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Treasury Department : : y r- ureau of Interna Revenue


Interna Revenue uetn
Cumuatve uetn 19 2-1
NU RY- UN 19 2
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SP CI L TT NTION d reced ,0 tne cautonary notce on ths page that pub-
_________________ shed rungs of the ureau do not have the force and effect
of Treasury Decsons and that they are appcabe ony to facts presented n the pubshed case
Treasury Department : : : : : ureau of Interna Revenue
Interna Revenue uetn
Cumuatve uetn 19 2-1
NU RY- UN 19 2
IN T IS ISSU
Page
Introductory Notes I
Contents - II
Rungs Nos. 109 -11138
oard of Ta ppeas 1-31
Income Ta
Part I ( . Interna Revenue Code and . 193S
ct) 33 163
Part II (1937 and 1936 cts) 16 195
Part III (1935 and 193 or Pror ets) .... 196 230
mpoyment Ta es 231-2 5
Msceaneous Ta es
state and Gft Ta es 2 6-25
Capta Stock Ta es 255-259
Saes Ta es, Stamp Ta es, etc 260-3
Msceaneous Rungs and Commttee Reports . . . 3 5 08
Inde 09 19
The rungs reported n the Interna Revenue uetn are for the nformaton of ta payers and ther counse as
showng the trend of offca opnon n the admnstraton of the Dureau of Interna Revenue: the rung other than
Treasury Decsons have none of the force or effect of Treasury Decsons and do not commt the Department to
any nterpretaton of the aw whch has not been formay approved and promugated by the Secretary of the
Treasury. ach rung embodes the admnstratve appcaton of the aw and Treasury Decsons to the entre
state of facts upon whch a partcuar case rests. It s especay to be noted that the same resut w not neces-
sary be reached n another case uness a the matera facts are dentca wth those of the reported case. s t s
not aways feasbe to pubsh a compete statement of the facts underyng each rung, there can be no assurance
that any new case s dentca wth the reported case. s bearng out ths dstncton, t may be observed that the
rungs pubshed from tme to tme may appear to reverse rungs prevousy pubshed.
Offcers of the ureau of Interna Revenue are especay cautoned aganst reachng a concuson n any case
merey on the bass of smarty to a pubshed rung, and shoud base ther |udgment on the appcaton of | 1
pertnent provsons of the aw and Treasury Decson to a the facts n each case. These rungs shoud be use
as ads n studyng the aw and ts forma constructon as made n the reguatons and Treasury Decsons pre-
vousy ssued.
a addton to pubshng a Interna Revenue Treasury Decsons, t s the pocy of the ureau of Interna
Revenue to 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, are of such mportance as
to be of genera nterest. It s aso the pocy of the ureau to pubsh a rungs or decsons whch revoke,
modfy, amend, or affect n any manner whatever any pubshed rung or decson. In many nstances opnons
of the Chef Counse for the ureau of Interna Revenue are not of genera nterest because they announce no
new rung or no new constructon of the revenue aws but smpy appy rungs aready made pubc to certan
stuatons of fact whch are wthout speca sgnfcance. It s not the pocy of the ureau to pubsh such opnons.
Therefor;, the numbers assgned to the pubshed opnons of the Chef Counse for the ureau of Interna
Revenue are not consecutve. No unpubshed rung or decson w be cted or reed upon by any offcer or
empoyee of the ureau of Interna Revenue as a precedent n the dsposton of other cases. Uness otherwse
specfcay ndcated, a pubshed rungs and decsons have receved the consderaton and approva of the
Chef Counse for the ureau of Interna Revenue.
UNIT D ST T S GO RNM NT PRINTING OFFIC : W S INGTON : 19 2
For sae by the Superntendent of Documents, Washnfton, D. C. - See back of tte for prce
LI R RY
UNI RSITY OF C LIFORNI
D IS
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The Interna Revenue uetn servce for 19 2 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 Treas-
ury decsons) pertanng to Interna Revenue matters. The sem-
annua 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; foregn, .25. 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. , 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 19 1, ncusve, may do so at prces as foows:
Year.
Cumuatve uetn.
Prce
(cents).
Frst 6 months.
Second 0 months.
1922.
1-1
1-2
0, 30
1923
II-
11-2
30, 0
192 .
III 1
111-2
50, 50
1925
I -1
I -2
0, 35
1926
-
-2
0, 30
1927
I-1
I 2
0, 0
1928
III
II-2
35, 50
1929
III-1
III-2
50, 55
1930 .
I -1
I -2
50, 50
1931
-
-2
65, 30
1932
I-1
I-2
30, 30
1933
III
II-2
30, 50
193 ..
III-1
III-2
50, 60
1935
I -1
I -2
50, 50
1936
-1
-2
55, 5
1937
.1937-1
1937-2
60, 50
1938
1938-1
1938-2
60, 50
(1939-1
1939-2
60
1939 ...
I Part 1
50
Part 2
1
19 0
19 0-1
19 0-2
30, 60
19 1
19 1-1
19 1-2
5, 60
19 2
19 2-1
0
Persons desrng to obtan the servce n dgest form may do so at
prces as foows: Dgest No. 13 (1922-192 ), 60 cents; Dgest No. 17
(1925), 25 cents; Dgest No. 21 (1926), 15 cents; Dgest No. 22 (1925-
1927), 35 cents; and Dgest (ncome ta rungs onv, pr, 1919, to
December, 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.
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INTRODUCTORY NOT S.
The Interna Revenue Cumuatve uetn 19 2-1, 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, empoyment, soca securty,
and msceaneous ta es, as ndcated on the tte page of ths uetn,
pubshed n the weeky uetns (19 2, Nos. 1 to 26, ncusve) for
the perod anuary 1 to une 30, 19 2. 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, 19 0, to une 30, 19 2.
Income Ta rungs are prnted n three parts. The rungs n
Part I are prnted as Part I (Interna Revenue Code) and
(Revenue ct of 1938), the aw headngs correspondng wth the
sectons of the Code and the 1938 ct, respectvey, and the regua-
tons headngs correspondng wth the secton headngs of Reguatons
103 and the artce headngs of Reguatons 101. Rungs under the
Revenue cts of 1937 and 1936 are prnted as Part II, the aw headngs
correspondng wth the secton headngs of those cts and the regua-
tons headngs correspondng wth the artce headngs of Reguatons
9 . Rungs under the Revenue cts of 1935 and 193 or pror cts
are prnted as Part III, the aw headngs correspondng wth the
secton headngs of the Revenue ct of 193 and the reguatons
headngs correspondng wth the artce headngs of Reguatons 86.
Rungs under Ttes III and I of the Soca Securty ct and
under Subchapters and C, Chapter 9, of the Interna Revenue
Code n force pror to anuary 1, 19 0, are pubshed under artce
headngs of Reguatons 91 and 90, respectvey; rungs under Sub-
chapters and C, Chapter 9, of the Code n force on or after anuary
1, 19 0, are pubshed under the secton headngs of Reguatons 106
and 107, respectvey; rdngs under the Carrers Ta ng ct of 1937
and under Subchapter , Chapter 9, of the Code, are pubshed under
the artce headngs of Reguatons 100; and rungs under Tte III
of the Revenue ct of 1936 -Ta on un|ust enrchment are coded
under the sectons of that ct and the artce headngs of Regua-
tons 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. Ta es on mpoyment by Carrers.
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I
D. C. Treasury Department crcuar.
m. T. Ta es mposed by the Soca Securty ct, the Carrers Ta ng ct of
1937, and Subchapters , , and C of the Interna Revenue Code.
. T. state Ta Dvson.
G. C. M. Genera Counse s, ssstant Genera Counse s, or Chef Counse s
memorandum.
I. R. . Interna Revenue uetn.
I. T Income Ta Unt.
M, N, , Y, Z, etc. The names of corporatons, paces, or busnesses, accord-
ng to conte t.
Mm. Mmeographed etter.
MS. or M. T. Msceaneous Dvson.
O. or L. O. Soctor s aw opnon.
O. 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. Ta es on mpoyment by others than Carrers.
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.
NNOUNC M NT R L TING TO O RD OF 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
n the decson of the oard or he may, f the appea was heard by
the oard pror to the passage of the 1926 ct, cause to be nsttuted
a proceedng n court for the coecton of any part of a ta determned
by the Commssoner to be due but dsaowed by the oard, pro-
vded 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 1926 ct, the Commssoner may, wthn s months
after the oard s decson s rendered, fe a petton for a revew of
the decson by a Crcut Court of ppeas or by the Unted States
Court of ppeas for the Dstrct of Coumba; however, as to dec-
sons 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 Commssoner to be
due, announcement w be made n the weeky uetn at the earest
practcabe date. notce that the Commssoner has acquesced or
has nonacquesced n a oard decson reates, however, ony to the
ssue or ssues decded n favor of the ta payer. Decsons so ac-
quesced n shoud be reed upon by offcers and empoyees of the
ureau of Interna Revenue as precedents n the dsposton of other
cases before the ureau.
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CONT NTS.
Rung.
Rung No.
Page.
Treasury decsons:
5106
19 2-2-10D58
319
5107
19 2-3-10962
200
19 2- -10971
286
5109
19 2- -10966
359
5110
19 2- -10972
160
5111
19 2-5-10979
32
5112
19 2-5-10980
153
5113
19 2-5-10 81
88
511
19 2-5-10982
261
5115
19 2-6-10986
266
5116
19 2-8-11001
3 3
19 2-8-11000
328
19 2-9-11007
289
19 2-9-11006
112
5120
19 2-10-11016
97
5121
19 2-10-11018
330
bvr. . . .
19 2-10-11019
115
5123
19 2-10-11020
285
512
19 2-10-11021
112
5125
19 2-11-11025
101
5126
19 2-11-11027
1 7
19 2-11-11026
117
19 2-11-11030
278
19 2-13-110
271
19 2-1 -11053
327
6131
19 2-1 -110 9
1 7
19 2-1 -11050
333
5133
19 2-1 -11051
289
19 2-1 -11052
3 3
8135
19 2-15-11050
113
19 2-16-11060
73
19 2-16-11068
110
5138
19 2-17-1107
99
5139
19 2-18-11079
299
51 0
19 2-19-11089
329
51 1
19 2-19-11088
318
51 2
19 2-19-11086
295
19 2-19-11087
307
51
19 2-19-11085
290
51 5.
19 2-19-11091
298
19 2-19-11092
321
19 2-19-11093
322
51 8
19 2-19-1109
30
51 9
19 2-20-11099
93
5150
19 2-20-11100
29
S151
19 2-20-11101
3
5152
19 2-23-11118
3
5153
19 2-23-11120
1 5
515
19 2-2 -11127
281
5155 ,
19 2-36-11138
285
Court decsons:
1533
19 2-1-109 9
251
153
19 2-1-10951
3 5
19 2-1-10952
207
1536
19 2-1-10953
209
1537
19 2-3-10961
190
1538
19 2 -10969
272
1539
19 2-1-10970
276
15 0
19 2-5-10978
196
15 1
19 2-7-10990
212
15 2
19 2-7-10991
21
15 3
19 2-7-10992
217
15
19 2-7-10993
218
15 5
19 2-11-11028
2 0
15 6
19 2-12-11033
16
15 7
19 2-13-11039
198
19 2-13-11010
282
15 9
19 2-15-11057
289
1550
19 2-16-11062
257
1912-17-11071
255
1552
19 2-17-11073
2 6
19 2-18-1 on
17
155
19 2-18-11078
201
19 2-19-1108
225
Rung.
Rung No.
Page.
Court decsons Contnued.
1556 _
19 2-19-11083
181
1557
19 2-21-11106
227
1558
19 2-22-11111
171
1659
19 2-23-11119
173
1560
19 2-2 -11125
185
1561
19 2-2 -1112
161
Chef Counse s memoranda-
19 2-2-10955
15
19 2-1-109 6
50
19 2-1-109 7
75
230 7
1912-5-10977
1 1
23063
19 2-6-10983
103
2306
19 2-5-10976
1 0
23066
19 2-6-1008
133
23111
1912-10-11010
7
23162
19 2-19-110S2
106
2316
19 2-16-11061
168
232 3 .
19 2-22-11109
78
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19 2-16-11059
13
5120
19 2-16-11059
6
19 2-7-10987
23
6373
19 2-7-10987
23
63 87 .-.
1912-7-10987
23
722 8
19 2-1-10963
12
722 9
19 2- -10963
12
72250
1912-1-10963
7
72251
19 2-1-10963
7
73111
19 2-7-10987
30
75610
19 2- -10983
7
19 2- -10963
7
7.5612
19 2- -10963
12
1912 -10963
12
77 19
1912-7-10987
26
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19 2-7-10987
26
790.30
19 2 -10963
7
79031
19 2- -10963
12
1912 -10963
12
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19 2-1-10963
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19 2 7-10987
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19 2-7-10987
20
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19 2-8-10995
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19 2-1-109
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1912-1-10963
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19 2- -10963
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19 2- -10963
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19 2 -10963
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19 2 25-11128
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19 2-3-10959
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19 2-7-10987
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19 2-11-11022
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19 2-11-11022

