the
facts e stent n the case of each partcuar agent wth respect to
whom a rung s requested shoud be submtted n the form of an
affdavt e ecuted by the presdent or other responsbe offcer of the
company havng knowedge thereof. nformaton and data sub-
mtted become a part of the records of the ureau and may not be
returned.
Correspondence n regard to the contents of ths mmeograph
shoud refer to ts number and to the symbo SST.
Gut T. everng,
Commssoner.
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409
Regs. 91, rt. 3.
Secton 811: Defntons. 1938-12-9250
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 271
( so Secton 907 Reguatons 90, rtce 205.)
, an attorney engaged by the M Law rm, who Is furnshed
a pace to work, performs servces for the frm under ts drecton,
and s requred to work certan hours each day, s an empoyee of
the frm wthn the meanng of Ttes III and I of the Soca
Securty ct
dvce s requested whether , an attorney engaged by the M Law
rm, s an empoyee of the frm wthn the meanng of Ttes III
and I of the Soca Securty ct.
The M Law rm has engaged the servces of , who s desgnated
as an assocate attorney and s pad a f ed annua saary. s not
a member of the aw frm. e s furnshed offce space and steno-
graphc hep and s requred to work from 9 a. m. to 4 p. m. s
engaged prncpay n research work whch s assgned to hm by
the frm. In addton to hs reguar dutes, he handes certan cases
whch aso are assgned to hm by the frm and from whch he
receves the fu fees.
Under artces 3 and 205 of Reguatons 91 and 90, respectvey,
physcans, awyers, dentsts, and others who foow an ndependent
trade, busness, or professon, n whch they offer ther servces to
the pubc, are generay ndependent contractors and not empoyees.
owever, ths s not to say that such persons are n a stuatons to
be cassfed as ndependent contractors as dstngushed from em-
poyees for the purpose of the ta ng provsons of the Soca Secu-
rty ct. If such an ndvdua s sub|ect to the contro of the person
for whom the servces are performed not ony as to the resut to be
accompshed but aso as to the detas and means by whch that re-
sut s accompshed, then he s an empoyee regardess of the fact
that he s a myscan, awyer, or other professona man.
In S. S. T. 8 (C. . 1937-1, 4 2), t was hed that an attorney
engaged by the M Corporaton and pad a retaner fee to defend the
corporaton n any sut that may be brought aganst t durng the
year, whether or not he performs any servces for t durng the year,
s not an empoyee of the co poraton for the purpose of Tte I of
the Soca Securty ct. owever, n the present case, nasmuch as
s requred to work durng certan hours, s furnshed offce space,
and s requred to perform such servces as the frm may from tme to
tme drect, t s hed that the M Law rm possesses the rght of
contro over s servces requred by the reguatons under Ttes
III and I of the ct to estabsh the reatonsp of empoyer
and empoyee. ccordngy, hs reguar annua remuneraton and
the fees whch he receves for cases whch are assgned to hm con-
sttute wages wthn the meanng of those ttes.
Secton 811: Defntons. 1938-15-9293
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 278
( so Secton 907 Reguatons 90, rtce 205.)
Saes agents engaged n performng servces for the M Manu-
facturng Co. are empoyees of that company for the purpose of
Ttes III and I of the Soca Securty ct.
83421 3S 14
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Regs. 91, rt. 3.
410
dvce s requested whether saes agents engaged by the M Manu-
facturng Co. are empoyees of that company for the purpose of the
ta es mposed under the Soca Securty ct.
Under the contract between the agent and the M Manufacturng
Co., the former agrees to carry out and deveop the busness of seng
the products of the company n the terrtory assgned to hm. e
must adhere strcty to the prces f ed by the company and be gov-
erned by the rues and reguatons n e stence when the contract
went nto effect and any addtons or amendments thereto, or any
other nstructons whch the company may ssue from tme to tme.
saes made by the agent are sub|ect to acceptance and approva
of the company. If the agent mantans an offce, he s requred to
pace the name of the company on the offce door, on the drectory
board of the budng n whch the offce s ocated, and n the tee-
phone drectory. e s requred to mantan warehouse space sut-
abe to, and approved by, the company for the purpose of storng
such stock as may be consgned to hm. n nventory of the con-
sgned stock must be furnshed each month and such other reports
as may be requred by the company must be prompty made. The
agent agrees to make no deveres of stock e cept n accordance wth
nstructons of the company and, f requested, to make deveres
of consgned merchandse wthout compensaton from the company
other than for e penses. e must carry abty nsurance on each
automobe used n connecton wth the busness and he may not
dscose to other persons any confdenta nformaton nor engage n
the sae or dstrbuton of compettve products durng the fe of the
contract or for two months after ts termnaton. s remuneraton
for hs servces, the agent receves a per cent of the reta prce of
the products sod by hm. The contract may be termnated by ether
party upon 30 days notce to the other, e cept that for any breach
of the terms of the contract the company may mmedatey effect
ts termnaton.
rtce 3 of Reguatons 91, appcabe to Tte III of the Soca
Securty ct, reads n part as foows:
very Indvdua s an empoyee wthn the meanng of Tte III
of the ct f he performs servces n an empoyment as defned n secton
811(b) (see artce 2).
owever, the reatonshp between the person for whom such servces are
performed and the Indvdua who performs such servces must as to those
servces be the ega reatonshp of empoyer and empoyee. Generay such
reatonshp e sts when the person for whom servces are performed has the
rght to contro and drect the ndvdua who performs the servces, not ony
as to the resut to be accompshed by the work but aso as to the detas and
means by whch that resut s accompshed. That s, an empoyee s sub|ect
to the w and contro of the empoyer not ony as to what sha be done but
how t sha be done. In ths connecton, t s not necessary that the empoyer
actuay drect or contro the manner In whch the servces are performed t s
ufcent f he has the rght to do so. The rght to dscharge s aso an mportant
factor ndcatng that the person possessng that rght s an empoyer .

If the reatonshp of empoyer and empoyee e sts, the desgnaton or descrp-
ton of the reatonshp by the partes as anythng other than that of empoyer
and empoyee s mmatera. Thus, f such reatonshp e sts, t s of no conse-
quence that the empoyee s desgnated as a partner, coadventurer, agent, or
ndependent contractor.
rtce 205 of Reguatons 90, appcabe to the ta mposed under
Tte I , contans substantay the same provsons.
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411
Regs. 91, rt. 3.
Under the facts presented, t s hed that the M Manufacturng Co.
retans the rght of drecton and contro over ts saes agents to an
e tent suffcent to estabsh the ega reatonshp of empoyer and
empoyee. ccordngy, such ndvduas are, for the purpose of
Ttes III and I of the Soca Securty ct, empoyees of that
company.
Secton 811: Defntons. 1938-15-9294
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 279
( so Secton 907 Reguatons 90, rtce 205.)
Saes agents engaged n the sae and dstrbuton of the products
of the N Manufacturng Co. are not empoyees of that company
wthn the meanng of Ttes III and I of the Soca Securty
ct
dvce s requested whether saes agents engaged n the sae and
dstrbuton of products manufactured by the N Manufacturng Co.
are empoyees of that company wthn the meanng of the ta ng
provsons of the Soca Securty ct.
It s stated that the saes agents of the N Manufacturng Co. are
engaged by the dstrct managers of that company and are gven e -
cusve rghts to se goods of the company n ther respectve com-
muntes. s a condton precedent to ther appontment as agents,
the appcants must possess a desgnated amount of capta wth
whch to purchase ther equpment. Under the contract between the
company and the agent, the atter agrees to purchase merchandse
from the company at whoesae prces, whch merchandse s to be
resod at st reta prces n the specfed terrtory. The dfference
between the whoesae prce and the seng prce consttutes the
agent s proft. The merchandse sod s shpped to the saes agent
and the company has no drect contact wth the customers. The
agent has an account wth the company and pays for the goods on
a cash, c. o. d., or 30-day credt bass. e s not requred to work
certan hours nor s he requred to make any reports to the com-
pany. e pays for hs transportaton, meas, advertsng, teephone,
etc., and receves no aowance from the company as rembursement
for such e penses. Where an agent has an offce, he pays hs own
rent, saares of hs empoyees, and a other e penses. e s not
controed or drected by the company n the soctaton of busness
and may at hs own convenence ca on such customers as he chooses
wthn the terrtory assgned to hm. e agrees, however, to fu-
f a reasonabe quota of saes and obgates hmsef not to become
nterested drecty or ndrecty n any compettve enterprse. e
agrees to dea honesty wth, and to make no fase statements con-
cernng, compettors or ther products and to pay for a sampe
equpment furnshed to hm. In competng a sae, the agent must
use a prescrbed form of recept ndcatng the name of the product,
the name of the customer, and a cear statement of the terms of
sae. In case of termnaton of the contract, the agent agrees to
return prompty to the company a te tbooks, prce sts, and other
confdenta nformaton beongng to the company. The contract
may be termnated by ether party upon 0 days wrtten notce
pror to the e praton of any yeary perod.
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Regs. 91, rt. 3.
412
very ndvdua s an empoyee wthn the meanng of Ttes
III and I of the ct who performs servces n an empoyment
as defned n sectons 811(b) and 907(c), respectvey. owever,
the reatonshp between the person for whom such servces are per-
formed and the ndvdua who performs such servces must as to
those servces be the ega reatonshp of empoyer and empoyee.
Generay such reatonshp e sts when the person for whom servces
are performed has the rght to contro and drect the ndvdua who
performs the servces, not ony as to the resut to be accompshed by
the work but aso as to detas and means by whch that resut s
accompshed. In genera, f an ndvdua s sub|ect to the contro
or drecton of another merey as to the resut to be accompshed
by the work and not as to the means and methods for accompshng
the resut, he s an ndependent contractor. n ndvdua perform-
ng servce as an ndependent contractor s not as to such servce an
empoyee. ( rtce 3, Reguatons 91 artce 205, Reguatons 90.)
In S. S. T. 278 (page 409, ths uetn) t was hed that saes
agents engaged n performng servces for the M Manufacturng Co.
are empoyees of that company for the purpose of Ttes III and
I of the Soca Securty ct. In that case, however, the agents
were requred to foow such nstructons as mght be ssued by the
company from tme to tme, prompty to submt varous reports and
nventores, to make deveres of stock as drected by the company,
or, n other words, to foow the detas and methods prescrbed by the
company for the sae of ts goods. The saes agents here nvoved
have a wder ndependence of acton. The rght of contro possessed
by the company s mted e cusvey to such matters as prces, the
terrtory n whch the saes are to be made, and n genera the fnanca
arrangements between the partes. It s not beeved that the prov-
sons of artces 3 and 205 wth respect to contro are ordnary
appcabe to such matters as prces, terrtory, etc., but rather to the
rght of contro remanng n one party over the other as to the method
and detas of operaton, and, as stated theren, the manner n whch
the servces are performed. In the nstant case, the N Manufac-
turng Co. nether e ercses, nor does t have the rght to e ercse,
contro over the agents as to how they sha conduct themseves n the
performance of ther servces. No nstructons n ths regard are
ssued nor are reports of any character requred of the agents. They
may operate under ther own names wthout nterference from the
company and are not rembursed for any e penses ncurred n the
operaton of ther respectve enterprses. Under the facts n ths
case, t s hed that the saes agents engaged n the sae and dstrbu-
ton of products manufactured by the N Manufacturng Co. are not
empoyees of that company for the purpose of Ttes III and I
of the Soca Securty ct.
Secton 811: Defntons. 1938-15-9295
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 280
( so Secton 907 Reguatons 90, rtce 205.)
Dstrct saes managers engaged In performng servces for the
O Company are empoyees of that company wthn the meanng of
Ttes III and I of the Soca Securty ct.
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413
Regs. 91, rt. 3.
dvce s requested whether dstrct saes managers engaged n per-
formng servces for the O Company are empoyees of that company
wthn the meanng of Ttes III and I of the Soca Securty ct.
Under the contract between the O Company and ts dstrct saes
managers, the atter agree to supervse saes representatves of the
company wthn specfed terrtores. Ths supervson conssts of
tranng the representatves aong such nes as the company sha
from tune to tune drect. The dstrct saes managers secure and
appont saes representatves on terms and condtons estabshed by
the company and sub|ect to the company s approva. The company
agrees to pay each dstrct saes manager as commsson a certan per-
centage of the net amount pad to t pursuant to orders wrtten n hs
terrtory by representatves supervsed and traned by hm. The man-
ager agrees that at the end of a specfed perod foowng the e ecuton
of hs contract he w have a mnmum number of representatves
apponted and producng busness. Moreover, he agrees to provde
the company wth a specfed mnmum of actua pad orders each
week. The dstrct manager furnshes advce and suggestons to the
representatves n order to reaze the quota guaranteed by hm. e s
supped by the company wth report forms whch must be competed
and returned to the company each week. mong other thngs, these
reports must show the work accompshed durng the week, the saes
actuay consummated, and the e act tnerary of the manager. The
company suppes the dstrct managers wth varous forms, pam-
phets, crcuars, statonery, etc.
The queston presented s whether the dstrct saes managers of the
0 Company are to be consdered as ndependent contractors or em-
poyees of that company.
Consderng the dutes of the dstrct saes managers n queston
and the detaed supervson whch the company e ercses over ther
actvtes, t s hed that the company possesses the necessary rght of
contro over the manner n whch the managers perform ther servces
to estabsh the ega reatonshp of empoyer and empoyee. ( rtce
3, Reguatons 91 artce 205, Reguatons 90.) ccordngy, such
dstrct saes managers are empoyees of the O Company for the pur-
pose of Ttes III and I of the ct.
Secton 811: Defntons. 1938-1 -9305
Reguatons 91. rtce 3: Who are empoyees. S. S. T. 281
( so Secton 907 Reguatons 90, rtce 205.)
Indvduas engaged and pad by the merchants of the cty of R
to patro and protect ther busness estabshments are empoyees of
the merchants for the purpose of Ttes III and I of the Soca
Securty ct.
dvce s requested whether certan ndvduas engaged and pad
by the merchants of the cty of R are empoyees of those merchants
for the purpose of Ttes III and I of the Soca Securty ct.
It t stated that merchants of the cty of R have engaged ndvduas
to protect ther premses aganst burgary, fre, etc. The merchants
n a partcuar dstrct hre one ndvdua for ths purpose. t tho
tme any merchant engages the servces of such person (referred to
as a poceman), he nstructs the atter n the varous detas of the
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Regs. 91, rt. 3.
414
work that s, the poceman may be requested to turn off the ghts
n a merchant s dspay wndow at a certan hour, to ascertan whether
a wndows and doors are ocked, etc. though the merchant has
the rght to gve further nstructons to the poceman, the nta
nstructons are usuay suffcent. ny one or a of the merchants
may dscontnue the servces of the pocemen whom they have en-
gaged. The so-caed merchants poce are pad ndvduay by the
varous merchants for whom they perform servces. It s stated that
such pocemen are apponted as speca deputes by the oca sherff
and are requred to take the oath of that offce and to e ecute a
bond. If an emergency arses, the sherff may drect such a poce-
man to eave hs dstrct and serve n the emergency.
n ndvdua s an empoyee wthn the meanng of Ttes III
and I of the Soca Securty ct f he performs servces n an em-
poyment as defned n sectons 811(b) and 907(c), respectvey.
owever, the reatonshp between the person for whom servces are
performed and the ndvdua who performs the servces must as to
those servces be the ega reatonshp of empoyer and empoyee.
Generay, such reatonshp e sts when the person for whom serv-
ces are performed has the rght to drect and contro the ndvdua
who performs the servces not ony as to the resut to be accompshed
by the work but aso as to the detas and means by whch that resut
s accompshed. ( rtce 3, Reguatons 91 artce 205, Reguatons
90.)
In the nstant case t s apparent that the merchants have the rght
to drect and contro the pocemen n the performance of ther
servces. The pocemen must foow ther nta nstructons, and
any suppementary nstructons whch may be ssued, to the sats-
facton of the merchants. The fact that due to the nature of the
work t s not necessary or e pedent for the merchants to e ercse
ther rght of contro to the fuest e tent s mmatera. urther-
more, the fact that the pocemen so engaged may be caed by the
sherff n case of an emergency to perform pubc servce at the
sherff s drecton s aso mmatera. Such a condton does not
affect the reatonshp e stng between the merchants and the
pocemen.
ccordngy, for the purpose of the ta ng provsons of the Soca
Securty ct, the so-caed merchants ponce here n queston are
empoyees of the ndvdua merchants for whom they perform
servces.
Secton 811: Defntons. 1938-20-9345
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 290
( so Secton 907 Reguatons 90, rtce 205.)
C, who Is engaged In marketng and dstrbutng petroeum
products of the N O Co. from one of ts buk pants, s an empoyee
of that company wthn the meanng of Ttes III and I of the
Soca Securty ct.
dvce s requested whether C, who operates a buk pant of the
N O Co., s an empoyee of that company wthn the meanng of
Ttes III and I of the Soca Securty ct.
C was apponted e cusve agent for the N O Co. for the ds-
trbuton and sae of ts products n a prescrbed terrtory from a
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415
Regs. 91, rt. 3.
buk pant owned by the company. e s requred to devote hs
fu busness tme and best efforts to the performance of hs dutes
for the company and s prohbted from engagng drecty or nd-
recty n any occupaton that mght nterfere wth such dutes. The
orgna term of C s appontment s one year, but uness ether party
gves wrtten notce to the other party not ess than 0 days pror
to the termnaton of such perod of an ntenton not to renew the
appontment, t s automatcay renewed on the same terms and con-
dtons from year to year. C s requred to se a certan prescrbed
mnmum quantty of the company s products each year and a saes
must be made accordng to the company s prevang prces and on
terms and condtons satsfactory to the company. saes are
made pursuant to wrtten contracts between the company and the
customers. C s not aowed to e tend credt beyond the mt paced
on each account by the company. If he fas after a reasonabe ength
of tme to effect a sae to any customer n quanttes satsfactory to
the company, the company may se to such customer drect. The
company devers to C on consgnment such quanttes of ts products
as n ts dscreton consttute an adequate and sutabe suppy, such
stock remanng the company s property unt devered by the agent
to purchasers. The agent coects a the proceeds from the sae of
the products and deposts them n the company s name n a bank
desgnated by the company. e s aso requred to assst the com-
pany n acqurng new reta statons for the sae of ts products
n hs terrtory as drected by the company. ccounts and records
must be mantaned as the company drects coverng C s actvtes.
Wthn 24 hours after makng any depost, enterng nto any con-
tract, recevng any order, or the happenng of any other event n
connecton wth Ms operatons under hs appontment, the agent s
requred to render a fu and compete report to the company. e
s aso requred prompty to advse the company of any facts whch
may n any way affect the company s nterests n hs terrtory.
compete report and accountng must be furnshed to the company
each month on forms prescrbed by the company coverng C s opera-
tons for the precedng caendar month, and the company may n-
spect a records and accounts of the agent at any tme. The agent
s requred to furnsh securty satsfactory to the company n form
and amount ndemnfyng the company aganst the oss of any of ts
money or other property entrusted to the agent or hs assstants or
comng nto ther contro. e s further requred to mantan motor
vehce pubc abty and property damage nsurance protectng
hs own nterests and those of the company.
very ndvdua s an empoyee wthn the meanng of Ttes
III and I of the ct f he performs servces n an empoyment
as defned n sectons 811(b) and 907(c), respectvey. owever, the
reatonshp between the person for whom such servces are performed
and the ndvdua who performs such servces must as to those serv-
ces be the ega reatonshp of empoyer and empoyee. Generay
such reatonshp e sts when the person for whom servces are per-
formed has the rght to contro and drect the ndvdua who per-
forms the servces not ony as to the resut to be accompshed by
the work but aso as to the detas and means by whch that resut
s accompshed. That s, an empoyee s sub|ect to the w and con-
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Regs. 91, rt. 3.
41
tro of the empoyer not ony as to what sha be done but how t sha
be done. ( rtce 3, Reguatons 91 artce 205, Reguatons 90.)
The facts presented dscose that the N O Co. has the rght to
e ercse, and does e ercse, the contro over the servces of C whch
s prescrbed by the reguatons under Ttes III and I of the
ct as beng necessary to estabsh the reatonshp of empoyer and
empoyee for the purpose of the ta es mposed thereunder. C s
requred to perform substantay a of hs servces as drected by
the company, must devote hs fu busness tme to the company s
nterests, must se the company s products at ts prevang prces,
and s sub|ect to the contro of the company as to the customers to
whom saes are made and to whom credt s e tended. Money co-
ected must be deposted n the company s name and records must be
mantaned and detaed reports must be submtted as and when re-
quested by the company. In vew of the contro whch the N O
Co. e ercses over the servces of C, as shown by the facts n the
case, t s concuded that C s an empoyee of the N O Co. wthn
the meanng of the ta ng provsons of the ct.
The ureau has hed n cases where an empoyee of a company,
ether wth the e press or mped consent of that company, empoys
other ndvduas to assst hm n the performance of hs servces
for the company, such other ndvduas are aso empoyees of the
companv. (See S. S. T. 35. C. . -2, 407 (193 ) S. S. T. 70,
C. . 1937-1, 387 S. S. T. 2 7, page 402, ths uetn.) Therefore,
snce C s an empoyee of the N O Co., ndvduas engaged by
hm wth the e press or mped consent of the company n connecton
wth hs empoyment are aso, to that e tent, empoyees of the com-
pany wthn the meanng of the ta ng provsons of the ct. The
ta abe wages of C and the ndvduas engaged by hm n the opera-
ton of the buk pant shoud be computed n accordance wth the
rues contaned n S. S. T. 233 (C. . 1937-2, 457).
Secton 811: Defntons. 1938-20-934
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 291
( so Secton 907 Reguatons 90, rtce 205.)
physcan engaged by the O Company, who s requred to report
each mornng at a f ed hour, to reman on duty as ong as hs
servces are needed, and who, n addton to treatng empoyees
of the company. Is requred to e amne a ndvduas appyng
for work, s an empoyee of the O Company wthn the meanng
of Ttes III and I of the Soca Securty ct.
dvce s requested whether a physcan who renders servces to
the O Company s an empoyee of that company wthn the meanng
of Ttes III and I of the Soca Securty ct.
The physcan n queston serves under a verba contract wth the
O Company whereby he agrees to vst the company s pant each
weekday mornng and to reman on duty each mornng at east two
hours, or onger f hs servces are needed. s dutes consst of
carng for empoyees of the company w-ho are n need of medca
attenton and, at the company s drecton, to e amne ndvduas
who appy for work wth the company n order to determne ther
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417
Regs. 91, rt. 3.
physca ftness. The company furnshes the physcan a frst-ad
room and a necessary medca suppes and equpment. The com-
pany has the rght to termnate the contract at any tme. The phys-
can s pad a reguar monthy saary by the company for hs servces.
e aso conducts a prvate practce and mantans an offce of hs
own.
In S. S. T. 240 (C. . 1937-2, 403) t was hed that a physcan
engaged by the M Coa Co. to render medca servces to ts em-
poyees s not an empoyee of that company wthn the meanng
of Ttes III and I of the Soca Securty ct. In that case,
however, the physcan was not requred to report for work at any-
partcuar tme nor to reman on duty unt reeased. though
medca assstance was requred to be furnshed by the physcan
whenever an emergency arose, e was at berty to send an assstant
n hs stead. ppcants for work at the M Coa Co. s pant were
not e amned by the physcan or by hs assstants and the company
had no rght to drect or contro the physcan n any way other
than to nsure that proper medca attenton woud be furnshed n
case of emergency. though under artces 3 and 205 of Reguatons
91 and 90, respectvey, t s stated that physcans are generay
ndependent contractors and not empoyees, t does not foow that
such ndvduas are n a stuatons ndependent contractors nstead
of empoyees for the purpose of the ta ng provsons of the Soca
Securty ct. If an ndvdua s sub|ect to the contro of the
person for whom he performs servces not ony as to the resut to
be accompshed by hs work but aso as to the detas of ac-
compshng the resut, he s an empoyee regardess of whether he
s a physcan or other professona man. (S. S. T. 271 page 409,
ths uetn.) In the present case, snce the physcan s requred
to report for work at a desgnated hour and reman on duty unt
reeased by the company, and snce he s furnshed wth offce space
and factes, s requred to e amne such ndvduas as the com-
pany may drect, and may be dscharged at any tme, t s hed that
the O Company e ercses, or has the rght to e ercse, such contro
over the physcan s servces as estabshes the reatonshp of em-
poyer and empoyee. ccordngy, the physcan n queston s
an empoyee of the O Company wthn the meanng of Ttes III
and I of the Soca Securty ct.
Secton 811: Defntons. 1938-20-9347
Reguatons 91. ktce 3: Who are empoyees. S. S. T. 292
( so Secton 907 Reguatons 90, rtce 205.)
Process servers who serve ega papers for the M Company n
behaf of varous attorneys nre not. wth respect to such servces,
empoyees of that company wthn the meanng of Ttes III and
I of the Soca Securty ct.
dvce s requested whether process servers who serve ega papers
for the M Company n behaf of varous attorneys are empoyees of
that company wthn the meanng of the ta ng provsons of the
Soca Securty ct.
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Regs. 91, rt. 3.
418
It s stated that the M Company s an agency to whch attorneys
n varous parts of the cty and State turn over ther ega papers to
be served. Upon recept of the papers, the company turns them over
to ndvduas known as process servers whose usness t s to serve
the papers on the desgnated persons. ach process server deter-
mnes hs own means and methods of makng the servce, pays hs
e penses, and f he desres, may have the paper served by another
person. There s no e press contract between the company and the
process server. No hours are prescrbed durng whch he s to ca
for the papers and n some nstances the papers are maed to hm.
The company does not supervse such an ndvdua, t beng neces-
sary for the atter to report ony the resut of the servce to the
company. The process server may refuse any papers he does not care
to hande. s name s on the ros of, and he performs smar serv-
ces for, other agences and attorneys. If the servce of a paper s
successfu, the ndvdua receves a fat fee therefor. If the servce s
not successfu, he receves no fee. e performs no other servces for
the M Company and hence s not furnshed offce space or suppes of
any knd.
Under the facts stated, t s apparent that the M Company does not
e ercse, or have the rght to e ercse, n ths case the contro whch
s prescrbed by artces 3 and 205 of Reguatons 91 and 90, respec-
tvey, as beng necessary to estabsh the reatonshp of empoyer
and empoyee. ccordngy, t s hed that such process servers are
not empoyees of the M Company for the purpose of Ttes III and
I of the Soca Securty ct.
Secton 811: Defntons. 1938-22-93 5
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 29
( so Secton 907 Reguatons 90, rtce 205.)
ppcabty of the ta es mposed under Ttes III and I
of the Soca Securty ct to servces performed by casng crewa
for o producers or drng contractors.
dvce s requested reatve to the status under Ttes III and
I of the Soca Securty ct of ndvduas engaged n the remova
of casngs from o wes for o producers and drng contractors.
casng crew s a group of men, usuay fve, who operate together
for the purpose of runnng or pung casngs from o wes. The
crews render 24-hour servce to varous o producers or drng con-
tractors under contract wth o producers. In some nstances arrange-
ments for these servces are made wth the manager or foreman of the
casng crew, who e ecutes the agreement and seects the crew for the
|ob. e contracts for the amount to be pad for the |ob and coects
the entre compensaton of the crew and, after deductng hs share for
securng the work, dvdes the baance among the members of the crew.
If e s a workng member of the crew, he aso receves hs pro rata
share. esdes payng the men, he has the rght to dscharge them
and aso to nstruct them wth reference to the work. e furnshes the
transportaton for the crew to and from work. The casng crew or
the manager, as the case may be, furnshes the toos customary used
for the work. The o producer or drng contractor furnshes the
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419
Regs. 91, rt, 3.
drng machnery and the power for hostng the ppe and a drer
and too dresser to operate the engne and machnery. These atter
ndvduas work n con|uncton wth the casng crew. In some n-
stances the work of a casng crew comes under the contro of the o
producer or drng contractor through the medum of havng the
drer supervse and drect the entre operatons.
Secton 811(b), Tte III, and secton 907(c), Tte I , of the
Soca Securty ct defne the term empoyment as any servce, of
whatever nature, performed wthn the Unted States by an empoyee
for hs empoyer, wth certan e ceptons not here appcabe.
rtce 3 of Reguatons 91, reatng to Tte III of the ct, pro-
vdes n part as foows wth respect to the reatonshp of empoyer
and empoyee:
Generay such reatonshp e sts when the person for whom serv-
ces are performed has the rght to contro and drect the Indvdua who per-
forms the servces, not ony as to the resut to be accompshed by the work
but aso as to the detas and means by whch that resut s accompshed. That
s, an empoyee s sub|ect to the w and contro of the empoyer not ony as to
vhat sha be done but how It sha be done. In ths connecton, t s not neces-
sary that the empoyer actuay drect or contro the manner n whch the serv-
ces are performed t s suffcent If he has the rght to do so. The rght to
dscharge s aso an mportant factor Indcatng that the person possessng that
rght s an empoyer. Other factors characterstc of an empoyer, but not neces-
sary present n every case, are the furnshng of toos and the furnshng of a
pace to work, to the Indvdua who performs the servces.
rtce 205 of Reguatons 90, reatng to Tte I of the ct, con-
tans substantay the same provsons.
Where an o producer or drng contractor engages a casng crew
to perform servces under hs genera drecton., or under the superv-
son of one or more of hs deegated empoyees, t s hed that the rght
to e ercse the contro prescrbed by artces 3 and 205, supra, as beng
necessary to estabsh the reatonshp of empoyer and empoyee
e sts and that such producer or contractor s the empoyer of each
ndvdua member of the casng crew whose servces are so engaged.
The producer or contractor n such a case s abe for the coecton,
return, and payment of the ta es mposed under Tte III and, f he
quafes as an empoyer under secton 907(a), Tte I , he s aso
abe for the ta mposed under that tte.
Where, however, the crcumstances of the empoyment of a casng
crew ceary ndcate that the manager or foreman thereof s engaged
by the o producer or drng contractor to furnsh the partcuar
servces requred and has the rght to e ercse genera supervson, d-
recton, and contro over the members of the casng crew, such nd-
vdua members of the crew are not empoyees of the o producer or
drng contractor wthn the meanng of the ct and the afore-men-
toned provsons of the reguatons promugated thereunder. In ths
event, however, the casng crew manager or foreman s the em-
poyer of those ndvduas engaged by hm to perform the servces
n queston and s abe for the coecton, return, and payment of the
ta es due under Tte III of the ct wth respect to the compensa-
ton receved for such servces. If the manager or foreman quafes
as an empoyer under secton 907(a), Tte I , abty for the ta
mposed by such tte s ncurred wth respect to the wages payabe to
the ndvduas so empoyed.
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Regs. 91, rt. 3.
420
Secton 811: Defntons. 1938-23-9381
Reguatons 91, ktce 3: Who are empoyees. Mn. 47 7
( so Secton 907 Reguatons 90, rtce 205.)
Informaton requred to be submtted to the ureau of Interna
Revenue n doubtfu cases nvovng the queston whether saes
agents are empoyees for purposes of the ta es mposed under
Ttes III and I of the Soca Securty ct.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, May 17, 1938.
Coectors of Interna Revenue and Others Concerned:
Numerous nqures have been made of the ureau as to whether
ndvduas performng servces as saes agents (ncudng, for pur-
poses of ths mmeograph, ndvduas desgnated as saesmen,
fed representatves, dstrbutors, u deaers, manufacturers or
factory representatves, etc.) are empoyees or ndependent con-
tractors for purposes of the ta es mposed under Ttes III and
I of the Soca Securty ct.
rtce 3 of Reguatons 91, ssued under Tte III of the ct,
provdes n part as foows:
very ndvdua s an empoyee wthn the meanng of Tte III
of the ct If he performs servces n an empoyment as defned n secton
811(b) .
owever, the reatonshp between the person for whom such servces are
performed and the ndvdua who performs such servces must as to those
servces be the ega reatonshp of empoyer and empoyee. Generay such
reatonshp e sts when the person for whom servces are performed has the
rght to contro and drect the ndvdua who performs the servces, not ony
as to the resut to be accompshed by the work but aso as to the detas and
means by whch that resut s accompshed. That s, an empoyee s sub|ect
to the w and contro of the empoyer not ony as to what sha be done but
how t sha be done. In ths connecton, t s not necessary that the empoyer
actuay drect or contro the manner n whch the servces are performed It
s suffcent f he has the rght to do so. The rght to dscharge s aso an
Important factor ndcatng that the person possessng that rght s an em-
poyer. Other factors characterstc of an empoyer, but not necessary present
n every case, are the furnshng of toos and the furnshng of a pace to work,
to the ndvdua who performs the servces. In genera, f an ndvdua s
sub|ect to the contro or drecton of another merey as to the resut to be
accompshed by the work and not as to the means and methods for accompsh-
ng the resut, he Is an ndependent contractor. n ndvdua performng
servces as an ndependent contractor s not as to such servces an empoyee.
Generay, physcans, awyers, dentsts, veternarans, contractors, subcon-
tractors, pubc stenographers, auctoneers, and others who foow an ndependent
trade, busness, or professon, n whch they offer ther servces to the pubc,
are ndependent contractors and not empoyees.
Whether the reatonshp of empoyer and empoyee e sts w In doubtfu
cases be determned upon an e amnaton of the partcuar facts of each case.
If the reatonshp of empoyer and empoyee e sts, the desgnaton or
descrpton of the reatonshp by the partes as anythng other than that of
empoyer and empoyee s mmatera. Thus, f such reatonshp e sts, t
Is of no consequence that the empoyee s desgnated as a partner, coadventurer,
agent, or ndependent contractor.
The measurement, method, or desgnaton of compensaton s aso Immatera,
If the reatonshp of empoyer and empoyee n fact e sts.
rtce 205 of Reguatons 90, ssued under Tte I of the ct,
contans substantay the same provsons.
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421
egs. 91, rt. 3.
The status of saes agents for purposes of the ta es mposed under
the Soca Securty ct s governed generay by the provsons of
the reguatons set forth above. s w be noted, the queston
whether the reatonshp of empoyer and empoyee e sts n doubtfu
cases nvovng servces performed by such agents must be determned
upon an e amnaton of the partcuar facts of each case.
ccordngy, n any case where a frm (ncudng, for purposes
of ths mmeograph, an ndvdua, a corporaton, a partnershp, an
assocaton, or any other form or type of busness organzaton) en-
tertans doubt as to whether ts saes agents are empoyees wthn
the purvew of artces 3 and 205 of Reguatons 91 and 90, respec-
tvey, the nformaton ndcated n the attached questonnare ( orm
SS-8) shoud be submtted to the ureau by the frm or by ts attorney
or other representatve who s enroed to practce before the Treasury
Department and who has fed wth the ureau a proper power of
attorney. (Inqures reatng to enroment and power of attorney
requrements shoud be addressed to the Commssoner of Interna
Revenue, Washngton, D. C, ttenton: Pub. Re.:P . ) Such
nformaton, when submtted, shoud not reate to the frm s agents
generay but rather to a partcuar saes agent whose status s typca
of the -frm s agents as a cass. If the frm has more than one cass
of agents, separate questonnares shoud be submtted wth respect
to partcuar ndvduas whose status s typca of each such cass.
rung made n the case of any such ndvdua w have appca-
ton n the case of other saes agents of the same cass, provded,
the facts n the case of such other agents do not dffer n any matera
respect from the facts n the case of the agent upon whose status
the rung s ssued.
If an agent entertans doubt as to whether he s an empoyee,
he shoud f out the questonnare to the best of hs knowedge and
beef, and submt any suppementa nformaton whch he may
beeve matera. If the agent performs servces for more than one
frm, a separate questonnare shoud be submtted wth respect to
each such frm.
ddtona copes of the questonnare, f needed for purposes of
obtanng rungs from the ureau, may be obtaned from any co-
ector o nterna revenue.
Correspondence n regard to the contents of ths mmeograph shoud
refer to ts number and to the symbos C.
Gut T. fverng,
Commssoner.
orm SS-8. Treasury Department. Interna Revenue Servce.
uestonnare fob Use n Securng Ru.no rom ureau of Interna Retontc
on Status of Saes oents Under Ta ng Provsons of edera Soca
Securty ct.
nstructons.
. efore fng out ths questonnare read carefuy the provsons of
C-Mmeograph Co. No. 47 7 page 420, ths uetn , to whch ths form s
an ncosure.
. s used n ths questonnare (1) the term frm sha be deemed to
ncude an ndvdua, a corporaton, a partnershp, an assocaton, or any other
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Regs. 91, rt. 3.
422
form or type of busness organzaton (2) the term agent or saes agent
sha be deemed to Incude ndvduas desgnated as saesmen, fed repre-
sentatves, dstrbutors, deaers, manufacturers or factory representa-
tves, etc.
C. Yes or No answers, where approprate, are preferred but carty and
accuracy shoud not be sacrfced for brevty. Where a fuer e panaton s
caed for, or s desrabe, and the space furnshed s nsuffcent, a suppementa
statement makng reference to the number of the queston nvoved shoud be
prepared and submtted wth the form.
D. copes of contracts and other data submtted as a part of ths queston-
nare become a part of the records of the ureau and may not be returned.
L (a) Name of frm for whom agent performs servces
( ) ddress
2. Nature of frm s busness
3. ttach a statement descrbng brefy the methods empoyed by the frm n the
marketng and dstrbuton of ts merchandse n so far as such methods
nvove the engagement by the frm of the servces or factes of saes
agents, however desgnated, such as saesmen, fed representatves, ds-
trbutors, deaers, manufacturers or factory representatves, etc. Ths
statement shoud cassfy the varous agents as to desgnaton and functon
and show n reference to each cass:
a) The tota number of agents n the cass.
) The number of corporatons, partnershps, or unncorporated organza-
tons actng as agents In the cass.
4. (a) Name of saes agent on whose status ths rung s requested
( ) ome address
(c) usness address
(d) Desgnaton (as cassfed n answer to queston 8, that s, saesman,
deaer, dstrbutor, etc.)
5. ow ong has the above-named agent been seng for the frm
. (a) If the agent performs hs servces pursuant to a forma wrtten con-
tract, attach a photostatc or certfed copy of the e ecuted contract, together
wth any suppementa agreements, rders, etc., that may be n effect. If
the contract has undergone substanta changes snce anuary 1, 1930, a
photostatc or certfed copy of the e ecuted contract entered nto on the
form as t appeared pror to such changes shoud aso be submtted. Mnor
changes, such as changes n rates of commsson, etc., may be e paned n
a separate statement wthout the necessty for submttng a copy of the
contract as t appeared pror thereto.
( ) If no forma wrtten contract e sts but the servces of the agent
were contracted for through an nterchange of etters or teegrams, photo-
statc or certfed copes thereof shoud be submtted. s n the case of a
forma wrtten contract, f there have been any substanta changes effected
n the arrangements between the frm and the agent snce anuary 1, 193 ,
compete nformaton wth respect to the agreement as t e sted pror tc
such changes shoud be submtted.
(c) In the event the contract was oray made, a fu and compete state-
ment of the (ate, terms, and condtons thereof, showng any changes effected
n the agreement snce anuary 1, 193 , shoud be submtted.
7. ttach copes of a rues, reguatons, nstructons, and saes manuas,
together wth representatve copes of any house organs, news etters, etc.,
wth whch the agent s furnshed and ndcate the frequency wth whch
they are ssued.
8. Does the frm furnsh the saes agent wth:
(a) Offce (f) Record or report forms
( ) Desk space (g) usness cards
(c) Teephone factes (ft) dvertsng matera
(d) Transportaton () Order banks
(e) Sampes ( ) Prce sts
(If record or report forms, busness cards, advertsng terature, order
banks or prce sts are furnshed, representatve copes shoud be submtted.)
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423
Regs. 91, rt. 3.
9. Does the frm requre the agent to:
(a) Confne hs seng actvtes to a partcuar terrtory
(If so, does he have e cusve snes rghts n such terrtory )
( ) Canvass such terrtory wthn any partcuar tme or wth specfed
frequency
(c) ande ony the frm s ne of merchandse
(d) Refran from engagng n other empoyment
(e) oow ts nstructons
(f) oow ts poces
(g) Devote any partcuar amount of tme to the frm s busness
( ) Produce a mnmum voume of busness
( ) Conform to f ed hours of empoyment
|) oow tnerares prescrbed by the frm
( fc) Carry nsurance on motor vehces used by hm
( I ) Make a specfed number of cas on customers or prospects
(m) Ca on partcuar customers or prospects
(n) Make wrtten reports to the frm
(If so, specfy frequency and whether they may be had on demand.)
(o) eep records of busness transacted
(p) Secure the frm s approva of saes
q) Report personay to the frm or to any branch offce thereof at any
tme
(r) Coect accounts Investgate compants
Investgate credt ratngs Make ad|ustments
( ) ttend saes meetngs, conferences, consutatons, etc.
(t) urnsh surety bond
10. (a) Is the agent furnshed eads by the frm
( ) If so, s he requred to foow up such eads and make reports
on them
11. To what e tent. If any, does the frm bear any part of the e penses Incurred
by the agent n hs seng actvtes (Gve detas)
12. Does the nn nstruct, or In any way restrct, the agent as to:
(o) Saes prces
( ) Terms and condtons of sae
(c) Persons to whom saes sha be made
(d) Manner n whch saes sha be made
13. ow does the frm acquant the agent wth changes n prces, p, ces, etc.
(Gve detas)
(If by wrtten notce or nstructons, submt copes as specfed n queston 7.)
14. To what e tent, If any, s the agent engaged n other busness actvtes
(Gve detas, ncudng the uames and addresses of any other frms for
whch the agent performs servces)
15. Does the frm engage a saes manager, fed supervsors, or other ndvduas
to act generay as contact men between t and ts varous agents
(If so, attach a comprehensve statement of ther dutes, ndcatng wth
what frequency they contact the agents and specfyng n deta the e tent
to whch, and the manner n whch, they famarze the agents wth frm
poces, supervse them, Instruct them how to mprove ther seng technque,
make demonstratons, etc.)
1 . (a) Does the agent carry a stock of the frm s merchandse
( ) If so, on what terms Is t shpped to the agent, . e., consgnment bass,
outrght sae, etc.
(c) Who suppes warehouse space for such stock
(d) Who nsures the merchandse pror to sae
17. (a) Is the agent permtted to se on credt
( ) If so. does the frm carry the accounts coect the
accounts stand the osses
18. (a) In what manner a the agent compensated
(ft) If by commsson, s agent pad commssons on a orders receved by
hm from wthn hs terrtory even though not personay socted by
hm
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Regs. 91, rt. 3.
424
(c) Is the agent aowed a drawng account or advance of any knd aganst
unearned commssons
(d) May the rate of commsson be changed by the frm wthout notce to
the agent
(e) t what ntervas does the agent receve hs compensaton
(f) Does hs name appear on the frm s pay ro
19. Is the agent s advertsng matera sub|ect to the approva of the frm
20. (a) Does the agent engage subageuts, cerca or stenographc hep, to
assst hm In the performance of hs servces
(5) If so, are such ndvduas hred wth the e press or mped consent of
the frm
(c) Can the frm dscharge such ndvduas
(d) re they pad drecty by the frm
(e) If not, s the agent rembursed for ther saary e pense
21. (a) Does the frm have the rght to dscharge the agent at any tme
( ) May the agent termnate hs servces at any tme
22. as the frm ever termnated a contract smar to the contract submtted
as a part of ths questonnare for faure to compy -wth any Instructons
ssued by the frm
23. (a) Is the frm carryng workmen s compensaton nsurance on the agent or
on other agents performng smar servces
( ) If not, has t ever carred such nsurance
(c) as a cam for such nsurance ever been fed by an agent
(If so, specfy whether cam was aowed and dentfy as accuratey
as possbe the hearng or proceedng n whch the matter was con-
sdered. )
24. as the frm ever been hed responsbe n a court acton for acts or repre-
sentatons of the agent or of any other agent performng smar servces
(If so, gve detas, ncudng reference to any court decson rendered n
the matter)
25. as the status of the agent or of other agents performng smar servces
for the frm ever been rued on by any State unempoyment compensaton
agency
(If so, dentfy States and attach copes of rungs.)
2 . To the frm s knowedge, has any of ts agents, or the estates of any such
agents, ever fed a cam for od age benefts or ump sum payment wth
the edera Soca Securty oard
(If so, specfy name, address, and account number of agent, name of cam-
ant, and dsposton of cam, attachng any wrtten rung that may have
been rendered In the case.)
27. Is the status of the agent, or that of any other agent performng smar
servces for the frm, pendng before any governmenta agency at the present
tme (Gve detas)
28. Does the frm engage any saes agents whom t consders to be ts empoyees
for purposes of the ta es mposed under the Soca Securty ct
(If so, attach a statement e panng the dfferences n the condtons and
crcumstances under whch servces are performed by such Indvduas, as
dstngushed from the agent concernng whose status ths request for a
rung s beng made.)
29. Does the frm have any saared saes agents performng servces smar
to those performed by the saes agent concernng whose status ths request
for a rung s beng made
30. If practcabe, obtan from the agent, ether on the reverse of ths sheet
or on a suppementa sheet, a statement to the effect that he has been afforded
an opportunty to read and e amne the answers to ths questonnare
(ncudng any contracts, rues and reguatons, and other data submtted
as a part hereof) and that he has found a representatons made by the
frm wth respect to the crcumstances under whch he performs hs servces
true and correct to the best of hs knowedge and beef.
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425
Regs. 91, rt. 4
Secton 811: Defntons. 1939-5-9178
Reguatons 91, rtce 4: Who are empoyers. S. S. T. 25
( so Secton 907 Reguatons 90, rtce 204.)
or the purpose of Ttes III and I of the Soca Securty ct,
a husband and wfe domced n the State of Te as are deemed to
be the |ont empoyers of a ndvduas empoyed by each n the
producton of communty ncome.
dvce s requested reatve to the abty under Ttes III and
L of the Soca Securty ct of husband and wfe domced n the
State of Te as.
In the case presented, the husband operates a nen suppy busness
and empoys ess than eght ndvduas. The wfe owns and operates
another busness n whch she empoys ess than eght ndvduas.
The tota number empoyed at a tmes n the two estabshments s,
however, more than eght. The queston presented s whether sep-
arate returns shoud be fed under Ttes III and I of the Soca
Securty ct for each estabshment or whether the empoyees and
saares shoud be combned and treated as a unt n vew of the
communty property aw of the State of Te as.
Sectons 811(b), Tte III, and 907(c), Tte I , provde that the
term empoyment means any servce, of whatever nature, per-
formed wthn the Unted States by an empoyee for hs empoyer,
wth certan e ceptons not here matera. very person s an em-
poyer wthn the meanng of Tte III of the ct who empoys one
or more ndvduas n an empoyment as defned n secton 811 (b).
The number of ndvduas empoyed by the empoyer and the perod
durng whch any such ndvdua s so empoyed s mmatera.
( rtce 4, Reguatons 91.) Commencng wth the caendar year
193 , any person who empoys 8 or more ndvduas (n an empoy-
ment as defned n secton 907 (c) of the ct) on a tota of 20 or more
caendar days durng a caendar year, each such day beng n a
dfferent caendar week, s an empoyer sub|ect to the ta mposed
under Tte I of the ct wth respect to such year. ( rtce 204,
Reguatons 90.)
The provsons of the Te as statutes appcabe to the queston
presented are as foows:
ar. 4 13. usband s separate property.
property of the husband, both rea and persona, owned or camed by
hm before marrage, and that acqured afterwards by gft devse, or descent,
as aso the ncrease of a ands thus acqured, sha be hs separate property.
The separate property of the husband sha not be sub|ect to the debts con-
tracted by the wfe, ether before or after marrage, e cept for necessares
furnshed hersef and chdren after her marrage wth hm, nor for torts of
the wfe. Durng marrage the husband sha have the soe management, con-
tro, and dsposton of hs separate property, both rea and persona Const.,
artce 1 . secton 15 cts 1848, page 77 G. L., voume 3, page 77 cts 1913,
page 1 cts 1917, page 43 cts 1921, page 251, as amended cts 1929, 41st
Leg., page , ch. 32, secton 1.
bt. 4 14. Wfe s separate property.
property of the wfe, both rea and persona, owned or camed by her
before marrage, and that acqured afterward by gft, devse, or descent, ns
aso the ncrease of a ands thus acqured, sha be the separate property of
the wfe. The wfe sha have the soe management, contro, and dsposton
of her separate property, both rea and persona provded however, the |onder
of the husband n the manner now provded by aw for conveyances of the
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Regs. 91, rt. 4.
42
separate rea estate of the wfe sha be necessary to the ncumbrance or convey-
ance by the wfe of her ands, and the ont sgnature of the husband and wft
sha be necessary to a transfer of stocks and bonds beongng to her or of
whch she may be gven contro by ths aw. Const., artce 1 , secton 15 cts
1848, page 77 G. L., voume 3, page 77 cts 1913, page 01 cts 1917, page
43 cts 1921, page 251, as amended cts 1929, 41st Leg., page CC. ch. 32.
secton 1.

rt. 4 19. Communty property.
Secton 1. property acqured by ether the husband or wfe durng mar
rage, e cept that whch s the separate property of ether, sha be deemed the
common property of the husband and wfe and a the effects whch the bus
band and wfe possess at the tme the marrage may be dssoved sha be
regarded as common effects or gans, uness the contrary be satsfactory
proved. Durng coverture the common property of the husband and wfe may
be dsposed of by the husband ony cts 1840, page 3 O. L..
voume 2, page 177 cts 1913, page 1 cts 1927, 40th Leg., page 219, ch. 148.
In Te as the wfe has a present vested nterest n the communty
property and her nterest s sad to be equa to the husband s
( rnod v. Leonard et a, 114 Te ., 535, 273 S. W., 799.) The com-
munty property s under the management and contro of the hus-
band. The genera theory of communty property n Te as s that
s acqured durng coverture through the efforts of one or the other
spouse or through the |ont efforts of both. It s fundamenta that
the ncome from communty property consttutes communty property,
but the ncome and profts from separate property aso, n genera,
become communty property where the sk, supervson, or manage-
ment of ether spouse, or both, contrbutes to ts producton.
It s hed that for the purpose of the ta es mposed under the
Soca Securty ct a marta communty n Te as shoud be con-
sdered as a unt and a ndvduas empoyed by husband or wfe n
the producton of communty ncome are empoyees of the nusband
and wfe |onty. ccordngy, the tota number of ndvduas
empoyed by each shoud be combned n order to determne abty
under Tta I of the Soca Securty ct, and the tota ta abe wages
of a such empoyees shoud be ncuded n the returns fed under both
Ttes III and I .
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427
Regs. 91, rt. 5.
Secton 811: Defntons. 1938-18-9322
Regtatons 91, rtce 5: cepted servces S. S. T. 28
generay.
( so Secton 907 Reguatons 90, rtce 20 .)
Computaton of wages under Ttes III and I of the Soca
Securty ct of an empoyee who performs for the same empoyer
certan servces whch consttute empoyment and other serv-
ces whch are e cepted therefrom. S. S. T 125 (C. . 1937-1,
397) and S. 8. T. 174 (C. . 1937-2, 418) ampfed.
The queston s presented under Ttes III and I of the Soca
Securty ct n connecton wth the computaton of wages of an
empoyee who performs both e cepted and none cepted servces for
the same empoyer, whether the reguar pay ro perod of such em-
poyee shoud be used as a bass n determnng whether one type of
servce s ncdenta n measure of tme to the other, or whether the
tme devoted to both types of servce s substanta wthn the mean-
ng of S. S. T. 125 (C. . 1937-1,397) and S. S. T. 174 (C. . 1937-2,
418). S. S. T. 125, supra, states n part as foows:
If an empoyee durng certan perods renders servces whch consttute agr-
cutura abor and durng other perods renders servces whch consttute em-
poyment wthn the meanng of that term as defned n the ta ng provsons
of the ct, and the perod of tme devoted to each type of servce s substanta,
the servces whch consttute agrcutura abor must be segregated from the
servces whch consttute empoyment on the bass of the tme durng whch
each type of servce s rendered. If, n such a case, the agrcutura servces
can not be so segregated, the entre servces must be consdered as empoy-
ment. Thus, f an empoyee concurrenty performs servces whch, f separate
and dstnct as to tme of performance, woud consttute agrcutura abor,
and other servces whch consttute empoyment, the entre servces must be
cassfed as empoyment.
Where, however, an empoyee durng certan perods renders servces whch
consttute agrcutura abor and durng other perods renders servces whch
consttute empoyment, and one type of servce s merey ncdenta n measure
of tme to the other, then, even though t s possbe to segregate the one type
of servce from the other, the Incdenta servce may be dsregarded n deter-
mnng whether the empoyee s engaged n agrcutura abor. Thus, f an
ndvdua empoyed on a farm s engaged prncpay n reparng farm ma-
chnery and equpment but ncdentay engages n the performance of servces
n connecton wth the t_ntvaton of the so, hs entre servces may be
treated as havng been performed n empoyment, the ncdenta agrcutura
servces beng dsregarded. On the other hand, f an ndvdua empoyed on a
farm s engaged prncpay n the performance of servces n connecton wth
the cutvaton of the so but Incdentay repars farm machnery and equp-
ment, hs entre servces may be treated as agrcutura abor, the ncdenta
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Regs. 91, rt. 5.
428
nonagreutura servces beng dsregarded. No f ed rue can be ad down
(or the determnaton of what consttutes ncdenta servces for ths purpose,
but any reasonabe concuson reached by the empoyer n that regard w not
be dsturbed.
(See aso S. S. T. 174, supra, reatve to the appcaton of the
above rues to domestc servce n a prvate home.)
In determnng n the case of an empoyee who performs both
e cepted and none cepted servces whether one type of servce s nc-
denta n measure of tme to the other or whether the tme devoted to
both types of servces s substanta wthn the meanng of the above
rues, t s contempated that such rues be apped to each pay ro
perod of the partcuar empoyee nvoved, that s, to each perod for
whch a payment of remuneraton s ordnary made to the empoyee
by the empoyer. The foowng e ampes w serve to ustrate the
method of computng the wages of such an empoyee:
MPL 1. S R IC S SU ST NTI L ND NOT S GR O L .
owns and operates a store whch s ocated n the same budng
wth hs prvate home. e has engaged the servces of to cean
the store, arrange the merchandse, take orders, etc., and aso to keep
s vng quarters cean and perform such other domestc dutes as
may be requred. s servces performed n the store are not segre-
gate n measure of tme from those performed n s vng quarters.
ppyng the rue set forth n S. S. T. 174, supra, s entre serv-
ces must be treated as empoyment and hs tota remuneraton
consttutes wages under Ttes III and I of the Soca
Securty ct.
MPL 2. S R IC S SU ST NTI L ND S GR G L .
C s empoyed by D to perform servces on a farm owned by the
atter and s pad weeky by D on the bass of a -day week. These
servces, whch consst of the cutvaton of the so and the rasng
and harvestng of crops, ceary consttute agrcutura abor,
whch s e cepted from empoyment under sectons 811 (b) and
907(c) of the Soca Securty ct. owever, on certan days C s
requred to perform servces n a commerca cannery owned by D,
whch servces are ceary empoyment. C performs servces n
the cannery at east one day each week. It s cear that such servces
are substanta n measure of tme and are not merey ncdenta to
those whch consttute agrcutura abor. ccordngy, the rato
between the number of days durng any pay perod n whch C
performs servces n the cannery and the tota number of workng
days wthn that perod (s ) shoud be apped aganst hs tota
remuneraton for that perod n order to compute hs ta abe
wages. Thus, f durng any week C worked one day n the can-
nery, hs ta abe wages woud he one-s th of the tota remuneraton
for that week.
MI L 3. NON C PT D S R IC INCID NT L.
, who s pad monthy, s empoyed by a doctor whose offce s
ocated n hs prvate home. ach mornng s requred to cean
the offce, whch duty requres appro matey 15 mnutes of s tme.
Durng the baance of the day, s requred to cean and take care
of the vng quarters of the doctor and hs famy, cook meas, and
perform such other domestc dutes as may be requred.
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429
Regs. 91, rt. .
The servces performed by n or about the prvate home of hs
empoyer are e cepted from u empoyment under sectons 811 (b)2
and 907(c)2 of the ct as domestc servce n a prvate home. ow-
ever, athough the servces performed by each mornng n cean-
ng the doctor s offce consttute empoyment, such servces are
deary ncdenta n measure of tme to those whch are e cepted
from empoyment. ccordngy, even though the servces are segre-
gate, the entre servces may be treated as e cepted from empoy-
ment and no ta abty under Ttes III and I of the ct s
ncurred wth respect to the remuneraton pad to .
Secton 811: Defntons. 1938-1-9125
Reguatons 91, rtce : grcutura abor. S. S. T. 243
( so Secton 907 Reguatons 90, rtce 20 (1).)
Servces rendered by an empoyee of the M Company In supervs-
ng agrcutura abor performed by empoyee-tenants of farms
owned by that company are e cepted from empoyment as agr-
cutura abor for the purpose of Ttes III and I of the Soca
Securty ct
dvce s requested whether the servces performed by a farm su-
pervsor engaged by the M Company are e cepted from empoy-
ment under sectons 811 (b) and 907(c) of the Soca Securty ct.
It s stated that the M Company owns certan farms whch t eases
to farmers n the vcnty. Under the ease agreement the tenant s
requred to care for the ve stock, to keep the farm property n good
repar, to dever mk and cream, to cutvate and and rase ony
those crops specfed by the owner, and to perform from tme to tme
such servces as the owner drects. The tenant s -requred to ve on
the premses and personay to operate the farm. or the purpose of
nsurng proper performance under the ease agreements, the M Com-
pany empoys an ndvdua whose dutes consst of supervsng the
work of the varous tenants. The queston presented s whether hs
servces consttute agrcutura abor.
Sectons 811 (b) and 907(c) 1 of the Soca Securty ct e cept
agrcutura abor from empoyment as denned n those sec-
tons. rtce of Reguatons 91 and artce 20 (1) of Reguatons
90, whch are substantay smar, provde n part as foows:
The term agrcutura abor ncudes a servces performed
(a) y an empoyee, on a farm, n connecton wth the cutvaton of the so,
the harvestng of crops, or the rasng, feedng, or management of ve stock,
bees, and poutry or
( ) y an empoyee n connecton wth the processng of artces from mate-
ras whch were produced on a farm aso the transportaton or mar-
ketng of those materas or artces.
s used theren the term farm embraces the farm n the ord-
nary accepted sense, and ncudes stock, dary, poutry, frut, and
truck farms, pantatons, ranches, ranges, and orchards.
Under the facts n the present case, t s cear that the tenants are
empoyees of the M Company for the purpose of the ct and that the
servces performed by the empoyee-tenants of that company const-
tute agrcutura abor.
In S. S. T. 125 (C. . 1937-1, 397) t was stated that To the e tent
that an ndvdua, such as a farm manager or superntendent, s
engaged n the drect performance or supervson of servces whch of
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Regs. 91, rt. .
430
themseves consttute agrcutura abor such ndvdua s aso con-
sdered to be engaged n agrcutura abor, provded he s an em-
poyee of the owner or tenant of the farm wth respect to whch hs
servces are performed.
Consderng the nature of the servces performed by the supervsor
n the present case, and snce he s engaged n drect supervson of
servces whch of themseves consttute agrcutura abor, hs
servces are aso e cepted from empoyment under sectons 811(b) 1
and 907(c) of the ct.
Secton 811: Defntons. 1938-14-9279
Reguatons 91, rtce : grcutura abor. S. S. T. 277
( so Secton 907 Reguatons 90, rtce 20 (1).)
Servces performed In the empoy of the M Irrgaton Co., a
corporaton engaged soey n furnshng water for agrcutura pur-
poses, are not e cepted from empoyment under sectons 811(b)
and 007(c) of the Soca Securty ct
dvce s requested whether servces performed n the empoy of
the M Irrgaton Co. consttute agrcutura abor wthn the meanng
of sectons 811 (b) and 907(c) of the Soca Securty ct whch
e cept agrcutura abor from empoyment.
It s stated that the M Irrgaton Co., whch s a prvate corpora-
ton ncorporated under the aws of the State of R, owns and operates
an rrgaton pro|ect n that State and s engaged soey n furnsh-
ng water to farmers n the vcnty for agrcutura purposes. In
addton to ordnary aborers, the company empoys mechancs and
engneers to care for the pant machnery. The company makes
annua assessments aganst the varous farm owners to whom t sup-
pes water dependent upon the area of and rrgated.
grcutura abor, whch s e cepted from empoyment under
Ttes III and I of the Soca Securty ct, ncudes servces
performed by an empoyee on a farm n connecton wth the cutva-
ton of the so, the harvestng of crops, or the rasng, feedng, or
management of ve stock, bees, and poutry. ( rtce , Reguatons
91 artce 20 (1), Reguatons 90.) Such servces do not consttute
agrcutura abor, however, uness performed on a farm by an
empoyee of the owner or tenant thereof. (S. S. T. 125, C. . 1937-1,
397.)
In vew of the foregong, the servces performed n the empoy of
the M Irrgaton Co. do not consttute agrcutura abor wthn the
meanng of sectons 811(b) and 907(c) of the Soca Securty ct.
Secton 811: Defntons. 1938-1 -930
Reguatons 91, rtce : grcutura abor. S. S. T. 282
( so Secton 907 Reguatons 90, rtce 20 (1).)
To the e tent that offcers of the N Corporaton are engaged n
the drect supervson of servces whch consttute agrcutura
abor under Ttes III and I of the Soca Securty ct, such
offcers are aso consdered to be engaged n agrcutura abor.
Servces performed by such offcers n the e ecutve management of
the corporaton do not, however, consttute agrcutura abor.
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431
Regs. 91, rt. .
dvce s requested whether the servces of the offcers of the
N Corporaton are e cepted from empoyment under sectons 811 (b)
and 907(c) of the Soca Securty ct as agrcutura abor.
The Corporaton owns severa farms and produces agrcutura
products for market. The work performed by ts offcers conssts
to a arge e tent of drect fed supervson of those empoyees of
the corporaton who are engaged n cutvatng the so and the ras-
ng and harvestng of crops on the farms owned by the corporaton.
The ta es under Ttes III and I of the Soca Securty ct
attach wth respect to empoyment as defned n sectons 811(b)
and 907(c) of those ttes, respectvey. Sectons 811 (b) and
907(c) provde n part as foows:
The term empoyment means any servce, of whatever nature,
performed by an empoyee for hs empoyer, e cept
(1) grcutura abor. Itacs supped.
Secton 1101 (a) of the ct provdes that The term empoyee
ncudes an offcer of a corporaton.
In vew of the foregong provsons of the ct, snce agrcutura
abor performed by an empoyee for hs empoyer does not const-
tute empoyment under Ttes III and I , t foows that agr-
cutura abor performed by an offcer of a corporaton for the cor-
poraton does not consttute empoyment under those ttes. In
S. S. T. 125 (C. . 1937-1, 397) t was hed that to the e tent that an
ndvdua engages n the drect supervson of servces whch of
themseves consttute agrcutura abor, such an ndvdua s aso
consdered to be engaged n agrcutura abor, provded he s an
empoyee of the owner or tenant of the farm wth respect to whch hs
servces are performed.
It s accordngy hed that even though the ndvduas here under
consderaton are offcers of the N Corporaton and are thus empoyees
of the corporaton wthn the meanng of secton 1101 (a) of the ct,
nevertheess to the e tent that such offcers are engaged n the drect
fed supervson of servces whch consttute agrcutura abor,
such offcers are aso consdered to be engaged n agrcutura abor.
It shoud be noted, however, that servces performed n connecton
wth the e ecutve management of a corporaton do not consttute
agrcutura abor and that the ta es mposed under Ttes III
and I of the ct attach wth respect to that porton of the remunera-
ton pad to the offcers for such servces.
Secton 811: Defntons. 1938-19-9337
Reguatons 91, rtce : grcutura abor. S. S. T. 289
( so Secton 907 Reguatons 90, rtce 20 (1).)
Servces performed by an empoyee on and owned or tenanted
by hs empoyer n the remova of stumps, brush, etc., for the purpose
of preparng the and for use as an orchard consttute agrcu-
tura abor wthn the meanng of Ttes III and I of the So-
ca Securty ct. owever, servces performed on such and n cut-
tng, sawng, and preparng tmber for market do not consttute
agrcutura abor and are not e cepted from empoyment
under the ct.
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Regs. 91, rt. .
432
dvce s requested whether servces performed n the cearng of
tmberand for use as an orchard consttute agrcutura abor
wthn the meanng of the ta ng provsons of the Soca Securty
ct.
It s stated that s the owner of a farm on whch s ocated con-
sderabe tmberand. In the course of preparng ths tmberand for
use as an orchard, he has engaged ndvduas to cear t of tmber.
The trees are cut, sawed nto ogs, and transported to market, where
they are sod at whoesae. fter the feed tmber s removed, the
and w be prepared for use as an orchard by cearng t of stumps,
brush, etc.
Sectons 811 (b) and 907 (c) of the Soca Securty ct defne the
term empoyment, as used under Ttes III and I thereof, as
any servce, of whatever nature, performed wthn the Unted States by an
empoyee for hs empoyer, e cept
grcutura abor.
rtce of Reguatons 91, reatng to Tte III of the ct, pro-
vdes n part as foows:
The term agrcutura abor ncudes a servces performed
(a) y an empoyee, on a farm, n connecton wth the cutvaton of the so,
the rasng and harvestng of crops, or the rasng, feedng, or management of
ve stock, bees, and poutry .