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19 2-1 -110 5
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19 2-7-10987
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19 2-8-10995
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19 2-20-11095
10
95306
19 2-20-11005
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Rung.
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95953
97157
97158
7159
97160
87161
97162
97260
97628-97631
97991
98077
98205
98206
98216
98637
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99181
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100125
1002 9 --
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100555
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100962
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101G06
101717
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10175
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102155
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1023 3
102381
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102603
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10277
102775
102776
102777
102779
102870
102870 -
10292
1029 9 ---
102997
103050
Rung No.
19 2-1 -110 5
19 2-26-11132
19 2-26-11132
19 2-26-11132
19 2-26-11132
19 2-26-11132
19 2-26-11132
1912-22-11108
19 2-21-11102
10 2-8-10995
19 2-10-11009
19 2-2-1095
19 2-2-1095
19 2-9-11002
19 2-9-11002
19 2-12-11031
19 2-12-11031
19 2-21-11102
19 2-2-1095
19 2-8-10995
19 2-11-11022
19 2-22-11108
19 2-21-11102
19 2-1-109
19 2-9-11002
19 2-9-11002
19 2-8-10995
19 2-17-11069
10 2-21-11102
19 2-7-10987
19 2-11-11022
19 2-5-1097
10 2-2 -11121
19 2-9-11002
19 2-9-11002
19 2-9-11002
19 2-9-11002
19 2-9-11002
19 2-9-11002
19 2-25-11128
19 2-25-11128
19 2- -10963
19 2-9-11002
19 2-25-11128
19 2- -10903
19 2- -10963
19 2- -10963
19 2-25-11128
19 2 25-11128
19 2-25-11128
19 2-11-11022
19 2-22-11108
19 2-9-11002
19 2-9-11002
19 2-13-1103
19 2-9-11002
19 2-9-11O02
19 2-12-11031
19 2-23-11116
19 2-15-1105
19 2-17-11009
19 2-20-11095
19 2-9-11002
19 2-8-10995
19 2-16-11059
19 2-16-11059
19 2-16-11059
19 2-16-11059
19 2-13-1103
1912-11-11022
19 2-1-109
19 2- -10903
19 2-2-1095
19 2-7-10987
19 2-7-10987
19 2-7-109 7
19 2-20-11095
19 2-21-11102
19 2-11-11022
19 2-17-11069
19 2 22-11108
19 2-23-11116
19 2-9-11002
Page.
2
a
23
26
23
25
25
2.16
1,19
3
23
23
23
3, 12
6
6
27
1. 19
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6
16
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8
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17
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25
10.25
13
13,20
13
2
22
26
19
23
,21
6
Rung.
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103302
103339.
103377
103 25
103 31
103609
103610
103611 -
103618
103633 -
103639
103669
10368
103695
103725 -
103726
103787
103807
103808
103862
10 007
10 012
10 1 9
10 150
10 151
10 191 -
10 207
10 228
10 290
10 299
10 331
10 367
10 368
10 0
10 97
10 508
10 576
10 5S7. -- --
10 70 -
10 800
10 898 -
10 905
10 919
10 952 ... -
10 965
10500
105005
1050 9.
105060.
105211
105212
105213 --
105260
105 65
105511
105515 -
105539 -
105018
105620
10563
105S91
105917
106089
106122
106.357
106539 -
106553
106566 -
106728 -
106729
106730 -
1069 6
107716
Offcc decsons (I. T.):
3526 -
3527
3528
3529
3530
3531
3532 ----
3533
353
Rung No.
Page.
19 2-8-10996
28
19 2-9-11002
11
19 2-25-11128
9
19 2-1-109
2
19 2-21-11102
12
19 2-15-1105
29
19 2-16-1105
29
19 2-16-1105
29
19 2-16-1105
29
19 2-23-11116
.21
19 2-9-11002
21
19 2-18-11075
16
19 2-1-109
21,23
19 2-20-11095
5
19 2-25-11128

19 2-25-11128

19 2-5-1097
27
19 2-10-11009
16,29
19 2-10-11009
16,29
19 2-1-109
27
19 2-2 -11121
25
19 2-1 -110 5
16
19 2-16-11059
7,23
19 2-16-11059
7,23
19 2-16-11059
7,23
19 2-11-11022
17
19 2- -10963
3
19 2-8-10995
27
19 2-12-11031
29
19 2- -10963
3
19 2- -10963
2
19 2-1-109
21
19 2-16-11059
7
19 2-3-10959
21,23
19 2-10-11009
28
19 2-1-109
31
19 2-1 -110 5
8
19 2-16-11059
9
19 2-1-109
13
19 2-2 -11121
3
19 2-13-1103
12,17
19 2-11-11022
1
19 2-3-10959
2
19 2-18-11075
7,8
19 2-16-11059
25
19 2-12-11031
22,27
19 2-12-11031
22,27
19 2-8-10995
16
19 2-2 -11121
1
19 2-1 -110 5
8
19 2-8-10995
3
19 2-8-10995

19 2-5-1097
2
19 2-2 -11121
2,20
19 2-2 -11121
25
19 2-20-11095
15, 18
19 2-19-11081
11
19 2-1-10963
10
19 2-16-11059
8
19 2-23-11116
28
19 2-26-11132
1,10
19 2-23-11116
18
19 2-19-11081
6
19 2-22-11108
21
19 2-1-10963
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19 2-21-11102
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19 2-20-11095
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19 2-18-11075
15
19 2-18-11075
12
19 2-18-11075
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19-12-26-11132
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19 2-19-11081
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19 2-3-10960
52
19 2-1-1096
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19 2-1-10965
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19 2-5-10975
96
19 2-7-10988
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19 2-7-1099
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19 2-8-10996
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CONT NTS OF CUMUL TI ULL TINS (I. T.) 1 to 5; S. T. FOR 1920 ND 1921; INT RN L
R NU I I. 1-2. D-, 11-2, III-, ID-2, I -1. I -2, -. -2. II, I-2, II-1. II-2, n-. OT-2.
I -1, I -2, -. -2. I-1. I-2. II-1. n-2, I11-1. III-2. I -1. I -2. -1. -2. 1937-1.1937-2.
1938-1. 1938-2. 1939-1 (P RT 1 ND P RT 2), 1939-2. 19 0-1, 19 0-2, 19 1-1. 19 1-2, ND 19 2-1.
Cumuatve u tn.
Income Ta :
December, 1919 (No. 1)
anuary- une, 1920 (No. 2)
uy-December, 1920 (No. 3)
anuary- une, 1921 (No. )
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. I-2
anuary- une, 1923 (No. II-)
uy-December, 1923 (No. II-2)
anuary- une, 192 (No. III-)
uy-December, 192 (No. II1-2)
anuary- une, 1925 (No. I -1)
uy-December, 1925 (No. I -2)
anuary- une, 1926 (No. -)
uy-December, 1926 (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. III-1)
uy-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)
uy-December, 1932 (No. I-2)
anuary- une, 1933 (No. II-1)
uy-December, 1933 (No. II-2)
anuary- une, 193 (No. III-1)
uv-December, 193 (No. III-2)
anuary- une, 1935 (No. I -1)
uy-December, 1935 (No. I -2)
anuary- une, 1936 (No. -1)
uy-December, 1936 (No. -2)
anuary- une, 1937 (1937-1)
uy-December, 1937 (1937-2)
anuary- une, 1938 (1938-1)
uv-December, 1938 (1938-2)
anuary- une, 1939 (1939 1 Part 1 and Part 2)
uy-December. 1939 (1939-2)
anuary- une, 19 0 (19 0-1) -
uv-December, 19 0 (19 0-2)
anuarv- une, 19 1 (19 1-1)
uy-December, 19 1 (19 1-2)
anuarv- unc, 19 2 (19 2-1)
( III)
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O RD OF T PP LS.
CUMUL TI LIST OF NNOUNC M NTS R L TING TO
D CISIONS OF T UNIT D ST T S O RD OF T
PP LS PU LIS D IN T INT RN L R NU UL-
L TIN S R IC FROM NU RY 1, 19 0, TO UN 30, 19 2,
INCLUSI .
nnouncements reatng to the acquescence or nonacqueseence of the Commssoner n
decsons of the Unted States oard of Ta ppeas, as pubshed n the weeky Incrn
Revenue uetns from December 22, 192 , to December 31, 1931, ncusve, are prnted n
Cumuatve uetn -2, pages 1-106. Those prnted n weeky uetns from anuary 1,1932,
to December 31, 1939, ncusve, are pubshed In Cumuatve uetn 1930-2, pages 1-73. The
st beow, therefore, contans ony such announcements pubshed n the weeky uetns
from anuary 1, 19 0, to une 30, 19 2. ncusve
19 2-20-11132
The Commssoner acquesces n the foowng decsons of the
Unted States oard of Ta ppeas:
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
.
bbott, ohn, e ecutor of estate of Rchard .
Traser .- 91958
cer Reaty Co 102119
dar, Mrs. Cornea, estate of 95 51
der, . P :. 97988
ffated nterprses, Inc.1 96603
en, Laura, estate of 80703
pena Savngs ank 89273
mercan Lberty O Co. oss
mercan Socety of Cnematographers, Inc 90 11
mes, Inc., S. . (now known as ennedy Co., /105891
Inc.) 10f9 6
nderson, ohn, transferee of estate of Frank O.
urrdge 9333
(97628-
ndrews et a., Charotte L.5 97631
11 99353
pe rewng Co., Inc .1 91977
1 cquescence reates ony to the oard s mathematca formua for apportonment of the dvdend credt
between the estate and the dstrbutees.
cquescence reates ony to the ssue, What amounts consttute reasonabe aowance for servces per-
formed n 1935 and 1936 by the wves of the two prncpa offcers of the corporaton
1 state ta decson.
cquescence reates ony to the Issue, Dd the respondent err n ncudng n pettoner s consodated
ncome for 1932 and 1933, sub|ect to depeton, the sums of 25,727.65, 27, 21.09, and 0, 5.27 whch pet-
toner s affate, the Wofford Producton Co., pad durng sad years to owners of o payment contracts on
ts Pnkston ease
cquescence reates ony to the ssue nvovng the 5 per cent penaty for neggence.
Rung No. 11132 ncudes a acquescence and nonacqueseence notces pubshed n the Interna
Revenue uetn servce from anuary 1, 19 0, to une 30, 19 2.
1
228
5
333
3
38