orestry and umberng are not ncuded wthn the e cepton granted by
secton 811(b).
rtce 20 (1) of Reguatons 90, appcabe to Tte I of the ct,
contans substantay smar provsons.
Snce forestry and umberng are not wthn the e cepton from
empoyment accorded agrcutura abor, t s hed that servces
performed n the cuttng, sawng, and preparng for market of tmber
from the and owned by consttute empoyment wthn the mean-
ng of Ttes III and I of the Soca Securty ct. owever,
servces performed by s empoyees n the cearng of stumps, brush,
etc., from the and n preparng t for use as an orchard after the
feed tmber has been removed consttute agrcutura abor wthn
the meanng of sectons 811(b) and 907(c) 1, Ttes III and I ,
respectvey, of the Soca Securty ct.
Secton 811: Defntons. 1938-21-9357
Reguatons 91, rtce : grcutura abor. S. S. T. 293
( so Secton 907 Reguatons 90, rtce 208(1).)
Servces performed by empoyees of the N Mushroom Co. n the
growng of mushrooms n natura caves ocated wthn the corporate
mts of the cty of S do not consttute agrcutura abor wthn
the meanug of Ttes III and I of the Soca Securty ct.
dvce s requested whether servces performed for the N Mushroom
Co. n growng mushrooms consttute agrcutura abor wthn
the meanng of the ta ng provsons of the Soca Securty ct.
It s stated that n growng mushrooms the N Mushroom Co. uses
natura caves ocated n the buffs aong the Msssspp Rver wthn
the corporate mts of the cty of S. Immedatey above and sur-
roundng the buffs are ocated resdences, commerca estabshments,
parks, and bouevards. The so and fertzer used n the caves aro
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433
Regs. 91, rt. 10.
haued from varous ocatons. Indvduas engaged by the N Mush-
room Co. perform servces ony n connecton wth the growng, cu-
tvatng, harvestng, packagng, and marketng of mushrooms.
grcutura abor, whch s e cepted from empoyment under
Ttes III and I of the Soca Securty ct by sectons 811 (b)
and 907 (c) thereof, respectvey, ncudes, among other thngs, a
servces performed by an empoyee, on a farm, n connecton wth
the cutvaton of the so, the rasng and harvestng of crops, or the
rasng, feedng, or management of ve stock, bees, and poutry. The
term farm embraces the farm n the ordnary accepted sense, and
ncudes stock, dary, poutry, frut, and truck farms, pantatons,
ranches, ranges, and orchards. ( rtce , Reguatons 91 artce
20 (1), Reguatons 90.)
In S. S. T. 231 (C, . 1937-2, 417) t was hed that servces
performed by an empoyee on a farm of whch the empoyer s owner
or tenant n the growng of mushrooms consttute agrcutura
abor wthn the meanng of sectons 811 (b) and 907(c) of
the ct. It s to be noted that n order for servces performed n the
growng of mushrooms to consttute agrcutura abor, such serv-
ces must be performed by an empoyee on a farm n the ordnary
accepted sense of that word. In the nstant case the mushrooms are
grown n caves whch are nether ocated on, nor operated as, a farm
n the ordnary accepted sense. ccordngy, snce the caves n whch
the mushrooms are grown are nether a farm nor ocated on a
farm, as that term s used n artces and 20 (1), supra, t s hed
that the servces performed by empoyees of the N Mushroom Co.
n the growng of mushrooms do not consttute agrcutura abor
wthn the meanng of Ttes III and I of the Soca Securty ct.
Secton 811: Defntons. 1938-1-912
Reguatons 91, rtce 10: Offcers and members S. S. T. 244
of crews.
( so Secton 907 Reguatons 90, rtce 20 (3).)
Indvduas engaged by the M Company to can fsh n a cannery
ocated on board a vesse owned by that company are not members
of the crew of such vesse wthn the meanng of sectons 811(b)5
and 907(03 of the Soca Securty ct.
dvce s requested whether ndvduas engaged by the M Com-
pany to can fsh n a cannery ocated on board a vesse owned by that
company are members of the crew of such vesse wthn the meanng
of sectons 811 (b)5 and 907(c)3 of the Soca Securty ct.
It s stated that the M Company owns a cannery whch s ocated
on board one of ts vesses. fu crew s sgned for the navgaton
and operaton of the vesse. ddtona ndvduas such as supern-
tendents, cerks, machnsts, and others are empoyed n the operaton
of the cannery and the cannng of fsh theren. These ndvduas are
not requred to sgn the shp s artces but are sub|ect to the authorty
of the master of the shp.
Secton 811(b)5, Tte III, of the Soca Securty ct e cepts
from empoyment
Servce performed as an offcer or member of the crew of a vesse
documented under the aws of the Unted States or of any foregn country.
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Regs. 91, rt. 10.
434
Secton 907(c) 3, Tte I , e cepts
Servce performed ns nn offcer or member of the crew of a vesse
on the navgabe waters of the Unted States.
The e presson cfcers and members of the crew ncudes the
master or offcer n charge of a vesse, however desgnated, and every
ndvdua sub|ect to hs authorty servng on board and contrbutng
n any way to the operaton and wefare of the vesse. ( rtce 10,
Reguatons 91 artce 20 (3), Reguatons 90.) ven though an
ndvdua s sub|ect to the authorty of the master of a vesse, hs
servces n order to be e cepted must contrbute n some way to the
operaton and wefare of the vesse. In S. S. T. 209 (C. 1937-2,
428) t was hed that dock buders, casson buders, concrete m ers,
and carpenters engaged by the M Constructon Co. and perform-
ng servces on board vesses n connecton wth the constructon
of pers and docks are not members of the crews of such vesses
wthn the meanng of sectons 811(b)5 and 907(c)3 of the ct-
In arrvng at that concuson, t wras stated that The ndvd-
uas n queston can not reasonaby be sad to be contrbutng to the
operaton or wefare of the vesses. They are concerned wth the
constructon of pers and docks n the rver and are on the barges and
other equpment for that purpose aone. Whe the term crew s
not mted to those persons on board who are physcay engaged n
causng the vesse to move through the water, t s ordnary mted
to those contrbutng n some way to ts operaton and wefare. - In
S. S. T. 204 (C. . 1937-2, 427). hodng that certan ncdenta
shore servces are e cepted from empoyment, t was stated that
the servce performed n the packng of fsh s e -
cepted from empoyment ony f such packng s drecty con-
nected wth, or s ncdenta to, reguar duty on shpboard and
performed as part of the reguar vesse dutes for the mmedate
preservaton of the catch. The e cepton does not e tend to servce
performed n connecton wth the commerca processng and packng
of fsh n canneres, etc., even though such servce s performed by an
offcer or member of the crew of a vesse.
It s cear that the servces performed by the ndvduas here n
queston n cannng fsh n a cannery ocated on a vesse of the M
Company do not contrbute n any way to the operaton or wefare
of the vesse nor may such servces be sad to be ncdenta to reguar
duty on shpboard. ccordngy, t s hed that such ndvduas are
not members of the crew of the vesse wthn the meanng of sectons
811(b)5 and 907(c)3 of the ct, rrespectve of the fact that they
are sub|ect to the authorty of the master or offcer n charge of the
vesse.
Secton 811: Defntons. 1938-12-9251
Reguatons 91, rtce 10: Offcers and members S. S. T. 272
of crews.
( so Secton 907 Reguatons 90, rtce 20 (3).)
Servces performed by ndvduas engaged by the M Contractng
Co. to serve as watchmen on board a vesse of the N Company
temporary n port for the e change of cargo are not e cepted
from empoyment under sectons 811(b)5 and 007(c)3 of the
Soca Securty ct.
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435
Regs. 91, rt. 10.
dvce s requested whether watchmen engaged by the M Contract-
ng Co. to perform servces on board a vesse of the N Company
temporary n port for the e change of cargo are e cepted from
empoyment under sectons 811(b)5 and 907(c)3, Ttes III and
I , respectvey, of the Soca Securty ct.
Secton 811(b)5 of that ct e cepts from the term empoyment
as defned thereunder
Servce performed as an offcer or member of the crew of a vesse
documented under the aws of the Unted States or of any foregn country.
Secton 907 (c)3 e cepts
Servce performed as an offcer or member of the crew of a vesse
on the navgabe waters of the Unted States.
The e presson offcers and members of the crew ncudes the
master or offcer n charge of the vesse, however desgnated, and
every ndvdua sub|ect to hs authorty, servng on board and con-
trbutng n any way to the operaton and wefare of the vesse.
( rtce 10, Reguatons 91 artce 20 (3), Reguatons 90.)
In the present case, the watchmen supped by the M Contractng
Co. are not drecty engaged by the master or owner of the vesse
but are hred by the contractng company, are pad by that company,
and are responsbe to t. The contractng company does not ren-
qush and the vesse owner does not acqure the rght of contro and
drecton over the watchmen.
In S. S. T. 3 (C. . -2, 413 (193 )) t was hed that ndvd-
uas renderng servces to the M Company, whch contracts to oad
steamshps, are not offcers or members of the crew of a vesse on the
navgabe waters of the Unted States and ther servces are not
e cepted from empoyment under the provsons of secton 907(c)3
of the ct. rom that concuson, t foows that the watchmen here
n queston supped by the M Contractng Co. to perform servces
on board a vesse of the N Company are not offcers or members of
the crew wthn the meanng of sectons 811(b)5 and 907(c)3, supra,
and ther servces are not e cepted from empoyment under Ttes
n and I of the ct.
In S. S. T. 221 (C. . 1937-2, 430) t was hed that servces per-
formed as watchmen by members of the crew of a documented
vesse whch s temporary wthdrawn from navgaton are e -
cepted from empoyment under Ttes III and I of the ct.
owever, n that case the servces were actuay performed by mem-
bers of the crew of the vesse and not by persons engaged by an
ndependent contractor.
Secton 811: Defntons. 1938-13-92 4
Reguatons 91, rtce 10: Offcers and members S. S. T. 274
of crews.
( so Secton 907 Reguatons 90, rtce 20 (3).)
Servces performed by an offcer or member of the crew on an
undocumented barge (or barges) towed by a documented tugboat
are not e cepted from empoyment under secton 811(b)5 of the
Soca Securty ct. owever, servces performed by an offcer
or member of the crew of such a vesse on the navgabe waters of
the Unted States are e cepted from empoyment under secton
907(c)3, Tte I .
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Regs. 91, rt. 10.
43
The queston s presented whether servces performed on an un-
documented barge (or barges) towed by a tugboat documented under
the aws of the Unted States are e cepted from empoyment
under secton 811(b) 5, Tte III, of the Soca Securty ct, whch
e cepts
Servce performed as an offcer or member of the crew of a vesse
documented under the aws of the Unted States or of any foregn country.
In S. S. T. 210 (I. R. . T-14, 1 (1937)) t was hed that non-
sef-propeed barges used to hau sand, coa, grave, etc., between
varous ponts n and near a harbor are vesses wthn the meanng
of sectons 811(b) 5 and 907(c) 3 of the ct.
mong the vesses whch are e empt from documentaton under
the aws of the Unted States are:
(2) Cana boats or barges, or boats empoyed whoy upon canas or on the
Interna waters of a State, wthout sa or nterna motve power of ther own
and not engaged n trade wth contguous foregn terrtory and not carryng
passengers.
(3) arges or boats wthout sa or nterna motve power of ther own,
pyng on nand rvers or akes of the Unted States, not engaged n trade wth
contguous foregn terrtory and not carryng passengers. rtce 13, Customs
Reguatons of 1931.
In artce 10 of the Customs Reguatons of 1931 are sted those
vesses whch are entted to documentaton under the aws of the
Unted States, ndcatng that certan vesses are not entted to
documentaton. n e amnaton of artce 13, supra, whch sts
barges as e empt from documentaton, together wth artce 10,
whch sts vesses entted to documentaton, dscoses that n so far
as documentaton under the aws of the Unted States s concerned,
a barge wthout sa or nterna motve power of ts own, not engaged
n trade wth contguous foregn terrtory, and not carryng passen-
gers s not requredto be documented under the aws of the Unted
States. To hod that a barge s to be consdered as documented
under the aws of the Unted States because t s operated n con-
necton wth a tug whch s so documented woud resut n the con-
cuson that a barge whch s not entted to be documented never-
theess becomes documented by reason of the fact that t s propeed
by a documented vesse. The customs reguatons ndcate that
barges are to be consdered separatey from the tug or vesses by
whch they are towed for the purpose of documentaton under the
aws of the Unted States. ccordngy, t s hed that servces
erformed on an undocumented barge (or barges) even though towed
y a documented tugboat are not e cepted from empoyment under
secton 811 (b)5 of the Soca Securty ct.
In vew of the concuson reached n S. S. T. 210, supra, that barges
are vesses wthn the meanng of sectons 811 (b)5 and 907(c)3 of
the ct, servces performed as an offcer or member of the crew of
such a vesse on the navgabe waters of the Unted States are e -
cepted from empoyment under Tte I rrespectve of whether
such barge together wth the tug s consdered as one vesse, snce
the e cepton under secton 907(c)3 reates to servces performed
by an offcer or member of the crew of a vesse on the navgabe
waters of the Unted States regardess of documentaton.
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437
Regs. 91, rt. 10.
Secton 811: Defntons. 1938-1 -9307
Reguatons 91, rtce 10: Offcers and members S. S. T. 283
of crews.
( so Secton 907 Reguatons 90, rtce 20 (3).)
Servces performed by ndvduas as spkeepers on vesses
owned by the M Company whcb are ad up n port durng the
wnter months are not e cepted from empoyment under sec-
tons 811 (b)5 and 907(c)3 of the Soca Securty ct.
dvce s requested whether spkeepers engaged by the M Com-
pany to perform servces as watchmen on vesses owned by that
company whch are ad up n port durng the wnter months are
e cepted from empoyment under sectons 811(b)5 and 907(c)3,
Ttes III and I , respectvey, of the Soca Securty ct.
The M Company owns numerous vesses whch are used n trans-
portng freght over the Great Lakes. These vesses are ted up at
docks n the atter part of November of each year because of ce and
unfavorabe weather condtons and navgaton s not resumed unt
the ce mets n the sprng. Often the vesses have vauabe cargoes
aboard when they are frozen n and n order to protect the shps and
cargoes, the captan of each vesse engages an ndvdua to act as a
shpkeeper durng the wnter. member of the crew s often re-
taned for that purpose but not n a nstances. The shpkeeper s
eft n compete charge of the vesse, hs dutes beng to protect t
generay, shove snow off the hatches, and care for the cargo. e
ves aboard the vesse but s prveged to eave t to purchase sup-
pes. s soon as a shpkeeper has taken charge of tne vesse, the
crew s dsbanded. The crew members may fnd work esewhere or
may agan become empoyed by the M Company n the sprng.
Secton 811(b)5 of the ct e cepts from the term empoyment
as defned thereunder
Servce performed as an offcer or member of the crew of a vesse
documented under the aws of the Unted States or of any foregn country.
Secton 907(c)3 e cepts
Servce performed as an offcer or member of the crew of a vesse
on the navgabe waters of the Unted States.
In S. S. T. 221 (C. . 1937-2, 430) t was hed that servces
performed as watchmen by members of the crew of a documented
vesse whch s temporary wthdrawn from navgaton are e -
cepted from empoyment under Ttes III and I of the ct
In that case, however, there was no dsbandng of the crew. When
there s a temporary ay-up of a shp, the crew generay remans
constant, whe n the nstant case the crew s dsmssed and ony one
ndvdua remans on board the vesse.
Under the facts stated, the spkeepers n queston are not offcers
or members of the crew wthn the meanng of sectons 811(b)5
and 907(c)3 of the ct and, accordngy, ther servces are not e cepted
from empoyment under Ttes III and I thereof.
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Regs. 91, rt. 11.
438
Secton 811: Defntons.
1938-1-9127
Reguatons 91, rtce 11: Government empoyees. S. S. T. 245
( so Secton 907 Reguatons 90, rtce 20 (5)-( ).)
Servces performed n the operaton of a pubc schoo cafetera
n the Dstrct of Coumba whch s under the supervson of the
prncpa of the schoo wheren such cafetera s ocated are e -
cepted from empoyment under sectons 811(b) and 007(c)u
of the Soca Securty ct.
dvce s requested whether servces performed n the operaton
of pubc schoo cafeteras n the Dstrct of Coumba are e cepted
from empoyment under sectons 811(b) and 907(c)o of the
Soca Securty ct.
The prncpas of the varous pubc schoos n the Dstrct of
Coumba under supervson of the superntendent of schoos are
responsbe n ther offca capacty for the operaton of cafeteras n
ther respectve schoos. Usuay the prncpa empoys a manager
who has drect contro over the other cafetera empoyees. The man-
ager s pad a saary and does not operate the cafetera as a conces-
son. It s customary to pay the manager and other empoyees from
the cafetera recepts, any proft whch accrues revertng to the schoo.
Lkewse, the schoo must meet any defct whch occurs.
Sectons 811 (b) and 907(c 5 of the Soca Securty ct e cept
from the term empoyment as defned thereunder Servce per-
formed n the empoy of the Unted States Government or of an
nstrumentaty of the Unted States. The e cepton e tends to
every servce performed by an ndvdua n the empoy of the Ds-
trct of Coumba, or any nstrumentaty thereof, ncudng every
unt or agency of government wthout dstncton between those e er-
csng functons of a governmenta nature and those e ercsng func-
tons of a propretary nature. ( rtce 11, Reguatons 91 artce
20 (5)-( ), Reguatons 90.)
It s hed that servces performed n the operaton of pubc schoo
cafeteras n the Dstrct of Coumba under the stated crcumstances
are e cepted from empoyment under sectons 811 (b) and
907(c)5 of the Soca Securty ct, and that nether such cafeteras
nor ther empoyees arc sub|ect to the ta es mposed under Ttes
III and I thereof.
Reguatons 91, btce 11: Government empoyees. S. S. T. 24
( so Secton 907 Reguatons 90, rtce 20 (5)-( ).)
Servces performed n the empoy of the M re ssocaton
organzed under the corporaton aws of the State of Oregon for the
protecton of tmberands of Us members are not e cepted from
empoyment under sectons 811(b)7 and 907(c) of the Soca
Securty ct.
dvce s requested whether servces performed n the empoy of
the M re ssocaton are e cepted from empoyment under sectons
811 (b)7 and 907(c) of the Soca Securty ct.
It s stated that the M re ssocaton was organzed subsequent to
the passage of the compusory patro aw of the State of Oregon
(secton 42- 01 and secton 42- 02, Oregon Laws), whch provdes
Secton 811: Defntons.
1938-1-9128
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39
(Regs. 91, rt. 11.
that every owner of forest and must furnsh and pay the cost of a
degree of protecton from fre satsfactory to the State forester. In
the event he fas to do so, the State forester s authorzed and drected
to furnsh such protecton, and the cost thereof s paced aganst the
and as an assessment coectbe at the same tme and wth the same
penaty and nterest appcabe to ad vaorem property ta es. In
pursuance of that statute varous groups of andowners n the State
of Oregon formed assocatons for ther mutua protecton and the
State was dvded nto natura protectve unts whose boundares con-
formed as cosey as possbe to county nes. These unts were set up
wth the cooperaton and hep of both State and edera forest offcers
n order that the and mght be appropratey protected. The M
re ssocaton was organzed wth a nonsaaned board of drectors.
fter ts organzaton the edera Government and the State of
Oregon entered nto contracts wth the assocaton whch contaned,
among other thngs, the foowng terms:
(1) The assocaton w receve ony actua cost on the bass of work
performed.
(2) ach empoyee e cept temporary re fghters w be apponted as a
State fre warden and charged wth the enforcement of State forest aws.
(3) The assocaton through ts organzaton must not ony protect ts own
ands but aso ands beongng to the edera Government aganst fre and
trespass.
(4) The assocaton w gve the same consderaton n protecton of a the
ands wthn ts boundares whether these ands beong to the members of the
assocaton or to the State of Oregon.
The artces of ncorporaton of the M re ssocaton dscose
that t was ncorporated pursuant to secton 25-902, Oregon Code,
1930, and that the ob|ect, busness, and pursut of the corporaton
sha be the promoton and advancement of the tmber ndustry n
the State of Oregon by and through the protecton aganst, and
fghtng of, fres wthn the areas specfed from tme to tme by ts
board of drectors. The by-aws provde that any person, frm, or
corporaton ownng or havng an nterest ether as prncpa or agent
n the ownershp or management of tmberands wthn the mts of
the terrtory prescrbed by the board of drectors of the assocaton
sha be egbe for membershp n the assocaton and that the fund3
to defray the e penses of the assocaton sha be rased by assessment
of ts members. It s stated that the assocaton durng the year 19
receved 12a doars from assessments, 3a doars from the Carke-
McNary fund, and 10a doars pad under contract by the State
forester.
Sectons 811(b) 7 and 907(c) e cept from the term empoyment
as denned thereunder Servce performed n the empoy of a State,
a potca subdvson thereof, or an nstrumentaty of one or more
States or potca subdvsons. The e cepton e tends to every
servce performed by an ndvdua n the empoy of the severa
States, the Dstrct or Coumba, or the Terrtory of aska or awa,
or any potca subdvson or nstrumentaty thereof, ncudng
every unt or agency of government. ( rtce 11, Reguatons 91
artce 20 (5)-( ), Reguatons 90.)
n e amnaton of the corporaton aws of the State of Oregon
under whch the M re ssocaton was organzed does not dscose
that such assocaton s a medum for carryng nto e ecuton powers
of the State of Oregon or any potca subdvson thereof. Nether
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Regs. 91, rt. 11.
440
does t appear that the agency s an nstrumentaty of the Unted
States. The fact that the assocaton receves appropratons or con-
trbutons from the State and from the Unted States does not con-
sttute t an nstrumentaty thereof wthn the meanng of Ttes
III and I of the Soca Securty ct.
ccordngy, t s hed that servces performed n the empoy of
the M re ssocaton are not e cepted from empoyment under
sectons 811(b)7 and 907(c) of the Soca Securty ct.
Secton 811: Defntons. 1938- -91 3
Reguatons 91, rtce 11: Government empoyees. S. S. T. 250
( so Secton 907 Reguatons 90, rtce 20 (5)-( ).)
ounteer fre departments organzed and operated under the aws
of the State of Pennsyvana and adopted by the varous ctes and
townshps of that State are nstrumentates of potca subdv-
sons of the State wthn the meanng of sectons 811(b)7 and
907(c) of the Soca Securty ct.
dvce s requested whether vounteer fre departments organzed
under the aws of the State of Pennsyvana and adopted by the
varous ctes and townshps of that State are nstrumentates of
potca subdvsons of the State wthn the contempaton of sec-
tons 811 (b)7 and 907(c) of the Soca Securty ct, whch read
n part as foows:
The term empoyment means any servce e cept

Servce performed n the empoy of a State, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca subdvsons
The e cepton e tends to every servce performed by an ndvdua
n the empoy of the severa States, the Dstrct of Coumba, or the
Terrtory of aska or awa, or any potca subdvson or nstru-
mentaty thereof, ncudng every unt or agency of government, wth-
out dstncton between those e ercsng functons of a governmenta
nature and those e ercsng functons of a propretary nature. ( r-
tce 11, Reguatons 91 artce 20 (5)-( ), Reguatons 90.)
Under the aws of the State of Pennsyvana ( ct No. 331, rtce
, secton 1502, page 1253, Laws of Pennsyvana, 1931) townshps
have the authorty
to take measures for the e tngushment of fres, ether by makng
annua appropratons towards the mantenance of fre companes, or n such
other manner as sad board of commssoners may deem proper to ordan rues
and reguatons for the government of such fre companes and ther offcers,
and to reguate the method to be foowed n the e tngushment of fres .
y approprate egsaton a town s made abe for the neggence
of members of the fre department when on duty. (Laws of Pennsy-
vana, 1931, ct No. 2 3, secton 19, page 7 9.) The members of
vounteer fre departments of the varous ctes and townshps are by
statute made empoyees of such ctes and townshps for the purpose
of the workmen s compensaton act.
It s wthn the poce power of a State or potca subdvson
thereof to estabsh a fre department for the protecton of property
from destructon by fre. The prmary purpose of a vounteer fre
department of a town s to protect both pubc and prvate budngs
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Regs. 91, rt. 11.
from such hazard. It s cear that a potca subdvson of the State
of Pennsyvana may adopt and use an estabshed vounteer fre de-
partment and may make the vounteer fre department an nstru-
mentaty of such potca subdvson. The statutes above referred
to |ustfy ths concuson.
ccordngy, t s hed that vounteer fre departments organzed
and operated under the aws of the State of Pennsyvana and adopted
by the varous ctes and townshps of that State are nstrumentates
of potca subdvsons of the State wthn the contempaton of
sectons 811 (b)7 and 907(c) , supra, and nether such departments
nor ther empoyees are sub|ect to the ta es mposed under the Soca
Securty ct.
Secton 811: Defntons. 1938-11-9242
Regtt-vtons 91, rtce 11: Government empoyees. S. S. T. 2 9
( so Secton 907 Reguatons 90, rtce 20 (5)-( ).)
rmy post e changes are nstrumentates of the Unted States
wthn the meanng of Ttes III and I of the Soca Securty
ct, and nether such e changes nor ther empoyees are sub|ect to
the ta es mposed under those ttes.
dvce s requested whether rmy post e changes are nstrumen-.
tates of the Unted States wthn the meanng of secton 811(b) ,
Tte III. and secton 907(c) 5, Tte I t of the Soca Securty ct.
Post e changes are estabshed and mantaned under rmy regu-
atons promugated by the War Department. Ther prmary pur-
pose s to suppy the troops, at reasonabe prces, wth artces of
ordnary use, wear, and consumpton not supped by the Govern-
ment, and to afford them means of recreaton and amusement. Super-
vson, admnstraton, and management of post e changes are m-
tary dutes, proper performance of whch s made the responsbty
of the post commander and other offcers apponted for that purpose
who functon under the supervson of the commandng offcer. The
offcer n mmedate charge of a post e change s detaed by the com-
mandng offcer to that duty. It s ,a, mtary duty for whch he
receves pay approprated by Congress and he s not authorzed to
receve any addtona compensaton from any source for hs servces
as e change offcer.
In an opnon of the udge dvocate. Genera of the rmy, dated
ebruary 17,1937, t s stated:
Support for the vew that the rmy nsttuton of the post e change
s an agency of the Unted States s found n the appro-
praton of 75,000 of pubc funds or contnung the constructon, equpment,
and mantenance of sutabe budngs at mtary posts and statons, for the
conduct of the post e change . ( ct of March 2, 1923, 42 Stat., 1380.)
Sectons 811(b) , Tte III, and 907(c) 5, Tte I , of the Soca
Securty ct defne the term empoyment as any servce, of what-
ever nature, performed wthn the Unted States by an empoyee for
hs empoyer, e cept

Servce performed n the empoy of the Unted States Government or of an
nstrumentaty of the Unted States.
83421 88 15
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Regs. 91, rt. 11.
442
The e cepton e tends to every servce performed by an ndvdua
n the empoy of the Unted States, or an nstrumentaty thereof,
ncudng every unt or agency of government, wthout dstncton be-
tween those e ercsng functons of a governmenta nature and those
e ercsng functons of a propretary nature. ( rtce 11, Reguatons
91 artce 20 (5)-( ), Reguatons 90.)
Under the facts stated, t appears that rmv post e changes are
engaged n carryng out functons of the Unted States Government.
It s accordngy hed that such e changes are nstrumentates of the
Unted States and that nether such e changes nor ther empoyees are
sub|ect to the ta es mposed by Ttes III and I of the Soca
Securty ct.
Secton 811: Defntons. 1938-13-92 5
Reguatons 91, rtce 11: Government empoyees. S. S. T. 275
( so Secton 907 Reguatons 90, rtce 20 (5)-( ).)
Servces performed In the empoy of the M Credt Unon organzed
under the aws of the State of New ersey are not e cepted from
empoyment under sectons 811(b)7 and 907(c) of the Soca
Securty ct.
dvce s requested whether servces performed n the empoy of
the M Credt Unon are e cepted from empoyment under sectons
811(b)7 and 907(c) of the Soca Securty ct, whch provde n
part as foows:
The term empoyment means any servce, of whatever nature,
performed wthn the Unted States by an empoyee for hs empoyer, e cept

Servce performed In the empoy of a State, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca subdvsons.
The M Credt Unon was organzed under the provsons of chapter
48 of the New ersey aws of 1924, as amended. The New ersey
aws wth respect to credt unons are contaned n chapter 13, tte
17, oume I, of the Revsed Statutes of New ersey, whch became
effectve December 20, 1937. It s provded that credt unons may
be organzed and ncorporated by empoyees havng a common em-
poyer, persons dentfed wth a church parsh or socety or organza-
ton of war veterans wthn the State, or 10 or more persons engaged
n agrcutura pursuts n a county of a State for the purpose of
creatng a fund to encourage savngs thereby and to furnsh tem-
porary fnanca assstance to the members of the assocaton by mak-
ng oans to them for provdent and productve purposes. The
method of organzaton of the unon and the requrements to be met n
the conduct thereof are set forth n the statute.
In S. S. T. 140 (C. . 1937-1, 428) t was hed that edera credt
unons organzed pursuant to the edera Credt Unon ct of
une 2 , 1934 (48 Stat., 121 ), are nstrumentates of the Unted
States wthn the meanng or sectons 811(b) and 907(c)5 of the
Soca Securty ct. That rung refers to secton 17 of the edera
Credt Unon ct, whch provdes n part as foows:
ach edera credt unon organzed under ths ct, when requested
by the Secretary of the Treasury, sha act as fsca agent of the Unted States
and sha perform such servces as the Secretary of the Treasury may requre In
connecton wth the coecton of ta es and other obgatons due the Unted
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443
Regs. 91, rt. 11.
States and the endng, borrowng, and repayment of money by the Unted
States, ncudng the ssue, sae, redempton or repurchase of bonds, notes,
Treasury certfcates of ndebtedness, or other obgatons of the Unted States
and to factate such purposes the governor sha furnsh to the Secretary of
the Treasury from tme to tme the names and addresses of a edera credt
unons wth such other avaabe nformaton concernng them as may be re-
quested by the Secretary of the Treasury. ny edera credt unon organ-
zed under ths ct, when desgnated for that purpose by the Secretary of the
Treasury, sha be a depostory of pubc money, e cept recepts from customs,
under such reguatons as may be prescrbed by the Secretary of the Treasury-
n e amnaton of the New ersey aws reatng to credt unons
dscoses no provson ndcatng that credt unons organzed there-
under are created for the purpose of actng as fsca agents of the
State of New ersey nor does t appear that such credt unons are
engaged n carryng out functons of the State or ts potca subd-
vsons. Therefore, the M Credt Unon s not an nstrumentaty of
the State of New ersey or a potca subdvson thereof, and serv-
ces performed by ts offcers and empoyees are not e cepted from
empoyment under sectons 811 (b)7 and 907(c) of the Soca Se-
curty ct.
Secton 811: Defntons. 1938-13-92
Reguatons 91, htce 11: Government empoyees. S. S. T. 27
( so Secton 907 Reguatons 90, rtce 20 (5)-( ).)
Servces performed by ndvduas empoyed by a fourth cass
postmaster n carryng out hs offca dutes are e cepted from
empoyment under sectons 811(b) and 907(c)5 of the Soca
Securty ct.
dvce s requested whether servces performed by ndvduas
empoyed by a fourth cass postmaster are e cepted from empoy-
ment under sectons 811(b) and 907(c)5 of the Soca Securty
ct as servces performed n the empoy of the Unted States Gov-
ernment or of an nstrumentaty of the Unted States.
Chapter 2, secton 53, Tte 39, U. S. C. ., provdes n part as
foows:
Postmasters sha be dvded nto four casses, as foows:
The frst cass sha embrace a those whose annua saares are 3,200 or
more.
The second cass sha embrace a those whose annua saares are ess than
3,200, but not ess than 2,400.
The thrd cass sha embrace a those whose annua saares are ess than
2,400, but not ess than 1,100.
The fourth cass sha embrace a postmasters whose annua compensaton
amounts to ess than 1,100, e cusve of commssons on money orders ssued.
Under secton 44 of the Posta Laws and Reguatons, a fourth
cass postmaster s permtted to empoy as cerks wthout e pense to
the Post Offce Department such competent members of hs famy or
other persons, whether of ega age or not, as he may desre to have
assst m. persons egbe and competent who are reguary
empoyed or key to be caed upon to hande ma or perform other
offca work n the post offce are requred to take an oath of offce.
postmaster of the fourth cass s sub|ect to the supervson and
contro of the Post Offce Department. Lkewse, ndvduas n the
empoy of a fourth cass postmaster are sub|ect to supervson and
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Regs. SI, rt. 11.
444
contro of the Post Offce Department n that such ndvduas must
abde by the Posta Laws and Reguatons and the nstructons ssued
to the postmaster.
Servces performed by fourth cass postmasters n the empoy of
the Post Offce Department are e cepted from empoyment under
Ttes III and I of the Soca Securty ct as servces per-
formed n the empoy of the Unted States Government. It s
hed that servces performed by ndvduas assstng a fourth cass
postmaster n carryng out hs offca dutes, pursuant to the per-
msson granted hm n secton 44 of the Posta Laws and Regua-
tons, are aso e cepted from empoyment under the provsons of
sectons 811(b) and 907(c)5, Ttes III and I , respectvey, of
the ct. The fact that the compensaton of such ndvduas s pad
drecty by the postmaster s mmatera. Ths rung does not
appy, however, to servces performed n the empoy of a fourth cass
postmaster n carryng out the terms of a contract wth the Post
Offce Department. (See S. S. T. 205, C. . 1937-2, 438.)
Where ndvduas n the empoy of a fourth cass postmaster per-
form e cepted servces n the furtherance of the postmaster s offca
dutes and aso render other servces of a type whch are not e cepted
from the ta es mposed under the ct (such as workng n a store
operated by the postmaster n hs prvate capacty), abty under
the ta ng provsons of the ct shoud be determned n accordance
wth the genera rues set out n S. S. T. 174 (C. . 1937-2, 418),
whch reates to a person performng both e cepted and none cepted
servces.
Secton 811: Defntons. 1938-14-9280
Reguatons 91. rtce 11: Government empoyees. G. C. M. 198 5
( so Secton 907 Reguatons 90, rtce 20 (5)-( ).)
Status for purposes of the ta es mposed under the Soca
Securty ct of ndvduas performng servces under the supern-
tendent of banks of the State of New York or hs representatves
n connecton wth the qudaton of banks taken over by the
superntendent.
dvce s requested reatve to the status under Ttes III and I
of the Soca Securty ct of ndvduas apponted or empoyed by
the superntendent o banks of the State of New York engaged n the
qudaton of State bankng nsttutons.
Under the bankng aw of the State of New York, the supern-
tendent of banks s authorzed to take possesson of the busness and
property of corporatons and ndvduas under hs |ursdcton.
Upon takng possesson of the property and busness of any such
corporaton or ndvdua, he may qudate the busness and do a
such acts as n hs |udgment are necessary to conserve the assets. e
s authorzed to appont speca deputy superntendents of banks as
agents and may empoy from tme to tme such cerks, e amners,
speca agents, and others as he requres to dscharge the dutes m-
posed upon hm by aw. The corporatons n qudaton contnue to
e st under the aw athough ther corporate powers are suspended.
Pursuant to the authorty granted hm, the superntendent has
formed varous corporatons and has used severa presenty e stng
corporatons to hod specfc assets of corporatons n qudaton.
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Regs. 91, rt. 11.
The empoyees of those corporatons are pad from the ncome de-
rved from the assets hed and controed by the corporaton. If
such ncome s nsuffcent, the defct s made up from the funds
of the corporaton n qudaton whch owns the assets. These em-
poyees are not pad by the State or by the corporatons so formed.
Secton 811(b)7, Tte III, of the Soca Securty ct provdes:
(b) The term empoyment means any servce e cept

(7) Servce performed n the empoy of a State, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca subdvsons.
Secton 907(c) contans an dentca provson e ceptng such serv-
ces from empoyment under Tte I of the ct.
The bankng aw of the State of New York, artce 2, book 4,
Mc nney s Consodated Laws of New York, nnotated, contans
the foowng pertnent provsons:
Sec. 13. Deputes, cerks, e amners, speca agents and other empoyees
appontment compensaton oath of offce bonds and undertakngs.
The superntendent may appont fve deputes, and sha empoy from tme
to tme such cerks, e amners, speca agf nts and other empoyees as he
may need to dscharge n a proper manner the dutes Imposed upon hm by
aw. They sha perform such dutes as the superntendent sha assgn to them
and ther compensaton sha be f ed by hm and pad monthy.

Sec. 2. Speca deputes assstants counse and other empoyees.
The superntendent may, by certfcate, under hs hand and offca sea,
appont one or more speca deputy superntendents as agent or agents to assst
hm n qudatng the busness and affars of any corporaton or prvate banker
n hs possesson. The superntendent sha fe such certfcate n hs offce
and sha cause a certfed copy thereof to be fed n the offce of the cerk
of the county n whch the prncpa offce of such corporaton or banker s
ocated. e may, from tme to tme, deegate such speca deputy superntend-
ents to perform such dutes connected wth such qudaton as he may deem
proper. e may empoy such e pert assstants and counse and may retan
such of the offcers or empoyees of such corporaton or banker as he may
deem necessary n the qudaton and dstrbuton of the assets of such
corporaton or banker. e sha requre such securty as he may deem proper
from hs agents and assstants apponted pursuant to the provsons of ths
secton.
Sec. 3. Payment by superntendent of e penses of qudaton.
The superntendent sha pay out of the funds n hs hands, of such corpo-
raton or prvate banker, a e penses of qudaton, sub|ect to the approva
of the supreme court n the |udca dstrct n whch the prncpa offce of
such corporaton or banker s ocated, and upon notce of the appcaton for
such approva to such corporaton or banker. e sha. In ke manner, f
and pay the compensaton of speca deputy superntendents, assstants, coun-
se and other empoyees apponted to assst hm n such qudaton pursuant
to the provsons of ths artce. ut a speca deputy who, as e amner actng
under commsson from the superntendent, has prevousy e amned the books,
papers and affars of such corporaton or banker, sha not receve compensa-
ton as such speca deputy whch e ceeds by more than o a day the per
dem compensaton receved by hm as e amner at the tme of makng such
e amnaton.
It s the opnon of ths offce that servces performed by ndvduas
apponted or empoyed pursuant to the provsons of secton 13 of the
New York bankng aw (above quoted) n the qudaton of New
York State bankng nsttutons under the drecton of the supernten-
dent of banks are e cepted from empoyment under sectons 811(b)7
and 907(c) of the Soca Securty ct. urthermore, the servces
performed by ndvduas who act n a representatve capacty, and
who are apponted or empoyed pursuant to the provsons of secton
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Regs. 91, rt. 11.
44
2 of the New York aw (above quoted) by the superntendent of
banks actng as recever, are kewse e cepted from empoyment.
owever, the estate of each corporaton or ndvdua for whch the
superntendent of banks s actng as recever has the status of an em-
poyer, and those ndvduas who perform servces under hm or hs
representatves n carryng on or qudatng the busness of such cor-
poraton or ndvdua, as dstngushed from those who act on hs
behaf n a representatve capacty, are empoyees of such estate and
ther servces are not e cepted from the ta es mposed under Ttes
III and I of the ct. The same rue appes wth respect to cer-
tan corporatons whch the superntendent of banks has organzed
or used as hoders of specfc assets of such estates. (See generay
S. S. T. 120, C. . 1937-1, 375.)
s set forth n S. S. T. 37 (C. . -2, 380 (193 )) to the e tent
that the provsons of the ct of March 1, 1879 (20 Stat., 327), are
appcabe n the case of the estate of any nsovent bank n the
process of qudaton under the supervson of the State supern-
tendent of banks, such estate may be reeved from payment of the
empoyers ta es mposed under Ttes III and I of the Soca
Securty ct. Such reef, however, has no appcaton n the case of
the empoyees ta mposed under secton 801 of the ct. ccord-
ngy, the superntendent of banks, hs speca deputy superntend-
ent, or hs offca representatve n charge of the affars of such
nsovent banks, shoud, on behaf of each estate, coect and return
the empoyees ta regardess of whether the estate may be reeved
of payng the empoyers ta .
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
Secton 811: Defntons. 1938-18-9323
Reguatons 91, rtce 11: Government empovees. S. S. T. 287
( so Secton 907 Reguatons 90, rtce 20 (5)-( ).)
The M County arm ureau, whch was organzed and Is oper-
ated to cooperate wth the Coege of grcuture of the Unversty
of Mssour n carryng out functons requred by the Smth-Lever
ct (38 Stat, 372), Is an nstrumentaty of the State of Mssour
and nether the farm bureau nor ts empoyees are sub|ect to the
ta es mposed under Ttes III and I of the Soca Securty ct.
dvce s requested whether the M County arm ureau s an
nstrumentaty of the State of Mssour wthn the meanng of sec-
tons 811(b)7 and 907(c) of the Soca Securty ct.
rtce 15, chapter 109, sectons 12135-12138, R. S., Mo., 1919, as
amended by artce 17, chapter 87, sectons 12 1 -12 23, 1929, under
whch the M County arm ureau was organzed, contans the fo-
owng pertnent provsons:
Sec. 12 1 . County courts may approprate money for support of county farm
organzatons. or the purpose of promotng the pubc wefare by assstng In
the genera betterment of farm and home practces and condtons, the county
court of any county s hereby authorzed and empowered to approprate out of
the genera funds of the county such sums as t may deem proper for the support
of county farm organzatons and to pay out such moneys under the condtons
herenafter specfed.
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447
Regs. 91, rt. 11.
Sbc 12 17. Defnng county farm organzaton. county farm organzaton
Is hereby defned as a county organzaton, wng to cooperate wth the Unver-
sty of Mssour Coege of grcuture n carryng out the provsons of the
Smth-Lever ct of Congress approved May 8, 1914, composed of not ess than
200 bona fde farmers, farm women or tenants, wth an annua membershp fee
of not ess than 50 cents per member fuy pad up. ts consttuton and by-aws
formay adopted and ts offcers eected and nstaed.
Sbc. 12 18. Ob|ects. The ob|ects of a county farm bureau sha be:
(a) To promote the deveopment of proftabe and permanent systems of
agrcuture.
( ) To assst n securng whoesome and satsfactory vng condtons n the
country.
(c) To encourage the deveopment and successfu growth of a rura soca
and educatona nsttutons.
( f) To assst In safeguardng rura pubc heath through communty
cooperaton.
(e) To deveop better economc and busness methods and practces In farm
and home fe.
(f) To cooperate wth a ndvduas, groups, nsttutons and organzatons
whose purposes are n accord wth the ob|ects set forth n ths secton.
Sbc. 12 19. unds to be used to pay saares. or the purpose of carryng out
the provsons of ths artce, a funds approprated by any county court to a
county farm bureau sha be used to pay the saares and necessary e penses of
men and women, ether or both, traned n agrcuture and home economcs,
respectvey, to serve as county agrcutura agents, county home demonstraton
agents and county boys and grs cub agents, and to provde such cerca
assstance and offce equpment as may be necessary to the effectve conduct,
through these agents, of such educatona actvtes as are specfcay authorzed
by State and edera egsaton provdng for coo erntve e tenson work In
agrcuture and home economcs as defned by the Smth-Lever ct of Congress.
The M County arm ureau was organzed n 19 for the purpose
of cooperatng wth the Coege of grcuture of the Unversty of
Mssour and the Unted States Department of grcuture n brng-
ng the e tenson program n agrcuture and home economcs to
the farmers of the county. t the present tme the organzaton s
engaged n the supervson of that program and n cooperatve
fmrchasng for the proft of the members. It aso engages n egs-
atve promoton work when measures of nterest to the farmers are
proposed. The sources of ncome are membershp fees and an annua
appropraton from the county court, the atter made soey for
support of the e tenson program.
The purposes of the M County arm ureau, as set forth n ts
consttuton, ncude those ob|ects whch are prescrbed n secton
12 18, supra, for a county farm bureau. In an agreement be-
tween the farm bureau and the Coege of grcuture of the
Unversty of Mssour, t s provded that the farm bureau s
recognzed as the cooperatve group of the county n the em-
poyment of a county agent n that t s wng to cooperate wth
the coege n carryng out a program of e tenson work, and has
avaabe funds adequate to pay the necessary e penses ncdent
thereto. ctvtes contempated under the agreement and reaton-
shps estabshed thereunder conform to the terms of the Smth-Lever
ct (38 Stat. 372) provdng for the conduct of cooperatve e tenson
work n agrcuture and home economcs n the severa States. It
s provded further that the program of work to be foowed n the
county sha be agreed upon |onty by representatves of the farm
bureau and representatves of the coege. The county agent may be
removed at any tme hs servces are not satsfactory to ether the
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Regs. 91, rt. 11
448
coege or the farm bureau. Representatves of the M County arm
ureau sha revew the work and audt the bs of the county e ten-
son servce monthy and see that a bs whch have been ncurred
on account of e tenson work are pad out of the fund avaabe to the
bureau for such purposes.
Sectons 811(b)7 and 907(c) of the Soca Securty ct e cept
from the term empoyment servces performed n the empoy of
a State, a potca subdvson thereof, or an nstrumentaty of one
or more States or potca subdvsons. The e cepton e tends to
every servce performed by an ndvdua n the empoy of the severa
States the Dstrct of Coumba| or the Terrtory of aska or
awa, or any potca subdvson or nstrumentaty thereof,
ncudng every unt or agency of government, wthout dstncton
between those e ercsng functons of a governmenta nature and
those e ercsng functons of a propretary nature. ( rtce 11,
Reguatons 91 artce 20 (5)-( ), Reguatons 90.)
Inasmuch as the M County arm ureau was organzed to co-
operate wth the Coege of grcuture of the Unversty of Mssour
n carryng out a program or agrcutura e tenson work requred
by the Smth-Lever ct and s assstng n such actvtes, t s hed
that ths organzaton s an nstrumentaty of the State of Mssour
wthn the meanng of sectons 811(b)7 and 907(c) of the Soca
Securty ct, and that nether the farm bureau nor ts empoyees are
sub|ect to the ta es mposed under that ct.
Secton 811: Defntons. 1938-24-938
Reguatons 91, rtce 11: Government empoyees. S. S. T. 298
( so Secton 907 Reguatons 90, rtce 20 (5)-( ).)
Credt unons organzed pursuant to the provsons of the Dstrct
of Coumba Credt Unons ct of une 23, 1932 ( 47 Stat., 32 ), are
not sub|ect to the e cse ta es mposed by secton 804. Tte III,
and secton 901, Tte I , of the Soca Securty ct. owever, the
empoyees of such credt unons are abe for the ncome ta m-
posed by secton 801 of that ct.
dvce s requested whether credt unons organzed pursuant to the
provsons of the Dstrct of Coumba Credt Unons ct of une 23,
1932 (47 Stat., 32 ), and ther empoyees are sub|ect to the ta es
mposed under Ttes III and I of the Soca Securty ct.
Secton 1 of the Dstrct of Coumba Credt Unons ct, supra,
provdes that Credt unons, but not the members thereof, sha be
e empt from edera and Dstrct of Coumba ta aton e cept ta es
upon rea property. ccordngy, such credt unons are not sub|ect
to the e cse ta es mposed by secton 804, Tte III, and secton 901,
Tte I , of the Soca Securty ct.
In regard to the abty of empoyees of such credt unons to the
ncome ta mposed by secton 801 of the Soca Securty ct, there
s no provson n the Dstrct of Coumba Credt Unons ct e empt-
ng empoyees of such credt unons from the ncome ta mposed by
that secton. owever, under sectons 811(b) and 907(c)7 of the
Soca Securty ct, servces performed n tne empoy of the Unted
States Government or of an nstrumentaty of the Unted States are
e cepted from empoyment, and, therefore, from the ta ng prov-
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449
Regs. 91, rt. 14.
sons of the ct. The e cepton e tends to servce performed by an
ndvdua n the empoy of every unt or agency of government wth-
out dstncton between those e ercsng functons of a governmenta
nature and those e ercsng functons of a propretary nature. (Regu-
atons 91, artce 11 Reguatons 90, artce 20 (5)-( ).)
In S. S. T. 140 (C. . 1937-1, 428) t was hed that edera credt
unons organzed pursuant to the provsons of the edera Credt
Unon ct of une 2 , 1934 (48 Stat., 121 ), are nstrumentates of
the Unted States wthn the meanng of sectons 811 (b) and 907(c)5
of the Soca Securty ct. That rung was predcated on the fact
that under secton 17 of the edera Credt Unon ct, supra, each
credt unon may be requred by the Secretary of the Treasury to act
as a fsca agent of the Unted States and to perform certan other
servces for the Unted States. n e amnaton of the Dstrct of
Coumba Credt Unons ct dscoses no provson ndcatng that
credt unons organzed thereunder are created for the purpose of
actng as fsca agents of the Unted States or to perform other servces
for the Unted States or the Dstrct of Coumba. ccordngy, serv-
ces rendered by empoyees of credt unons organzed pursuant to the
provsons of the Dstrct of Coumba Credt Unons ct are not
e cepted under sectons 811 (b) and 907(c)5 of the Soca Securty
ct. The ta mposed by secton 801 must be deducted from the
wages of such empoyees and pad to the coector of nterna revenue
n accordance wth the appcabe provsons of the aw and
reguatons.
In fng ts return under Tte III of the Soca Securty ct,
such credt unon shoud ndcate thereon the source of ts e empton
from the empoyers e cse ta mposed by that tte.
Secton 811: Defntons. 1938-2-9138
Reguatons 91, rtce 14: Wages. S. S. T. 247
( so Secton 907 Reguatons 90, rtce 207.)
Strke benefts pad by the M Unon to ts members who are on
strke do not consttute wages wthn the meanng of Ttes III
and I of the Soca Securty ct.
dvce s requested whether strke benefts pad by the M Unon
to ts members who are on strke consttute wages wthn the mean-
ng of Ttes III and I of the Soca Securty ct.
It s stated that the members of the M Unon have been on strke
for severa weeks and durng that tme have been recevng strke
benefts from the unon. The consttuton of the unon provdes that
under certan condtons members sha be entted to draw strke
benefts n the amount of 5 doars per week per member begnnng
wth the frst week of the strke. In order to be entted to receve
such benefts, the members of the unon are requred to report every
day to the strke headquarters for commttee work, etc., athough
many of them are assgned no dutes whatever. In some nstances
commttees are apponted to vst abor organzatons for the pur-
pose of e panng the strke to the organzed workers and soctng
ther mora support.
Sectons 811(a) and 907(b) of the Soca Securty ct defne the
term wages as a remuneraton for empoyment, sub|ect, to a
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Regs. 91, rt. 14.
450
mtaton under Tte III not here appcabe. Under the facts
stated, t appears that the strke benefts n queston are receved
by the members of the unon pursuant to, and n an amount spec-
fed n, the provsons of the unon s consttuton, provded the cond-
tons stpuated theren have been comped wth. In other words,
the strke benefts are pad n accordance wth the provsons of
the unon s consttuton to whch the members of the unon subscrbe
by reason of ther affaton wth the unon and not as remunera-
ton for servces. Ths concuson s supported by the fact that
strke benefts are pad n a f ed amount, rrespectve of the vaue
of any servces whch may be performed or of the fact that n certan
cases no servces are performed.
It s, therefore, hed that strke benefts pad to members of the
M Unon under the crcumstances set forth heren do not consttute
wages wthn the meanng of Ttes III and I of the Soca
Securty ct. (Ths rung does not cover the stuaton where a
member of the unon s empoyed by the unon to perform servces
and s pad therefor. See S. S. T. 19 , C. . 1937-2, 451.)
Secton 811: Defntons. 1938- -91 4
Reguatons 91, rtce 14: Wages. S. S. T. 251
( so Secton 907 Reguatons 90, rtce 207.)
mounts desgnated as Chrstmas gfts pad by the M Com-
pany to ts empoyees consttute wages wthn the meanng of
the ta ng provsons of the Soca Securty ct.
dvce s requested whether amounts pad to empoyees of the M
Company as Chrstmas gfts consttute wages wthn the meanng
of Ttes III and I of the Soca Securty ct.
It s stated that each Chrstmas the M Company pays to ts em-
poyees certan amounts n addton to ther reguar remuneraton
equa to per cent of ther monthy saares. These amounts whch
are desgnated by the company as Chrstnas gfts are pad to a
empoyees of the company wthout regard to any dstnctons based
upon the quaty of the empoyees work or ther ength of servce
wth the company.
The term wages as used n Ttes III and I of the Soca
Securty ct means a remuneraton for empoyment, sub|ect to
a mtaton under Tte III not here appcabe. rtce 14 of
Reguatons 91, appcabe to Tte III, provdes that the name by
whch remuneraton for servces s desgnated s mmatera. Thus,
saares, fees, bonuses, and commssons on saes are wages wthn
the meanng of the ct f pad by an empoyer to hs empoyee as
compensaton for empoyment. rtce 207 of Reguatons 90,
appcabe to Tte I , contans a smar provson.
Snce the amounts n queston are pad n connecton wth, and
as a resut of, the empoyment reaton e stng between the com-
pany and ts empoyees, t s hed that such amounts consttute
wages wthn the meanng of Ttes III and I of the ct.
The fact that such amounts are not based upon the quaty of the
empoyees work or ther ength of servce wth the M Company s
mmatera.
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451
Regs. 91, rt. 14.
Secton 811: Defntons. 1938- -91 5
Reguatons 91, rtce 14: Wages. S. S. T. 252
( so Secton 907 Reguatons 90, rtce 207.)
Payments made to an empoyee by an empoyer operatng as a
sef-nsurer, pursuant to the provsons of a State workmen s com-
pensaton act, on account of n|ures sustaned n the course of
empoyment do not consttute wages wthn the meanng of Ttes
III and I of the Soca Securty ct.
dvce s requested whether beneft payments made to n|ured em-
poyees by empoyers operatng as sef-nsurers n accordance wth
the provsons of a State workmen s compensaton act consttute wages
wthn the meanng of Ttes III and I of the Soca Securty ct.
The term wages as defned under sectons 811 (a) and 907(b) of
the Soca Securty ct ncudes a remuneraton for empoyment
(wth certan e ceptons not here matera). In S. S. T. 54 (C. .
-2,421 (193 )) t was hed that benefts pad by an nsurance com-
pany to an empoyee under the provsons of the workmen s compensa-
ton act of the State of Indana do not consttute wages wthn the
meanng of Tte I of the ct. That rung s equay appcabe
under Tte III. It was hed n S. S. T. 234 (C. . 1937-2,
458) that nsurance premums pad by an empoyer, pursuant to
the requrements of the workmen s compensaton act of the State of
R, for the protecton of hs empoyees aganst n|ury sustaned n
the course of empoyment do not consttute wages wthn the meanng
of Ttes III and I .
Payments made to n|ured empoyees by empoyers operatng as
sef-nsurers n accordance wth the provsons of a State work-
men s compensaton act are n the same category as payments made
by an nsurance company under the crcumstances set forth n S. S. T.
54, supra and are not remuneraton for empoyment. ccordngy,
t s hed that where an empoyer s operatng as a sef-nsurer
ursuant to the provsons of a State workmen s compensaton act,
eneft payments made by hm to an empoyee n|ured or dsabed n
the course of hs empoyment do not consttute wages wthn the mean-
ng of Ttes III and I of the Soca Securty ct.
Secton 811: Defntons.
Reguatons 91, rtce 14: Wages.
Deferred or renewa commssons pad by nsurance company. (See
S. S. T. 253, page 470.)
Secton 811: Defntons. 1938-5-9179
Reguatons 91, rtce 14: Wages. S. S. T. 257
( so Secton 907 Reguatons 90, rtce 207.)
mounts pad to empoyees of the M Company pursuant to a
bonus pan condtoned upon fve years servce wth the company
and based upon the company s net proft for the caendar year pror
to payment consttute wages wthn the meanng of Ttes III
and I of the Soca Securty ct ta abe at the rates n effect
durng that year.
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Regs. 91, rt. 14.
452
dvce s requested whether amounts pad to empoyees of the M
Company pursuant to ts bonus pan consttute wages wthn the
meanng of Ttes III and I of the Soca Securty ct, and, f
so, what rates of ta are appcabe to such payments.
In order to ncrease the effcency of ts empoyees the M Company
formuated a bonus pan under whch a part of ts profts s ds-
trbuted among ts empoyees. Under the pan each empoyee of the
M Company who has been n ts servce for a perod of at east fve
years s entted to receve a share of the profts earned by the com-
pany durng the precedng year.
Sub|ect to a mtaton under Tte III of the Soca Securty ct
not here appcabe, the term wages as defned under Ttes III
and I thereof ncudes a remuneraton for empoyment. The
name by whch the remuneraton for servces s desgnated s mma-
tera. Thus, saares, fees, bonuses, and commssons on saes or
nsurance premums are wages. ( rtce 14, Reguatons 91 artce
207, Reguatons 90.) Inasmuch as the amounts here n queston are
pad as a resut of tre empoyment reaton between the M Company
and ts empoyees, such amounts consttute wages wthn the mean-
ng of Ttes III and I of the ct.
The queston remans as to the rates of ta appcabe to such
remuneraton payments. The ta es mposed under Ttes III and
I of the ct are computed by appyng to the amount of wages of
the empoyee the respectve rates n effect at the tme of performance
of the servces to whch the wages are attrbutabe. In S. S. T. 27
(C. . -2, 393 (193 )) t was hed that where a cash bonus s
pad to empoyees based on remuneraton for servces rendered dur-
ng the 10-year perod mmedatey precedng the grantng of the
bonus, ony that porton thereof attrbutabe to servces rendered
subsequent to anuary 1, 193 , consttutes wages for the purpose of
Tte I of the ct. In the case here under consderaton, however,
athough the rght to share n the dstrbuton s condtoned upon
empoyment for a 5-year perod, the consderaton passng from a
partcpant to the company conssts of servces performed durng the
year mmedatey precedng that n whch the bonus s pad. More-
over, the pan contempates that the nature and quaty of the serv-
ces rendered durng such year are determnatve of the amounts to
be dstrbuted for such year, whereas n S. S. T. 27, supra, the bonuses
were n fact based on the remuneraton pad over a 10-year perod.
ccordngy, under the facts stated, t s hed that the rates of ta
under Ttes III and I of the ct to be apped to the bonuses n
queston are the rates n effect for the year mmedatey precedng
that n whch the payments are made.
Secton 811: Defntons. 1938-7-9198
Reguatons 91, rtce 14: Wages. S. S. T. 2 1
( so Secton 907 Reguatons 90, rtce 207.)
mounts dstrbuted to empoyees of the M thetc Cub from a
Chrstmas fund supported entrey by members of the cub do not
consttute wages wthn the meanng of Ttes III and I of
the Soca Securty ct
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453
Regs. 91, rt. 14.
dvce s requested whether amounts dstrbuted to empoyees of
the M thetc Cub from a Chrstmas fund supported entrey by
members of the cub consttute wages wthn the meanng of the
ta ng provsons of the Soca Securty ct.
It s stated that each year the M thetc Cub sends out cards to
ts members affordng them an opportunty to subscrbe to a Chrst-
mas fund for the beneft of the empoyees of the cub. The subscrp-
tons are entrey vountary, no demand of any knd beng made
upon the members of the cub to subscrbe. When the subscrptons
are receved by the cub, t dvdes the entre fund among ts em-
poyees on the bass of ther respectve earnngs for the year. The
cub makes no contrbutons to the fund nor does t promse ts
empoyees that they w receve any amount therefrom.
Sub|ect to a mtaton under Tte III not here appcabe, the
term wages as defned under Ttes III and I of the ct ncudes
a remuneraton for empoyment. In S. S. T. 251 (page 450, ths
uetn) t was hed that amounts desgnated as Chrstmas gfts
pad by the M Company to ts empoyees consttute wages wthn the
meanng of the ta ng provsons of the ct. In the nstant case, how-
ever, the contrbutons, vountary made by the cub members, are co-
ected and pad to the empoyees by the cub actng merey as the
agent of the members for ths partcuar purpose. Such payments
are not, therefore, to be consdered as addtona remuneraton pad
by the cub to ts empoyees for servces performed by them. c-
cordngy, t s hed that amounts dstrbuted to the empoyees of
the M thetc Cub from the Chrstmas fund supported entrey
by the members of the cub do not consttute wages wthn the
meanng of Ttes III and I of the Soca Securty ct.
Secton 811: Defntons. 1938-8-920
Reguatons 91, rtce 14: Wages. S. S. T. 2 3
( so Secton 907 Reguatons 90, rtce 207.)
mounts desgnated as royaty payments pad to empoyees of
the M Moton Pcture Co. pursuant to certan proft sharng con-
tracts entered nto between the empoyees and the company con-
sttute wages wthn the meanng of Ttes III and I of the
Soca Securty ct. Under Tte III such amounts must be
reported n the return for the perod wthn whch actuay or con-
structvey pad, and under Tte I such amounts must be reported
n the return for the year n whch the servces are performed.
dvce s requested whether amounts pad as royaty payments
to empoyees of the M Moton Pcture Co. pursuant to certan proft-
sharng contracts consttute wages wthn the meanng of Ttes III
and I of the Soca Securty ct, and, f so, n what returns such
amounts must be reported.
The M Moton Pcture Co. enters nto partcpaton contracts wth
certan of ts artsts, producers, and drectors. The contracts provde
that the empoyee w receve for hs servces, n addton to the
reguar weeky remuneraton pad to hm durng the perod wthn
whch hs servces are actuay rendered, a desgnated percentage of
the amount by whch the gross revenue derved from a moton pcture
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Regs. 91, rt. 14.
454
e ceeds per cent of the cost of producton. The company agrees to
dever to the empoyee an temzed statement showng the producton
costs of the pcture, and, foowng the reease of the pcture, to ren-
der to the empoyee a quartery statement showng the gross recepts
derved by t n the e potaton of the fm. The amount, f any,
whch s due the empoyee s forwarded to hm wth each reguar
quartery statement.
Sub|ect to a mtaton under Tte III, the term wages as
defned under Ttes III and I of the ct ncudes a remunera-
ton for empoyment. It s cear that the tota amount pad to an
empoyee under a partcpaton contract s remuneraton for em-
poyment rrespectve of the fact that a porton of such amount
s desgnated as royaty payments and s payabe ony n the
event the gross recepts derved from the e potaton of the pcture
e ceed by a certan percentage the producton costs thereof. ccord-
ngy, such amount consttutes wages for the purpose of the ta es
mposed by Ttes III and I .
The empoyees ta mposed by secton 801, Tte III, of the ct
s measured by the amount of wages actuay or constructvey re-
ceved by the empoyee (artce 201, Reguatons 91), and the em-
poyers ta mposed by secton 804 s measured by the amount of
wages actuay or constructvey pad by the empoyer. ( rtce 301,
Reguatons 91.) Under Tte III the royaty payments n ques-
ton must be reported n the ta return for the perod n whch they
are actuay pad uness they were constructvey pad n a pror ta -
return perod, n whch case such royaty payments must be re-
ported ony n the return for such pror perod. (See artce 402 ,
Reguatons 91 T. D. 478 , page 388, ths uetn.)
The ta mposed under Tte I of the Soca securty ct s an
e cse ta on empoyers wth respect to havng ndvduas n ther
empoy and s measured by the tota wages payabe by empoyers
wth respect to empoyment durng the ta abe year. Wages are
payabe wthn the meanng of Tte I of the ct (1) r there
s an obgaton at any tme to pay wages wth respect to empoy-
ment durng the caendar year, or (2) f, at any tme, wages are
actuay pad wth respect to empoyment durng the caendar year.
It s mmatera whether such wages are certan n amount at any
tme wthn the caendar year and whether the rght e sts to en-
force the payment of such wages at any tme wthn the caendar
year. ( rtce 201. Reguatons 90.) ccordngy, the so-caed
royaty payments are deemed to be payabe wthn the meanng
of Tte I of the ct durng the year n whch the servces to
whch such payments are attrbutabe are performed. s prevousy
ponted out, the tota wages payabe by an empoyer to hs empoyee
wth respect to empoyment durng any caendar year ncudes tems
payabe and actuay pad durng that year and tems payabe but
not actuay pad durng that year. Items payabe but not actuay
pad ncude the far estmated amount of a remuneraton, f the
bass of such remuneraton has been agreed upon between the em-
poyer and the empoyee but the e act amount utmatey to be pad
can not be determned unt a subsequent year. ( rtce 209(a)-
( )3, Reguatons 90.) ccordngy, for the purpose of computng
the ta abe wages under Tte I of the ct durng any caendar
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455
Regs. 91, rt. 14.
year, the M Moton Pcture Co. shoud make a far estmate n ac-
cordance wth artce 209, supra, of a royaty payments that
w utmatey be pad wth respect to servces performed durng
that year.
If the company computes and reports ess than the correct amount
of wages payabe n any caendar year wth respect to servces per-
formed durng such year, the correct amount whch was actuay
payabe and subsequenty determned shoud, n accordance wth
artces 209(a) ( )5 and 210( ) of Reguatons 90, be reported to
the coector under oath and the ta , ncudng nterest thereon,
shoud be pad wth respect to the dfference between the amount
computed and reported and the amount actuay payabe at the rate
n effect for the caendar year durng whch the servces were per-
formed. If the amount of wages payabe wth respect to empoy-
ment durng the caendar year s computed and reported by the com-
pany n ts return for such year at an amount greater than the
amount whch s subsequenty determned to have been payabe, the
company may fe a cam for credt or refund of the overpayment
of ta .
In S. S. T. 95 (C. . 193771, 439) t was hed that royaty pay-
ments made to certan ndvduas do not consttute wages wthn
the meanng of Ttes III and I of the ct. owever, n that
case the payments were made n consderaton for censes to manu-
facture certan patented artces and were not remuneraton for em-
poyment, whch facts ready dstngush that rung from the pres-
ent case.
Secton 811: Defntons. 1938-25-9401
Reguatons 91, rtce 14: Wages. S. S. T. 301
( so Secton 907 Reguatons 90, rtce 207.)
Determnaton n certan nstances whether tps consttute wages
under Ttes III and I of the Soca Securty ct.
Inqury has been made whether tps receved by empoyees under
varous crcumstances consttute wages for the purpose of Ttes III
and I of the Soca Securty ct. The questons presented and
answers thereto foow:
ueston 1. Where an empoyee furnshes hs empoyer a wrtten
statement showng the amount of hs tps for the purpose of enabng
hs empoyer to ncude such tps n hs report under a State unem-
poyment compensaton act, are such tps consdered to be accounted
for by the empoyee to the empoyer so that they must be ncuded
n the computaton of the empoyee s wages for the purpose of the
ta es mposed under Ttes III and I of the Soca Securty ct
nswer. The term wages s defned under Ttes III and I
of the Soca Securty ct as a remuneraton for empoyment sub-
|ect to a mtaton under Tte III not here matera. Tps or
gratutes pad drecty to an empoyee by a customer of the empoyer,
and not n any way accounted for by the empoyee to the empoyer,
do not consttute wages. ( rtce 15(c), Reguatons 91 S. S. T.
12, C. . -2, 417(193 ).) The furnshng by an empoyee to an
empoyer of a wrtten statement of the amount of hs tps merey for
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Regs. 91, rt. 14.
45
the purpose of enabng the empoyer to compy wth the requrements
of a State unempoyment compensaton act s hed not to be such an
accountng as s contempated by artce 15(c) and S. S. T. 12,
supra.
ueston 2. If a customer of a hote nstead of drecty gvng the
water a tp wrtes the amount thereof on the water s check and the
hote pays the. tp to the water and charges t to the account of the
customer, such amount havng no bearng on the compensaton pad by
the empoyer, does such a payment consttute wages
nswer. In S. S. T. 145 (C. . 1937-1, 443) t was hed that where
a cub does not permt the tppng of empoyees but n eu thereof
adds 10 per cent to the cafe charges made aganst the members ac-
counts, and dsburses the added amounts monthy to the cub s waters,
the sums so dsbursed consttute wages wthn the meanng of sectons
811(a) and 907(b) of the Soca Securty ct. In arrvng at that
concuson t was ponted out that the 10 per cent added to the cafe
charge s an arbtrary charge f ed by the cub whch the member s
requred to pay and s ceary not a tp or gratuty. In the present
case, however, the amount of the tp s f ed by the customer and s
pad by hm for servces rendered to hm by the empoyee. though,
under the crcumstances, the amount of the tp may be brought to the
attenton of the empoyer, there s no accountng by the empoyee and
such amount does not consttute wages under Ttes III and I
of the ct.
ueston 3. customer arranges wth a hote for a banquet and
makes a ump sum payment for tps to the head water n charge of
the banquet wth nstructons to dstrbute such amount among the
empoyees servng the banquet, eavng the amount whch each such
empoyee sha receve soey to the dscreton of the head water. The
empoyer has no knowedge of the amount of such tps and the amount
thereof s not taken nto consderaton n determnng the compensa-
ton of the empoyee. Do such tps consttute wages
nswer. Such tps do not consttute wages under Ttes III
and I of the ct.
ueston 4- If a hote or restaurant guarantees ts waters a f ed
ncome consstng party of remuneraton pad by the restaurant and
party of tps, does such a guarantee affect the status of the tps
receved by the waters
nswer. Inasmuch as the empoyer bases the remuneraton of hs
empoyees on the amount of such tps, and snce the empoyees must
nform the empoyer of the amount of tps receved n order that
the atter may compute the baance due the empoyees, t s cear that
such tps consttute wages wthn the meanng of Ttes III and
I of the ct.
Secton 811: Defntons. 1938-2G-9410
Reguatons 91, rtce 14: Wages. S. S.T. 302
( so Secton 907 Reguatons 90 rtce 207.)
The vaue of unches served by the M Company to ts empoyees
does not consttute wages wthn the meanng of Ttes III
and I of the Soca Securty ct S. S. T. 192 (O. . 1937-2, 449)
revoked.
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457
Regs. 91, rt. 14.
consderaton of the rung pubshed as S. S. T. 192 C. .
1937-2, 449) has been requested on the bass of certan addtona
nformaton furnshed to the ureau. The compete facts now pre-
sented are as foows:
The M Company has for some tme operated a unchroom for ts
empoyees. The unches furnshed have nover been consdered as
remuneraton for servces performed nor was any reducton made
n the remuneraton of empoyees when the unchroom prveges
were frst afforded to them. Provson for unches forms no part of
the contract of empoyment, and fu remuneraton s pad to each
empoyee whether or not he avas hmsef of the prvege of free
unches. The eve of remuneraton of empoyees of the M Company
s as hgh as that for smar servces performed for other empoyers.
If the M Company shoud decde to cose the unchroom or to charge
for the unches, such event woud not affect the contract of empoy-
ment nor change the scae of remuneraton of the empoyees. The
M Company states that the practce of furnshng free unches to ts
empoyees reduces the duraton of the mdday unch perod to a
mnmum that durng the noon hour much busness s transacted
that by makng whoesome unches avaabe, the company obvates
to a arge e tent the possbty of ts empoyees osng tme or
mparng ther effcency due drecty or ndrecty to securng
unches whch are mpropery prepared or served esewhere and
that the furnshng of free unches s a strong force n unfyng the
empoyees and ncreasng ther contentment, good w, and oyaty
to ther empoyer.
Sectons 811(a), Tte III, and 907(b), Tte I , of the Soca
Securty ct defne the term wages as foows:
The term wages means a remuneraton for empoyment, n-
cudng the cash vaue of a remuneraton pad n any medum other than
cash.
(Secton 811(a) contans an e cepton not matera here.)
rtce 207, Reguatons 90, promugated under Tte I , contans
the foowng provsons:
Ordnary, factes or prveges (such as entertanment, cafeteras, restau-
rants, medca servces, or so-caed courtesy dscounts on purchases), fur-
nshed or offered by an empoyer to hs empoyees generay, are not consdered
as remuneraton for servces f such factes or prveges are offered or fur-
nshed by the empoyer merey as a convenence to the empoyer or as a means
of promotng the heath, good w, contentment, or effcency of hs empoyees.
rtce 14, Reguatons 91, promugated under Tte III of the
ct, contans provsons whch, whe not dentca, have been gven
a ke nterpretaton.
In S. S. T. 110 (C. . 1937-1, 440) t was hed that where an em-
poyee works overtme and s pad a reasonabe amount as supper
money for the convenence of the empoyer and not as addtona
compensaton, such payment does not consttute wages wthn the
meanng of Ttes III and I of the Soca Securty ct.
In S. S. T. 192, supra, t was hed that the vaue of unches served
by the M Company to ts empoyees consttutes wages wthn the
meanng of Ttes III and I of the ct. The M Company has
now estabshed that the free unch prveges are afforded soey to
promote ts own nterests that the wage scae of ts empoyees has
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Regs. 91, rt. 1 .
458
not been owered to refect the vaue of such tems that the unches
are not furnshed as addtona compensaton for servces that such
unches are vountary offered to the empoyees and that the unches
are furnshed for the convenence of the M Company, and beneft the
company by promotng the heath, good w, and effcency of ts
empoyees. On the bass of the facts now presented, t s hed that
the vaue of the unches furnshed by the M Company to ts em-
poyees does not consttute wages wthn the meanng of sectons
811(a) and 907(b) of the Soca Securty ct. S. S. T. 192, supra,
s accordngy revoked.
Secton 811: Defntons. 1938-2-9139
Reguatons 91, rtce 1 : Items ncuded as wages. S. S. T. 248
( so Secton 907 Reguatons 90, rtce 209.)
The vaue of transportaton tckets furnshed by the M Com-
pany to ts empoyees does not consttute wages wthn the meanng
of Ttes III and I of the Soca Securty ct.
dvce s requested whether the vaue of transportaton tckets
furnshed by the M Company to ts empoyees consttutes wages wthn
the meanng of Ttes III and I of the Soca Securty ct.
It s stated that a empoyees of the M Company who perform
servces n the ctes of R and S, where the company operates buses
and street cars, are gven books of tckets whch may be used ether
on buses or street cars, one tcket beng coected for each rde. No
record s kept of the number of tckets used by an empoyee and
when one book of tckets has been used the empoyee may procure a
new one by submttng the stub of the od book. The tckets are
used prncpay by empoyees, such as meter readers, n the per-
formance of ther servces for the M Company, but the empoyees
are permtted to use the tckets for ther persona busness. The M
Company has never consdered the tckets as part of the empoyees
saares and the saary scaes are determned by the company wthout
gvng any consderaton to the vaue of such tckets.
It s hed that the vaue of the tckets furnshed by the M Company
to ts empoyees under the stated crcumstances does not consttute
wages wthn the meanng of Ttes III and I of the Soca
Securty ct.
Secton 811: Defntons. 1938-12-9252
Reguatons 91. rtce 1 : Items ncuded as wagqs. S. S. T. 273
( so Secton 907 Reguatons 90, rtce 209.)
Premums pad by the M Company n connecton wth a group fe
nsurance contract coverng the ves of the empoyees of the com-
pany do not consttute wages wthn the meanng of Ttes III
and I of the Soca Securty ct.
dvce s requested whether premums pad by the M Company
n connecton wth a group fe nsurance contract coverng the ves
of the empoyees of the company consttute wages under Ttes
III and I of the Soca Securty ct.
The M Company makes group fe nsurance avaabe to ts em-
poyees and contrbutes a porton of the tota premums on such
nsurance, the baance beng pad by the empoyees. Under the pro-
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459
Regs. 91, rt. 10.
vsons of the pocy, the empoyee has the rght to change the bene-
fcary but has no rght to assgn the pocy or to borrow on t and
the pocy has no cash surrender vaue. Upon termnaton of hs
empoyment wth the M Company, he may have ssued to hm wthout
further evdence of nsurabty, and upon the payment of the
premum appcabe to the cass of rsks to whch he beongs and to
the form and amount of the pocy at hs then attaned age, a pocy
of fe nsurance n any one of the forms customary ssued.
Sub|ect to a mtaton under Tte III of the ct not here mate-
ra, the term wages s denned under Ttes III and I as a
remuneraton for empoyment, ncudng the cash vaue of a re-
muneraton pad n any medum other than cash. rtce 1 (d) of
Reguatons 91 and artce 209(d) of Reguatons 90, ssued pursuant
to Ttes III and I , respectvey, provde that generay premums
pad by an empoyer on a pocy of fe nsurance coverng the fe
of an empoyee consttute wages f the empoyer s not a benefcary
under the pocy. owever, premums pad by an empoyer on po-
ces of group fe nsurance coverng the ves of hs empoyees are
not wages f the empoyee has no opton to take the amount of the
premums nstead of acceptng the nsurance and has no equty n
the pocy (such as the rght of assgnment or the rght to the sur-
render vaue on termnaton of hs empoyment).
Snce, under the facts n the present case, the empoyees rghts
under the poces do not consttute an equty such as contempated
by artces 1 (d) and 209(d), supra, t s hed that the premum pay-
ments made by the company are not wages under Ttes III and
I of the ct.
Secton 811: Defntons. 1938-17-9312
Reguatons 91, rtce 1 : Items ncuded as S. S. T. 285
wages.
( so Secton 907 Reguatons 90, rtce 209.)
Payments desgnated as separaton payments made to em-
poyees of the N Company pursuant to an agreement entered Into
between that company and the M Labor Unon consttute wages
wthn the meanng of Ttes Yn and I of the Soca Securty
ct
dvce s requested whether so-caed separaton payments
made by the N Company to certan of ts empoyees pursuant to an
agreement entered nto wth the M Labor Unon consttute wages
wthn the meanng of the ta ng provsons of the Soca Securty
ct.
It s stated that the empoyees of the N Company were on strke
for a consderabe perod of tme. In order to termnate the strke,
an agreement was entered nto between the N Company and the
M Labor Unon, actng n behaf of the strkng empoyees, pursuant
to whch certan amounts were pad by the N Company to those
empoyees who were dsmssed. The agreement provdes n part as
foows:
1. Renstatement. The N Company agrees to renstate Immedatey and
wthout pre|udce a strkng empoyees.
empoyees renstated sha be returned to substantay smar empoy-
ment and at saares not ess than those pad pror to the strke.
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Regs, 91. rt. 1 .
4 0
The M Labor Unon agrees to termnate the strke mmedatey.
The N Company, mmedatey after renstatement of a empoyees, sha
have the rght to ay off a reasonabe number of such workers. cept as
stated, each of sad empoyees so ad off sha be entted to and sha receve
as remuneraton due an amount equa to 10 weeks pay cacuated on the bass
of hs saary mmedatey pror to the strke as foows: n amount equa
to 3 weeks pay sha be pad to such empoyees upon the e ecuton of ths
contract and the remanng amount sha be pad n equa weeky nstaments.
of sad empoyees so ad off sha be paced on a preferred st for
reempoyment.
Sub|ect to a mtaton under Tte III of the ct not here
appcabe, the term wages as defned under Ttes III and I
thereof ncudes a remuneraton for empoyment. Payment to
an empoyee of so-caed dsmssa pay, vacaton aowances, or dck
pay consttutes wages. ( rtce 1 , Reguatons 91 artce 209,
Reguatons 90.)
It s hed that the separaton payments made by the N Com-
pany pursuant to the terms of the agreement above quoted are n
the nature of dsmssa pay wthn the meanng of artces 1
and 209, supra, and, therefore, consttute wages under Ttes III
and I of the Soca Securty ct.
Secton 811: Defntons. 1938-24-9.387
Reguatons 91, rtce 1 : Items ncuded as wages. S. S. T. 299
( so Secton 907 Reguatons 90, rtce 209.)
Premum payments made by the O Company n connecton wth
a retrement-nsurance pan coverng the ves of ts empoyees
consttute wages wthn the meanng of Ttes III and I of
the Soca Securty ct.
dvce s requested whether premum payments made by the O
Company n connecton wth a retrement-nsurance pan coverng the
ves of ts empoyees consttute wages under Ttes III and I
of the Soca Securty ct.
The O Company created a retrement-nsurance pan for ts em-
poyees whch provdes n part as foows:
or each empoyee of the O Company who as been, or who sha attan, fve
years or more n ts empoy, the O Company w take out wth the M Insurance
Co. a pocy provdng for the foowng benefts: (a) Penson or retrement n-
come, guaranteed for fe, payabe monthy begnnng at age 5 ( ) death
beneft n event of death pror to age 5: (c) dsabty beneft n event of tota
and permanent dsabty pror to age 5 (d) wthdrawa vaue In the event
of termnaton of empoyment pror to age 5.
Upon wthdrawa, the empoyee has the foowng optons: (1)
Wthdraw equty n cash, the poces beng surrendered (2) take
from the nsurance company the pad-up nsurance and equty vaues
whch sha entte hm at age 5 to the proportonate ncome whch
the payments aready made by hm provde (3) convert the poces
to an ndvdua bass so that the payments ether on the entre
amount or on the proportonate amount the empoyee s equty w
purchase may be contnued by the ndvdua after eavng the serv-
ce unt the reguar maturty of the poces.
Sub|ect to a mtaton under Tte III not here appcabe, the
term wages s defned under Ttes III and I of the Soca
Securty ct to mean a remuneraton for empoyment. rtce
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4 1
Regs. 90, rt. 211.
1 ( ) of Reguatons 91 and artce 209 d) of Reguatons 90, s-
sued pursuant to Ttes III and I , respectvey, provde that, gen-
eray, premums pad by an empoyer on a pocy of fe nsurance
coverng the fe of an empoyee consttute wages f the empoyer s
not a benefcary under the pocy. owever, premums pad by an
empoyer on poces of group fe nsurance coverng the ves of
hs empoyees are not wages f the empoyee has no opton to take
the amount of the premums nstead of acceptng the nsurance and
has no equty n the pocy (such as the rght or assgnment or the
rght to the surrender vaue on termnaton of hs empoyment).
In S. S. T. 273 (page 458, ths uetn) t was hed that premums
pad by the M Company n connecton wth a group fe nsurance
contract coverng the ves of the empoyees of the company do not
consttute wages wthn the meanng of Ttes III and I of
the ct. In that case, however, the empoyees had no rght to assgn
the pocy or to borrow on t nor dd the poces have a cash sur-
render vaue. It s evdent under those crcumstances that the
empoyees rghts under the poces dd not consttute such an
equty as s contempated by artces 1 (d) and 209(d), supra.
In the nstant case t s hed that the empoyees of the 0 Company
have such an equty n the poces as to consttute the premum
payments made by that company wages wthn the meanng of
Ttes III and I of the Soca Securty ct.
TITL I . T ON MPLOY RS O IG T OR MOR .
Secton 902: Credt aganst ta . 1938-11-9243
Reguatons 90, btce 211: Credt of contrbutons S. S. T. 270
aganst ta .
Where an empoyer under Tte I of the Soca Securty ct
makes a contrbuton nto a State unempoyment fund wth respect
to wages payabe to hs empoyees n an amount ess than that sub-
sequenty determned to have been payabe and fas to make an
addtona contrbuton wth respect to the dfference before the
date on whch the return on orm 940 Is requred to be fed, no
credt under secton 902 of the ct aganst the ta mposed by
secton 901 s aowabe for contrbutons subsequenty made wth
respect to such dfference.
dvce s requested whether a credt s aowabe under secton 902
of the Soca Securty ct wth respect to suppementa contrbutons
made to a State unempoyment fund after the due date for fng a
return under Tte I , the amount of such contrbuton not beng
defntey ascertanabe before such date.
It s stated that durng 193 the M Company, foowng the pro-
vsons of artce 209 (a) ( ) of Reguatons 90, estmated the tota
wages payabe to ts empoyees as doars. It made a contrbuton
n that year wth respect to that amount nto the unempoyment fund
of the State of R. On anuary 31, 1937, the M Company fed a
return on orm 940, reportng the tota wages payabe to ts em-
poyees, and took a credt n accordance wth the provsons of sec-
ton 902 of the ct aganst the ta mposed by secton 901 thereof.
In ugust, 1937, t was determned that the 193 estmate of wages
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Regs. 90, rt. 211.
4 2
payabe was defcent n the amount of ,5 doars and, accordngy,
the company pad the addtona ta due under Tte I of the
Soca Securty ct n accordance wth the provsons of artce
210( ) of Reguatons 90, and made an addtona contrbuton nto
the State unempoyment fund. The queston presented s whether a
credt s aowabe for the year 193 on account of the suppementa
contrbuton.
Secton 902 of the Soca Securty ct provdes as foows:
The ta payer may credt aganst the ta mposed by secton 901
the amonnt of contrbutons, wth respect to empoyment durng the ta abe
year, pad by hm (before the date of fng hs return for the ta abe year)
Into an unempoyment fund under a State aw. The tota credt aowed
to a ta payer under ths secton for a contrbutons pad nto unempoyment
funds wth respect to empoyment durng such ta abe year sha not e ceed
90 per centum of the ta aganst whch t s credted, and credt sha be aowed
ony for contrbutons made under the aws of States certfed for the ta abe
year as provded n secton 903.
rtce 211 of Reguatons 90 provdes n part as foows:
Credt of contrbutons aganst taw. (a) Sub|ect to the mtatons
herenafter prescrbed n paragraph ( ), the ta payer may credt aganst the
ta the tota amount of hs contrbutons under a State aws whch have
been found by the Soca Securty oard to contan the provsons specfed n
secton 903(a) of the ct provded that no credt may be taken for a contrbu-
ton under a State aw f such State has not been duy certfed for the caendar
year to the Secretary by the Soca Securty oard.
( ) The aowance of contrbutons as credt aganst the ta s sub|ect to the
foowng mtatons:

(2) The contrbutons must have been actuay pad nto the State unem-
poyment fund before the date on whch the return for the caendar year Is
requred to be fed.
In vew of the specfc provsons contaned n secton 902 and artce
211, supra, t s hed that the M Company may not credt aganst the
ta mposed by secton 901 the amount of the addtona contrbuton
made nto the State unempoyment fund after the date on whch the
return on orm 940 for the caendar year 193 was requred to be
fed.
Secton 902: Credt aganst ta . 1938-2 -9418
Reguatons 90, rtce 211: Credt of contr- T. D. 4812
butons aganst ta .
( so rtce 503 .)
Credts aganst, and refunds of, ta under Tte I of the Soca
Securty ct for 1030. Reguatons 90, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 810 of the Revenue ct of 1938, enacted May 28, 1938
(Pubc, No. 554, Seventy-ffth Congress), provdes as foows:
Sec. 810. Credts ganst Soca Securty Ta for 193 .
(a) owance am credt. ganst the ta for the caendar year
193 mposed by secton 901 of the Soca Securty ct, any ta payer
sha be aowed credt for the amount of contrbutons, wth respect to
empoyment durng such year, pad by hm, before the s teth day after
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4 3
Regs. SO, rt. 211.
the date of the enactment of ths ct, Into an unempoyment fund under
a State aw. The provsons of the Soca Securty ct (e cept the
provson mtng such credt to amounts pad before the date of fng
returns) sha appy to aowance of credt under ths secton, and the
terms used n ths subsecton sha have the same meanng as when
used n Tte I of the Soca Securty ct.
(b) Refund. Refund of the ta (ncudng penaty and nterest
coected wth respect thereto, If any), based on any credt aow-
abe under ths secton, may be made n accordance wth the prov-
sons of aw appcabe In the case of erroneous or ega coecton
of the ta . No Interest sha be aowed or pad on the amount of
any such refund.
Pursuant to the foregong provsons of aw Reguatons 90, ap-
proved ebruary 17, 193 t reatng to the e cse ta on empoyers
under Tte I of the Soca Securty ct, are amended as foows:
(1) There s nserted after the provson of aw under the capton
Secton 907(f) of the ct, and mmedatey precedng artce 211,
the foowng:
Secton 810(a) of the Revenue ct of 1938.
owance of credt. ganst the ta for the caendar year 193
mposed by secton 901 of the Soca Securty ct, any ta payer sha
be aowed credt for the amount of contrbutons, wth respect to
empoyment durng such year, pad by hm, before the s teth day
after the date of the enactment of ths ct, nto an unempoyment
fund under a State aw. The provsons of the Soca Securty ct (e -
cept the provson mtng such credt to amounts pad before the
date of fng returns) sha appy to aowance of credt under ths
secton, and the terms used n ths subsecton sha have the same
meanng as when used In Tte I of the Soca Securty ct
(2) rtce 211(b), reatng to the condtons under whch con-
trbutons are aowabe as credt aganst the ta mposed by Tte
I of the Soca Securty ct, s amended by strkng out para-
graph (2) thereof and the e ampe mmedatey foowng such
paragraph, and by nsertng n eu thereof the foowng:
(2) Wth respect to the caendar year 1937 and each caendar year thereafter
the contrbutons must have been actuay pad nto the State unempoyment
fund before the date on whch the return for the caendar year s requred to be
fed. (Ths date Is anuary 31 ne t foowng the cose of the caendar year
uness the tme for fng the return s e tended. See artces 303 to 305.) Wth
respect to the caendar year 193 the contrbutons must have been actuay
pad nto the State unempoyment fund before uy 27, 1938.
ampe (a): The return of empoyer for the caendar year 1937 s fed
on anuary 31, 1938, and proper credt taken theren for contrbutons actuay
pad nto a State unempoyment fund pror to that date. Thereafter, n
une, 1938, addtona contrbutons are pad by to a State fund wth
respect to empoyment durng the caendar year 1937. No part of such add-
tona contrbutons s aowabe as credt aganst the ta for the caendar
year 1937, or for any other caendar year.
ampe ( ): If n e ampe (a) above, the addtona contrbutons pad
n une, 1938, are wth respect to empoyment durng the caendar year 193 ,
such addtona contrbutons are aowabe as credt aganst the ta for the
caendar year 193 .
(3) Chapter s amended by nsertng mmedatey precedng
artce 504 thereof the foowng:
Secton 810 of the Revenue ct of 1938.
(a) owance of cbedt. ganst the ta for the caendar year
193 mposed by secton 901 of the Soca Securty ct, any ta payer
sha be aowed credt for the amount of contrbutons, wth respect
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Regs. 90, Chap. III.
4 4
to empoyment durng such year, pad by hm, before the s teth
day after the date of the enactment of ths ct, nto an unempoy-
ment fund under a State aw. The provsons of the Soca Securty
ct (e cept the provson mtng such credt to amounts pad before
the date of tng returns) sha appy to aowance of credt under ths
secton, and the terms used n ths subsecton sha have the same
meanng as when used n Tte I of the Soca Securty ct
(b) Refund. Refund of the ta (ncudng penaty and nterest
coected wth respect thereto, f any), based on any credt aowabe
under ths secton, may be made n accordance wth the provsons
of aw appcabe n the case of erroneous or ega coecton of
the ta . No nterest sha be aowed or pad on the amount of any
such refund.
rt. 503 . Refund under secton S10 of the Revenue ct of 1938. (a) Pror
to the enactment of secton 810 of the Revenue ct of 1938 the ta payer was
not aowed to credt aganst the ta for 193 , mposed by Tte I of the
Soca Securty ct, nny contrbutons for that year whch he pad nto the
State unempoyment fund on or after the date upon whch the return was
requred to be fed. That date was pr 1, 1937, under the genera e tenson
of tme for fng returns whch was granted to a ta payers for the caendar
year 193 ony. Pursuant to secton 810, however, contrbutons wth respect
to empoyment durng 193 are aowabe as credt aganst the 193 ta f
they are actuay pad nto the State fund before uy 27, 1938. ccordngy,
f the ta payer pad or pays contrbutons for the caendar year 198 nto a
State unempoyment fund on or after pr 1, 1937, but pror to uy 27, 1938,
he s entted to credt that amount aganst hs 193 ta sub|ect, however, to
a the mtatons contaned n secton 902 e cept the mtaton wth respect
to the tme of payment (see artce 211( )). If the ta aganst whch the
amount so aowabe as credt under secton 810 has been pad wthout the
beneft of such credt, the ta payer sha be entted to a refund of the ta
equa to the amount of such credt. The ta payer sha aso be entted to a
refund of the amount of nterest or penaty, f any, coected from hm wth
respect to the amount of ta refunded. No nterest, however, sha be aowed
or pad by the Government on the amount of any such refund.
( ) very cam for refund under secton 810 of the Revenue ct of 1938
sha be made on orm 843 n accordance wth the provsons of ths artce
and artce 503. cam whch does not compy wth these requrements w
not be consdered for any purpose as a cam for refund.
Ths Treasury decson s prescrbed under the authorty contaned
n secton 908 of the Soca Securty ct.
Guy T. everng,
Commssoner of Interna Revenue.
pproved une 18, 1938.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une 21, 1938, 11.17 a. m.)
Secton 902: Credt aganst ta .
Reguatons 90, rtce 503y2: Refund under secton 810 of
the Revenue ct of 1938.
Credt aganst, and refunds of, ta under Tte I for 193 . (See
T. D. 4812, page 4 2.)
Secton 905: dmnstraton, refunds, and penates.
Reguatons 90, Chapter III: Returns and records.
Power of attorney form. (See Mm. 4780, page 383.)
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4 5 Regs. 90, rt. 205.
Secton 905: dmnstraton, refunds, and penates.
Reguatons 90, Chapter I : Payment of the ta .
ppeas from rungs of the ureau of Interna Revenue under
Soca Securty ct. (See S. S. T. 297, page 382.)
Secton 907: Defntons.
Reguatons 90, rtce 204: Who are empoyers.
Returns nvovng communty property n Te as. (See S. S. T.
25 , page 425.)
Secton 907: Defntons.
Reguatons 90. rtce 205: mpoyed ndvduas.
ranch managers and soctng agents of the N Lfe Insurance
Co. (See S. S. T. 249, page 393.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
ecutor performng servces for estate outsde the scope of hs
offca dutes. (See S. S. T. 254, page 395.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Indvdua performng servces for e ecutor of estate. (See S. S. T.
255, page 39 .)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Mk dstrbutors under contract -wth dary. (See S. S. T. 259,
page 397.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Court reporters. (See S. S. T. 2 0, page 399.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Servants furnshed to home owner. (See S. S. T. 2 5, page 400.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Lessee of gasone servce staton. (See S. S. T. 2 , page 401.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Servce staton operator. (See S. S. T. 2 7, page 402.)
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Regs. 90, rt. 205.
4
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Insurance agents. (See Mm. 4730, page 404.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
ttorney. (See S. S. T. 271, page 409.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Saes agents. (See S. S. T. 278, page 409, and S. S. T. 279, page
411.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Dstrct saes managers. (See S. S. T. 280, page 412.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Pocemen engaged by merchants. (See S. S. T. 281, page 413.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
O we casng crews. (See S. S. T. 29 , page 418.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Dstrbutor of products of o company from buk pant. (See
S. S. T. 290, page 414.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Physcan renderng servces at company s pant. (See S. S. T.
291, page 41 .)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Process servers. (See S. S. T. 292, page 417.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Informaton to be submtted for determnaton whether saes agents
are empoyees. (See Mm. 47 7, page 420.)
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4 7 Regs. 90, rt. 20 (3).
Secton 907: Defntons.
Reguatons 90, rtce 20 : cepted servces generay.
Servces performed outsde terrtora boundary of State. (See
S. S. T. 2 4, page 392.)
Secton 907: Defntons.
Reguatons 90, rtce 20 : cepted servces generay.
Computaton of wages of an empoyee who performs both e cepted
and none cepted servces. (See S. S. T. 28 , page 427.)
Secton 907: Defntons.
Reguatons 90, rtce 20 (1): grcutura abor.
Supervsor of empoyee-tenants of farms owned by the M Company.
(See S. S. T. 243, page 429.)
Secton 907: Defntons.
Reguatons 90, rtce 20 (1) : grcutura abor.
Irrgaton company. (See S. S. T. 277, page 430.)
Secton 907: Defntons.
Reguatons 90, rtce 20 (1): grcutura abor.
Corporaton offcers engaged n farm supervson. (See S. S. T.
282, page 430.)
Secton 907: Defntons.
Reguatons 90, rtce 20 (1): grcutura abor.
Preparng tmberand for use as an orchard. (See S. S. T. 289,
page 431.)
Secton 907: Defntons.
Reguatons 90, rtce 20 (1): grcutura abor.
Mushroom growng n caves wthn corporate mts of cty. (See
S. S. T. 293, page 432.)
Secton 907: Defntons.
Reguatons 90, rtce 20 (3): Offcers and members of crews.
Cannng fsh on board vesse. (See S. S. T. 244, page 433.)
Secton 907: Defntons.
Reguatons 90, rtce 20 (3): Offcers and members of crews.
Watchmen supped by a contractng company to vesse owner.
(See S. S. T. 272, page 434.)
Secton 907: Defntons.
Reguatons 90, rtce 20 (3): Offcers and members of crews.
Servces performed as an offcer or member of the crew on a barge
towed by a tug. (See S. S. T. 274, page 435.)
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Regs. 90, rt. 20 (4).
4G8
Secton 907: Defntons.
Reguatons 90, rtce 20 (3) : Offcers and members of crews.
Shpkeepers on vesses durng ay-up perods. (See S. S. T. 283,
page 437.)
Secton 907: Defntons. 1938-5-9180
Reguatons 90, rtce 20 (4): amy empoyment. S. S. T. 258
( so Secton 811 Reguatons 91, rtce 3.)
Servces performed for by hs wfe and mnor son do not con-
s tute empoyment wthn the meanng of Tte I of the Soca
Securty ct. Such servces, however, consttute empoyment wthn
the meanng of Tte III thereof.
dvce s requested whether servces performed for by hs wfe
and mnor son consttute empoyment wthn the meanng of the
ta ng provsons of the Soca Securty ct.
It s stated that owns and operates a whoesae estabshment
wheren s ndvduas are reguary empoyed n addton to s
wfe and mnor son. s wfe, who keeps the books for the estab-
shment, usuay works from 8 a. m. unt 4 p. m., whch hours are
observed by the other empoyees of . s remuneraton for her serv-
ces, she s pad doars per week, whch s the prevang rate for
the type of work n whch she s engaged. It s further stated that
s mnor son comes to work reguary each Saturday mornng. s
servces consst of sweepng the foors, arrangng the merchandse,
deverng orders, and performng such other dutes as are requred
from tme to tme. s remuneraton for hs servces, he s pad y
doars each week, whch s the prevang rate for the servces he
performs.
Secton 907(c), Tte I , of the ct provdes n part as foows:
The term empoyment means any servce e cept

(4) Servce performed by an Indvdua n the empoy of hs son, daughter, or
spouse, and servce performed by a chd under the age of 21 n the empoy of
hs father or mother.
In vew of the specfc e cepton accorded famy empoyment
under the above quoted provsons of Tte I of the ct, the servces
performed by s wfe and son do not consttute empoyment wthn
the meanng of that tte. Inasmuch as ony s other ndvduas are
empoyed by , he s not an empoyer as defned n secton 907(a)
of the ct, and therefore s not abe for the ta mposed by secton
901 thereof.
Snce there s no specfc e cepton accorded famy empoyment
under Tte III of the ct, servces performed by an ndvdua
for a member of hs famy consttute empoyment f such nd-
vdua s n fact an empoyee and such servces are not otherwse
e cepted under secton 811(b). n ndvdua s an empoyee wthn
the meanng of Tte III of the ct f the reatonshp between
the person for whom servces are performed and the ndvdua who
performs such servces s as to those servces the ega reatonshp
of empoyer and empoyee. ( rtce 3, Reguatons 91.)
In determnng whether the ega reatonshp of empoyer and
empoyee e sts n the case of famy empoyment for the pur-
pose of Tte III of the ct, consderaton must be gven to certan
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4 9
Regs. 90, rt. 20 (5)-( ).
rghts and dutes arsng out of the famy reatonshp. ta abe
empoyment does not necessary e st n a case where a member of
a famy performs such servce for another member as the atter
has the rght to e pect of hm due soey to the e stence of the fam-
y reatonshp. owever, where one member of a famy s regu-
ary engaged n performng servce for another member thereof n
the busness of the atter and receves remuneraton therefor, such
ndvdua s an empoyee wthn the meanng of Tte III of the
ct. urthermore, whether the ega reatonshp of empoyer and
empoyee e sts n such cases must be determned under the edera
aw and not under the State aw.
In vew of the foregong, t s hed that s wfe and son are em-
poyees wthn the meanng of Tte III of the Soca Securty
ct, snce they are engaged reguary n performng servces for
n the busness conducted by hm and are duy remunerated therefor.
It may be stated, however, that the vaue of the board and odgng
furnshed by to hs wfe and son are not to be ncuded n the
computaton of ta abe wages, snce s otherwse obgated to sup-
port hs wfe and chd.
Secton 907: Defntons.
Reguatons 90, ktce 20 (5)-( ): Government empoyees.
Pubc schoo cafeteras n the Dstrct of Coumba. (See S. S. T.
245, page 438.)
Secton 907: Defntons.
Reguatons 90, rtce 20 (5)-( ): Government empoyees.
Oregon fre assocaton. (See S. S. T. 24 , page 438.)
Secton 907: Defntons.
Reguatons 90, rtce 20 (5)-( ): Government empoyees.
ounteer fre departments, Pennsyvana. (See S. S. T. 250, page
440.)
Secton 907: Defntons.
Reguatons 90, rtce 20 (5)-( ): Government empoyees.
rmy post e change. (See S. S. T. 2 9, page 441.)
Secton 907: Defntons.
Reguatons 90, rtce 20 (5)-( ): Government empoyees.
Credt unon organzed under the aws of New ersey. (See S. S. T.
275, page 442.)
Secton 907: Defntons.
Reguatons 90, rtce 20 (o)-( ): Government empoyees.
mpoyees of fourth cass postmasters. (See S. S. T. 27 , page
443.)
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Regs. 90, rt. 207. 470
Secton 907: Defntons.
Reguatons 90, rtce 20 (5)-( ) : Government empoyees.
Indvduas engaged n qudaton of New York State bankng
nsttutons. (See G. C. M. 198 5, page 444.)
Secton 907: Defntons.
Reguatons 90, rtce 20 (5)-( ): Government empoyees.
County farm bureau n Mssour. (See S. S. T. 287, page 44 .)
Secton 907: Defntons.
Reguatons 90, rtce 20 (5)-( ): Government empoyees.
Credt unons organzed pursuant to provsons of Dstrct of
Coumba Credt Unons ct. (See S. S. T. 298, page 448.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
Strke benefts pad by unon to ts members. (See S. S. T. 247,
page 449.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
mounts pad to empoyees as Chrstmas gfts. (See S. S. T.
251, page 450.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wagos.
mounts pad to n|ured empoyees by sef-nsurers pursuant to
workmen s compensaton act. (See S. S. T. 252, page 451.)
Secton 907: Defntons. 1938-4-91
Reguatons 90, rtce 207: Wages. S. S. T. 253
( so Secton 811 Reguatons 91, rtce 14.)
Deferred or renewa corhmssons pad to an empoyee of the
M Insurance Co. consttute wa||es wthn the meanng of Ttes
III and I of the Soca Securty .ct ta abe at the rate n effect
for the caendar year n whch the servces were performed.
The queston has arsen under Ttes III and I of the Soca
Securty ct whether deferred or renewa commssons pad to nsur-
ance agents who have been hed by the ureau to be empoyees of the
M Insurance Co. consttute wages, and, f so, the rate of ta
appcabe thereto.
The M Insurance Co. engages the servces of certan empoyees n
soctng appcatons for nsurance contracts. s compensaton for
hs servces each empoyee receves a certan commsson for each
appcaton obtaned. porton of the commsson s pad to the em-
poyee at the tme the nsurance contract s consummated and the
remander s pad as the pocyhoder pays hs perodc assessments.
Therefore, an empoyee who performs servces n connecton wth the
securng of an nsurance contract may receve commsson payments
for a year or more subsequent to the date the contract was consum-
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471
Rega. 90, rt. 207.
mated before the tota commsson wth respect to such contract has
been pad. In the event the nsured ceases to make hs reguar pay-
ments, no further amounts are pad to the agent who secured the
contract.
Sub|ect to a mtaton under Tte III, the term wages aa
defned under Ttes III and I of the ct ncudes a remunera-
ton for empoyment. Inasmuch as the deferred or renewa com-
mssons admttedy are pad as remuneraton for servces performed
n an empoyment, such commssons consttute wages wthn the
meanng of Ttes III and I of the ct. urthermore, for the
purpose of those ttes, an empoyee s deemed to have performed the
servces whch entte hm to receve deferred or renewa comms-
sons at the tme the contracts negotated by hm become of ega
force and effect.
The empoyees ta mposed by secton 801, Tte III, of the ct s
computed by appyng to the wages receved by the empoyee the
rate n effect at the tme of the performance of the servces for whch
the wages were receved (artce 202, Reguatons 91), and the em-
poyers ta mposed by secton 804 s computed by appyng to the
wages pad by the empoyer the rate n effect at the tme of the per-
formance of the servces for whch the wages were pad. ( rtce
302, Reguatons 91.) ccordngy, t s hed that the empoyees ta
and the empoyers ta mposed by Tte III of the ct attach
at the tme the deferred or renewa commssons are pad and are
computed by appyng the rate n effect for the caendar year n
whch the servces were performed.
The ta for any caendar year mposed by secton 901, Tte I , of
the ct s computed by appyng the rate for that year to the tota
wages payabe ay the empoyer wth respect to empoyment durng
such year. ( rtce 202, Reguatons 90.) Wages are payabe wthn
the meanng of Tte I of the ct (1) f there s an obgaton at
any tme to pay wages wth respect to empoyment durng the ca-
endar year, or (2) f, at any tme, wages are actuay pad wth re-
spect to empoyment durng the caendar year. It s mmatera
whether such wages are certan n amount at any tme wthn the
caendar year and whether the rght e sts to enforce the payment
of such wages at any tme wthn the caendar year. ( rtce 202( ),
Reguatons 90.) ccordngy, deferred or renewa commssons are
deemed to be payabe wthn the meanng of Tte I of the ct dur-
ng the year n whch the servces are performed. s prevousy
ponted out, the tota wages payabe by an empoyer to hs empoyee
wth respect to empoyment durng any caendar year ncude tems
payabe and actuay pad durng that caendar year and tems pay-
abe but not actuay pad durng that year. Items payabe but not
actuay pad ncude the far estmated amount of a remuneraton,
f the bass of such remuneraton has been agreed upon between the
empoyer and the empoyee but the e act amount utmatey to be
pad can not be determned unt a subsequent year. ( rtce 209(a)
( )3, Reguatons 90.) ccordngy, for the purpose of computng
the ta abe wages under Tte I of the ct durng any caendar
year, the M Insurance Co. shoud make a far estmate n accordance
wth artce 209 of Reguatons 90 of a deferred or renewa com-
mssons whch w utmatey be pad wth respect to the contracts
of nsurance consummated durng that year.
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Regs. 90, rt. 207.
472
If the amount of wages payabe wth respect to empoyment durng
the year s computed and reported by the company n ts return for
such year at an amount greater than the amount whch s subsequenty
determned to have been payabe, the company may fe a cam for
credt or refund of the overpayment of ta . If the company com-
putes and reports ess than the correct amount of wages payabe n
any caendar year wth respect to servces performed durng such year,
the correct amount of wages whch was actuay payabe and subse-
quenty determned shoud, n accordance wth artces 209(a) ( )5
and 210( ) of Reguatons 90, be reported to the coector under oath,
and the ta , ncudng nterest thereon, shoud be pad wth respect to
the dfference between the amount computed and reported and the
amount actuay payabe at the rate n effect for the caendar year
durng whch the servces were performed.
If deferred or renewa commssons or any part thereof represent
remuneraton for servces performed as an empoyee of the company n
coectng premums or otherwse servcng contracts of nsurance, such
commssons or part thereof are deemed payabe for the purpose of the
ta mposed under Tte I of the ct at the tme the premums are
coected or such other servces are performed, and the rate of ta
appcabe thereto s the rate n effect for the caendar year durng
whch such servces are performed. Under the same crcumstances,
the rate of ta appcabe to such deferred or renewa commssons or
any part thereof, for the purpose of computng the ta es mposed
under Tte III of the ct, s the rate for the caendar year durng
whch the premums are coected or such other servces are performed.
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
onus pan. (See S. S. T. 257, page 451.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
Chrstmas fund contrbuted by members of cub. (See S. S. T.
page 452.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
Payments under proft sharng contract. (See S. S. T. 2 3,
page 453.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
Tps or gratutes. (See S. S. T. 301, page 455.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
Lunches served to empoyees n empoyer s unchroom. (See
S. S. T. 302, page 45 .)
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473 Reg . 91, rt. 1.
Secton 907: Defntons.
Reguatons 90, rtce 209: Items ncuded as wages.
aue of transportaton tckets furnshed by company to ts em-
poyees. (See S. S. T. page 458.)
Secton 907: Defntons.
Reguatons 90, rtce 209: Items ncuded as wages.
Premums on group fe nsurance. (See S. S. T. 273, page 458.)
Secton 907: Defntons.
Reguatons 90, rtce 209: Items ncuded as w ages.
Separaton payments to empoyees pursuant to agreement be-
tween empoyer and abor unon. (See S. S. T. 285, page 459.)
Secton 907: Defntons.
Reguatons 90, rtce 209: Items ncuded as wages.
Premums on fe nsurance coverng ves of empoyees. (See
S. S. T. 299, page 4G0.)
TITL L G N R L PRO ISIONS.
Secton 1101: Defntons.
Reguatons 90, rtce 1: Genera defntons.
ssocatons. (See S. S. T. 284, page 474.)
Sectcn 1101: Defntons.
Reguatons 90, rtce 1: Genera defntons.
Status of corporaton after e praton of charter. (See S. S. T.
2 8, beow.)
Secton 1101: Defntons. 1938-11-9241
Reguatons 91, rtce 1: Genera defntons S.S. T. 2 8
and use of terms.
( so Reguatons 90, rtce 1.)
The SI Company, whch has contnued the conduct of ts cor-
porate affars athough ts charter has e pred, remans a cor-
poraton for the purpose of the ta es mposed by the Soca
Securty ct.
dvce s requested whether the M Company, whose corporate
charter has e pred, remans a corporaton for the purpose of the
ta es mposed under Ttes III and I of the Soca Securty ct-
It s stated that the corporate charter of the M Company e pred
n 19 . The corporaton, however, contnued to conduct ts bus-
ness n ts corporate name after the e praton of ts charter. In-
cudng ts three offcers, the M Company has more than eght
empoyees.
Secton 1101(a) of the Soca Securty ct provdes n part as
foows:
(a) When used n ths ct

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Regs. 91, rt. 1.
474
(4) The term corporaton Incudes assocatons, |ont-stock companes, and
nsurance companes.

( ) The term empoyee ncudes an offcer of a corporaton.
In the conduct of ts affars after the e praton of ts charter, the
M Company remans a corporaton for the purpose of the ta ng
provsons of the ct. Those ndvduas who perform the functons
of offcers are ncuded as empoyees under the ct.
Secton 1101: Defntons. 1938-1 -9308
Reguatons 91, rtce 1: Genera defn- S. S. T. 284
tons and use of terms.
( so Reguatons 90, rtce 1.)
Trusts and other-unncorporated organzatons whch are treated
as assocatons for edera ncome ta purposes w aso be treated
as assocatons for the purpose of Ttes III and I of the Soca
Securty ct.
dvce s requested whether a trust whch s treated as an assoca-
ton for edera ncome ta purposes w aso be treated as an asso-
caton for the purpose of Ttes III and I of the Soca Securty
ct.
Secton 1101 of the Soca Securty ct provdes n part as foows:
(a) When used n ths ct

(3) The term person means an ndvdua, a trust or estate, a partner-
shp, or a corporaton.
(4) The term corporaton ncudes assocatons, |ont-stock companes, and
nsurance companes.
Secton 1001 of the Revenue ct of 193 contans defntons of
the terms person and corporaton dentca wth the defntons
contaned n secton 1101. supra.
In vew of the dentca defntons of the terms person and
corporaton contaned n secton 1101 of the Soca Securty ct
and secton 1001 of the Revenue ct of 193 , t s hed that a trust
or other unncorporated organzaton whch s treated as an assoca-
ton (and therefore as a corporaton) for edera ncome ta pur-
poses w aso be treated as an assocaton (and thus consdered a
corporaton) for the purpose of Ttes III and I of the Soca
Securty ct. (See artce 1001, subdvsons 1, 2, and 3, Reguatons
94, reatng to assocatons under the Revenue ct of 193 .)
In S. S. T. 120 (C. . 1937-1, 375) t was hed that a fducary-
engaged n managng a trust s not an empoyee wthn the meanng
of Ttes III and I of the Soca Securty ct. That concuson,
however, s appcabe ony to strct trusts and then ony n so far
as the fducary s engaged n performng servces as such. The con-
cuson does not appy to those servces of a fducary performed n
other than a fducary capacty (S. S. T. 254, page 395 ths uetn),
nor does t appy to trusts whch are treated as assocatons. Where
a trust s treated as an assocaton for the purpose of Ttes III
and I of the Soca Securty ct, and the trustees or other fduc-
ares engaged n conductng ts affars occupy postons anaogous to
those of offcers of a corporaton, such trustees or other fducares are
empoyees of the assocaton wthn the meanng of those ttes.
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475
Regs. 100, rt. 2.
C RRI RS T ING CT O 1937.
Secton 1: Defntons. 1938-10-9231
Reguatons 100, rtce 2: Who are empoyers. C. T. 7
The M Raway Co., a carrer by raroad sub|ect to Part I
of the Interstate Commerce ct, and the empoyees thereof are
sub|ect to the ta es mposed by sectons 2(a) and 3(a) of the
Carrers Ta ng ct of 1937 even though the company s owned
and operated by a potca subdvson of the State of .
dvce s requested whether the M Raway Co. and ts empoyees
are sub|ect to the ta es mposed under sectons 2(a) and 3(a) of
the Carrers Ta ng ct of 1937.
The M Raway Co. s a carrer by raroad sub|ect to Part I of
the Interstate Commerce ct. The company s owned and operated
by the cty of S, a potca subdvson of the State of R, by vrtue
of rghts contaned n the cty charter. The road s not ncorporated
and the empoyees are empoyed drecty by the muncpaty.
Secton 1(a) of the Carrers Ta ng ct of 1937 provdes n part
as foows:
The term empoyer means nny carrer (as defned n subsecton
() of ths secton), and any company whch s drecty or ndrecty owned
or controed by one or more such carrers or under common contro therewth,
and whch operates any equpment or facty or performs any servce (e cept
truckng servce, casua servce, and the casua operaton of equpment or
factes) n connecton wth the transportaton of passengers or property by
raroad, or the recept, devery, eevaton, transfer In transt, refrgeraton
or cng, storage, or handng of property transported by raroad, and any
recever, trustee, or other ndvdua or body, |udca or otherwse, when n
the possesson of the property or operatng a or any part of the busness of
any such empoyer:
Secton () of the ct provdes:
The term carrer means an e press company, seepng-car com-
pany, or carrer by raroad, sub|ect to Part I of the Interstate Commerce ct.
In vew of the provsons of the ct, t s hed that the M Ra-
way Co., a carrer by raroad sub|ect to Part I of the Interstate
Commerce ct, s an empoyer wthn the meanng of the Car-
rers Ta ng ct of 1937. It s contended by the M Raway Co.,
however, that nasmuch as t s an nstrumentaty of the cty of S,
a potca subdvson of the State of R, the company and ts em-
poyees are e empt from the ta es mposed bv sectons 2(a) and
3(a ) of the ct.
There s no specfc provson n the Carrers Ta ng ct of 1937
whch e empts an nstrumentaty of a State or of ts potca subdv-
sons from the ta es mposed thereunder. Such e empton, f t
e sts at a, must e st by reason of the mped consttutona m-
munty from edera ta aton whch the States en|oy wth respect to
certan of ther actvtes. Ths mmunty, however, e tends ony to
enterprses conducted by the State n the e ercse of a usua and
essenta governmenta functon. Coector v. Day, 11 Wa.. 113
State of South Carona v. Unted States, 199 IT, S 137: Unted States
v. Raroad Co., 17 Wa.. 322: State of North Dakota . Oteon, 33 ed.
(2d). 848: Oho v. everng, 292 U. S., 3 0. C, D 83G, C. . III-1.
531 (1934).)
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Regs. 100, rt. 2.
47
In everng v. Powers (293 U. S., 214, Ct. D. 900, C. . III-2,
213 (1934)) te Unted States Supreme Court, after dscussng brefy
the cases of State of South Carona v. Unted States and Oho v.
everng supra, hodng that the operaton of State quor ds-
pensares s not the e ercse of an essenta governmenta functon,
sad:
We see no reason for puttng the operaton of a street raway n a dfferent
category from the sae of quors. In each case, the State, wth ts own con-
cepton of pubc advantage, s undertakng a busness enterprse of a sort that
s normay wthn the reach of the edera ta ng power and s dstnct from
the usua governmenta functons that are mmune from edera ta aton n
order to safeguard the necessary ndependence of the State. If, n the Instant
case, the Commonweath had acqured the property of the company and had
organzed management of t n perpetuty by the State government, nstead of
temporary, or had taken over a the street raways n a ts ctes for drect
operaton by the Commonweath, there woud appear to be no ground, under
the prncpes estabshed by the decsons we have cted, for hodng that tha
woud effect the wthdrawa of the enterprse from the edera ta ng
power.
If the busness Itsef, by reason of ts character, s not mmune, athough
undertaken by the State, from a edera e cse ta upon ts operatons, upon
what ground can t be sad that the compensaton of those who conduct the
enterprse for the State s e empt from a edera ncome ta 1 Ther compensa-
ton, whether pad out of the returns from the busness or otherwse, can have
no quaty, so far as the edera ta ng power s concerned, superor to that of
the enterprse n whch the compensated servce s rendered.
We concude that the Congress had the consttutona authorty to ay the ta .
The stuaton n the nstant case s governed by the prncpes ad
down by the Unted States Supreme Court. Snce the M Raway
Co., a carrer, s not engaged n the e ercse of an essenta govern-
menta functon, t foows that the company and ts empoyees are
abe for the ta es mposed under sectons 2(a) and 3(a) of the
Carrers Ta ng ct of 1937.
Secton 1: Defntons. 1938-21-935
Reguatons 100, rtce 2: Who are empoyers. G. C. M. 2004
Where the N Raroad Co., a carrer wthn the meanng of
secton () of the Carrers Ta ng ct of 1937, contros the O
reght Co. under contract n the handng of freght transported
by the raroad, the O reght Co. s a controed company and,
therefore, an empoyer as defned n secton 1(a) of the ct
even though ts stock s not owned by the N Raroad Co.
dvce s requested whether the O reght Co. s an empoyer
wthn the meanng of secton 1(a) of the Carrers Ta ng ct of
1937, whch provdes n part as foows:
(a) The term empoyer means any carrer (as defned In subsecton ()
of ths secton), and any company whch s drecty or ndrecty owned or
controed by one or more such carrers or under common eottro therewth,
and whch operates any equpment or facty or performs any servce (e cept
truckng servce, casua servce, and the casua operaton of equpment or fac-
tes) n connecton wth the transportaton of passengers or property by ra-
road, or the recept, devery, eevaton, transfer n transt, refrgeraton or
cng, storage, or handng of property transported by raroad, .
It s stated that n May, 19 , the O reght Co. and the N Ra-
road Co., a carrer, agreed n wrtng that the former woud
hande a freght of the raroad company wthn specfed terrtory.
The agreement provdes n part as foows:
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477
Regs. 100, rt. 2.
The O reght Co. w propery hande and oad nto cars at such tmes and
n such manner as drected by the N Raroad Co. such freght, ncudng
baggage, as may be devered from boats, vesses or ghters upon any of the
docks or pers of the N Raroad Co. n the cty of R.
The O reght Co. w unoad and remove a freght from cars devered
by the N Raroad Co. at sad docks and pers, ncudng catte, n accordance
wth the custom at those pers, at and to such paces, at such tmes, and n
such manner as the N Raroad Co. may drect.
The O reght Co. w perform a such work and handng of such work
and freght prompty and wth the hghest degree of care, and w assume a
and every rsk of damage or n|ury to any freght or property by reason of
the handng thereof by the O reght Co., ts agents or servants, and w
ndemnfy and save harmess the N Raroad Co. of or from any and a
damages and from any and a cams for damage, actons, causes of acton, suts,
recoveres or |udgments, whch may be made, brought, had or recovered by
reason of or on account of any n|ury or damage to any such freght or
property.
The N Raroad Co. w furnsh a taymen, seaers, and carders aso a
trucks, runways, apparatus and toos necessary for handng sad freght.
It s understood and agreed that the N Raroad Co. sha, at the request of the
0 reght Co., but at the e pense of the N taroad Co., and wth reasonabe
promptness but wthout n any manner makng the N Raroad Co. abe to the
0 reght Co., ts agents, or servants, for any faure or negect so to do, make
a repars necessary to keep the sad docks and pers n proper condton for
dong the work heren specfed.
t s aso understood and agreed that f at any tme whe ths agreement s n
force t becomes necessary to ncrease the rate of pay of aborers empoyed by the
0 reght Co. n such work, no such ncrease w be made unt authorzed by
the N Raroad Co., and that so ong as such ncreased rate sha be pad the
tonnage rate of cents heren f ed sha be ncreased by the same percentage-
that the pay of the aborers sha have been ncreased and that n the event of
any reducton n the rate of pay of such aborers, the tonnage rate n force under
ths agreement at the tme of such reducton, sha be reduced by the same
percentage that the pay of sad aborers sha have been reduced.
Ths contract has contnued n force to date. The votng stock of
the 0 reght Co. s not owned drecty or ndrecty by the N Ra-
road Co. nor are the offcers or drectors of the freght company offcers
or drectors of the raroad company. The freght company s not
owned by one or more carrers nor controed thereby through stock
ownershp or nterockng drectorates. The ncome of the freght
company s derved prmary from the N Raroad Co. Snce the O
reght Co. s not a carrer tsef, n order to determne whether t
s an empoyer as defned n secton 1(a) of the Carrers Ta ng
ct of 1937, t must be determned whether the company s con-
troed by means of agreements or other devces whch nsure that ts
operaton s n the nterest of one or more carrers.
The term controed ncudes drect or ndrect contro, whether
egay enforceabe and however e ercsbe or e ercsed. The con-
tro may be by means of stock ownershp, or by agreements, censes,
or any other devces whch nsure that the operaton of the company
s n the nterests of one or more carrers. It s the reaty of the
contro, however, whch s decsve, not ts form nor the mode of ts
e ercse. ( rtce 2, Reguaton 100.)
The report of the Commttee on Ways and Means (Report No.
1071, page 5) on the Carrers Ta ng ct of 1937 contans the foow-
ng e cerpt wth respect to controed companes:
The present ct embraces wthn ts scope any company whch may be
drecty or Indrecty owned (by a carrer) or controed thereby or under
common contro therewth, . Under ths anguage coverage e tends
to a company whch s owned or controed n common by severa companes.
cusons have been e tended to casua servce and the casua operaton of
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Regs. 100, rt. 2.
478
equpment or factes. In addton to truckng servce, t Is ntended to
e cude empoyees of a contractor who may, for e ampe, be occasonay em-
poyed by a carrer to repar a depot or a brdge. Contractors, other than
those whch perform casua servce, woud not be e cuded, rrespectve of
whether contro be ega or de facto. De facto contro may be e ercsed not
ony by drect ownershp of stock, but by means of agreements, censes and
other devces whch nsure that the operaton of the company s conducted
n the nterests of the carrer.
y these changes there are brought wthn the scope of the ct substan-
tay a those organzatons whch are ntmatey reated to the transporta-
ton of passengers or property by raroad n the Unted States.
In addton to the fact that the ncome of the O reght Co. s
derved prmary from the N Raroad Co., the former does a
the freght handng of the atter wthn a specfed terrtory.
urthermore, the servce nvoved s the knd whch s usuay and
normay furnshed by a raroad company. Ths fact no doubt
accounts n part at east for the detaed supervson that the ra-
road e ercses over the freght company.
The facts n the case can not be sad to support a concuson that
the O reght Co. s deveopng ts own ndependent busness of
handng freght for the pubc or for carrers generay rather than
the carrer busness of the N Raroad Co. It s evdent that the O
reght Co. s n nowse ndependent of the carrer by reason of the
varous provsons n the contract gvng the carrer not ony effectve
contro of certan of the affars of the freght company, such as the
f ng of wages, but aso supervson over the ndvduas perform-
ng the work of oadng and unoadng freght for the carrer, t
beng provded by contract that the freght company w propery
hande and oad m cars the freght of the raroad company at such
tmes and n such manner as drected by that company. It s to be
noted that rrespectve of the actua contro e ercsed by the raroad
company over the freght company, the contract and the entre
arrangement ndcate that the power to contro e sts. Under the
Carrers Ta ng ct of 1937 and Reguatons 100, such power to
contro, by whatever devce or devces used, s suffcent to estabsh
that the O reght Co. s a controed company and, therefore,
an empoyer wthn the meanng of the ct.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
Secton 1: Defntons. 1938-22-93
Reguatons 100, rtce 2: Who are empoyers. C. T. 9
, who s n the servce of the M Company, an empoyer wthn
the meanng of secton 1(a) of the Carrers Ta ng ct of 1937,
athough not a carrer as denned n secton (), and who s
aso n the servce of the N Lodge, a oca odge of a raway abor
organzaton, natona n scope, s an empoyee of the M Company
wthn the meanng of secton 1(b) of the Carrers Ta ng ct
of 1937. owever, snce the M Company s not a carrer, s
not, wth respect to servces whch he performs for the N Lodge,
an empoyee of that odge wthn the meanng of the ct.
dvce s requested whether s an empoyee of the M Company
and of the N Lodge wthn the meanng of the Carrers Ta ng ct
of 1937.
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479
Regs. 100, rt. 3.
It s stated that snce 1932 has been n the servce of the M
Company. The company, athough not a carrer as denned n
secton () of the Carrers Ta ng ct of 1937, s owned and con-
troed by such a carrer and performs servces n connecton wth
the transportaton of passengers and property by raroad. s
aso n the servce of the N Lodge, a oca odge of a raway abor
organzaton, natona n scope.
The term empoyer., as defned under secton 1(a) of the ct,
ncudes companes whch are drecty or ndrecty owned or con-
troed by one or more carrers or under common contro there-
wth, and whch operate any equpment or facty or perform any
servce n connecton wth the transportaton of passengers or prop-
erty by raroad. It s evdent, therefore, under the facts above
stated that the M Company s an empoyer wthn the meanng
of that secton.
The term empoyee, as defned n secton 1(b) of the ct,
means any person n the servce of one or more empoyers for com-
pensaton : Provded, however, That the term empoyee sha n-
cude an empoyee or a oca odge or dvson defned as an empoyer
n subsecton (a) ony f he was n the servce of or n the empoy-
ment reaton to a carrer on or after ugust 29, 1935.
In vew of the foregong, t s cear that s an empoyee of
the M Company wthn the meanng of the ct, that company beng
an empoyer snce t s owned and controed by a carrer as
defned n the ct. owever, snce the M Company, athough an
empoyer, s not a carrer, and snce on or after ugust 29,
193o, was not n the servce of or n the empoyment reaton to a
carrer, he s not an empoyee wth respect to those servces whch
he performs for the N Lodge. Such servces, however, consttute
empoyment under Tte III of the Soca Securty ct, and
abty for the ta es mposed under that ct s ncurred wth re-
spect thereto. (See C. T. 8, page 488, ths uetn.)
Secton 1: Defntons. 1938-3-9150
Reguatons 100, rtce 3: Who are empoyees. C. T. 1
or the purpose of the Carrers Ta ng ct of 1937 (Pubc,
No. 174, Seventy-ffth Congress), the N Raroad Co. s the em-
poyer of certan ndvduas who are engaged by It but who are
performng servces n connecton wth the operaton of the O
Connectng Raway.
dvce s requested reatve to the status under the Carrers Ta -
ng ct of 1937 (Pubc, No. 174, Seventy-ffth Congress) of certan
ndvduas performng servces under crcumstances herenafter set
forth.
The M Raway Corporaton and the N Raroad Co., carrers by
raroad sub|ect to Part I of the Interstate Commerce ct, |onty
own the O Connectng Raway, whch operates a connectng raroad
between the tracks of the former corporatons and s engaged prn-
cpay n the transfer of freght (whch has been transported by
raroad) between the termnas. of these corporatons are em-
poyers under the Carrers Ta ng ct of 1937. The operatng
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Regs. 100, rt. 3.
480
e penses of the O Connectng Raway are pad by the N Raroad
Co., whch bs such e penses each month to the O Connectng Ra-
way. The atter n turn bs the M Raway Corporaton and the N
Raroad Co. for that porton of the e penses whch s aocabe to
each on the bass of the tonnage whch each has routed over the con-
nectng ne. The e penses pad by the N Raroad Co. ncude
the compensaton of certan empoyees who perform servces n the
operaton of the connectng ne. Such ndvduas are engaged by
the N Raroad Co., are sub|ect to dscharge by t, and are entrey
under ts contnung supervson and contro. The queston s pre-
sented whether these ndvduas engaged by the N Raroad Co. but
performng servces n operatng the connectng ne shoud be con-
sdered as empoyees of the former.
Secton 1 of the Carrers Ta ng ct of 1937 provdes n part as
foows:
(a) The term empoyer means any carrer (as defned In subsecton ()
of ths secton), and any company whch s drecty or ndrecty owned or
controed by one or more such carrers or under common contro therewth,
and whch operates any equpment or facty or performs any servce (e cept
truckng servce, casua servce, and the casua operaton of equpment or fac-
tes) n connecton wth the transportaton of passengers or property by ra-
road .
(b) The term empoyee means any person n the servce of one or more
empoyers for compensaton .

(d) n ndvdua s In the servce of an empoyer whether hs servce Is
rendered wthn or wthout the Unted States f he s sub|ect to the contnung
authorty of the empoyer to supervse and drect the manner of rendton of hs
servce, whch servce he renders for compensaton .

(h) The term empoyee Incudes an offcer of an empoyer.
() The term carrer means an e press company, seepng-car company, or
carrer by raroad, sub|ect to Part I of the Interstate Commerce ct.
n ndvdua s n the servce of an empoyer f he s sub|ect to
the contnung authorty of the empoyer to supervse and drect the
manner n whch he renders servces for compensaton. It s not
necessary that the empoyer actuay drect or contro the manner n
whch the servces are performed t s suffcent f the empoyer has
the rght to do so. ( rtce 3, Reguatons 100.)
Inasmuch as the ndvduas engaged by the N Raroad Co. but
performng servces n connecton wth the operaton of the O Con-
nectng Raway are sub|ect to the contnung authorty of the N
Raroad Co. to supervse and drect the manner n whch they render
servces for compensaton, t s hed that such ndvduas are em-
poyees of that company wthn the meanng of secton 1(b) of the
ct. The fact that the N Raroad Co. bs the O Connectng Ra-
way for the amount of the empoyees compensaton and the atter
n turn bs the M Raway Corporaton and the N Raroad Co. s
mmatera n determnng the empoyer-empoyee reatonshp.
The concuson reached heren does not appy n the case of the
offcers of the O Connectng Raway who, by reason of the e press
provsons of secton 1(h) of the ct, are ts empoyees for purposes
of the ta es mposed under sectons 2(a) and 3(a) thereof.
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481
Regs. 100, rt. 3.
Secton 1: Defntons. 1938-4-91 7
Reguatons 100, rtce 3: Who are empoyees. C. T. 3
n ndvdua who s n the empoy of a oca odge of a raway
abor organzaton natona n scope, and who was never n the
empoy of a carrer as defned n secton () of the Carrers Ta -
ng ct of 1937 (1 ubc, No. 174, Sevety-ffth Congress), s not an
empoyee wthn the meanng of that ct.
n ndvdua who was pensoned from actve raroad servce
pror to ugust 29, 193T , and subsequenty eected an offcer of a
oca odge of a raway abor organzaton natona n scope s not
an empoyee wthn the meanng of the Carrers Ta ng ct of
1937.
Inqury has been made concernng the status of certan ndvduas
under the Carrers Ta ng ct of 1937 (Pubc, No. 174, Seventy-ffth
Congress). The questons presented and answers thereto foow:
ueston 1. Is an ndvdua who s n the empoy of a oca odge
of a raway abor organzaton natona n scope, and who was never
n the empoy of a carrer as defned n secton () of the Carrers
Ta ng ct of 1937, consdered to be an empoyee wthn the
meanng of that ct
nswer. Secton 1 of the Carrers Ta ng ct of 1937 provdes n
part as foows:
(b) The term empoyee means any person n the servce of one or more
empoyers for compensaton: Provded, horrvrr. That the term empoyee
sha ncude an empoyee of a oca odge or dvson defned as an empoyer
n subsecton (a) ony f he was n the servce of or In the empoyment rea-
ton to a carrer on or after ugust 29, 1985. n ndvdua s n the empoy-
ment reaton to a carrer f he s on furough, sub|ect to ca for servce wthn
or outsde the Unted States and ready and wng to serve, or on eave of
absence, or absent on account of sckness or dsabty a n accordance wth
the estabshed rues and practces n effect on the carrer .

() The term carrer means an e press company, seepng-car company,
or carrer by raroad, sub|ect to Part I of the Interstate Commerce ct.
n ndvdua who s n the empoy of a oca odge or dvson
of a raway abor organzaton, whch s ncuded as an empoyer
under secton 1(a), s not an empoyee wthn the meanng of the
ct uness, on or after ugust 29. 1935, he was ether (1) n the
servce of a carrer, or (2) n the empoyment reaton to a
carre : ( rtce 3, Reguatons 100.) ccordngy, snce the nd-
vdua n queston was not on or after ugust 29, 1935, ether n the
servce of or n the empoyment reaton to a carrer, he s not an
empoyee wthn the meanng of the ct. e s, however, an
empoyee wthn the meanng of Tte III of the Soca Securty
ct provded he has not attaned the age of 5. urthermore, the
oca odge of the raway abor organzaton s an empoyer under
Tte I of that ct f t has eght or more empoyees for the perod
prescrbed n secton 907(a).
ueston 2. Where an ndvdua was removed from actve raroad
servce and pensoned pror to ugust 29, 1935, and subsequenty
eected an offcer of a oca odge of a raway abor organzaton
natona n scope, s such ndvdua an empoyee wthn the mean-
ng of the Carrers Ta ng ct of 1937
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Regs. 100, rt. 3.
482
nswer. n ndvdua s n the empoyment reaton to a car-
rer f on or after ugust 29,1935, n accordance wth the estabshed
rues and practces n effect on the carrer, he was on furough sub-
|ect to ca for servces wthn or wthout the Unted States and ready
and wng to serve, or on eave of absence, or absent on account of
sckness or dsabty. n ndvdua s not n the empoyment
reaton to a carrer wthn the meanng of artce 3, supra, f he
was pensoned pror to ugust 29,1935. ccordngy, the ndvdua
n queston s not an empoyee wthn the meanng of the Carrers
Ta ng ct of 1937. The answer to the frst queston s appcabe n
determnng the status of such servces under the ta ng provsons
of the Soca Securty ct.
Secton 1: Defntons. 1938-18-9324
Reguatons 100, rtce 3: Who are empoyees. C. T. 8
( so Secton 9(a) and Soca Securty ct, Tte
III, Secton 811 Reguatons 91, rtce 2.)
, who Is In the empoy of a State egsatve commttee of a
raway abor organzaton, natona n scope, s, wth respect to
those servces, an empoyee wthn the meanng of secton b)
of the Carrers Ta ng ct of 1937. Such servces are, however,
e cepted from empoyment under Tte III of the Soca
Securty ct.
Snce was not n the servce of or n the empoyment reaton
to a carrer on or after ugust 29, 1935, he s not wth respect
to servces whch he aso performs for a oca odge of the ra-
way abor organzaton an empoyee under the Carrers Ta ng
ct of 1937, but such servces consttute empoyment under Tte
III of the Soca Securty ct.
dvce s requested whether , who s n the servce of a State
egsatve commttee of a raway abor organzaton, natona n
scope, and who s aso n the servce of a oca odge of that organza-
ton, s sub|ect to the provsons of both the Carrers Ta ng ct of
1937 and Tte III of the Soca Securty ct.
The term empoyer, as defned under secton 1(a) of the Car-
rers Ta ng ct of 1937, ncudes raway abor organzatons, na-
tona n scope, whch have been organzed n accordance wth the
revsons of the Raway Labor ct, as amended, ther State and
atona egsatve commttees, ther genera commttees, ther n-
surance departments, and ther oca odges and dvsons, estabshed
pursuant to the consttuton and by-aws of such organzatons. The
term empoyee s defned n secton 1(b) of the ct to mean any
person n the servce of one or more empoyers for compensaton:
Provded, hoce er, That the term empoyee sha ncude an em-
poyee of a oca odge or dvson defned as an empoyer n sub-
secton (a) ony f he was n the servce of or n the empoyment
reaton to a carrer on or after ugust 29, 1935. The term car-
rer s denned n secton () of the ct to mean an e press
company, seepng-car company, or carrer by raroad, sub|ect to
Part I of the Interstate Commerce ct.
Snce wthout e cepton the term empoyee ncudes ndvduas
who are n the servce for compensaton of a State egsatve com-
mttee of a raway abor organzaton, natona n scope, t s cear
that s, wth respect to servces whch he performs for the State
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483
Regs. 100, rt. 3.
egsatve commttee, an empoyee wthn the meanng of secton
1(b) of the Carrers Ta ng ct of 1937. Inasmuch as secton 9(a)
of the Carrers Ta ng ct of 1937 provdes that The term em-
poyment, as defned n subsecton (b) of secton 811 of Tte III
of the Soca Securty ct, sha not ncude servce performed by
an ndvdua as an empoyee as defned n secton 1(b) ,
t s apparent that the servces performed by n the empoy of a
State egsatve commttee of a raway abor organzaton, natona
n scope, are e cepted from empoyment under Tte III of
the Soca Securty ct.
n ndvdua who s n the servce of a oca odge or dvson of a
raway abor organzaton whch s ncuded as an empoyer under
secton 1(a) of the Carrers Ta ng ct of 1937 s not an empoyee
wthn the meanng of that ct uness, on or after ugust 29, 1935,
he was ether
(1) In the servce of a carrer that 4s, on or after ugust 29, 1935,
the ndvdua must have been sub|ect to the contnung authorty of a
carrer to supervse and drect the manner of the performance of serv-
ces beng rendered by such ndvdua for compensaton, or
(2) In the empoyment reaton to a carrer that s, the nd-
vdua on or after ugust 29, 1935, n accordance wth estabshed
rues and practces n effect on the carrer, was on furough sub|ect
to ca for servce wthn or wthout the Unted States and ready and
wng to serve, or on eave of absence, or absent on account of sck-
ness or dsabty. (See artce 3, Reguatons 100 aso C. T. 3, page
481, ths buetn.)
It s stated that was not n the servce of or n the empoyment
reaton to a carrer (as defned n secton () of the Carrers Ta -
ng ct of 1937) on or after ugust 29, 1935. ccordngy, he s not,
wth respect to those servces whch he performs for the oca odge, an
empoyee wthn the meanng of secton 1(b) of that ct. Snce s
not wth respect to servces whch he performs for the oca odge an
empoyee wthn the meanng of the Carrers Ta ng ct of 1937,
such servces consttute empoyment under Tte III of the Soca
Securty ct, and abty for the ta es mposed under that ct s
ncurred wth respect thereto.
Secton 1: Defntons. 1938-2 -9411
Regt|I-atons 100, rtce 3: Who are empoyees. C. T. 10
( so Secton 9(a) and Soca Securty ct, Tte
III, Secton 811 Reguatons 91, rtce 2.)
performs servces n reparng freght ears for the M Raroad
Co., a carrer owned and controed by the O Stee Co. Wth
respect to such servces, s an empoyee wthn the meanng of
the Carrers Ta ng ct of 1937. e aso performs smar servces
for the O Stee Co., but snce that company s not an empoyer,
Is not an empoyee under the Carrers Ta ng ct of 1937 wth
respect to servces performed for that company. owever, the serv-
ces performed by for the O Stee Co. consttute empoyment
under Tte III of the Soca Securty ct.
dvce s requested whether , who s empoyed bv the M Raroad
Co. and the O Stee Co., s sub|ect to the provsons of both the
Carrers Ta ng ct of 1937 and Tte III of the Soca Securty
ct.
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Regs. 100, rt. 5.
484
It s stated that the ma|or porton of s tme s spent n repar-
ng freght cars n a repar shop of the M Raroad Co., whch s an
empoyer wthn the meanng of the Carrers Ta ng ct of 1937.
The M Raroad Co. s a subsdary of the O Stee Co. t certan
tmes s transferred to a repar shop of the stee company where
he performs servces whch are substantay smar to those per-
formed for the raroad company. t such tmes the O Stee Co.
pays hs remuneraton and he s sub|ect to ts contro. The O Stee
Co. s not an empoyer wthn the meanng of the Carrers Ta ng
ct of 1937. The queston s presented whether s an empoyee
under the Carrers Ta ng ct of 1937 and under Tte III of the
Soca Securty ct.
The term empoyee s defned n secton 1 (b) of the Carrers
Ta ng ct of 1937 to mean any person n the servce of one or
more empoyers for compensaton. Snce the M Raroad Co. s an
empoyer under the ct, t foows that s, wth respect to serv-
ces he performs for that company, an empoyee wthn the mean-
ng of secton 1(b). The O Stee Co., the parent corporaton of the
M Raroad Co., s an entty separate and dstnct from the atter,
and snce t s not an empoyer wthn the meanng of secton
1(a) of the ct, s not, wth respect to the servces he performs
for that company, n the servce of an empoyer for compensaton,
and s not, therefore, an empoyee under secton 1(b) of the Car-
rers Ta ng ct of 1937 wth respect to those servces. owever,
the servces performed by for the O Stee Co. consttute empoy-
ment under Tte III of the Soca Securty ct. (See C. T. 8,
page 488, ths uetn.)
Secton 1: Defntons. 1938-7-9199
Reguatons 100, rtce 5: Defnton of com- C. T. 4
pensaton.
mounts pad to , a former empoyee of the M Raroad Co.,
pursuant to an agreement desgnated as a persona n|ury re-
ease do not consttute ta abe compensaton under the Carrers
Ta ng ct of 1937 (Pubc, No. 174, Seventy-ffth Congress).
dvce s requested whether amounts pad to , a former empoyee
of the M Raroad Co., pursuant to an agreement between and the
company consttute ta abe compensaton under the Carrers Ta ng
ct of 1937 (Pubc, No. 174, Seventy-ffth Congress).
It s stated that n March, 19 , was n|ured n the course of
hs empoyment, wth the M Raroad Co. Due to the nature of hs
n|ures, he was no onger abe to perform servces for the company.
In pr, 19 . he entered nto an agreement wth the company desg-
nated as a persona n|ury reease. Under the terms of such
agreement, agreed, n consderaton of a cash payment of 3a doars
and the further payment of 4 doars per month to be made by the
company unt such tme as he s abe to resume work, to reease and
dscharge the M Raroad Co. from any abty ncurred as a resut
of the accdent.
Secton 1(e) of the Carrers Ta ng ct of 1937 provdes n part
as foows:
The term compensaton means any form of money remuneraton
earned by an ndvdua for servces rendered as an empoyee to one or more
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485
(Regs. 100. rt. .
empoyers. ncudng remuneraton pad for tme ost as an empoyee,
but remuneraton pad for tme ost sha be deemed earned n the month n
whch such tme s ost.
The term compensaton means a remuneraton n money, or n
somethng whch may he used n eu of money, whch s earned hy an
ndvdua for servces performed as an empoyee for one or more em-
poyers. The term s not confned to amounts earned or pad for
actve servce but ncudes amounts earned or pad for perods durng
whch the empoyee s absent from aetve servce. The term does not
ncude tps or the vountary payment by an empoyer of the em-
poyee s ta wthout the deducton of such ta from the remuneraton
of the empoyee. ( rtce 5, Reguatons 100.)
Under the above provsons of the aw and reguatons, remunera-
ton for tme ost consttutes ta abe compensaton wthn the
meanng of the ct when pad to an ndvdua who s an empoyee
of the person for whom servces are rendered. owever, n the
present case dd not reman n the empoy of the M Raroad Co.
and the amounts pad to hm are soey n consderaton of hs reease
of the company from abty for hs accdent. ccordngy, t s
hed that the amounts pad to are not remuneraton for tme ost
wthn the meanng of the ct and do not consttute ta abe com-
pensaton as defned thereunder.
Secton 1: Defntons. 1938-8-9207
Reguatons 100, rtce C: Items ncuded as com- C. T. 5
pensaton.
Where empoyees of the M Raroad Co. who ose tme from
actve servce on account of sckness are pad sck benefts from a
fund contrbuted by empoyees whe performng servces for the
company, such amounts do not consttute ta abe compensaton
wthn the meanng of the Carrers Ta ng ct of 1937.
Inqury has been made whether sck benefts pad to the empoyees
of the M Raroad Co. consttute ta abe compensaton wthn the
meanng of the Carrers Ta ng ct of 1937.
It s stated that monthy contrbutons are made nto a sck beneft
fund by empoyees of the M Raroad Co., an empoyer wthn the
meanng of the Carrers Ta ng ct of 1937. When tme s ost by
an empoyee by reason of sckness, he s pad weeky a nomna sum
whch s termed a sck beneft/ No payments are made nto the
fund by the empoyer.
The term compensaton s defned under secton 1(e) of the
Carrers Ta ng ct of 1937 as any form of money remuneraton
earned by an ndvdua for servces rendered as an empoyee to one
or more empoyers, or as an empoyee representatve, ncudng re-
muneraton pad for tme ost as an empoyee, but remuneraton pad
for tme ost sha be deemed earned n the month n whch such tme
s ost.
rtce of Reguatons 100 provdes n part as foows:
The foowng Items are ncuded In compensaton wth respect to
empoyees and In anaogous stuatons wth respect to empoyee representatves

(ft) Sck pay, vacaton aowances, or back pay upon renstatement after
wrongfu dscharge.
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Regs. 100, rt. 201.
48
The sck benefts here n queston are not pad by the M Raroad
Co., the empoyer, but are pad from a fund supported whoy by
contrbutons made by the empoyees whe performng servces for
the company. The amounts so pad are not earned by the ndvd-
uas for servces rendered as empoyees of the company. ccord-
ngy, such amounts do not consttute ta abe compensaton wthn
the meanng of the Carrers Ta ng ct of 1937.
Secton 2: mpoyees ta . 1938-9-9218
Reguatons 100, rtce 201: Measure of empoyees C. T.
ta .
( so Secton 3, rtce 301.)
or the purpose of appyng the 300 mtaton contaned n sec-
tons 2 and 3 of the Carrers Ta ng ct of 1937, compensaton
pad to empoyees on a quartery or annua bass must be aocated
to the caendar months wthn whch earned.
dvce s requested whether under the Carrers Ta ng ct of 1937
amounts pad to empoyees on a quartery or annua bass must be
prorated over the perod wthn whch earned.
It s stated that certan raway abor organzatons natona n
scope pay saares on a quartery or annua bass. In some nstances
empoyees of such organzatons are aso empoyees of raroad com-
panes whch are empoyers wthn the meanng of the ct. In many
cases the aggregate of the compensaton pad to an empoyee by a
raroad company and a abor organzaton durng the month n
whch a quartery or annua payment s made by the atter e ceeds
300.
Sectons 2(a) and 3(a), respectvey, of the Carrers Ta ng ct
of 1937 evy an ncome ta on empoyees and an e cse ta on em-
poyer s. The empoyees ta s measured by the amount of compen-
saton earned by an ndvdua as an empoyee for servces rendered
to one or more empoyers on and after anuary 1, 1937, e cudng,
however, the amount of such compensaton n e cess of 300 whch s
earned by the empoyee for servces performed durng any caendar
month. ( rtce 201, Reguatons 100.) If durng any caendar
month an empoyee earns compensaton from two or more empoyers,
and f the aggregate of such compensaton s more than 300, the
empoyees ta sha be deducted by each empoyer from the amount
of compensaton wth respect to whch the empoyers ta s mposed.
( rtce 203( ), Reguatons 100.) The empoyers ta s measured
by the amount of compensaton pad by the empoyer to hs empoyees
for servces performed on and after anuary 1, 1937, e cudng, how-
ever, the amount of compensaton n e cess of 300 whch s pad by
the empoyer to any empoyee for servces performed durng any one
caendar month. If, however, the empoyer pays compensaton to an
empoyee who s aso pad compensaton by another empoyer for
servces performed durng the same caendar month, and f the aggre-
gate compensaton pad to such empoyee by a empoyers s more
than 300 for the caendar month, then there s ncuded n the
measure of each empoyer s ta ony that proporton of 300 whch
each empoyer s payment to the empoyee for the month bears to the
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487
Regs. 100, rt, 201.
aggregate compensaton pad to such empoyee bv a of hs empoyers
for that month. ( rtce 301. Reguatons 00.) It w be noted that
the 300 mtaton appes ony when the compensaton earned by
an empoyee durng any caendar month e ceeds 300. Compensa-
ton s earned when and as an empoyee, as such, performs servces
for whch he s pad or for whch there s a present or future ob-
gaton to pay, regardess of the tme at whch payment s made or s
to be made. ( rtce 7, Reguatons 100.)
It s accordngy hed that for the purpose of appyng the 300
mtaton contaned n sectons 2 and 3 of the Carrers Ta ng ct
of 1937 the payments made on a quartery or annua bass shoud
be aocated to the caendar months wthn whch earned by the
empoyee.
Secton 2: Income ta on empoyees. 1938-2 -9412
Reguatons 100, rtce 201: Measure of em- C. T. 11
poyees ta .
( so Secton 3 Reguatons 100, rtce 301.)
The compensaton of as an empoyee of a oca odge of a
raway abor organzaton, natona n scope, s sub|ect to ta
under the Carrers Ta ng ct of 1937. Labty for such ta s
not affected by tho recept of a penson under secton of the
Raroad Retrement ct of 1937.
dvce s requested whether the compensaton of , who s an em-
poyee wthn the meanng of the Carrers Ta ng ct of 1937, s
sub|ect to the ta es mposed under that ct where he receves a pen-
son under the Raroad Retrement ct of 1937.
was n the contnuous empoy of a carrer from the year 1910
to anuary 1, 1937, when he was paced on the penson ro of hs
empoyer. t present, athough s recevng a penson (as ds-
tngushed from an annuty) under secton of the Raroad Re-
trement ct of 1937, he s servng as secretary-treasurer of a oca
odge of a raway abor organzaton, natona n scope, for whch
servces he earns compensaton. The oca odge of the raway
abor organzaton quafes as an empoyer under secton 1(a)
of the Carrers Ta ng ct of 1937, and s an empoyee
thereof.
Secton 2(a) of the Carrers Ta ng ct of 1937 eves a ta upon
the ncome of every empoyee (as defned n secton 1(b)) measured
by the amount of compensaton (as defned n secton 1(e) ) earned by
such empoyee. Secton 3(a) of the ct eves an e cse ta on every
empoyer (as defned n secton 1(a)) measured by the amount of
compensaton pad by hm to any empoyee. Labty for these ta es
s n no way dependent upon or affected by the provsons of the Ra-
road Retrement ct of 1937.
Snce s performng servces as an empoyee wthn the mean-
ng of the Carrers Ta ng ct of 1937, the compensaton earned by
hm s ta abe under sectons 2(a) and 3(a) of that ct. The re-
cept of a penson under the Raroad Retrement ct of 1937 does
not affect the ta abty of s compensaton under the Carrers Ta -
ng ct of 1937.
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Regs. 100, rt. 501.
488
Secton 3: mpoyers ta .
Reguatons 100, rtce 301: Measure of empoyers ta .
ocaton of compensaton where pad on quartery or annua
bass. (See C. T. , page 48 .)
Secton 3: mpoyers ta .
Reguatons 100, rtce 301: Measure of empoyers ta .
Status under Carrers Ta ng ct of 1937 of ndvdua recevng
penson under Raroad Retrement ct of 1937. (See C. T. 11,
page 487.)
Secton 7: Coecton and payment of ta es.
Reguatons 100, Chapter : Returns and payment of ta .
Power of attorney form. (See Mm. 4780, page 383.)
Secton 7: Coecton and payment of ta es. 1938-3-9151
Reguatons 100, rtce -501: Inta and C. T. 2
quartery returns of ta .
n empoyee representatve under the Carrers Ta ng ct
of 1937 (Pubc, No. 174, Seventy-ffth Congress) w not be re-
qured to fe returns of ta on orm CT-2 unt he earns compen-
saton as such representatve. owever, such a representatve
w be requred to fe a return on orm CT-2 for the frst perod
(as specfed n artce 501 of Reguatons 100) wthn whch he
earns compensaton as a representatve and for each subsequent
perod of three caendar months whether or not such compensaton
s earned n the subsequent perods.
dvce s requested whether an ndvdua who s an empoyee
representatve wthn the meanng of the Carrers Ta ng ct of
1937 (Pubc, No. 174, Seventy-ffth Congress) and who earns no
compensaton as such representatve w be requred to fe nta and
quartery returns of ta under artce 501 of Reguatons 100.
The term empoyee representatve as used n the Carrers Ta -
ng ct of 1937 means any offcer or offca representatve of a ra-
way abor organzaton other than a abor organzaton ncuded n
the term empoyer as defned n secton 1(a) of the ct, who
before or after une 29, 1937, was n the servce of an empoyer as
defned n secton 1(a) and who s duy authorzed and desgnated to
represent empoyees n accordance wth the Raway Labor ct, as
amended, and any ndvdua who s reguary assgned to or regu-
ary empoyed by such offcer or offca representatve n connecton
wth the dutes of hs offce. (Secton 1(c).)
or the perod begnnng anuary 1 1937, and endng September
30, 1937, and for each subsequent perod of three caendar months
endng December 31, March 31, une 30, and September 30, each,
empoyee representatve sha prepare a return of ta , n quadrup-
case, on orm CT-2. ( rtce 501, Reguatons 100.)
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4S9
Regs. 100, rt. 704.
It s hed that an empoyee representatve compes wth the pro-
vsons of artce 501, supra, f he fes a return on orm CT-2 for
the frst perod wthn whch he earns compensaton as a representa-
tve and for each subsequent perod whether or not compensaton s
earned wthn such perod. If an ndvdua ceases to be an empoyee
representatve, hs ast return must be marked na return as set
forth n artce 502 of Reguatons 100.
Secton 9: Soca Securty ct.
Reguatons 100, rtce 703: Credt and refund of
ta es pad under Tte III of the Soca Securty
ct for perod durng whch abty e sted under
ths ct.
Servces e cepted from empoyment under Tte III of Soca
Securty ct by secton 9(a) of ths ct. (See T. D. 4801, page 378.)
Secton 9: Soca Securty ct.
Reguatons 100, rtce 704: Credt and refund of
ta es pad under ths ct for perod durng whch
abty e sted under Tte III of the Soca
Securty ct.
Servces e cepted from empoyment under Tte III of Soca
Securty ct by secton 9(a) of ths ct. (See T. D. 4801, page 378.)
Secton 9(a): Soca Securty ct.
Status of empoyee of oca odge of raway abor organzaton.
(See C. T. 8, page 482.)
Secton 9(a) : Soca Securty ct.
Status of ndvdua performng servces for an empoyer and
aso for person who s not an empoyer. (See C. T. 10, page 483.)
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MISC LL N OUS T RULINGS.
TITL III. ST T T . (192 )
S CTION 302, S M ND D Y OINT R SOLUTION O M RC 3, 1931,
ND Y S CTION 803 O T R NU CT O 1932.
Reguatons 80(1934), rtce 15: Transfers 1938-12-9253
durng fe. Ct. D. 1317
ST T T R NU CTS O 192G ND 1032 D CISION O SUPR M
COURT.
1. Gross state Transfers Reservaton of Lfe Income Con-
structon of Statute.
The |ont resouton of Congress of March 3, 1931, and secton
803(a) of the Revenue ct of 1932, amendng secton 302(c) of the
Revenue ct of 1920, n so far as they reate to transfers wth
reservaton of fe ncome, are, notwthstandng the provsons of
subdvson (h) of secton 302, to be construed as pros||ectve n ther
operaton and as not appyng where, pror to the adopton of the
|ont resouton, property was so transferred by a decedent who ded
subsequent to such adopton.
2. Decsons ffrmed.
Decsons of the Crcut Court of ppeas, rst Crcut (90 ed.
(2d), 833), and the Crcut Court of ppeas, Second Crcut (91
ed. (2d), 1010), affrmed.
Supreme Court of the Unted States.
375. Thomas . assett. Indvduay and as ormer ctng Coector, pettoner,
v. . Soher Wech ct a., ecutors.
On wrt of certorar to the Unted States Crcut Court of ppeas for the rst Crcut.
484. u/ T. everng, Commssoner of Interna Revenue, pettoner, v. Chares
. Marsha, dmnstrator of the state of osephne . Marsha,
Deceased.
303 U. S., 303.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
ebruary 28, 1938.
OPINION.
Mr. ustce Robehts devered the opnon of the Court.
The pettoners ask us to hod that secton 302(c) of the Revenue ct of 192
as amended by the |ont resouton of Congress of March 3, 1931, and secton
803(a) of the Revenue ct of 1932,3 ncudes n the gross estate of a decedent,
for estate ta , property whch, before the adopton of the amendments, was
rrevocaby transferred wth reservaton of a fe estate to the transferor and
Ch. 27, 44 Stat., 0, 70 U. S. C, Tte 2 . secton 411(c).
Ch. 454, 48 Stat., 151G U. S. C, Tte 2 , secton 411(c).
Ch. 209. 47 Stat., 1G0, 27U U. S. C, Tte 20, secton 411(c).
(490)
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491
Regs. 80(1934), rt. 15.
that, so apped, the statute does not offend the due process cause of the ffth
amendment of the Consttuton. The numerous cases pendng n the courts and
the oard of Ta ppeas nvovng these questons, and the cam that de-
csons of ths Court have not setted the matter, moved us to grant certorar.
The respondents n No. 375 are e ecutors under the w of a decedent who
ded November 20, 1932. On ebruary 13, 1924, vountary and wthout vau-
abe consderaton, he transferred to a trustee property whch he e pected
to receve under the w of hs brother, reservng to hmsef the ncome for
fe, drectng dvson of the ncome after hs death between nephews and
neces and dstrbuton of the corpus, upon the death of the survvor of them,
amongst ther then vng ssue. fter hs brother s death, and on October
22, 192 , he duy ratfed and confrmed the orgna trust nstrument The
Commssoner rued that the vaue of the trust assets shoud be ncuded n
the decedent s gross estate, n the vew that the transfer was testamentary,
because made n contempaton of death, or ntended to take effect n possesson
or en|oyment at or after death, wthn the meanng of secton 302(c) of the
Revenue ct of 192 . The respondents pad the resutng ta and sued for
refund n the Dstrct Court of Massachusetts. udgment went for the co-
ector.4 The crcut court of appeas hed that the dstrct court erred n
concudng that the transfer was made n contempaton of death or was n-
tended to take effect n possesson or en|oyment after death. The pettoner
nevertheess nssted upon the egaty of the e acton as the decedent ded
after the 1931 and 1932 amendments of secton 302(c), whch decared the
property transferred a part of the gross estate for computaton of estate ta ,
n vrtue of the reservaton to the transferor of the ncome for hs fe.
The court overrued the contenton, hodng that, f so retroactvey enforced,
the egsaton voated the ffth amendment of the Consttuton, and reversed
the |udgment In hs appcaton for certorar the pettoner dd not assgn
error to the crcut court s rung as to the nontestamentary character of the
transfer but confned hs attack to the decson that the amendments of secton
302(e) coud not consttutonay be nvoked to sustan the ta .
In No. 484 t appears that the decedent ded ntestate une 4, 1933. The
respondent, her son, Is her admnstrator. November 15, 1920, she transferred
to hm certan cash and securtes. On the same day they entered nto an
agreement rectng an understandng that, n case of hs death durng her
fe, the securtes and cash shoud be reconveyed to her and, In the meantme,
he shoud pay her such portons of the Income therefrom as she mght from
tme to tme request In wrtng that whe he hed the securtes he mght
nvest and renvest that he shoud bequeath her a the assets consttutng
the fund, n case she survved hm that she woud remburse hm for any
ncreased ncome ta es payabe by hm n vrtue of hs ownershp of the
fnnd and that, f she shoud survve hm and take the property under hs
w, she woud remburse hs estate for State and edera nhertance ta es
due by reason of the bequest. The agreement contaned other provsons for
the safeguardng and separate custody of the fund durng the mother s fe.
The respondent pad the decedent portons of the ncome upon her request.
e e ecuted a w bequeathng the property to her on the terms mentoned
n the agreement, but upon her death, he revoked the bequest. The Comms-
soner ncuded the vaue of the fund n the decedent s gross estate, hodng
that she had made a transfer wthn the terms of secton 302(c) of the Reve-
nue ct of 192 , as amended n 1931 and 1932. The oard of Ta ppeas
reversed the Commssoner s determnaton and the court of appeas affrmed
ts acton upon the authorty of the decson of the Crcut Court of ppeas
of the rst Crcut n No. 375 and that of the Seventh Crcut n No. 349,
decded ths day Ct. D. 1318, page 495, ths uetn .
Counse for the Government argue that the |ont resouton of 1931 and
secton 803(a) of the Revenue ct of 1932 were ntended to mpose an estate
ta measured by transfers of the sort theren descrbed whch had been
rrevocaby made pror to the passage of the egsaton and that, so con-
strued, they are not arbtrary or unreasonaby retroactve and do not offend
the due process cause of the ffth amendment. Counse for respondents answer
that the enactments were ntended to operate ony upon transfers subse-
quenty consummated and, f construed to reach the past transfers here n-
15 P. Supp., 92.
90 . (2d), 833.
91 . (2d), 1010.
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Regs. 80(1934), rt. 15.
492
voved, voate the amendment. We hod that the statutes are prospectve In
ther operaton and do not mpose a ta n respect of past rrevocabe transfers
wth reservaton of a fe nterest.
scertanment of the ntended appcaton of the |ont resouton of March
8, 1931, and secton 803(a) of the Revenue ct of 1932, nvoves a readng
of them n the ght of cases construng smar phraseoogy of earer cts,
ther egsatve hstory and admnstratve nterpretaton. There s agree-
ment that secton 803(a) reenacted the substance of the ont resouton wth
but sght verba dfferences. It w, therefore, be necessary to quote ony
the resouton. y t secton 302(c) of the Ievenue ct of 192 , supra, was
amended to provde:
The vaue of the gross estate of the decedent sha be determned by ncud-
ng the vaue at the tme of hs death of a property, rea or persona, tangbe
or ntangbe, wherever- stuated

(c) To the e tent of any nterest theren of whch the decedent has at any
tme made a transfer, by trust or otherwse, n contempaton of or Intended to
take effect n possesson or en|oyment at or after hs death, ncudng a transfer
under whch the transferor has retaned for hs fe or any perod not endng
ocforc hs death (1) the. possesson or en|oyment of, or the ncome from, the
property or (2) the rght to desgnate the persons who sha possess or en|oy
the property or the ncome therefrom e cept n case of a bona fde sae for an
adequate and fu consderaton n money or money s worth.
The matter n ordnary type s secton 302(c) as t was pror to amendment
the addtons are In tacs.
The Government rees on the words at any tme as demonstratng that the
egsaton was ntended to appy to transfers made before ts adopton and s so
unequvoca as to eave no room for constructon. Ths phrase, appearng n
an earer Revenue ct, had, however, been hed not to render the statute
effectve upon transfers antedatng the passage of the ct and Congress appar-
enty reazed that the e presson dd not carry the statute back so as to embrace
transactons consummated before ts passage for, n subsecton (h) of secton
302 of the ct of 192 , n referrng to transactons and Interests gvng rse to a
ta by vrtue of precedng subsectons, t drected that they shoud be ta abe
whether made, created, arsng, e stng, e ercsed, or renqushed before or
after the enactment of ths ct. We concude that the meanng of the secton
s hot so free from doubt as to precude nqury concernng the egsatve
purpose.
The hstory of the resouton s of matera ad n ts constructon. Secton
802(c) of the ct of 192C, ke earer cts, measured the ta by the ncuson
n the gross estate of property of whch the decedent had made a vountary
transfer n contempaton of, or ntended to take effect n possesson or en|oy-
ment at or after hs death. Notwthstandng the Treasury had rued that a
transfer of assets wth a reservaton of Income for the donor s fe came wthn
the defnton ths Court hed otherwse. Dssatsfed wth the decson, the
Government sought a reversa of t but, n three udgments, announced on
March 2, 1931, the rung was reaffrmed. In the opnons n these cases,
whch ed to the preparaton and adopton of the resouton, the Court sad
there was no queston of the consttutona authorty of the Congress to mpose
prospectvey a ta wth respect to transfers or trusts of the sort here n-
voved . There then remaned one day of the current sesson of
Congress. The Treasury drafted an amendment of secton 302(c) to brng
trusts of ths type wthn ts sweep, n the form of the |ont resouton of
March 3, 1931, whch was sent to Congress on the day of our decsons and was
passed, under a suspenson of the rues, on the ne t day, the ast of the sesson.
Shcab v. Doue (258 U. S.. 529 T. D. 3339. C. . 1-2, 312 (1922) 1) Unon Trutt
Co v Warde ( 258 U. S., 537 T. D. 3338, C. . 1-2. 310 (1922) ) construng secton
202 of the ct of September 8. 191 (39 Stat.. 777).
44 Stat., 71. U. S. C, Tte 2 , secton 411(h). . . _
Compare Shrab v. /)o / e, supra, at page 53 sweyn v. nck (2 8 D. S., 238, 202
S 5 r r D.( 2W Ct D. 18 . C. . 1 -1. 382 (1930) ), construng
secton 402(c) of the Revenue ct of 1918 (44 Stat.. 1057. 1097)
urner v. northern 7 nst Co. (283 U. S., 782) Mortman v. urnet (283 U. S., 783)
UcCormck v. Irnut (283 U. S 784), construng secton 402(c) of the Revenue ct of
1921 and secton 302(c) of the Revenue ct of 1924.
Congressona Record, Seventy-frst Congress, thrd sesson, voume 74, part 7, page
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493
Regs. 80(1934), rt. 15.
ecause ts passage was consdered e gent the resonton was adopted wth-
out havng been prnted and n reance on statements made from the foor.
The Congressona Record dscoses the understandng of the Congress wth
respect to ts scope. Mr. Garner, of the ouse Ways and Means Commttee,
states: The Commttee on Ways and Means ths afternoon had a meetng and
unanmousy reported the resouton |ust passed. We dd not make t retroactve
for the reason that we were afrad that the Senate woud not agree to t. u
Mr. awey, of the same commttee, n charge of the resouton, stated, n
answer to a queston: It provdes that hereafter no such method sha be
used to evade the ta and, referrng to the stuaton created by the decsons
of ths Court, he sad :
It s entrey apparent that f ths stuaton s permtted to contnue, the
edera estate ta w be serousy affected. ntrey apart from the refunds
that may be e pected to resut, t s to be antcpated that many persons w
proceed to e ecute trusts or other varetes of transfers under whch they w
be enabed to escape the estate ta upon ther property. It s of the greatest
mportance therefore that ths stuaton be corrected and that ths obvous
opportunty for ta avodance be removed. It s for that purpose that the
|ont resouton s proposed.
Ths anguage, we thnk, scarcey bears the nterpretaton put upon It by
Government counse that the ta was meant to be ad on estates of a who
ded after te adopton of the resouton.
earng n mnd that the resouton was prepared and ts passage recommended
by the Treasury, the admnstratve nterpretaton supports n uncommon meas-
ure the vew that t was not ntended to operate upon transfers competed pror
to ts passage. Prompty upon ts passage the Department ssued Treasury
Decson 4314, approved by the Secretary of the Treasury May 22, 1931, whch
was n the form of a etter to coectors of nterna revenue and others con-
cerned. It quoted the anguage of the resouton and stated:
In vew of the decsons of the Supreme Court of the Unted States n
MchoU v. Coodge (274 U. S., 531 T. D. 4072, C. . I-2, 351 (1927) ), May v.
encr (281 U. S., 238 Ct. D. 18 , C. . I -1, 382 (1930)1), Coodge v. Long
(282 U. S., 582), urnet v. Northern Trust Co. (51 S. Ct., 342), dgar M. Morn-
man, r., v. urnet (51 S. Ct., 343) and Cyrus . McCormck v. urnet (51 S. Ct.,
343), the porton added by the amendment to secton 302(c) of the Revenue ct
of 192 , as set forth above In tac, w, notwthstandng the provsons of
secton 302(h) of that ct, be apped prospectvey ony, . e., to such transfers
comng wthn the amendment as were made after 10.30 p. m., Washngton,
D. C, tme, March 3, 1931.
Reguatons 70, 1929 edton, w be amended to make the changes neces-
stated by the amendment to secton 302(c) of the Revenue ct of 192 and the
above decsons of the Supreme Court. Itacs n the orgna.
pr 11, 1932, Reguatons 70 were amended by Treasury Decson 433 C. .
I I, 329 (1932) and, n part, read:
rt. 18. Retenton of possesson, en|oyment, or ncome. ny transfer whch
was made by the decedent after 10.30 p. m., Washngton, D. C, tme, March 3,
1931, and under whch he retaned for hs fe or any perod not endng before
hs death (1) the possesson or en|oyment of, or the ncome from, the property or
(2) the rght to desgnate the persons who sha possess or en|oy the property
or the Income therefrom, s ta abe, provded such transfer was not a bona fde
sae for an adequate and fu consderaton n money or money s worth.
Not ony s the egsatve hstory of secton 803(a) of the ct of 1932 bare
of ndcaton of any purpose that t shoud affect past transfers, but what ap-
pears tends to dsprove any such thought.11 Moreover, the reenactment of the
resonton of 1931 n the ght of the admnstratve rungs requres the con-
Congressona Record, Seventy-frst Congress, thrd sesson, voume 74, part 7, pages
7198-7199.
t . -, 450 1931 .
11 The reports ot the commttees of both ouse and Senate contan ths statement:
The purpose of ths amendment to secton 302(c) of the Revenue ct of 192G s to
carfy In certan respects the amendments made to that secton by the |ont resouton
of March 3, 1931, whch were adopted to render ta abe a transfer under whch the dece-
dent reserved the Income for hs fe. The ont resouton was desgned to avod the
effect of decsons of the Supreme Court hodng such a transfer not ta abe f rrevocabe
and not made In contempaton of death. Certan new matter has aso been added, whch
s.wthout retroactve efect ( ouse Commttee Report No. 708, Seventy-second Congress,
frst sesson Senate Commttee Report No. 5, same sesson).
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Regs. 80(1934), rt. IS.
494
euson that Congress approved and adopted the admnstratve constructon of
the provson t reenacted.1
Reguatons 80, approved November 7, 1934, after paraphrasng secton 803(a),
concuded: The provsons of ths subdvson do not appy (1) f the transfer
was made pror to 10.30 p. m., eastern standard tme, March 3, 1931, and (2)
f the decedent ded pror to 5 p. m., eastern standard tme, une , 1932 the
date of passage of the Revenue ct of 1932 . See secton 50 of the Revenue
ct of 1934. Ths reguaton was retaned as artce 18 n the 1937 edton of
Reguatons 80 ssued October 20, 1937. Thus whe the reguatons have been
atered to treat secton 803(a) of the 1932 ct as retroactvey affectng trans-
fers made after March 3, 1931, the Department has consstenty rued that the
resouton of 1931 has no appcaton to transfers made pror to ts adopton.
The poston thus recenty taken s nconsstent n ts treatment of the two ke
enactments and s dffcut to understand n vew of the consstent nterpreta-
ton of the |ont resouton but t fas to weaken the force of that consstent
nterpretaton wth knowedge of whch Congress reenacted the same provson
n 1932.
The Government urges that a of these crcumstances whch are persuasve
that the enactments were ntended to operate for the future are overborne by
secton 302(h) of the Revenue ct of 192 , whch s:
cept as otherwse specfcay provded theren subdvsons (b), (c), (d),
(e), (f), and (g) of ths secton sha appy to the transfers, trusts, estates,
nterests, rghts, powers, and renqushment of powers, as severay enumerated
and descrbed theren, whether made, created, arsng, e stng, e ercsed, or
renqushed before or after the enactment of ths ct. Itacs supped.
It w be remembered that the |ont resouton of 1931 amended secton 302(c)
of the ct of 1920 to cover transfers such as are here nvoved. It made no
reference to any other porton of that ct. Snce secton 302(c) n ts orgna
form was, by secton 302(h), made appcabe to transfers whether made before
or after the ct of 192 , the contenton s that t has ke operaton and effect as
respects the provson added to t by the amendment. nd the same argument
s advanced wth respect to the amendment of subsecton (c) by the ct of 1932.
Resort s had to canons of constructons as an ad n ascertanng the ntent
of the egsature. It may occur that the ntent s so cear that no such resort
shoud be nduged, and the Government cams ths s such a case. The matter
s, we thnk, nvoved n suffcent ambguty to warrant our seekng such ad.
we-setted canon tends to support the poston of respondents: Where one
statute adopts the partcuar provsons of another by a specfc and descrptve
reference to the statute or provsons adopted, the effect s the same as though
the statute or provsons adopted had been ncorporated body nto the adoptng
statute . Such adopton takes the statute as t e sts at the tme of
adopton and does not ncude subsequent addtons or modfcatons of the
statute so taken uness t does so by e press ntent. The weght of authorty
hods ths rue respectng two separate cts appcabe where, as here, one secton
of a statute refers to another secton whch aone s amended.
In vew of other setted rues of statutory constructon, whch teach that a aw-
s presumed, n the absence of cear e presson to the contrary, to operate pro-
spectvey 10 that, f doubt e sts as to the constructon of a ta ng statute, the
doubt shoud be resoved n favor of the ta payer, 0 we fee bound to hod that the
|ont resouton of 1931 and secton 803(a) of the ct of 1932 appy ony to trans-
fers wth reservaton of fe ncome made subsequent to the dates of ther
adopton respectvey.
rectter v. Gage (280 U. S.. 327. 337 Ct. D. 148, C. . I -1, 274 (1930) ) Unted
States v. Dakota-Montana O Co. (288 IT. S., 459, 4 Ct. D. 55, C. . II-1, 243
(1933)1) Mc eey v. CommUsoner (290 U. S.., 102, 108 Ct. D. 1040, C. . I -2, 209
(1935) ) Unted Sates v. Saety Car eatng Co. (297 U. S., 88, 95 Ct. D. 1073, C. .
-1, 204 (11130) ).
17 I ens Sutherand on Statutory Constructon. 2d d., oume II, pages 787-788.
Caumet oundry f Machne Co. v. Mroz (79 Ind. pp., 305) State v. cckner (197
Iowa. 1252) Crohn v. Teephone Co. (131 Mo. pp., 313) Oustafson v. ammond Irr-
tntUm Pnt. (87 .Mont., 217) anders v. errmaek (48 Ws., 5 7) contra, mercan
ank v. Oass (23 N. Y.. 488).
Unted States v. eth (3 Cranch. 399. 413) Reynods v. Ifc rthur (2 Pet., 417, 434)
/uraf| v. Doye (258 T . S., 529) Unted States . Magnoa Petroeum Co. (27 U. 8.
100. 102 IT. D. 4153, C. . II-1. 287 (1928))).
Goud v. Coud (245 . S.. 151) Shmab v. Doye, supra: Renecke v. Northern Trust
Co. (278 U. S., 339. 348 T. D. 42 1, C. . III-1, 305 (1929)1) Whte . romson (302
. S., 1 Ct. fa. 1283. C, , 1937-2, 507 ).
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495
IRegs. 80(1934), rt. 15.
odng ths vew, we need not consder the contenton that the statutes as
apped to the transfers under consderaton deprve the respondents of ther
property wthout due process n voaton of the ffth amendment
The udgments are affrmed.
Reguatons 80(1934), btce 15: Transfers 1938-12-9254
durng fe. Ct. D. 1318
ST T T R NU CT OP 192 D CISION OP SUPR M COURT.
1. Gross state Transfer n Trust Reskrvaton of Lfe state.
Where, pursuant to a compromse agreement made by the de-
cedent and trust benefcares, a trust created n 1927 was abrogated
and a new rrevocabe deed of trust was e ecuted n 1932, convey-
ng a porton of the corpus of the former trust and reservng to the
decedent a fe Interest n the ncome, the corpus of the new trust
was propery Incuded In the decedent s gross estate under the pro-
vsons of secton 302(c) of the Revenue ct of 192 , as amended
by |ont resouton of Congress of March 3, 1931.
2. Gross state Compromse greement Consderaton.
The compromse agreement condtoned upon the makng of the
new trust dd not consttute such an adequate and fu consdera-
ton, wthn the meanng of the statute, as to warrant the e cuson
of the trust property from the gross estate.
8. CONSTITUnON LITT O ST TUT .
Secton 302(c) of the Revenue ct of 192 , as amended by the
ont resouton of March 3, 1931, may be consttutonay apped
to the new trust, created subsequent to such amendment.
4. Decson Reversed.
Decson of the Crcut Court of ppeas, Seventh Crcut (90
ed. (2d), 144), reversng decson of the oard of Ta ppeas
(34 . T. ., 243), reversed.
Supreme Court of the Unted States.
Guv T. everng, Commssoner of Interna Revenue, pettoner, v. ear
uard, as ecutor under the Last W and Testament of Cara R. Smth,
Deceased.
303 U. S., 297.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Seventh Crcut.
ebruary 28, 1938.
OPINION.
Mr. ustce Roberts devered the opnon of the Court
The pettoner chaenges a decson hodng unconsttutona the provson of
secton 302(c) of the Revenue ct of 192 ,1 as amended by ont resouton of
Congress of March 3, 1931, whch requres the Incuson n a decedent s gross
ta abe estate of property transferred by rrevocabe deed wth reservaton of
a fe estate. On account of aeged confct wth our decsons and of the
Important consttutona queston presented we granted the wrt of certorar.
Cara R. Smth, a resdent of Inos, dod n 1933. In 1927 she transferred
securtes, by rrevocabe deed, to her son dward, n trust to pay the ncome
to her for fe and, upon her death, to dvde the corpus nto three equa parts,
the ncome from a part to be pad to each of her three chdren, Lora. esse,
and dward, durng ther ves, wth remanders of the daughters shares to
ther respectve chdren: upon dward s death eavng no ssue the ncome
from hs share to be pad to hs wdow for fe and, upon her death, the rcman-
Ch. 27, 44 Stat., 9, 70 U. S. C. Tte 20, secton 411(c).
Ch. 454, 4 Stat., 151 U. S. C, Tte L , secton 411(c).
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Iegs. 80(1934), rt. 15.
49G
der to be added, u equa shares, to the daughters trust funds. dward ded
n 1928 eavng a wdow but no ssue.
In 1931 dssatsfacton wth the admnstraton of the trust mpeed the
decedent to seek ts abrogaton. amnaton of the nstrument dscosed vo-
aton of the rue aganst perpetutes. b was accordngy fed n an
Inos State court to have the trust decared vod. The son s wdow answered
denyng nvadty. guardan ad tem representng the nterests of nfant
benefcares n remander aso opposed the prayer of the b. Subsequenty,
to avod famy dscord and amcaby to sette the pendng tgaton, a compro-
mse agreement was made by the decedent and a the adut benefcares
consentng to the entry of a decree on condton that the decedent woud decare
a new trust of appro matey one-thrd of the securtes n the e stng trust
whereby dward s wdow shoud en|oy a fe nterest dentca to that gven
her by the 1927 trust and, upon her death, the remander shoud be equay
dvded between the decedent s daughters. The agreement further requred
the makng of testamentary provson for the decedent s daughters and grand-
chdren, and certan outrght gfts to the atter. Iu pursuance of the agree-
ment, the decedent, on ebruary 17, 1932, e ecuted a new rrevocabe deed of
trust conveyng appro matey one-thrd of the corpus of the former trust
and reservng to hersef a fe nterest n the ncome, and e ecuted a new w.
consent decree was then entered n the equty sut, the guardan ad tem
representng to the court that the settement woud be advantageous to the
mnor benefcares.
The Commssoner s ncuson of the corpus of the trust of ebruary 17, 1932,
n the gross estate was sustaned by the oard of Ta ppeas.8 The crcut
court of appeas reversed the oard s decson.4 We are of opnon that the
acton of the Commssoner and the oard shoud have been affrmed.
rst. oth the oard and the court hed that the decree of the State court,
notwthstandng ts entry pursuant to stpuaton, ad|udcated the rghts of the
partes, abrogated the trust of 1927, and estabshed the decedent s absoute
ownershp of the assets. Ths concuson s fuy supported by decsons of the
Supreme Court of Inos and we accept t. It foows that the respondent s
contenton that the transfer of 1932 has no ndependent e stence and that, n
ega effect, the trust for the son s wdow stems from the deed of 1927, must be
overrued.
Second. The trust of 1932 was created after the adopton of the |ont resou-
ton of March 3, 1931, whch requred ncuson n the gross estate of the vaue
at the date of death of a property to the e tent of auy nterest theren of
whch a decedent has at any tme made a transfer by trust or otherwse under
whch the transferor retaned for fe the possesson or en|oyment of the ncome
from the property, e cept n case of a bona fde sae for an adequate and fu
consderaton n money or money s worth. It s urged that the settement of
the dspute as to the nvadty of the trust deed of 1927, condtoned, as t was,
upon the makng of the new trust, consttutes such a bona fde sae, for adequate
consderaton, as to brng the trust of 1932 wthn the e cepton. The argument
s that the decree settng asde the 1927 trust merey gave udca sancton
to the compromse agreement and that the contract was for an adequate and
vauabe consderaton and woud, therefore, have been enforced by a court of
equty at the nstance of any of the partes to t.
Whe recognzng that a decree thus begotten has the same force and effect
as a decree n nvtum, the respondent seeks to go behnd the decree and spe
out a sae by dward s wdow of her nterest under the 1927 trust for the
nterest conferred upon her by the 1932 trust. The court beow has hed the
poston untenabe and we agree. The decree decared the 1927 trust vod
and revested the trust assets n the decedent. If that trust was, as the Inos
court decreed, vod and neffectve because t voated the rue aganst perpetu-
tes the son s wdow took no nterest under t and gave nothng to procure
the 1932 transfer.
Thrd. The Commssoner rees not ony upon the |ont resouton of March 3,
1931, but upon secton 803(a) of the Revenue ct of 1932.5 We need not consder
the atter snce the |ont resouton, f egay enforcbe, n e press terms author-
34 . T. ., 243.
90 . (2d), 144.
Cta. 209, 47 Stat, 189, 279 t . S. C, Tte 20, secton 411(c).
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497
Regs. 80(1934), rt. 3 .
zed hs ncuson of the trust fund n the decedent s gross estate. s the resou-
ton was adopted neary a year pror to the creaton of the 1932 trust no cam
s or can be made that, as to that transacton, t s retroactve. The contenton s
that the transfer was nter vvos, was presenty effectve, was rrevocabe, was
not made n contempaton of, or effectve at, death, and that Congress was,
therefore, wthout power to make t the sub|ect of an estate or nhertance ta
that, whe the transfer mght, by approprate egsaton, have been ta ed as a
gft, to ta t as n the nature of a testamentary dsposton s a dena of due
process. The contenton s unsound for severa reasons. Snce Congress may
ay an e cse upon gfts t s of no sgnfcance that the e acton s denomnated
an estate ta or s found n a statute purportng to evy an estate ta . Moreover,
Congress havng the rght to cassfy gfts of dfferent sorts mght mpose an
e cse at one rate upon a gft wthout reservaton of a fe estate and at another
rate upon a gft wth such reservaton. Such a cassfcaton woud not be arb-
trary or unreasonabe. further vndcaton of the e acton s the authorty
of Congress to treat as testamentary transfers wth reservaton of a power or an
nterest n the donor. The egsatve hstory of the |ont resouton, to whch
reference s made n Nog. 375 and 484, decded ths day Ct. D. 1317, page 490, ths
uetn , demonstrates that the purpose of the egsaton was to prevent avod-
ance of estate ta es. s has been sad by the Court of ppeas of New York:
It s true that an ngenous mnd may devse other means of avodng an nhert-
ance ta , but the one commony used s a transfer wth reservaton of a fe
estate.
We have recenty sustaned the prospectve operaton of a provson ncudng
n the gross estate property whch a decedent has transferred retanng power
aone, or n con|uncton wth any other person, to ater, amend, or revoke. We
hed the purpose of the cause was to prevent avodance of ta and the measure
was reasonaby cacuated to that end. s apped to a trust created after ts
enactment the |ont resouton does not voate the ffth amendment.
The |udgment s reversed and the cause Is remanded for further proceedngs n
conformty wth ths opnon.
So ordered.
S CTION 303(a) O TO R NU CT O 192 , S M ND D Y
S CTION 805 O T R NU CT O 1932.
estate ta revenue acts op 192 and 1932 decson of court.
1. Gross state Deductons Cams ganst the state: Not
Lmted to aue of ssets vaabe fob Payment.
In determnng the ta abe net estate of a decedent whose statu-
tory gross estate ncuded proceeds of fe nsurance payabe to hs
wfe as benefcary, the fu amount of cams aganst the estate
whch are aowed by the aws of the |ursdcton under whch the
estate s beng admnstered s deductbe under the provsons of
secton 303(a)1 of the Revenue ct of 192 , as amended by secton
805 of the Revenue ct of 1932, athough such cams e ceed the
vaue of the assets avaabe for ther payment and athough under
the oca aw the Insurance benefcary may not be obgated to pay
the tota amount of the cams.
2. Decson mnuro.
Decson of the Unted States oard of Ta ppeas (1937)
(35 . T. ., 251) affrmed.
In the atter of eeney (194 N. T., 281, 287) affrmed 222 U. S., 525.
everng v. Cty ank (29 U. S., 85, 90 Ct. D. 1042, C. . I -2, 329 (1930)1).
Compare Mtken v. Unted States (283 U. S., 15 Ct D. 320, C. . -. 472 (1931)1) :
Tyer v. Unted State (281 U. S., 497 ICt D. 190, C. . I -1, 383 (1930) ).
Reguatons 80(1934), rtce 3 : Cams
aganst the estate.
1938-22-93G7
Ct. D. 1340
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Regs. 80(1934), rt. 3 .
498
Unted States Crcut Court of ppeas for the Second Crcut.
Guy T. everng, Commssoner of Interna Revenue, pettoner, v. dth M.
O Donne, respondent.
94 ed. (2d), 852.
Petton to revew a decson of the oard of Ta ppeas (35 . T. ., 251). The Com-
mssoner of Interna Revenue fes the petton. Decson affrmed.
efore Manton, Swan, and . N. and, Crcut udges.
ebruary 7, 1938.
OPINION.
Manton, Crcut udge: defcency n estate ta s camed by the Com-
mssoner and ths petton seeks a revew of the oard of Ta ppeas de-
termnaton. (Sectons 1001-1003, ct of 192 , ch. 27 ( 44 Stat., 9), as amended
by secton 1101, Revenue ct of 1932, ch. 209 ( 47 Stat., 1 9).)
The respondent s husband ded March 18, 1933, and she receved, as a bene-
fcary of Insurance on hs fe, the sum of 732, 81. whch was ncuded
by the Commssoner as part of the gross estate. The funera e penses were
pad and were found to be far and reasonabe. The deceased had contracted
bona fde debts for fu consderaton and cams aganst the estate, amountng
to 47,04C .01, were fed and pad by the respondent out of the nsurance pro-
ceeds receved by her. t the tme of hs death, decedent was personay
obgated to credtors n the amount of 159,5S3.11. t the tme of hs death,
he was n soe contro of two corporatons. Notes representng the obgatons
of these corporatons were ndorsed by the decedent to the e tent of 501,844.89.
oth corporatons were nsovent and were wthout any assets at the tme
of hs death. s assets conssted of propertes vaued at 55, 11.34.
The oard of Ta ppeas hed that under the provsons of secton 301 of
the Revenue ct of 192 (44 Stat., 0, U. S. C, Tte 2 , sectons 410, 411, 412),
a ta s mposed ony upon the transfer of the vaue of the net estate, determned
as provded n sectons 302-303. Secton 302 decares what casses of property
of a decedent must be ncuded n determnng the gross estate and secton 303
provdes that the vaue of the net estate sha be determned by deductng from
the vaue of the gross estate funera e penses, admnstraton e penses and
cams aganst the estate whch are aowed by the aws of the |ursdcton
under whch the estate s beng admnstered. Ths statute f es a bass for
the ta . cept for the provsons of subdvson (g) of secton 302, proceeds
of fe nsurance poces payabe to the respondent formed no part of the gross
estate of the decedent. ut the casses of property whch must be ncuded
n the gross estate are specfed, however arbtrary they may seem.
The ct f es the deductons from the gross estate to determne the ta abe
net estate. mong the deductons, as provded by subdvson (c) (secton
303(a)1 as amended by secton 805, Revenue ct of 1932) are cams aganst
the estate, wth the mtaton that they must be such as are aowed by the
aws of the ursdcton nnder whch the estate s beng admnstered. Pettoner
argues, however, that the deducton of cams shoud be mted to ony those
aowed and pad. The ct, however, does not so read and we can not assume
that Congress so ntended. The fact that cams aganst the estate of the
decedent may not have been pad at the tme the ta upon the net estate s
determned, does not mean that they may not ater be pad n whoe or n
part out of the proceeds of the fe nsurance poces upon whch the ta s
eved. Secton 55(a) of the New York nsurance aw provdes n substance
that f any of the fe nsurance poces orgnay payabe to e ecutors or
admnstrators of the decedent had been changed by hm so as to be payabe
to a benefcary at a tme when the deceased was nsovent, the proceeds of such
poces coud be reached by credtors. (In re b cynman, 77 ed. (2d), 320.)
nd whe the respondent may not, under the aws of New York, be obgated to
pay the tota amount of the cams aganst the estate, that does not warrant
the ta here sought to e coected. owever, the resut s that the Government
receves the same amount In ta es whch t woud receve were a the assets of
the gross estate abe for debts of the decedent. Death dutes are necessary
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499
Regs. 80(1934), rt. 44.
measured by the stuaton as It e sts at the tme of hs death. (Ithaca Trust
Co. v. Unted States, 279 U. S., 151.)
Other crcut courts of appens decsons sustan these concusons. (Com-
mssoner v. mes, 88 ed. (2d), 338 (C. C. . 7) etterng v. N. W. Trust Co.,
89 ed. (2d), 5.13 (C. C. . 8) Commssoner v. Lync, 90 ed. (2d), 745 (C. C. .
1) Commssoner v. Wndrow, 80 ed. (2d), 9 (C. C. . 5).)
In construng ths statute, we can not go beyond the cear and unambguous
phrase of the ct, nor can we specuate that the egsatve bodv ntended some-
thng dfferent. (Crooks v. arreson, 282 U. S., 55 Ct. D. 271, C- . -, 4 9
(1931) Isen v. Unted States, 270 U. S., 245 T. D. 384 , C. . -, 3 5
(192 ) Unted States v. Godcnberg, 1 8 U. S., 95.) Nor does artce 29 of
Reguatons 80 reatng to estate ta es requre that a cam be pad u order
to be deductbe. (Commssoner v. Wndrow, supra.)
Determnaton affrmed.
S CTION 303(a)3 O T R NU CT O 192 , S M ND D Y
S CTION 807 O T R NU CT O 1932 ND S CTION 40 O
T R NU CT O 1934.
bequest to the M Commttee on Prsons and Prson Labor
made by a resdent of the Unted States who ded In 1933 Is not
deductbe from hs gross estate under secton 303(a)3 of the
Revenue ct of 192 , as amended.
dvce s requested whether a bequest to the M Commttee on
Prsons and Prson Labor, a corporaton organzed under the aws of
the State of R, by a resdent of that State who ded n October, 1933,
s deductbe for edera estate ta purposes under secton 303(a)3
of the Revenue ct of 192 , as amended by secton 807 of the Revenue
ct of 1932 and secton 40 of the Revenue ct of 1934.
Secton 303 (a)3 of the Revenue ct of 192 , as amended by secton
807 of the Revenue ct of 1932, provded that n the case of a ctzen
or resdent the vaue of the net estate sha be determned by deduct-
ng from the vaue of the gross estate The amount of a bequests,
egaces, devses, or transfers, to or for the use of any cor-
poraton organzed and operated e cusvey for regous, chartabe,
scentfc, terary, or educatona purposes, ncudng the encourage-
ment of art and the preventon of cruety to chdren or anmas, no
part of the net earnngs of whch nures to the beneft of any prvate
stockhoder or ndvdua . Secton 303(a)3 was further
amended by secton 40 of the Revenue ct of 1934 by nsertng after
the word ndvdua a comma and the foowng: and no sub-
stanta part of the actvtes of whch s carryng on propaganda, or
otherwse attemptng, to nfuence egsaton.
The charter of the M Commttee on Prsons and Prson Labor
provdes n part as foows:
The prmary ob|ect of ths organzaton sha be to study the whoe probem
of abor n prsons and correctona nsttutons, wth a vew to securng egs-
aton among the States of the Unon to the end that a prsoners may be so
empoyed as to promote ther wefare and at the snme tme to remburse the
nsttuton for the e pense of mantenance whe preventng unfar competton
between prson-made goods and products of free abor and securng to ther
dependent fames a far proporton of the rghtfu earnngs of prsoners.
Reguatons 80(1934), rtce 44: Transfers
for pubc, chartabe, regous, etc., uses.
1938-10-9232
G. C. M. 19715
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Regs. 70(1929), rt. 1 .
500
It s contended by the e ecutor of the decedent s estate that the
amendment by secton 40 of the Revenue ct of 1934 does not appy
to the nstant bequest snce the bequest was made pror to the enact-
ment of the Revenue ct of 1934.
oth before and after the enactment of secton 40 of the Revenue
ct of 1934 the ureau has consstenty hed, n effect, that assoca-
tons organzed to dssemnate controversa or partsan propaganda
for the purpose of securng the enactment of egsaton are not e -
cusvey chartabe, scentfc, terary, or educatona organzatons
wthn the meanng of the statute. The oard of Ta ppeas sus-
taned that poston n rederc C. Leubuscher v. Commssoner (21
. T. ., 1022). It appears that Congress ntended by the anguage
contaned n secton 40 of the Revenue ct of 1934, above quoted,
to approve the ong contnued admnstratve constructon. In other
words, secton 40 merey carfes secton 303(a)3, as amended,
and gves effect to the prevousy adopted poston of the ureau.
Snce the charter of the M Commttee on Prsons and Prson Labor
e pressy decares that The prmary ob|ect of ths organzaton
sha be to study the whoe probem of abor n prsons and cor-
rectona nsttutons, wth a vew to securng egsaton among the
States of the Unon, t foows that the M Commttee on Prsons
and Prson Labor s an organzaton a substanta part of the
actvtes of whch s carryng on propaganda, or otherwse at-
temptng, to nfuence egsaton, wthn the meanng of secton
303(a)3 of the Revenue ct of 192 , as amended, and that the bequest
to such organzaton s not deductbe by the estate for edera estate
ta purposes.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
S CTION 302.
Reguatons 70(1929), rtce 1 : Nature of 1938-19-9333
transfer. Ct. D. 1334
ST T T R NU CT O 1920 D CISION OP COURT.
Gross state Transfers- Contempaton of Death vdencb.
The dstrct court propery hed that the evdence presented dd
not overcome the statutory presumpton, under the Revenue ct
of 192 , that a transfer of rea property from the decedent to hs
son and daughter wthn s months pror to hs death was made
n contempaton of death and therefore ta abe as a part of hs
gross estate, where It was shown that the decedent was 82 years
of age at the tme of the transfer, that he had an organc troube
whch had been ony partay reeved by operatons ess than two
years prevousy, and that he conveyed substantay a of hs prop-
erty to those to whom t woud descend by aw. The fndngs of
the ower court are not nconsstent wth the evdence and do not
ack support n substanta evdence.
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501
Regs. 70(1929), rt. 1 .
Unted States Crcut Court of ppeas fob the Seventh Obcott.
Warman . ack, dmnstrator de bons non. Wth the W nne ed, of the
state of oseph . ack, Deceased, pantff-appeant, v. Lews C. otcge,
as dmnstrator of the state of Neson M. ng, ormery Coeetor of
Interna Revenue for the Dstrct of Indana, and Neson t. ng, ormery
ctng Coector of Interna Revenue for the Dstrct of Indana, defendant-
appeee.
03 ed. (2d), 512.
ppea from the Dstrct Court of te Unted States for the Southern Dstrct of Indana,
Indanapos Dvson.
December 15, 1937.
OPINION.
Lndet, Dstrct udge: Ths appea presents the soe queston of whether
the dstrct court propery hed that a conveyance of rea estate by oseph .
ack, deceased, was made n contempaton of death and that the property
thereby conveyed was ta abe as a part of hs estate. Such was the fndng and
concuson of the court, n bar of pantffs sut to recover the ta eved and
pad.
On October 2, 1925, the decedent and hs wfe, each then aged 82 years, con-
veyed property of the vaue of 2 8,080 to hs son and daughter as cotenants,
n equa parts, reservng no nterest n hmsef. e ded ess than s months
ater on March 30, 1928, possessed of an estate worth 15,000.
The decedent when 81 years of age underwent an operaton to correct prostate
gand and badder troube. The resut was one of parta success and unt
the tme of hs death he was compeed to nse a catheter and was at tended by
a practca nurse. e had frst consuted the specast n gento-urnary ds-
eases who performed the operaton on October 2, 1922. e was then past 79.
e had an enarged prostate gand whch prevented compete evacuaton of the
badder. The physcan treated hm day unt October 24, to reduce the fud n
the badder. t the tme of the operaton, on March 19, 1924, the doctor
opened the badder and made a systoc, fndng an enarged prostate but
no cancerous condton. In a second operaton, 10 days ater, the prostate gand
was removed. s genera condton was, apparenty, norma. s death
foowed wthn two years.
The deceased tod the presdent of a bank, who heped draw the deed, at the
tme the atter was e ecuted, that he wanted to convey hs property to hs
chdren and desred that they take care of hm and hs wfe: that they were
od enough to e ercse contro of the property that the ta es bothered hm and
that he desred to reeve hmsef of the responsbty. To the banker s nqury,
as to whether he desred to retan a en, hs answer was In the negatve, but
at hs request, words were nserted n the deed to ndcate that the consdera-
ton was the support of hmsef and hs wfe.
The son testfed that he was nterested n rea estate In orda and ds-
cussed t wth hs father, who reped that he was not nterested but that e
woud convey the and to the two chdren, f you w take care of mother and
mysef as ong as we ve that thereby the son woud acqure credt and be
enabed to do busness. Subsequent to the conveyance, the son mortgaged hs
nterest to secure -10,000 whch he borrowed, hs father |onng n the mortgage,
and st ater he borrowed the further sum of 30,000. e supported hs
parents, camng that he used the net ncoms for that purpose and addng some
thereto.
The practca nurse attended Mr. ack after December, 1924, unt hs death,
recevng nstructons from the physcan. She used a catheter on hm about
three tmes a day. Otherwse, she consdered hm a we man. Neghbors and
frends testfed that durng the ast two years of hs fe, he seemed we and
never taked of dyng.
Under the Revenue ct of 192 transfers of property wthn two years of one s
death are presumed, n the absence of showng to the contrary, to have been
made n contempaton of death and the property thus conveyed s ta abe as
a part of the decedent s estate. (U. S. C. Sup. . Tte 2 , secton 1094.) Thus
the burden was upon pantff to overcome the presumpton.
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Regs. 70(1929), rt. 22.
502
Such conveyances are ta ed because they are testamentary n character.
Consequenty the pertnent evdence s that whch enghtens the court as to
the motves of the grantor, usuay, qute evdenty, confned to the surroundng
facts and crcumstances. rom these the court must determne the ntent, the
motve of the decedent. It s not necessary that there be a condton creatng
a reasonabe fear that death s near at hand, and that such reasonabe fear
or apprehenson must be the ony cause of the transfer. (Unted Sates v.
Wes, 283 U. S., 102 Ct. D. 340, C. . -, 475 (1931) .) ut t s to be
remembered that the domnant purpose s to reach substtutes for testamen-
tary dspostons and thus to prevent evason of the estate ta . (NehoU v.
Coodoe, 274 U. S., 531 T. D. 4072, C. . I-2, 351 (1927) Mccn v. Unted
States, 283 U. S., 15 Ct. D. 320, C. . -, 472 (1931) Unted States v. Wes,
283 U. S., 102.) The transfer may have a the outward ndca of a competed
gft nter vvos hence the necessty of determnng the motve of the transferor.
The grantor must contempate death, for such s the motve whch eads to
testamentary devces. The queston s essentay one of the state of mnd of
the transferor. s the Supreme Court says n Unted States v. Wes, supra:
It s contempaton of death, not necessary contempaton of Immnent death,
to whch the statute refers. It s concevabe that the dea of death may
possess the mnd so as to furnsh a controng motve for the dsposton of
property, athough death s not thought to be cose at hand. Od age may
gve premontons and promptngs ndependent of morta dsease. Yet age n
tsef can not be regarded as furnshng a decsve test, for sound heath and
purposes assocated wth fe rather than wth death, may motvate the transfer.
The words n contempaton of death mean that the thought of death s the
mpeng cause of the transfer, and whe the beef n the mmnence of death
may afford convncng evdence, the statute s not to be mted, and ts purpose
thwarted, by a rue of constructon whch n pace of contempaton of death
makes the fna crteron to be an apprehenson that death s near at hand.
ere the donor was 81 years of age he had an organc troube, to repar
whch ony partay he had undergone two operatons. The evacuaton of waste
matter from hs badder coud be acheved ony by artfca hep. e conveyed
substantay a hs property to those to whom t woud descend by aw. These
and the other crcumstances appearng n evdence, the dstrct court beeved
dd not overcome the statutory presumpton. The dstrct |udge saw and heard
the wtnesses. Under we-known rues ther credbty and the weght of
ther testmony were pecuary for hs determnaton and nasmuch as we have
no rght to substtute our |udgment upon the facts for hs and the fndngs are
not nconsstent wth the evdence and do not ack support n substanta
evdence, the |udgment s affrmed.
eguatons 70(1929), rtce 22: Property hed 1938-17-9313
|onty or as tenants by the entrety. Ct. D. 1330
ST T T R NU CT O 192 D CISION O COURT.
1. Gross statk ont Tenanct urden of Proof.
The entre vaue rather than ony one-haf of the vaue of prop-
erty hed by the decedent and hs wfe as |ont tenants s to be
Incuded n hs gross estate for the purpose of computng the ed-
era estate ta under the provsons of secton 302(e) of the Reve-
nue ct of 192 , where the survvng |ont tenant faed to sustan
the burden of provng that any part of the property orgnay be-
onged to her and was never receved or acqured by her from
decedent for ess than an adequate and fu consderaton n money
or money s worth, or that she dd not acqure from the decedent
the consderaton, f any, wth whch she acqured her part of the
property.
2. Consttutonaty.
The ncuson n the decedent s gross estate, for the purpose of
computng the edera estate ta , of the tota vaue of property
hed by hm and hs wfe as |ont tenants does not voate any
consttutona rght.
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503
Regs. 70(1929), rt. 22.
8. Decson ffrmed.
Decson affrmed by per curam decson of the Supreme Court
of the Unted States on ebruary 7, 1938, on authorty of Tyer v.
Unted Staes (1930) Ct. D. 19 ), C. . I -1, 383 (281 U. S., 497)
and Gcnn v. Commssoner (1932) Ct D. 17, C. . II-1, 3 0
(287 U. S., 224).
Unted States Crcut Court of ppeas for the Nnth Crcut.
Laura O. oster, as ecutr of the Last W of Chapman oster, Deceased,
pettoner, v. Commssoner of Interna Revenue, respondent.
90 ed. (2d), 48 .
Upon petton to revew a decson of the Unted States oard of Ta ppeas.
efore Wbur, Mathews, and aney, Crcut. udges.
une 14, 1937.
OPINION.
Mathews, Crcut udge: Pettoner, as e ecutr of the ast w of her de-
ceased husband, Chapman oster, seeks reversa of a decson of the oard of
Ta ppeas whch sustaned a determnaton by respondent, the Commssoner
of Interna Revenue, that there was a defcency of 1,119 n respect of the
estate ta mposed on Chapman oster s estate by Tte III (sectons 300-325)
of the Revenue ct of 192 (44 Stat., 9-87).
Chapman oster (herenafter caed decedent) ded on March 1 , 1931.
t the tme of hs death he and pettoner hed as |ont tenants rea estate of
the vaue of 203,815, stocks and bonds of the vaue of 51,090 and promssory
notes of the vaue of 91,149.40, beng a tota of 340,044.40. Pettoner, n her
estate ta return, reported the vaue of decedent s gross estate as ncudng ony
one-haf the tota vaue mentoned above. Respondent rued that the tota
vaue, 34 ,044.40, shoud have been ncuded. e accordngy determned a
defcency of 1,119 and, upon petton for redetermnaton, hs rung was
sustaned.
Secton 302 of the Revenue ct of 192 (44 Stat., 70) provdes:
The vaue of the gross estate of the decedent sha be determned by
ncudng the vaue at the tme of hs death of a property, rea or persona,
tangbe or ntangbe, wherever stuated
(a) To the e tent of the nterest theren of the decedent at the tme of
hs death

(e) To the e tent of the nterest theren hed as |ont tenants by the de-
cedent and by any other person, or as tenants by the entrety by the decedent
and spouse, e cept such part thereof as may be shown to have org-
nay beonged to such other person and never to have been receved or acqured
by the atter from the decedent for ess than an adequate and fu consderaton
n money or money s worth: Provded, That where such property or any part
thereof, or part of the consderaton wth whch such property was acqured, Is
shown to have been at any tme acqured by such other person from the decedent
for ess than an adequate and fu consderaton n money or money s worth,
there sha be e cepted ony such part of the vaue of such property as Is pro-
portonate to the consderaton furnshed by such other person.
In ths case the oard found that a the above mentoned property was hed
by decedent and pettoner as |ont tenants. Ths fndng s not chaenged by
pettoner, but s n her bref, as t was n ora argument, conceded by her to be
correct. Pettoner s bref states:
The soe queston before ths court s whether a or ony haf of an
estate hed n |ont tenancy shoud be ncuded n the estate of (dece-
dent).
The snge queston brought here for determnaton s whether the haf of an
estate beongng to a wfe as |ont tenant wth her husband can be ncuded n
hs estate upon hs death for the purpose of computng the death ta under the
Revenue ct of 192 .
The oard dd not fnd that any part of the above mentoned property beonged
orgnay to pettoner and was never receved or acqured by her from decedent
for ess than an adequate and fu consderaton n money or money s worth, or
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Regs. 70(1929), rt. 25.
504
that she dd not acqure from decedent the consderaton, If any, wth whch
she acqured her part, f any, of sad property. The record contans no evdence
whch woud have warranted such a fndng. Subdvson 2 of our rue 3
provdes:
If error s assgned In the admsson or re|ecton of evdence, or on the
ground that a fndng of the oard s unsupported by any evdence, a statement
of the evdence submtted to the oard sha be prepared by the pettoner.
Such statement sha contan n narratve form the evdence matera to the
assgnments of error, and sha be prepared by the partes and setted by a mem-
ber of the oard n accordance wth the genera equty rues promugated by
the Supreme Court of the Unted States.
Subdvson 4 of our rue 3u provdes that, wthn 0 days from the fng of a
petton for revew and servce of notce thereof on the opposte party, the
statement of evdence, f any, sha be prepared and fed, and the cerk of the
oard sha transmt and dever to the cerk of ths court certfed copes of
the documents consttutng the record, ncudng the statement of evdence, f
any, setted and agreed upon.
In ths case, no statement of evdence has been transmtted to ths court.
There has been transmtted, as consttutng a part of the record, a certfed copy
of a stpuaton as to facts, sgned by counse for the partes and fed on the
date of the hearng before the oard. The stpuaton reads:
It s hereby stpuated by and between the partes hereto actng through ther
respectve attorneys of record that the foowng facts sha be taken as true n
the tra of the above proceedng sub|ect to the rght of ether party to ntroduce
other and further evdence not at varance wth facts heren.
oowng ths recta, the stpuaton states certan facts regardng the above
mentoned property, but does not state that any part thereof beonged orgnay
to pettoner and was never receved or acqured by her from decedent for ess
than an adequate and fu consderaton n money or money s worth, or that she
dd not acqure from decedent the consderaton, f any, wth whch she acqured
her part, f any. of sad property.
No evdence other than the stpuaton appears to have been receved. Whether
the stpuaton was receved n evdence or not, the record does not show. ssum-
ng that t was, we must and do hod that there was nothng n the stpuaton
whch woud have warranted a fndng of any fact or facts enttng pettoner
to the beneft of the e cepton provded n secton 302(e) of the Revenue ct of
192 . On ths ssue, pettoner had the burden of proof and faed to sustan t
We concude, therefore, that (he oard s decson, appyng the genera rue
stated n secton 302(e), was correct.
Pettoner s contenton that the tota vaue of property hed by decedent and
hersef as |ont tenants coud not, consstenty wth the Consttuton, be ncuded
n decedent s gross estate for the purpose of computng the estate tu mposed
by the Revenue ct of 192 , can not be sustaned. The Supreme Court has re-
|ected a smar contenton wth respect to property hed by husband and wfe
as tenants by the entrey. (Ter v. Unted Mates, 281 U. 8 497, 501, 504:
Phps v. Dme Trust Safe Depost Co.. 2S4 TT. S., 1 0, 1 5 Ct. D. 420, C. .
-2, 420 (1931) .) The rue s the same wth respect to property hed n |ont
tenancy. (O Shaugnessy v. Commssoner (C. C. . ), 0 . (2d), 235, 23
Commssoner v. mery (C. C. . 7), 2 . (2d). 591. 592.)
Decson affrmed.
Note. The above decson was affrmed by the Supreme Court of the Unted States, on
ebruary 7. 19 8, by per curam decson, readng as foows: Per curam: The udg-
ment s affrmed (T.uer v. Unted states, 281 U. S., 497 Ct. D. 190, C. . I -1, 383
(1930) Ownn v. Commssoner, 287 U. S., 224 Ct. D. 17, C. . II-1, 3 0 (1933) ).
Reguatons 70(1929), rtce 25: Ta abe nsurance. 1938-3-9147
( so Reguatons 80 (1934).) Ct. D. 1298
ST T T R NU CT OP 1920 D CISION O COURT.
1. Gkoss state Insurance Proceeos Pbemums Pad fkom
Communty Property Loca Law.
Where the decedent, a resdent of Caforna, took out Insurance
poces on hs own fe and pad the premums out of communty
property, the entre proceeds of the poces n e cess of the
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505
(Regs. 70(1929), rt. 25.
40,000 e empton are Incudbe n hs gross estate, under the pro-
vsons of secton 302(g) of the Revenue ct of 192 . The opera-
ton of the edera ta ng ct s not dependent upon oca aw
defnng the respectve nterests and rghts of husband and wfe
n communty property.
2. Decson ffbmed.
Decson of the Unted States oard of Ta ppeas (34 . T. .,
84) affrmed.
Unted States Cbcut Coubt of ppkas for the Nnth Crcut.
ank of merca Natona Trust Savngs ssocaton, ecutor of the Last
W and Testament of Merton . Prce, Deceased, pettoner, v. Commssoner
of Interna Revenue, respondent.
90 ed. (2d), 981.
Upon petton to revew a decson of the Unted States oard of Ta ppeas.
efore Wbub, Garbecht, and aney, Crcut udges.
une 21, 1937.
OPINION.
aney, Crcut udge: Pettoner fed n ths court a petton to revew a
decson of the oard of Ta ppeas, sustanng a determnaton of respondent
that there was a defcency n the estate ta pad for the year 1932 n con-
necton wth the estate of Merton . Prce, deceased.
Decedent and hs wfe were resdents of Caforna, where the communty
property aw prevas. Decedent took out four poces of fe nsurance on
bs own fe, as foows: qutabe Lfe ssurance Socety of the Unted States
pocy for 10,000 dated October 23, 1927 two poces n Mutua eneft Lfe
Insurance Co., each for 5,000 and dated November 18, 1927 and Manhattan
Lfe Insurance Co. pocy for 25,000 dated October 23, 1929. The tota of the
four poces was 45,000.
The premums on the foregong poces were a pad out of communty
property. There were certan Caforna statutes n effect when the poces
were taken out. Caforna Cv Code secton 1 1(a) provdes:
The respectve nterests of the husband and wfe n communty property
durng contnuance of the marrage reaton are present, e stng and equa
nterests under the management and contro of the husband as s provded
n sectons 172 and 172(a) of the cv code. Ths secton sha be construed
as defnng the respectve Interests and rghts of husband and wfe n
communty property.
Secton 172 provdes:
The husband has the management and contro of the communty persona
property, wth ke absoute power of dsposton, other than testamentary,
as he has of hs separate estate provded, however, that he cannot make a
gft of such communty persona property, or dspose of the same wthout a
vauabe consderaton wthout the wrtten consent of the wfe.
Decedent s death occurred on December 23, 1932. Pettoner was thereafter
apponted e ecutor n the Caforna Superor Court for the Cty and County
of San rancsco, and ncuded n the estate ta return ony one-haf the
amount of the above poces n the gross estate. Respondent, upon an audt
of the return, ncuded the fu amount, and assessed a defcency of 172.82.
On petton to redetermne the ta . the oard sustaned respondent s determ-
naton, and the petton to revew the decson entered was then fed n ths
court.
The Revenue ct of 192 . secton 302, provded :
The vaue of the gross estate of the decedent sha be determned by
ncudng the vaue at the tme of hs death of a property, rea or persona,
tangbe or ntangbe, wherever stuated