112
2
390
0
721
5
665
3
76
2
675
6
1020
0
9
6
007
0
1109
(1)
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cquescknces Contnued.
Ta payer.
ppeby, ohn S.1
tantc Land Co., The.
ugustus, zabeth G-.
yer, Frederck
.
ard et u ., Warner G. .
aker, Inc., mert
adwn, Frederc .3
anfed, T. .
ank of merca Natona Trust Savngs ssoca-
ton, e ecutor of estate of, and trustee of trust
e ecuted by, Wam ohn McGowan
ank of merca Natona Trust Savngs ssoca-
ton, trustee of Tonnngsen Trust
edford Trust, dward T.
ekns, atherne, estate of 7 .
ekns et a., Mo W., e ecutors of estate of ath-
erne ekns 7
echer, arret obrook
enaga et u ., rthur
en|amn Frankn Lfe ssurance Co., a Corpora-
ton
erks County Trust Co., aeged successor trustee
of Mortgage Trust Certfcate Poo
ernhemer Co., S. . M. .
geow, ce ., e ecutr of estate of erbert M.
geow 3 10
geow, erbert M., estate of 10
ack, Sr., Chares ... .
ack Motor Co., Inc
enhem Co., Ltd
ock, Meer S. 1
ossom et a., Car W., e ecutors of estate of
Dudey S. ossom 3
ossom Dudey S., estate of 3
ohn, Chares .
ok, Mary Louse 13
oton, rcher L
oard of Ta ppeas.
Docket
No.
oume.
Page.
9 080
100 10
96061
93019
1
3
0
5
18
7
1200
1 6
97 39
/ 92366
1 9 01
10113
f 93313
98688
I 99999
2
970
55
900
0


769
100967
3
695
99280
97260
87675
3
2
38
37
7 8
60
87675
9 879
87638
38
2
36
60
633
838
101813
6
616
98207
88978
2
1
1238
2 9
82659
82659
/103558
1105830
97232
95026
8 873
39
39
635
635
5
20
1
2
37
300
12 8
9 5
105266
105266
95953
105165
10 331
5
5
3
6
5
691
601
953
678
321
1 cquescence reates ony to the ssue. Was the sum of 150 whch was added by the Commssoner to
ohn S. ppeby s ncome, ta abe to hm
Prevous nonacquescence pubshed In Cumuatve uetn 19 1-1, page 12, wthdrawn.
state ta decson.
cquescence reates ony to the ssue, Is the pettoner entted to a deducton of 6,6 6.96 for the year
1937 as and for a debt ascertaned to be worthess and charged off durng that year
cquescence reates ony to the Issue, Was the communty property agreement of December 29, 1931,
effectve wth respect to persona property standng n the name of the decedent at tho tme of hs death
Pror nonacquescence pubshed n Cumuatve uetn 19 1-1, page 12, wthdrawn.
Pror nonacquescence pubshed In Cumuatve uetn 1939-1 (Part 1), page 0, wthdrawn.
Nonacqu scence pubshed n Cumuatve uetn 1938-1, page 3.1. wthdrawn.
Nonacquescence pubshed In Cumuatve uetn 19 0-1, page 5, wthdrawn.
Pror nonacquescence pubshed In Cumuatve uetn 1939-2, page 2, wthdrawn.
Pror nonacquescence pubshed In Cumuatve uetn 1938-2, page 37, wthdrawn,
Parta nonacquescence pubshed In Cumuatve uetn 19 1-1, page 12, wthdrawn.
cquescence reates ony to the Issue Invovng a deducton for deprecaton sustaned on a resdenta
property eased for a substanta sum durng the ta abe year and three separate pror occasons.
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cq escewcks Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
oton, Wam W
ondhoders Commttee 1.
ooth, Warren S.
oston evated Rawav Co.
ougny, Inc., R. .
ouvet Reaty, Inc.
rggs- an Co. . .
rnk et a., rg C, Trustees of Mnne M. Fay
Trusts , C, and S
rtt, Car M
rtten, r., et a., . F., e ecutors of estate of ay
R. Monroe
rookman, Murray
uckner, ffe Reed
uh et u ., Theodore D
ush, Irvng T
uter et u ., Cooey
Can, mma Wetmuer, e ecutr of estate of
ohn . Can, Sr.
Can, Sr., ohn F.., estate of
Cambrdge partment udng Corporaton
Caneo, arrv F.
Carey-Reed Co. ..
Carey Trust (Second)
Carson, Chares T.
Carona-Forda Reaty Co
Carter, Shrey, estate of
Castner Garage, Lmted .......
Cavett et a., ., e ecutors of estate of W. T.
aes
Center Investment Co
Centra anover ank fe Trust Co., trustee of
Trusts , No. 3586; , No. 3587; and C, No. 3588,
under deed from Louse Savage napp
Centra ansas Power Co., The
Chamberan et u ., Lowe -
Champagn County Servce Co ---
Cherokee Co
Chds, ctora
Chds, Wam, estate of
10 299
90 52
90 86
90 87
101336
101883
83 89
97991
100 80
102555
10 207
105212
92562
f98900-
I 98902
99522-
9952
95566
98216
95871
8 170
102 89
9936
101760
101330
101330
102205
66150
906 1
83936
93611
8756
10 800
93917
98502
93208
82350
101753
10175
101755
106539
96 10
101831
93962
102578
102578
5
0
3
5
5
6
0
2
3
5
1
5
5
5
5
3
3

1
36
1
3 )
6
0
3
0
3
6
6
3
5
1


1 cquescence does not reate to ssue respectng bases for deprecaton of pettoners assets.
cquescence s as to resut ony.
1 state ta decson.
Pror nonacquescence pubshed In Cumuatve uetn 1939-2, page , wthdrawn.
1 Pror nonacquescence pubshed n Cumuatve uetn 1939-1 (Part 1), page 2, wthdrawn.
cquescence s ony as to the ssue, Do certan dvdends decared and credted on the stock of the
Loca udng and Loan ssocaton and made avaabe to the pettoners n anuary. 1935, but apped
by them aganst the purchase of stock In the Loca Federa Savngs and Loan ssocaton nto whch the
budng and oan assocaton was converted, represent ncome n 1935 sub|ect to norma ta and surta
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cquescences Contnued.
Ta payer.
Chryser Corporaton
Caborne et a., ustn Legh, e ecutors of the
estate of Laura en 1
Cnron Corporaton
Cohen Sons Co.,
Cohen Testamentary Trust, oe C
Coumba O Ga Co.2
Combs Lumber Co
Commodore, Inc., The _
Commonweath, Inc.
Conney, . L
Cook Drng Co.5
Cooedge, Norman -
Cooper, ugene ., admnstrator of the estate of
Lews F. Cooper -
Cooper, Lews F., estate of
Cooperatve Insurance
Cooperatve Power Pant
Crabb, Doores
Crawford Musc Corporaton
Creech, R. W
Cresp, Petro
Cumberand Portand Cement Co
Curts, Lan D., e ecutr of estate of Irwn .
Smth 1
D.
Daas Tte Guaranty Co. --
DasheU, C. R.7
Davdson, Cnton 8.
Davdson, r., Cnton 9
Davdson, Fora S.1
Davs et u ., Ma Thomas
Davs Co., The M. T
Davson- oseph Campau Reaty Co., Ine
Dean, Mason L.
Dearng, Roy ., estate of 10 -. -
Dearng, R. ., estate of, and trust estate ..
Dearng, Mrs. R. .10
Dearng et u ., Ws R.10
Docket
No.
97305
89703
105213
97939
96231
9062
915 3
f102997
103633
8826
102592
82231
92289
9 088
9 088
95292
95291
95002
/ 85389
88290
101780
103132
1019 1
102271
90 66
75056
r 93500
I 93503
9350
93502
103725
103726
97366
r 61205
I 69832
8 195
r 8 193
I 8 19
8 196
8 192
8 197
oard of Ta ppeas.
oume.
2
0
6
2
2
1
1
6
36
6
38
0
0
0
1
1
1
0
6
1

5
0
36
3
3
3
6
6
1
85
36
36
36
36
state ta decson.
cquescence docs not reate to Issue pertanng to aocaton of cost of equpment on the property n
queston.
cquescence reates ony to the ssue nvovng the deductbty of 5,2 8 for aeged necessary repar
to the pettoner s hote property.
Prevous nonacquescence pubshed n Cumuatve uetn 1938-1, page 38, wthdrawn.
cquescence reates ony to the ssue whether the far market vaue of future o payments, under the
drng and sae of ease contracts, shoud be ncuded n gross ncome of pettoner for the year 1932. Pre-
vous acquescence pubshed n Cumuatve uetn 1939-2, page 8, affrmed as to ths ssue ony.
cquescence reates ony to the Issue whether or not pettoner s an nsurance company as that term
s used n secton 701 (c)2 of the Revenue ct of 193 .
Nonacquescence pubshed In Cumuatve uetn 1937-2, page 36, wthdrawn.
cquescence wth respect to ssue nvovng the ta abty of certan commssons on fe nsurance
contracts s as to resut ony.
Pror nonacquescence pubshed n Cumuatve uetn 1937-2, page 36, wthdrawn.
Pror nonacquescence pubshed n Cumuatve uetn 1838-1, page 39, wthdrawn.
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5
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Dearng, Ws R.p e ecutor of estate of Roy .
Dearng 1
Dearng, Ws R., e ecutor of estate and trust
estate of R. . Dearng 1
DeLong, Davd .2
Dennston et u ., arod S.
Deube, George
Dstrct ond Co. ...
Doerken, dward, estate of 5
Doerken et a., Stephane, e ecutors of estate of
dward Doerken 66
Doenz, nton
Doar, gnes arr
Doar, . arod, estate of
Doar et a., Robert II, e ecutors of estate of .
arod Doar
Donahue, Mrs. esse W.7
Downng et u ., Rchard 8._
8 195
I 8 193
8 19
1012G
9 2S
/ 92055
950
/ 88970
9 86
103095
103695
93311
97283
98728
97282
98727
97282
98727
92980
99171
.
ggerman, Don, e ecutor of estate of mma Frye..
nhorn, Ma .
more Mng Co., Inc
ms, Grace W., estate of
ms et a., ames C., e ecutors of estate of Grace
W: ms
verson Corporaton 10
qutabe Lfe ssurance Socety of the Unted
States, The 11 -
qutabe Lfe ssurance Socety of the Unted
States, The .
qutabe Lfe ssurance Socety of the Unted
States, The
state Pannng Corporaton 13
usts, ugustus .
1 Pror nonacquescence pubshed n Cumuatve uetn 193S-I, page 39, wthdrawn.
cquescence reates ony to the ssue, Is the 1 ,000 ( ash receved by the pettoner on February 6. 1138,
from Francs . Lapont a part of the consderaton of the pettoner s mercan reach Machne Co.
stock
1 Pror nonacquescence pubshed In Cumuatve uetn 1938-2, page 1, wthdrawn.
Pror nonacquescence pubshed In Cumuatve uetn 1939-2, page 7, wthdrawn.
1 state ta decson.
cquescence Is as to resut ony.
T cquescence reates ony to the ssue whether the oard erred n decnng to permt the Commssoner
to rase an affrmatve ssue, n respect of certan amounts aowed as e penses, by amended peadngs sub-
sequent to the decson of the oard.
cquescence reates ony to the ssue nvovng the deductbty of 95.7 as a had debt.
Pror nonacquescence pubshed n Cumuatve uetn 1938-1, page 0, wthdrawn.
u cquescence reates ony to the ssue nvovng the far market vaue of certan pedged coatera on
the date of ts surrender.
Pror nonacquescence pubshed n Cumuatve uetn - , page 31 (193f ), wthdrawn.
a cquescence reates to a ssues e cept the ssue. May the company, on a cash recepts and dsburse-
ments bass, deduct guaranteed nterest pad In the ta year under settement optons e ercsed by the
benefcary, when such nterest had accrued n pror years
n cquescence wth respect to ssue nvovng the ta abty of certan commssons on fe nsurance
contracts s as to resut ony.
Pror nonacquescence pubshed n Cumuatve uetn I -2, page 30 (1935), wthdrawn.
36
36
3
37
2
39
6
6
1
1
1
1