(g) To the e tent of the amount recevabe by the e ecutor as nsurance
under poces taken out by the decedent upon hs own fe and to the e tent
83421 38 17
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Regs. 70(1929), rt. 25.
50
of the e cess over 40,000 of the amount recevabe by a other benefcares as
nsurance under poces taken out by the decedent upon hs own fe.
rtce 25 of Treasury Reguatons 70 and 80 provdes n part:
The statute provdes for the ncuson n the gross estate of nsurance
taken out by the decedent upon hs own fe, as foows: (a) nsurance
recevabe by, or for the beneft of, the estate (b) a other nsurance to the
e tent that t e ceeds n the aggregate 40,000.
O her provsons of the artces mentoned bear on the queston as to when
nsurance s consdered to have been taken out by decedent. ere t s stpu-
ated that decedent actuay took out the poces on hs own fe, so t s
doubtfu f they are appcabe. owever, artce 25 of Reguatons 70 provded:
Where a porton of the premums were pad by the benefcary
and the remanng porton by the decedent the nsurance wU be deemed to
have been taken out by the atter n the proporton that the premums pad
by hm bear to the tota of premums pad.
Ths artce was amended n Reguatons 80, where t was provded that
Insurance s consdered to be taken out by the decedent n a
cases, whether or not he makes the appcaton, f he pays the premums ether
drecty or ndrecty, or they are pad by a person other than the bene-
fcary, or decedent possesses any of the ega ncdents of ownershp n the
pocy.
Other provsons reate to ega ncdents.
The stpuaton does not state to whom the poces were payabe, but the
oard sad: No controversy e sts as to pettoner s rght to the e empton
of 40,000 under secton 302(g) . We may propery assume that
the poces were payabe to benefcares other than the estate of the dece-
dent, and that ony 5,000 of the 40,000 s n queston. Under secton 302(g)
the entre 5,000 must be ncuded n the gross estate f the one condton
named n the statute s met, namey, that such amount was recevabe under
poces taken out by the decedent upon hs own fe. Snce that fact was
stpuated, t woud seem that the case was ended when the stpuaton was
agreed upon.
The ct n queston mposes a ta on the prvege of transferrng the
property of a decedent at death, measured by the vaue of the nterest trans-
ferred or whch ceases at death. (Cha e. Natona ank v. Unted States, 278
U. S., 327, 334 Ct. D. 40, C. . III-1, 30S (192S) .) Proceeds of fe nsurance
are propery ta abe as such a transfer, whch s effected by death of decedent.
(Idem.)
Pettoner contends that under Caforna communty property aw, the wfe
was the owner of one-haf of the proceeds of the nsurance, and that therefore
decedent had no power of dsposton and contro, at hs death, over the wfe s
haf of such proceeds. We must frst determne whether or not the oca
statute has any sgnfcance n settng the dspute. In urnet v. anne
(287 U. S., 103, 110 Ct. D. 11, C. . I-2, 210 (1932) ) t s sad that State
aw may contro ony when the edera ta ng ct, by e press anguage or
necessary mpcaton, makes ts own operaton dependent upon State aw.
(See aso, Wech v. crchoff (C. C. . 9), 84 . (2d), 295, 298 Ct D. 1180,
C. . -2, 355 (1930) .) There s nothng n the nstant statute whch says
or mpes that ts operaton s dependent upon oca aw. The Supreme Court
so construed the same staute n Porter v. Commssoner (288 U. S., 43 , 441
Ct. D. 47, C. . II-1, 354 (1933) ), sayng:
The net estate as there used does not mean an amount to be
ascertaned as such under any genera rue of aw or under statutes governng
the admnstraton of estates, but s the gross estate as specfcay defned n
secton 302 ess deductons permtted by secton 303 .
Therefore, whatever the oca aw may be, we beeve t to be mmatera,
and the oard s decson to be correct, under Chase Natona ank v. Unted
States, supra. Pettoner says that case s dstngushabe because there the
Insured pad a the premums. (See page 333.) That s a dstncton wthout
a dfference, for the fact s mmatera n our vew.
Pettoner aso urges that snce decedent had no power of dsposton over
hs wfe s haf of the proceeds, to ta t woud consttute voatons of the ffth
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507
Reg . 70(1929), rt. 25.
amendment to, and sectons 2 and 0 of rtce I of the Consttuton. Ths
contenton s based on the assumpton that oca aw s appcabe, an assump-
ton whch, we beeve. Is ncorrect.
We are not determnng the vadty of artce 2.r of Reguatons 70. The
provson quoted deas wth a case where a porton of the premums were
pad by the benefcary. ere the premums were pad out of communty
property, but we do not know who the benefcary was. Therefore the pro-
vson s not n queston.
Pettoner strongy rees on Waker v. Unted States (C. C. . 8) (83 . (2d),
103). In so far as that case s contrary to what we have sad, we are unabe
to foow t.
Decson affrmed.
Reguatons 70(1929), rtce 25: Ta abe 1938-23-9377
nsurance. Ct. D. 1342
( so rtce 28: auaton of nsurance.)
ST T T R NU CT O 102 D CISION O SUPR M COURT.
Gross state Lfe Insurance Poces Premums Pad n Pabt
from Communty unds.
resdent of the State of Washngton ded n 1929 eavng n
force 17 poces of nsurance u on hs fe, 14 desgnatng hs
wfe as benefcary and 3 desgnatng hs chdren as benefcares.
y the terms of each pocy the assured was gven permsson to
change the benefcary. Certan of the poces payabe to the wfe
were ssued pror to ther marrage, the eary premums havng
been pad from hs separate property and ater ones from com-
munty funds whe appcatons for the other poces foowed the
marrage and a premums thereon were pad from communty
funds. ed, that, wthn the meanng of secton 302(g) of the
Revenue ct of 192G and artces 25 and 28 of Reguatons 70, ony
one-haf of the proceeds of the poces ssued after marrage the
premums upon whch were pad from communty funds s to be
ncuded n the decedent s gross estate and n the case of the
poces ssued before marrage the premums upon whch were pad
party from separate funds, ony the tota proceeds reduced by one-
haf of that proporton of such tota whch premums satsfed wth
communty funds bear to a premums pad are to be ncuded n
the gross estate.
Supreme Court of the Unted States.
Rchard . Lang, ecutor, and Grace . Lang, ecutr , of the state of
uus C. Lang, Deceased, v. Commssoner of Interna Revenue.
304 U. S., 2 4.
On certfcate from the Unted States Crcut Court of ppeas for the Nnth Crcut.
May 1 , 1938.
opnon.
Mr. ustce McReynods devered the opnon of the Court.
The crcut court of appeas has certfed propostons of aw concernng whch
nstructons are desred for decson of a pendng cause. (U. S. C. ., Tte 28,
secton 34 .)
In 1905 uus C. Lang marred n the State of Washngton, where communty
property aws have ong obtaned, and both partes contnued to be domced
there unt he ded In 1929. t hs death 17 poces of nsurance upon hs
fe totang above 200,000 were n force. ach pocy requred advanced
payment of one premum. ourteen specfed the wfe as soe benefcary
chdren were the benefcares n three. Three of those payabe to the wfe
were obtaned by the assured pror to marrage and eary premum payments
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Regs. 70(1929), rt. 25.
508
upon them came from hs separate property ater ones from communty funds.
ppcaton for 14 poces foowed the marrage and a premums thereon
were pad from communty funds.
The Commssoner of Interna Revenue rued that under secton 302(g),
Revenue ct of 192 (ch. 27, 44 Stat., 9), the entre proceeds from a poces
shoud be reckoned as part of the assured s gross estate sub|ect to the permtted
e empton of 40,000, and made an assessment accordngy. The oard of Ta
ppeas affrmed.
The e empton s not controverted and by admsson each pocy permtted
the assured to change the benefcary. The pont for consderaton s whether
a or any porton of the proceeds of a pocy, premums on whch were pad
out of communty funds, must be treated as part of the decedent s gross estate.
The court beow concuded that the aws of Washngton estabsh a com-
munty between spouses whch s a separate entty, |ust as a corporaton or
an assocaton, and that fe nsurance purchased wth ts funds s communty
property whose character the husband can not defeat through change of
benefcary.
cceptng as correct, for present purposes, ths constructon of the oca aw,
aso treatng the facts dscosed by the certfcate as the essenta ones, we come
to consder the questons submtted for nstructons whch are restated n order
more defntey to ndcate our understandng of ther sgnfcance.
The constructon of the oca aw approved beow s certany n tenabe one
and fnds support In Graham v. Commssoner (95 . (2d), 174, Nnth Crcut,
March 4, 1938) Occdenta Lfe Co. v. Powers (Supreme Court of Washngton,
December 0, 1937) oe v. Seaborn (282 U. S., 101, 113 Ct. D. 259, C. . I -2,
202 (1930) ).
Occason for the certfcate dd not arse from doubts reatng to the meanng
of the communty property aws of Washngton, but from uncertanty con-
cernng the appcaton of the 192 Revenue ct to an estate under admns-
traton n that State. The court was perpe ed by ank of merca v. Com-
mssoner of Interna Revenue (90 . (2d), 981, 983), whch affrmed that the
operaton of that ct s not dependent upon oca aw and therefore whatever
the oca aw may be we beeve t to be mmatera. Ths statement s not
accurate and confcts wth what we have sad. (Poe v. Seaborn, 282 U. S.,
101. I, 112 ar v. Commssoner, 300 U. S., 5, 9, 10 Ct. D. 1205, C. .
1937-1, 175 .)
1. Must the tota or ony one-haf of the proceeds coected under the n-
surance poces ssued after marrage on the deceased husband s fe be reok-
oned as part of hs gross estate, the wfe beng soe benefcary and a premums
havng been pad from communty funds To ths we answer, ony one-haf.
2. Must the tota proceeds of the pocy upon a decedent s fe, taken out after
marrage, chdren beng the soe benefcares, and n premums havng been
pad from communty funds, be reckoned as part of hs gross estate or, n the
crcumstances, s ony one-haf to be ncuded To ths we repy, ony one-haf
thoud be ncuded.
3. Must a proceeds of the poces ssued before marrage upon the deceased
husband s fe be reckoned as part of hs gross estate, the wfe beng soe
benefcary, the frst premum havng been pad from hs separate funds, and a
subsequent ones from communty funds or. n the crcumstances, s the tota
receved under the pocy reduced by one-haf of that proporton of such tota
whch premums satsfed wth communty funds bear to a premums pad,
the amount to be regarded as beongng to the gross estate To ths we
repy, ony the tota proceeds ess one-haf of the ndcated proporton becomes
part of the gross estate.
Secton 301, Revenue ct 192 , supra, mposes a ta upon the transfer of
the net estate of every decedent, etc. nd secton 302 provdes
The vaue of the gross estate of the decedent sha be determned by n-
cudng the vaue nt the tme of hs death of a property, rea or persona,
tangbe or ntangbe, wherever stuated (a), (b), (c), (d), (e), (f).
(g) To the e tent of the amount recevabe by the e ecutor as nsurance
under poces taken out by the decedent upon hs own fe and to the e tent
of the e cess over 40,0150 of the amount recevabe by a other benefcares
as nsurance under poces taken out by the decedent upon hs own fe.
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509
Regs. 70(1929), rt. 25.
The Revenue cts of 1918, 1921, and 1924 contan smar provsons reatve
to poces taken out by the decedent upon hs own fe.
Treasury Reguatons 37 promugated under the Revenue ct of 1918 provdt
kt. 32. . The term nsurance refers to fe nsurance of every
descrpton . Insurance s deemed to be taken out by the decedent
u a cases where he pays the premums, ether drecty or ndrecty, whether
or not he makes the appcaton. On the other hand, the nsurance shoud not
be ncuded n the gross estate, even though the appcaton s made by the
decedent, where the premums are actuay pad by some other person or
corporaton, and not out of funds beongng to, or advanced by the dece-
dent.
nd there are smar provsons n Treasury Reguatons 3, artce 27,
promugated under 1921 Revenue ct.
Treasury Reguatons 8 promugated under the Revenue ct 1924
rr. 25.
The term nsurance refers to fe Insurance of every descrpton, .
Insurance s deemed to be taken out by the decedent n a cases where he
pays a the premums, ether drecty or ndrecty, whether or not he makes
the appcaton. On the other hand, the nsurance s not deemed to be taken
out by the decedent, even though the appcaton s made by hm, where
a the premums are actuay pad by the benefcary. Where a porton of
the premums were pad by the benefcary and the remanng porton by the
decedent the nsurance w be deemed to hove been taken out by the atter
n the proporton that the premums pad by hm bear to the tota of premums
pad.
bt. 28. . The amount to be returned where the pocy s payabe
to or for the beneft of the estate s the amount recevabe. Where the pro-
ceeds of a |cy are payabe to a benefcary other than to or for the beneft
of the estate, and a the premums were pad by the decedent, the amount
to e sted on Schedue C of the return s the fu amount recevabe, but
where the proceeds are so payabe and ony a porton of the premums were
pad by the decedent, the amount to be sted on such schedue s that pro-
porton of the nsurance recevabe whch the premums pad by the decedent
bears to the tota premums pad.
rtces 25 and 28, Treasury Reguatons 70, promugated under Revenue
ct 1 2 , contan provsons dentca wth those |ust quoted.
Treasury Reguatons 70 were n force when Lang ded and are appcabe
to hs estate. It s unnecessary for us to consder the meanng, vadty or
effect of the changes ntroduced by Reguatons 80.
rtces 25 and 2.8 of Reguatons 70 defne the words poces taken out by
the decedent upon hs own fe. arer reguatons gave the same defnton.
Nothng ese appearng, t must be treated as approved by Congress. ( rermg
v. ss. 293 U. S., 144, 151 Ct. D. 884, C. . III-2, 191 (1934) .) Counse
for the Commssoner suggest that t s at varance wth the statute, unreason-
abe and wthout effect but we thnk ths ob|ecton s ceary untenabe.
Under the communty property statutes of Washngton, as nterpreted beow,
one-haf of the amounts of communty funds apped to payment of premums
was property of the wfe. To that e tent she pad these premums. Where
she s the benefcary, under the words of the reguatons she became entted
to the proceeds of the pocy n proporton to the amount so pad.
Where chdren were named benefcares and premums were pad from
communty funds the stuaton s not wthn the precse words of the regua-
tons but the rather obvous reason underyng the defnton of what con-
sttutes a pocy taken out by the assured shoud be respected. In the
absence of a cear decaraton t can not be assumed that Congress ntended
nsurance bought and pad for wth the funds of another than the nsured and
not payabe to the atter s estate, shoud be reckoned as part of such estate for
purposes of ta aton. (See I/chnrt v. Commssoner, 77 . (2d), 704, 711
ICt. D. 10S9, C. . -1, 351 (193 ) .)
Mr. ustce Cardozo took no part n the consderaton or decson of ths case.
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Regs. 70(1929), rt. 3 .
510
S CTION 303.
Reguatons 70 (1929), rtce 3 : Cams 1938-25-9398
aganst the estate. Ct. D. 134
( so rtce 45.)
ST T T R NU CT O 192 D CISION O SUPR M COURT.
1. Gkoss state Deductons Cams ganst the state
Transfers to Chabtabe ob ducatona Insttutons.
mounts paynbe to certan educatona and chartabe nsttu-
tons pursuant to the decedent s promses, whch, under the oca
aw, were egay bndng and enforceabe aganst her estate, are
not deductbe as cams aganst the estate ncurred or contracted
bona fde and for an adequate and fu consderaton n money or
money s worth wthn the meanng of secton 303(a) of the Rev-
enue ct of 192 . or as transfers to or for the use of any corpora-
ton organzed and operated e cusvey for chartabe or educatona
purposes wthn the meanng of secton 303(a)3 of that ct.
2. Decson ffrmed.
Decson of the Unted States Crcut Court of ppeas, S th
Crcut (1037) (92 ed. (2d), 7), affrmng decson of the Unted
States oard of Ta ppeas (1935) (33 . T. ., 71), affrmed.
Supbeme Court of the Unted States.
Robert . Taft, ecutor of the state of nna 8. Taft, Deceased, pettoner, v.
Commssoner of Interna Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the S th Crcut.
May 1 , 1938.
OPINION.
Mr. ustce Roberts devered the opnon of the Court.
The queston presented s whether the pettoner, as e ecutor, may deduct
from the gross estate amounts payabe pursuant to the decedent s bndng
promses as cams aganst the estate ncurred bona fde and for an adequate
and fu consderaton n money or money s worth wthn the meanng of secton
803(a)1, or as transfers to chartabe or educatona nsttutons under sec-
ton 303(a)3 of the Revenue ct of 192 .1 The deductons were of amounts
owng at the decedent s death upon the foowng contractua obgatons.
y etter the decedent agreed wth the Unversty of Cncnnat to estabsh
a fund as a memora to her husband, statng that she woud make avaabe
to the trustees of the fund, whom she named, durng the ensung year, 50,000,
durng the foowng year 7. ,000, and, n each succeedng year, 100,000 or
such other ncome as mght be derved from a fund of 2.000,000 whch she
woud utmatey transfer to the trustees. The etter outned the terms of the
trust to whch the ncome was to be devoted. The offer was formay accepted
by the board of drectors of the unversty and, pursuant to the agreement, the
1 Sec. 303. or the purpose of the ta the vaue of the net estate sha be determned
(a) In the case of a resdent, by deductng from the vaue of the gross estate
(1) Such amounts for funera e penses, admnstraton e penses, cams aganst the
estate, unpad mortgages upon, or any Indebtedness n re pect to, property to
the e tent tbut such cams, mortgages, or ndebtedness were ncurred or contracted bona
fde and for an adequate and fu consderaton n money or money s worth, .
(3) The amount of a bequests, egaces, devses, or transfers, to or for the use of the
Unted States, any State, Terrtory, any potca subdvson thereof, or the Dstrct of
Coumba, for e cusvey pubc purposes, or to or for the use of any corporaton organ-
zed and operated e cusvey for regous, chartabe, scentfc, terary, or educatona
purposes. Incudng the encouragement of art and the preventon of cruety to chdren or
anmas, no part of the net earnngs of whch nures to the beneft of any prvate stock-
hoder or ndvdua, .
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511
Regs. 70(1929), rt. 3 .
decedent made payments to the trustees and her e ecutor contnued to pay
ums on account of nterest and prncpa. The unversty s an educatoua
nsttuton and no proft nures to anyone from ts oueratou.
eng deepy Interested n the Cncnnat Insttute of ne rts and ts
work, and havng onty wth her husband and as an ndvdua contrbuted
arge sums to ths work, the decedent, to obvate the necessty of reducng
the personne of the orchestra the nsttute conducts, agreed wth the nsttute
that f t woud retan two muscans she wou pay ther saares under con-
tracts coverng two years. In reance upou her promse the nsttute reengaged
the two men. The decedent pad the amount of ther saares pror to her
death and pettoner, as e ecutor, pad them to the end of the contract term.
The nsttute woud not have reempoyed these men e cept for the agreement.
It s a chartabe corporaton organzed for the mantenance of a symphony
orchestra and other actvtes, and no proft nures to anyone from ts operatons.
The decedent agreed by etter addressed to the Cncnnat Insttute of ne
rts that f t woud empoy a drector of art she woud contrbute 10,000
towards hs saary. In reance upon ths undertakng the nsttuton engaged
such a drector at a saary of 10,000 per annum. She pad the stpuated
amount for one and one-haf years pror to her death and the pettoner, as
e ecutor, pad for one year subsequent to her death. There were no avaabe
funds for the empoyment of a drector e cept those receved from the decedent
and the nsttute woud not have empoyed one e cept for her agreement It
s an educatona nsttuton and does not operate for proft.
In 1930 the decedent agreed wth the Unversty of Cncnnat that f t woud
engage a naned person as professor to gve a specfed course of nstructon she
woud pay the unversty the amount of hs saary. She had made smar ar-
rangements for pror years. The unversty empoyed the professor and woud
not have done so e cept for her agreement. t the tme of her death a sum
remaned due accordng to her promse whch the pettoner pad.
The tota camed as deductbe on account of these obgatons was 2,015,420.
Under the aw of Oho, the decedent s promses were and are egay bndng
and enforceabe aganst her estate. The Commssoner rued, and the oard2
and the court beow have hed that the estate s obgatons n queston, though
contracted bona fde, were not ncurred for an adequate and fu consderaton
n money or money s worth as requred by cause (1) and payments of the
sums promsed are not transfers to or for the use of any corporaton organzed
and operatng e cusvey for chartabe or educatona purposes wthn the
meanng of cause (3) of secton 303(a) of the ct. We granted certorar
because of an aeged confct of decson.
1. The cams aganst the estate were not ncurred or contracted for an
adequate and fu consderaton n money or money s worth wthn the meanng
of the statute. The terms used, the egsatve hstory of the secton, and the
reguatons nterpretng t, requre ths concuson. The condtons mposed by
the decedent as to the e pendture of the money promsed and the stpuatou
on the part of the payee to e pend t n that fashon, or ts compance wth
the condtons, do not consttute an adequate or a fu consderaton n money
or money s worth wthn the meanng of the ct. If there were doubt about
the matter the egsatve hstory of the statute and the Treasury reguatons
woud requre us so to hod. The Revenue ct of 1010 permtted the deducton
of the amount of cams aganst the estate aowed by the aws of the |urs-
dcton under whch the estate s beng admnstered. 1 The cts
of 1918 and 1921 contan ke provsons. Under these cts the cams n ques-
ton woud have been deductbe as enforceabe by State aw rrespectve of
the nature of the consderaton. The ct of 1924 atered e stng aw and
authorzed the deducton of cams aganst an estate ony to the e tent that they
were ncurred or contracted bona fde and for a far consderaton n money or
33 . T. ., 071.
92 P. (2d), 7.
See Turner v. Commssoner (85 . (2d). 019) Commssoner v. rm Macr Trust Co.
(87 . (2d), 07) : Porter v. Commssoner ( 0 . (2d), 7.1) Dretzfedrr v. Commssoner
(8 . (2d), 713 Ct. D. 122 , C. . 1937-1, 300 ) Lockwoo v. McOocan (8 . (2d),
1005).
Revenue ct of 191 , secton 203(a) (39 Stat., 75 , 778).
Revenue ct of 1918, secton 403(a) (40 Stat., 1057, 1008) Revenue ct of 1921,
secton 403(a) 1 (42 Stat., 227, 279).
1 tkns v. Commssoner (30 . (2d), 7 1).
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Regs. 70(1929), rt. 3 .
512
money s worth. Congress had reason to thnk that the phrase far con-
sderaton woud be hed to comprehend an nstance of a promse whch was
honest, reasonabe, and free from suspcon whether or not the consderaton
for t was, strcty speakng, adequate. The words adequate and fu con-
sderaton were substtuted by secton 303(a) of the ct of 1928. There
must have been some reason for these successve changes. It seems evdent that
(he purpose was to narrow the cass of deductbe cams, and we are not at
berty to gnore ths purpose.
The reguatons of the Treasury promugated under the ct of 1924 and the
frst edton appcabe to that of 192 , paraphrased the statutory anguage.10
The 1929 edton of Reguatons 70. artce 3 , provdes n part: pedge or a
subscrpton evdenced by a promssory note or otherwse, even though enforce-
abe aganst the estate, s deductbe ony to the e tent such pedge or sub-
scrpton was made for an adequate and fu consderaton n cash or ts equv-
aent receved therefor by the decedent. 11 Snce 1929 the reguatons have
e cuded deductons such as those n ssue here. Meantme the estate ta
provsons have been amended four tmes and the secton under whch the
reguatons were promugated has been amended twce. We must assume that
Congress was famar wth the constructon put upon the secton by the Treas-
ury and was satsfed wth t. The oard of Ta ppeas and the courts,
wth the e cepton of the Crcut Court of ppeas for the Thrd Crcut, have
hed that a promse to pay money to a chartabe or educatona nsttuton,
where the ony consderaton was a stpuated appcaton of the amount receved,
does not consttute a cam aganst the estate contracted for an adequate and
fu consderaton n money or money s worth notwthstandng the fact that
under oca aw the promse s enforceabe. In ths vew we agree.
2. Payments pursuant to the promses are not transfers wthn the meanng
of secton 303(a)3. The court beow e cuded the payments from the operaton
of that secton upon two grounds. oth, as we thnk, are vad. The pet-
toner s payment, after the decedent s death, of a sum promsed durng her fe,
s not appropratey desgnated a transfer. True the decedent has promsed
to make a transfer but fufment of the promse by the e ecutor does not reate
back to the tme the promse was made so as to convert her promse nto a
transfer by her. ere the sub|ect of the transfer was not dentfed by any
aocaton of decedent s funds durng her fe. Ths fact adds pont to the vew-
that she made no transfer.
Subsecton (3) appes ony to testamentary dspostons. The phrase s the
amount of a bequests, egaces, devses, or transfers to certan specfed
regous, chartabe, scentfc, terary or educatona uses. The rght to the
deducton s quafed by the provson The amount of the deducton under
ths paragraph for any transfer sha not e ceed the vaue of the transferred
property requred to be ncuded n the gross estate. The ony transfers
requred to be ncuded n the gross estate are those made n contempaton of
death or to take effect n possesson or en|oyment at or after death. 5 In other
words, ony such transfers as are testamentary n character are to be ncuded
n the gross estate, and t foows that ony those of that character are deductbe
under subsecton (3). Those here n queston were ceary not such. There
s no cam that the agreements were made n contempaton of death or to take
effect n possesson or en|oyment at or after death.
Revenue ct of 1 )24, secton 303(a) (43 Stat., 253, 305).
Sec ernuson v. Dckson (300 ed.. .101, 9 4).
Reguatons 08, artces 20, 3 Reguatons 70, 1920 edton, artces 2 ). 30.
11 See aso Reguatons 80, 1034 edton, artce 30 Reguatons 80, 1937 edton, art-
ce 30.
u I nrter v. Commssoner (23 . T. ., 1010, 1025) Turner v. Commssoner (31 . T.
.. 140) : Safe Depost f Trust Co. v. Commssoner (35 . T. ., 259. 205).
Porter v. Commssoner (00 . (2d). 073) retzfeder v. Commssoner (8 . (2d),
713) : Coser v. Commssoner (09 . (2d). 254 Ct. I). 873, C. . III-2. 83 (1934) ):
Cnrnen v. Ienz (00 . (2d), 747, 749) Lockwood v. McGoran (13 . Supp., 9 0, affrmed
80 . (2d), 1005).
Turner v. Commssoner (85 . (2d), 919) Commssoner . ryn arr Trust Co.
(87 . (2d), 007, 009).
See secton 302(c) (44 Stat., 70). The vaue of the gross estate of the decedent
ha he determned by ncudng the vaue at the tme of hs death of a property,
(c) To the e tent of any Interest theren of whch the decedent has at any
tme made a transfer, In contempaton of or ntended to take effect n posses-
son or en|oyment at or after hs death, e cept n case of a hona fde sae for an adequate
and fu consderaton n money or money s worth. (see aso subsecton (d),
44 Stnt 71 I
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513
Regs. 70(1929), rt. 3 .
3. The pettoner urges that a of the Revenue cts have granted bera
deductons n respect of ncome ta and estate ta for contrbutons to chartabe
and educatona purposes. e says that f the benefactons n queston had
been made n the form of bequests or gfts to take effect at death there woud
be no queston of the rght to the camed deductons. e urges, therefore, that
we shoud adopt a bera constructon of the ct to effectuate the ntent of
Congress even though the payments n queston do not fa wthn the strct
meanng of the words used. ut we are not permtted to specuate as to the
reasons why the pocy evdenced wth respect to other forms of gft was not
e tended to cams upon promses enforceabe by State aw. We are bound to
observe the ateratons made n the successve cts whch, n the pan meanng
of the anguage empoyed, e cude deducton of enforceabe cams of the sort
here nvoved, even though the case be a hard one. The testatr was bound
to brng her transactons wthn the etter of the statutory provsons and the
reguatons at the rsk that noncompance mght deprve her estate of ta
mmunty as respects the pedges.
The |udgment s affrmed.
Mr. ustce Caedozo took no part n the consderaton or decson of ths case.
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Regs. 79(1933), rt. 2.
514
TITL III. GI T T S. (1932)
S CTION 501.
Reguatons 79(1933), rtce 2: Transfers
reached.
1938-8-9208
Ct. D. 1309
GI T T R NU CT O 1932 D CISION O COURT.
1. rst Lberty Loan onds empton.
transfer by gft of rst Lberty Loan bonds s not mmune
from the gft ta mposed by secton 501 of the Revenue ct of 1932,
notwthstandng provsons n the bonds and n the authorzng
statute that they sha be e empt both as to prncpa and nterest
from a ta aton e cept estate and nhertance ta es. The ta s
not a drect ta but s an e cse upon the transmsson of property.
empton from ta aton s not to be ghty nferred or ready
mped and the e cepton provson, consdered n connecton wth
the anguage of ts e cepton, does not evdence a pan and contro-
ng egsatve ntent that gft ta es sha be ncuded n the e emp-
ton. In the absence of a pany granted mmunty, none e sts.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (34 . T. ., 041) affrmed.
3. Certorar Dened.
Petton for certorar dened November 8, 1937.
Unted Stateb Crcut Court of ppeas for the Tenth Crcvt.
Lawrence C. Phpps, pettoner, v. Commssoner of Interna Rerenue, respondent.
91 ed. (2d), 27.
On petton for revew of the decson of the Unted States oard of Ta ppeas
Coorado.
ratton, Crcut udge, devered the opnon of the court.
Ths petton to revew n decson of the oard of Ta ppeas presents the
queston whether a gft of frst Lberty Loan bonds s mmune from the gft ta
mposed by the Revenue ct of 1932.
Pettoner made gfts of such bonds of the par vaue of 1 0,000 to members of
hs famy durng the year 1933, and he made other gfts n that year. e fed
a gft ta return n whch the gfts of Lberty Loan bonds were noted wth the
statement that accordng to hs nformaton they were e empt from ta . The
Commssoner ncreased the amount of the tota gfts by ncudng the Lberty
Loan bonds and determned a resutng defcency n gft ta es. The oard of
Ta ppeas sustaned that acton, one member dssentng. (34 . T. ., G41.)
The frst Lberty Loan bonds were ssued under authorty conferred by the
ct of pr 24, 1917. (40 Stat., 35.) It Is specfcay provded n the frst
secton of that ct that such bonds sha be e empt, both as to prncpa and
Interest, from a ta aton, e cept estate and nhertance ta es, mposed by
authorty of the Unted States, or ts possessons, or by any State or oca ta ng
authorty . The bonds contan a provson dentca wth that n the
statute.
Secton 501 of the Revenue ct of 1932 mposes a ta upon the dsposton of
property by gft, to be measured by a graduated scae contaned n the succeed-
ng secton. (47 Stat., 1 9.)
It w be noted that the provson n the authorzng statute and the cove-
nant n the bonds each provde that the bonds, as to prncpa and nterest,
sha be e empt from a ta aton, e cept estate and nhertance ta es. pro-
vson e emptng bonds of a soveregn from ta aton as to prncpa and n-
efore Phps, ratton, and Wams, Crcut udges.
ugust 1 , 1937.
OPINION.
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515
Regs. 79(1933), rt. 2.
terest, wthout more, reates e cusvey to ad vaorem or other drect ta es on
them as property. onds ssued under such a statute and contanng such
a covenant nc , be sub|ected to payment of an nhertance tu or an estate
ta , because an ndrect ta of that knd s an e cse upon the transmsson
of the property, not a ta on the property co nomne. ( nowton v. Moore, 178
. S., 41 Pummet- v. Coer, 178 U. S., 110 urdok v. Ward, 178 U. 8., 130.)
In ke manner, a gft ta s not a drect ta on property as such. Its mpos-
ton does not rest upon genera ownershp. It s an e cse upon the use made
of propertv, upon the e erton of the prvege of transmttng tte by gft.
( ceney v. New York, 222 U. S., 525 romey v. McCauyhn, 280 U. S., 124
Ct D. 140, C. . III-2, 392 (1920) urnet v. Guggenhem, 288 U. S., 280
Ct D. 3 , C. . II-1, 374 (1933) .)
If the authorzng ct and the provson n the bonds had merey provded
that the bonds shoud be e empt from ta aton as to prncpa and nterest,
gft ta es woud not be ncuded n the e empton. We understand that s
conceded. ut, pettoner contends that when Congress went further and e -
pressy e cuded estate ta es and nhertance ta es from the e empton, t ev-
denced an ntenton to ncude a others of the same cass n the e empton.
The famar rue of e presso unus est e cuso acrus s advanced to sus-
tan the contenton. The consderatons whch prompted the nserton of the
e cepton n the e empton provson are not cear. state ta es and Inhert-
ance ta es woud have been e cuded wthout t. The anguage e pressy e -
cudng them dd not make any change so far as they were concerned.
edera nhertance ta was mposed n 18981 and repeaed n 10023 an
estate ta was ad n 101 and was st n force, whe our attenton has not
been caed to any provson for a gft ta pror to passage of the statute author-
zng the ssuance of the frst Lberty Loan bonds. Of course, n enactng the
statute, Congress egsated concernng the power to ta , not merey as to e st-
ng ta es but the e panaton of the anguage contaned n the ct may e
n the fact that the two knds of e cses wth whch prevous egsaton deat
wore borne n mnd whe no consderaton was accorded the thrd knd to whch
Congress had not addressed tsef In the form of specfc egsaton. Whatever
the reason, Congress eected to make a specfc decaraton of e cepton In re-
pect to the two knds and to wthhod t as to a others, ether e stng or
whch mght be subsequenty mposed. The reason, wsdom or pocy undery-
ng the acton was e cusvey for Congress. ut, the three speces of e cses
are cosey aed n structure and purpose ( trtet v. Ouyyenhem, supra), and
no persuasve reason has been suggested whch may have evoked a egsatve
desre that the bonds be sub|ect to two of them and free from the thrd. In
vew of the cognate nature of such e cses, t s dffcut to perceve any bass
for such a purpose.
It s further argued that a parts of the statute must be reconced and gven
consstent, harmonous and sensbe effect f that can be done that a of the
words contaned n t must be gven effect that t w not be presumed that
Congress used e tra and Ide verbage and that a ta ng statute shoud be
beray construed n favor of the ta payer. These are recognzed rues of a
genera nature for gudance n the nterpretaton of statutes. ut, the ma m
that a ta ng statute shoud be beray construed n favor of the ta payer
Goud v. oud, 245 U. 8., 151 Unted States v. Mcrram, 203 T . 8., 170 Ueeht
. acy, 205 . S., 144 T. D. 3595, C. . I 1, 480 (1925) ) appes ony where
there s doubt, and t s not unyedng. ( urnet v. Ouyyenhem, supra.) ur-
thermore, t has no appcaton n deang wth an asserted e empton. emp-
ton s not ghty nferred or ready mped. (Phadepha d Wmngton . R.
v. Maryand, 10 ow., 37 , 393 cksburg, etc.. R. R. Co. v. Denns, 11 U. S.,
G5, 8 Icner v. Coona Trust Co.. 275 . S., 232, 235 T. D. 4112. C. . II-1,
207 (1929) .) provson grantng t s construed aganst the ta payer n re-
spect to a ambgutes, and mmunty s not founded upon doubtfu phrases or
ambguous anguage. ( ogc v. Raroad Co., 90 U. S., 348 ank v. Tennessee,
104 U. S., 493 ank of Commerce v. Tennessee, 1 1 IT. S., 134, 14 Corne v.
Coyne, 192 U. S., 418 Msaps Coege v. ackson, 275 U. S., 129 Rverdae
Co-op. Creamery ss n v. Commssoner. 48 . (2d), 711 Sun- erad Corpora-
tons. Duggan, 73 . (2d), 208 Ct. P. 953, C. . I -1, 100 (1935) Retaers
Credt ss n v. Commssoner, 90 . (2d). 47.) n asserted e empton w be
30 Stat., 448.
32 Stat., 9 .
39 Stat., 75 .
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Regs. 79(1933), rt. 11.
51
dened uness It Is granted by statute n pan terms. (Unted States Trust Co.
of New York v. nderson, 5 . (2d), 575 cert, dened, 290 U. S., 83.)
We thnk t can not be sad that the e empton provson wth the anguage
of e cepton, evdences a pan and controng egsatve ntent that gft ta es
sha be ncuded n the e empton. pproprate appcaton of the prncpes
ust stated eads to the concuson that n the absence of a pany granted m-
munty, none e sts. Ths concuson fnds support n anwrsey v. Unted
States (1 . Supp., 7 8 Ct. D. 1287, C. . 1937-2, 490 ).
The order of the oard of Ta ppeas s sustaned.
S CTION 504. N T GI TS.
eguatons 79 (1933), rtce 11: uture nterests 1938-9-9219
n property. Ct. D. 1310
GI T T R NU CT O 1932 D CISION O COURT.
1. Tbanspebs n Trust uture Interests n Property.
Transfers to rrevocabe trusts for the beneft of the donor s
chdren, wth drectons for accumuaton of ncome unt each
benefcary shoud become 21 years of age, when he shoud receve
the ncome unt he reached the age of 30 or unt the death of the
trustee, whchever frst occurred, and for payment of corpus to the
benefcary f then vng, and f not, to hs ssue or to the other
benefcares, were not gfts of future nterests n property wthn
the meanng of secton 504(b) of the evenue ct of 1932.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (34 . T. ., 315) affrmed.
Unted States Ckcut Coukt of ppeas for the Seventh Crcut.
Commssoner of Interna Revenue, pettoner, v. Thomas . Wes, respondent.
88 ed. (2d), 339.
Tetton for revew of decson of the Unted States oard of Ta ppeas.
efore vans and Sparks, Crcut udges, and Lndey, Dstrct udge.
ebruary 22, 1937.
OPINION.
Sparks. Crcut udge: Ths revew nvoves an aeged defcency n gft ta
under the Revenue ct of 1932. The facts as found by the oard of Ta ppeas
are not dsputed.
The ta payer s an ndvdua, a ctzen and resdent of the Unted States.
On December 27, 1933, he created three rrevocabe trusts, one for each of hs
three mnor chdren. Thereafter, wthn that caendar year, he transferred,
wthout vauabe consderaton, to each of the three trusts, share and share
ake, hs entre rght, tte, and nterest n and to certan shares of corporate
stock of an aggregate vaue of 103,803. Certfcates representng the shares
were devered to the trustee and accepted by her durng the caendar year
of 1933.
ach of the trust nstruments drected the trustee to coect the ncome from
the trust corpus, and after payng e penses, ta es, and the ke, to accumuate
the remander of the ncome unt the chd named theren shoud attan the
age of 21 years, or shoud de before that tme. Upon reachng the age of
21 years each chd was to receve the trust ncome unt he readed the age of
311, or unt the death of hs mother, who was trustee, whchever event occurred
frst, and then he was to receve the corpus. In the event of the death of any
chd before the tme of dstrbuton of the trust created for hm, the corpus was
to go to hs ssue, or n defaut of ssue, to the other chdren of the ta payer.
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517
(Regs. 79(1933), rt. 11
In hs ta return for that year the ta payer reported these gfts In the aggre-
gate sum as stated, and deducted therefrom 5,000 for each trust, and the spe-
cfc e empton of 50,000, eavng a net ta abe amount of 38,803. The Com-
mssoner dsaowed the deducton of 15,000 on the ground that the gfts were
of future Interesta Upon ta payer s petton for a redetermnaton, the oard
hed that the gfts were not of future nterests, and that there was no defcency.
It s ths decson that the Commssoner seeks to revew.
The sectons of the Revenue ct of 1932 whch are here pertnent are as
foows:
Sec. 501.
(a) or the caendar year 1932 and each caendar year thereafter a ta ,
computed as provded n secton 502, sha be mposed upon the transfer durng
such caendar year by any ndvdua, resdent or nonresdent, of property
by gft.
(b) The ta sha appy whether the transfer s n trust or otherwse,
whether the gft s drect or ndrect, and whether the property s rea or
persona, tangbe or ntangbe
Sec. 504.
(a) Genera defnton. The term net gfts means the tota amount of
gfts made durng the caendar year, ess the deductons provded n secton 505.
(b) Gfts ean than 5.000. In the case of gfts (other than of future
nterests n property) made to any person by the donor durng the caendar
year, the frst 5,000 of such gfts to such person sha not, for the purposes of
subsecton (a), be ncuded n the tota amount of gfts made durng such year.
Sec. 1111 (a). When used n ths ct
(a) (1) The term person means an ndvdua, a trust or estate, a partner-
shp, or a corporaton.
The appcabe reguatons of the Treasury Department under ths ct, pro-
mugated n 1933, are found n artces 10 and 11 of Reguatons 79 and were
revsed n 1930. They cosey foow the words of the statute and we fnd n
them no anguage whch can reasonaby be nterpreted as an attempt to change
the pan meanng of the statute, uness t be n ther defntons of the words
future nterests, whch the statute does not defne. Iu artce 11 of the
orgna reguatons t s sad, future Interest n property s any nterest or
estate n property, whether vested or contngent, whch s mted to commence
n use, possesson, or en|oyment at some future date or tme. In the revsed
reguaton t s sad, uture nterests s a ega term, and ncudes reversons,
remanders, and other nterests or estates, whether vested or contngent, and
whether or not supported by a partcuar nterest or estate, whch are mted
to commence n use, possesson, or en|oyment at some future date or tme.
readng of secton 501(b), asde from the reguatons, eaves no doubt n
our mnds as to the soundness of the oard s rung. Under the undsputed
evdence a the eements of a consummated gft were present. Wth respect
to the donor the transfer was not n fnturo. e thereby dvested hmsef of
a vestge of tte, and no future act on hs part coud modfy or abrogate hs
act. Lkewse, the donees were competent to accept the gfts, and they dd so
mmedatey. True, they were trusts, but they were no dfferent from persons,
for the ct so states. They took mmedate tte to and possesson of a the
property from the donor they put t to nstant use for the drected purpose of
budng up an estate for the utmate and contngent benefcares, who were
named specfcay. The fact that those benefcares dd not come nto posses-
son of the corpus unt some tme n the future, dependent upon some contn-
gency, does not make the donor s act any the ess a competed transfer to the
trustees. The fact must not be overooked that the ct nvoved reates to
transfers and not recepts. If the reguaton referred to be construed to appy-
to nstances where the donor retans a future nterest n the corpus durng the
determnaton of the tte we fnd no faut wth t, but f t be construed other-
wse we thnk ts effect woud be to read somethng nto the statute whch Is
Inconsstent wth ts pan meanng.
Our attenton s caed to the ntenton of Congress as dscosed by ts com-
mttee reports and debates. They are aways to be consdered when the
meanng of the enactment Is doubtfu or ambguous, but not otherwse. We are
convnced, however, that the enactment s nether ambguous nor doubtfu n
ts e pressons.
The decson of the oard Is affrmed.
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Rega. 79(1933), rt. 11.
518
Reguato s 79 (1933), rtce 11: uture
nterests n property.
1938-9-9220
Ct. D. 1311
GI T T R NU CT O 1932 D CISION O COURT.
Transfers n Trust uture Interests n Property.
Transfers to rrevocabe trusts for the beneft of the donor s
chdren, wth drectons that the trustee use the ncome for the
support, mantenance, and educaton of the benefcares unt each
attaned the age of 25 and pay une pended ncome drecty to the
benefcary, hs ssue, appontees or dstrbutees, were not gfts
of future nterests n property wthn the meanng of secton
004(b) of the Revenue ct of 1932.
Unted States Crcut Court of ppeas fob the Thrd Crcut.
Nos. 0319, 320. Commssoner of Interna Revenue, pettoner, v. . Sonnn
rebs, respondent.
90 ed. (2d), 880.
Upon pettons for revew from the Unted States oard of Ta ppeas.
efore uffngton and Thompson, Crcut udges, and Mars, Dstrct udge.
Thompson, Crcut udge: These are pettons for revew of two decsons
of the oard of Ta ppeas. In 1932 the ta payer created three rrevocabe
trusts for the beneft of each of hs three chdren. e transferred to each of
those trusts, wthout any vauabe consderaton, 5,000. In 1933, wthout
any vauabe consderaton, he transferred to each of the trusts 50 shares of
Dupont company stock of the vaue of 4,712.50 and cash n the foowng
amounts: 05 .37, 7.88, and 58.25. In the same year he created three
addtona rrevocabe trusts wth the same benefcares and transferred to
each of the three trusts 150 shares of rebs state, Inc., common stock of the
vaue of 47,144.25. ac of the trust nstruments drected the trustee to use
the ncome from the trust fund for the support, mantenance, beneft and
educaton of the named benefcary unt such benefcary attaned the age of
25. Une pended ncome was to be pad drecty to the benefcary or to hs
ssue, appontees or dstrbutees. The ta payer reserved the prvege of actng
n an advsory capacty to the trustee. Some varatons n the trust nstru-
ments, not pertnent to the queston heren nvoved, are omtted from our
consderaton. The nstruments creatng a of the trusts contaned the
foowng provson:
No benefcary sha have any rght to or Interest n any of the ncome
of the trust unt the date upon whch trustee sha, accordng to the terms of
ths agreement, pay such ncome to such benefcary and then ony f such
benefcary be vng on that date.
In makng hs gft ta returns for the ta abe years 1932 and 1933 the
ta payer deducted 5,000 from the vaue of the gfts to each of the trusts,
camng such rght under secton 504 (a) and (b) of the Revenue ct of 1932.
The Commssoner decded that the transfers were gfts of future nterests
n property, dsaowed the camed deductons on that ground and assessed a
defcency. The oard of Ta ppeas hed that the transfers were gfts of
present nterests and that the ta payer was entted to make the deductons
by reason of secton 504(b) of the Revenue ct of 1932. That ct provdes:
(a) or the caendar year 1932 and each caendar year thereafter a ta ,
computed as provded n secton 502, sha be mposed upon the transfer durng
such caendar year by any ndvdua, resdent or nonresdent, of property
by gft.
(b) The ta sha appy whether the transfer s n trust or otherwse,
whether the gft Is drect or ndrect, and whether the property s rea or
persona, tangbe or Intangbe .
une 4,1037.
opnon.
Sec. 501.
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519
Regs. 79(1933), rt. 11.
Sbc. 504.
(a) The term net gfts menns the tota amount of gfts made durng the
caendar year, ess the deductons provded n secton 505.
(b) In the case of gfts (other than of future nterests n property) made
to any person by the donor durng the caendar year, the frst 5,000 of such
gfts to such persons sha not, for the purposes of subsecton (a), be Incuded
n the tota amount of gfts made durng such year.
Sec. 1111.
(a) When used n ths ct
(1) The term person menns an ndvdua, a trust or estate, a partnershp,
or a corporaton.
We are of the opnon that the gfts were gfts of a present nterest, whether
the test used be the nature of the nterest whch the donor gave, or the nature
of the nterest whch the trustees or the cestus que trusts receved. Snce the
statute mposes the ta upon the donor, t seems pertnent to determne whether
the nterest whch the donor gave was a present or future nterest rather
than to determne the quaty of the estate receved by any partcuar bene-
fcary. It s cear that the donor parted competey wth the sub|ect matter
of the gfts, ncudng a rght, tte and nterest n possesson or en|oyment,
at the tme of makng the transfer. We thnk t ceary appears, when we
consder that the donor, after the gfts were made, hud no onger any nterest
whatever, present or future, n the stock and funds donated, that the gfts were
of a present nterest.
ssumng, however, that the nature of the gfts s to be consdered from the
standpont of the character of the nterests receved rather tnn that of those
gven, the trustees undoubtedy took present nterests. Inasmuch as the term
person s defned by secton 1111 of the ct to ncude a trust or estate, te
trust estates here nvoved must be hed to be those persons to whom the gfts
were made wthn the meanng of secton 504(b). That s the reason assgned
for a smar concuson by the Seventh Crcut n Commssoner of Interna
Revenue v. Wes (88 . (2d), 339 ft. D. 1310, page r,1 , ths uetn ).
We are further of the opnon that tested by the nature of the gfts to the
cestus que trusts, the donor was entted to the deducton. The donees were
named, the respectve vaues of the gfts to them were ascertanabe, and tey
were gven the use of the ncome and of the une pended accumuated ncome
wthout an ntervenng estate, even though physca possesson was postponed.
Under the crcumstances rected we concude that the oard of Ta ppeas
correcty decded that the ta payer was entted to e cude the sums n queston
from hs return.
The decson of the oard of Ta ppeas s therefore affrmed.
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520
TITL I. INCOM ND C SS-PRO ITS ND
C PIT L STOC T S. (1935)
S CTION 105 O T R NU CT O 1935, S M ND D Y
S CTION 401 O T R NU CT O 193 . C PIT L STOC
T .
Reguatons 4(193 ), rtce 41: Nature and 1938- -9189
rate of ta . C. S. T. 7
The N Corporaton, a rea estate company whch Is a whoy-owned
subsdary of the M Corporaton, an nsovent bank, s abe for the
capta stock ta and s not entted to the benefts of secton 22 of
the ct of March 1, 1879 ( 20 Stat., 327), snce the subsdary s not
tsef a bank whch as ceased to do busness by reason of nso-
vency or bankruptcy.
dvce s requested whether the N Corporaton, a rea estate com-
pany whch s a whoy-owned subsdary of the M Corporaton, an
nsovent bank, s abe for the capta stock ta or s entted to the
benefts of secton 22 of the ct of March 1,1879 (20 Stat., 327).
Secton 105 of the Revenue ct of 1935, as amended by secton 401
of the Revenue ct of 193 , mposes an e cse ta upon every domestc
corporaton wth respect to carryng on or dong busness for each
ta abe year endng une 30, or any fractona part thereof, begnnng
wth the ta abe year ended une 30,193 .
Secton 22 of the ct of March 1, 1879, supra, provdes as foows:
That whenever and after any bank has ceased to do busness by
reason of nsovency or bankruptcy, no ta sha be assessed or coected, or pad
nto the Treasury of the Unted States, on account of such bank, whch sha
dmnsh the assets thereof necessary for the fu payment of a ts depostors
and such ta sha be abated from such natona banks as are found by the
Comptroer of the Currency to be nsovent and the Commssoner of Interna
Revenue, when the facts sha so appear to hm. s authorzed to remt so much
of sad ta aganst nsovent State and savngs banks as sha be found to affect
the cams of ther depostors. Itacs supped.
The benefts of that secton accrue ony to a bank whch has ceased
to do busness by reason of nsovency or bankruptcy and can not be
e tended beyond the mts so f ed. Ta abty ncurred by a
whoy-owned subsdary of a bank entted to the benefts of that sec-
ton s not the ta abty of the bank. The nsovency or bankruptcy
of the atter does not n tsef operate to make the subsdary nsovent
or bankrupt. The bank and ts subsdary are separate corporatons
and, therefore, separate ega enttes. Ony f the subsdary s tsef
a bank whch s nsovent or bankrupt s t entted to such benefts.
or the reasons stated, t s hed that the N Corporaton, a whoy-
owned subsdary of the M Corporaton, an nsovent bank, s abe
for the capta stock ta and s not entted to the benefts of secton 22
of the ct of March 1,1879.
TITL III. C PIT L STOC T . (1938)
S CTION 301. C PIT L STOC T .
1938-24-9391
T. D.4808
Capta stock ta . tensons of tme for fng capta stock ta
returns under secton 01(d) of the Revenue ct of 1938.
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521
Msc.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 01(d) of the Revenue ct of 1938, under whch capta
stock ta returns for the ta abe year uy 1, 11)37, to une 30, 1938,
must be fed, provdes:
(d) The Commssoner may e tend the tme for makng
the returns and payng the ta es mposed by ths secton, under such
rues and reguatons as he may prescrbe wth the approva of the
Secretary, but no such e tenson sha be for more than CO days.
Pendng the ssuance of compete reguatons, the foowng rues
and reguatons are hereby promugated n respect of e tensons of
tme for fng capta stock ta returns for the ta abe year ended
une 30, 1938:
The respectve coectors of nterna revenue are hereby authorzed
to grant, under the condtons prescrbed heren, e tensons of tme
for fng capta stock ta returns and for payment of such ta es.
In the e ercse of such authorty, coectors of nterna revenue sha
grant an e tenson of tme for fng the return and payng the ta ,
ony: (1) upon a wrtten appcaton under oath fed on or before the
statutory due date of the return and showng reasonabe cause for
the e tenson (2) for such reasonabe perod as may be requred by
the crcumstances, not to e tend n any case beyond the 29th cay of
September ne t foowng the cose of the ta abe year (3) wth the
provson that nterest at the rate of per cent per annum sha be pad
upon the ta from the statutory due date ( uy 31) to the date of pay-
ment of the ta and (4) n accordance wth such procedure as may
he prescrbed from tme to tme by the Commssoner. The determna-
ton whether an appcaton presents reasonabe cause for an e tenson
depends upon the partcuar crcumstances of each case. Ordnary, a
showng of sckness or absence of the offcers charged wth the respon-
sbty7 of makng the return, or of other crcumstances beyond the
contro of the corporaton whch prevent the fng of a proper return
wthn the tme requred by aw, consttutes reasonabe cause war-
rantng an e tenson. ccordngy, a corporaton desrng an e ten-
son of tme for fng ts capta stock ta return and payng the ta
must fe wth the coector on or before the statutory cue date of the
return an appcaton under oath settng forth the reasons necesstat-
ng an e tenson and statng the tme for whch the e tenson s
requested. In every case n whch an e tenson s aowed, a copy of
the coector s etter grantng the e tenson sha be attached to the
return when fed.
Ths Treasury decson s ssued under authorty contaned n sec-
ton 01(d) of the Revenue ct of 1938.
Guy T. everng,
Commssoner of Interna Revenue.
pproved une 8, 1938.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une 10, 1938, 12.24 p. m.)
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Regs. 48, rt. 1.
522
TITL I . CIS T S. (1934)
S CTION 02 /2, S M ND D. PROC SSING T
ON C RT IN OILS.
Reguatons 48, rtce 1: Defntons. 1938-2 -9419
rtce 3: Imposton of ta . T. D. 4817
Processng ta on certan os Secton 02 of the Revenue
ct of 1934, as amended, and secton 703 of the Revenue ct of
1938. rtces 1 and 3, Reguatons 48, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
In conformty wth the provsons of secton 703 of the Revenue
ct of 1938, Reguatons 48, approved ugust 17, 1934, as amended
bv Treasury Decson 4 95, approved September 11, 193 C. .
-2, 324 (193 ) , are further amended as foows:
Immedatey foowng the parta quotaton of secton 02 (a)
of the Revenue ct of 1934 at the head of artce 1, a new subtte
s nserted readng
Secton 703 of the Revenue ct of 1938.
nd mmedatey foowng such new subtte there s nserted a
quotaton of secton 703 of the Revenue ct of 1938, whch reads
as foows:
Sec. 703. empton of pam o and pam o resdt: from
processng ta . ffectve uy 1, 1938, secton 02 (a), as amended,
of the Revenue ct of 1934 (reatng to the processng ta on certan
os) Is amended by strkng out hut does not ncude the use of
pam o n the manufacture of tn pate and nsertng n eu thereof
but does not ncude the use of pam o n the manufacture of tn
pate or terne pate, or any subsequent use of pam o resdue resut-
ng from the manufacture of tn pate or terne pate.
fter the ast sentence of subparagraph (m) (4) of artce 1, the
foowng s added:
In ke manner, on and after uy 1, 1938, the use of pam o, by the proc-
essor, n the manufacture of terne pate and the use of pam o resdue
resutng from the manufacture of tn pate or terne pate, are specfcay
e cepted by the ct.
Subparagraph (c) of artce 3 s changed to read:
No ta s mposed on the use of pam o, by the processor, n the manufac-
ture of tn pate, nor, on and after uy 1, 1938, on the use of pam o, by the
processor, n the manufacture of terne pate, nor, on and after sad date, on
the use of pam o resdue resutng from the manufacture of tn pate or
terne pate.
These reguatons are prescrbed under the authorty of secton
1101 of the Revenue ct of 192 , made appcabe by secton 02y2(f)
of the Revenue ct of 1934. GuY T everno,
Commssoner of Interna Revenue.
pproved une 20, 1938.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une 21, 1938, 11.18 a. m.)
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523
Msc.
TITL T M NU CTUR RS CIS T S. (1932)
( LSO TITL III O T R NU CT O 192G. TITL O T
R NU CT O 1932, ND TITL I O T R NU CT O
1934.)
1938-25-9399
Mm.4774
mendments to the Revenue rts of 1920, 1932, and 1934 by the
Revenue ct of 1938 wth respect to the ta es mposed on toet
preparatons, etc., artces made of fur, etc., phonograph records,
sportng goods, cameras, chewng gum, brewer s wort, etc., matches,
crude petroeum sod and refned, and saes of produce for future
devery.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, May , 19S8.
Coectors of Interna Revenue and Others Concerned:
The Revenue ct of 1938 repeas Schedue -4 of Tte III of the
Revenue ct of 192 , reatng to stamp ta es, and aso repeas n whoe
or n part the foowng sectons n Ttes I and of the Revenue ct
of 1932, and Tte I of the Revenue ct of 1934, reatng to msce-
aneous and manufacturers e cse ta es.
C RT IN TOIL T PR P R TIONS.
The ta mposed by that porton of secton 03 of the Revenue ct of
1932 reatng to tooth and mouth washes, dentfrces, tooth pastes, or
toet soaps, sha not appy, n vew of the provsons of secton 701(a)
of the Revenue ct of 1938, to saes of such artces by the manufac-
turer, producer, or mporter after une 30, 1938. The ta on other
toet preparatons contnues wthout change.
URS.
The ta mposed by secton 04 of the Revenue ct of 1932, as
amended, sha not appy, n vew of the provsons of secton 701(b)
of the Revenue ct of 1938, to saes of artces made of fur and artces
of whch fur s the component matera of chef vaue, by the manufac-
turer, producer, or mporter after une 30,1938.
P ONOGR P R CORDS.
The ta mposed by that porton of secton 07 of the Revenue ct
of 1932 reatng to records for phonographs sha not appy, n vew of
the provsons of secton 701(c) of the Revenue ct of 1938, to saes
of such artces by the manufacturer, producer, or mporter after une
30, 1938. The ta contnues wthout change n respect to the saes of
chasss, cabnets, tubes, reproducng unts, power packs, and phono-
graph mechansms sutabe for use n connecton wth or as part of
rado recevng sets or combnaton rado and phonograph sets.
SPORTING GOODS.
The ta mposed by secton 09 of the Revenue ct of 1932 sha not
appy, n vew of the provsons of secton 701 (d) of the Revenue ct
of 1938, to saes of sportng goods by the manufacturer, producer, or
mporter after une 30,1938.
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Msc.
524
C M R S.
The ta mposed by secton 11 of the Revenue ct of 1932 sha not
appy, n vew of the provsons of secton 701(e) of the Revenue ct
of 1938, to saes of cameras and enses by the manufacturer, producer,
or mporter after une 30, 1938.
C WING GUM.
The ta mposed by secton 14 of the Revenue ct of 1932 sha not
appy, n vew of the provsons of secton 701(f) of the Revenue ct
of 1938, to saes of chewng gum by the manufacturer, producer, or
mporter after une 30, 1938.
CRUD T TROL UM.
The ta mposed by secton 04, as amended, of the Revenue ct of
1934 sha not appy, n vew of the provsons of secton 701(g) of
the Revenue ct of 1938, to crude petroeum sod after une 30,1938.
R INING O CRUD P TROL UM.
The ta mposed by secton 05, as amended, of the Revenue ct of
1934 sha not appy, n vew of the provsons of secton 701(h) of the
Revenue ct of 1938, to crude petroeum refned or processed, or gaso-
ne produced or recovered from natura gas, after une 30,1938.
R W R S WORT, M LT SIRUP, TC.
The ta mposed by secton 01 (c)2 of the Revenue ct of 1932, as
amended, sha not appy, n vew- of the provsons of secton 701 ()
of the Revenue ct of 1938, to brewer s wort, mat srup, etc., sod or
mported after une 30, 1938.
S L S O PRODUC OR UTUR D LI RY.
The ta mposed by subdvson 4 of Schedue of Tte III of the
Revenue ct of 192 , as amended, sha not appy, n vew of the pro-
vsons of secton 701 (|) of the Revenue ct of 1938, to saes, agree-
ments of sae, or agreements to se produce for future devery made
after une 30, 1938.
M TC S.
The ta mposed by that porton of secton 12 of the Revenue ct
of 1932, as amended, reatng to paper or pan wooden matches, sha
not appy, n vew of the provsons of secton 707 of the Revenue ct
of 1938, to saes of such artces by the manufacturer, producer, or m-
porter after une 30,1938. The ta contnues wthout change n respect
to the saes of fancy wooden matches and wooden matches havng a
staned| dyed, or coored stck or stem, packed n bo es or n buk.
Inqures n regard to ths mmeograph shoud refer to the number
and the symbos MT: ST.
Gut T. evernq,
Commssoner of Interna Revenue.
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525
Regs. 44(1934), rt. 24.
S CTION 20 O T R NU CT O 1932, S M ND D Y T CT
O UN 1 , 1933 (48 ST T, 254). T - R S L S.
Reguaton s 44(1934), rtce 24: Saes to 1938-19-9334
States or potca subdvsons thereof G. C. M. 198C0
and to the Unted States.
Saes of nrtces ta abe under Tte I of the Revenue ct of
1932, as amended, when made by a manufacturer, or by hs vendee
durng the perod uy 1, 1933, to September 30, 1935, for use n
the mantenance of a pubc park by a State or a potca sub-
dvson thereof, are not sub|ect to ta .
G. C. M. 11501 (C. . II-1, 400 (1933)) revoked.
dvce s requested whether saes made by the manufacturer of
artces ta abe under Tte I of the Revenue ct of 1932 to a State
or a potca subdvson thereof for use n the mantenance of a
pubc park are saes made for use n the e ercse of an essenta
governmenta functon wthn the meanng of secton 20 of the
Revenue ct of 1932, as amended by secton 4(a) of the ct of une
1 . 1933 (48 Stat., 254).
Secton 20 of the ct, as amended, effectve uy 1, 1933, pro-
vdes n part as foows:
Under reguatons prescrbed by the Commssoner wth the approva of the
Secretary, no ta under ths tte sha be mposed wth respect to the sae
of any artce

(3) for resae by the vendee to a State or potca subdvson thereof for
use n the e ercse of an essenta governmenta functon, f such artce s n
due course so resod.
rtce 24 of Reguatons 44(1934), as amended by Treasury Dec-
son 4 04 (C. . I -2, 373 (1935)), reads n part as foows:
Saes to States or potca subdvso s thereof a)d to the Unted
States. Durng the perod from une 21, 193 , to une 30, 1933, both dates n-
cusve, a saes of ta abe artces by the manufacturer to States or potca
subdvsons thereof, other than drect saes by the manufacturer for use n the
e ercse of essenta governmenta functons, are ta abe.
Durng the perod uy 1, 1933, to September 30, 1935, both dates ncusve,
no ta attaches f the artce s sod by the manufacturer drect, or for resae
by the vendee drect, to a State of the Unted States, or potca subdvson
of such State, for use n the e ercse of an essenta governmenta functon.
rtces sod by the manufacturer durng such perod, whether drect to or for
resae drect to a State or potca subdvson thereof, for use n the e ercse
of any functon other than one essentay governmenta, are ta abe. If there
s more than one ntermedate sae between the manufacturer abe for the
ta and the State or potca subdvson thereof purchasng for use n the
e ercse of an essenta governmenta functon, the e empton does not appy.
The e empt character of the sae must be estabshed as requred
by the reguatons.
Under recent court decsons the mantenance of a pubc park
by a State or a potca subdvson thereof consttutes the e ercse
of an essenta governmenta functon. (See decsons cted n Mm.
3838, revsed 1938, page 181, ths uetn.) In rush v. Commssoner
(300 U. S., 352, Ct. D. 1212, C. . 1937-1, 217) the Unted States
Supreme Court, n hodng that the water system of the cty of
New York was created and s conducted n the e ercse of an essen-
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Rugs. 44(1934), rt. 24.
52
ta governmenta functon and that the saary of the chef engneer
of the cty s bureau of water suppy s mmune from edera ta a-
ton, stated n part that
Certany, the mantenance of pubc schoos, a fre department, a
system of sewers, parks and pubc budngs, to say nothng of other pubc
factes and uses, cas for the e ercse of governmenta functons. nd so
far as these are concerned, the water suppy s a necessary au ary, and,
therefore, partakes of ther nature. Itacs supped.
The Unted States Crcut Court of ppeas for the Seventh Cr-
cut n Commssoner v. Schnaccenberg (90 ed. (2d), 175) cted the
rush decson as authorty for hodng that the acquston, man-
tenance, and reguaton of parks by a potca subdvson of the
State of Inos consttutes the e ercse of an essenta governmenta
functon.
In vew of the foregong, t s the opnon of ths offce that saes
of artces otherwse ta abe under Tte I of the Revenue ct of
1932, as amended, when sod by the manufacturer or hs vendee for
use n the mantenance of a pubc park by a State or a potca
subdvson thereof, are not sub|ect to ta .
G. C. M. 11501 (C. . II-1, 400 (1933)), hodng that saes of
footbas to a cty for use n ts pubc parks program are not e empt
from the ta mposed by secton 09 of the Revenue ct of 1932, s
n confct wth the poston taken heren and s, therefore, revoked.
It s deemed proper to add that under the provsons of secton
401 of the Revenue ct of 1935, amendng secton 20 of the Revenue
ct of 1932, as amended by the ct of une 1 , 1933, supra, saes of
artces sub|ect to ta under Tte I of the Revenue ct of 1932,
as amended, f made on or after October 1, 1935, for the e cusve
use of any State or potca subdvson thereof are not ta abe
rrespectve of the utmate purpose for whch the. artces are to be
used.
. P. Wence,
Chef Counse, ureau of Interna Revenue.
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527 Regs. 42, rt, 2 .
TITL . MISC LL N OUS T S. (1932)
S CTION 731. T ON TR NSPORT TION O OIL Y PIP LIN .
Reguatons 42, rtce 2 : ass of ta . 1938-15-9292
Ct. D. 132
MISC LL N OUS T S R NU CT O 1932 D CISION O COURT.
Ta on Transportaton of O by Ppe Lne Constructon op
Reguatons.
Transportaton of o by ppe ne from the ease fow tanks,
stuated ne t to the wes on the eased and, to the refnery storage
tanks, whch were from one-fourth to one-haf me dstant from
the fow tanks, s sub|ect to the ta nqMsod by secton 731(a)
of the Revenue ct of 1932, where the evdence ceary shows that
the prmary use of the storage tanks was n connecton wth the
refnery. The porton of artce 2 of Reguatons 42 whch e -
empts from the ta transportaton by ppe ne to tanks n the
mmedate vcnty of the wes must be mted to cases where
that transportaton s ncdenta to producton.
Unted States Dstrct Court for the Northern Dstrct of Caforna,
Southern Dvson.
Mohawk Petroeum Co., etc.. pantff, v. ohn . Lews, as Coector of Interna
Revenue, etc., defendant.
19 . Supp., 8 7.
une 24, 1937.
OPINION.
Upon submsson of the cause for decson after tra wthout a ury. udg-
ment for pantff n the amount of 309.33. udgment for the defendant upon
the baance of the cams.
Roche, D. .: Ths s an acton at aw by the Mohawk company to recover
e cse ta es eved and pad upon the transportaton of crude o by ppe ne
from certan of pantff s eases fow tanks to ts rutvae refnery storage
tanks. The amount contested orgnay was 1, 21.11 but durng the tra by
mutua concessons t was reduced to appro matey S75. Ths amount repre-
sents the ta upon o produced at pantff s Red Rbbon ease, and another
ease mmedatey ad|acent whch for a purposes can be consdered the same ns
the Red Rbbon ease.
t the tme the ta was ad the Red Rbbon ease (of whch pantff was
essee) was one-quarter of a me wde by haf a me ong. It contaned haf
a dozen o wes each of whch had a fow tank stuated ne t to t nto whch
the o from the we fowed, and was measured and tested so that the royates
due the essor coud be computed. Immedatey ad|onng the ease was the
Mohawk s refnery- etween the refnery and the wes, but coser to the former,
were a group of o storage tanks. rom the fow tanks the o was conveyed
by ppe ne, varyng n ength from one-quarter to one-haf a me, to the
storage tanks where t was kept unt there was a demand for t n the refnery,
at whch tmes t was moved nto the refnery and manufactured nto varous
petroeum products.
There s mposed a ta upon a transportaton of crude petroeum
by ppe ne (1932 Revenue ct, secton 731 (a)). The ta
s payabe by the carrer furnshng the transportaton and s measured by a
certan percentage of the vaue of the transportaton servces rendered. It has
been hed consttutona ( otter v. Derby O Co. (C C. . 8), 1 . (2d), 717).
The aw nvoved on the sub|ect s found n the ta ng statute supra, the
Treasury Department reguatons ssued thereunder (Reguatons 42), and four
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Regs. 42, rt. 2 .
528
cases: Mottcr v. Derby (supra), D e O Co. v. Unted States (C. C. . 5)
(24 . (2d), 804 T. D. 41C(, C. . II-1, 295 (1928) ), e ander v. Carter O
Co. (C. C. . 10) (.r 3 . (2d), 904), and e ander v. Cosdcn Ppe Lne Co.
(290 U. S., 484 Ct. D. 700, C. . III-1, 412 (1934) ). No attack s made by
ether party upon any of these, thus eavng to the court for decson ony ques-
tons of fact and of statutory constructon.
The pantff seeks to estabsh ts case upon a certan porton of artce 2 of
Reguatons 42 provdng:
If the movement s from wes to fow tanks or stor-
age tanks stuated n the mmedate vcnty (of the wes) the movement s
not such as a ppe ne carrer woud normay render and consequenty s not
sub|ect to the ta .
The defendant rees upon a further subdvson of secton 2 of Reguatons
42 statng:
where a refner mantans a gatherng ne from a re-
fnery to an o fed or poo the servces whch the refner performs for hmsef
are smar to those whch ppe ne carrers woud otherwse render. The re-
fner shoud pay the ta .
Crude o goes through the process of producton, transportaton and market-
ng.1 ny o that s produced, sod and devered must, of necessty, go to a
market, and that devery necessary entas transportaton. Whether the
devery s by vendor or vendee or s before or after sae, s mmatera. Con-
gress sub|ected the transportaton by ppe ne to an e cse ta whch s eved
ndependent of dstance traversed. s a o s transported to a market, t fo-
ows that a ta must be payabe when that transportaton, regardess of the
dstance covered, s accompshed by ppe ne. In other words, when there s
a ppe ne between wes and the market, the ta must be pad. The broad
anguage of the statute w ead to no other concuson. nd t has been so
construed by the Crcut Court of ppeas for the Tenth Crcut n e ander v.
Carter O Co., supra, at page 9 :
It s possbe for o to go drecty from the mouth of the we to the refn-
ery f so, transportaton begns at the mouth of the we. Or t may go to the
fow or settng tanks, and from thence to market. If so, transportaton begns
when t eaves the fow or settng tanks.
The ony queston s, at what pont aong the ne s the ta ncurred The
ta here n queston was assessed upon the transportaton of the o from the
ease fow tanks to the storage tanks near the refnery. To determne ts cor-
rectness, consderaton must be gven to severa e emptons e tended ta payers
by Reguatons 42 and some of the cases.
It s setted that transportaton as empoyed n the ta ng statute does not
ncude a carrage of o through ppes. The Treasury Department and the
courts have construed t as showng a congressona ntent merey to ta trans-
portaton as a separate sub|ect ony when transportaton s prmary nde-
pendent of a reated busness transacted by the carrer. Thus the rue s that
transportaton whch s ncdenta to producton of o s not ta abe (Regua-
tons 42, secton 2 ). Under ths e empton producers are entted to transport
ther o by ppe ne to storage tanks n the vcnty of ther wes ( e ander
v. Carter O Co., supra). coroary s that transportaton ncdenta to
manufacturng or refnng s kewse e empt (Reguatons 42, secton 2 ).
Refners ppe nes from refnery storage tanks nto the refnery are ta free.
queston of fact arses as to the nature of the storage tanks n the present
case. Were they ncdenta to producton or to refnng The evdence ceary
showed that ther prmary use was n connecton wth the refnery. It ap-
peared that a the o n the tanks was moved nto the refnery, usuay wthn
a reatvey short perod after the crude o was stored n the tanks, and that
none of the o n the tanks was wthdrawn therefrom to se to other pares
or for uses other than n the refnery. The storage tanks beng ncdenta to
refnng, the o movng by ppe ne from them nto the refnery was ta free
but the ppe nes gong out nto the fed ceary consttuted gatherng nes
and transportaton of o through them was ta abe under the porton of
Reguatons 42, secton 2 quoted prevousy.
1 Marketng s used n the broadest sense, 1. e., the dsposton of the crude after t
eaves the we or storage tanks. In other words, ts dsposton after producton, as
producton s denned by the reguatons, has ceused.
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529
Regs. 42, rt. 2 .
The varous parts of secton 2 are not nconsstent when t s kept n
mnd that n transportaton s sought to be ta ed that whe the Government
has e tended certan e emptons, they must be strcty construed aganst the
ta payer and that the theory underyng the e empton s that the transpor-
taton s ncdenta to producton. Therefore, that subdvson of Reguatons 42,
secton 2 , upon whch pantff rees and whch e empts ppe ne transportaton
to tanks n the vcnty of the wes, must be mted to cases where that trans-
portaton s ncdenta to producton. Where, as here, that transportaton
Is more ncdenta to refnng or s appro matey equay ncdenta to both
refnng and producton, the reason for the e empton ceases and so does the
e empton.
The Mohawk company rees strongy on the Carter case whore o was
e empted on a 12-me |ourney to storage tanks as authorty sustanng ts
poston. The case s not controng. It s apparent beyond a doubt that the
motvatng force behnd the e empton e tended n that case was the fact
that the tanks were utzed strcty for purposes of storage ncdenta to pro-
ducton, whch was ceary a egtmate storage n vew of the facts n that
case. s much can not be sad for the pantff here where the use was nc-
denta to manufacture. The dstncton s vta.
The penates assessed aganst the ta payer were proper. n order w
therefore be entered drectng |udgment for the pantff n the amount of
3 9.33 whch the defendant stpuated was due t, and drectng entry of |udg-
ment n favor of the defendant upon the baance of the dsputed tems. udg-
ment w carry nterest from the date of the payment of the ta es.
ndngs may be prepared n accordance wth ths opnon.
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Regs. 43(1932), rt. 1.
530
TITL . DMISSIONS ND DU S. (192 )
S CTION 500(a) 1, R NU CT O 192 , S M ND D Y S CTION
711, R NU CT O 1932.
Reguatons 43(1932), rtce 1: ass, rate, 1938-24-9389
and computaton of ta . Ct. D. 1344
( so Secton 502, as amended, and rtce 43.)
DMISSIONS T R NU CTS O 192 , 1932, ND 1934 R IS D
ST TUT S D CISION O SUPR M COURT.
L Income empton thetc Games Conducted by State
Unveksty System State Instrumentaty Consttuton-
aty of Ta .
The mposton of the edera admssons ta n respect of athetc
contests conducted by the Unversty System of Georga does not
unconsttutonay burden a governmenta functon of the State.
owever essenta a system of pubc educaton to the e stence of
the State, the conduct of e hbtons for admssons pad by the pub-
c s not such a functon of Sate government as to be free from the
burden of a nondscrmnatory ta ad on a admssons to pubc
e hbtons for whch an admsson fee s charged. The mmunty
mped from the dua soveregnty recognzed by the Consttuton
does not e tend to busness enterprses conducted by the States for
gan.
2. Sut Substtuton of Successor n Offce as ppeant.
The court beow propery ordered the successor n offce of the co-
ector substtuted as appeant, n accordance wth the ct of eb-
ruary 13, 1925, where the coector orgnay mpeaded resgned
pendng the appea and ded before the hearng.
S. Sut n quty.
b n equty to en|on coecton of the ta was |ustfed by the
e traordnary crcumstances, and secton 3224, Revsed Statutes,
s nappcabe, snce, upon the showng made, the respondent was
unabe by any other proceedng adequatey to rase the ssue of the
unconsttutonaty of the Government s effort to enforce payment.
4. Reheabno Dened.
Petton for rehearng dened May 31, 1938.
Supreme Court of the Untf.d States.
Maron . en, Coector of Interna Revenue for the Dstrct of Georga, pet-
toner, v. Regents of the Unversty System of Georga.
304 U. S., 439.
On wrt of certorar to the Unted States Crcut Court of ppeas for the fth Crcut.
May 23, 1938.
OPINION.
Mr. ustce Roberts devered the opnon of the Court.
The queston on the merts s whether the e acton of the edera admssons
ta , n respect of athetc contests n whch teams representng coeges con-
ducted by the respondent partcpate, unconsttutonay burdens a governmenta
functon of the State of Georga. The petton aso chaenges the respondent s
abty to mantan a sut to en|on the coecton of the ta and to substtute
as defendant the successor In offce of the coector orgnay mpeaded. The
court beow decded a the questons nvoved aganst the pettoner.1 ecause
of ther mportance we granted certorar.
1 The defendant In the dstrct court was W. . age, the pettoner s predecessor n
offce. That court dsmssed the b. (10 . Supp., 901.) The crcut court of appeas
reversed. (81 . (2d). 577.) fter answer and a hearng on the merts the dstrct court
awarded an In|uncton. (18 . Supp.. 02.) The crcut court of appeas permtted the
substtuton of the pettoner for Page and affrmed the decree by a dvded court. (93
. (2d), 887.)
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531
Regs. 43(1932), rt. 1-
Secton 500(a) 1 of the Revenue ct of 192 , as amended by secton 711 of the
eveuue ct of 1932 mposes a ta of 1 cent for each 10 cents: or fracton there-
of of the amount pad for admsson to any pace to be pad by the
person payng for such admsson . Subsecton (d) commands that
the prce (e cusve of the ta to be pad by the person payng for admsson) at
whch every admsson tcket Is sod sha be conspcuousy prnted, stamped,
or wrtten on the face or back of that porton of the tcket whch s to be taken
up by the management and mposes a penaty for faure to compy wth ts
terms. Secton 502 requres the person recevng payments for admssons to co-
ect the ta and make return n such form as the Commssoner of Interna
Revenue may prescrbe by reguaton. Secton 1102(a)5 mposes the duty on
persons who coect the ta to keep records and render statements, under oath,
and to make returns as requred by the Secretary of the Treasury. Secton 1114
(b) and (d) f es penates for faure to coect or pay over and subsecton (e)
provdes for the persona abty of one coectng the admsson charge and for
dstrant by the coector of nterna revenue for ta es and penates. Secton
07 of the Revenue ct of 1934 requres the person charged wth the coecton
of the ta to hod the amount coected as a speca fund n trust for the Unted
States, confers the rght to assess hm wth the amount so coected and wth-
hed, ncudng penates, and, n connecton wth R. S. 3187, authorzes the co-
ector of nterna revenue to dstran therefor.
The respondent Is a pubc corporaton, created by Georga as an nstrumen-
taty of the State, havng contro and management of the Unversty of Georga
and the Georga Schoo of Technoogy. thetcs at these nsttutons are con-
ducted under the respondent s authorty by two corporatons, the Unversty of
Georga thetc ssocaton and the Georga Tech. thetc ssocaton. The
e pense of physca educaton and athetc programs at each schoo s defrayed
amost entrey from the admsson charges to athetc contests and students
athetc fees coected for the purpose. Durng September and October, 1934,
footba games were payed at the Insttutons, for whch admssons were charged
and coected by the assocatons. ach tcket showed on ts face the admsson
prce, the amount of the ta , and the tota of the two, and aso carred the
foowng prnted notce:
The Unversty of Georga or Georga Schoo of Technoogy beng an In-
strumentaty of the government of the State of Georga, contends that t s not
abe for any admsson ta . The amount stated as a ta s so stated because
the unversty s requred to do so by Treasury reguatons pendng a decson
as to Its abty n ths respect. Ths amount s coected by the unversty
as a part of the admsson and w be retaned as such uness t s fnay deter-
mned that the unversty s tsef abe for the ta .
ach assocaton deposted the tota coected as the dsputed ta n a sepa-
rate bank account, apart from ts other funds, but made no return thereof. The
coector prepared returns for the amounts. In consequence of the assocatons
negect to pay the amounts so returned, the Commssoner assessed each assoca-
ton n the amount shown by return made for t and certfed the assessments
to the coector who made demands for payment. These were gnored and the
coector fed ens, ssued warrants, and eved upon the depost accounts. The
respondent then brought sut n whch t prayed a decree that, ns an agency of the
State performng an essenta governmenta functon n the conduct of the games,
t was mmune from the ta , and sought n|unctons, temporary and permanent,
to restran the coector from proceedng further to coect the sums demanded.
rom a decree awardng a fna n|uncton the coector appeaed but, pendng
appea, resgned and, before the hearng, ded. Over ob|ecton the crcut court
of appeas ordered the pettoner substtuted as appeant and affrmed the decree.
We are of opnon that the court beow rghty decded the procedura questons
but erred as to the merts.
rst. If the sut was mantanabe aganst hs predecessor n offce the sub-
sttuton of pettoner was awfu. We are not unmndfu of the prncpe that
suts aganst offcers to restran acton n e cess of ther authorty or n voa-
ton of statutory or consttutona provsons are n ther nature persona and
Ch. 27. 44 Stat.. 9, 91 U. S. C, Tte 2 , sectons 940-944.
Ch. 209, 47 Stat., 1 9, 271 U. S. C, Tte 2 , secton S40(a)2.
emptons touchng admssons of curtan persons and n admssons to specfed
types of entertanment or e hbtons are not nvoved. (Subsecton (e). 47 Stat.. 271.)
44 Stat., 112 U. S. C, Tte 2 , secton 9 0.
44 Stat., 11 U. S. C, Tte 2 . sectons 494. 85 -921.
Ch. 277, 48 Stat., 80, 7 8 T . S. C, Tte 20, secton 1551.
T . S. C, Tte 2 , secton 1580.
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Regs. 43(1932), rt. . 532
that a successor n offce s not prvy to hs predecessor n respect of the aeged
wrongfu conduct. s a resut of the nconvenence resutng from the ack of
power to substtute one who succeeded to the offce of an aeged offendng off-
ca, to whch ths Court has caed attenton,10 Congress adopted the ct of eb-
ruary 13, 1925, whch provdes:
where, durng the pendency of an acton, sut, or other proceedng
brought by or aganst an offcer of the Unted States and reatng to
the present or future dscharge of hs offca dutes, such offcer des, resgns, or
otherwse ceases to hod such offce, t sha be competent for the court wheren
the acton, sut, or proceedng s pendng, whether the court be one of frst n-
stance or an appeate trbuna, to permt the cause to be contnued and man-
taned by or aganst the successor offce of such offcer, .
The moton to substtute the pettoner asserted that, uness restraned, he woud
contnue n the course pursued by hs predecessor. The answer dd not deny
ths aegaton but reed upon the cam that the present coector s not prvy
to the acts of the former one. In parte La Prade (289 U. S., 444). ths Court
reserved the queston whether n such a stuaton the successor mght be sub-
sttuted. s the present case s wthn the etter of the ct and wthn the
nconvenence ntended to be obvated by ts adopton, the substtuton was
propery permtted.
Second. If the ta , the coecton of whch was threatened, consttuted an
nadmssbe burden upon a governmenta actvty of the State, the crcum-
stances dscosed render the cause one of equtabe cognzance and take t out of
the prohbton of . S. 3224.12 The respondent has ong been of opnon that
e acton of the ta n respect of games payed under the auspces of the Un-
versty of Georga and the Georga Schoo of Technoogy consttutes an uncon-
sttutona burden upon an essenta governmenta actvty of Georga. t frst
the respondent coected the ta as requred by the ct, pad t over to the
Treasury, and made cam for refund. The cam was re|ected on the ground
that the ta was pad by the patron of the game, and that the athetc asso-
catons and the respondent were mere coectng agents havng no nterest n
the fund whch woud |ustfy repayment to them f t had been egay co-
ected. eevng the bass of the Commssoner s refusa to refund was sound,
the respondent then resorted to the e pedent of coectng the amount of the
ta under the reservaton prnted upon the tckets.
The b, after rectng the facts as above summarzed, aeges that the statute
mposes a ta upon the ndvduas who purchase tckets, but, propery con-
strued, s nappcabe to those purchasng tckets to the footba games n
queston. It further asserts that, n respect of those games, nether the re-
spondent nor the athetc assocatons coected any ta from purchasers of ad-
mssons that f the statute be construed to |ustfy the coector n seekng to
force respondent to pay sums representng aeged ta es due from numerous
ndvduas t s unconsttutona as an attempt to nterfere wth and contro
and to burden the State s educatona actvtes and unawfuy to mpose on
the St.te government the duty of coectng ta es for the edera Government
that the acton of the pettoner n ssung warrants of dstrant s ether an at-
tempt to coect from respondent ta es aeged to be due from varous ndvduas,
or to mpose upon the respondent penates, crmna and puntve In nature.
The pettoner nssts the b shows the ta was n fact coected from the
patrons of the games, and the aegaton that no ta was coected s a mere
concuson of aw whch the Court shoud gnore: that the tra court was
wthout |ursdcton to determne n ths sut for n|uncton whether or not ta es
had been coected by respondent that the Revenue ct mposes no abty for
the ta upon the vendor of the tckets who fas to coect, athough t does
mpose a penaty for wfu faure to coect the ta and other penates that,
as the respondent coected the ta , t has no standng n ts capacty as a co-
ectng agent to deny the vadty of the e acton, and. as a coectng agent,
coud not create a rght to resst coecton by the Government by forcng a
Pennoyer v. McConnaughy (140 T . S., 1, 10): Unted State e re. cmardn v.
utterurarth (109 U. S., 000. G03-G04) Phadepha Co. v. Stmson (223 U. S.. 05,
20- 21) Irwn v. Wrght (258 U. S.. 219. 222).
See parte La Pradc (289 U. S., 444, 45 -459).
Ch. 229, 43 Stat., 930, T . S. C, Tte 28, secton 780.
UT . S. C, Tte 20. secton 1543.
Compare Shannopn Country Cub v. cner (2 . (2d). 893 fT. D. 3 44. C. . 111-2
3 4 (1924))) Lafayette Worsted Co. v. Page ( . (2d), 399) Unon Pac. Ry. . otrers
(33 . (2d), 102 Ct D. 115, C. . III-2, 2 1 (1929) ) Wourdack v. ecker (55 . (2d).
840) but see uders Cub v. Unted States (14 . Supp., 1020).
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533
Regs. 43(1932), rt. 1.
stpuaton upon purchasers of tckets that the amount coected shoud beong
to the agent f t were abe to defeat the Governneut that, as such agent
respondent has no nterest adverse to the Unted States that the stpuaton n
queston dd not amount to an assgnment of a tcket purchaser s cam for
refund or, f t dd, the purchaser has thereby ost hs rght to recover the ta
by reason of the prohbton of assgnment of cams aganst the Unted States
emboded n R. S. 3477 That respondent or the athetc assocatons woud
have had an adequate remedy at aw for recovery of the amounts assessed
aganst them had they pad the assessments and fnay that It. S. 3224u
prohbts the ssue of an n|uncton aganst coecton.
To these contentons respondent repes that whe t paced the requred n-
formaton on the tcket and segregated the equvaent of the ta from the pro-
ceeds of tckets sod to avod the mposton of penates on ts personne, the
rotaton on the tckets shows that t dd not undertake to coect and dd not
n fact coect the ta that, by refusa to coect, t took tsef out of the category
of an agent who vountary acted on behaf of the Government that, whe
the statute paces no abty upon respondent for the ta as such, t mposes
upon the respondent cv and crmna penates for refusa to coect t that
respondent s not an assgnee of the cams of ts patrons, but, f the ta s nvad,
s owner n ts own rght of the entre amount pad by each purchaser that re-
spondent has no remedy at aw because f t bad pad the ta out of ts own
funds t coud not have camed refund of payment thus vountary made for
ts patrons accounts that State offcas may not be requred to coect an ega
ta as a condton precedent to contestng ts vadty that secton 3224 has
no appcaton to ths sut.
The dspute as to the proprety of a sut n equty must be resoved n the
ght of the nature of the controversy. The respondent n good fath beeves that
an unconsttutona burden s ad drecty upon ts transactons n the sae of
censes to wtness athetc e hbtons conducted under authorty of the State
and for an essenta governmenta purpose. The State s entted to have a
determnaton of the queston whether such burden s mposed by the statute as
construed and apped. It s not bound to sub|ect ts pubc offcers and ther
subordnates to pans and penates crmna and cv n order to have ths ques-
ton setted, f no part of the sum coected was a ta , and f the assessment was
n truth the mposton of a penaty for faure to e act a ta on behaf of the
Unted States. nd f the respondent s rght that the statute s nvad as
apped to ts e hbtons, t ought not to have to ncur the e pense and burden of
coecton, return, and prosecuton of cam for refund of a ta upon others
whch the State may not awfuy be requred to coect. These e traordnary
crcumstances we thnk |ustfy resort to equty.
What we have sad ndcates that It. S. 3224, supra, does not oust the urs-
dcton. The statute s nappcabe n e ceptona cases where there s no pan,
adequate, and compete remedy at aw. Ths s such a case, for here the assess-
ment s not of a ta payabe by respondent but of a penaty for faure to coect
It from another. The argument that no remedy need be afforded the respondent
s bottomed on the assumpton that t s a mere coectng agent whch can not
be hurt by coectng and payng over the ta but ths argument assumes frst,
that respondent dd n truth coect a ta and, second, that the mposton of the
ta on the purchase of admssons can not burden a State actvty. Ths s
argung n a crce, for these are the substanta matters n controversy. We hod
that the b states a case n equty as, upon the showng made, the respondent
was unabe by any other proceedng adequatey to rase the ssue of the
unconsttutonaty of the Government s effort to enforce payment.
Thrd. We come then to the merts. or present purposes we assume the truth
of the foowng propostons put forward by the respondent: That t s a pubc
nstrumentaty of the State government carryng out a part of the State s
program of pubc educaton that pubc educaton s a governmenta functon
that the hodng of athetc contests s an ntegra part of the program of pubc
educaton conducted by Georga that the means by whch the State carres out
that program are for determnaton by the State authortes, and ther determna-
ton s not sub|ect to revew by any branch of the edera Government that a
State actvty does not cease to be governmenta because t produces some ncome
u D. S. C. Tte 31, secton 203.
No sut for the purpose of restranng the ssessment or coecton of any ta sha
be mantaned n any court. (U. 8. C, Tte 2 , secton 1043.)
Mer v. Standard Nut Margarne Co. (284 U. S.. 498, 500 (Ct. D. 457, C. . I-1,
370 (1932) ).
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Regs. 43(1932), rt. 1.
534
that the ta s mposed drecty on the State actvty and drecty burdens that
actvty that the burden of coectng the ta s paced mmedatey on a State
agency. The pettoner stouty combats many of these propostons. We have no
occason to pass upon ther vadty snce, even f a are accepted, we thnk the
ta was awfuy mposed and the respondent was obgated to coect, return
and pay t to the Unted States.
The record dscoses these undsputed facts: The stadum of the Unversty
of Georga has a seatng capacty of 30,000, cost 180,000, and was pad for by
borrowed money whch s beng repad by the athetc assocaton, whose chef
source of revenue s admssons to the contests n the stadum. One hundred and
ffty-eght thousand doars of the amount borrowed has been repad snce the
stadum was competed n 102 ). The student enroment s about 2,400. ach
student pays an annua athetc fee of 10 whch confers the prvege of free
admsson to a the schoo s athetc events. admssons coected, and the
ta pad on them, are pad by the genera pubc, none by the students. The
tota recepts of the athetc assocaton from a sources for the year endng
ugust 31, 1935, were 91, 20.25 of whch 71,323.27 came from admssons to
footba games.
The stadum of the Georga Schoo of Technoogy has a seatng capacty of
29,000. It cost 275,000 and was pad for by a gft of 50,000 and from adms-
sons charged and student fees. The enroment s about 2,000 stndents each
of whom pays an annua athetc fee of 7.50 whch gves the prvege of free
admsson to a games. admssons coected, and the ta pad on them, are
pad by the genera pubc, none by the students. The tota recepts of the
athetc assocaton for the s months ended December 31, 1934, were 119,43 .75
of whch 74,1 8.51 came from admssons to footba games.
It s evdent that these e hbton enterprses are comparatvey arge and are
the means of procurng substanta ad for the schoos programs of athetcs
and physca educaton. In fna anayss the queston we must decde s whether,
by eectng to support a governmenta actvty through the conduct of a bus-
ness comparabe n a essentas to those usuay conducted by prvate owners,
a State may wthdraw the busness from the fed of edera ta aton.
When a State embarks n a busness whch woud normay be ta abe, the
fact that n so dong t s e ercsng a governmenta power does not render the
actvty mmune from edera ta aton. In South Carona v. Unted States
(199 U. S., 437), t appeared hat South Carona had estabshed dspensares
for the sae of quor and prohbted sae by other than offca dspensers. It was
hed that the Unted States coud requre the dspensers to take censes and to
pay cense ta es under the nterna revenue aws appcabe to deaers n Into -
catng quors, and ths notwthstandng the State had estabshed the dspensary
system n the vad e ercse of her poce power. In Oho v. I cverng (292
U. S., 3 0 Ct. D. me, C. . III-, 531 (1934) ), It was shown that Oho, n the
e ercse of the same power, had created a monopoy of the dstrbuton and sae
of nto catng quors through stores owned, managed, and controed e cusvey
by the State. It was sought to en|on the Commssoner of Interna Revenue and
hs subordnates from enforcng aganst the State, her offcers, agents, and
empoyees, penates for the nonpayment of edera e cses on the sae of quor.
eef was dened and the vews e pressed n the South Carona case were
reaffrmed. In everng v. Powers (293 U. S., 214 Ct. D. 900, C. . III-2, 213
(1934) ), the Court found that Massachusetts, In the e ercse of the poce
power, had apponted a board of trustees to operate a street raway company s
propertes for a mted tme. It was hed that though the trustees were State
offcers, ther saares were sub|ect to edera ncome ta because the State coud
not wthdraw sources of revenue from the edera ta ng power by engagng
n a busness whch went beyond usua governmenta functons and to whch,
by reason of ts nature, the edera ta ng power woud normay e tend.
The egsaton consdered n South Carona v. Unted States, supra, provded
for a dvson of the profts of the dspensary system between the State treasury
and ctes and countes. Thus the enterprse contrbuted drecty to the sus-
tenance of every governmenta actvty of the State. In the present nstance,
nstead of coverng the proceeds or profts of the e hbtons nto the State
treasury, the pan n actua operaton approprates these moneys n ease of
what the State deems ts governmenta obgaton to support a system of pubc
educaton. The dfference n method s not sgnfcant. The mportant fact Is
d ,S.,u 1 P,t thetc fecs arc not treated as admssons sub|ect to the ta . See Cumuatve
uetn M-2 ( uy-Dwember, 1932), page 522.
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535
Regs. 43(1932), rt. I.
that the State, In order to rase funds for pubc purposes, has embarked n a
busness havng the ncdents of smar enterprses usuay prosecuted for
prvate gan. If t be conceded that the educaton of ts prospectve ctzens s
an essenta governmenta functon of Georga, as necessary to the preservaton of
the State as s the mantenance of ts e ecutve, egsatve, and |udca branches,
It does not foow that f the State eects to provde the funds for any of these
purposes by conductng a busness, the appcaton of the avas n ad of neces-
sary governmenta functons wthdraws the busness from the hed of edera
ta aton.
Under the test ad down In everng v. Ocrhardt decded ths day Ct. D.
1343. page 24 , ths uetn however essenta a system of pubc educaton to
the e stence of the State, the conduct of e hbtons for admssons pad by the
pubc s not such a functon of State government as to be free from the burden
of a nondscrmnatory ta ad on a admssons to pubc e hbtons for whch
an admsson fee s charged.
The opnon n South Carona v. Unted States, supra, at pages 454-457, ponts
out the destructon of the edera power to ta whch mght resut from a
contrary decson.
Moreover the mmunty mped from the dua soveregnty recognzed by the
Consttuton does not e tend to busness enterprses conducted by the States
for gan. s was sad n South Carona v. Unted State . supra, at page 457:
Lookng, therefore, at the Consttuton n the ght of the condtons surround-
ng at the tme of ts ndopton, t s obvous that the framers n grantng fu
power over cense ta es to the Natona Government meant that that power
shoud be compete, and never thought that the States by e tendng ther func-
tons coud practcay destroy t. (Compare everng v. TherreU, No. 128,
October term, 1937.) The decree s
Reversed.
Mr. ustce Cardozo took no part n the consderaton or decson of ths case.
Mr. ustce ack concurs n the resut.
M . USTIC D CON CLTtS IN T R SULT.
cept for the hodng that n|uncton s a proper remedy to test the poston
of the regents, I agree wth the opnon of the Court. s even n sma breach n
the genera scheme of ta aton gves an openng for the dsorganzaton of the
whoe pan, t seems desrabe to e press dssent from the concuson that the
regents may utze the summary remedy of n|uncton, over the ob|ecton of the
Government, as a means of testng the appcabty of a ta aw to them.
The facts set out n the opnon of the crcumstances and agreement under
whch the money threatened to be dstraned was coected make It qute cear,
t seems to me, that the regents coected ta moneys from the spectators. ny
aegaton n the petton to the contrary s an erroneous concuson of aw. The
coector sought to cover ths money nto the Treasury. Secton 502(a) of the
Revenue ct of 192 secton 07 of the Revenue ct of 1934 and secton 3224
Mngng he thought of proft wth the necessty of reguaton may Induce the State
to take possesson, In ke manner, of tobacco, oeomargarne, and n other ob|ects of
Interna revenue ta . If one State fnds t thus proftabe other States may foow, and
the whoe body of nterna revenue ta be thus strcken down. (Page 454.)
The same argument whch woud e empt the sae by a State of Tcuor, tobacco, etc.,
from a cense ta woud e empt the mportaton of merchandse by a State from Import
nty. (Page 405.) (Compare oard of Trustee v. Unted States, 289 U. S., 48, 59.)
Obvousy, If the power of (he State Is carred to the e tent suggested, and wth t
reef from a edera ta aton, the Natona Government woud be argey crpped
n ts revenues. Indeed, f a the States shoud concur n e ercsng ther powers to the
fu e tent, t woud be amost mpossbe for the Naton to coect any revenues. In
other words, n ths Indrect way t woud bo wthn the competency of the States to
nractcay destroy the effcency of the Natona ( overnmen(. (Page 455.)
mSec. 502. (a) very person recevng any payments for such admsson, dues, or
ff-es sha coect the amount of the ta Imposed by secton 500 or 501 from the person
makng such payments. very cub or organzaton havng fe members sha coect
from snch members the amount of the ta mposed by secton 501. Such persons sha
make monthy returns under onth. In dupcate and pay the ta es so coected to the
( ector of the dstrct In whch the prncpa offce or pace of busness s ocated.
If. S. C, Tte 20, sectons 955, 950.)
Sec. 07. nforcement of abty for ta es coected. Whenever any person s
requred to coect or wthhod any nterna revenue ta from any other person and to
Pay such ta over to the Unted States, the amount of the ta so coected or wthhed
ha be hed to be a speca fund In trust for the Unted States. The amount of such
fond sha be assessed, coected, and pad n the same manner and sub|ect to the same
provsons and mtatons (Incudng penates) as are appcabe wth respect to the
ta es from whch such fund arose. (U. S. C Tte 2 . secton 1551.)
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Regs. 43, rt. 29.
53
of the Revsed Statutes, make t cear that no n|uncton w e to restran
such acton.3
Secton 3224 was enacted n 18 7 and unt recent years was foowed by the
courts wthout devaton. ceptons were made to protect ta payers aganst
coecton of penates.23 In an e ceptona case of speca and e traordnary
crcumstances, where a vad ta coud by no ega possbty have
been assessed aganst respondent ths Court permtted an n|uncton.
Speca and e traordnary crcumstances have mutped. ere the ower
court found them demonstrated by the fact that the regents had actuay pad
the ta n former years, and fed a cam for refund whch was dened on the
ground that they had not borne the burden of any part thereof. It may be as-
sumed, and pettoner admts, that respondents may not pay the moneys and
then sue to recover them. The faacy underyng the opnon of the Court s
the assumpton that some remedy s necessary. Respondents, beng merey
coectors of ta moneys, are not entted ether to en|on coecton of these
moneys or to pay and sue to recover them.
There s no reason why the State of Georga shoud rsk or ask ts agents to
rsk penates to determne whether ths ta s coectbe. Respondents woud
ose nothng by coectng the ta and turnng t over to the Unted States. If
they desre to stand upon ther own concepton of the aw and refuse to coect
the ta , they must take the rsks of such acton. very other ta payer or
coector of admsson ta es must make the same choce.
The prompt coecton of revenue s essenta to good government. Summary
proceedngs are a matter of rght.25 The Government has been seduous to man-
tan a system of correctve |ustce. ny departure from the prncpe of pay
frst and tgate ater threatens an essenta safeguard to the ordery functon-
ng of government. ere an n|uncton s approved when the pettoner beow
had tte more egtmate nterest n the coecton of the ta than a curosty
to know whether the customers of ts athetc spectaces, the rea ta payers,
were consttutonay sub|ect to such an e acton.
I am authorzed to say that Mr. ustce Stone concurs n ths opnon. Mr.
ustce ack concurs n ths opnon e cept n so far as t approves the reason-
ng of the Court on the queston of State mmunty from nterference by edera
ta aton.
Congress, by R. S. secton 3224, has decared that No suts for the purpose
of restranng the assessment or coecton of any ta sha be mantaned n
any court. Whe I agree wth the decson of the Court on the merts, I am
not persuaded that ths statute does not mean what t says, or that the sut s
not one to restran coecton of the ta . I can ony concude, as I dd n Mer v.
Standard Nut Margarne Co. (2S4 U. S., 49S, 511), that the statute deprved the
dstrct court of |ursdcton to entertan respondent s sut, and that the |udgment
shoud be reversed wth drecton that the cause be dsmssed.
The rue n Treasury Decson 4749 (C. . 1937-2, 519) that
both ends of an admsson tcket must show the ocaton and seat
or bo number s not appcabe to admsson tckets not sub|ect
to ta .
Sec. 3224. No sut for the purpose of restranng the assessment or coecton of an
ta sha be mantaned In anv court. (U. S. C. Tte -- , secton 1543.)
aUnugc v. Un t (250 ed., 802 (W. I). a.) appea dsmssed. 251 . S., 542) Raston
. ener (24 . (2d), 410 (C. C. . 3)) Cakns v. Smetanka (240 ed., 1.18 ( . P.
111.)) Seaman v. (uaranty Trust Co. of New York (1 . (2d), 391 (S. D. N. Y ) IT. D.
3G0S, C. P.. III-2, 288 (1024) ).
Lpke v. Lederer (25 ) r. S.. 557) Rega Drug Co. v. Warde (200 . S. 38 ).
Mer v. f Margarne Co. (284 U. S.. 408 ft. D. 457, C. . I-1, 370 (1932)1).
2- Cheatham v. r ted Sates (92 . R., 85. 88. 89).
Compare .nnfston Ufa. Co. v. Davs (301 U. S., 337 Ct. D. 1234, C. . 1937-1, 485 ).
M . USTIC STON , CONCURRING IN T R SULT.
S CTION 500(d).
Reguatons 43, rtce 29: Requrements
appcabe to tckets.
1938-8-9209
S.T. 871
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537
Regs. 43(1932), rt. 43
dvce s requested whether the ocaton and seat number must be
shown on both ends of tckets of admsson where the estabshed prce
therefor s ess than 41 cents, or where the admsson charge s 41 cents
or more n the case of regous, educatona, chartabe, or other or-
ganzatons comng wthn the provsons of secton 500(b) of the
Revenue ct of 192 , as amended by secton 711 (c) of the Revenue
ct of 1932 and secton 801 of the Revenue ct of 193 .
The frst paragraph of artce 29 of Reguatons 43 (1932), as
amended by Treasury Decson 4749 (C. . 1937-2, 519), pro-
vdes that f the tcket shows the seat or bo for whch t s vad
the ocaton and seat or bo number must appear on that part of the
tcket whch s taken up by the management as we as on the stub
whch s gven to the patron. The second paragraph of artce 29
states that the provsons of the frst paragraph ot that artce appy
prmary to ta abe admssons, and that as no ta s mposed on
admssons of ess than 41 cents, t s ony necessary that the prce of
such tckets (and the name of the vendor when requred by the ct)
be shown.
ccordngy, tckets of admsson the estabshed prce of whch s
ess than 41 cents need not have the ocaton and seat number on both
ends of the tckets. In the case of regous, educatona, chartabe,
and other organzatons comng wthn the provsons of secton
500(b) of the Revenue ct of 192 , as amended, conductng affars
where the charge for admsson s 41 cents or more, where the organ-
zaton has estabshed to the satsfacton of the tcket prnter that t
has been granted e empton from the coecton of ta by the coector
of nterna revenue, t s not necessary that the ocaton and seat or bo
number appear on both ends of such tckets.
S CTION 502 O T R NU CT O 192 , S M ND D Y S C-
TION 414 O T R NU CT O 1928.
Reguatons 43(1932), btce 43: Duty to 1938- -9190
coect, return, and pay ta . Ct. D. 1304
D R L T S R IS D ST TUT S R NU CTS OP 1928, 1932, ND
1934 D CISION O COURT.
1. dmssons Ta cton to nforce Patmknt of Ta es Co-
ected by State Instrumentaty ur.sncToN of Court.
In an acton by the Unted States aganst a State and Its nstru-
mentates to enforce payment to the coector of nterna revenue
of ta es coected by the State unversty on admssons to athetc
events, the dstrct court has |ursdcton under the provsons of
secton 3213 of the Revsed Statutes and secton 17(b) of the Reve-
nue ct of 1928, rrespectve of the fact that the State and Instru-
mentates thereof are partes to the sut
2. Consttutonaty empton vdence.
On a moton to dsmss, the consttutonaty of the admssons ta
may not be tgated by a coectng agent whch hods n trust the
amount of the ta coected. The e empton of State agences and
nstrumentates from edera ta aton s mted to those whch
are strcty governmenta n character, and the character of the
actvty s a queston of fact to be determned by the evdence and
not merey on an assumpton of the facts aeged n the compant.
83421 38 18
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Regs. 43(1932), rt. 43.
538
Dstrct Coubt of the Unted States fob the Dstrct of Mnnesota, Thrd
. Dvson.
Unted States of merca, pantff, v. State of Mnnesota, uus . Schmah,
Treasurer of the State of Mnnesota, and Unversty of Mnnesota, a Pubc
Corporaton, defendants.1
September 29, 1937.
ORD R.
The defendants moton to dsmss the above entted acton was presented
to ths court uy 12, 1937, at the edera udng, Mnneapos,
Mnn. refs were fed on behaf of the respectve partes and the moton fnay
submtted to the court on September 17, 1937.
On the b of compant, the brefs and arguments of counse, and on due
consderaton, t s
Ordered, That sad moton be and t hereby s dened.
The defendants are aowed an e cepton and twenty (20) days from the
date hereof n whch to answer.
M MOR NDUM.
e, D. .: Ths s an acton n equty brought by the Unted States as
pantff aganst the State of Mnnesota, C. . avorson, treasurer of the State
of Mnnesota, and the Unversty of Mnnesota, a pubc corporaton, as de-
fendants. The defendants have presented a moton to dsmss the compant
It s aeged that durng the perod 1932 to 193 , ncusve, the Unversty
of Mnnesota conducted certan athetc events to whch spectators were
admtted on the payment of admsson charges and that a ta equa to 10
per cent of the admsson prce to be pad by the person payng the admsson
was mposed by secton 500 of the Revenue ct of 192 (44 Stat, 9), as amended
by secton 711 of the Revenue ct of 1932 (47 Stat, 1 9) that the aw made
the duty of the one recevng payment of the admssons to coect the ta
and to pay the amount coected to the coector of nterna revenue that
the unversty sod admssons durng sad perod totang 918,554.80 on whch
It coected ta es for the Unted States n the sum of 91,855.48 that an as-
sessment for ths sum, wth nterest, has been made, notce and demand for
payment has been served, and sad sum has not been pad.
It s further aeged that the fund thus coected by the unversty was
deposted wth and s now hed by the treasurer of the State of Mnnesota
that the defendants heren receved the money n a fducary capacty and
that t s a speca fund hed n trust for the Unted States under secton 07
of the Revenue ct of 1934 (48 Stat, 80).
It s further aeged that the fund s beyond the reach of ega process that
there s not a pan, adequate and compete remedy at aw and that the
pantff has a en on the property of the unversty for the amount due.
The defendants base ther moton to dsmss on two grounds frst, that the
court s wthout |ursdcton, and second, that the compant does not state a
cause of acton.
The |ursdctona queston cams frst attenton. The defendants contend
that ths s a sut by the Unted States aganst the State of Mnnesota and that
under secton 2, rtce III of the Consttuton of the Unted States and
secton 233 of the udca Code (28 U. S. C. , 341), the Supreme Court of the
Unted States has e cusve orgna |ursdcton. The State of Mnnesota, ts
treasurer as such, and the Unversty of Mnnesota are named as defendants.
sut aganst a State offca for the purpose of compeng acton by hm
whch, n effect, woud amount to compeng acton by the State tsef s
equvaent to a sut aganst the State. (In re: yers, 123 U. S., 443.) The
facts here brng ths case wthn that rue. The unversty s an nstrumen-
taty of the State. (State v. Chase, 175 Mnn., 259.) The money was coected
by the unversty and has been deposted n the State treasury, and ths s a
sut aganst the State and an nstrumentaty of the State. Secton 233 of the
udca Code (28 U. S. C. ., 341), enacted n substantay ts present form
n 1789, confers e cusve |ursdcton of a controverses of a cv nature
where a State s a party on the Supreme Court of the Unted States.
1 Not pubshed In edera Reporter.
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539
Regs. 43(1932), rt. 43.
owever, the pantff contends that concurrent |ursdcton s conferred on
the dstrct courts n cases to coect ta es and enforce the revenue aws by
secton 3213 of the Revsed Statutes (2 U. S. C. ., 1 44, 1 45), enacted
March 3. 1911. and by secton 17(b) of the Revenue ct of 1928 (2 U. S. C. .,
1523, 1 9S).
Secton 3213 of the Revsed Statutes provdes:
Ta es may be sued for and recovered n the name of the Unted States n
any proper form of acton, before any dstrct court of the Unted States, for
the dstrct wthn whch the abty to such ta s ncurred, or where the
party from whom such ta s due resdes at the tme of the commencement
of the sad acton. (2 U. S. C. ., 1 44.)
It sha be the duty of the coectors, n ther respectve dstrcts, sub|ect
to the provsons of ths tte, to prosecute for the recovery of any sums whch
may be forfeted by aw. (2 U. S. C. ., 1 45(a).)
suts for fnes, penates, and forfetures, where not otherwse provded
for, sha be brought n the name of the Unted States, n any proper form of
acton, or by any approprate form of proceedng, qu tam or otherwse, before
any dstrct court of the Unted States for the dstrct wthn whch sad fne,
penaty, or forfeture may have been ncurred, or before any other court of
competent |ursdcton. (2 U. S. C. ., 1 45 (c).)
Secton 17 of the Revenue ct of 1928 provdes:
If any person s summoned under the nterna-revenue aws to appear, to
testfy, or to produce books, papers, or other data, the dstrct court of the
Unted States for the dstrct n whch such person resdes sha have |ursdc-
ton by approprate process to compe such attendance, testmony, or producton
of books, papers, or other data. (2 U. S. C. ., 1523.)
The dstrct courts of the Unted States at the nstance of the Unted States
sha be nvested wth such ursdcton to make and ssue, both n actons at
aw and n suts n equty, wrts and orders of n|uncton, and of ne e eat re-
pubca, orders appontng recevers, and such other orders and process, and to
render such |udgments and decrees, grantng n proper cases both ega and
equtabe reef together, as may be necessary or approprate for the enforce-
ment of the nterna revenue aws. The remedes hereby provded are n
addton to and not e cusve of any and a other remedes of the Unted
Stes n such courts or otherwse to enforce such aws. (2 U. S. C. ., 1 98.)
It s not dsputed that Congress has the power to nvest the dstrct courts
wth |ursdcton of suts to coect ta es and to enforce the revenue aws, but
the queston here s whether Congress has done so. n acton to enforce a
trust created by aw to enabe the Government to coect ta es comes wthn
the meanng of secton 3213 of the Revsed Statutes. (Unted States v. Updke,
281 U. S., 489 Ct. D. 192, C. . I -1, 228 (1930) .) Under the prncpes of
that case and the facts aeged n the compant heren, there s no escape from
(he concuson that ths s an acton to enforce the coecton of ta es. Secton
3213 e pressy confers |ursdcton on the dstrct courts of the Unted States
of suts for the coecton of ta es and that has been the nterpretaton of the
courts. Unted States v. ver, 12 . (2d), 194 T. D. 38 9, C. . -, 397
(192 ) anch v. Domenech, 77 . (2d), 911 Unted States v. Nashve G.
St. L. Rwy. Co., 249 ., 78, 83.) The anguage of secton 17 of the Rev-
enue ct of 1928 s no ess comprehensve n ts scope than secton 3213 of the
Revsed Statutes. Ceary, Congress ntended to confer |ursdcton on the
dstrct courts of suts to coect ta es and to enforce the revenue aws and
has used adequate anguage n both sectons to do so rrespectve of the
character of the partes nvoved.
The statutes do not e pressy provde that the dstrct courts sha have
ursdcton over an acton by the Unted States aganst a State to coect
ta es or enforce the revenue aws, but that s not necessary the anguage of
the statutes, together wth the prncpes enuncated n Unted States v. Ca-
forna (297 U. S., 175), make t obvous that Congress hns such power and has
e ercsed t. The reasons are cogent Under modern ta aws and the e ten-
son of governmenta actvtes, numerous controverses necessary w arse
between the States and the Unted States. The dstrct courts, because of ther
mted terrtora ursdcton and for other reasons, afford nn approprate
trbuna for the determnaton of such controverses whe the Supreme Court of
the Unted States can not convenenty render such servce. Suts nvovng
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Regs. 43(1932), rt. 43. 540
such matters propery shoud be tgated n a ns prus court and the tme
of the Supreme Court of the Unted States shoud be conserved for the
functons of a court of ast resort.
The defendants contend that the compant fas to state a cause of acton,
because the aw mposng the ta Is unconsttutona n ts appcaton to the
unversty. On ths queston, as presented by the moton, the way for ths court
has been desgnated by the Unted States Crcut Court of ppeas for ths
crcut n the case of the Unted States v. rst Capta Natona ank of Iowa
Cty (89 . (2d), 11 Ct. D. 127 , C. . 1937-2, 531 ), wheren the court sad:
y vrtue of the Unted States statutes (secton 500(a) of the Revenue ct
of 192 , as amended by secton 711 of the Revenue ct of 1932 (2 U. S. C. .,
secton 940 and note) and secton 502 of the Revenue ct of 1928 (2 U. S. C. .,
sectons 955 b, c, d, 95 , 957)), the board n contro undertook to coect and dd
coect the edera ta on such admssons. It was the duty of the board n
contro to account for the money coected (see secton 502(a) (c) (d), 28
U. S. C. ., sectons 955 b, c, 95 , 957).
The unversty fsca authortes knew that the board In contro was actng
as coectng agent for the edera ta , and acquesced n ths actvty.

Whatever the reaton whch e sted between the board n contro and the
Unversty of the State of Iowa, when the board n contro, wth the consent of
the Unversty of the State of Iowa, undertook to act and dd act as coectng
agent for the Unted States n the coecton of the edera admsson ta , ts
reatonshp wth the Unversty of the State of Iowa wth respect to the edera
ta coected became of secondary mportance. It was governed, whe so actng
for the Unted States, by the statutes of the Unted States, and the reguatons
ssued thereunder. The bank under the crcumstances e stng n the nstant
case was certany n no poston to assert that the ta moneys so coected by
the board were funds beongng to the Unversty of the State of Iowa.

The State unversty, havng acquesced In the coecton of the admsson
ta es for the Unted States by the board In contro, may not n ths acton aganst
the bank assert ownershp n tsef of the edera ta es so coected.
The tra court has hed that the vadty of the edera ta can not be
tgated by the defendants In the present acton. We are n accord wth ths
hodng.
We fnd n the record no ground upon whch can be ustfed the attempt by
ndrecton to prevent the money coected as a edera ta from beng sur-
rendered to the Unted States.
The pantff aeges that the actvtes are ta abe. The defendants contend
that the functon performed by the unversty n conductng the athetc events
s governmenta n character and therefore not ta abe. ven though the un-
versty s an nstrumentaty of the State, t does not necessary foow that
the athetc events conducted by It, as mentoned In the compant, are essenta
to Its governmenta functons and therefore e empt from ta aton. ( rush v.
Commssoner, 300 U. S., 352.) The States now are engaged n many enter-
prses not strcty governmenta n character whch are ta abe by the Unted
States, such as the sae of nto catng quor (South Carona v. Unted States,
199 U. S., 437 Oho v. cverng, 292 U. S., 3 0) the operaton of a street
raway company ( everng v. Powers, 293 U. S., 214) conductng a bank
(North Dakota v. Oson, 33 . (2d), 848) and operatng an nsurance qu-
datng bureau n connecton wth the State Insurance department ( eLoughn
v. Commssoner, 89 . (2d), 99). The States can not wthdraw sources of
revenue from the edera Government by engagng n enterprses whch go
beyond the usua governmenta functons and to whch the edera ta ng
power normay woud e tend. The fact that a State has power to undertake
such enterprses and do so for the pubc wcfnre, does not estabsh Immunty.
The e empton of State agences and nstrumentates from ta aton by the
edera Government s mted to those that are strcty governmenta n
character. Whether the functon s that character of governmenta actvty
e empt from ta aton may propery be a queston of fact to be determned by
the evdence and not merey on an assumpton of the facts aeged n the
compant.
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541
Regs. 43(1932), rt. 43.
The suggeston of the Unted States Crcut Court of ppeas for the fth
Crcut n Regents of the Unversty System of Georga v. Page (81 . (2d),
577). appes here:
We deem t premature at ths tme to make any announcement on the
asserted cam of abty for the ta or obgaton to coect t. consttu-
tona queston of great mportance s nvoved. The correct answer to t Is
more apty to be found n a panstakng e amnaton of the facts and crcum-
stances n evdence than In harspttng techncates of peadng, however
necessary such rues may be ordnary. The aw arses out of the facts n a
eases, but, n determnng what nstrumentates of a State are e empt from
ta aton by the edera Government, the ma m requres speca emphass.
Lega formuas are hepfu to cassfy State actvtes, but In cose cases t
becomes necessary to e amne the partcuar facts to determne whether the
speca nstrumentaty fas wthn the category of prvate busness sub|ect
to ta or governmenta functon e empt therefrom.
Ths memorandum Is hereby made a part of the foregong order.
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Regs. 71(1932).
542
TITL III O T R NU CT O 192 , S
M ND D. ST MP T S.
Reguatons 71 (1932). 1938 -24-9388
T. D. 480
mendng Reguatons 71 (revsed uy, 1932) to gve effect to
certan egsatve enactments reatng to the documentary stamp
ta es.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 71 (revsed uy, 1932) as amended by Treasury Dec-
son 4701, approved October 1 , 193 C. . -2, 3 2 (193 ) , are
further amended as foows:
Chapter I s amended as foows:
(1) The subtte mmedatey precedng the quotaton of subsec-
ton (c) of secton 721 of the Revenue ct of 1932 and precedng
artce 4, whch reads
Secton 721(c) of the Revenue ct of 1932
s emnated, and the foowng new subtte s substtuted n eu
thereof:
Secton 721(c) of the Revenue ct of 1932, as amended by the ct of
une 10, 1033 (Secton 212, 48 Stat., 20 ), by ont Resouton No. 3
(49 Stat., 431), approved une 28, 1935, and as further amended by
ont Resouton No. 48 (50 Stat., 358), approved une 29, 1937.
(2) The date uy 1, 1934, appearng n the quotaton of subsec-
ton (c) of secton 721 mmedatey foowng the above subtte s
changed to read uy 1,1939.
(3) new artce s desgnated rt. 24 and readng as foows
s added mmedatey foowng artce 24:
rt. 24 . onds ssued n reorganzaton under ankruptcy ct. onds ssued
to make effectve any pan of reorganzaton confrmed under the provsons of
secton 77(1) or secton 77 (f) of the ankruptcy ct are e empt from ta .
Chapter II s amended as foows:
(1) The subtte mmedatey precedng the quotaton of subsecton
(c) of secton 722 of the Revenue ct of 1932 and precedng artce 25,
whch reads
Secton 722(c) of the Revenue ct of 1932
s emnated, and the foowng new subtte s substtuted n eu
thereof:
Secton 722(c) of the Revenue ct of 1932, as amended by the ct of
une 1 , 1933 (Secton 212, 48 Stat., 20 ), by ont Resouton No. 3
(49 Stat., 431), approved une 28, 1935, and as further amended by
ont Resouton No. 48 ( 50 Stat, 358), approved une 29, 1937.
(2) The date uy 1,1934, appearng n the quotaton of subsec-
ton (c) of secton 722 mmedatey foowng the subtte s changed
to read uy 1,1939.
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543
Regs. 71(1932).
(3) new paragraph desgnated ( ) and readng as foows s
added to artce 29 mmedatey foowng subparagraph (|) :
k) The ssue of stoc-k to make effectve any pan of reorganzaton confrmed
under the provsons of secton 77() or secton 77 (f) of the ankruptcy ct.
Chapter III s amended as foows:
(1) Immedatey foowng the quotaton of Schedue -3 of Tte
III of the Revenue ct of 192 , as amended, as substtuted by
Treasury Decson 4701, and whch precedes artce 31, a new subtte
s nserted readng
Secton 723(c) of the Revenue ct of 1932, as amended by the ct of
une 1 , 1933 (Secton 212, 48 Stat., 200), by ont Resouton No. 3
(49 Stat., 431), approved une 28, 1935, and as further amended by
ont Resouton No. 48 ( 50 Stat., 358), approved une 29, 1937.
nd mmedatey foowng such new subtte there s nserted a quo-
taton of secton 723(c) of the Revenue ct of 1932, as amended,
whch reads as foows:
(c) ffectve uy 1, 1939, such subdvson 3, as amended by sub-
secton (a) of ths secton, s amended by strkng out 4 cents wher-
ever apearng n such subdvson and nsertng n eu thereof 2
cents, and by strkng out the foowng: n case the seng prce, f
any, s 20 or more per share the above rate sha be 5 cents nstead of
4 cents: Provded further, That .
(2) new subparagraph desgnated ( ) and readng as foows
s added to artce 35 mmedatey foowng subparagraph (t):
( ) Transfers of shares or certfcates of stock to make effectve any pan of
reorganzaton confrmed under the provsons of secton 77(1) or secton 77 (f)
of the ankruptcy ct.
Chapter I s amended as foows:
(1) The subtte mmedatey foowng the chapter headng and
readng
Schedue - of Tte III of the Revenue ct of 192 , as amended by
secton 72 (a) of the Revenue ct of 1932
s emnated, and the foowng new subtte s substtuted n eu
thereof:
Schedue of Tte III of the Revenue ct of 1928, as amended by
secton 72 (a) of the Revenue ct of 1932, and further amended by
secton 12(a) of the Revenue ct of 1934.
(2) The rate 5 cents appearng twce n the frst sentence of the
quotaton of Schedue -4 mmedatey foowng the above subtte
s changed to read 3 cents.
(3) The subtte mmedatey precedng the quotaton of subsec-
ton (c) of secton 72 of the Revenue ct of 1932 and precedng art-
ce 41, whch reads
Secton 72 (c) of the Revenue ct of 1932
s emnated, and the foowng new subtte s substtuted n eu
thereof:
Secton 72 (c) of the Revenue ct of 1932, as amended by the ct of
une 1 , 1933 (Secton 212, 48 Stat., 20 ), by Secton 12(b) of the
Revenue ct of 1934, by ont Resouton No. 3 ( 49 Stat., 431), ap-
proved une 28, 1935, and as further amended by ont Resouton No.
48 (50 Stat., 358), approved une 29,1937.
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Regs. 71 (1932). 544
(4) The date uy 1, 1934, and the rate 5 cents appearng n
the quotaton of subsecton (c) of secton 72 mmedatey foowng
the above subtte are changed to read, respectvey, uy 1, 1939,
and 3 cents.
(5) The rate 5 cents appearng n artce 42 s changed to read
3 cents.
Chapter III s amended as foows:
(1) The subtte mmedatey foowng the chapter headng and
readng
Schedue -8 of Tte III of the Revenue ct of 192 , as added by sec-
ton 725 of the Revenue ct of 1932
s emnated, and the foowng new subtte s substtuted n eu
thereof:
Schedue -8 of Tte III of the Revenue ct of 192 , as added by
Secton 725 of the Revenue ct of 1932, as amended by the ct of
une 1 , 1933 (Secton 212, 48 Stat., 20 ), by ont Resouton No.
3 (49 Stat., 431), approved une 28, 1935, and as further amended
by ont Resouton No. 48 (50 Stat., 358), approved une 29, 1937.
(2) The date uy 1,1934, appearng n the quotaton of Sched-
ue -8 mmedatey foowng the above subtte s changed to read
uy 1, 1939.
(3) new artce desgnated rt. 118 and readng as foows
s added mmedatey foowng artce 118:
rt. 118 . Conveyance to effectuate pan of reorganzaton. conveyance
of rea estate to make effectve any pan of reorganzaton confrmed under
the provsons of secton 77(1) or secton 77 (f) of the ankruptcy ct, a
not sub|ect to ta .
Chapter I s amended as foows:
(1) The subtte mmedatey precedng the quotaton of subsec-
ton (c) of secton 724 of the Revenue ct of 1932 and precedng
artce 119, whch reads
Secton 724(c) of the Revenue ct of 1932
s emnated, and the foowng new subtte s substtuted n eu
thereof:
Secton 724(c) of the Revenue ct of 1932, as amended by the ct of
une 1 , 1933 (Secton 212, 48 Stat, 20 ), by ont Resouton No. 3
(49 Stat, 431), approved une 28, 1935, and as further amended by
ont Resouton No. 48 (50 Stat, 358), approved une 29, 1937.
(2) The date uy 1, 1934, appearng n the quotaton of sub-
secton (c) of secton 724 mmedatey foowng the above subtte
s changed to read uy 1,1939.
(3) The foowng new sentence s added to artce 120 at the end
of the fourth paragraph:
Nor s any ta mposed upon deveres or transfers of bonds to make effec-
tve any pan of reorganzaton confrmed under the provsons of secton 77(1)
or secton 77 (f) of the ankruptcy ct
Chapter s amended as foows:
(1) The subtte mmedatey precedng the quotaton of secton
805(a) of the Revenue ct of 192 and precedng artce 128, whch
reads
Sectons 805(a) and 807 of the Revenue ct of 192 and secton 808 of
the Revenue ct of 192 , as added by secton 443 of the Revenue ct
of 1928
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545
Regs. 71 (1932).
s emnated, and the foowng new subtte s substtuted n eu
thereof:
Sectons 805(a) and S07 of the Revenue ct of 192 and secton 808 of
of the Revenue ct of 192 , as added by secton 443 of the Revenue
ct of 1928, and as amended by the ct of March 1, 1933 (47 Stat.,
1413).
(2) That porton of the frst sentence of the quotaton of secton
808 appearng under the above subtte and readng
n ctes of over 25,000 nhabtants
s changed to read
n a post offces of the frst and second casses and such post offces
of the thrd and fourth casses as are ocated n county scats.
(3) The phrase appearng at the end of artce 130 and readng
n ctes of over 25,000 nhabtants
s changed to read
n a post offces of the frst and second casses and such post offces of the
thrd and fourth casses as are ocated n county seats.
(4) Immedatey foowng the quotaton of secton 317 of the
Revsed Statutes, as amended, whch appears under the subheadng
dmnstratve Provsons, a new subtte s nserted readng
Secton 40 of the Revenue ct of 1935
and mmedatey foowng such new subtte there s nserted a
quotaton of secton 40 of the Revenue ct of 1935, whch reads as
foows:
In the case of a faure to make and fe an nterna-revenue ta
return requred by aw, wthn the tme prescrbed by aw or pre-
scrbed by the Commssoner n pursuance of aw, f the ast date so
prescrbed for fng the return s after the date of the enactment of
ths ct, f a 25 per centum addton to the ta s prescrbed by e st-
ng aw, then there sha be added to the ta , In eu of such 25 per
centum: 5 per centum f the faure s for not more than 30 days, wth
an addtona 5 per centum for each addtona 30 days or fracton
thereof durng whch faure contnues, not to e ceed 25 per centum
n the aggregate.
(5) The subtte mmedatey precedng the quotaton of secton
1108(a), as amended, under the subheadng Reguatons, and pre-
cedng artce 149, whch read
Retroactve Reguatons
Secton 1108 of the Revenue ct of 192 , as amended by secton 05
of the Revenue ct of 1928
s emnated, and the foowng new subtte s substtuted n eu
thereof:
Retroactvty of Reguatons, Rungs, etc.
Secton 1108 of the Revenue ct of 192 , as amended by secton 05 of
the Revenue ct of 102S, and as further amended by secton 50
of the Revenue ct of 1934.
( ) The quotaton of secton 1108(a) mmedatey foowng the
above subtte and readng
(a) In case a reguaton or Treasury decson reatng to the nterna-
revenue aws s amended by a subsequent reguaton or Treasury
decson, made by the Secretary or by the Commssoner wth the
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71. rt. 84. 54
approva of the Secretary, such subsequent reguaton or Treasury
decson may, wth the approva of the Secretary, be apped wthout
retroactve effect
s changed to read
(a) The Secretary, or the Commssoner wth the approva of the
Secretary, may prescrbe the e tent, f any, to whch any rung, regua-
ton, or Treasury decson, reatng to the nterna-revenue aws, sha
be apped wthout retroactve effect.
Ths Treasury decson s ssued under authorty prescrbed n
secton 1101 of the Revenue ct of 192 .
Gut T. everng
Commssoner of Interna Revenue.
pproved une 1, 1938.
ROSW LL MaG LL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une , 1938, 9. 4 a. m.)
SC DUL -8 O TITL III O T R NU CT O 192 , S
DD D Y S CTION 725 O T R NU CT O 1932 -
CON Y NC S.
Reguatons 71, rtce 84: What consttutes 1938-18-9320
rea property determnabe by aw of State S. T. 872
where ocated.
n o and gas ease coverng ands In ansas whch merey grants
a cense for the purpose of mnng and operatng for o and gas s
not sub|ect to stamp ta as a conveyance of reaty. n nstrument
coverng ands n that State whch grants, ses, and conveys to the
grantee an undvded nterest n and to a of the o and gas and
other mneras n and under certan ands resuts n a conveyance
of reaty whch s sub|ect to stamp ta .
S. T. 8C8 (I. R. . I-43, 19 (1937)) modfed.
dvce s requested whether S. T. 8 8 (C. . 1937-2, 527) s
appcabe to o and gas eases n ansas whch merey grant the
essee a cense to mne and operate for o and gas on ands n that
State.
Schedue -8 of Tte III of the Revenue ct of 192 , as added
by secton 725 of the Revenue ct of 1932, mposes a stamp ta on
any Deed, nstrument, or wrtng whereby any
ands, tenements, or other reaty sod sha be granted, assgned,
transferred, or otherwse conveyed to, or vested n, the purchaser or
purchasers when the consderaton or vaue of the nterest
or property conveyed, e cusve of the vaue of any en or encum-
brance remanng thereon at the tme of sae, e ceeds 100 .
What consttutes ands, tenements, or other reaty s determnabe
by the aw of the State n whch the property s stuated. ( rtce
84, Reguatons 71.)
It s ponted out that the queston consdered by the court n Rch-
ards v. Shearer ( 4 Pac. (2d), 5 ), cted n S. T. 8 8, supra, was
whether a conveyance of an nterest n mneras n ansas ands
was a conveyance of reaty and that the decson that t was such
a conveyance s not controng n respect of o and gas eases whch
:
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547
Regs. 71, rt. 84.
merey grant a cense to mne and operate and convey no nterest
n the and. Severa court decsons are cted n support of the con-
tenton that such eases are not conveyances of reaty. The dstnc-
ton between the two casses of nstruments s ceary drawn n the
decson of the Supreme Court of ansas n Shaffer v. ansas arm-
ers Unon Royaty Co. et a. ( 9 Pac. (2d), 4) wheren the foowng
anguage was used:
Generay speakng, n ths State as we as esewhere, o operators do not
care to own the entre estate n o or gas producng ands. They operate n
the man under one of two types of nstruments e ecuted by the andowner.
One of these, and the one used for operatng purposes, s what s commony
known as an o and gas ease. Whe these are not a unform as to ther
provsons, bascay they authorze the essee or grantee named theren to go
upon the and and e pore and produce o or gas therefrom. Under such
nstruments the essee has the e cusve rght to produce o and gas from
the premses for the tme named n the ease, and to that e tent may be sad
to have an Interest n the o or gas n or under the ground, but the actua
tte thereto does not pass from the andowner to the essee unt t s brought
to the surface and separated from the and.
We are not attemptng here to make any new defnton of the rghts of
the partes under such an nstrument, or to con any new term to appy to
such rghts, but smpy desre to pont out that these nstruments are desgned
for the actua producton of o or gas from and, and ordnary the essee
has no permanent nterest n the and f o or gas s not found theren.
The other type of nstrument frequenty used n the o feds of ths and
other States s one by whch the owner of and conveys to another the o and
gas, or some fracton of t, n or under bs aud. arous names have been
apped to such conveyances. Perhaps the term mnera deed used n ths
ease s the most approprate. (See Gassmre, O and Gas Leases and Royates,
secton 15, et seq.) The forms of these nstruments are not aways the same
one may contan provsons omtted from another but In the man ther
desgn and purpose s to convey to the grantee the o or gas n or under the
and, or some fracton of t, wthout regard to when or by whom t may be
produced and brought to the surface. The grantee n such an nstrument
becomes the owner of a or the stated porton of the o and gas n the and.
Our egsature has recognzed that such an ownershp may be vauabe and
s property dstnct from the remander of the and, and has provded for ts
ta aton separate and apart from the ta aton of the remanng porton of
the and.
or the reasons ndcated, t s hed that o and gas eases whch
merey grant a cense to mne and operate on ands n ansas are
not sub|ect to stamp ta as conveyances of reaty under the provsons
of Schedue -8 of Tte III of the Revenue ct of 192 , as added
by secton 725 of the Revenue ct of 1932. S. T. 8 8, supra, s
modfed accordngy.
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Msc.
548
SIL R PURC S CT.
Reguatons 85. 1938-22-9370
T. D. 4805
Ta on transfers of nterests n sver buon.
Reguatons 85, as amended, Chapters II, I , and amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 85, approved une 19,1934 (reatng to the ta on trans-
fers of nterests n sver buon under subdvson 10 of Schedue
of Tte III of the Revenue ct of 192 , as added by secton 8 of
the Sver Purchase ct of 1934, approved une 19, 1934 (48 Stat.,
1178)), as amended, are further amended as foows:
Chapter II s amended as foows:
The thrd sentence of artce 20 (t) as amended by Treasury Dec-
son 4491 (approved November 2, 1934 C. . III-2. 53 (1934) )
s further amended by strkng out the word metas and nsertng
n eu thereof the word materas.
Chapter I s amended as foows:
(1) The subtte mmedatey precedng the quotaton of secton
805(a) of the Revenue ct of 192 and precedng artce 102, readng
Sectons 805 (a) and 807 (a) and (c) of the Revenue ct of 192 and
secton 808 of the Revenue ct of 192G, as added by secton 443 of
the Revenue ct of 1928.
s emnated and the foowng new subtte s substtuted n eu
thereof:
Sectons 805 (a) and 807 (a) and (c) of the Revenue ct of 192 : and
secton 808 of the Revenue ct of 192 , as added by secton 443 of
the Revenue ct of 1928 and as amended by the ct of March 1, 1933
(47 Stat., 1413).
(2) That porton of the frst sentence of the quotaton of secton
808 appearng under the above subtte and readng
n ctes of over 25,000 nhabtants
s changed to read:
n a post offces of the frst and second casses and such post offces of
the thrd and fourth casses as are ocated n county seats.
(3) The phrase appearng at the end of the frst paragraph of
artce 104 and readng
n ctes of over 25,000 nhabtants
s changed to read:
n a post offces of the frst and second casses and such offces of the thrd
and fourth casses as are ocated n county seats.
Chapter s amended as foows:
(1) Immedatey foowng the quotaton of secton 317 of the
Unted States Revsed Statutes, as amended, whch appears under the
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549
subheadng Records, Statements, and Speca Returns and precedes
artce 120, there s nserted a new subtte readng
Secton 40 of the Revenue ct of 1035.
nd mmedatey foowng such new subtte there s nserted a
quotaton of secton 40 of the Revenue ct of 1935 whch reads as
foows:
In the case of a faure to make and fe an nterna-revenue ta
return requred by aw, wthn the tme prescrbed by aw or prescrbed
by the Commssoner n pursuance of aw, f the ast date so prescrbed
for fng the return s after the date of the enactment of ths ct, f a
25 per centum addton to the ta s prescrbed by e stng aw, then
there sha be added to the ta , n eu of such 25 per centum: 5 per
centum f the faure s for not more than 30 days, wth an addtona
5 per centum for each addtona 30 days or fracton thereof durng1
whch faure contnues, not to e ceed 25 per centum n the aggregate.
(2) The phrase appearng at the end of the frst paragraph of
artce 122 and readng
a penaty of 25 per cent of the amount of the ta
s changed to read:
as amended, and as further modfed by secton 40 of the Revenue ct of 1935,
a penaty amountng to a percentage of the ta as foows: (1) n case the ast
date prescrbed for fng the return s on or before ugust 30, 1935, 25 per
cent, or (2) n case the ast date prescrbed for fng the return s after ugust
30, 1935, 5 per cent f the faure s for 30 days or ess, wth an addtona 5
per cent for each addtona 30 days or fracton thereof durng whch faure
contnues, not to e ceed 25 per cent n the aggregate.
(3) Immedatey foowng the quotaton of secton 3184 of the
Unted States Revsed Statutes, whch appears under the subheadng
Records, Statements, and Speca Returns, and mmedatey pre-
cedes artce 120, there s nserted a new subtte readng
Secton 404 of the Revenue ct of 1935.
nd mmedatey foowng such new subtte there s nserted a
uotaton of secton 404 of the Revenue ct of 1935 whch reads as
oows:
Notwthstandng any provson of aw to the contrary, nterest accru-
ng durng any perod of tme after the date of the enactment of ths
ct upon any nterna-revenue ta (ncudng amounts assessed or co-
ected as a part thereof) or customs duty, not pad when due, sha be
at the rate of per centum per annum.
(4) The frst sentence of the second paragraph of artce 122
readng
If assessment s made of the ta or 25 per cent penaty and payment s not
made wthn 10 days after the ssuance of the form for notce and demand,
based on assessment approved by the Commssoner, there w accrue under
secton 3184, Revsed Statutes, a 5 per cent penaty and nterest at the rate of
1 per cent per month computed on the entre assessment (ncudng penaty, f
any) from 10 days after ssuance of sad form unt date of payment.
s changed to read:
If assessment s made of the ta or penaty for denquency n fng a return
and payment s not made wthn 10 days after the ssuance of the form for
notce and demand, based on assessment approved by the Commssoner, there
w accrue under secton 3184, Revsed Statutes, as modfed by secton 404 of
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Msc. 550
the Revenue ct of 1935, a 5 per cent penaty and Interest at the rate of per
cent per annum computed on the entre assessment (ncudng penaty, f any)
from 10 days after ssuance of sad form unt date of payment.
Ths Treasury decson s ssued under authorty contaned n
secton 1101 of the Revenue ct of 192 .
Gut T. everng,
Commssoner of Interna Revenue.
pproved May 25, 1938.
oswf Mag,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster May 27, 1938, 11.49 a. m.)
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551
Msc.
T S ON TO CCO, SNU , CIG RS, ND
CIG R TT S, TC.
Reguatons 8(1934), rtce 1 9: Penaty and 1938-20-9348
forfeture for removng or conceang artces T. D. 4803
wth ntent to defraud.
M NU CTUR RS O TO CCO.
Penaty and forfeture for removng or conceang artces wth
ntent to defraud. Reguatons No. 8, reatng to the ta es on to-
bacco, snuff, cgars, and cgarettes, aso on cgarette papers and
rubes and purchase and sae of eaf tobacco, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons No. 8, as revsed and approved November 12, 1934, are
amended, as foows:
Chapter , entted Manufacturers of Tobacco, s amended by
strkng out the ctaton Sec. 3244 (R. S., Subsec. 9, as amended)
for the frst sentence of the aws prnted mmedatey precedng
artce 33, and substtutng n eu thereof the ctaton Sec. 9 ( ct
of ugust 27,1894). Chapter s amended further by strkng out
the ctaton Sec. 9 ( ct of ugust 27. 1894) appearng n the
frst ne of the second sentence of the aws prnted mmedatey
precedng artce 33.
rtce 1 9 s amended by strkng out the words fne or penaty
of not more than 500 appearng at the end of the second sentence
thereof, and nsertng n eu thereof the words fne of not more
than 5,000| or be mprsoned for not more than three years, or
both. rtce 1 9 s further amended by strkng out the ctaton
(Sec. 3450, R. S.) at the end of the artce and substtutng therefor
the ctaton (Sec. 3450, R. S., as amended.)
Ths Treasury decson s promugated under the authorty con-
taned n secton 3447, Revsed Statutes.
Gut T. everng,
Commssoner of Interna Revenue.
pproved May 10, 1938.
ROSW LL M GILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster May 12, 1938, 12.3 p. m.)
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TITL I . T ON CIG RS, TO CCO, ND M NU-
CTUR S T R O . (192 )
S CTIONS 400(a) ND 401(a).
Reguatons 8(1928), rtce 72: Rate of ta 1938-2 -9413
on cgars and cgarettes Date effectve Ct. D. 1348
when ta accrues.
( so rtces 43 and 185.)
T ON TO CCO R NU CT O 1920 D CISION O COURT.
1. Cgarettes and To:acco Products Labty fob Ta When
Goods Removed for port but Never ctuay ported.
The manufacturer of cgarettes and tobacco products removed
from the factory for shpment abroad, but stoen and never actuay
e ported, s not reeved from the ta mposed under sectons 400(a)
and 401(a) of the Revenue ct of 192 by reason of the e empton
provsons of that ct or by reason of the prohbton of the Const-
tuton aganst the evyng of any ta or duty upon artces e ported
from any State. In the absence of proof of e portaton prescrbed
by the reguatons the ta was propery assessed.
2. Nature of Ta Imposed Upon Manufacture of Goods and
Not Upon Sae.
The ta Imposed by sectons 400(a) and 401(a) of the Revenue
ct of 102 Is an e cse upon the manufacture of goods and not
a ta upon ther sae, athough the tme of payment s deferred
unt the products are sod or removed for consumpton or sae.
3. Certorar Dened.
Petton for certorar dened pr 25, 1938.
Unted States Crcut Court of ppeas for the ourth Crcut.
R. . Reynods Tobacco Co., appeant, v. O. . Robertson, Coector of Interna
Revenue for the Dstrct of North Carona, appeee.
94 ed. (2d), 1 7.
ppea from the Dstrct Court of the Unted States for the Mdde Dstrct of North
Carona, at Greensboro. t aw.
anuary 4, 1938.
opnon.
Soper, Crcut udge: The R. . Reynods Tobacco Co. sues to recover from
the coector of nterna revenue edera ta es pad under protest on certan
cgarettes and tobacco products manufactured by It at Wnston-Saem, N. O.
The goods were devered on pr 5, 1934, from ts factory to a common carrer
for transportaton to the port of Norfok and thence to foregn purchasers.
fter the goods had eft the factory and were n the course of transportaton,
they were stoen near the cty of Roanoke Rapds, N. C, by bandts and have
never been recovered. s the goods were ntended for e port, they bore In eu
of the reguaton Interna revenue stamps an e port abe upon each package
markng the goods for e portaton.
n appcaton for e port and an e port bond, as provded by Treasury
reguatons, had been e ecuted but as the goods dd not reach the seaboard,
the Commssoner of Interna Revenue on pr 12, 1935, assessed ta es thereon
In the amount of ,22 . 2 under sectons 400(a) and 401(a) of the Revenue
ct of 192 (44 Stat., , 87) and on May 9, 1935, the Tobacco company pad
under protest the ta es demanded together wth Interest and penaty, n the
aggregate sum of ,537.95, whch t now sues to recover wth nterest
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The cam of the manufacturer s that no ta was pnyabe on the goods
because of secton 1 of the ct of ugust 4, 1S8 ( 24 Stat., 218), and secton 1121
of the ct of ebruary 20. 192 (44 Stat., 121, 2 D. S. C. ., 835(a)), whereby
manufactured tobacco and cgarettes removed for e port to a foregn country
s e empted from the ta and because of rtce I, secton 9, cause 5 of the
edera Consttuton whch provdes that no tu or duty sha be ad ou
artces e ported from any State. The poston of the Government on the
contrary s that the ta was mposed upon the manufacture of the goods and
became coectbe upon the wthdrawa of the goods for e port, and that there-
fore the mposton of the ta was not n confct wth the statutes or the
Consttuton. The dstrct |udge adopted the vew of the Unted States and
dsmssed the acton. The same facts were before ths court n R. . Reynods
Tobacco Co. v. Robertson (SO . (2d), 90 ), wheren a temporary n|uncton to
restran the coecton of the ta was dened on the ground that the ta payer
had an adequate remedy at aw In the rght to pay the ta and sue for ts
recovery.
The ta ng statutes, as codfed n 2 U. S. C. ., 700, are as foows:
Sec. 700. Rate of ta .
( ) Tobacco and snuff. Upon a tobacco and snuff manufactured n or
mported nto the Unted States and sod by the manufacturer or mporter, or
removed for consumpton or sae, there sha be eved, coected and pad a ta
of 18 cents per pound. The ta mposed by ths subsecton sha be n addton
to any mport dutes mposed upon mported tobacco and snuff. (R S., secton
3377 ebruary 2 , 192 , ch. 27, secton 401(a), 44 Stat, 88.)

(C) Cgars and cgarettes. Upon cgars and cgarettes manufactured n or
mported nto the Unted States, whch are sod by the manufacturer or mporter,
or removed for consumpton or sae, there sha be eved, coected, and pad
the foowng ta es:

(2) Cgarettes. On cgarettes made of tobacco, or any substtute therefor,
and weghng not more than three pounds per thousand, 3 per thousand.
( ebruary 2 , 192 , ch. 27, secton 400(a), 44 Stat, 87.)
The e empton statutes are codfed as foows In 2 U. S. O. ., 835(a):
Sec. 835. empton from ta .
(a) Shpments to foregn countres and possessons of the Unted States
(1) Manufacturers. Manufactured tobacco, snuff, cgars or cgarettes may be
removed for e port to a foregn country or for shpment to a possesson of the
Unted States wthout payment of ta under such rues and reguatons and the
makng of such entres, and the fng of such bonds and bs of adng as the
Commssoner, wth the approva of the Secretary, sha prescrbe. (R. S., sec-
ton 3387, ugust 4, 188 , ch. 89 , secton 1, 24 Stat, 218 ebruary 2 , 192 ,
ch. 27, secton 1121, 44 Stat, 121).
It s estabshed by the decsons of the Supreme Court that It Is not an n-
frngement of rtce I, secton 9, cause 5 of the Consttuton for Congress to
mpose a ta upon the manufacture of goods so as to sub|ect goods manufactured
The Tobacco company recs partcuary on the provsons of the ct of ebruary 2 ,
192 (ch. 27, secton 1121, 44 Stat., 121), referred to In the ast mentoned secton. The
codfers have regarded 2 U. 8. C. ., secton 835(a), ns above set out, as representng
both secton 1 of the ct of ugust 4, 188 , and secton 1121 of the ct of ebruary 20,
1920. The atter secton s as foows :
Skc. 1121. Under such rues and resuatons as the Commssoner wth the approva
of the Secretary may prescrbe, the ta es Imposed under the provsons of Tte I or I
or of secton 903 sha not appy In respect of artces sod or eased for e port or for
shpment to a possesson of the Unted States and n due course so e ported or shpped.
Under such rues and reguatons the amount of any nterna-revenue ta erroneousy or
egay coected n respect of such artces so e ported or shpped may be refunded to
the e porter or shpper of the artces, Instead of to the manufacturer, If the manufac-
turer waves any cam for the amount so to be refunded.
Tte I of the ct of ebruary 2 , 192 (44 Stat., 87), reates to the ta on cgars,
tobacco, and manufactures thereof.
mphass Is paced by the ta payer on the provson theren that the ta es Imposed
under Tte I sha not appy n respect of artces sod or eased for e port
and In due course so e ported. Secton 1 of the ct of ugust 4, 1880, provdes that
manufactured tobacco, etc., may be removed for e port wthout payment of
ta . The dfference s mmatera for under ether statute, the manufacturer has the
defnte rght of e empton from the ta Imposed when the goods are e ported to a foregn
country under the prescrbed rues and reguatons.
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554
for e port to the same ta as a other manufactured goods (Corne v. Coyne,
192 U. S., 418) but that a edera ta ou the sae of goods Is nvad, n so far
as t reates to goods ntended for e port when the sae s consummated ony by
devery of the goods to the carrer for e port, that s, when the act that passes
the tte s the frst step n the e portaton of the goods. (Spadng d ros. v.
dwards, 2 2 U. S., T. D. 347 , C. . II-, 2 3 (1023) .)
It s aso estabshed that the ta of 18 cents a pound Imposed by secton 401(a)
of the Revenue ct of 192 upon tobacco manufactured n the Unted States
and sod by the manufacturer s a ta upon the manufacturer and not upon the
sae of the goods, beng ad upon each pound of goods made rrespectve of the
saes prce, athough the tme of payment s deferred unt the product s sod or
removed for consumpton or sae. (Lggett rf Myers Co. v. Unted States, 299
U. S., 3S3 Ct. D. 1192, C. . 1937-1, 3321.) Reference s made n the decson to
Treasury Reguatons No. 8 (1928 edton) wheren t s stated that the ta ac-
crues on such manufactures upon remova from the factory or pace where they
were made, or upon sae pror to such remova. (See aso Indan Motocyce Co.
v. Unted States, 283 U. S., 570 Ct. D. 354, C. . -, 439, (1931) nargyros
v. dward , 2 . (2d), 319 T. D. 4194, C. . II-2, 403 (1928) .)
The ta payer s pont n the pendng case s not that the ta mposed was a
saes ta , but that snce t dd not accrue unt the remova of the goods from
the factory took pace, aud ths act was the frst step n e portaton, the mpos-
ton of the ta was not ony contrary to the consttutona prohbton but
aso to the e emptng provsons of the statute. We are not n accord wth ths
vew. The ta was none the ess a ta upon manufacture because t was not
payabe by the manufacturer or coectbe by the Unted States unt the sae or
remova of the goods. Ths s the pan meanng of the statute. The reference
n the reguatons to the tme of the accrua of the ta was obvousy not n-
tended as an offca rung that the ta was mposed upon the remova of the
goods, and t coud not have had ths effect n vew of the authortatve dec-
son that the ta s mposed upon the manufacture of the goods. In Lggett d
Myers Co. v. Unted States, supra, the Court sad (page 38 ) : True the mt
of tme for makng payment s when the product s sod or removed, but ths s
a prvege desgned to mtgate the burden t ndcates no purpose to mpose
the ta upon ether sae or remova.
The reguatons promugated by the Commssoner, wth the approva of the
Secretary, whch prescrbe the form of the entres and bonds to be e ecuted by
the manufacturer, are desgned to furnsh assurance that goods camed to be ta -
free are actuay e ported to foregn countres and that the ta w be pad f
the prescrbed proof of e portaton s not furnshed. The manufacturer n the
pendng case faed to furnsh such proof and ndeed conceded that the goods
were forcby taken from the carrer before they reached the port of e portaton.
The ta mposed by the statute upon the manufacture of the goods was therefore
propery assessed.
ffrmed.
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ILL D C S
S CTION 2 O T CT O UN , 189 , S M ND D
Y S CTION 70 O T R NU CT O 1938.
Reguatons 22, rtce 2: ed cheese 1938-2 -9420
defned. T. D. 4813
rtce 13: ed cheese for e port.
mendng Reguatons 22 (revsed ugust, 192 ) to gve effect
to the provsons of secton 70 of the Revenue ct of 1938.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 70 of the Revenue ct of 1938 reads as foows:
(a) Secton 2 (reatng to the defnton of fed cheese) of the ct
entted n ct defnng cheese, and aso Imposng a ta upon and
reguatng the manufacture, sae, mportaton, and e portaton of fed
cheese , approved une , 189 , s amended by addng at the end
thereof the foowng: Substances and compounds, consstng prnc-
pay of cheese wth added edbe os, whch are not sod as cheese
or as substtutes for cheese but are prmary usefu for mpartng a
natura cheese favor to other foods sha not be consdered fed
cheese wthn the meanng of ths ct.
(b) The amendment made by subsecton (a) sha be effectve uy 1,
1938.
To gve effect to the above amendment Reguatons 22 (revsed
ugust, 192 ) are amended as foows:
1. Chapter I s amended by nsertng after the subhead ed
Cheese and before artce 1, the foowng:
Sectons 1 and 2 of the ct of une , 189 .
Secton 1. That for the purposes of ths ct, the word cheese sha
be understood to mean the food product known as cheese, and whch
s made from mk or cream and wthout the addton of butter, or
any anma, vegetabe, or other os or fats foregn to such mk or
cream, wth or wthout addtona coorng matter.
Sec. 2. That for the purposes of ths ct certan substances and com-
pounds sha be known and desgnated as fed cheese, namey:
substances made of mk or skmmed mk, wth the adm ture of
butter, anma os or fats, vegetabe or any other os, or compounds
foregn to such mk, and made n Imtaton or sembance of cheese.
Secton 70 of the Revenue ct of 1938.
(a) Secton 2 (reatng to the defnton of fed cheese) of the ct
entted n ct Defnng cheese, and aso mposng a ta upon and
reguatng the manufacture, sae, mportaton, and e portaton of fed
cheese , approved une , 189 , s amended by addng at the end thereof
the foowng: Substances and compounds, consstng prncpay of
cheese wth added edbe os, whch are not sod as cheese or as sub-
sttutes for cheese but are prmary usefu for mpartug a natura
cheese favor to other foods sha not be consdered fed cheese
wthn the meanng of ths ct
(b) The amendment made by subsecton (a) sha be effectve uy 1,
1938.
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2. rtce 2(a) of Chapter I s amended by addng at the end
thereof, as part of the same paragraph, the foowng:
On and after uy 1, 1938, substances and compounds, consstng prncpay
of cheese wth added edbe os, whch are not sod as cheese or as substtutea
for cheese but are prmary usefu for mpartng a natura cheese favor to
other foods sha not be consdered fed cheese wthn the above defnton.
3. The phrase n the frst sentence of artce 13, whch reads:
There s no provson n the ct of une , 189 , s changed to
read: There s no provson n the ct of une , 189 , as amended
by secton 70 of the Revenue ct of 1938.
Ths Treasury decson s ssued under the authorty prescrbed n
secton 18 of the ct of une ,189 .
Gut T. evertno,
Commssoner of Interna Revenue.
pproved une 18, 1938.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une 21, 1938, 11.17 a. m.)
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557 Msc.
OL OM RG RIN , DULT R T D UTT R, ND
PROC SS OR R NO T D UTT R.
Reguatons 9(193 ). 1938-24-9390
T. D. 4807
mendng Reguatons 9 (revsed pr, 193 ) to gve effect to
certan egsatve enactments.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 9 (revsed pr, 193 ) are amended as foows:
Chapter I s amended as foows:
(1) The parenthetca reference at the end of artce 20(c)
readng
(See secton 3, ct of ugust 2, 188 .)
s changed to read
(See secton 3, ct of ugust 2, 188 , as amended by secton 2 of the ct
of May 9, 1902.) (32 Stat, 193.)
(2) The phrase n the frst sentence of artce 27(a) (4) readng
as provded n secton 112 of the Revenue ct of 192
s changed to read
as provded n secton 112 of the Revenue ct of 192 , as amended by secton 7
of the ct of ebruary 4, 1935 ( 49 Stat., 22).
(3) The parenthetca reference at the end of artce 31(e) read-
ng
(See secton , ct of ugust 2, 188 .)
s changed to read
(See secton , ct of ugust 2, 188 , as amended by the ct of October 1,
1918.) (40 Stat., 1008.)
(4) The parenthetca reference at the end of artce 33( ) read-
ng
(See secton 3, ct of ugust 2, 188 .)
s changed to read
(See secton 3, ct of ugust 2, 188 , as amended by secton 2 of the ct
of May 9, 1902.) (32 Stat, 193.)
Chapter s amended as foows:
(1) The parenthetca reference at the end of artce 40(c) read-
ng
(See secton 3, ct of ugust 2, 188 .)
s changed to read
(See secton 3, ct of ugust 2, 188 , as amended by secton 2 of the ct
of May 9, 1902.) (32 Stat, 193.)
(2) The parenthetca reference at the end of the frst sentence of
artce 41( ) (1) readng
(See secton 3, ct of ugust 2, 188 .)
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M C.)
558
s changed to read
(See secton 3, ct of ugust 2, 1S8 , as amended by secton 2 of the ct
of May 9, 1902.) (32 Stat., 193.)
Chapter I s amended as foows:
The phrase n the frst sentence of artce 54(c) readng
n secton , ct of ugust 2, 188 ,
s changed to read
n secton , ct of ugust 2, 188 , as amended by the ct of October 1, 1918
(40 Stat., 1008).
Chapter II s amended as foows:
(1) The subtte mmedatey foowng the quotaton of secton
3233 of the evsed Statutes, precedng artce 0 and readng
Secton 3173, Revsed Statutes, as amended and reenacted n secton
1018, Revenue ct of 1924 (43 Stat, 345).
s changed to read
Secton 3173, Revsed Statutes, as amended and reenacted n secton
1115, Revenue ct of 192 (44 Stat., 118).
(2) The subtte and parta quotaton of secton 3237 of the Re-
vsed Statutes mmedatey foowng the quotaton of secton 3232
of the Revsed Statutes, precedng artce 0 and whch read
Secton 3237, Revsed Statutes, as amended by secton 53, ct of
October 1, 1890 (2 Stat., 24).
That a speca ta es sha become due on the frst day of
uy n each year or on commencng any trade or busness
on whch such ta s mposed. In the former case the ta sha e
reckoned for one year and n the atter case t sha be reckoned
proportonatey, from the frst day of the month n whch the abty
to a speca ta commenced to the frst day of uy foowng.
nd t sha be the duty of speca ta payers to render ther returns
to the deputy coector at such tmes wthn the caendar month n
whch the speca ta abty commenced as sha enabe hm to
receve such returns, duy sgned and verfed, not ater than the ast
day of the month, e cept n cases of sckness or absence, as provded
for n secton three thousand one hundred and seventy-s of the
Revsed Statutes.
are emnated, and the foowng new subtte and quotaton of sec-
ton 3237 of the Revsed Statutes are substtuted n eu thereof:
Secton 3237, Revsed Statutes, as amended by secton 322, ct of une
2 , 193 (49 Stat., 1953).
(a) speca ta es sha become due on the 1st day of uy n each
year, or on commencng any trade or busness on whch such ta s
mposed. In the former case the ta sha be reckoned for one year,
and n the atter case t sha be reckoned proportonatey, from the 1st
day of the month n whch the abty to a speca ta commenced, to
and ncudng the 30th day of une foowng.
(b) It sha be the duty of the speca ta payers to render ther
returns wth remttances to the coector at such tmes wthn the ca-
endar month n whch the speca ta abty commenced as sha enabe
hm to receve such returns, duy sgned and verfed, together wth the
remttances, not ater than the ast day of the month, e cept n cases
of sckness or absence, as provded for n secton 317 of the Revsed
Statutes, as amended.
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559 Mne
(8) The subtte mmedatey foowng the quotaton of secton
3183 of the Revsed Statutes, precedng artce and readng
Secton 3239, Unted States Revsed Statutes
s changed to read
Secton 3239, Unted States Revsed Statutes, as amended by secton 2 ,
ct of October 1,1890 (2 Stat, 18).
Chapter III s amended as foows:
The subtte and the quotaton of secton 314, ct of September 21,
1922, mmedatey precedng artce 83, whch read
Secton 314, ct of September 21, 1922 (42 Stat, 941).
That upon the remportaton of artces once e ported, of the growth,
product, or manufacture of the Unted States, upon whch no nterna
ta has been assessed or pad, or upon whch such ta has been pad
and refunded by aowance or drawback, there sha be eved, co-
ected, and pad a duty equa to the ta mposed by the nterna revenue
aws upon such artces, e cept artces manufactured In bonded ware-
houses and e ported pursuant to aw, whch sha be sub|ect to the same
rate of duty as If orgnay Imported, but proof of the dentty of such
artces sha be made under genera reguatons to be prescrbed by the
Secretary of the Treasury.
are emnated, and the foowng new subtte and quotaton of sec-
ton 314 of the ct of une 17,1930, are substtuted n eu thereof:
Secton 314, ct of une 17,1930 (4 Stat., 95).
Upon the remportaton of artces once e ported, of the growth, prod-
uct, or manufacture of the Unted States, upon whch no Interna ta
has been assessed or pad, or upon whch such ta has been pad and
refunded by aowance or drawback, there sha be eved, coected, and
pad a duty equa to the ta mposed upon such artces by the nterna
revenue aws at the tme of remportaton, e cept artces manufactured
n bonded warehouses and e ported pursuant to aw, whch sha be
sub|ect to te same rate of duty as f orgnay mported, but proof of
the dentty of such artces sha be made under reguatons to be pre-
scrbed by the Secretary of the Treasury.
Chapter I s amended as foows:
(1) The ast sentence of artce 90(c) readng
Sectons 3220 and 3228, R. S., are generay nappcabe.
s changed to read
Sectons 3220, R. S., as amended by secton 19(b) of the Revenue ct of 1928
(45 Stat, 878), and 3228, R S., as amended by secton 110 (a) of the Revenue
ct of 1932 (47 Stat, 287), are generay Inappcabe.
(2) The subtte at the head of the parta quotaton of secton 3173
of the Revsed Statutes, as amended, both mmedatey precedng and
mmedatey foowng artce 93, whch reads
Secton 3173, Unted States Revsed Statutes, as amended by secton
1317, ct of ebruary 24, 1919 (40 Stat, 114 ).
s changed to read
Secton 3173, Revsed Statutes, as amended and reenacted n secton
1115, Revenue ct of 192 ( 44 Stat., 118).
(3) The reference at the end of artce 9 ( ) readng
see secton 34 2, R. S., above.
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Msc. 5 0
s changed to read
see secton 34 2, R. S., as amended by secton 289, ct of March 3, 1911 (3
Stat, 11 7).
(4) The subtte mmedatey foowng the subheadng Remova
or Conceament of Commodtes and readng
Secton 3450, Unted States Revsed Statutes.
s changed to read
Secton 3450, Unted States Revsed Statutes, as amended and reen-
acted by secton 325, ct of une 2 , 193 (49 Stat., 1955).
(5) The phrase at the end of the parta quotaton of secton 3450
of the Revsed Statutes mmedatey foowng the above subtte
and readng
to a fne or penaty of not more than fve hundred doars.
s changed to read
to a fne of not more than 5,000 or be mprsoned for not more than
three years, or both.
Chapter s amended as foows:
(1) The parenthetca reference at the end of artce 104 readng
(See secton 2, ct of ugust 2, 188 .)
s changed to read
(See secton 2, ct of ugust 2, 188 , as amended by the ct of uy 10.
1930.) (4 Stat., 1022.)
(2) The phrase at the end of artce (cZ) readng
by secton 4, ct of May 9, 1002.
s changed to read
by secton 4, ct of May 9, 1902, as amended by the ct of ebruary 24, 1933.
(47 Stat, 902.)
Ths Treasury decson s ssued under authorty prescrbed n sec-
ton 20 of the ct of ugust 2,188 (24 Stat., 212).
Gut T. everng,
Commssoner of Interna Revenue.
pproved une 1, 1938.
ROSW LL M CTLL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une , 1938, 9.54 a. m.)
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MISC LL N OUS RULINGS.
N TION L INDUSTRI L R CO RY CT.
CIS T ON DI ID NDS.
Secton 213. 1938-2-9140
Ct. D. 129
e cse ta es natona ndustra eecovebt act revenue act op
1932 decson of court.
1. Dvdends Whether Corporate Resouton Consttuted ad
Decaraton of Dvdend Payments Made fter nactment
of Natona Industra Recovery ct.
resouton of a corporaton, adopted December 15, 1932, d-
rectng that payments of monthy dvdends be made to ts stock-
hoders, and that n the event, n hs |udgment, the condton of the
treasury on any of the dates specfed therefor shoud not warrant
payment, the treasurer may omt the same or defer the payment
unt some ater date, dd not consttute a vad decaraton of
dvdend, snce under the quoted anguage the resouton was not
defnte, fna, and rrevocabe so as to create the reaton of debtor
and credtor between the corporaton and ts stockhoders. The
ta es on dvdend payments made after the effectve date of the
Natona Industra Recovery ct ( une 1 , 1933) were propery
assessed as provded n the ct
2. Certorar Dened.
Petton for certorar dened October 25, 1937.
Unted States Ctrcut Court of ppeas for the Seventh Crcut.
Unted States of merca, appeant, v. The Murne Co., Inc., a Corporaton,
appeee.
90 ed. (2d), 549.
ppea fvm the Dstrct Court of the Unted State for the Northern Dstrct of Inos,
astern Dvson.
May 2 , 1937.
OPINION.
Ma|or, Crcut udge: ppeant brngs ths appea from a |udgment of the
ower court aowng recovery of e cse ta es whch t was aeged were er-
roneousy assessed and coected by reason of secton 213(a) of the Natona
Industra Recovery ct, effectve une 1 , 1933, provdng, so far as s here
matera:
(a) There s hereby mposed upon the recept of dvdends (requred to be
Incuded n the gross ncome of the recpent under the provsons of the Reve-
nue ct of 1932) by any person other than a domestc corporaton, an e cse
ta equa to 5 per centum of the amount thereof, such ta to be deducted and
wthhed from such dvdends by the payor corporaton. The ta mposed by
ths secton sha not appy to dvdends decared before the date of the enact-
ment of ths ct
(5 1)
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5 2
The case was tred on a stpuaton of facts whch contaned, nter aa, the
foowng facts:
(4) That on or about December 15, 1932, the foowng resouton was adopted
by the board of drectors of the pantff corporaton:
Resoved, that to-day, vz, December 15, 1932, the treasurer be and hereby
s authorzed to pay as a dvdend to the stockhoders of record of the Murne
Co., Inc., the sum of twenty doars ( 20) per share and that commencng
wth the 1st day of anuary, 1933, and contnung thereafter unt the ne t
annua meetng of the board of drectors of the Murne Co., Inc., the treasurer
be and hereby s authorzed to pay, as dvdends, to the stockhoders of record
of the Murne Co., Inc., on the 1st and 15th day of each caendar month (uness
the same sha fa on a Sunday or hoday, n whch event on the frst busness
day foowng the 1st or 15th of each month) the sum of twenty doars ( 20)
per share and that n the event, n hs |udgment, the condton of the treasury
on any of these dates sha not warrant the payment of such dvdends, he may
omt the same or defer the payment unt some ater date and to so Inform the
stockhoders of the company.
(5) That the pantff corporaton pursuant to the resouton decarng dv-
dends adopted on December 15, 1932, pad the dvdends to Its stockhoders
for the months of anuary to November, 1933, ncusve.
( ) That on the due dates thereof the pettoner fed ts dvdend ta
returns for each of the months from uy, 1933, to November, 1933, ncusve,
dscosng theren the payment durng each of sad months of dvdends n the
sum of s thousand doars ( ,000) per month, but faed, negected and
refused to pay any ta thereon.
(7) That thereafter the Commssoner of Interna Revenue and/or hs
agents e amned the sad returns and determned that the dvdends pad
durng the sad months from uy, 1933, to November, 1933, ncusve, and
receved by the stockhoders of the sad corporaton, were sub|ect to ta under
secton 213 of the Natona Industra Recovery ct, and determned that ta
n the amount of ffteen hundred doars ( 1,500) was due and payabe on the
recept of sad dvdends, and thereafter assessed aganst the pantff heren
ta n the sad sum of ffteen hundred doars ( 1,500), together wth nterest
n the sum of two hundred ffteen and 0/100 doars ( 215. 0), a tota of
seventeen hundred ffteen and 0/100 doars ( 1,715. 0), whch pantff heren
pad on anuary 24, 1935, under protest.
ppeee fed wth the Commssoner of Interna Revenue ts cam for refund
for the ta es and nterest so pad, whch cam was re|ected on une 10, 1935,
and the sut n queston then Insttuted.
The queston mmedatey presented s whether the resouton adopted
December 15, 1932, consttuted a vad decaraton of dvdends. If so, the
payment of the dvdends s not sub|ect to the ta as the statute specfcay
provdes that the ta sha not appy to dvdends decared before the date of
the enactment of ths ct. The answer to the queston depends upon the con-
structon or meanng of the anguage found n the resouton above referred to:
e may omt the same or defer the payment unt some ater date.
It s the contenton of appeant that under ths anguage the resouton
was not defnte, fna, and Irrevocabe so as to create the reaton of debtor
and credtor between the corporaton and ts stockhoders, whe appeee
contends to the contrary and that the anguage quoted shoud be construed
merey as a quafcaton as to the tme of payment and not a mtaton upon
the obgaton of the company to pay dvdends. number of authortes are
cted by appeee n support of ths contenton, whch authortes were cted
and reed upon by the court beow. (Unted States v. Ovnzburg, 278 ed.,
3 3 Ct. D. 23, C. . 1-1, 15 (1922) ord v. Snook, 205 N. Y. pp. Dv., 194
eers v. rdgeport Sprng Co., 42 Conn., 17 McLaran v. Crescent Panng M
Co., 93 S. W., 819 (St. Lous Court of ppeas) Northwestern Marbe d Te
Co. v. Carson, 11 Mnn., 438 Wan v. Lumber d Mfg. Co., 13 Tenn., 124.)
n e amnaton of these authortes, however, convnces us that they afford
very tte support, f any, to appeee s contenton. They a In varyng degree
hod that anguage used, whch merey e tends the tme of payment, s not
a mtaton upon the obgaton of the corporaton to pay dvdends. In other
words, a decaraton to pay dvdends s not Invad on account of anguage
used whch merey e tends or makes uncertan the tme of payment. In tho
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5 3
Msc.
Instant ease, If the resouton had merey authorzed the treasurer to defer
the payments unt some ater date, the cases cted woud be appcabe and
controng, but to gve the resouton such constructon t seems to us s to
gnore entrey the words he may omt the same.
Some of the defntons for the word omt as gven by Webster s Dc-
tonary are: To eave out, to eave undone, to et go, to refran or cease from
keepng. We see no reason why the word as used here shoud be construed
to have a meanng dfferent from that whch t ordnary bears. The resou-
ton ceary authorzes the treasurer to do two thngs ether omt payment
or defer payment The terms are not synonymous and they can not mean
the same thng. The use of the word omt serves to defeat the estabsh-
ment of a ega and enforceabe debt whch was defnte, fna, and rrevocabe.
To bod otherwse s to gnore the certan and unambguous meanng of that
term.
It s therefore, our concuson that the resouton n queston does not
consttute a vad decaraton of dvdend and that the dvdend payments made
after the enactment of the statute n queston were propery assessed as pro-
vded n sad ct.
udgment reversed.
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5 4
LI UOR T DMINISTR TION CT. (193 )
1938-12-9255
T. D.4794
Waver of survey requrements as to dsteres.
Treasury Department,
Offce of the Secretary of the Treasury,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Pursuant to the authorty conferred by sectons 302, 303, and 304,
Tte III, Lquor Ta dmnstraton ct (U. S. C, 1934 ed., Supp.
II, Tte 2 , sectons 11 8, 11 5, and 1171), the foowng reguatons
are prescrbed:
SUR Y R UIR M NTS W IT D.
1. The survey requrements prescrbed by secton 32 4, R. S.
(U. S. C, 1934 ed., Tte 2 , secton 11 8), as to regstered dsteres,
are hereby waved.
2. Dsters are hereby reeved from the foowng provsons of
aw reatng to the survey requrements:
(a) rom so much of secton 3259, R. S. (U. S. C., 1934 ed., Tte
2 , secton 11 3), as requres a dster to state n hs notce the num-
ber of hours n whch the dster w ferment each tub of mash
or beer, and from the necessty of fng a notce of the change n
the tme of fermentng the mash or beer.
( ) rom so much of secton 3280, R. S. (U. S. C, 1934 ed.,
Tte 2 , secton 1183), as requres the dster to compy wth the
provsons of aw reatng to the survey of dsteres, as a cond-
ton precedent to carryng on the busness of dstng.
(c) rom the provsons of secton 3285, R. S. (U. S. C, 1934
ed., Tte 2 , secton 1191).
(d) rom so much of the provsons of secton 3309, R. S. (U. S. C,
1934 ed., Tte 2 , secton 1197), as make a dster abe to an as-
sessment for a defcency n producng ess than 80 per centum of
the producng capacty of the dstery as estmated accordng to
aw and as make hm abe to an assessment for the ta upon the
sprts that shoud have been produced from the materas found
to have been used n e cess of the capacty of the dstery for any
month as estmated accordng to aw.
(e) rom so much of the provsons of secton 3310, R. S. (U. S. C,
1934 ed., Tte 2 , secton 1200), as prescrbe the fermentng perods.
(/) rom so much of secton 3311, R. S. (U. S. C, 1934 ed., Tte
2 , secton 1202), as requres the pacng of cose fttng covers upon
fermentng tubs, for the purpose of reducng the producng capacty
of the dstery.
3. The e emptons from the above-mentoned provsons of aw
w be sub|ect to such further changes as may be prescrbed by
reguatons.
dster s bond.
4. Dster s bond, orm 30, sha be n a pena sum of not ess
than the amount of ta , at the rate prescrbed by aw, on the sprts
that can be dsted n the dstery durng a perod of 15 days of
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(Msc.
24 hours each, as shown by the dster s notce, orm 27 , whch
sha be verfed by the dstrct supervsor but n no case sha the
pena sum of the bond be ess than 5,000, nor greater than 100,000.
DISTILLING UNIT, ULLIOM T R, ND OT R L OR TORY PP R TUS.
5. The dster sha provde at hs own e pense, for the use of
Government offcers assgned to the dstery, a |edah or other
dstng unt of suffcent capacty to dst sampes of beer and
sop and a uerst, Leftco or other approved ebuometer aso, such
other aboratory apparatus and equpment necessary for determnng
the acohoc content of the beer and sop. The dstng unt sha
be nstaed n a sutabe ocaton approved by the dstrct super-
vsor. Where the dster mantans a aboratory whch, n the opn-
on of the dstrct supervsor, s propery equpped for makng such
tests, the dster may make such factes avaabe to Government
offcers n eu of provdng addtona apparatus and equpment.
G UGING O UN INIS D SPIRITS.
. t dsteres where sprts, n the course of dstaton, are
run from the beer st nto tanks n the dstng budng for tem-
porary depost preparatory to competng the dstaton thereof,
storekeeper-gaugers sha prompty gauge the unfnshed sprts n
such tanks and make proper entry n the prescrbed records. ach
such tank must be mounted on scaes or equpped wth a gass gauge,
or other sutabe gaugng devce, whereby the contents of the tank
may be accuratey determned. Unfnshed sprts may not be stored
n such tanks, but may ony be deposted theren temporary n the
course of dstaton.
C LI R TION O RM NT RS.
7. Dsters sha accuratey cabrate each fermenter and per-
manenty mark thereon the tota capacty n gaons. The dster
w furnsh the Government offcer n charge a tabe showng the
capacty of each fermenter, f not unform n dmensons from top to
bottom, for each nch of depth. If the fermenters are of unform
dmensons from top to bottom, a tabe w be furnshed for each
fermenter showng the gaons per nch of depth. When deemed
necessary, the accuracy of the cabraton of tanks w be verfed
by Government offcers.
DISTILL R S NOTIC O C NG IN M T RI LS.
8. The dster may eect to mash moasses, gran, or other ferment-
abe matera, n any proporton or strength that he may desre, pro-
vded he sha gve wrtten notce to the storekeeper-ganger n charge
of the dstery of the quantty of each knd of matera whch he pro-
poses to mash and the strength of the beer. When desrng to change
the quantty or knd of materas or the strength of the beer, he sha,
before makng such change, gve wrtten notce to the storekeeper-
gauger n charge of the dstery.
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STOR P R-G UG R S R CORD ND R PORT.
9. Storekeeper-gaugers sha keep a record and render a report on
orm 1592, U. S. Storekeeper-gauger s report of operatons at ds-
tery No. , n the form and manner prescrbed by the Comms-
soner of Interna Revenue.
DISTILL R S R CORD ND R PORT.
10. Dsters sha keep a record and render a report on orm 1598,
Dster s report of operatons at dstery No. , n the form
and manner prescrbed by the Commssoner of Interna Revenue.
US O R PORTS ND R CORDS DISCONTINU D.
11. The use of the foowng reports and records s hereby dscon-
tnued :
orm 12. Dster s purchase book.
orm 13. Dstaton book.
orm 14. Dster s monthy account.
orm 1 . Record of storekeeper-ganger at rum dstery.
orm 17. Record of storekeeper-gauger at regstered dstery.
orm yq. Suppement to No. 17.
orm 25. Dster s yeastng book.
orm 45. Record of regstered dsteres.
orm 88. Storekeeper-gauger s monthy abstract.
orm 123. Report of survey of dstery.
orm 12 . Dster s notce of change n capacty.
R GUL TIONS MODI I D.
12. Reguatons No. 7, concernng the ta on dsted sprts, uy
10, 1914, as amended Reguatons 8, concernng the manufacture of
whsky, December, 1929, as amended and a Treasury decsons
whch are nconsstent herewth, are hereby modfed accordngy.
13. These reguatons sha not appy to frut brandy dsters or
dsteres.
CTI D T O R GUL TIONS.
14. The provsons of these reguatons sha be effectve on and
after uy 1, 1938, provded, however, that dsters sha nsta the
testng equpment and apparatus prescrbed by paragraph 5 hereof on
or before May 1, 1938, n order that Government offcers may be
propery traned n the use thereof pror to the effectve date of these
reguatons.
pproved March 11, 1938.
ROSW LL M GILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster March 14,1938, 8.25 p. m.)
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1938-14-9281
T. D.479
Markng packages of whsky Gaugng Manua amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Paragraph 71 of the Gaugng Manua, as amended by Treasury
Decson 4 52 C. . -2, 4 5 (193 ) and Treasury Decson 4735
C. . 1937-1, 50 , s further amended as to subparagraphs (d) and
(e), to read as foows:
(d) Sprts dsted from a fermented mash of gran at ess than 190 degrees
of proof n such manner that the dstate possesses the taste, aroma, and
characterstcs generay attrbuted to whsky and wthdrawn from the cstern
room of the dstery at not more than 110 degrees and not ess than 80 degrees
of proof, sha be branded Whsky, e cept as provded n subparagraph (e).
(e) (1) Sprts dsted at not e ceedng 1 0 degrees of proof from a fer-
mented mash of not ess than 51 per cent rye gran, corn gran, wheat gran,
mated barey gran, or mated rye gran, wthdrawn from the cstern room of
the dstery at not more than 110 degrees and not ess than 80 degrees of proof,
and packaged n charred new oak contaners, sha be branded Rye Whsky,
ourbon Whsky, Wheat Whsky, Mat Whsky, or Rye Mat Whsky,
respectvey.
(2) Sprts dsted at not e ceedng 1 0 degrees of proof from a fermented
mash of not ess than 51 per cent rye gran, corn gran, wheat gran, mated
barey gran, or mated rye gran, wthdrawn on and after the effectve date of
ths reguaton from the cstern room of the dstery at not more than 110
degrees and not ess than 80 degrees of proof, and packaged n reused cooperage,
sha be branded Whsky. Such sprts sha be further marked, ether by
brandng or stencng, wth the words Dsted from Rye (or ourbon, Wheat,
Mat, or Rye Mat) Mash, as the case may be.
(3) Sprts dsted at not e ceedng 1 0 degrees of proof from a fermented
mash of not ess than 80 per cent of corn gran, wthdrawn on and after March 1,
1938, from the cstern room of the dstery at not more than 110 degrees and
not ess than 80 degrees of proof, and packaged n uncharred oak contaners, or
reused charred oak contaners, and not sub|ected, n the process of dstaton
or otherwse, to treatment wth charred wood, sha be branded Corn Whsky.
Paragraph 71 of the Gaugng Manua, as amended, s further
amended by addng thereto subparagraph () as foows:
() Whsky, rye whsky, wheat whsky, mat whsky, rye mat whsky, bour-
bon whsky, or corn whsky, as defned n subparagraphs 71 (d) and (e), whch
n whoe or n part, s treated wth wood chps through percoaton or otherwse,
durng dstaton or storage on and after March 1,1938, sha be further marked,
ether by brandng or stencng, wth the words Treated wth oak chps.
Gut T. f verng,
Commssoner of Interna Revenue.
pproved March 24, 1938.
ROSW LL MaGII ,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster March 2 . 1938, 10.11 a. m.)
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1938-22-93 8
T. D.4804
Interna revenue ta es Smugged quor. Coecton of nterna
revenue ta es accrung on sprts smugged or candestney ntro-
duced Into the Unted States.
Tbeasubt Department,
Offce of the Secretary of the Treasury,
Washngton, D. C.
To Coectors of Customs, Coectors of Interna Revenue, and Others
Concerned:
Pursuant to secton 5 of the Lquor nforcement ct of 193 (U. S.
C, Sup. I, Tte 27, secton 225) there are hereby mposed upon
the coectors of nterna revenue the rght, prvege, power and
duty now mposed upon coectors of customs by secton 00(a) 5)
of the Revenue ct of 1918, as amended (U. S. C, Tte 2 , secton
1150(f)), of coectng and depostng nterna revenue ta es accru-
ng on dsted sprts smugged or candestney ntroduced nto the
Unted States.
pproved May 19, 1938.
RoSW LL MaOILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster May 23, 1938, 12.2T p. m.)
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DISTILL D SPIRITS.
1938-1-9129
Ct. D. 1294
LCO OL T PRO I ITION R ORG NIZ TION CT UNIT D ST T S COD -
D CISION O SUPR M COURT.
Dsted Sprts Indctment Regstry of Sts wth Co-
ector ok Interna Revenue aure to State Offense.
The count of an Indctment aegng that defendants unawfuy-
conspred to possess, and caused to be possessed, sts and apparatus
for the producton of dsted sprts wthout havng the same
regstered wth the coector of nterna revenue as requred by
aw fas to state an offense, as the charge shoud have been that
there was faure to regster wth the dstrct supervsor of the
coho Ta Unt n the ureau of Interna Revenue.
Supreme Court of the Unted States.
arry esher, pettoner, v. The Unted 8tate of merca.
Sam esher, pettoner, v. The Unted States of merca.
oseph Sten, pettoner, v. The Unted States of merca.
On wrt of certorar to the Unted Stares Crcut Court of ppeas for the S th Crcut.
December , 1937.
per curam.
udgments of convcton on four counts of an ndctment chargng conspraces
to voate provsons of the nterna revenue aws were affrmed by the crcut
court of appeas. (91 . (2d), 404.) Certorar was granted, mted to the
queston whether the frst count of the ndctment states an offense under
edera aw.
The frst count aeged that defendants from October 1, 1934, to the date of
the ndctment, October 30, 1935, unawfuy conspred to possess, and caused
to be possessed, sts and apparatus for the producton of dsted sprts
wthout havng the same regstered wth the coector of nterna revenue as
requred by aw. The Government concedes that under the appcabe aw the
charge shoud have been that there was faure to regster the sts wth the
dstrct supervsor of the coho Ta Unt n the ureau of Interna Revenue.
The frst count faed to state an offense. ( ct of March 3, 1927, ch. 348, 44
Stat., 1381 5 U. S. C, 281c Prohbton Reorganzaton ct of May 27, 1930,
ch. 342, 4 Stat., 427 Reguatons No. 3, ureau of Industra coho, Treasury
Department (March 24, 1931), artce 14 ct of March 3, 1933, ch. 212, secton
1 , 47 Stat., 1518 ecutve Order No. GC39, March 10,1934, 5 U. S. C, 132, note
T. D. No. 4432, May 10, 1934 C. . III-1, 534 (1934) . Scott v. Unted States,
78 . (2d), 791 . enton v. Unted States, 80 . (2d), 102.)
The sentence upon count 2 provdes that t sha run from and after e pra-
ton of term of mprsonment mposed on count 1. ach of the sentences on
the remanng counts runs from the e praton of the term of mprsonment
mposed on the precedng count. In vew of the nvadty of the sentence on
count 1, the sentences on the remanng counts shoud be amended so as to f
a defnte date for ther commencement.
The |udgments on count 1 are severay reversed and the causes are remanded
for further proceedngs n conformty wth ths opnon.
It s so ordered.
83421 38 19
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570
1938-2 -9421
T.D/4818
oor ta es on dsted sprts.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washng ton, D. C.
To Dstrct Supervsors, Coectors of Intena Revenue, and Others
Concerned:
ont Resouton . . Res. 83 Seventy-ffth Congress, thrd
sesson provdes:
Resoved, etc.. That there sha be eved, assessed, coected, and
pad a foor ta of 25 cents on each proof-gaon and a proportonate ta
at a ke rate on a fractona parts of such proof-gaon upon a ds-
ted sprts, e cept brandy, produced n or mported nto the Unted
States upon whch the nterna-revenue ta mposed by aw has been
pad and whch, on uy 1, 1938, are hed by a reta deaer n quors
In a quantty n e cess of 250 wne-gaons n the aggregate or by any
other person, corporaton, partnershp, or assocaton n any quantty
and whch are ntended for sae for beverage purposes or for use In
the manufacture or producton of any artce ntended for sae for
beverage purposes.
ach reta deaer n quors and each person requred hereunder to
pay the foor ta sha wthn 30 days after uy 1, 1038, make return
under oath n such form and under such reguatons as the Comms-
soner of Interna Revenue, wth the approva of the Secretary of the
Treasury, sha prescrbe. Payment of the ta shown to be due may
be e tended to a date not e ceedng 7 months after uy 1, 1938, upon
the fng of a bond for payment n such form and amount and wth such
surety or suretes as the Commssoner of Interna Revenue, wth the
approva of the Secretary of the Treasury, may prescrbe.
provsons of aw, Incudng penates, appcabe n respect of
nterna-revenue ta es on dsted sprts sha, nsofar as appcabe
and not nconsstent wth ths secton, be appcabe n respect of the
foor ta mposed hereunder.
Pursuant to the above quoted resouton the foowng reguatons
are prescrbed:
1. ach dster, propretor of an ndustra acoho pant, bonded ware-
house, ta -free warehouse or agency, whoesae deaer n quors, reta
deaer In quors, rectfer, manufacturer, or any other person, corporaton,
partnershp or assocaton, havng on hand on uy 1, 1938, ta -pad acoho or
other ta -pad dsted sprts, e cept brandy and beverages contanng brandy
wthout the addton of other sprts, ntended for sae for beverage purposes
or for use n the manufacture or producton of any artce ntended for sae
for beverage purposes, sha before the begnnng of busness on that date
make an nventory of a such dsted sprts. Dsted sprts n stamped
contaners of one gaon or ess sha be presumed to be hed for sae for
beverage purposes.
2. The nventory sha be prepared In trpcate on sheets of paper not arger
than 10 by 1G nches to be furnshed by the ta payer. The dsted sprts sha
be sted separatey by knds showng the wne gaons, proof, and proof gaons.
In the case of orgna packages and unbroken cases of botted sprts, the
sera numbers of the packages and cases, and the name of the dster, rect-
fer, mporter, or botter of the sprts sha aso be shown. The sze of the
bottes contaned n the cases must aso be stated. Where botted dsted
sprts have been removed from the orgna cases, the number of bottes
of each sze contanng sprts of the same knd and proof sha be sted as
separate tems, showng the wne gaons, proof, and proof gaons.
Sprts n process of rectfcaton and In bottng or storage tanks sha be
measured and proofed and the wne gaons, proof, and proof gaon content of
each tank reported separatey on the Inventory. The number and knd of
receptace contanng the sprts shoud aso be shown.
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571
Msc.
Storekeeper-gangers assgned to dsteres, ndustra acoho pants, bonded
warehouses, rectfyng pants, ta -pad bottng houses, etc., sha verfy the
nventores and certfy thereon as to the correctness thereof. Where prac-
tcabe, dstrct supervsors w assgn nspectors or storekeeper-gaugers to
verfy and certfy nventores made by other persons havng arge quanttes
of sprts sub|ect to the foor ta .
3. The nventory sha show separatey a ta -pad sprts not on the premses
of the ta payer but owned by hm and stored esewhere, or consgned drect
to hm and n transt on uy 1, 1938, gvng the name of the consgnor. ny
sprts whch have been consgned to other persons by the person makng the
nventory and the tte thereto has not been transferred to the consgnee sha
aso be ncuded by the person makng the nventory, gvng the name of the
consgnee.
Where ta -pad dsted sprts are consgned by the shpper to hs own
order wth nstructons on the shppng tag to notfy the person named there-
on, who s a bona fde purchaser, and b of adng s ndorsed n good fath
to the person named on the shppng tag and draft attached for the sum due,
and b of adng wth draft attached Is sent to a bank or other coecton
agency for coecton, the purchaser ony Is abe for the foor ta and sha
ncude such sprts n hs nventory.
If ta -pad dsted sprts are shpped under bs of adng In whch the
shpper s named as consgnee and the bs of adng are not ndorsed or are
ndorsed n bank, the sprts w be presumed to be the property of the shpper
ed for sae und the shpper sha nventory such sprts.
In cases where ta -pad dsted sprts are not accepted or devered, and
tte has not passed to the consgnee, the foor ta sha be due from the shpper,
who must ncude such sprts n hs Inventory.
4. st to be attached to the return sha be prepared, n trpcate, of a
ta -pad dsted sprts hed for sae or for use for nonbevcrage purposes,
showng a nformaton requred under paragraphs 2 and 3. t the tme of
takng the nventory there sha be securey aff ed to each contaner n posses-
son of the owner a abe showng the name and address of the owner and that
the sprts are for nonbeverage purposes and are not sub|ect to the foor ta
under Re uton 83. Such abe sha aso be attached to sprts n transt
or n the custody of any other person upon recept thereof by the owner.
5. n e empton of 250 wne gaons Is aowed to each retn deaer n quors.
The tems seected for ths e empton sha be shown separatey on the nventory.
ach such deaer sha prepare an Inventory and make return regardess of
whether the quantty of sprts on hand on uy 1, 1938, s more or ess than
250 wne gaons. reta deaer n quors opentng more than one reta estab-
shment Is aowed the e empton for each such estabshment.
. The term dsted sprts sha ncude, among others, the foowng whch
ore sub|ect to the foor ta when ntended for sae for beverage purposes or
for use n the manufacture or producton of any artce ntended for sae for
beverage purposes:
(a) coho.
( ) Sprts gran, sprts cane, and sprts frut.
(c) Whsky, rum and gn (rectfed and unrectfed).
d) ermouth contanng dsted sprts other than brandy.
(e) Cocktas contanng dsted sprts other than brandy.
(f) Lqueurs, cordas, and smar compounds contanng dsted sprts other
than brandy.
7. The foowng sprts are not sub|ect to the foor ta :
(a) Unt -pad dsted sprts n bond or n customs custody.
( ) Dsted sprts or products made from dsted sprts whch are not
ntended for sae for beverage purposes or for use n the manufacture or produc-
ton of any artce ntended for sae for beverage purposes.
(c) randy (rectfed and unrectfed).
(d) ermouth made wth a wne or brandy base wthout the addton of other
dsted sprts.
(e) Cocktas made wth a wne or brandy base wthout the addton of other
dsted sprts.
(0 Lqueurs, cordas, and smar compounds made wth a wne or brandy
base, to whch no other dsted sprts were added n the process of manufacture.
8. ach person desgnated n paragraph 1, and each retn deaer n quors
whether or not he Is requred to pay ta , sha make return on orm 758 (revsed
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Msc.
572
1938), In trpcate, for each pace of busness In accordance wth the Instruc-
tons thereon. The orgna and dupcate copes must be fed wth the coector
of Interna revenue of the dstrct n whch the ta payer s busness Is ocated on
or before uy 31, 1938. The trpcate copy w be retaned at the ocaton
covered by the return. copy of the nventory and/or st must be attached
to each copy of orm 758.
9. The foor ta shown by the return to be due sha be pad to the coector
of Interna revenue at the tme the return s fed, e cept that the tme for pay-
ment of ths ta may be e tended to a date not e ceedng seven months after
uy 1,1938, upon the fng of a bond on orm 723 or 723C, n trpcate, as the
case may be, n a pena sum of not ess than the amount of ta , ncudng
penates and Interest due, If any, and wth such surety or suretes as the
Commssoner of Interna Revenue, wth the approva of the Secretary, may
prescrbe.
10. fter the returns have been receved and the ta has been entered on the
assessment sts, coectors of Interna revenue w forward the dupcates to
the approprate dstrct supervsor for Inspecton and audt.
Gut T. everng,
Commssoner of Interna Revenue.
pproved une 20,1938.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une 21, 1938, 11.19 a. m.)
1938-2 -9424
T.D.4820
onds.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Secton 710 of the Revenue ct of 1938 reads as foows:
Sec. 710. Ta on Dsted Spmts.
(a) Secton 00(a)(4) of the Revenue ct of 1918, as amended, Is
amended to read as foows:
(4) On and after anuary 12, 1934, and unt uy 1, 1938, 2.00,
and on and after uy 1, 1938, 2.25, on each proof gaon or wne
gaon when beow proof and a proportonate ta at a ke rate on a
fractona parts of such proof or wne gaon.
(b) Secton 00(c) of such ct, as amended, s amended by strkng
out 2.00 per wne gaon and nsertng In eu thereof 2.25 per
wne gaon.
(c) Secton 4 of the Lquor Ta ng ct of 1934 Is amended by strk-
ng out 2.00 and nsertng n eu thereof 2.25.
(d) The amendments made by ths secton sha not appy to brandy
and the rates of ta appcabe to such brandy sha be the rates ap-
pcabe wthout regard to such amendments.
Pursuant to the authorty contaned n secton 3447, Revsed
Statutes (U. S. G, Tte 2 , secton 1 91(a) 2)), and Tte III of
the Natona Prohbton ct, as amended and suppemented (U. S.
C, Tte 27, secton 83 U. S. C, Sup. I, Tte 27, secton 151( )),
the foowng reguatons are prescrbed reatve to bonds affected by
the ncrease n the ta rate mposed on dsted sprts:
1. ffectve on and after uy 1, 1938, the pena sums of bonds
coverng the manufacture, transportaton, storage, warehousng, and
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073
Msc.
e portaton of dsted sprts, ncudng acoho, but not ncudng
brandy, sha be computed on the bass of 2.25 per proof gaon, or
wne gaon when beow proof provded, that n the case of acoho
wthdrawn free of ta by scentfc unverstes or coeges of earn-
ng, aboratores for use e cusvey n scentfc research, or by
hosptas or sanatorums, or cncs, under the provsons of Tte III
of the Natona Prohbton ct, as amended and suppemented, the
bond sha be for a pena sum of not ess than doube the amount of
the ta at the ncreased rate. The pena sums of bonds of deaers n,
and users of, specay denatured acoho sha be computed on the
bass of 4.50 for each wne gaon authorzed to be wthdrawn.
2. In a cases where the pena sums of bonds now n effect, f not
n the ma mum pena sum, are not suffcent, new or addtona bonds
shoud be requred n pena sums correspondng wth the ncreased
rate of ta aton, or the rates provded heren for ta -free and specay
denatured acoho bonds, uness the quanttes of sprts or denatured
acoho covered by such bonds are reduced wthn the month of uy,
1938, so that the pena sums thereof w be suffcent.
3. The bonds affected are dentfed as foows:
orm 30. Dster s bond.
orm 544. ond for the wthdrawa of dsted sprts.
orm 547. Dsted sprts for e port.
orm 548. Transportaton bond sprts for e port.
orm 43. Transportaton bond sprts to bonded manufacturng warehouse.
orm 572. Dster s denaturng warehouse bond.
orm G54. ond for storage of dsted sprts for e port.
orm 57. port bond for dsted sprts.
orm 58. Transportaton bond dsted sprts for e port
orm 14S2. ond for ndustra acoho pant
orm 1432 . ond for ndustra acoho pant, etc.
orm 1435. Warehouse bond for storage of acoho.
orm 1448. ond for wthdrawa of acoho free of ta for hospta use, etc.
orm 1459. Transportaton bond for acoho.
orm 14 0. Transportaton bond for acoho.
orm 14 52. ond for denaturng pant.
orm 1475. ond of deaer n specay denatured acoho.
orm 1480. ond of manufacturer usng specay denatured acoho and re-
coverng competey or specay denatured acoho.
orm 1495. port bond for acoho.
orm 149 . Transportaton bond acoho for e port.
orm 1497. port bond for acoho.
orm 1498. Transportaton bond acoho for e port.
orm 1571. Transportaton and warehousng bond for dsted sprts.
orm 1581. ond for drawback of ta pad on dsted sprts.
4. cept as modfed by ths Treasury decson, the provsons of
pror reguatons respectng bonds of a casses requred under the
nterna revenue quor aws and Tte III of the Natona Prohb-
ton ct, as amended and suppemented, sha reman n force and
effect.
Gut T. evertng,
Commssoner of Interna Revenue.
pproved une 22, 1938.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une 24. 1938, 11.04 a. m.)
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Msc. 574
SP CI L T S ON STILLS ND WORMS, TC.
1938-14-9283
Mm. 4743
Mmeograph 473 beow amended.
Tbeast|bt Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, March 19,1938.
Coectors of Interna Revenue, Dstrct Supervsors, and Others
Concerned:
The second sentence of paragraph No. 4 of Mmeograph, 473 , dated
ebruary 28,1938 beow , s amended to read as foows:
Under the provsons of Treasury Decson 30 9, no such dstng apparatus
may be removed from the premses of the manufacturer, or vendor, as the case
may be, for devery to a user wthout permt of the coector of the dstrct n
whch the manufacturer, or vendor, s ocated and under secton 32 5, Revsed
Statutes, no such dstng apparatus may be set up for the dstaton of sprts
wthout permt of the coector of the dstrct n whch such apparatus s to be
used or set up.
Correspondence reatve to ths mmeograph shoud refer to the
number thereof and the symbos T: .
Gut T. everng,
Commssoner.
1938-14-9282
Mm. 473
Coecton of speca ta es ou sts and worms manufactured for
use n dstng.
Treasurt Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, ebruary 28, 1938.
Coectors of Interna Revenue, Dstrct Supervsors, and Others
Concerned:
It has come to the attenton of the ureau that a unform procedure
has not been foowed wth respect to the coecton of the occupa-
tona and commodty ta es arsng from the manufacture of sts
and worms to be used for dstng under the provsons of subsecton
Second of secton 3244, Revsed Statutes, as amended. In order
that a unform procedure may be effected, the foowng nstructons
are promugated on the bass of e stng aws and reguatons:
1. (a) Subsecton Second of secton 3244, Revsed Statutes, as
amended, provdes that:
Manufacturers of sts sha each pay 50, and 20 for each st or worm for
dstng made by hm. ny person who manufactures any stU or worm to
be used In dstng sha be deemed a manufacturer of sts.
(b) Secton 3248, Revsed Statutes, provdes that:
Dsted sprts, sprts, acoho, and acohoc sprt, wthn the true ntent
and meanng of ths ct, s that substance known as ethy acoho, hydrated
o de of ethy, or sprt of wne, whch s commony produced by the fermenta-
ton of gran, starch, moasses, or sugar, Incudng a dutons and m tures of
ths substance and the ta sha attach to ths substance as soon as t s n
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575
Msc.
e stence as such, whether t be subsequenty separated as pure or mpure sprt,
or be mmedatey, or at any subsequent tme, trmsferred nto any other sub-
stance, ether n the process of orgna producton or by any subsequent
process.
2. The term dstng used n subsecton Second of secton
3244, Revsed Statutes, as amended, means the dstaton of sprts
defned by the nterna revenue aws ncudng secton 1 of Tte III
of the Natona Prohbton ct, as amended. Such dstaton n-
cudes (a) the orgna manufacture of dsted sprts from mash,
wort, or wash or any matera sutabe for the producton of sprts
(b) the redstaton of sprts, n the course of orgna manufac-
ture (c) the redstaton of sprts, or products contanng sprts
wthn the provsons of subsecton Thrd of secton 3244, Revsed
Statutes, as amended (d) the redstaton or recovery of ethy
acoho or of competey or specay denatured acoho, or of pro-
pretary sovents contanng specay denatured acoho (e) the
redstaton or recovery of ta -free acoho.
3. y secton 18 of the ct of May 28, 1880, dsters n regstered
dsteres who manufacture wooden sts for ther own use are
e empted from the payment of the speca ta es mposed under the
provsons of subsecton Second of secton 3244, Revsed Statutes,
as amended, but they are requred to gve notce to the coector or
the dstrct n whch the dstery s ocated of each st manufac-
tured before the same s used.
4 Under the provsons of secton 32 5, Revsed Statutes, any
person manufacturng any st, boer, or other vesse to be used for
the purpose of dstng must| before the same s removed from the
pace of manufacture, notfy, n wrtng, the coector of the dstrct
n whch such st, boer, or other vesse s to be used or set up,
by whom t s to be used, ts capacty, and the tme when the same
s to be removed from the pace of manufacture. No such ds-
tng apparatus may be removed, or set up for the dstaton of
sprts, wthout permt of such coector. Sts ntended for the
dstaton of substances other than sprts, or products contanng
sprts, may be removed wthout payment of ta from the pace of
manufacture ony as provded by Treasury Decsons 2993 and 30 8.
5. Coectors w coect the speca ta es mposed by subsecton
Second of secton 3244, Revsed Statutes, as amended, from manu-
facturers of sts as to a sts and worms or condensers, hereafter
manufactured and/or removed for dstng as denned by the n-
terna revenue aws, as amended, ncudng Tte III of the Natona
Prohbton ct, as amended, as set forth above, e cept under the
e empton granted by secton 18 of the ct of May 28, 1880.
. The commodty ta on each st or worm s due whon the
manufacture thereof s competed, and must be pad by aff ng to
the artce a speca ta stamp as provded by secton 3238, Revsed
Statutes, as amended. The occupatona ta as manufacturer of
sts s due wthn the month n whch the manufacturer frst engaged
n such busness.
Correspondence reatve to ths mmeograph shoud refer to the
number thereof and the symbos T: .
Gut T. everng,
Commssoner.
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57
INDUSTRI L LCO OL.
1938-3-9153
T. D. 4790
Modfyng specay denatured acoho formua No. 29.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Chemsts n Charge, uthorzed Chemsts,
and Others Concerned:
Pursuant to authorty conferred by the ct of une 7, 190
(U. S. C, 1934 d., Tte 2 , secton 1320), and Tte III of the
Natona Prohbton ct, specay denatured acoho formua No. 29
s hereby amended to read as foows:
To every 100 gaons of ethy acoho of not ess than 190 proof add
1 gaon of 100 per cent acetadehyde or
5 gaons of an acohoc souton of acetadehyde contanng not ess than
20 per cent acetadehyde or
5 parts by weght f sod, or voume f qud, of any chemca produced
from ethy acoho.
Ths formua s restrcted to processes where the acoho oses ts
dentty as acoho by beng converted nto other chemcas. Where
t s desred to use any chemca produced from ethy acoho other
than acetadehyde as the denaturant for formua No. 29, the use of
such chemca sha be sub|ect to approva by the Commssoner.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved anuary 13, 1938.
Roswe Mag,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster anuary 15, 1038, 12.0 p. m.)
1938-19-9338
T. D. 4802
uthorzng competey denatured acoho formua No. 14 and
revokng competey denatured acoho formua No. 11.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton-, D. C.
To Dstrct Supervsors and Others Concerned:
Pursuant to authorty conferred by the ct of une 7, 190
(U. S. C, 1934 d., Tte 2 , secton 1320), and Tte III of the
Natona Prohbton ct, the foowng competey denatured a-
coho formua s hereby authorzed, effectve at once:
Competey denatured acoho formua No. 14.
To every 100 gaons of ethy acoho of not ess than 180 proof add:
5 gaons of D-13 or a product smar thereto.
2.25 gaons of methy sobuty ketone.
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5/7 Msc.
Competey denatured acoho formua No. 11, authorzed by Treas-
ury Decson 4 48, approved une 3, 193 C. . -1, 489 (193 ) ,
s hereby revoked, effectve uy 1, 1938.
Guy T. eveeno,
Commssoner of Interna Revenue.
pproved pr 29, 1938.
RoSW LL MaOILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster May 2, 1938. 12.3 p. m.)
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Msc.
578
PRODUCTION, TC., ND T -P YM NT O WIN .
Reguatons 7(1930), rtce 317: empton 1938-8-9210
from certan statutes. T. D. 4793
Reguatons 7, effectve May 1, 1930, paragraph S17, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Pursuant to the authorty conferred by secton 3255 R. S., as
amended (U. S. C, 1934 ed., Tte 2 , Supp. II, secton 117 ), the
frst paragraph of paragraph 317, page 10 , Reguatons 7, approved
May 1, 1930, s hereby amended to read as foows:
Par. 317. Secton 3255 R. S., as amended, authorzes the Commssoner, wth
the approva of the Secretary, to e empt dsters of brandy made e cusvey
from appes, peaches, grapes, oranges, pears, pneappes, aprcots, berres, pums,
pawpaws, persmmons, prunes, fgs, cherres, dates or ctrus fruts (e cept
emons and mes) from any provson of the nterna revenue aws reatng to
the manufacture of sprts, e cept as to the ta thereon, when n hs |udgment
t may seem e pedent to do so. y vrtue of ths authorty dsters producng
brandy made e cusvey from appes, peaches, grapes, oranges, pears, pne-
appes, aprcots, berres, pums, pawpaws, persmmons, prunes, fgs, cherres,
dates or ctrus fruts (e cept emons and mes) are hereby e empted from
the provsons of aw enumerated heren.
Guy T. everng,
Commssoner of Interna Revenue.
pproved ebruary 10, 1938.
RoSW LL MaGILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ebruary 12, 1938, 11.4 a. m.)
Reguatons 7 (1937), Paragraphs 71 and 77: Sweet- 1938-1 -9303
enng for fortfcaton. T. D. 4799
mendment of Reguatons No. 7 reatve to the producton, fortf-
caton, ta -payment, etc., of wne.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supe vsors and Others Concerned:
Paragraphs 71 and 77 of Treasury Department Reguatons No. 7,
reatve to the producton, fortfcaton, ta -payment, etc., of wne,
approved October ,1937, are amended to read as foows:
Par. 71. Scectcnng for fortfcaton. Natura wne, ameorated n accordance
wth paragraph 70, may, pror to fortfcaton, be sweetened wth cane sugar or
beet sugar or pure condensed grape must Natura wne, to whch no sweetenng
agents have been added, may, pror to fortfcaton, be sweetened wth cane sugar
or beet sugar or pure condensed grape must. The cane sugar or beet sugar
added sha not be n e cess of 11 per cent of the weght of the wne.
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579
Msc.
Par. 77. Sweetenng for fortfcaton. rut and berry wne, ameorated n
accordance wth paragraph 7 , may, pror to fortfcaton, be sweetened wth
cane sugar or beet sugar or pure condensed must of the frut or berry used n
manufacturng the wne. rut and berry wne whch has not been ameorated
may, pror to fortfcaton, be sweetened wth cane sugar or beet sugar, or pure
condensed must of the frut or berry used n manufacturng the wne. The
cane sugar or beet sugar added sha not be n e cess of 11 per cent of the
weght of the wne.
Mton . Carter,
ctng Commssoner of Interna Revenue.
pproved pr 7, 1938.
OS W LL MaOILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster prU 9k 1938, 1Z19 p. m.)
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580
MISC LL N OUS.
OL OM RG RIN .
1938-1-9131
MS. 194
Schedue of oeomargarne produced and materas used durng the month of
November, 19S7, as compared wth November, 193 .
November,
1937.
November,
193 .
PO T fo.
Pound .
Tota producton of uncoorcd oeomargarne
37,3 1,018
34.031,20
Tota wthdrawn ta -pad . .......
38.007,2 5
33,730, 745
Ingredent schedue of uncoored oeomargarne:
499,989
(, 01,308
108,81
20,287,384
11 ,001
.17
7,009,137
15 ,2 1
28, 895
307, 89
8,190
15,784
10,205,437
. 100
10,34 ,014
100.8 1
2,038
,3 ,.M 1
178,253
1,948, 73
259.210
172,738
1 2.200
Coconut o
Corn o ............................. ..............
Cottonseed o
Lecthn .
Mk
Pam o
17,310
283.803
Pam kerne o
381,75
239,753
1,731,173
Peanut o
332.387
1. -
3.520
13,991
3,543,9 9
Sat
1 ,333
2,177,1 1
Tota
39, 325,020
3 ,04 ,857
113,887
178,101
Ingredent schedue of coored oeomargarne:
1,354
5,794
abassue o.
874
Coor
10,811
102
,013
184
2
Cottonseed o... .
1,33
232
24,857
220
Dervatve of gycerne
Mk
27,421
3,733
44.178
,553
Oeo o
20,917
1,200
1,012
M
500
1,973
Ourcury
2,500
Pam o-
Pam kerne o
925
0
Peanut o..
58
430
at
8,934
43
9,415
13,479
3
7,313
Tota
13 , 815
207,172
1 Of the amount produced, 18,339 pounds were reworked.
1 Of the amount produced, 32,1 5 pounds were reworked.
1 Of the amount produced. 32 pounds were reworked.
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581
M sc.
1938-5-9181
MS. 195
Schedue of oeomargarne produced and materas used durng the month of
December, 1937, as compared wth December, 193 .

December,
1937.
December,
193 .
Paundt.
1 37,273,984
Poundt.
38. 12, 503
Ingredent schedue of uncoored oeomargarne:
3 , 388, 855
37. 928, 72
abassue oL
4,345
1.014, 39
10,8 . 0
25,317
12, 53. 937
125,411
2,127
7,153. 49
194. 513
1,899.925
29 ,814
23 , 20
39, 451
277,219
1 1, 13
337,728
1.872, 18
1,800
15.438
3, 813. 294
Coconut n
,218, 179
1 1, 1 7
18,915.008
110,0
.092
, 52, 30
18 ,928
82,490
254,778
44, 08
Pam kerne o
M5, 277
145. 188
1, 720, 459
Peanut o
at
came o
r kZmSf
13, 94
2,725,995
33
39,017,233
40.988,717
117,213
1 0. 724
57, 12
2.55
Ingredent schedue of coored oeomargarne:
|
Coor
, 722
117
12
309
49,800
127
Corn o
Cottonseed o
4,589
271
2S, IS
4,335
20,24
1,002
14
34.877
204
34,800
3,770
27,838
400
2,859
150
,220
Neutra ard
Oeo o
Oeo steurne
Pam of
Pam kerne o
975
7
390
13, 3
110
2,440
Sat
8,735
27
9,575
Tota
135,935
178,013
Of the amount produced, 25,335 pounds were reworked.
Of the amount produced, 38,5 5 pounds were reworked.
Of the amount produced, 2 pounds were reworked.
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Msc.
582
1938-13-9270
MS. 199
mended schedue of oeomargarne produced and materas used durng the month
of December, 19S7.
Tota producton of oncoored oeo
Tota wthdrawn ta -pad
schedue of uneoored
abassue o
Coconut o
Corn o.
Cotton eed o
Dervatve of gycerne.
Lecthn
Mk
Neutra ard
Oeo o.
Oeo stearne
Oeo stock
Pam kerne o
Peanut o
at-
oda (benzoate of)
oyu bean o
tamn concentrate
Tota.
December,
1937.
Pounds.
1 40, 595.550
39, 058,189
4, 345
,587,188
213, 194
20,857,04
111,993
092
7,235, 50
18 ,928
717,050
2S1. W
59,103
515,277
227,35
1,843.702
1 ,739
2.93S.395
498
42, 4 5.0 0
Tota producton of coored oeo-
margarne
Tota wthdrawn ta -pad..
Ingredent schedue of
margarne:
Coconut o
Coor
Corn o
Cottonseed o
Dervatve of
Mk
Neutra ard
Oeo o
Oeo stearne
Oeo stock...
Pam kerne
Pemut o..
ot _
Soda (benzoate of).
Soya bean o
Tota
Of the amount produced, 29,545 pounds were reworked.
Of the amount produced, 58 pounds were reworked.
9,575
152. 91
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a
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s
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#
p
d
-
g
o
o
g

e
583
Msc.
1938-10-9234
MS. 19
Schedue of oeomargarne produced and materas used durng the month of
anuary, 1938, as compared wth anuary, 1987.
anuary, 1938. anuary, 1937.
Tota producton of uncoored oeomargarne
ttu-pad
of uncoored oeomargarne:
Com o
Cottonseed o
Dervatve of gycerne.
Ithn
Oeo o
Oeo
Oeo stock.
ard..
Tota-
Tota producton of coored oeomargarne.
Tota wthdrawn ta-pad
Ingredent schedue of coored oeomargarne:
abassue o
Coconut o
Coor
Corn o
Cottonseed o
Dervatve of gycerne
Mk
Neutra ard
Oeo o
Oeo stearne
Oeo stock
Ourcury -
Pam o.
Pam kerne o
Peanut o
Sat
Soda (benzoate of)
Soya bean o
Tota
44, 010,085
2,137, 77
4.752.099
2 0,754
21, 452. 45
110,837
,440
7,887. 714
143.988
80 . 194
312. 749
70. O
19,203
4.412,714
713
45. 589. 09
108,5
3. 712
12
7, 325
ISO
5
78.2 9
490
38,3 7
5.220
25,9 1
00
2,234
1. 49
49
10.97
1
1 , 171
187, 83
31, 430, 270
590,851
, 78,488
181,008
13,702,2 4
88,329
2,710
8, 724, 550
1 1,318
1,281,458
258.897
132.320
117,155
447.808
293.792
1,427, 891
1, 144
13. 572
2, 82,572
32. 78 . 125
170.028
59,772
4
34, 82
1 7
29
50,0 9
385
47,4
4.203
22,809
1,850
1.255
45
20.980
348
14,729
104
4, 18
203, 733
ncudes 8,321,5 8 pounds omtted from the December, 1937, schedue.
)f the amount produced, 24,3 5 pounds were reworked.
Of the amount produced, 23,482 pounds were reworked.
Incudes 3.2 9,334 pounds omtted from the December, 1937, schedue.
ncudes 3,447,824 pounds omtted from the December, 1937, schedue.
Incudes 15,280 pounds omtted from the December, 1937, schedue.
0f the amount produced, 192 pounds were reworked.
Incudes 2,582 pounds omtted from the December, 1937, schedue.
Incudes 1 .75 pounds omtted from the December, 1937, schedue.
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#
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e
Msc.) 584
1938-13-92 9
MS. 198
mended schedue of oeomargarne produced and materas used durng the month
of anuary, 1938.
:
anuary, 1938.
anuary. 1938.
Tota producton of uncoorod oeo-
Pound .
40, 325,000
Tota producton of coored oeo-
margarne
Pound .
150,959
40,740, 751
Tota wthdrawn ta -pad
n, m
Inprcdent schedue of uncoored
oeomargarne
Ingredent schedue of coored oeo-
margarne:
abassue o
abassue o
2. 137, 77
4,383.110
208,727
19, 10. 0
108,913
,440
7,314.838
143,988
771, 34
282,859
.51
917.02
23 .031
1,847,403
1 , 158
4, 200, 314
54
138
Coconut o
7.325
1 4
Cottonseed o . ...
2
Cottonseed o
9, 44
4
85,109
5.220
22,58
COO
1,559
1. 49
45
10.213
48
1 .171
Dervatve of gycerne
Mk
Mk-
Neutra ard
Pam kerne o
Peanut o
m , 1 hm11 to ,,f I
Soya bean o
Soya bean o
tamn concentrate
Tota
170, 927
Tota
41141.785
Of the amount produced, 20,1 pounds were reworked.
Of the amount produced, 1 0 pounds were reworked.
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s
s
_
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#
p
d
-
g
o
o
g

e
585
Msc.
1938-13-92 8
MS. 197
of oeomargarne produced and materas used durng the month of
ebruary, 1938, as compared cth ebruary, 1937.
ebruary,
1938.
Tota producton of uncotored oeomargarne.
ngredent schedue of uncotored oeomargarne:
abassue o
Coconut o
Corn o.. -
Cottonseed o.
Dervatve of gycerne -
Lecthn.
Mk
Neutra ard
Oeo o
Oeo stearne
Oeo stock. .
Pam o
Pam kerne o
Peanut o
at -
oda (bcmoate of)
Soya bean o
tamn concentrate .
Tota.
Tota producton of coored oeomargarne.
Tota
Ingredent schedue of coored oeomargarne:
e o
t o
Coor..
Corn o.
Cottonseed o.
Dervatve of g
Lecthn...
o
Oeo stock..
Mm
Pam
o.
kerne o..
oL
at
oda (benzoate of)..
Soya bean o
TotaL.
Pounds.
38,059,305
3 , 222, S43
1,098, 719
, 410, 97
40,802
1 ,74 , 072
100,422
7,748
,910,842
139, 740
88 , 321
248,053
70,352
27,318
318,422
1,509, 102
13,842
2,737,432
4,920
37, 770, 702
142,031
5,848
432
20, 81
1 4
4 ,715
382
1
38,213
,921
24,5 3
100
1, 33
53
7,50
41
18 230
1 4, 1 5
1 Of toe amount produced, 0,39 pounds were reworked
Of the amount produced, 24,131 pounds were reworked.
Of the amount produced, 9 pounds were reworked.
Of the amount produced, 48 pounds were reworked.
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8
9
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e
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s
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#
p
d
-
g
o
o
g

e
Msc.
58
1938-18-9325
MS. 200
Schedue of oeomargarne produced and materas used durng the month of
March, 1938, a compared wth March, 937.
March, 1038.
March, 1937.
Tota producton of uncoored oeomargarne
Pound,.
UO.799,998
Pound.
35.833.443
Ingredent schedue of uncoored oeomargarne
39, 21,927
35.974, 170
L 129, 02
9, 32,894
4,150
1 , 28 ,048
118,933
9,709
7, 5 7,479
147,7 4
1,324, 03
2 2,994
107,374
2,349,980
5,181.715
147,147
14,593,85
Mk
104,2 2
2, 03
8,737,5 2
17 , 231
1,532,14
230,273
n, on
Peanut o .
L 23 ,740
25,342
17,420
1, 17, 480
IS, 775
2,49 ,550
1,732
202,447
959.202
320,0 5
re o
Sat
1,494.2 9
17,928
3,852,144
Tota
42,402, 589
38, 059.919
Tota producton of coored oeomargarne .......... ....
1 0.872
1 0, 459
Tota wthdrawn ta -pad _. __
2, 292-
4,788
Ingredent schedue of coored oeomargarne:
abassue o
15.0 5
22,344
189
3
4,342
15,553
157
990
49, 31
279
Coconut o
Cottonseed o
40, 47
379
14
T rhn .
Mk
37, 00
7,23
3 ,7 1
5,873
Neutra ard
Oeo o
28,443
552
1,585
25.939
7,580
2.183
Oeo stock
Pam o
11,110
725
1,278
Pam kerne o
1,2 3
80
9,013
33
1 ,948
2
Sat
11.477
47
Soy beaD o
10,351
tamn concentrate
Tota
181,401
184,287
Of the amount produced, 72,140 pounds were re worked.
1 Of the amount produced, 3 , 53 pounds were reworked.
1 Of the amount produced, 234 pounds were reworked.
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2
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1
3
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1
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:
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s
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#
p
d
-
g
o
o
g

e
587 Msc.
1938-22-93 9
MS. 201
Schedue of oeomargarne produced and materas used durng the month of
pr, 1938, as compared wth pr, 1937.
pr. 1938.
pr, 1937.
Tota producton of uncoored oeomargarne
Pound .
1 32,50 , 8
Pounds.
34,203.07
Ingredent schedue of uncoored oeomargarne:
33,08 ,598
33,884,393
abassue o
9 9,721
8,955,180
8,029,441
4,084.999
Coconut o
Com o
U,880 s8
98,812
,817
,030,975
131,35
1,88 , 09
239,274
182, 01
3,953
14,723,124
93,495
2,948
,325,231
1 8, 182
1,832, 44
278,819
1 ,285
1 1,510
1,134,092
393.484
Cottonseed o . ............................................
Dervatve of gycerne _
Lecthn.. -
Neutra ard
Oeo o
Oeo stearne -
Pam o.. IIIII II II-- I. I
Pam kerne o
59, 14
27 ,4 2
33,978
Peanut o
Rce oL
Sat
1, 318, 704
1,490, 034
13, 559
2,74 ,93S
Soda (benzoate of)
11,792
Soya bean o
2, 347, 155
1,37
Tota
33,95 ,010
3 , 198, 738
134, 152
14 ,000
Ingredent schedue of coored oeomargarne:
49, 930
2,490
Coor
1,184
25, 45
1 7
2,40
11,155
128
321
5,4 1
245
41,208
335
1
Mk
32,357
, v
83,432
4.412
Oeo o
24,953
00
417
2 ,708
710
1,442
3,070
1,738
1,345
Oeo stock
Pam o.
495
28
8,011
34
8,800
1
Sat
10,81
41
,199
tamn concentrate
Tota
1 0,92
188. 25
I Of the amount produced, 52,141 pounds were reworked.
Of the amount produced, 28,919 pounds were reworked.
Of the amount produced, 40 pounds were reworked.
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/
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s
_
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#
p
d
-
g
o
o
g

e
Msc.
588
1938-2 -9423
MS. 202
Schedue of oeomargarne produced and materas used durng the month of
May, 1938, as compared wth May, 1937.
May. 1938.
May, 1937.
Poundt.
28. 377. 717
Pound .
28. 11.770
Ingredent schedue of uncoored oeomargarne:
28.7IS.ba2
794. 142
884.248
2, 13.413
4,079.470
117.312
12. 15.022
.214
1.883
,212. 170
147.227
1,094. 888
274. 81
113.040
153. 175
832.7
188. 38
Mk
7.70 , 158
11.481
0, 39. 309
7 .359
.4 8
,478.801
109.28
1,33 .924
273. 02
1 1. 392
at
4 9.92
2 0.79
18.2 0
1,1 3.317
10. 7
2.04 .934
1,1 1
1.237. 2
11.583
1.48 . 198
Tota
29,741.802
30. 1 5 454
122, 3 1
128.744
Ingredent schedue of coored oeomargarne-
3S.340
55.998
Coor
3,024
129
2
3. 1 3
14.3 4
128
87
41, 71
227
18,482
240
2
Mk
29.911
.0
17.9 5
1
31.9 8
3.253
Pam o
24
2 ,724
525
2.253
8,850
1, 12
.417
8,447
37
4,028
Pam kerne o ..... .....
234
9
PP . Ut o .............. .. ..... ... ................... .
at
,378
74
Soda (benzoate of)
7,3 4
Tota
139, 21
148,255
Of the amount produced, 20,573 pounds were reworked.
Of the amount produced, 14,280 pounds were roworked.
Of the amount produced, 127 pounds were reworked.
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0
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2

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:
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8
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#
p
d
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g
o
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e
589 Msc.
TO CCO.
1938-1-9130
T. 42
Statement of manufactured tobacco produced, by casses, durng the month of
October, 1957, as compared voth October, 193 .

October,
1937.
October,
1938
Pounds.
4,7 7,893
591,009
384,8 5
3,854,922
1 ,412,747
Pounds.
Pug
5,328,258
03,301
435,195
Twst -
ne-ot chewng ... ... , ,
Scrap chewng
3,992, 195
18,03 , 18
Smokng 1 I
TotaL
2 ,011,43
28,395,135
Note Tbese fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
1938- -9191
T. 43
Statement of manufactured tobacco produced, by casses, durng the month of
November, 1937, as compared tcth November, 193 .
November,
November.
1939.
Pug _
Pounds.
4,400,10
492,937
481, 32
3,223.545
15,85 ,15
Pounds.
4,499,839
492,810
409,05
Twst
ne-cut chewng
crap chewng .
3, 371,385
, 203,008
TotaL
24,514,37
23,97 ,098
Note. These fgures are subect to revson unt pubshed n the Commssoner s annua report.
1938-10-9233
T.44
Statement of manufactured tobacco produced, by casses, durng the month of
December, 1937, as compared wth December, 193 .
December,
December,
1937.
193 .
Pounds.
3,840, 18
452,12
372,434
8,350,2 7
14, 4 5, 190
Pounds.
4,455,1 9
7 ,727
21, 18
3, 440, 454
15,375,428
rS t
ne-cut chewng
Scrap chewng
sSotng....f..::
22,480, 3
24,3 9,39
Note. These fgures are sub|ect to revson unt pubshed In the Commssoner s annua report.
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2
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1
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0
1
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2
2

0
4
:
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9

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590
1938-14-9281
T.45
Statement of manufactured tobacco produced, by casses, durng the month of
anuary, 19S8, as compared wth anuary, 1937.
anuary,
anuary.
1938.
1937.
Pug
Poundt.
8,728. 20
437,429
351.082
3,153,132
14,72 ,0 3
Pound .
4. 23,88
503,343
382,431
3.147.071
13,435,753
Twst
TotaL
22,394,302
22.092.504
Note. These fgures are sub|ect to revson unt pubshed In the Commssoner s annua report.
1938-19-9335
T. 4
Statement of m-anufactured tobacco produced, by casses, durng the month of
ebruary, 1938, as compared wth ebruary, 1937.
ebruary,
1938.
ebruary.
1937.
Poundt.
4,587,323
450,820
335,200
3,104,550
14,281.942
Poundt.
4,908.974
494,307
372.001
3.809. 73
14.327. 05
Pug
Twst-
22.739. 35
23.912.559
Note. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua- report.
1938-23-9378
T. 47
Statement of manufactured tobacco produced, by casses, durng the month of
March, 1938, as compared wth March, 1937.
March, 1938.
March, 1937.
Poundt.
4,808,00
411,557
501,925
3,373,31
18, 155, 47
rounds.
,313,055
852, 793
434,5 7
4, 129. 208
17,534,877
Pug
Twst
27,348,278
28.099.490
N n r. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
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591
Msc.
S CTION 3 O T INSON CT (48 ST T, 503), S
M ND D Y T CT O UN 25, 193 (49 ST T,
192 ).
1938-18-9321
I. T. 3185
In 193 two Navy contracts were awarded under the nson
ct, approved March 27, 1934 (48 Stat., 503), as amended by the
ct of une 25, 193 ( 49 Stat, 192 ), to the M Company. On ds-
souton of the M Company n that year ts assets were conveyed to,
and ts abtes, obgatons, contracts, etc., were assumed by, the
parent corporaton, the N Company. y suppementa contracts
the Navy Department recognzed the N Company as assumng the
contracts wth the M Company.
ed, the N Company Is requred under secton 3 of the ct,
as amended, to fe wth the Secretary of the Navy two reports
on orm 937 wth respect to the frst contract, one for the M Com-
pany and one for tsef, and to fe wth the coector of Interna
revenue two annua reports on orm 949, one for the M Company
and one for Itsef, accompaned by copes of the reports on orm
937 fed wth the Secretary of the Navy. reasonabe aocaton
s requred between the two corporatons of the contract prce and
the cost of performance. Smar reports must be made wth respect
to the second contract when competed.
dvce s requested regardng the appcaton of secton 3 of the
nson ct, approved March 27, 1934 (48 Stat., 503), as amended
by the ct of une 25, 193 (49 Stat., 192 ), to two Navy contracts
awarded under that ct, as amended, to the M Company.
The frst contract was awarded by the Navy Department to the
M Company on ugust , 193 , and the second contract cang for
smar artces was awarded by the Navy Department to that com-
pany on September , 193 . t the tme or these awards the M
Company was a whoy owned subsdary of the N Company. Sub-
sequenty, n 193 , the M Company, the subsdary, was dssoved
and a of ts assets were conveyed to the parent company (N Com-
pany) n e change for the redempton and canceaton of ts entre
ssuea and outstandng capta stock and the assumpton of a of ts
abtes, obgatons, contracts, etc. y suppementa contracts,
the Navy Department n 1937 recognzed the N Company as assum-
ng a of the obgatons under the above-mentoned contracts, the
suppementa contracts aso bearng the assent of the suretes on
the orgna contracts. The N Company was nstructed by the Navy
Department to compete the matera caed for n the frst contract
before any shpments were commenced on the second contract. The
frst shpment on the frst contract was made n ebruary, 1937, and
the fna shpment n November, 1937. The frst shpment on the
second contract was made n October, 1937. Ths contract w prob-
aby not be competed unt the atter part of 1938.
Snce the artces beng supped under these contracts are dentca
n a respects, the purchases of raw matera for the second contract
were negotated by ncreases n the amount orgnay specfed as
beng requred for the frst contract. It s stated n ths connecton
that It was whoy mpractcabe to determne a dvdng ne as to
where the matera or abor e pended on the frst contract ended and
where the second contract commenced, and that ths statement aso
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592
appes to the other tems of cost whch are permssbe under the
provsons of secton 3 of the nson ct, as amended.
The ureau hods that where a contract or subcontract under the
nson ct, as amended, does not provde a method for determnng
the date of competon thereof, the date of devery of the artces
specfed n the contract or subcontract s consdered the date of
competon for the purposes of secton 3 of such ct, as amended,
regardess of whether fu payment has been made or whether the
guarantee perod contaned n the contract or subcontract has e pred.
(See I. T. 3089, C. . 1937-1, 529.)
Whe t s recognzed that no unform method of accountng can
be prescrbed for a contractng partes sub|ect to the provsons of
secton 3 of the ct, as amended, each contractng party s requred
by the aw to make a report of ts true proft and e cess proft, and
must, therefore, mantan such accountng records as w enabe t
to do so. The proft or oss upon each of the contracts referred to
above must be accounted for and fuy e paned separatey n the
books of account of the N Company and the M Company and must
be so arranged as to factate the necessary verfcaton by representa-
tves of the ureau. (See artces 8 and 13 of Treasury Decson 4723.
C. . 1937-1, 519.)
Upon the bass of the facts stated, t s the opnon of ths offce that
the N Company s requred by artce 14 ( z) of Treasury Decson 4723,
supra, to fe wth the Secretary of the Navy two reports on orm 937
wth respect to the frst contract, one for the M Company and one for
tsef. The N Company s aso requred by artce 1 of Treasury
Decson 4723 to fe wth the coector of nterna revenue two annua
reports on orm 949 wth respect to that contract, one beng for the
M Company and the other for tsef, accompaned by copes of the
reports on orm 937 fed wth the Secretary of the Navy. (See
artce 14( ) of Treasury Decson 4723.) In makng such reports
the N Company s requred to make a reasonabe aocaton between
the M Company and tsef of the contract prce and the cost of per-
formance, such aocaton to be made wth due regard for a of the
facts and crcumstances bearng on the reasonabeness of the
aocaton.
Upon competon of the second contract, the N Company w be
requred to fe four smar reports wth respect to that contract.
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L GISL TION.
1938-4-91 8
S. 2 75. PU LIC, NO. 41 , S NTY- I T CONGR SS. C PT R 8,
S COND S SSION.
n ct To amend certan sectons of the edera Credt Unon
ct approved une 2 , 1934 (Pubc, Numbered 4 7, Seventy-thrd
Congress).
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton of
the edera Credt Unon ct, approved une 2 , 1934 (U. S. C,
1934 edton, tte 12, secton 175 ), be, and the same s hereby,
amended to read as foows:

8 w. 4. Secton 18 of the edera Credt Unon ct (U. S. C, 1934 edton,
tte 12, secton 17 8) s hereby amended to read as foows:
Sec. 18. The edera credt unons organzed hereunder, ther property,
ther franchses, capta, reserves, surpuses, and other funds, and ther ncome
sha be e empt from a ta aton now or hereafter mposed by the Unted
States or by any State, Terrtora, or oca ta ng authorty e cept that any
rea property and any tangbe persona property of such edera credt unons
sha be sub|ect to edera, State, Terrtora, and oca ta aton to the same
e tent as other smar property s ta ed. Nothng heren contaned sha pre-
vent hodngs n any edera credt unon organzed hereunder from beng
ncuded n the vauaton of the persona property of the owners or hoders
thereof n assessng ta es mposed by authorty of the State or potca sub-
dvson thereof n whch the edera credt unon s ocated: Provded, however.
That the duty or burden of coectng or enforcng the payment of such ta
fcha not be mposed upon any such edera credt unon and the ta sha not
e ceed the rate of ta es Imposed upon hodngs n domestc credt unons.

pproved, December , 1937.
1938-9-9221
. R. 8730. PU LIC, NO. 424, S NTY- I T CONGR SS. C PT R
13, T IRD S SSION.
n ct to amend the Natona ousng ct, and for other
purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That ths ct may
be cted as the Natona ousng ct mendments of 1938.

Seo. 3. Tte II of the Natona ousng ct, as amended, s
amended to read as foows:
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594
TITL II MORTG G INSUR NC .
D INITIONS.

payment op nsurance.
Sec. 204.

(d) The debentures ssued under ths secton to auy mortgagee wth respect
to mortgages nsured under secton 203 sha be e ecuted n the name of the
Mutua Mortgage Insurance und as obgor, sha be sgned by the dmns-
trator by ether hs wrtten or engraved sgnature, and sha be negotabe and
the debentures ssued under ths secton to auy mortgagee wth respect to
mortgages nsured mder secton 210 sha be e ecuted n the name of the ous-
ng Insurance und as obgor, sha be sgned by the dmnstrator by ether
hs wrtten or engraved sgnature, and sha be negotabe. such debentures
sha be dated as of the date forecosure proceedngs were nsttuted, or the
property was otherwse acqured by the mortgagee after defaut, and sha bear
nterest from such date at a rate determned by the dmnstrator, wth the
approva of the Secretary of the Treasury, at the tme the mortgage was offered
for nsurance, but not to e ceed 3 per centum per annum, payabe semannuay
on the 1st day of anuary and the 1st day of uy of each year, and sha mature
three years after the 1st day of uy foowng the maturty date of the mortgage
on the property n e change for whch the debentures were ssued. Such deben-
tures as are ssued n e change for property covered by mortgages nsured
under secton 203 or secton 207 pror to the date of enactment of the Natona
ousng ct mendments of 1938 sha be sub|ect ony to such edera, State,
and oca ta es as the mortgages n e change for whch they are ssued woud
be sub|ect to n the hands of the hoder of the debentures and sha be a
abty of the fund, but such debentures sha be fuy and uncondtonay
guaranteed as to prncpa and nterest by the Unted States but any mortgagee
entted to receve any such debentures may eect to receve n eu thereof a
cash ad|ustment and debentures ssued as herenafter provded and bearng the
current rate of nterest. Such debentures as are ssued n e change for property
covered by mortgages nsured after the date of enactment of the Natona
ousng ct mendments of 1938 sha be e empt, both as to prncpa and
Interest, from a ta aton (e cept surta es, estate, nhertance, and gft ta es)
now or hereafter mposed by the Unted States, by any Terrtory, dependency,
or possesson thereof, or by any State, county, muncpaty, or oca ta ng
authorty

renta housng nsurance,
Sec. 207.

() Debentures ssued under ths secton upon the assgnment of an nsured
mortgage to the dmnstrator sha be e ecuted n the name of the ousng
Insurance und as obgor, sha be sgned by the dmnstrator, by ether hs
wrtten or engraved sgnature, and sha be negotabe. They sha bear nterest
at a rate determned by the dmnstrator, wth the approva of the Secretary of
the Treasury, at the tme the mortgage was nsured, but not to e ceed 3 per
centum per annum payabe semannuay on the 1st day of anuary and the 1st
day of uy of each year, and sha mature three years after the 1st day of uy
foowng the maturty date of the mortgage n e change for whch the deben-
tures were Issued. Such debentures as are ssued n e change for mortgages
nsured after the date of enactment of the Natona ousng ct mendments of
1938 sha be e empt, both as to prncpa and nterest, from a ta aton (e cept
surta es, estate, nhertance, and gft ta es) now or hereafter mposed by the
Unted States, by any Terrtory, dependency, or possesson thereof, or by any
State, county, muncpaty, or oca ta ng authorty.

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595
Msc.
Sec. 8. Secton 307 of such ct s amended to read as foows:
Sec. 307. notes, bonds, debentures, or other obgatons ssued by any
natona mortgage assocaton sha be e empt, both as to prncpa and nterest,
from a ta aton (e cept surta es, estate, nhertance, and gft ta es) now or
hereafter mposed by the Unted States, by any Terrtory, dependency, or
possesson thereof, or by any State, county, muncpaty, or oca ta ng author-
ty. very natona mortgage assocaton, ncudng ts franchse, capta,
reserves, surpus, mortgage oans, ncome, and stock, sha be e empt from
ta aton now or hereafter mposed by the Unted States, by any Terrtory,
dependency, or possesson thereof, or by any State, county, muncpaty, or oca
ta ng authorty. Nothng heren sha be construed to e empt the rea property
of such assocaton from ta aton by any State, county, muncpaty, or oca
ta ng authorty to the same e tent accordng to ts vaue as other rea property
s ta ed.

pproved ebruary 3,1938.
1938-1 -9304
. R. 93 1. PU LIC, NO. 442, S NTY- I T CONGR SS. C PT R
44, T IRD S SSION.
n ct To mantan unmpared the capta of the Commodty
Credt Corporaton at 100,000,000, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed,