3
101631

73S93
36
96520
2
100963
5
100963
5
93281
0
31110
1
332 1
1
33
57867
S929
.
93805
1
106089
6
93501
3
71637
30
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6
cquescences Contnued.
Ta payer.
vans, Mary .1..
wng, Sherman 2.
oon Co., The .
F.
Farmers Unon Cooperatve change .
Farre, Robert S
Fay, Mnne M., Trust, , C, and S
Ferree, C. .
Fdety Savngs Loan Co..
Fey, Mary Pyne
Frst Mortgage onds 7
The.
Frst Natona ank of Canton, The, e ecutor and
trustee of estate of dward . Langenbach
Frst Reaty Corporaton
Fsh, Frederck S., estate of8
Fsh, Grace S., e ecutr of estate of Frederck S.
Fsh 8
Fsh, Isaac, estate of
Fsher, zabeth . _
Ftch, F. W
Fa num Insuatng Co.10
Feschmann, Raou
Femng, Mrs. nna Maud .
Femng- mbe Corporaton 11
Femng, Wam 11
Fetcher, Lester Ly estate of8
Fetcher, Thomas L., e ecutor of estate of Lester L.
Fetcher 8
Fnn, George ., estate of
Fnn, r.. et a., George II., e ecutors of estate of
George . Fnn
Foyd, Incorporated
Foreman, Frank C
Forrester o Co
Freedman, Ma
Docket
No.
oard of Ta ppeas.
oume.
95527
93013
101276
100552
100139
(98900
I 98902
199522-
9952
615 2
101236
101237
98818
90 52
90 86
90 87
100 92
101558
99995
99995
96527
98637
933 0
98131
5120
90305
92958
9 690
92959
92957
9 689
10117
10117
103050
103050
99562
93915
937 8
99886
2
0
5
2
1200

238
1
765
1
32
725

71
5
826
1
0
881
6
5
5
5
2
5
3
5
0
1
1
1


5
5
3
0
3
3
1 cquescence reates to a Issues e cept as to the deductbty of attorney s fees and abstract fees n-
curred ncdenta to the estabshment of forfeture of a ease and obtanng repossesson of the eased premses.
Pror nonacquescence pubshed n Cumuatve uetn 19 0-2, page 11, wthdrawn.
cquescence Is ony wth respect to the transactons covered by paragraphs 2(a), 2(b), and 2(c) of the
stpuaton, and Is as to resut ony.
Pror nonacquescence pubshed n Interna Revenue uetn 19 1-7, page 1, wthdrawn.
1 cquescence s as to resut ony.
Nonacquescence pubshed n Cumuatve uetn I -2, page 30 (1935), wthdrawn.
I cquescence does not reate to Issue respectng bases for deprecaton of pettoners assets.
state ta decson.
Gft ta decson.
Nonacquescence pubshed n Cumuatve uetn -, page 79 (1931), wthdrawn.
II cquescence reates ony to the foowng ssues: (a) Dd each of the communtes of ay mbe and
wfe nd Wam Femng and wfe constructvey receve o payments of 60,8 8.65 and 53, 01.35, respec-
tvey, for 193 and 1935 from the Femng- mbe Corporaton, and (6) was a certan ,000 reservaton n
connecton wth the transfer by Wam Femng n 1936 of a easehod nterest n the Rchter ease, etc.,
ta abe to the pettoners
G
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1
3
-
0
1
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2
1

2
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3

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7
cquescencf.s Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Frend et a.,
Frend
Mton ., trustees of estate of enry
enry, estate of.
re
Frost Co., G. C, a corporaton
Frye, mma, estate of
Fuham, ohn N
Funsten, . M
Furong, ohn T
G. . R. O Corporaton.
Gardner, . Ws 3
Garand et u ., Wam .
Garrabrant, George, estate of
Garrabrant, Margaret C, ndvduay and as e e-
cutr of estate of George Garrabrant
Garrett, the S. (formery the 8. Darngton)..
Gayord, Inc., Robert5 -
George ros. Co
Georga Marbe Co
Gerber Co., The ohn
Germantown Trust Co. et a., trustees u/w of Sarah
. McLean
Getz, stee C.
Getz, Mton .
Gan, G. arod
GUan, Lee . 7
GUan, Samue W.s
Gespe, Maud
Gette et u ., abert P
Gmore, een, estate of, transferee of estate of
Frank O. urrdge
Grard Trust Co., e ecutor of estate of Frederc .
adwn
Grard Trust Co., e ecutor of estate of George M.
enderson -.-
90672
91 15
/ 90672
1 91 15
100
101631
103252
102068
10 8
9260
92115
93589
955 7
100952
100952
99 5
96953
932 8
100555
101605
101688
72251
75611
79030
8 687
9306
72250
75610
79033
8 686
930 7
10 1 9
10 150
10 151
98770
10 368
93231
10113
10 952
10
0




5
0
1
2
3
5
5
5
1
1
6


5
5
5
5
5
3
6
0

5
1 cquescence reates ony to the ssue. What was the far market vaue of an od budng whch was
stuated on the and at the tme of e ecuton of the ease, and whch was torn down n connecton wth the
constructon, by the essee, of the new budng
1 Gft ta decson.
1 cquescence reates ony to the Issue, If the benefcares of a certan trust be treated as donees, were
the gfts made to them gfts of present nterests or future nterests
1 cquescence wth respect to the decson of une 28,19 0 ( 2 . T. ., 32 ), reates to tho Issue nvovng
the ta abty of nterest from muncpa bonds ssued under the Caforna Muncpa Improvement Dstrct
ct of pr 20, 1915. cquescence wth respect to the decson of February 27, 19 1 ( 3 . T. ., 731),
reates to the ssue nvovng the ta abty of the ncome from a certan trust estabshed by the |ettoner
for the support of hs wfe, the ony ssue presented at the second hearng and decded party n favor of
the pettoner and party for the respondent.
cquescence s as to resut ony.
Un|ust enrchment ta decson.
cquescence reates ony to the ssue nvovng the prce war.
1 state ta decson.
G
e
n
e
r
a
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e
d

f
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U
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)

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2
0
1
3
-
0
1
-
2
1

2
0
:
5
3

G
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9
6
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7
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8
cqu|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas
oume.
Gensder Te te Co
Goodman, uus 1
Graf et u ., erbert R
Graff, verett D
Gravey, as. - ---
Greenwood Packng Pant, The
Grm, Cfford D--
Gruy, oseph, ndependent e ecutor of estate of
Luce Gruy
Gruy, Luce, estate of
Gump, fred S., estate of 2
Gump et a., Came R., e ecutors of estate of fred
S. Gump -
.
aass, Water F., trustee of uron Rver Syndcate.
ackett, mma P
aes, George .s
aes, Mrs. Oneta 3
aes, r., W. T. .
aes, W. T., estate of
arden et u ., Fred M.
arrs Trust Savng ank et a., e ecutors of
estate of Isaac Fsh
arrson, Lous .5
arrss, bbene C, estate of
arrss, Robert M., ndvduay and as admnstra-
tor of estate of bbene C. arrss...
aske, Meve
avemever, Dors D
awaan Trust Co., Ltd., trustee of oe Cohen
Testamentary Trust
eath, arret .
eer, dward .7
ems akeres
ems et u ., Pau
ems, Pau ., trustee
enderson, George M., estate of2
ggns, dus C.9
ggns, ugene
ghand Farms Corporaton ---
rsch, L.
onokaa Sugar Co
ooper, ames P., estate of2 10
102729
87552
/10 623
10 62
92212
100 5
105211
93919
95901
95901
90656
90656
100775
99302
93210
93209
93211
93208
98073
96527
87553
99993
99993
105620
10 576
96231
90599
/ 9 79
I 9 795
102603
10260
102602
10 952
1015 2
/ 80052
85961
95690
95782
101358
85776
6
0
5
0

6
0
2
2
2
2
I

0
0
0
0
I
2
0


6
5
2
38
1
6
6
6
5

39
2
2
3
1
Pror nonacquescence pubshed n Cumuatve uetn 1939-2, page 51, revoked.
1 state ta decson.
cquescence s ony as to the ssue. Do certan dvdends decared and credted on the stock of the
Loca udng and Loan ssocaton and made avaabe to the pettoners n anuary, 1935, but apped
by them aganst the purchase of stock n the Loca Federa Savngs and Loan ssocaton, nto whch the
budng and oan assocaton was converted, represent ncome In 1935 sub|ect to norma ta and surta
cquescence s as to resut ony.
Pror nonacquescence pubshed n Cumuatve uetn 1939-2, page 52, revoked.
Pror nonacquescence pubshed In Cumuatve uetn 1939-1 (Part 1), page 50, wthdrawn.
7 cquescence reates to the Issue pertanng to the trust for the pettoner s mnor son manue,
Gft ta decson.
cquescence reates ony to the ssue, Dd the pettoner reaze ta abe gan as the resut of recevng
an award for compensatory damages
cquescence reates ony to the determnaton of the ue of the stock of Wam . ooper Sons
Co. on ugust 3, 1933.
G
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n
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t
e
d

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2
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1
3
-
0
1
-
2
1

2
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:
5
3

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9
6
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7
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#
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9
cquescf.nces Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas
oume.
ooper, Mathde ., admnstratr of estate of
ames P. ooper 1 1
oover, erbert W
opkns, Wam R._ - --.
ote stora, Inc. ---
oward, Grace dams, estate of _.
oward et a., George dams, e ecutors of estate of
Grace dams oward
uey Php ardware Co
umme-Ross Fbre Corporaton..
umphreys, Murray
unter, C.
urd Mwork Corporaton . ..
uron Rver Syndcate . -.
yde, Mdred ., estate of -
yde, Suffok erks, Marguerte
yde, Ws O., admnstrator of estate of Mdred
. yde
I.
Ide, ohn ..
Industra Cotton Ms Co., Inc.
Interstate Transt Lnes, Inc ...
Irvne, ames
Isand Securtes, Lmted
.
ackman, D. S. ..
ask, Sophe, tradng as Whte ouse akery __
efferson Standard Lfe Insurance Co
erpe. . P
oe Co.
ohnston, . dward 1
ohnston, L. Mmnaugh
ones, Carre L., estate of1
ones et a., Cary W
ones, era Sprnger, e ecutr of estate of enry
Monroe Sprnger 1
ordan Creek Pacers . _
oseph, Wam
ourna Co., The
85776
9097
91753
97230
99851
99851
92801
93077
87899
99191
101956
100775
95182
81 17
93257
95182
1013 7
92186
101693
10 587
99082
101891
1002 1
89 22
103377
96535
93768
99377
91831
1102201
1102202
100125
/ 98057
1 99210
96036
96682
1
2
1
2
2
2
0
0
2



2
0
2
3
3

6
3
1 I
3

5
1
1
I
1
I
5
3
3

73895
36
95
73891
36
95
7389
36
95
106357
5
992
.
ahn, ea ...
ahn, Isdor 7
ahn, Lenora 7
ack, oseph N I 106357
1 state ta decson.
1 cquescence reates ony to the determnaton of the vaue of the stock of Wam . ooper Sons
Co. on ugust 3, 193.1.
1 cquescence s as to resut ony.
1 cquescence on the foowng ssue Is as to resut ony: In determnng the net ncome of a trust cur-
renty dstrbutabe to the benefcares, shoud there be ncuded the rent due under a ong-term ease,
the essee havng mproved the premses wth an offce budng whch woud become the essor s property
on forfeture, the trust on the accrua bass havng ccrued the rent but aso havng charped t to a reserve
Tor uncoected rents
Gft ta decson.
1 Un|ust enrchment ta decson. cquescence s as to resut ony.
Pror nonacquescence pubshed n Cumuatve uetn 1938-1, page 8, wthdrawn.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
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n
g

(
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Y
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k

U
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v
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s

t
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)

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2
0
1
3
-
0
1
-
2
1

2
0
:
5
3

G
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2
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2
7
/
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1
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3
2
9
6
8
0
7
P
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_
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#
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e
10
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
aufmann, oe W
aufmann, Mdred
eth, Davd
eer, Charotte
ennedy Co., Inc. (formery S. . mes, Inc.)-.
esser O Gas Co
esau Petroeum Corporaton
an Co., . L.1
mbe, ay 1
mbe, Mrs. ema .-
rchner, mma R., e ecutr of estate of Freder-
ck C. rchner
rchner, Frederck C, estate of
eberg, ce G. .
eberg, ce G. ., e ecutr of estate of Robert .
eberg, Sr.
eberg, Sr., Robert ., estate of
napp, Lous Savage (grantor), Trusts , No. 3586;
, No. 3587; and C, No. 3588, Centra anover
ank Trust Co., trustee
nowes, dwn C. F --.
Lamberth et u ., en
Lamm Lumber Co.
Langenbach, dward ., estate of
Lapsey, ames
Larson, Rose . .
Laster, Caroyn Faust, transferee,.
Laster, . C, transferee
Laster, dward Carro, transferee
Laster Incorporated, . C
Lawrence, Wam amton
Lawson et u ., dward C
Lawson. Roberta C
Leary, Sr., . .
Leary, Myra L.7
Legg, Mdred Sheppard, estate of
Leno Cothes Shops, Inc
Letts, r., rthur
Letz, r., George ., e ecutor of estate of George .
Letz, Sr -
95082
95083
105618
93026
105891
,1069 6
930 1
95760
98691
92956
. 9 67
92955
, 9 673
102381
102381
86178
86178
86179
101753
10175
101755
91 95
95305
95306
10277
100 92
102201
102202
88813
9771
97716
97713
97 2
10036
99300
99301
768 5
768 6
899 2
1019 3
92857
999 0
1
1
5
1
6
1
2

1
1
6
6
3
3
3
6
0
2
5
6


3
3
3
3

2
2
3
3
0
5
1
5
1 cquescence rentes ony to the Issue nvovng the deductbty of contrbutons to the Y. M. C. . and
chamber of commerce.
cquescence reates ony to the foowng ssues: (a) Dd each of the communtes of ay mbe and
wfe and Wam Femng and wfe constructvey receve o payments of 60,8 8.65 and 53, 01.35, respec-
tvey, for 193 and 1935 from the Femng- mbc Corporaton, and (6) was a certan ,000 reservaton n
connecton wth the transfer by Wam Femng n 1936 of a easehod Interest n the Rchter ease,
etc., ta abe to the pettoners
1 cquescence reates to a Issues e cept that Invovng a bad-debt deducton of 20 .50.
cquescence reates ony to the Issue nvovng the deductbty of that porton of the presdent s saary
accrued whch was n e cess of the mtaton on the amount of cash wthdrawas for the presdent s saary
permtted by an agreement wth credtors.
1 cquescence reates ony to the Issue nvovng the deductbty of Interest pad n the amount of
1,901.96.
cquescence s as to resut ony.
Pror nonacquescence pubshed n Cumuatve uetn 1937-1. page 1, wthdrawn,
state ta decson.
G
e
n
e
r
a
t
e
d

f
o
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L

n

Z
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a
n
g

(
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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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)

o
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2
0
1
3
-
0
1
-
2
1

2
0
:
5
3

G
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/


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.
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2
0
2
7
/
u
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1
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b
3
2
9
6
8
0
7
P
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a

n
,

G
o
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#
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11
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Letz, Sr., George ., estate of
Levy, en
Lpstate et u ., Php arry
Lvngston, uan M
Lousana Iron Suppy Co., Ino
Lousve Fre rck Works, Inc., The.
Lucas, enry M
Lyon, Incorporated.
M.
MacConaughey, arry
Macon, Dubn Savannah Raroad Co.
MacPherson, Mae Recor 1
Madgan et u ., . P
Ma|estc O Corporaton
Maery et u ., Otto T. .
Maory et a., . ., e ecutors of estate of L. W.
Maory
Maory, L. ., estate of
Maoy, mma
Manufacturers Lfe Insurance Co., The.
Marborough ouse, Inc., et a.
Marborough Investment Co. .
Marthe, Louse, transferee of estate of Frank O.
urrdge
Martn, Thomas W
Maumee Maeabe Castngs Co., The
Mc pne Land Deveopment Co., Ltd., .
Mc rde, Margaret -.
McCarthy, mmett .s
McCoud et u ., Lous
McCormac, Gertrude ., trustee for . . Mc-
Cormac, r
McCormac, r., . . (trust)
McDane, C. T -
McGue, Chares -
McGowan, Wam ohn, estate of, aso trust e -
ecuted by
Mc nght, fred, admnstratorof estate of Thomas
Spruance
999 0
96037
93255
105539
97107
100 82
100516
f 93858
965 6
L 99832
92052
90592
92083
/101308
101309
96380
92373
95595
95595
/102526
103339
908 5
90 52
90 86
90 87
90 52
90 86
90 87
93333
93916
100933
99599
101335
101607
100961
93920
93920
99189
100 65
100967
9 78
9 820
t 9 821
101830
5
3
3
6

3

2
11
0
39
3
2
12


5
3
0
10
0
0

3


5
0
0
1
6
3
3
5
McLean County Servce Co
1 Pror nonacquesoence pubshed In Cumuatve uetn 1938-2, page 67, wthdrawn.
1 cquescence reates to a ssues e cept the Issue, Is the pettoner entted to a 1935 oss deducton for
the undeprecated cost of certan casng and other ease equpment whch coud not be removed from a
certan o we whch the pettoner ceased to operate, durng that year, because such operaton had become
unproftabe
1 cquescence Is as to resut ony.
cquescence does not reate to Issue respectng bases for deprecaton of pettoners assets.
1 cquescence reates ony to the credt of 2,500 as head of a famy.
state ta decson.
7 cquescence reates ony to the ssue, Was the communty property agreement of December 29, 1931,
effectve wth respect to persona property standng n the name of the deoedent at the tme of hs death
G
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12
cqukscences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
McLean et u ., Marrs 1
McLean, Sarah ., trust u/w of.
McLeod, eth
McLeod, Mary
Medca Dagnostc ssocaton,
Menefee, ortense
Meyer, en R.
Meyer, ay C.
Md-Contnent Securtes Co., The .
Mdand Cooperatve Whoesae, a Cooperatve
ssocaton
Mbank, Dunevy
Mer, uus C
Mmnaugh, ugene
Mooney ectrc Co.
Monarch Lfe Insurance Co.
Monroe, ay R., estate of
Moock ectrc Suppy Co., The
Morrs Pan Co. of St. oseph, The
Morrson ond Co., Ltd
Morrstown Trust Co., e ecutor of estate of Wam
Chds __
Mortgage Trust Certfcate Poo
Morton, rthur F
Mott, Dee Furey s
Mout on, Chares Day
Myers, George R
N.
Natona ank of Commerce of San ntono, Te . .
Natona Commerca ank Trust Co. of bany,
e ecutor of estate of Leonard S. Wadman 7
Nchos, . C
77 19
77 20
81391
81392
8680
86805
9 02
9 03
101688
10 57
10 573
96563
103 31
722 8
75613
79032
8168
930 8
722 9
75612
79031
8 685
930 6
106729
100612
93050
102985
99358
96076
86801
87 1
98216
9628
9781
93362
95986
102578
9S207
91 9
71903
100960
9 70
9316
10 898
89169
1

5
5
2
0
5
5
6

1
5

2
38
5
1
2
1
2

2
1
35
5
2
0
6
2
1 cquescence reates to a Issues e cept the ssm
t ns for percentage depeton based upon sums rece
uf Producton Co., and. f they are entted to d(
rross proceeds from the sae of producton from the
(rved by the pettoners from the prop
. whethre or not the pettoners are entted to deduc-
ved by them pursuant to certan agreements wth the
peton, shoud t be computed as a percentage of the
pro ertes or as a pcerentagc of the actua amount re-
cquescence s ony wth respect to the ta abty of the ncome from the wfe s trust.
1 cquescence reates ony to the deductbty n 193 of the amount pad to the Frst Natona ank of
St. Lous n connecton wth the qudaton of the Frankn mercan Trust Co., such acquescence beng
ony n the resut.
Pror nonacquescence pubshed n Cumuatve uetn 1939-1 (Part 1), page . , wthdrawn.
Nonacquescence pubshed n Cumuatve uetn 1937-1, page 3, wthdrawn.
8 Pror nonacquescence pubshed n Cumuatve uetn 19 0-1, page 8. wthdrawn.
state a decson.
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13
cquRsc Nc S Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Ncoa, arry T.1 _
North Range Mnng Co...
Norweb, mery May oden s.
Norwood-Whte Coa Co.
O ren, . Chares
Orange Securtes Corporaton
Ortz, ce duPont -
Orthwen, Dorothy Mc rde
0 SuIvan Rubber Co., Inc. (n dssouton)
Oswego Fas Corporaton 8
Pan- mercan Lfe Insurance Co.
Parker, . rooks -
Parrsh, Percva
Parsons, Regnad -
Patton, T. ._ -- --
Peck Peck (New York) -
Peck Peck Corporaton, The
Peck, Robert owman -
Perkns, Raph
Pettus, ames T
Pettus, May W., trustee of the ames T. Pettus
trust for Irene Pettus and ames T. Pettus. r..
Pettus trusts for Irene Pettus and ames T. Pettus,
r., ames T -
Peyton, Mrs. Loe M. Randoph, transferee
Pfeffer, ar
Phney odng Co., Inc
Pedmont-Mt. ry Guano Co.
Perce, D. W -
Peron udng Trust -
Pnkney Packng Co
Pnne, Chares - -
Pper et u ., T. ugene
Pttsburg Canners, Inc
Punkett, Theodore R -
Pontare, Mchae
Porter et a., . oward, trustees, dentfed as
Porter Propertes Trustees, Ltd
Porter Propertes Trustees, Ltd --
Producers O Corporaton --
Pupn, Mchae I., estate of 10 11
93821
98188
102 35
92575
102069
100953
10 99
93159
10 70
97399
10216
8 638
101676
103 06
97008
93918
99288
9931
10060
96126
102775
102776
102777
102776
102777
96759
99273
88988
1757
92278
103105
8892
1002 9
101766
93560
9 017
83199
95762
95762
93839
92177
2
6
1
5
5
5
2
5
2
16
US


1
0
2
2
5
1
5
5
15
1
I
3
3
1
15
2
5
5
11
II
35
2
2
3
:s
1 cquescence reates ony to the Issue, Is the pettoner entted to a deducton of (13.225 as a bad debt
for the year 1935
t ta decson.
Un|ust enrchment ta decson.
cquescence reates ony to the ssue, whether the pettoner s entted to any deducton as the resut
of the satsfacton of the defct e stng n her husband s brokerage accounts at the end of the year 103 .
1 cquescence reates ony to the Issue nvovng the deductbty as a busness e pense of 3,500 pad to
the Futon Cub durng the ta abe year.
Parta nonacquescence pubshed n Cumuatve uetn 1939-1 (Part 1), pase 59, wthdrawn.
1 cquescence reates ony to the ssue, Was the pettoner entted to a oss on an nvestment of 17,250
In the Fourteenth Carnege Co. for the year 1926
Nonacquescence pubshed n Cumuatve uetn -, page 89 (1931), wthdrawn.
Pror nonacquescence pubshed n Cumuatve uetn 1939-2. page 63, wthdrawn.
u state ta decson.
Pror nonacquescence pubshed In Cumuatve uetn 1939-1 (Part 1), page 60, wthdrawn.
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1
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1