Sec. 5. onds, notes, debentures, and other smar obgatons
ssued by the Commodty Credt Corporaton under the provsons of
ths ct sha be deemed and hed to be nstrumentates of the Gov-
ernment of the Unted States, and as such they and the ncome de-
rved therefrom sha be e empt from edera, State, muncpa, and
oca ta aton (e cept surta es, estate, nhertance, and gft ta es).
The Commodty Credt Corporaton, ncudng ts franchse, ts
capta, reserves, and surpus, and ts ncome sha be e empt from
a ta aton now or hereafter mposed by the Unted States, by any
Terrtory, dependency, or possesson thereof, or by any State, county,
muncpaty, or oca ta ng authorty e cept that any rea property
of the Commodty Credt Corporaton sha be sub|ect to State, Terr-
tora, county, muncpa, or oca ta aton to the same e tent accord-
ng to ts vaue as other rea property s ta ed.
pproved March 8, 1938.
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59
MISC LL N OUS.
1938-8-9211
Dscontnuance of the furnshng of bank forms and reguatons
by the ureau of Interna Revenue for other than ta purposes.
ecause of very mted funds avaabe for the prntng of bank
forms and reguatons, the ureau of Interna Revenue w dscon-
tnue furnshng ths matera /or other than ta purposes.
ttorneys, accountants, students, educatona nsttutons, or other
desrng ncome ta forms or reguatons sted beow for work sheets
or reference purposes may purchase them from the Superntendent
of Documents, Government Prntng Offce, Washngton, D. C., at the
prces ndcated:
orm 1040, orgna, 5 cents each, or 1 per hundred wth nstructons, 2 per
hundred.
orm 1040 , orgna, 5 cents each, or 50 cents per hundred wth nstructons,
1 per hundred.
orm 1041, orgna, 5 cents each, or 1 per hundred wth nstructons, 1
per hundred.
orm 10 5, orgna, 5 cents each, or 1 per hundred wth nstructons, 2
per hundred.
orm 1120, orgna, 5 cents each, or 2.25 per hundred wth nstructons,
3.75 per hundred.
Reguatons 94, 40 cents per copy.
Note. Prce for snge copes ncudes Instructons.
The ureau w nterpose no ob|ecton to the reproducton of
offca forms provded there s no devaton from the sze and sub|ect
matter of such forms.
The attenton of a nterested persons s caed to the fact that
a forms and reguatons to be used for ta purposes are dstrbuted
to ta payers or ther counse through the oca offces of the ureau
of Interna Revenue and not from Washngton.
1938-8-9212
Interna Revenue gent rancs T. Smth has been assgned to
duty at Pars, rance, for the purpose of assstng ctzens of the
Unted States n urope n the preparaton of ther ncome ta
returns. Mr. Smth may be addressed mercan mbassy, Pars,
rance.
1938-2-9141
RUL S O PR CTIC OR T UNIT D ST T S O RD O
T PP LS.
Introducton.
These revsed rues are promugated pursuant to authorty of secton 907(a)
of the Revenue ct of 1924, as amended by secton 01 of the Revenue ct of
1928, whch provdes n part that The proceedngs of the oard and ts dv-
sons sha be conducted n accordance wth such rues of practce and procedure
(other than rues of evdence) as the oard may prescrbe and In accordance
wth the rues of evdence appcabe n courts of equty of the Dstrct of
Coumba.
Congress n the Revenue cts has enacted provsons reatng to the organza-
ton, |ursdcton, and procedure of the oard of Ta ppeas, and to the acton
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Msc.
of the ureau of Interna Ieveuue wth respect to the assessment and coecton
of defcences when a petton has been fed wth the oard. Reference s made
to those statutory provsons n the Revenue cts for procedura requrements
other than those reatng to the conduct of proceedngs before the oard and ts
dvsons to whch these rues of practce are mted. ttenton s caed to
Tte 2 of the Unted States Code nnotated for convenent reference to the
Revenue cts as amended and partcuary to sectons 271, 272, 273, 00, and 45
of Tte 2a
Ths edton of the rues of practce becomes effectve on anuary 1,
1938, .
ttenton Is caed to the foowng: Many pettons fed wth ths oard are
dsmssed for ack of ursdcton and for faure to compy wth the rues of
practce. It s therefore of great mportance to pettoners that pettons be
prepared and fed propery n accordance wth statutory requrements and the
provsons of the rues of practce.
Rue 1. usness oes.
The offce of the oard at Washngton, D. C, w be open each busness day
from 9 o cock a. m. to 4.30 o cock p. m.
Run 2. dmsson to Practce.
Persons of the foowng casses who are found by the oard, upon consdera-
ton of ther appcatons, to be ctzens of the Unted States, of good mora
character, and to possess the requste quafcatons to represent others, may be
admtted to practce before the oard:
(o) ttorneys at aw who are admtted to practce before the Supreme Court
of the Unted States or the hghest court of any State or Terrtory or of the
Dstrct of Coumba.
( ) Certfed pubc accountants duy quafed under the aws of any State
or Terrtory or of the Dstrct of Coumba.
Corporatons and frms w not be admtted or recognzed.
n appcant for admsson must fe bs appcaton wth the oard on the
form provded. orms w be furnshed upon request to the secretary of
the oard. Such appcaton sha be accompaned by a current certfcate
of the cerk of the court n whch the appcant s admtted to practce to the
effect that he has been so admtted and s n good standng or a current cer-
tfcate by the proper State, Terrtora, or Dstrct authorty to the effect that
the appcant s a certfed pubc accountant n good standng, duy quafed and
entted to practce n such State or Terrtory or the Dstrct of Coumba.
The oard may deny admsson to, suspend, or dsbar any person who In Its
|udgment does not possess the requste quafcatons to represent others, or
who s ackng In character, Integrty, or proper professona conduct. No person
sha be suspended for more than 0 days or dsbarred unt he has been afforded
an opportunty to be heard. dvson may mmedatey suspend any person
for not more than 0 days for contempt or msconduct durng the course of
any proceedng.
The oard may requre any practtoner before t to furnsh a statement under
oath of the terms and crcumstances of hs empoyment n any proceedng.
Rue 3. Persona Representaton n Leu of Counse.
ny ndvdua ta payer or member of a ta payer partnershp may appear for
hmsef or such partnershp upon adequate dentfcaton to the oard. ta -
payer corporaton may be represented by a bona fde ofScer of the corporaton
upon permsson granted, n ts dscreton, by the oard or the dvson sttng.
Rue 4. orm and Stye or Papers.
papers fed wth the oard sha be ether prnted or typewrtten, and
f typewrtten, sha be on ony one sde of pan whte paper. Ths paper
sha be not more than 8 Inches wde and 11 nches ong, and sha wegh not
ess than 1 pounds to the ream. The papers sha be fastened on the eft sde
and at no other pace. They sha not be bound wth stff covers or backs.
Copes sha be egbe but may be on any weght paper. If prnted, they sha
be n 10 or 12 pont type, on good ungazed paper, 5 nches wde by 9 nches
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598
ong, wth nsde margn not ess than 1 nch wde, and wth doube-eaded te t
and snge-eaded quotatons. Ctatons sha be n tacs when prnted and
underscored when typewrtten.
The proper capton sha be paced upon a papers fed. If the pettoner s
an ndvdua, the fu gven name and surname sha be set forth n the cap-
ton. If the pettoner s a marred woman, her gven name sha be used, not
the name of her husband preceded by Mrs. If the pettoner s a fducary,
the name of the estate, trust, or other person for whom he acts, sha be gven
frst, foowed by the name of the fducary. (See rues 5 and (a), and p-
pend I, orm No. 2.)
cept as otherwse provded n these rues, a sgned orgna and four con-
formed copes of a papers sha be fed. Whenever any paper s fed n more
than one proceedng (as a moton to consodate proceedngs or n proceedngs
aready consodated), one addtona copy sha be fed for each addtona
proceedng.
The wrtten sgnature, whether of counse or of the pettoner, sha be n
ndvdua and not In frm name, e cept that where the pettoner s a corpora-
ton the wrtten sgnature sha be by an actve offcer of the corporaton. The
name and mang address of the pettoner or of counse sha be typed or
prnted mmedatey foowng the wrtten sgnature.
Rue 5. Proper Partes.
The proceedng sha be brought by and n the name of the person aganst
whom the Commssoner determned the defcency or abty, as the case may
be , or by and n the fu descrptve name of the fducary egay entted to
nsttute a proceedng on behaf of such person.
In the event of a varance between the name set forth n the notce of de-
fcency or abty and the correct name, a statement of the reasons for such
varance sha be set forth n the petton. (See rues 4, , and 23.)
Rue 0. Intaton of a Proceedng Petton.
proceedng sha be ntated by fng wth the oard a petton, as pro-
vded n rues 4, 5, and 8, and substantay n accordance wth orm 2, shown
n ppend I. The petton sha be compete n tsef so as fuy to state the
ssues. It sha contan:
(a) capton n the foowng form:
UNIT D ST T S O RD O T PP LS.
, , pettoner,)
v. Docket No.
Commssoner of Interna Revenue, respondent.
petton.
( ) Proper aegatons showng |ursdcton n the oard.
(c) statement of the amount of the defcency or abty, as the case may
be , determned by the Commssoner, the nature of the ta , the perod for
whch determned, and the amount thereof (as neary as may be computed) n
controversy.
(d) Cear and concse assgnments of each and every error whch the pet-
toner aeges to have been commtted by the Commssoner n the determna-
ton of the defcency. Issues n respect of whch the burden of proof s by stat-
ute paced upon the Commssoner w not be deemed to be rased by the pe-
ttoner n the absence of assgnments of error n respect thereof. ach assgn-
ment of error sha be numbered.
(c) Cear and concse numbered statements of the facts upon whch the pe-
ttoner rees as sustanng the assgnments of error, e cept those assgnments
of error In respect of whch the burden of proof s by statute paced upon the
Commssoner.
(/) prayer, settng forth reef sought by the pettoner.
((7) The sgnature of the pettoner or that of hs counse. (See rue 4.)
(ft) verfcaton by the pettoner provded that where the pettoner s
so|ournng outsde the Unted States or s a nonresdent aen, the petton
may be verfed by a duy apponted attorney n fact, who sha attach to the
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petton a copy of the power of attorney under whch he acts and who sha
state n hs verfcaton that he acts pursuant to such power, that such power
has not been revoked that pettoner s absent from the Unted States, and the
(. rounds of hs knowedge of te facts aeged n the petton. s used heren
the term Unted States ncudes ony the States and the Dstrct of Coum-
ba. notary pubc s not authorzed to admnster oaths, etc., n matters n
whch he s empoyed as counse. (See Tte 4, ch. 2, D. C. Code, and 2 Op. .
G., 23 .)
In the case of estates, trusts, or other fducares, the petton sha be sgned
by counse or by one or more of the fducares and sha be verfed by one
or more of the fducares. ma|orty of the fducares sha ether sgn
or verfy the petton.
The sgnature and the verfcaton to the petton sha be consdered the
certfcate of those performng these acts that there s good ground for the
petton, the proceedng has not been nsttuted merey for deay, and t s not
frvoous.
( ) copy of the notce of defcency (or abty, as the case may be
sha be appended to the petton. If a statement has accompaned the notce
of defcency, so much thereof as s matera to the ssues set out n the
assgnments of error kewse sha be appended. If the notce of defcency
refers to pror notces from the ureau, whch are necessary to eucdate the
determnaton, such parts thereof as are matera to the ssues set out n
the assgnments of error sha kewse be appended. (See ppend I,
orm No. 2.)
Rue 7. ng or Petton.
n orgna and four cear copes of the petton, ether prnted or type-
wrtten as provded n rue 4, sha be fed wth the oard at Washngton,
D. C. The copes of the petton sha be conformed to the orgna by the
pettoner.
aure to fe a suffcent number of copes, as provded n ths rue, or to
conform to the requrements of rues 4, 5, and 8, sha be ground for dsmssa
of the proceedng.
Rue 8. ee for ng Petton.
The fee for fng a petton wth the oard sha be 10, payabe at the
tme of fng.
Rue 11. Docket.
Upon recept of the petton, the proceedng w be docketed and assgned
a number and the partes notfed thereof. Ths number sha be paced by
the partes on a papers thereafter fed In the proceedng.
Rue 12. Servce of the Petton.
Upon fng of a petton and the copes, as prescrbed n rue 7, the cerk
w serve a copy upon the Commssoner.
Rue 14. nswer.
fter servce upon hm of a copy of the petton, the Commssoner sha
have 0 days wthn whch to fe an answer or 45 days wthn whch to move
n respect of the petton. The answer sha be so drawn as fuy and com-
petey to advse the pettoner and the oard of the nature of the defense.
It sha contan a specfc admsson or dena of each matera aegaton of
fact contaned In the petton and a statement of any facts upon whch the
Commssoner rees for defense or for affrmatve reef or to sustan any
ssue rased n the petton n respect of whch ssue the burden of proof s, by
statute, paced upon the Commssoner. ach paragraph contaned n the
answer sha be numbered to correspond wth the paragraphs of the petton.
n orgna and four copes of the answer sha be fed, of whch the orgna
sha be sgned by the Commssoner or hs counse and the copes conformed
by hm.
The cerk w serve one copy of the answer upon the pettoner or hs
counse of record by regstered ma.
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Rue 15. Repy.
If the answer of the Commssoner sets forth facts upon whch he rees for
affrmatve reef, or contans a statement of the facts upon whch he rees
to sustan an ssue n respect of whch the burden of proof s -paced upon
hm by statute, the pettoner sha, wthn 45 days after a copy of such
answer s maed to hm or hs counse of record by regstered ma, fe a
repy whch sha contan a specfc admsson or dena of each matera
aegaton of fact contaned In the answer and sha set forth any facts upon
whch he rees for defense. ach paragraph contaned n the repy sha be
numbered to correspond wth the paragraphs of the answer. n orgna and
four copes of the repy sha be fed, of whch the orgna sha be sgned
by the pettoner or hs counse and the copes conformed by hm.
The oard upon moton of the respondent n whch good cause s shown,
or upon ts own moton, may requre the verfcaton of any repy.
The cerk w serve one copy of the repy upon the Commssoner.
Rue 1 . onder or Issue.
proceedng sha be deemed at ssue upon the fng of the answer uness
a repy s requred under rue 15, In whch event the proceedng sha be
deemed at Issue upon the fng of the repy.
Rue 17. mended and Suppementa Peadngs.
The pettoner may, as of course, amend hs petton at any tme before
answer s fed. fter answer s fed, a petton may be amended ony by
consent of the Commssoner or on eave of the oard.
motons to amend, made pror to the bearng, must be accompaned by
the proposed amendments or amended peadng.
Upon moton made, the oard may, n ts dscreton, at any tme before the
concuson of the hearng, permt a party to a proceedng to amend the peadngs
to conform to the proof.
When motons to amend are granted at the hearng, the amendment or
amended peadng sha be fed at the hearng or wth the oard wthn such
tme as the member presdng may f .
See rues 4 and 19.
Rue 18. Peadngs Genera.
The oard, upon moton of ether party In whch good cause s shown, or
upon ts own moton, may order a further and better statement of the nature
of the cam or defense, or of any matter stated In any peadng. Such a
moton fed by a party sha pont out the defects companed of and the detas
desred. If such order of the oard s not obeyed wthn 15 days or wthn
such other tme as the oard may f , the oard may strke the peadng to
whch the moton was drected or may make such other order as t deems ust
If no repy s requred by these rues, each and every matera aegaton of
fact set out n the answer sha be deemed to be dened. ny new or affrma-
tve matter contaned n the repy sha be deemed to be dened.
Where an answer has been fed, each and every matera aegaton of fact
set out n the petton and not e pressy admtted or dened n the answer,
sha be deemed to be admtted. Where a repy s requred by these rues and
a repy has been fed, each and every matera aegaton of fact set out n the
answer and not e pressy admtted or dened n the repy sha be deemed to
be admtted.
Where no answer s fed or where a repy s requred by these rues, but no
repy s fed, the adverse party, wthn 45 days after the e praton of the tme
f ed by these rues for fng the answer or the repy, as the case may be,
or wthn 45 days after the promugaton of these rues, whchever sha aow
the greater tme, may fe a moton wth the oard cang attenton to the
fact that the peadng has not been fed wthn the specfed tme and certan
matera aegatons of fact have not been dened, and requestng the oard to
enter ts order that those partcuar undented aegatons sha be deemed to
be admtted. The oard w serve a copy of ths moton upon the other party
and ssue an order to show cause, returnabe on or before a day certan. If
the above descrbed moton s not fed wthn the prescrbed tme, the aega-
tons of the peadng to whch there was no response sha be deemed to be
dened.
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Rue 19. Motons.
Motons must be tmey. If a moton, other than one reatng to the recept
of evdence durng tra, s made oray durng tra, the maker thereof sha
prompty reduce t to wrtng and fe t wth the oard uness the member
presdng drects otherwse. Motons sha be prepared n the form and stye
prescrbed by rue 4. The cerk w serve a copy of each moton upon the
opposte party. Motons w be acted upon as |ustce may requre and may,
n the dscreton of the oard, be paced uhh the caendar for argument. (See
aso rue 30(b).) The fng of a moton sha not consttute cause for postpone-
ment of a hearng ffom the date set.
Motons for rehearng, reconsderaton, further hearng, and the ke, to
be consdered tmey, sha be made wthn 30 days after promugaton or
entry of the report.
Motons to vacate, correct, or revse a decson of the oard, to be consdered
tmey, sha be made wthn 30 days after entry of the decson.
Rue 20. tensons of Tme.
Contnuances, e tensons of tme (e cept for the fng of the petton and
e cept as otherwse provded n these rues), and ad|ournments may be ordered
by the oard on ts own moton or may be granted by t n ts dscreton on
moton of ether party fed n wrtng and showng good and suffcent cause
therefor.
Rue 21. Dsmssa.
proceedng may be dsmssed for cause upon moton of ether party or of
the oard.
Rue 22. Servce.
When at any tme there are two or more counse of record for a pettoner,
servce w be made upon the one whose appearance was frst entered of record,
uness he has otherwse requested by wrtng fed wth the oard, n whch
event servce w be upon such other counse of record as may be desgnated
by hm. owever, servce upon any counse of record sha be deemed servce
upon the party. If there s no counse of record, servce w be made upon
the pettoner.
Servce may be made upon the Commssoner n person, upon deputes desg-
nated by hm for the purpose of acceptng servce, or upon counse appearng
for the respondent n the proceedng. (See rues 12,14, and 15.)
Rue 23. Substtuton of Partes.
In the event of the death of a pettoner or for other cause, the oard may
order the substtuton of the proper partes. In the event of mstake n the
name or tte of a proper party, the oard may order substtuton of the
proper name or tte. (See rue 5.)
Motons for substtuton shoud be accompaned by a proper certfcate of
the court or offca havng custody of the record showng the nterest of the
party substtuted. In the event of a change n the name of a corporaton
or other party pettoner, a moton to amend the peadngs to show such
change shoud be fed, accompaned by a copy of the certfcate, decree, or
other document, effectng such change, certfed by the offca havng custody
of such document, uness the partes have agreed to the change and have so
Indcated n the record. f
ue 24. Substtuton ob Wthdrawa of Counse Notce of ppearance.
Counse of record n any proceedng desrng to wthdraw must gve prompt
notce of hs wthdrawa to the oard and to hs cent. The oard may, n
ts dscreton, wthhod permsson to counse of record to wthdraw.
Where the petton s not subscrbed by counse, or counse of record has
wthdrawn, counse subsequenty appearng for the pettoner sha mmed-
atey fe a notce of appearance, whch sha ncude statements of hs adms-
son to practce before the oard and of hs mang address.
Notce of a change n the mang address of counse or pettoner sha be
fed prompty wth the oard, and a separate notce sha be fed for each
docket number nvoved.
83421 38 20
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02
Rue 25. Caendars.
(a) Washngton and crcut caendars. ach proceedng when at ssue w
be paced ether upon the Washngton caendar or upon a crcut caendar, n
accordance wth rue 2 . (See ppend II.)
( ) earng caendars. The cerk, as drected from tme to tme by the
charman, w prepare hearng caendars.
(c) Reserve caendar. proceedng whch s at ssue may be paced upon
the reserve caendar for good cause shown, as, for e ampe, to awat the de-
cson of the Supreme Court n a pendng case.
Rue 2 . Pace of earng Requests and Desgnaton.
The pettoner at the tme of fng the petton sha aso fe a request
showng the name of the pace where he woud prefer the hearng on the
merts to be hed. copy of ths request w be served upon the Commssoner
by the cerk of the oard.
If the pettoner has fed no request, or f the respondent desres that the
hearng on the merts be hed at some pace other than the pace requested
by the pettoner, the respondent sha fe at the tme he fes hs answer, a
request showng the name of the pace preferred by hm. copy w be
served upon the pettoner by the cerk of the oard.
These requests sha not be bound as a part of the petton or answer but
sha be separate therefrom and sha consst of an orgna and four copes.
The oard w determne the pace of hearng, wth due regard to any
request propery fed n the proceedng and n accordance wth the statutory
provson that the tme and pace of tra sha be f ed wth as tte ncon-
venence and e pense to ta payers as s practcabe, and, n a cases, w
notfy the partes of the pace at whch or n the vcnty of whch the hearng
on the merts w be hed.
Motons for change n desgnaton of the pace of hearng, made after the
notce of the tme of the hearng has been maed, w not be deemed to have
been tmey fed.
In case t s necessary for the oard to hear the partes on matters other
than the merts, such hearng w be hed n Washngton uness good cause
s shown for hodng t esewhere.
(See ppend II for further nformaton to assst n makng requests as to
pace of hearng.)
Rue 27. Notce of earng.
When a proceedng has been paced upon the hearng caendar the cerk:
w, not ess than 15 days n advance, notfy the partes of the pace where
and the date when t w be caed.
Rue 28. Ca of Caendar and ssgnment for earng.
The hearng caendar of proceedngs to be heard at Washngton w be
caed at 9.30 a. m. The hearng caendar of proceedngs to be heard ese-
where w be caed at the tme ndcated n the notce of hearng. Proceed-
ngs w be assgned therefrom for hearng n due course.
Rue 29. aure to ppear.
The une cused absence of a party or hs counse on the day set for the
hearng of any proceedng, w not be the ocaason for deay. The hearng
w proceed and the case w be regarded as submtted on the part of the
absent party or partes.
The oard may requre appearance for argument or t may accept brefs n
eu of persona appearance.
Rue 30. Submsson Wthout earng or ppearance.
(a) Submsson of cases wthout hearng where facts are uncontested.
ny case not requrng a hearng for the submsson of evdence (as, for
e ampe, where suffcent facts have been admtted, stpuated, or ncuded n
the record n some other way), may be submtted at any tme by notce of the
partes fed wth the oard. The partes need not wat for the proceedng to
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be caendared and need not appear In person. The charman w then assgn
the proceedng to a dvson for report, whch dvson, upon request of the
partes, w f a tme for fng brefs or for oru argument.
( ) contested moton, not predcated upon an ssue of fact, may be sub-
mtted n the same way.
See, however, rue 31.
Rue 31. vdence and the Submsson of vdence.
(a) Rues appcabe. The rues of evdence appcabe n courts of equty
of the Dstrct of Coumba sha govern the admsson or e cuson of evdence.
( ) Stpuatons. The partes by stpuaton n wrtng fed wth the oard
or presented at the hearng, may agree upon any facts nvoved n a proceed-
ng. compete dupcate of the stpuaton, ncudng a e hbts, sha be
fed at the same tme. Stpuatons fed need not be formay offered to be
consdered n evdence.
(c) Depostons must be offered,. Testmony taken by deposton w not
be consdered unt offered and receved n evdence.
(d) Documentary evdence. (1) When books, records, papers, or documents
have been receved n evdence, a copy thereof or of so much thereof as may
be matera or reevant may, n the dscreton of the dvson hodng the hear-
ng, be substtuted therefor.
(2) fter the decson of the oard n any proceedng has become fna, the
oard may, upon moton, permt the wthdrawa by the party entted thereto
of orgna e hbts, or the oard may, on ts own moton, make such other
dsposton thereof as t deems advsabe.
(e) Not evdence. Statements n the petton, e parte affdavts and brefs
do not consttute evdence.
(f) aure of proof. aure to adduce evdence In support of the matera
facts aeged n the petton and dened by the Commssoner n hs answer
w be ground for dsmssa. Where there s a |onder of ssue on questons
of fact, the provsons of rue 30 do not reeve the party upon whom rests the
burden of proof from propery producng evdence to support the ssues.
Rue 35. refs.
The partes shoud be prepared to make ora arguments at the concuson
of the hearng or to fe wrtten ctatons of authortes at that tme f the
case s one n whch the presdng member mght reasonaby ca for such.
The fng of brefs and the makng of ora arguments sha be n accordance
wth the drectons of the member presdng at the hearng. If the member
does not drect otherwse, each party sha have 30 days after the day on
whch the hearng was concuded wthn whch to fe a bref on a of the
ssues as to whch he has the burden of proof the opposte party sha have
0 days after the day on whch the hearng was concuded wthn whch to
fe a bref on a such ssues and the frst party sha have 75 days after the
day on whch the hearng was concuded wthn whch to fe a bref for the
purpose of repyng to that of hs opponent. Shoud ether party desre to
fe a bref after the e praton of the prescrbed perod, that party sha
prepare and attach the orgna and requste number of copes of hs proposed
bref to a moton askng eave of the oard to fe the bref and settng forth
reasons for the request. The grantng of any such moton w effect a corre-
spondng e tenson of the tme for fng any subsequent bref provded for
n ths rue. fter a bref has been fed, the cerk w serve a copy upon
the opposte party.
If brefs are typewrtten, an orgna and four copes sha be fed f
prnted, 20 copes . ach bref sha contan on ts front fyeaf a tabe of
contents wth page references, suppemented by a st of a ctatons, apha-
betcay arranged as to cases cted, together wth references to pages. Cta-
tons sha be n tacs, when prnted, and underscored, when typewrtten.
The form of a brefs sha be as foows:
(a) statement of the nature of the ta and how the proceedng comes
before the oard.
( ) The party havng the burden of proof sha set forth compete statements
of the facts based upon the evdence. ach statement sha be numbered, sha
be compete In tsef, and sha consst of a concse statement of the essenta
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04
fact and not a dscusson or argument reatng to the evdence or the aw.
Reference to the pages of the transcrpt or the e hbts reed upon n support
thereof sha be nserted after each separate statement.
If the other party dsagrees wth any or a of the statements of fact, he
sha set forth each correcton whch he beeves the evdence requres trod
sha gve the same numbers to hs statement of fact as appear n hs opponent s
bref. s statement of fact sha be set forth n accordance wth the requre-
ments above desgnated.
(c) concse statement of the ponts upon whch the party rees.
Id) The argument. The argument sha set forth the ponts of aw reed
upon and any dscusson of the evdence deemed necessary to support the
statement of fact.
Rue 40. Transcrpts of Proceedngs.
earngs before the oard or ts dvsons sha be stenographcay reported
and a transcrpt thereof sha be made f, n the opnon of the oard or of
the dvson hodng the hearng, a permanent record of the hearng s deemed
necessary. Transcrpts sha be supped to the partes and to the pubc by
the offca reporter at such rates as may be f ed by contract between the
oard and the reporter.
Rue 44. Subpenas.
(a) ow ssued. The party desrng a subpena must make a tmey app-
caton therefor, n wrtng.
( ) ppcaton for. The appcaton sha state the name and address of
each wtness requred, the tme and pace at whch and the offcer before whom
he s to appear, and whether he may desgnate some one to appear n hs pace.
n orgna and two conformed copes sha be fed. (See ppend I, orm
No. 3.)
(c) or producton of documents. If evdence other than ora testmony
s requred, such as documents or wrtten data, the appcaton sha set forth
the specfc matter to be produced and suffcent facts to ndcate that such
matter s reasonaby necessary to estabsh the cause of acton or defense of
the appcant
(d) Servce and proof. The oard w not serve subpenas, but w eave
servce to be procured by the party makng the appcaton. Servce may be
made by any ctzen of the Unted States over the age of 21 years and compe-
tent to be a wtness, and not a party to or n any way nterested n the pro-
ceedng. Proof of servce may be made by affdavt
Rue 45. Depostons.
(a) ppcaton to take. When ether party desres to take a deposton,
be sha fe wth the oard a verfed appcaton and two conformed copes,
together wth an addtona copy for each addtona docket number nvoved.
The oard upon request w furnsh forms for ths purpose. If the space n
the form furnshed by the oard s nadequate for settng forth the reasons n
support of the appcaton n any partcuar case, a substtute form may be
used, but the substtute must contan a of the nformaton caed for on the
oard s form. (See ppend I, orm No. 5.)
( ) Lmtaton on tme for appcaton to take. ppcatons to take depos-
tons must be fed at east 30 days pror to the date set for the hearng of the
proceedng, and such depostons must be competed and fed wth the oard
at east 10 days pror to the hearng: Provded, Such appcatons w not be
regarded as suffcent ground for the grantng of a contnuance from the date
or pace of the hearng theretofore set uness the proceedng sha have been
at ssue ess than 0 days and the moton for contnuance sha have been fed
not ess than 20 days pror to sad date of hearng: Provded further, That
under speca crcumstances, and for good cause shown, the oard may other-
wse order.
(c) uafcaton of offcer. The offcer before whom depostons are taken
must be one authorzed to admnster oaths under the Revenue ct of 1924.
See secton 908 of the Revenue ct of 1924, as amended by secton 1000 of the
Revenue ct of 192 secton 1002(d), Revenue ct of 1924 and secton
1102(d), Revenue ct of 192 . In no case sha a deposton be taken before
any person who has any offce connecton or busness empoyment wth ether
party or hs counse e cept by consent of the partes and when no other offcer
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Is avaabe, and In hs certfcate of return, to such deposton such offcer
sha so certfy.
(d) Order for tacng. Upon recept of such appcaton, the cerk w serve
a copy thereof on the opposte party, and aow a reasonabe tme for ob|ecton
thereto. Thereafter, the oard w, n ts dscreton, make an order, a copy
of whch w be maed or devered to the partes or ther counse, wheren
the oard w name the wtness whose deposton s to be taken and specfy
the tme when, the pace where, and the offcer before whom the wtness s to
testfy, but such tme, pace, and offcer specfed n the oard s order may or
may not be the same as set forth n the appcaton. The appcant sha
thereupon make a necessary arrangements for the takng of each deposton
and sha furnsh the offcer before whom t s to be taken wth a copy of the
order above mentoned.
(e) y stpuaton. t any tme after ssue s oned, the partes or ther
counse may, by stpuaton duy sgned and fed, take depostons. In such
cases, the stpuaton sha state the name and address of each wtness, the
tme when and the pace where such depostons w be taken, and the name,
address, and offca tte of the offcer before whom t s proposed to take the
depostons. In such cases, no order to take depostons w be ssued, but
they sha be taken and returned by the offcer n accordance wth the rues
of the oard.
(f) Manner of takng. ach wtness must frst take the oath or affrm.
The questons propounded to hm and hs answers must be recorded verbatm.
Ob|ectons to questons or answers sha be e pcty but brefy and con-
csey stated, but no comment, e panaton, or argument of any knd sha be
recorded nether sha there be recorded any comment, e panaton, or argu-
ment by e amnng counse. ny matter reported n voaton of ths rue may
be suffcent cause for the suppresson of the deposton.
(g) Other wtnesses to be e cuded. t the request of ether party, a person
whom ether e pects or ntends to ca as a wtness n the same or any reated
proceedng sha be e cuded from the room where the testmony of a wtness
s beng taken. If such person remans n the room or wthn hearng of the
e amnaton after such request has been made, he sha not thereafter be per-
mtted to testfy e cept by the consent of the party who requested hs e cuson.
(ft) Depostons to be sgned. The testmony of the wtness when transcrbed
sha be read to or by hm and sha be sgned by hm. (See ppend I,
orm No. .)
() orm n whch, depostons must be returned to the oard. When a depo-
ston s returned to the oard t must show the docket number and the capton
(the names of the partes) of the proceedng as appears n the oard s records,
the pace and date of takng, the name of the wtness, the party by whom caed,
the names of counse present, ndcatng whch party each counse represents,
and (n the body of the deposton) the name of counse e amnng or cross-
e amnng the wtness.
The ofcer must so fasten the sheets of the deposton that they can not
be tampered wth. e must spare no pans to return to the oard the e act
testmony he has taken. e hbts must be carefuy marked so as to be
capabe of dentfcaton, and when practcabe must be attached to the depos-
ton.
The offcer must propery e ecute and attach to the deposton a certfcate of
return n the form prescrbed. (See ppend I, orm No. .)
()) Return of. The offcer must ncose the orgna depostons and e hbts,
together wth two copes of the depostons, n a seaed packet, wth postage
or other transportaton charges prepad, and drect and forward the same to
the Unted States oard of Ta ppeas, Washngton, D. C. In each case, the
orgna of the depostons must be drected and forwarded to the oard. The
offcer may, however, upon wrtten request, dever a copy of the depostons to
ether or to both of the partes, or to ther representatves, n eu of sendng
such copes to the oard as above provded. If one or both of the requred
copes are devered by the offcer takng the depostons, he sha attach to hs
return the wrtten request of the party or partes, or of ther counse to whom
such copy or copes were devered, and sha state n hs certfcate of return
the fact of devery by hm of such copy or copes. If copes of the depos-
tons are devered by the offcer takng the same, no servce of copes of such
depostons upon the party or hs counse of record w be made by the oard.
(k) The deposton of any wtness sha not consttute a part of the record
unt receved n evdence. (See rue 31.)
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Rue 4 . Depostons Upon Wrtten Interrogatores.
Depostons may be taken n the dscreton of the oard upon wrtten Inter-
rogatores n substantay the same manner as provded n rue 4 for depos-
tons upon ora e amnaton. n orgna and fve copes of the nterrogatores
must be fed wth the appcaton. The cerk w serve one copy of the app-
caton and of the nterrogatores upon the opposte party. If the opposte party
desres to fe ob|ectons or cross-nterrogatores, he must do so wthn 10 days
after the appcaton and nterrogatores have been served upon hm. Cross-
nterrogatores must consst of an orgna and fve copes. The cerk w serve
one copy thereof upon the opposte party who, If he has any ob|ecton thereto,
must fe hs ob|ectons wthn 10 days thereafter. No ob|ectons to the nterrog-
atores or cross-nterrogatores w be consdered at the hearng uness tmey
fed In accordance wth ths rue.
No person other than the wtness, a stenographc reporter, and the offcer
takng the deposton upon wrtten nterrogatores and cross-nterrogatores
sha be present at the e amnaton of the wtness. Ths fact sha be certfed
by the offcer takng the deposton. That offcer sha propound the nterroga-
tores and cross-nterrogatores to the wtness n ther order and cause the tes-
tmony to be reduced to wrtng n the wtness s own words.
Depostons obtaned n foregn countres must be taken upon wrtten nter-
rogatores, e cept as otherwse drected by the oard for cause shown.
Rue 50. Computatons bt Partes for ntry of Decson.
Where the oard has promugated or entered ts opnon determnng the
ssues n a proceedng, t may wthhod entry of ts decson for the purpose of
permttng the partes to submt computatons pursuant to the oard s deter-
mnaton of the ssues, showng the correct amount of the defcency or overpay-
ment to be entered as the decson. If the partes are n agreement as to the
amount of the defcency or overpayment to be entered as the decson pursuant
to the report of the oard, they or ether of them sha fe prompty wth the
oard an orgna and two copes of a computaton showng the amount of the
defcency or overpayment and that there s no dsagreement that the fgures
shown are n accordance wth the decson of the oard. The oard w then
enter ts decson. If, however, the partes are not n agreement as to the
amount of the defcency or overpayment to be entered as the decson, n accord-
ance wth the report of the oard, ether of them may fe wth the oard a
computaton of the defcency or overpayment beeved by hm to be n accord-
ance wth the report of the oard. The cerk w serve a copy thereof upon
the opposte party, w pace the matter upon the caendar for argument In
due course, and w serve notce of the argument upon both partes. If the
opposte party fas to fe ob|ecton, accompaned by an aternatve computa-
ton, at east fve days pror to the date of such argument, or any contnuance
thereof, the oard may enter decson n accordance wth the computaton
aready submtted. If n accordance wth ths rue computatons are snbmtted
by the partes whch dffer as to the amount to be entered as the decson of
the oard, the partes w be afforded an opportunty to be heard n argument
thereon on the date f ed, and the oard w determne the correct defcency
or overpayment and enter ts decson.
ny argument under ths rue w be confned strcty to the consderaton of
the correct computaton of the defcency or overpayment resutng from the
report aready made, and no argument w be heard upon or consderaton
gven to the ssues or matters aready dsposed of by such report or of any
new RSues. Ths rue s not to be regarded as affordng an opportunty for
rehearng or reconsderaton.
Rue 51. Costs Preparaton of Record on Revew.
Immedatey after the contents of a record on revew have been setted or
agreed to, the cerk w notfy the pettoner of the costs and charges for the
preparaton, comparson, and certfcaton of sad records such charges to be
determned n accordance wth the provsons of an ct of Congress entted
n ct to provde fees to be charged by cerks of the dstrct courts of the
Unted States, approved ebruary 11, 1925 (43 Stat, 857-858 U. S. O. .,
Tte 28, sectons 548-554).
No transcrpt wU be certfed and transmtted to the appeate court unt
the costs and charges therefor have been pad.
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pettoner for revew who requests the cerk to certfy but not to prepare
documents for transmsson to a Unted States Crcut Court of ppeas or to the
Unted States Court of ppeas for the Dstrct of Coumba sha furnsh the
cerk wth the copes of the documents to be certfed.
Rue 52. Costs Prntng of Record on Revew.
In each proceedng for revew of a decson of the oard by the Unted
States Crcut Court of ppeas for the Second Crcut when revew s sought
by the Commssoner of Interna Revenue, the cerk of the oard sha, mme-
datey after the contents of the record on revew, as requred by rue 85
of the court, have been setted or agreed upon, make avaabe to the Com-
mssoner, or hs counse, the record of the oard n the proceedng. The
Commssoner sha cause the record to be prnted. Twenty-fve copes of
the prnted record sha be devered to the cerk of ths oard for certfcaton
and for fng wth the cerk of the crcut court of appeas. The cerk of the
oard w serve three copes of the prnted record upon counse for the
ta payer.
Rue 53. Copes of oard Records ees for urnshng.
pan or a certfed copy of any document, record, entry, or other paper
may be had upon appcaton to the oard, the fee to be charged and coected
therefor to be determned n accordance wth the provsons of the ct of
Congress entted n ct to provde fees to be charged by cerks of the dstrct
courts of the Unted States, approved ebruary 11, 1925 ( 43 Stat., 857-858
U. 8. C. ., Tte 28, sectons 548-554).
Rue 0. ees and Meage.
Tte of the Revenue ct of 192 provdes n part:
Sec. 909. (a) ny wtness summoned or whose deposton s taken under
secton 908 sha receve the same fees and meage as wtnesses n courts of
the Unted States. Such fees and meage and the e penses of takng any such
deposton sha be pad as foows:
(1) In the case of wtnesses for the Commssoner, such payments sha be
made by the Secretary out of any moneys approprated for the coecton of
nterna-revenue ta es, and may be made n advance.
(2) In the case of any other wtnesses, such payments sha be made,
sub|ect to rues prescrbed by the oard, by the party at whose Instance
the wtness appears or the deposton s taken.
No wtness, other than one for the Commssoner, sha be requred to testfy
n any proceedng before the oard unt he sha have been tendered the fees
and meage to whch he s entted n accordance wth the above provson
of aw.
Rue 1. Computaton of Tme: Sundays and odays.
Whenever these rues prescrbe a tme for the performance of any act, Sundays
and ega hodays n the Dstrct of Coumba sha count |ust as any other
days, e cept that when the tme prescrbed for the performance of an act
e pres on a Sunday or a ega hoday n the Dstrct of Coumba, such tme
sha e tend to and ncude the ne t succeedng day that s not a Sunday or
such a ega hoday: Provded, That when the tme for performng any act s
prescrbed by statute nothng n these rues sha be deemed to be a mtaton
or e tenson of the statutory tme perod.
The foowng-named days are ega hodays wthn the Dstrct of Coumba:
New Tear s Day, anuary 1 (U. S. C. ., Tte 5, secton 87).
Washngton s rthday, ebruary 22 (U. S. C ., Tte 5, secton 87).
Inauguraton Day, every fourth year (48 Stat., 870 D. C. Code, Tte 22,
secton 12 ).
Decoraton Day, May 30 (U. S. C. ., Tte 5, secton 87).
ourth of uy (U. S. C. ., Tte 5, secton 87).
Labor Day, frst Monday n September (U. S. C. ., Tte 5, secton 87).
Thanksgvng Day. day procamed by the Presdent (secton 993, R. S.,
reatng to Dstrct of Coumba D. C. Code, Tte 22, secton 120).
Chrstmas Day, December 25 (U. S. C. ., Tte 5, secton S7).
When ega hodays fa on Sunday the ne t day sha be a hoday (22 Stat.,
1 D. C. Code, Tte 22, secton 12 ).
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08
Rue 2. Speca ssessment.
(a) If some of the ssues rased by the petton nvove secton 327 or secton
328 of the Revenue ct of 1918 or of 1921 or secton 210 of the Revenue ct of
1917, as the case may be , and some do not nvove such sectons, the hearng
may, n the dscreton of the oard, on moton, be mted n the frst nstance
to tra of the ssues whch do not nvove such sectons.
( ) hearng may be had n the dscreton of the oard, on moton, mted
to the tra of the ssue whether the pettoner s entted to have Its ta deter-
mned as provded n secton 328 or secton 210, as the case may be .
(c) If the oard decdes that the pettoner s entted to have ts ta deter-
mned as provded n secton 328 or secton 210, as the case may be the
respondent sha wthn 0 days after such decson fe wth the oard an org-
na and two copes of a proposed redetermnaton showng the method of the
computaton. If, wthn 20 days after servce by the cerk upon the pettoner
of a copy of such proposed redetermnaton, the partes are unabe to agree npon
the amount of ta , ether party may move, or the oard may upon Its own
moton order, that the proceedng be paced upon the caendar for further
hearng, at whch ether party may submt proof of the correct amount of ta
and defcency or overpayment.
(tZ) If from the peadngs or otherwse It appears of record before the oard
that the partes agree that pettoner s entted to have ts ta determned as
provded n secton 328 or secton 210, as the case may be , and the ony ssue
s as to the correct amount of the ta so determned, the proceedng w be
paced upon the caendar n due course for hearng, at whch ether party may
submt proof of the correct amount of the ta and defcency or overpayment.
Rue 70. ffectve Date.
These rues sha become effectve anuary 1, 1938, supersedng pror edtons
and amendments.
PP NDI .
I. O MS.
These forms are sub|ect to amendment ns crcumstances may render necessary.
No. 2. Petton.
No. 3. ppcaton for subpena.
No. 5. ppcaton for order to take depostons.
No. . Certfcate on return of depostons.
(Note. Read rue 4 of the rues of practce of the oard and carefuy observe
the requrements thereof as to form, sze, and stye of papers.)
No. 2. P TITION.
(See rues 4, 5, , 7, and 8.)
Unted States oabd of Ta ppeas. , pettoner,
Docket No.
Commssoner of Interna Revenue, respondent.
P TITION.
The above-named pettoner hereby pettons for a redetermnaton of the
defcency set forth by the Commssoner of Interna Revenue n hs notce of
defcency ( ureau symbos) dated , 19 , and as a bass
of hs proceedng aeges as foows:
1. The pettoner s (set forth whether ndvdua, corporaton, fducary, etc.,
as provded n rue ) wth prncpa offce (or resdence) at
(Street.)
, The return for the perod here
(Cty.) (State.)
nvoved was fed wth the coector for the dstrct of
2. The notce of defcency (a copy of whch s attached and marked hbt
) was maed to the pettoner on , 19 .
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5. The ta es In controversy are (ncome, profts, estate, or gft) ta es for the
(caendar or fsca year) year 19 and n the amount of doars
(state as e acty as possbe the amount In dspute).
4. The determnaton of ta set forth n the sad notce of defcency Is based
upon the foowng errors: ( numerate specfcay the assgnments of error
n a concse manner and avod peadng facts whch propery beong n the
succeedng paragraph.)
. The facts upon whch the pettoner rees as the bass of ths proceedng
are as foows: ( ere set forth aegatons of the facts reed upon but not
the evdence In ordery and ogca sequence, wth subparagraphs ettered,
so as fuy to nform the oard of the ssues to be presented and to enabe
the Commssoner to admt or deny each specfc aegaton.)
Wherefore, the pettoner prays that ths oard may hear the proceedng and
(here state the reef desred).
(Sgned)
(Pettoner or counse.)
State of
County of
(Post-offce address.)

, beng duy sworn, says that he s the pet-
toner (f a corporaton, or fducary, state tte of offce or trust of person
verfyng and that he s duy authorzed to verfy the foregong petton) above
named that he has read the foregong petton, or had the same read to hm,
and s famar wth the statements contaned theren, and that the statements
contaned theren are true, e cept those stated to be upon nformaton and
beef, and that those he beeves to be true.
(Sgned)
Subscrbed and sworn to before me ths day of ,
19 .
(Sgned)
sea (Offca tte.)
No. 8. PPLIC TION O SU P N .
, pettoner,
.
Commssoner of Interna Revenue, respondent.
Docket No.
To the Unted States oard of Ta ppeas:
ppcaton s hereby made for the ssuance of a subpena for the attendance
before
(The Unted States oard of Ta ppeas or the name and offca tte of the
person authorzed to take depostons.)
at on
at o cock m. of the foowng persons whose ora testmony
s desred on behaf of the n the above-
(Pettoner or respondent.)
entted proceedng:
N M . DD SS.
Dated , 19_
(Sgned)
(Post-offce address).
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No. 5. PPLIC TION OR ORD R TO T D POSITIONS.
(See rues 45 and 4 .)
Unted States oard of Ta ppeas.
, pettoner,
v. Docket No.
Commssoner of Interna Revenue, respondent.
PPLIC TION O O D TO T D POSITIONS.
To the Unted States oard of Tan ppeas:
1. ppcaton s hereby made by the above-named
(Pettoner or respondent.)
for an order to take the deposton of the foowng-named person, _:
N M O WITN SS. POST-O IC DD S8.
2. It s desred to take the depostons of the persons above named and each
of them for the foowng reasons:
(a) w testfy to the foowng matera matters:
(Set forth brefy the matter upon whch sad wtness w be caed to testfy.)
(b) w testfy to the foowng matera matters:
(c) w testfy to the foowng matera matters:
(d) w testfy to the foowng matera matters:
8. The reasons why desres to take the
(Pettoner or respondent.)
testmony of the above-named persons rather than have them appear personay
and testfy before the oard are as foows: (State specfcay reasons for each
wtness.)
4. It s desred to take the testmony of
(Names of wtnesses.)
on the day of , 19 , at the hour of o cock m.
( date suffcenty In advance of the day set for hearng of the proceedngs to enabe
the deposton to be competed and fed wth the oard at east 10 days pror to the
bearng.)
before n the Cty of
(State name and tte of offca.)
State of at room
(Gve number of room, street
number, and name of budng.)
5. That Is a
(Name of offca before whom depostons are to be taken.)
, who has no offce connecton or busness empoy-
( ve offca tte.)
ment wth the pettoner or hs counse.
Dated , 19
(Sgned) ,
(Pettoner or counse.)
(Post-offce address.)
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State or 1
County of /
, beng duy sworn, says that the fore-
(Pettoner or counse.)
gong appcaton for order to take depostons s made n good fath and for
the reasons theren stated and that the same s not made for purposes of deay.
(Sgned)
Subscrbed and sworn to before me ths day of , 19 .
(Sgned)
sea (Offca tte.)
No. . C RTI IC T ON R TURN.
To the Unted States oard of Ta ppeas:
I, , the person named In the foregong order
to take depostons, hereby certfy:
1. That I proceeded, on the day of , . D. 19 ,
at the offce of , In the cty of ,
State of , at o cock, _-m., under the sad
order and n the presence of and
the counse of the respectve partes, to take the foowng
depostons, vz:
of the
(Pettoner or respondent.)
of the
(Pettoner or respondent.)
of the
, a wtness produced on behaf
, a wtness produced on behaf
a wtness produced on behaf
(Pettoner or respondent.)
2. That each wtness was e amned under oath at such tmes and paces
as condtons of ad|ournment requred, and that the testmony of each wtness
(or hs answers to the nterrogatores fed) was taken stenographc-ay and
reduced to typewrtng by me or under my drecton.
3. That after the testmony of each wtness had been reduced to wrtng the
transcrpt of that testmony was read and sgned by the wtness n my presence,
and that each wtness acknowedged before me that hs testmony was n a
respects truy and correcty transcrbed.
4. That, after the sgnng of the deposton n my presence, no ateratons or
changes were made theren.
5. That I have no offce connecton or busness empoyment wth the pettoner
or hs attorney e cept that of , ob|ecton to whch was
(State connecton.)
waved by both partes to the proceedng.
sea
(Sgnature of person takng deposton.)
(Offca tte.)
(Post-offce address.)
Norn. Ths form when propery e ecuted shoud be attached to and bound wth the
transcrpt precedng the frst page thereof. It shoud then be Incosed In a seaed enveop
and addressed to Unted States oard of Ta ppeas, Washngton, D. C.
II. equests for Pace or earng.
The oard w f the tmes and paces for ts hearngs n order to secure
reasonabe opportunty to ta payers to be heard wth as tte nconvenence
and e pense to ta payers as s practcabe. Secton 1000, eyenue ct of 1920,
amendng secton 907(e), Revenue ct of 1924. earngs may be hod at any
pace requested f sutabe accommodatons are avaabe and a suffcent num-
ber of cases are ready for hearng there. parta st of ctes where a
combnaton of these crcumstances has |ustfed a caendar of bearngs n the
past appears beow. It Is pubshed here merey to assst partes n makng
requests under rue 20. The groupng of certan ctes n the st ndcates that
f one of those ctes s requested, t may be necessary to hod the hearng at
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Msc.
12
the other cty n order to make tp a suffcent caendar of hearngs. Lkewse,
If suffcent cases are not ready for hearng n any partcuar cty requested by
ta payers, or If sutabe quarters are not avaabe there, the oard may fnd
It necessary to combne the hearngs requested for that cty and hod them
aong wth the hearngs requested for some other cty n the vcnty.
LIST.
abama:
rmngham.
Mobe.
rkansas: Ltte Rock (aternatve,
Memphs, Tenn.).
Caforna:
Los ngees.
San rancsco.
Coorado: Denver.
Dstrct of Coumba : Washngton.
orda:
acksonve.
Mam.
Tampa (aternatve, Mam).
Georga: tanta.
awa: onouu (aternatve, Los
ngees or San rancsco, Caf.).
Inos: Chcago.
Indana: Indanapos.
Iowa: Des Mones.
entucky: Lousve.
Lousana:
New Oreans.
Shreveport
Mane: Portand (aternatve, oston,
Mass.).
Massachusetts: oston.
Mchgan:
Detrot
Grand Rapds.
Mnnesota: St. PauL
Mssour:
ansas Cty.
St. Lous.
Montana: eena.
Nebraska: Omaha.
New York: New York.
Oho:
Cncnnat (aternatve,Coumbus).
Ceveand.
Coumbus (aternatve, Cncnnat).
Okahoma:
Okahoma Cty (aternatve, Tusa).
Tusa (aternatve, Okahoma Cty).
Oregon: Portand.
Pennsyvana:
Phadepha (aternatve, Wash-
ngton, D. C, or New York,
N. Y.).
Pttsburgh.
Tennessee:
no ve (aternatve, tanta,
Ga.).
Memphs.
Nashve.
Te as:
Daas.
ouston.
Utah : Sat Lake Cty.
Washngton:
Seatte.
Spokane.
West rgna: Chareston.
Wsconsn:
Madson (aternatve, Mwaukee).
Mwaukee.
1938-4-91 9
Washngton, anuary 12, 1938.
The Unted States oard of Ta ppeas announces the promuga-
ton of an amendment to the rues of practce of the oard, as
foows:
Rut|e 32. urden of Proof.
The burden of proof sha be upon the pettoner, e cept as otherwse pro-
vded by statute and e cept that n respect of any new matter peaded In hs
answer, t sha be upon the respondent
1938-2 -9414
The Unted States oard of Ta ppeas announces the foowng
amendment to ts rues of practce, thrteenth edton, revsed to anu-
ary 1, 1938 page 59 , ths uetn :
Rue 1 Insert between Labor Day and Thanksgvng Day
the foowng:
rmstce Day, November 11 ( ct of May 13, 1938 52 Stat., 351).
G
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IND .
ddtons to ta , defcency, effect of acqutta on ndctment for
ta evason
dmssons. (See Msceaneous ta es: dmssons.)
ffated corporatons, stock ownershp, transferee n recever-
shp, prorty of ta cam
coho, ndustra and denatured:
ormua 11, revoked
ormua 14, authorzed.-.
ormua No. 29, amended
mendments:
Manua (1934), paragraph 71
atons 7
Paragraphs 71 and 77
Paragraph 317
Reguatons 8
Chapter
rtce 1 9
Reguatons 9 (193 ), ChYpteraYv, vr I. II, III, I , and

Reguatons 22 (192 ), artces 2 and 13

Reguatons 48, artces 1 and 3
Reguatons 9, artce 88
Reguatons 71 (1932), Chapters I, II, III, I , III, I , and
.
Reguatons 74, artce 43
Reguatons 77, artce 43
Reguatons 85, Chapters II, I , and
Reguatons 8 , artce 11 -2
Reguatons 90-
rtce 211(b)2
rtce 503 (added)
Reguatons 91
rtces 1(d), 2, 5, 13, 15(a), 50G
rtce 402 4 (added)
Reguatons 94
rtce 1-1-
rtce 3-1
rtce 4-1
rtce 11-1
rtce 21-1
rtce 22(a)-
rtce 23(b)-
rtce 23(e)-
rtce 23(f)-
rtce 23(p)-
rtce 23 (p)-2 (added)
rtce 24-5
rtce 24- (renumbered)
rtce 24- (added)
rtce 24-7 (added)
rtce 48(e)-2
rtce 48(e)-5
Rung
No.
Pago.
92 1
317
9344
314
9338
57
9338
57
9153
57
9281
57
9303
578
9210
578
9348
551
9348
551
9390
557
9420
555
9419
522
9148
181
9388
542
914S
181
9118
181
9370
548
9148
181
9418
4 2
9418
4 2
9332
378
9132
388
9155
83
9155
83
9155
83
9155
83
9155
83
9155
83
9155
83
9155
83
9155
83
9170
152
9170
152
9155
83
9155
83
9155
83
9155
83
9155
S3
9155
83
( 13)
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14
mendments Contnued.
Reguatons 94 Contnued.
rtce 48(e)-
rtce 51-2
rtce 55(b)-2
rtce 102-1
rtce 113(a) (5)-
rtce 113(a) (7)-
rtce 113(a) (15)-1 -
rtce 113(b)--
rtce 11 -2
rtce 142-1
rtce 142-5 --
rtce 147-3
rtce 1 3-1
rtce 211-7
rtce 211-8 (added)
rtce 212-1
rtce 213-1 ---
rtce 214-1
rtce 215-1
rtce 217-2
rtce 219-1 ---
rtce 231-3
rtce 232-1
rtce 275-1
rtce 275-2
Chapter ( ) (added), artces 351-1(1937),
352-1 to 352-3, 353-1, 354(a)- to 354(a)-7, 354(b)-,
355-1, 355-2, 35 -1, 35 -2, 358-1, and 358-2
nnutes, ncome reportabe, 1937, determnaton
rmy, ensted men, nonresdent aen, retrement pay
.
ad debts:
anks, recovery after deducton n pror year
orecosure sae, bd ess than mortgaged ndebtedness,
mortgagee deducton, New York
ankruptcy, appcabty of secton 22, March 1, 1879, ct, to
subsdary of nsovent bank
anks:
ppcabty of secton 22, March 1, 1879, ct, to subsdary
of nsovent bank
ad debts, recovery of debts deducted n pror year, ta abty
Trust companes, etc., e cse ta on, Coorado
aseba payers, cost of unforms, deductons
onds:
Dsted sprts, reguatons
rst Lberty Loan, gft ta , e empton
Ta -free covenant, sae between nterest dates, wthhodng.
rewer s wort, etc. See Manufacturers e cse ta es.)
usness e penses:
aseba payers, cost of unforms
Contrbutons, Wsconsn unempoyment reserve fund, 1937,
when deductbe
Defense of sut brought by State, forfeture of charter, etc.-
mpoyee s soca securty ta pad by empoyer
Rung
No.
Page.
9155
83
92 7
1 2
9155
83
9155
83
9155
83
9422
78
9415
79
9155
83
9148
181
9155
83
19155
83
92 7
1 2
9149
202
9155
83
9155
83
9155
83
9155
83
9155
83
9155
83
9155
83
9155
83
9155
83
9155
83
9155
83
9155
83
9155
83
9155
83
9155
83
9223
115
93S3
191
923
150
9275
214
9189
520
9189
520
. 923
150
9157
128
/9258
118
- 92 3
348
9424
572
9208
514
. 9247
200
/9258
118
- 92 3
348
9272
119
. 9359
120
915
113
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15
usness e penses Contnued
ockeys, rdng appare cost, etc
Lcenses, huntng and fshng, Oho
Rembursements by processors n settement of cams
Securtes e change regstraton fee, coected by broker from
customer, deducton
usness prvege ta , Dstrct of Coumba, deducton
Caforna, rea property ta es, assessed durng perod of admns-
traton of estate, pad by benefcary
Cameras. (See Manufacturers e cse ta es.)
Capta gans and osses:
mount receved by retrng partner
Debt ad|ustments
ppcaton of aw, e ampes
Stock, coatera, transfer of tte to
Property acqured by bequest, hodng perod
Stock dvdends, sae of, perod hed
Stock transferred to trust for beneft of transferor s chdren..
Capta stock ta :
ppcabty of secton 22, March 1, 1879, ct, to subsdary
of nsovent bank
Pennsyvana, accrua date
Returns
tenson of tme for fng, 1938 ct
Inspecton of, reguatons _
Carrers e cse ta , ncome deducton, 193 returns, treatment
Carrers Ta ng ct of 1937:
Compensaton, aocaton to months earned
Compensaton, what consttutes
In|ury reease, payments under
Sck beneft fund, empoyees
mpoyees, who are
Indvduas empoyed by raroad company or connectng
raway
Indvdua servng empoyer and person not an em-
poyer
Indvduas servng raway abor organzaton
Raway abor organzaton oca odge empoyees
mpoyers, abty under Soca Securty ct
mpoyers, who are
Controed companes
Raroad company or connectng raway empoyng n-
dvduas
Governmenta functons
Reguatons 91, amended
Returns, empoyee representatve
Ta , abty for, pensoner under Raroad Retrement ct of
1937
Chewng gum. (See Manufacturers e cse ta es.)
Cgars and cgarettes. (See Msceaneous ta es: Stamp ta es.)
Coorado, e cse ta on banks, trust companes, etc
Communty property and ncome:
mercan ctzens resdng n Phppnes
Credt for foregn ta es
9257
9214
93 0
9193
9350
9342
914
9184
9215
913
9123
9318
9189
9341
9391
f9285
4 928
L9314
9134
9218
9199
9207
9150
9411
91 7
1/9324
It 93
91 7
935
9150
9231
9332
9151
9412
9157
9245
9259
G
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3
-
0
1
-
2
2

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4
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9

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1
Rung
No.
Page.
Compensaton:
ddtona, empoyee s soca securty ta pad by empoyer...
Retrement pay, nonresdent aen ensted n Unted States
rmy, wthhodng, ta abty
State offcers and empoyees. (See State.)
Connectcut, corporaton havng obtaned certfcate of organza-
ton, return abty
Consttutonaty, ta on admssons to athetc games, State
unversty
Contrbutons:
State, prvate corporaton mantanng pubc servce, e -
empton
Wsconsn unempoyment nsurance fund
Conveyances. (See Msceaneous ta es: Stamp ta es.)
Corporatons:
ccumuaton of surpus to evade surta es, evdence
pn-
ffated, stock ownershp, transferee n recevershp,
orty of ta cam
Credts, contracts restrctng payment of dvdends
empton. (See empt corporatons.)
oregn. (See oregn corporatons.)
Income from State for mantenance of pubc ferry servce,
e empton
Informaton returns, contempated dssouton or qudaton,
reguatons
Returns, Connectcut corporaton havng obtaned certfcate
of organzaton, abty
Court decsons:
en v. Regents of the Unversty System of Georga
mours Securtes, Inc., v. Commssoner
ndrews Unted Staes v
adwn v. ggns
ankne O Co. v. Commssoner
ankne O Co. everng v
ank of merca Natona Trust Savngs ssocaton v.
Commssoner
arnes v. Unted States
ashford everng v
ates Manufacturng Co. v. Unted States
dde v. Commssoner
uard everng v
Caborne- nnapos erry Co. of nnapos, Md. everng v.
Commssoner mours Securtes, Inc., v
Commssoner ankne O Co. v .
Commssoner ank of merca Natona Trust Savngs
ssocaton v
Commssoner dde v
Commssoner dward arron state Co. v
Commssoner oster v
Commssoner rance Co. v
Commssoner Garth v
Commssoner Guaranty Trust Co. of New York v ....
Commssoner v. ghands vanston-Lnconwood Subdv-
son, rst ddton Trust No. 15 f, Centra Repubc Trust
Co -r- .
Commssoner v. ghands vanston-Lnconwood Subdvwon
Trust No. 1521, Centra Repubc Trust Co
Commssoner v. rebs
Commssoner Lang v
Commssoner McG et a. v
915
9383
9237
9389
93 2
9272
/92 0
1937
9344
9144
93 2
9405
9237
9389
92 0
91 0
9174
9277
9277
9147
9319
9159
9311
9175
9254
93 2
92 0
9277
9147
9175
9343
9313
9137
9228
9299
9227
9227
9220
9377
9228
G
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17
Court decsons Contnued.
Commssoner McLoughn v
Commssoner Phpps v
Commssoner Securty Co. v
Commssoner Sne Ise, Inc., v
Commssoner Taft v
Commssoner Tyrre v
Commssoner v. Wes
Denton Stores Co. sher Mnery Co. v
Deputy Du Pont v
Du Pont v. Deputy
dward arron state Co. v. Commssoner
be O Land Deveopment Co. everng v
kns everng v
rst Natona ank of Chcago Unted States v
sher Mnery Co. v. Denton Stores Co
ack v. otege
esher v. Unted States
oster v. Commssoner
oster et a. v. Unted States
rance Co. v. Commssoner
reedman everng v
GarbuU O Co. Unted States v
Garth v. Commssoner
Gerhard everng v
Gowran everng v
Guaranty Trust Co. of New York v. Commssoner
asset v. Wech
ener v. Meon et a
everng v. ankne O Co
everng v. ashford
everng v. uard
everng v. Caborne- nnapos erry Co. of nnapos, Md
everng v. be O Land Deveopment Co
everng v. kns
everng v. reedman
everng v. Gerhardt
everng v. Gowran
everng v. Marsha
everng Mnnesota Tea Co. v
everng v. Mtche
everng v. Mountan Producers Corporaton
everng v. Mucahy
everng v. Natona Grocery Co
everng v. O Donne, dth M
everng v. O Donne, Thomas
everng v. Pfeffer
everng v. Smth
everng v. Therre
everng v. Tunncffe
everng v. Wson
ender Unted Staes v
//ggns adwn v
ghands vanson-Lnconwood Subdvson, rst ddton
Trust No. 154 , Centra Repubc Trust Co. Commssoner v
ghands vanson-Lnconwood Subdvson Trust No. 1521,
Centra Repubc Trust Co. Commssoner v
otege ack v
apan Unted States v
rebs Commssoner v
Lang v. Commssoner
Rung
No.
9248
9208
9197
9240
9398
9228
9219
9344
9318
9318
9343
927
9175
9239
9344
9333
9129
9313
9204
9137
9248
91 1
9228
9385
9123
9299
9253
9397
9277
9159
9254
93 2
927
9175
9248
9385
9123
9253
918
9201
92 2
9385
937
93 7
9278
9124
914
9248
9248
93S5
930D
9174
9227
9227
9333
9354
9220
9377
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18
Rung
No.
Page.
Court decsons Contnued.
Lews Mohawk Petroeum Co. v
Lowe ros. Co. v. Unted Sates
Marks v. Unted States
Marsha cverng v --
McG e a. v. Commssoner
McLoughn v. Commssoner
Meon et a. Iener v
Mnnesota Tea Co. v. everng
Mtche everng v
Mohawk Petroeum Co. v. Lews
Mountan Producers Corporaton everng v
Mucahy everng v
Murne Co., Inc. Unted States v
Natona Grocery Co. cverng v
O Donne, dth M. everng v
O Donne, Thomas . everng v
Pacfc Natona Co. v. Wech
Pearson v. Unted States
Pfeffer everng v
Phpps v. Commssoner
Regents of the Unversty System of Georga en v.
Reynods Tobacco Co. v. Robertson
Robertson Reynods Tobacco Co. v
Securty Co. v. Commssoner
Smth everng v
Sne Ise, Inc., v. Commssoner
State of Mnnesota Unted States v
Sten v. Unted States
Taft v. Commssoner
Therre everng v
Tunncffe cverng v
Tyrre v. Commssoner
Unted States v. ndrews
Unted States arnes v
Unted States aes Manufacturng Co. v
Unted Sates v. rst Natona ank of Chcago
Unted Sates esher v
Unted States oster e a. v
Unted Staes v. Garbut O Co --
Unted States v. cnder
Unted Sates v. apan
Unted States Lowe ros. Co. v
Unted States Marks v
Unted States v. Murne Co., Inc
Unted States Pearson v
Unted States v. Sfafe of Mnnesota
Unted States Sten v
Unted Staes v. Wurs
Wech assctt v
Wech Pacfc Natona Co. v
Wes Commssoner v
Wton everng v
Wurs Unted States v
Credt or refund:
Cams, amendment of, mtaton
Sut, recovery of erroneous refund, mtaton
Waver wth agreement not to fe refund cam, mtaton
9292
9408
919
9253
9228
9248
9397
918
92 1
9292
92 2
9385
9140
937
93 7
9278
9355
9331
9124
9208
9389
9413
9413
9197
914
9240
527
327
271
490
334
243
349
288
317
527
343
24
5 1
279
497
337
274
341
304
514
530
552
552
291
277
374
9190 537
9129
9398
9248
9248
9228
91 0
9319
9311
9239
9129
9204
91 1
9300
9354
9408
919
9140
9331
9190
9129
9290
9253
9355
9219
9385
9290
/91 0
91 1
9290
9174
5 9
510
243
243
334
322
240
375
338
5 9
295
370
285
273
327
271
5 1
341
537
5 9
329
490
274
51
24
329
322
370
329
2 4
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19
Credts:
Corporatons, contract restrctng dvdend payments
oregn ta es
Domestc stockhoders of foregn corporatons, rtsh
ta approprate to dvdends
Germany, smar credt requrement
ungary, smar credt requrements
usband and wfe, communty ncome
Me co, ta on gross recepts on mports
Natona defense contrbuton, ngand
Crude petroeum. (See Msceaneous ta es.)
D.
Depeton:
O and gas wes
Gross ncome bass, producton costs defrayed by pur-
chaser
Income from sae of propertes
Income from sae of stock
Processor under contract wth o producers
Dsted sprts:
onds, reguatons, 1938 ct
oor ta es, reguatons
Markng packages of, Gaugng Manua amended
Regstry of sts wth coector
Dsteres, waver of survey, requrements, reguatons
Dsters, brandy, e empton, reguatons amended
Dstrbutons, qudaton
ssets e change for stock
ont stock assocaton treated as corporaton
Dstrct of Coumba, busness prvege ta and cense fee, de-
ducton
Dvdends:
Credt re contracts restrctng payment
cse ta on, resouton consttutng vad decaraton
Source of dstrbuton, earnngs accumuated before or after
March 1, 1913
Stock, ta abty, bass of gan on sae of
Surpus transferred n reorganzaton, dstrbutons n e cess
of earnngs
.
ectrc ome and arm uthorty, nterest on obgatons of
mpoyees penson trusts, nformaton requred of empoyer cam-
ng deducton, reguatons
ngand, natona defense contrbuton, ta credt
state ta :
Gross estate
Cams aganst estate, mtaton
Insurance premums pad from communty property
ont tenancy, burden of proof
Transfers
ducatona and chartabe nsttutons
In contempaton of death, evdence
Reservaton of fe ncome
Returns, nspecton of
9144
9175
9301
9302
924
9274
9259
93 1
922
92 2
927
9278
9277
9424
9421
9281
9129
9255
9210
9137
9228
9350
9144
9140
9204
/9123
19124
9319
9394
9170
922
93 7
/9147
9377
9313
f9232
19398
9333
9253
19254
/9285
192S
G
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20
cess-profts ta :
Interest, obgatons of Unted States nstrumentates
Returns, nspecton of, reguatons
change rates, foregn
changes, reorganzaton, gan or oss
cse ta :
Dvdends, resouton consttutng vad decaraton
Soca Securty ct, deducton for ncome ta purposes
Tennessee, accrua date
empt corporatons:
Raway empoyees benefca assocaton
Soca cubs, ncdenta sae of property at proft
State medca organzaton
empt ncome:
Compensaton, State offcers and empoyees. (See States.)
Contrbutons by State to prvate corporaton mantanng
pubc servce
Corporate reorganzaton
Interest, obgatons of Unted States nstrumentates
Lessee of State o and gas ands
Lump sum payments, Soca Securty ct
State, ncome. (See State.)
tenson of tme for fng returns, capta stock ta , 1938 ct...
.
edera Credt Unon ct, amendment of
ees, securtes e change regstraton, coected by broker from
customer, deducton
ducary returns, 1937, amendment of nstructons
ed cheese. (See Msceaneous ta es: Stamp ta es.)
oregn corporatons:
Informaton returns, re formaton, etc., reguatons
Persona hodng companes, dstrbutons n qudaton,
reguatons
Returns of nformaton, offcers and drectors, reguatons
oregn e change, rates prevang December 31, 1937
oregn ta es, credt. (See Credts.)
orms:
Dstrbuton, mtaton
9 2, net worth statement, revsed
1040 , reguatons amended
1041, amendment of nstructons, 1937 ---
rance, conventon on doube ta aton, appcabty of rtce
I to partnershps and partners
ranchse ta es, State. (See Ta es: State.)
urs. (See Manufacturers e cse ta es.)
Gan or oss:
ass
Property acqured n reorganzaton after December 31,
1917, reguatons amended
Property receved n compete qudaton, reguatons
amended
Sae of property acqured by w
Dstrbutons n qudaton
ssets e changed for stock
ectng sharehoders, makng and fng of eectons,
reguatons
ont stock assocaton treated as corporaton...
Subsdary, cash dvdend
9120
9314
9201
9300
9140
9352
9143
9373
9173
9297
9302
9300
/9120
(9394
9277
9372
9391
91 8
9193
9203
9417
9403
941
9201
9211
9238
92 7
9203
9340
9422
9415
/9289
9291
9137
9392
9228
9121
G
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21
ng
No.
Gan or oss Contnued.
Reorganzaton
change of stock for stock and other property
Labtes of transferor pad by transferee
Payment of corporate debts by stockhoders, dvdend
dstrbuton
Saes-
Dvdend stock
cqured by affate from stockhoders of another
member of affaton
ass
Instament bass, eecton, estoppe
Germany, ta es, smar credt requrements.
Gft ta :
rst Lberty Loan bonds, e empton
Returns, nspecton of
Transfers n trust, future nterests n property.
Gross recepts ta :
New York Cty, accrua date
on
.
ungary, ta es, smar credt requrements
usband and wfe:
mercan ctzens resdng n Phppnes, returns.
oregn ta es, credt for
9159
9300
918
9197
9123
(919
4 9354
19355
924
9208
/9285
1928
/9219
9220
940
9135
9274
9245
9259
Inos, franchse ta , accrua date
Income from sources wthn Unted States, retrement pay, non-
resdent aen ensted n Unted States rmy
Income from sources wthn Unted States possessons, retrement
of ctzens n Pubc eath Servce, Phppne Isands
at source, cases where no return of nformaton re-
qured.
Inspecton of returns. (See Returns.)
Instament saes. (See Saes : Instament.)
Insurance:
Premums
Payment n advance for more than year, deducton
Pad out of communty property, estate ta
Insurance companes, fe, dscount on premums pad n advance,
nterest deducton
Interest:
ond, ta -free covenant, sae between nterest dates, wth-
hodng
Defcences assessed aganst transferees, deductbty
Unted States nstrumentates
Obgatons of
ectrc ome and arm uthorty
ome Owners Loan Corporaton, etc., e cess-profts
ta .
9327
9383
939
9149
9407
79147
(9377
9395
9247
9158
9394
9120
G
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22
ockeys, rdng appare costs, etc
udgments, Court of Cams, when reported ..
ursdcton:
oard of Ta ppeas, teegraphc petton receved after
busness hours on ast day for fng
Dstrct court, acton to enforce payment of admssons ta
by State nstrumentaty
.
entucky property ta , accrua date
L.
Leases, o and gas:
ansas, S. T. 8 8, modfed T.
State ands, ncome, e empton
State schoo ands, ncome, e empton
Legsaton:
Commodty Credt Corporaton
edera Credt Unon ct, amendment of
Natona ousng ct, amendment
Lcense fees:
ngagng n busness n Dstrct of Coumba, deducton
untng and fshng, deducton..
Lmtaton perod:
Suts
Recovery of erroneous refund
Recovery of ta es, waver wth agreement not to fe re-
fund cam
Lqudatons:
Dstrbutons n
ssets e changed for stock
ont stock assocaton treated as corporaton
Lquor Ta dmnstraton ct:
Reguatons
Interna revenue ta es, coectors of, smugged quor
Markng packages of whsky, Gaugng Manua amended.
Waver of survey requrements as to dsteres
Lquor ta , Mane, deducton
M.
Mane, quor ta , deducton
Manufacturers e cse ta es:
rewer s wort, mat srup, etc., saes or mports after une 30,
1938, not ta abe
Cameras and enses, saes after une 30, 1938, not ta abe
Chewng gum, saes after une 30, 1938, not ta abe
urs, saes after une 30, 1938, not ta abe
Matches, paper or pan wooden, saes after une 30, 1938, not
ta abe
Phonograph records, saes after une 30, 1938, not ta abe
Pubc park, mantenance by a State or potca subdvson
s an essenta governmenta functon
Sportng goods, saes after une 30, 1938, not ta abe
Toet preparatons, saes of tooth and mouth washes, dent-
frces, tooth pastes, or toet soaps not ta abe after une 30,
1938
Maryand, franchse ta , accrua date
Matches. See Manufacturers e cse ta es.)
Rdng
No.
9257
9202
9343
9190
9172
9320
9277
/92 2
9329
9304
91 8
9221
9350
9214
9290
9174
9137
9228
93 8
9281
9255
9273
9273
9399
9399
9399
9399
9399
9399
9334
9399
9399
9351
G
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1
3
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0
1
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2
2

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8
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23
Me co, ta on gross recepts on mports
Mchgan use ta , deducton
Msceaneous ta es:
dmssons
cton to enforce payment of ta on, State agency
thetc games conducted by State unversty system,
consttutonaty of statute
Tckets, when ocaton and seat or bo number need not
be shown on both ends
Crude petroeum, ta under sectons 04 and 05, Revenue
ct 1934, as amended, termnated cose of une 30, 1938
Stamp ta es
Cgarettes and tobacco products removed for e port but
not e ported, ta abty
Conveyances, o and gas ease whch merey grants the
rght to mne and operate for o and gas, ansas,
S. T. 8 8 modfed
ed cheese, e empton of certan substances, etc., Reg-
uatons 22 (192 ) amended
Produce for future devery, saes, etc., after une 30,
1938, not ta abe
Reguatons 71 (1932) amended to gve effect to certan
egsatve enactments
Sver buon, transfers of nterests n, reguatons
amended
Transportaton of o by ppe ne from ease fow tanks to
refnery storage tanks
N.
Natona ousng ct, amendment
Net osses:
anks, consodaton or merger, deducton
Trusts, sae of corpus, ncome dstrbuton wthout depreca-
ton deducton
Net worth statement, orm 9 2, revsed
New York:
d at forecosure sae ess than mortgaged ndebtedness, bad
debts
Unncorporated busnesses ta , accrua date
New York Cty, gross recepts ta , accrua date
Nonresdent aens:
Canadan addressees, rate of ta wthhed
Retrement pay, Unted States rmy, wthhodng, ta abty
North Carona, property ta , accrua date
North Dakota, property ta es, accrua date
O.
Oho, huntng and fshng censes, deducton
O and gas wes:
Depeton. (See Depeton.)
Intangbe drng costs, persona hodng company, de-
ducted as e pense, appcaton of secton 353(h)
Oeomargarne:
Reguatons 9 (193 ) amended to gve effect to certan egsa-
tve enactments
Schedue of producton and materas used
November, 1937 and 193 . -
December, 1937 and 193
December, 1937 (amended)
Rung
No.
93 1
9183
9190
9389
9209
9399
9413
9320
9420
9399
9388
9370
9292
9221
9331
9239
9238
9275
9224
940
9145
9383
931
9194
9214
9375
9390
9131
9181
9270
G
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2
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1
3
-
0
1
-
2
2

0
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24
Oeomargarne Contnued.
Schedue of producton and materas used Contnued.
anuary, 1938 and 1937.
anuarv, 1938 (amended)
ebruary, 1938 and 1937
March, 1938 and 1937.
pr, 1938 and 1937...
May, 1938 and 1937
P.
Pam o, pam o resdue. (See Processng ta es.)
Parks, mantenance of a pubc park by a State or potca sub-
dvson s an essenta governmenta functon
Partnershps:
Conventon on doube ta aton between Unted States and
rance, appcabty of rtce I ...
Dstrbutve shares, partners and frm dfferent accountng
perods
Profts from sae of assets, qudaton
Pennsyvana:
Capta stock and franchse ta es, accrua date
Corporate oans ta , accrua date
Penson trusts, nformaton requred of empoyer camng de-
ducton, reguatons
Perodcas, ncome from subscrptons, when ncuded
Persona hodng companes:
ssocaton ta abe as corporaton, surta
Cassfcaton, requrements
oregn, dstrbutons n qudaton, reguatons
Intangbe drng costs, deducted as e pense, appcaton of
secton 353(h)
Phppne Isands:
Unted States ctzens
Retrement pay, Pubc eath Servce
Returns
Phonograph records. (See Manufacturers e cse ta es.)
Port of New York uthorty, empoyees of, saary e empton
Processng ta es:
Pam o, pam o resdue, Reguatons 48 amended.
Procedure n e amnaton of returns where deductons taken
and refund camed
Produce for future devery. (See Msceaneous ta es: Stamp
ta es.)
Property ta es, State. (See Ta es: State.)
R.
Raway empoyees benefca assocaton, e empton
Rates of e change, foregn
Refunds. (See Credt or refund.)
Reguatons:
mendments. (See mendments: Reguatons.)
Dsted sprts, foor ta es
Dstrbuton, mtaton
Informaton returns. (See Returns: Informaton.)
Inspecton of returns. (See Returns.)
Lquor Ta dmnstraton ct
Persona hodng companes. (See Persona hodng com-
panes: oregn.)
Reorganzaton, gan or oss:
change of stock for stock and other property
Lab tes of transferor pad by transferee
Payment of corporate debts by stockhoders
9234
92 9
92 8
9325
93 9
9423
9334
9340
9299
9397
9341
9310
9170
9353
9298
9374
9403
9375
939
9245
9385
9419
9225
9373
9201
9421
9211
9255
9159
9300
918
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25
Retrement pay:
Ctzens n Pubc eath Servce, Phppne Isands
Nonresdent aens ensted n Unted States rmy, ta abty
Returns:
Capta stock ta , e tenson of tme for fng
Corporatons, Connectcut, abty after ssuance of certf-
cate of organzaton
ducares
mendment of nstructons, 1937
Reguatons amended
usband and wfe, mercan ctzens resdent n Phppnes,.
Income ta , ctzens n urope, assgnment of nterna revenue
agent
Indvdua, form of, reguatons amended
Informaton, corporatons
Contempated dssouton or qudaton, reguatons
oregn
Offcers and drectors, reguatons..
Reguatons n re formaton, etc., of
Informaton at source
Inspecton of, reguatons governng.
Revenue ct of 193 , as amended, Ttes I, I , and III, ta -
abe perods endng on or after December 31, 1937
Revenue ct of 1938, effectve date
Rues of practce, oard of Ta ppeas. (See Unted States
oard of Ta ppeas.)
Saes:
Gan or oss
Dvdend stock
cqured by affate from stockhoders of another
member of affaton
Property acqured by w.
Instament bass, eecton, estoppe.
Sver buon. (See Msceaneous ta es: Stamp ta es.)
Soca cubs, e empton, ncdenta sae of property for proft..
Soca Securty ct:
ppeas from ureau rungs
oard of Ta ppeas, |ursdcton
Carrers ta es. (See Carrers Ta ng ct of 1937.)
Credt of contrbutons aganst ta
Contrbutons to State fund after due date of return.
mpoyees
ssstants to sked workers, records
Substtute, records
mpoyees, who are
ttorney
ranch managers, nsurance company
Court reporters
ecutor of estate
Indvdua empoyed by e ecutor
Insurance agents, genera questonnare
Insurance soctors
Mk dstrbutors
Offcers of corporaton, charter e pred
O dstrbutor, buk pant
939
9383
9391
9237
9203
92 7
9245
9212
92 7
9405
941
9417
9149
19285
928
1.9314
9152
9402
209
191
520
1 3
203
1 2
1 0
59
1 2
(17
9
74
202
35
3 4
3 9
1 4
81
9197
291
9123
300
/9289
290
19291
33
(919
271
9354
273
9355
274
9173
172
9380
382
9380
382
9418
4 2
9243
4 1
93 4
390
93 4
390
9250
409
91 2
393
9188
399
917
395
9177
39
9249
404
91 2
393
9187
397
9241
473
9345
414
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2
Soca Securty ct Contnued.
mpoyes, who are Contnued.
O we casng crews
Physcan
Pocemen engaged by merchants
Process servers
Saes agents
uestonnare
Saes managers, dstrct
Servants furnshed by company to home
Servce staton essee
Servce staton operator
mpoyers, bankrupt, abty for empoyees ta .
mpoycrs, who are
ssocatons
Corporaton, charter e pred..
ecutor of estate
usband and wfe, Te as
cepted servces
grcutura abor
Corporaton offcers, farm supervson
arm supervsor
Mushroom growng n natura caves
Servces performed for rrgaton company
Tmberand, preparaton for farm purposes
Domestc servce, servants furnshed to home owners
mpoyees sub|ect to Carrers Ta ng ct of 1937
amy empoyment, wfe and son
Genera, servce outsde State boundary
Government servce
State
County farm bureau, Mssour
Credt unon, New ersey
re assocaton, Oregon
New York banks, qudaton
ounteer fre departments, Pennsyvana
Unted States
rmy post e change
Credt unons, Dstrct of Coumba
ourth cass postmasters, empoyees of
Pubc schoo cafeteras, Dstrct of Coumba..
Martme servce
arge towed by documented tug
sh cannery on vesse
Shpkeepers
Watchmen furnshed vesse owner by contractor
Lump sum payments under, e empton
Power of attorney form
Records, substtute emp oyees
Refunds, secton 810, Revenue ct of 1938 -
Returns
Communty property, Te as..
Power of attorney to fe
Preparaton of
Wages pad at nfrequent ntervas ...
Ta , rate appcabe to deferred or renewa commssons
Ta , abty for, marred empoyee Te as
Wages
Computaton of, e cepted and nonc ecpted servce
Ta abe, when reported, reguatons
93 5
934
9305
9347
9293
9294
9381
9295
9217
9229
9230
93 3
9308
9241
9177
9178
930
9125
9357
9279
9337
9217
9324
9332
9180
921
9323
92 5
9128
9280
91 3
9242
938
92
9127
92 4
912
9307
9251
9372
9409
93 4
9418
9178
9409
9400
9379
91
9205
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27
|curty
Wages Contnued.
What consttutes
onus pan, amounts pad under
Chrstmas gfts
Contrbutons by cub members
Deferred or renewa commssons
Lunches served by empoyer ...
Payments by sef-nsurer under State workmen s
compensaton act
Prem ums on group fe nsurance
Proft-sharng contract, payments under
Separaton payments
1 pa
Strke benefts..
Tps or gratutes
Transportaton tckets
When reported
Soca securty ta es, deducton for ncome ta purposes
Sportng goods. (See Manufacturers e cse ta es.)
State medca organzaton, e empton
States:
Consttutonaty of admssons ta on athetc games, State
unversty
Contrbutons, prvate corporaton mantanng pubc servce-
Income
Lease of schoo ands, e empton
O and gas ease, e empton
Instrumentaty of, acton to enforce payment of admssons
ta , dstrct court s |ursdcton
Offcers and empoyees, compensaton
ppontees of State offcers
Port of New York uthorty
Reguatons amended
Ta abty ----
Unempoyment nsurance fund, contrbutons to, Wsconsn,.
Sts and worms, coecton of ta on manufacture of, nstructons.
Stock dvdends. (See Dvdends.)
Subscrpton servce, amounts receved, when ncuded n ncome..
Sugar ct of 1937, condtona payments under, when reported
Suts:
Recovery of erroneous refund, mtaton
Recovery of ta es
Overpayment of ta , credt aganst barred defcency,
court s |ursdcton
Waver wth agreement not to fe refund cam, mta-
ton
When begun, |ursdcton of dstrct court
Surta es:
Corporaton utzed for evason of, evdence
Persona hodng companes
Ta es:
ddtons to defcences, effect of acqutta on ndctment for
ta evason
Carrers e cse ta , ncome deducton, 193 returns, treatment.
Defcences, fraud, burden of proof
Rung
No.
9179
91 4
9198
91
9410
91 5
/9252
9387
920
9312
9138
9401
9139
933
9352
9297
9389
93 2
/92 2
9329
9277
9190
9248
9385
9148
9330
9272
/9282
9283
9353
9328
9290
9408
9174
9311
/92 0
937
9298
92 1
9134
9240
G
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28
Ta es Contnued.
oregn, credt for
Domestc stockhoders of foregn corporatons, rtsh
ta approprate to dvdends
Germany, smar credt requrement
ungary, smar credt requrement
usband and wfe, ta on communty ncome
Me co, ta on gross recepts on mports
Natona defense contrbuton, ngand
Gross recepts ta , New York Cty, accrua date
Processng ta , procedure n e amnaton of returns where
deductons taken and refund camed
Soca securty, deducton for ncome ta purposes
Speca, sts and worms manufactured for use n dstng.
State-
dmssons ta , acton to enforce payment by State n-
strumentaty, court s |ursdcton
usness prvege ta and cense fee, Dstrct of Coum-
ba, deducton
Capta stock ta , Pennsyvana, accrua date
Corporate oans ta , Pennsyvana, accrua date
cse ta
anks, trust companes, etc., Coorado
Tennessee, accrua date
ranchse ta
Inos, accrua date
Maryand, accrua date
Pennsyvana, accrua date
Gross recepts ta , Tennessee, deducton
untng and fshng censes, Oho
Lquor ta , Mane, deducton
Property ta , accrua date
entucky
North Carona
North Dakota
Rea property, Caforna, assessed durng perod of ad-
mnstraton of estate, pad by benefcary
Unncorporated busnesses ta , New York, accrua date-
Use ta , Mchgan, deducton
Surta . (See Surta es.)
Un|ust enrchment ( wndfa ), returns, nformaton re-
qured for preparaton of, 193 ct as amended
Tennessee:
cse ta , accrua date
Gross recepts ta , deducton
Tobacco:
Penaty for removng or conceang artces wth ntent to de-
fraud, reguatons amended
Removed for e port but not e ported
Statement of manufactured, produced, by casses
October, 1937 and 193
November, 1937 and 193 -.
December, 1937 and 193
anuary, 1938 and 1937
ebruary, 1938 and 1937
March, 1938 and 1937
Toet preparatons, etc. (.See Manufacturers e cse ta es.)
Transportaton of o by ppe ne. ( See Msceaneous ta es.)
(9175
9301
19302
924
9274
9259
93 1
922
940
9225
9352
(9282
9283
9190
9350
9341
9310
9157
9143
9327
9351
9341
9135
9214
9273
9172
931
9194
9342
9224
9183
9152
9143
9135
9348
9413
9130
9191
9233
9284
9335
9378
G
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29
Trusts:
uture nterests n property, gft ta
Income
Grantor s ta abty
Trustee s commssons, deducton
Sae of corpus, ncome dstrbutons wthout deprecaton de-
ducton, net oss
Ta abe as assocatons
Transfer of capta assets, hodng perod
U.
Unted States oard of Ta ppeas:
Decsons of, st of acquescences and nonacquescences
ursdcton, teegraphc petton receved after busness hours
on ast day for fng
Rues of practce
Revsed, anuary 1, 1938
mendments
Rue 32.
Rue 1
Unted States nstrumentates, nterest on obgatons of
Un|ust enrchment ( wndfa ) ta , returns, nformaton requred
for preparaton of, 193 ct as amended.
Use ta , Mchgan, deducton
.
nson ct:
cess proft on nava contracts, contracts, subsdary con-
tracts assumed by parent corporat on, reports
W.
Wndfa ta , returns, nformaton requred for preparaton of,
193 ct as amended
Wne, producton, fortfcaton, ta -payment, etc
Wsconsn, unempoyment nsurance fund
Wthhodng of ta at source:
Conventon, Unted States and Canada
Ctzens and domestc corporatons
Dvdend payments, Canadan addressees
Nonresdent aen resdents of Newfoundand, ta refund
Income n hands of en Property Custodan
Interest, bond, ta -free bonds sod between nterest dates
Retrement pay, nonresdent aen ensted n Unted States
rmy
Trust dstrbutons, ncudng capta gans, to nonresdent
aen benefcares
Rung
No.
/9219
9220
9384
9195
9239
9227
913
9404
9343
9141
91 9
9414
/9120
9394
9152
9183
9321
9152
9303
9272
9288
9145
9122
9317
9247
9383
9185
51
518
222
202
338
331
218
1- 1
2 2
59
12
12
174
115
1 4
130
591
1 4
578
119
19
207
195
197
200
191
199
O
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