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5
3

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1
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1
cquescences Con t nued.
Ta payer.
R.
Randa, . G., estate of
Randa, Luther ., e ecutor of estate of . G.
Randa
Ravenscroft, . F
Regas Reaty Co.1
Retsa Drng Co.
Reynods, Inc., R. C.s.
Reynods, Ron C
Rce, ohn Preston 5
Rtche, Montgomery . W., admnstrator d. b. n.
of estate of Mrs. Cornea dar
Rversde akng Co. ( . W. Stockton, D. . .) ..
Robnson, W. C
Rooke, Robert L
Roosevet Investment Corporaton
Rosenau, arret W.5
Rosenstock, nna, ndvduay and as e ecutr of
estate of Isaac M. Rosenstock 8
Rosenstock, Isaac M., estate of8
Ross ros. orse Mue Co
Ross, Mary Catherne
Ross, W. R
Ross, ndrew .
Rotorte Corporaton
Rowan Drng Co., transferee 7
Rowey, dward G., transferee of estate of Frank
O. urrdge
Safe Depost Trust Co. of atmore, e ecutor of
estate of Mdred Sheppard Legg
St. Lous Unon Trust Co. et a., e ecutors of estate
of Carre L. ones -
Satsten, Maurce S., estate of, transferee
Satsten, Sophe L., admnstrat of estate of
Maurce S. Satsten, transferee
Scanon, Robert . -
Scheffen, Lucy S., estate of -
Schesnger, Rosa 8
Schey et u ., uan Larcombe --
Schoekopf, r., acob F
Schutz et u ., Nes --
Docket
No.
10 905
10 905
99192
96360
/ 95776
t 97715
/ 9801
98017
/ 97718
t 98015
10212
95 51
101627
99038
98112
101 53
86 07
91686
91686
9 76
9 75
/ 9 7
98898
96 70
88606
98532
93332
899 2
91831
105060
105060
98020
99961
73892
99 0
76377
/100 0
1100 1
oard of Ta ppeas.
oume.
6
(1

3
2



3

2
3
5
37
1
11
3
3
3
1
0

0
10
1
6
6
2

36
2
35

1 cquescence s as to resut ony.
cquescence reates to a ssues e cept the ssue whether R. C. Reynods. Inc., reazed ta abe gan
upon the purchase of shares of ts own stock and contracts reated thereto n 1935.
Nonacquescence pubshed n Interna Revenue uetn 19 1-32, page 1, wthdrawn.
Un|ust enrchment ta decson.
Gft ta decson.
state ta decson.
cquescence reates ony to the ssue. Is the pettoner s transferor entted to deductons as ordnary and
necessary busness e penses amounts e pended In 1932 n the drng of o wes for cash, competed n 1933
1 Pror nonacquescence pubshed n Cumuatve uetn 1938-1, page 55, wthdrawn.
G
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d

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2
0
1
3
-
0
1
-
2
1

2
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:
5
3

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#
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15
cque8cence8 -Contnued.
Ta payer.
Schuman Carrage Co., Ltd
Scuy, ohn C
Seavey Farshem rokerage Co_
Second Carey Trust _ _
Securtes Co. of New ersey
Sensenbrenner, F. .
Seward Cty Ms.
Shamrock O Gas Co
Sharp et u ., . Cec
Sheden Land Co.
Shenandoah aey Natona ank (Shrey Carter
estate)
Sherman, Dors ond 11
Sherwn, Francs M
Sherwn, ohn
Shoenhar, Martha Locke
Sver, Ma
Smon, ose, estate of
Smon et a., ose P., e ecutors
Savn, rthur M
Smth, Chares G
Smth, Irwn ., estate of
Smth, ames, estate of
Smth, Madene Weder
Smth, arvara Pupn, admnstratr of estate of
Mchae I. Pupn 1
Smoak, ott
Smvth, r., Francs G., transferee of estate of Frank
0. urrdge
Smvth, erbert C, transferee of estate of Frank O.
urrdge
Smvth. erbert C, admnstrator of the estate of
een Gmore, transferee of estate of Frank O.
urrdge
South tantc Steamshp Lne
Spva, George N
Spor, Sr., Cypran ., estate of
Spratt, Chares N..
Sprnger, enry Monroe, estate of
Sprngford, erbert
Spruance, Mrs. ortense
Spruance, Thomas, estate of.
Staey, ugustus .1
Staey, mma L.1
Standard O Co. (and affated subsdares).
Staney, Wam
Docket
No.
90012
101992
91618
93611
1050 9
107716
92099
98588
97 25
, 97 26
93196
93917
95300
106730
106728
102675
100186
918 0
918 0
9 768
9391
102271
105515
95003
92177
100036
93331
93232
93231
988
98293
92588
97917
100125
972 7
9 785
9 786
9 78
9 820
9 821
88772
88773
86516
96558
oard of Ta ppeas.
oume.
Page.
3
880

1279
1
198
1
800
5
10 8
6
713

173
2
1016
2
336
2
98
0
7 9
1
898
6
330
6
330
5
576
2
61
0
650
0
650
3
1100
0
7 9
5
59
6
337
1
686
38
1218
3
907
0
9
0
9
0
9
2
705
3
117
0
92
3
503
5
561
1
1001
3
221
3
221
1
752
1
752
3
973
1
1233
1 Ott ta decson.
cquescence reates ony to the Issue, whether certan osses suffered by pettoner as the resut of fore-
cosures of propertes owned by the pettoner are deductbe n the year of forecosure or n the year In
whch the equty of redempton e pred.
1 cquescence reates ony to the year 1935.
state ta decson.
Pror nonacquescence pubshed In Cumuatve uetn 1939-1 (Part 1), page 60, wthdrawn.
G
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d

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)

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2
0
1
3
-
0
1
-
2
1

2
0
:
5
3

G
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/


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7
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1
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3
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6
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7
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_
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#
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16
cquescencks Contnued.
Ta payer.
Stark, . . Lutcher, e ecutor of estates of M. M.
Stark and W. . Stark
Stark, M. M., estate of --
Stark, W. ., estate of1
Stern, son L. S.s
Stewart, ames R.
Stfe, rthur C
Stockton, . W., D. . . Rversde akng Co.s._
Stoberg ardware Co., The
Strecker, Lous
Stroud Co., Inc -
Suffok erks, Marguerte yde ...
Docket
No.
Sutana O Corporaton (Deaware).
Sunset-Luce Co
SutcfTe Co., The
Sutff, Water
Swan, Sherwood
Swastka O Gas Co
Tabott, atherne ., estate of7
Tabott et a., arod ., e ecutors of estate of
atherne . Tabott
Tayor et u ., arden F.8
Terhune, Wesey .
Thatcher, Lester ., transferee of estate of Frank O.
urrdge
Thatcher et u ., Thomas
Thomas et u ., arry
Tcker Pubshng Co
Totson, Frank F., estate of
Totson et a., Isabee I., e ecutors of estate of
Frank F. Totson 79
Tmberake, stee Fntom
Tmberake, .
Tmmerman, Lous F
Tte Guarantee Trust Co. et a., e ecutors of es-
tate of Lucv S. Scheffen
Tte Guarantee Trust Co., trustee of dward T.
edford Trust3
Todd, Wam U
Tomfohr, Pauyn
103807
103808
103807
103808
9313
89950
100001
101627
100791
96038
10 012
81 17
93257
: 90078
90079
9396
9 235
103669
101190
90861
97128
97128
99262
9389
93335
103835
100962
101606
100563
100563
101097
101096
96317
99961
97260
101312
98037
oard of Ta ppeas.
oume.
5
5
.5
-10
39
-1(1

6
3
5
0
0
1
1
0

0
2
2
3
0
0
5
5
(


11
6
2

2


1 cquescence reates ony to the ssue, re the ta payers entted n 1937 and 1938 to the deducton of the
osses resutng from the operaton of a easehod prevousy acqured by the decedents where n decedent s
estate ta returns a deducton was taken and aowed for the estmated amount of such operatng osses over
the remanng perod of the easehod
cquescence reates ony to the ssue. Is the pettoner ta abe on the ncome of a trust whch was created
for the support and mantenance of hs wfe and mnor chd
Pror nonacquescence pubshed n Cumuatve uetn 19 1-1, page 19, wthdrawn.
Gft ta decson.
(t n|ust enrchment ta decson.
cquescence on the foowng Issue s as to resut ony: In determnng the net ncome of a trust cur-
renty dstrbutabe to the benefcares, shoud there be ncuded the rent due under a on -term ease, the
essee havng mproved the premses wth an offce budng whch woud become the essor s property on
forfeture, the trust on the accrua bass havng accrued the rent but aso havng charged t to a reserve for
uncoected rents
r state ta decson.
cquescence reates ony to the ssue whether gans were reazed n 1936 or In 1937 from saes made on
the ast two days of December, 1936.
cquescence reates ony to the deductbty of attorneys fees from gross estate.
G
e
n
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a
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e
d

f
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(
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U
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)

o
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2
0
1
3
-
0
1
-
2
1

2
0
:
5
3

G
M
T


/


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2
0
2
7
/
u
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1
.
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3
2
9
6
8
0
7
P
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a

n
,

G
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_
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17
cquescknces Contnued.
Ta payer.
Tonnngsen Trust, ohn and Paune
Torney, eannette Wrght, admnstratr of estate
of Me Langey Wrght 1
Traser, Rchard ., estate of 2
Trevor, my 3
Tuey, ddson L., estate of
Tuev, esse ., trustee of estate of ddson L.
Tuey
U.
Unon Guardan Trust Co
Unon Shpbudng Co., aeged transferee
Unted States Fdety Guaranty Co
Unversa Motor Co
Unversa Wndng Co
U. S. Industra coho Co. (W. a.)
U. S. Unversa onts Co
Docket
No.
.
aey Lumber Co. of Lod
aey Tractor qupment Co.
auaton Servce Co., The
W.
Wadman, Leonard S., estate of
Water, Wam
Warrck, Dupuy G
Washngton Raway ecrc Co,
Washngton State ppes, Inc
Watkns, Forence
Wegeforth, Le S.
Wengarten, Inc., .5
Weder, r., ames F
Wenger, Mary .6
West, ames
Wheeer, een vans 7
Whtthorne, W. R., estate of
Wco , se .8
Wco , Gay ord P.
Wco , Mabe I.
Wams Furnture Corporaton.
state ta decson.
cquescence reates ony to the oard s mathematca formua for apportonment of the dvdend credt
between the estate and the dstrbutees.
Oft ta decson.
cquescence reates ony to questons nvovng the rates of deprecaton aowabe durng pror years
n estabshng, the bases of certan assets sod or abandoned, and s as to resut ony.
1 cquescence reates to the ssue whether pettoner s entted to deduct as a oss the sum of 20, 13.80
representng ts nvestment n certan cense agreements coverng the use of a merchandsng system.
cquescence reates ony to the ssue, Is the oss sustaned on capta assets beongng to the trust a
capta or ordnary oss Nonacquescence pubshed n Cumuatve uetn 19 0-2, page 1 , wthdrawn
a so far as t reates to ths ssue.
7 cquescence reates to a ssues e cept as to the deductbty of attorney s fees and abstract fees n-
curred ncdenta to the estabshment of forfeture of a ease and obtanng repossesson of the eased premses.
1 cquescence reates ony to the ssue. re the pettoners ta abe n 193 as benefcares under the
r of George N. Wco upon ncome earned n 193 by the estate durng admnstraton
99280
99579
91958
89820
99190
99190
9 687
100025
91398
98503
99752
8735
( 90713
I 9071
10270
100 21
95878
90373
101898
97537
99162
98689
92- 35
100723
1006)0
91708
99707
95005
92215
101 0
95528
101189
96S30
96831
96827
10 191
oard of Ta ppeas.
oume
3
37
3
551
1
228
0
12 0

56

56
1
1306
3
11 3
0
1010
3
1
39
962
2
1323
6
111
3
23
2
311
1
811
6
291
2
9 1

1068
0
12 8
6
6
3
900
2
633

798
1
686
2
225

1159
2
2 6

123
3
931
3
931
3
931
5
928
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18
cquescences Contnued.
Ta paypr.
Docket
No.
oard of Ta ppeas.
oume.
Page.
Wson, ohn P.1
Wson, Morrs
Wnston ros. Co.
Wnthrop, eekman s
Wsconsn Farmer Co
Wocott, Frank
Wof, dth
Wood, zabeth .
Wood, Orrn G.
Woods Lumber Co.8
Worcester County Trust Co. et at., e ecutors of
estate of ames Smth 7
Word, nna
Word, T. T
Word Suppy Co., T. T
Wrght, Me Langcy, estate of 7
Wvman et a., rthur M., trustees of Wyman
udng Trusts No. 1 and No. 2
Wyman udng Trusts No. 1 and No. 2
Y.
Young, Du os 8
Z.
Zeer, bene P., estate of
Zeer et a.. ohn ., e ecutors of estates of bene
P. Zee and ohn G. Zeer..:
Zeer, ohn G., estate of
931 0
9802
59270
79850
105917
100008
92 29
9500
92 89
97 7
105515
935 3
935 2
935
99579
10 238
110 239
/10 238
10 239
783 5
101 29
101 29
101 29
2
2
29
36
6
2
1
1
0

6
1
1
1
3
5
5
31
5
5
.
1260
125
905
31
116
1151
1231
686
90
88
337
965
905
965
551
155
155
6 8
1060
1060
1060
The Commssoner does NOT acquesce n the foowng decsons of
the Unted States oard of Ta ppeas:
oard of Ta ppeas.
Ta payer.
Docket
No.
.
oume.
Page.
bbott, ohn, e ecutor of estate of Rchard .
919.58
95102
1
228
98
beson et u ., acob

cquescence reates ony to the ssue, Where ta payer creates a trust for the fetme of hs adut daugh-
ter, s the trust ncome ta abe to the grantor under the provsons of secton 1(30 of the Revenue ct of 193
a Pror nonacqueseence pubshed n Cumuatve uetn III-2, page 38 f 193 ), wthdrawn.
Nonacqueseence pubshed In Cumuatve uetn 1937-2, page 56, wthdrawn.
Gft ta decson.
1 cquescence reates ony to the ssues nvovng (1) the vauaton of 388 shares of rown Paper M
stock, and (2) the queston whether the renqushment of a power to prevent future amendments to a trust
nstrument consttutes a compete gft.
cquescence s as to resut ony wth respect to the ssue, Were the operatons of the pettoner, the
Woods Lumber Company of Tennessee, and the Woods Lumber Company, Inc. of rkansas, the
operatons of a snge ta abe entty, so that tte oss sustaned by the rkansas busness coud be used to
reduce ta abe ncome of the Tennessee corporaton
7 state ta decson.
8 cquescence reates ony to ths ssue, Was the e change of certan certfcates of ownershp n a trust
for underyng portfoo stock represented there by an e change of dfferent assets, resutng n a capta oss
Prevous nonacqueseence pubshed n Cumuatve uetn -2, page 51 (1936), wthdrawn wth respect
to ths ssue ony.
Nonacqueseence reates ony to that part of the oard s opnon whch hods, wthout supportng
evdence, that gans on the sae of corpus of the estate consttuted ncome avaabe for dstrbuton to the
benefcares.
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19
NoN C U SC PC S Contnued.
Ta payer.
beson, Lester -
cme reweres (transferee)
dams, enne rrott
dams, Mabe G.1
ffated nterprses, Inc.
abama sphatc Lmestone Co.
en, . Wadegh, estate of
en, ohn
en, r., et a., ona
en, r., et a., ona, e ecutors-
en et a., ctor
ng, Noyes ., estate of
mbrose et u ., W. D
mercan Lberty O Co.
mercan Lght Tracton Co _.
mercan Steamshp Owners Mutua Protecton and
Indemnty ssocaton, Inc
msco-Wre Products Corporaton, transferee
ndrews et a., Charotte L
ppeby, dgar S., estate of - -
ppeby et a., dgar T., e ecutors of estate of
dgar S. ppeby... ---
ppeby, ohn S.9
rmour, Lota S
tkns Co., . C-
tknson, Wam G. (aso known as Pau Cava-
nagh) . -
vaon Paper Co., transferor
.
atmore Steam Packet Co.
anfed, T. .
ank of merca Natona Trust Savngs ssoca-
ton, e ecutor of estate of, and trustee of trust
e ecuted by, Wam ohn McGowan 8 .
arbour, dth enry
ateman, Lady Maran
eck, Martn 1
95103
101296
98106
101820
96003
91793
93811
93812
93809
93811
93810
87136
/ 957
957 5
/ 98 87
98 88
9723
10292
100098
97628-
97631
99353
93886
93886
9 080
/ 88151
93150
99196
95500
101162
102559
93313
98688
99999
100967
10071
98766
99 39
oard of Ta ppeas.
oume.
-11
3
1 I

2

1
1
2
3
2
6
11
6
1
1
1
1

2
3
1
2
3
I
3
3
Page.
OS
721
08
1091
390
32
200
191
1 05
76
1121
27.-.
717
607
18
s
IS
777
1
1037
5 1
629
709
695
1117
69
1 17
Issue, Is the pettoner sub|ect to surta as a persona hodng con-
cts of 193 and 3f
1 Gft ta decson.
1 Nonacquescence reates onv to the
pany under sectons 351 of the Revenm
1 state ta decson.
Nonacquescence reates to a ssues e cept the ssue, Dd the respondent err n ncudng n pettoner s
consodated ncome for 1932 and 1933. sub|ect to depeton, the sums of 25,727.63, 27, 21.09, and 0, 5.27
whch pettoner s affate, the Woford Producton Co., pad durng sad years to owners of o payment
contracts on Its Pnkston ease
1 Nonacquescence reates ony to the ssue nvovng the far market vaue, f any, of the scrp at the tme of
ts recept In 1936.
Nonacquescence reates to a ssues e cept the ssue wth resert to the 1.10 added by the Commssoner
to the pettoner s ta abe ncome.
7 Nonacquescence reates ony to the ssue, Shoud the ta abe ncome of the pettoner for the year 1935
be ncreased, for the reason that a certan oss sustaned durng that year by the partnershp, of whch he s
a member, resuted from the short sae of property, wthn the meanng of secton 117(e) of the Revenue
ct of 193 7
Nonacquescence reates ony to the Issue. Dd the Commssoner err n ncudng n gross estate the tota
agreed vaue of tbe two parces of rea property nvoved
G
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20
Nonacquescenceb Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
e et a., Maude ., e ecutors of estate of Ida .
Whte ;
ngham, Mary Ly (Fager), estate of
shop Trust Co., Ltd., e ecutor of estate of ohn
. McCandess
ase, . F
ake, oseph M., admnstrator of estate of arret
Frances Whtng
ok, Mary Louse 1
ondhoders Commttee .
onfs, F. G., estate of
onfs Trust, F. G W,-
onfs et a., een G., e ecutors of estate of . G.
onfs -
ranch, Caude R
rdgeport Cty Trust Co. et a., The, e ecutors of
estate of Noyes . ng
rsto, ennet .
rown, ntonette
rown, Wam Maynard
ruckhemer, Davd
ruckner, rnod
uck, sworth
urnett, O. L
urnqust, ert
C.
Caforna rewng ssocaton,
Cannon aey Mng Co
Carng odng Co.
Carro et a., ohn ., e ecutors of estate of Forence
L. Tsdae
Carte Ms, Inc
Caspersen, Freda R
Caughey, Caroyn G., estate of
Cavanagh, Pau (aso known as Wam G. tkn-
son).
Cavett et a., ., e ecutors of estate of W. T. aes6.
Centra anover ank Trust Co., e ecutor of
estate of W. M. L. Fske
Centra Loan Investment Co.7
Chamberan, Park
Chaparra O Co
Chase, Gertrude
Chase Natona ank of the Cty of New York,
The, trustee under agreements wth mercan
Depostor Corporaton
93575
9 985
979 3
9829
92817
105 65
90 52
90 86
90 87
91501
931 8
91501
9 2 8
87136
962S9
977 3
97836
1023 3
97507
93330
902 8
101259
101295
96330
86776
87378
. 88616
978 2
97698
92765
99655
95500
93208
102055
82565
88067
97552
97902
f 9385
I 93855
I 93856
93857
11
0
2
2

6
0
0
0
0
0
1
2
2

6
12
1
0
-1
.

1

2
0

2
0

39
1
3
1
1
1 Nonaoquescence reates ony to the Issue nvovng the queston of whether the ncome of the Caedona
Trust s ta abe to the pettoner, the grantor.
1 Nonacquescence reates to ssue pertanng to bases for deprecaton of pettoner s assets.
Prevous acquescence pubshed n Interna Revenue uetn 19 0-15, page 1, wthdrawn.
state ta decson.
Gft ta decson.
Nonacqucseonce s ony as to the ssue. Is the cash receved by pettoners n 1935 from the Loca Federa
Savngs and Loan ssocaton, whch s admtted to he ncome, ta abe as ordnary ncome or as capta
gan
cquescence pubshed n Cumuatve uetn 1939-2, page 6, wthdrawn.
G
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21
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Ctzens State ank ( sworth, ans.)
Cark et a., W. ., e ecutors of estate of Chares C.
Ingas
Cary, P. T. (Patrck)
Cohen, Moses
Coby, nne
Coe, Rufus S ---
Cons, ames N., estate of
Coona Trust Co. et a., e ecutors
Coumba O fe Gas Co.1
Coumba Rver Paper Ms
Commerca Casuaty Insurance Co.
Commodore, Inc., The
Cook Drng Co.
Corporate Investment Co
Corpus Chrst Termna Co
Covngton et u ., George W
Credt ance Corporaton
Crchton, ate
Crown Zeerbach Corporaton, transferee.
Cushman, Louse C, transferee of estate of Mary
W. Cushman
Cushman, Mary W., estate of
D.
Daas Tte Guaranty Co.5...
Dauth et u ., ohn P
Davs et a., George P., e ecutors of estate of George
S. Fske
Davs et a., George P., e ecutors of estate of George
S. Fske.
Day, Gertrude uckne, estate of
Deerng, Frank C, estate of
Deerng et a., oseph Godfrey, e ecutors of the
estate of Frank C. Deerng
Deaware Termna Corporaton
DeLong, Davd . ...
Denhofn Mc ay Co
Denver Natona ank et a., trustees u/w F
onfs 7.
G.
106122
101717
96 96
9816
10 367
96589
106566
936 8
9062
977 0
97938
103639
102997
,103633
82231
78363
88103
98283
100561
97025
101161
101163
101166
101168
01170
92881
92882
92883
90 66
96882
. 96883
10368
10 0
1006
1006 5
95996
95996
86105
10126
89606
931 8
6
5
2

5
2
6
1
1
3
.3
5
6
38
0
38
2
2
2
3
0
0
0
2
5
5

0
0
0
3
39
0
1 Nonacquescence reates to ssue pertanng to aocat on of cost of equpment on the property n queston.
onacquescence reates ony to the ssue nvovng the retroactve appcaton of secton 270 of Chapter
of the Natona ankruptcy ct, effectve September 22, 1938, n estabshng the bass of property ac-
qured In 1936 n a reorganzaton under secton 77(b) of that ct.
1 Nonacquescence reates ony to the ssue whether the pettoner s entted to deduct the costs ncurred
n drng wes. Pror acquescences pubshed n Cumuatve uetn 1939-2, page 8, wthdrawn as to
ths ssue ony.
state ta decson.
Nonacquescence reates ony to the ssue nvovng the ta abty of an amount of 0,000 transferred
from Premum reserve account to Undvded profts account pursuant to resouton of the board
of drectors on uy 5. 193 .
Nonacquescence reates ony to the ssue nvovng the amount of gan recognzabe n 1936 upon the
recept of cash and stock n the Sundstrand Machne Too Co. for stock n the mercan roach Machne
Co.
Prevous acquescence pubshed n Interna Revenue uetn 19 0-15. page 1, wthdrawn.
G
e
n
e
r
a
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d

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2
0
1
3
-
0
1
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2
1

2
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:
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3
2
9
6
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P
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/
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s
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_
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#
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22
Nonacquf.scences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Dobson, ohn
Donahue, Mrs. esse W.1.
Dougas, esse P
Downng et u ., Rchard 2
Dunnng, enry .
Durkhemer, S. F
:.
dson ros. Stores, Inc.
dwards Drng Co. ..
as, dna .
mhrst, Dorothy Whtney.
ston Co., Ltd
verson Corporaton
y Trust, Donad
y Trust, Roand Tavor
:y, III, Trust, Wam Newbod
qutabe Lfe ssurance Socety of the Unted
States, The f
rb et a., rthur L., e ecutors of estate of Ges W.
Mead
states dmnstraton, Inc., admnstrator of
estate of Zachary Smth Reynods 7
vans, Mary Royd
vans, Mary .
oon Co., The
F. . . O Co..
Facon Co
Farmers Gnners Cotton O Co .
Fdety-Phadepha Trust Co. et a., trustees and
transferees of estate of Gertrude uckne Day 7_.
Fed, Ozro Mer, estate of 10
Frst Mortgage onds 11
Frst Natona ank fe Trust Co., of Mnneapos,
e ecutor of estate of ames N. Cons
106553
92980
102870
99171
92629
95209
/10 2
10 25
75931
90827
850 0
85880
95298
9660
93281
103 72
103 70
103 73
8929
, 93805
97566
86395
97 32
95527
101276
92960
92001
93 36
1006
/10500
1105005
90 52
90 86
90 87
106566
;

0
3
11
1
5
35
1
1
2
0

1


1
2
2
2
5
1
1
1

5
0
6
1 Nonacquescence reates ony to the ssue whether the Commssoner erred n ta ng the ncome of an
rrevocabe trust to the grantor, the pettoner.
Nonacquescence reates ony to the ssue whether Mrs. Irma Downng s abe for any part of the de-
fcency.
Nonacquescence reates ony to the Issue whether the pettoner s entted to deduct the costs ncurred
n drng o wes. Pror acquescence pubshed n Cumuatve uetn 1939-1 (Part 1), page 11, wth-
drawn as to ths Issue ony.
Nonacquescence reates ony to the ssue. Was the ncome resutng from the recept of surrendered
coatera n e tngushment of a debt persona hodng company ncome
1 Nonacquescence reates ony to the ssue. May the company, on a cash recepts and dsbursements bass,
deduct guaranteed nterest pad n the ta year under settement optons e ercsed by the benefcary, when
such Interest had accrued In pror years
Oft ta decson.
state ta decson.
Nonacquescence reates ony to the deductbty of attorney s fees and abstract fees ncurred ncdenta
to the estabshment of forfeture of a ease and obtanng repossesson of the eased premses.
Nonacquescence s ony wth respect to the transactons covered by paragraph 2(d) of the stpuaton.
Docket No. 105005, estate ta decson.
Nonacquescence reates to Issue pertanng to bases for deprecaton of pettoner s assets.
G
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23
NoN C st knces Contnued.
Ta payer.
Frst Trust Depost Co. et a ., guardans
Fske, George S., estate of
Fske, George S., estate of_.
Fske, W. M. L., estate of..
Femng, Mrs. nna Maud
Femng- mbe Corporaton
Femng, Wam 1
Forest Lawn Memora Park ssocaton
Fower et u ., ohn 0_
Frank Trust of 1927, Isaac
Frank, Wm. ., trustee of Isaac W. Frank Trust of
1927
Frazer, Frederc - -
Frost Co., G. C, a corporaton -- --.
Fud, Forentne M
Fud, Leonhard Fe ---
Gadan Co., Ltd
Gardner, . Ws _
Getz et u ., Oscar
Gannn et u ., . P
Gan, G. arod .
Gan, Lee . 7
Gan, Samue W. 7
Gmore. nna
Goss Gos , Lucy M.s
Godnamer et u ., Marcus S_
Goodman, dwn
Green, W. S.
907 9
90750
90751
10368
10 0
102055
92958
9 690
92959
92957
; 9 689
102989
91162
9827
9827
91 12
100
98206
98205
9( 05
92115
9511
87127
87128
1011 9
10 150
10 151
97835
90391 ,
f 97158
97160
87799
3786
6373
63 87
93 0
96315
97522
98077
105092
9 2
9 3
102689
102090
oard of Ta ppeas.
oume.
f102689
102090 f
II
T)
15

1
II
1
5
III


1

II

2
11
I
2
5
5
5

1
6
1
26
1
2
5

1
5
Greene, . Crawford, guardan of estate of ce
Lester 5
Greve, Wam M
Grffn, Wam
Grnne, Francs rowne 1
Grote et u ., en
Guaranty Trust Co. of New York, e ecutor of
estate of enry W. Putnam
state ta decson.
Nonacquescence s ony wth respect to the hodng that the pettoners woud reaze no ta abe Income
from the e change of ther o, equpment, and persona property nterest for contngent o payments unt
they recovered the cost of the e changed property from the o payments receved.
Nonacquescence reates ony to the Issue, Dd the e cess of far market vaue of the od budng at the
tme of e ecuton of the ease, and the far market vaue of the new budng at the tme of the canceaton
of the ease, consttute a proper offset to the cash receved Pror acquescence pubshed n Interna Reve-
nue uetn 19 1-33, page 1, wthdrawn.
Nonacquescence reates ony to the ssue, In the case of a gft of securtes n trust, shoud the trust be
treated as the donee, resutng n ony one e cuson, or shoud the benefcares be treated as donees, resutng
n one e cuson for each benefcary
1 Gft ta decson.
Un|ust enrchment ta decson.
T Nonacquescence reates ony to the ssue nvovng the treatment of wrapper e pense.
1 Pror acquescence pubshed n Cumuatve uetn II-1, page 6 (1933), revoked.
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2
Nonacquescencks Contnued.
Ta payer.
n.
ague, Mary Lews.
aes, George .1
aes, Mrs. Oneta1 -
aes, r., W.T. _
aes, W. T., estate of
awe, Water S
asev, Lan ohnson, e ecutr of estate of
Rchard emmons asey 1 ..
asey, Rchard emmons, estate of1
ardwck Trust, nta Mar|ory
ardwck Trust, Chares
ardwck, r., Trust, Gordon
ardwck Trust, Tavor
artford-Connectcut Trust Co., The. e ecutor of
estate of Mary W. Cushman 2
artman Tobacco Co., The
asketc Manufacturng Corporat on
eer, dward .
ercues Motor Corporaton
ckman, O. enneth
ghand, Cec ., e ecutor of estate of rg L.
ghand
ghand Farms Corporaton
ghand, rg L., estate of
Stores, Inc., . G
oboken Land Improvement Co...
offman, atherneM -
offman, W. W
offman et u ., W. W
oster, ohn _. -
ooper, ames P., estate of2S
ooper, Mathde ., admnstratr of estate of
ames P. ooper 25
opknson, esse
orner, ua C, e ecutr of estate of Wam
Macpherson orner 2
orner, Wam Macpherson, estate of
ughes Too Co
Ickehemer, Paune.
Ingas, Lews, transferee,
Ingas, Robert
T.
.
arvs, r., mus, guardan of Wam D. P.
arvs : ..
arvs, Wam D. P., an nfant
oard of Ta ppeas.
Docket
No.
oume.
Pag .
103355
93210
93209
93211
93208
5
0
0
0
0

10
12 5
12 5
12 5
12 5
102 70
7 0
96 0
96 0
103 69
103 7
103 71
103 68
2
2




607
607
370
370
370
370
92882
10 919
100271
/ 9 79
9 795
92225
103767
0
5

9 7
311
636

1020
0

998
12 2
98726
95690
98726
10520
102779
967 1
967 2
92 1
9 998
85776
3
2
3

6
598
131
598
1182
0
95
59

1
851
11
85776
9701
1
2
11
580
102931
102931
90002


0
1136
1136
962
103 25
101718
101719
5
5
5
78
787
787
99227
99227
3
3
36
39
Nonacquescence s ony as to the ssue, Is the cash receved by pettoners n 1935 from the Loca Federa
Savngs and Loan ssocaton, whch s admtted to be ncome, ta abe as ordnary ncome or as capta gan
1 state ta decson.
1 Nonacquescence reates to the ssue whether pettoner was ta abe on the ncome derved from certan
securtes paced In certan acency uccounts wth a bank n pettoner s name as trustee for hs mnor chdren
Nonacquescence reates to a ssues e cept the ssue. Dd the pettoner reaze ta abe gan as the resu
of recevng an award for compensatory damages
1 Nonacquescence reates ony to the Issue, Was the sum of 132,3 5.73, representng the net proceeds o
certan fe nsurance poces assgned by the decedent to a certan trust, propery ncudbe n the gross
estate; and, f so, may the sum of 0,000 be e cuded under the provsons of secton 302(g) of the Revenue
ct of I926T
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25
Nonacqutkhcknces Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
ewe Mnng Co 99266
ohnson Countv Reatv Co | 9631
ohnson, are F . 97388
f 86776
ohnson et a., Thomas M., trustees I 87378
I 88616
ohnston, atherne S. estate of1 , 8639
onas, Louse ; 91010
affe et a., arod, soe hers of estate of Leopod
affe
affe, Leopod, estate of1
ansas Cty, St. Lous Chcago R. . Co
atz et u ., Meyer
atznger Co., The dward
aufmann et u ., dmund I
aufmann, Sau
eogg, Cornea . W., e ecutr of estate of
Frederck R. eogg 1
eogg, F. W
eogg, Frederck R., estate of 1
enan et a., Wam R., r., trustees u/w Mary
Ly (Fager) ngham
ennedy Laundry Co
ennedy Mnng Mng Co
esebach et u ., enrv
an Co., . L.
rabe, ay
mbe, Mrs. ema
eberg, ce G. .
eberg, ce G. ., e ecutr of estate of Robert
. eberg, Sr.
eberg, Sr., Robert ., estate of - -
yce, . S., estate of
vce, M. P., admnstrator
napp. George O-
resge Department Stores, Inc
Lamm Lumber Co. ..
Lamont, zabeth .
Lane-Wes Co
L.
100526
100526
9 886
/10 007
(105511
102 21
/ 97157
97162
97161
891 3
95135
891 3
9 985
10 965
99507
98897
98691
f 92956
I 9 67
/ 92955
I 9 673
86178
86178
86179
9017
9017
91699
101906
10277
97 07
99829
1027 0-1
1
3

3
1
2
0


2
6

6
6
0
2
0
0
6
3


1
1
3
3
8
1
1
0

5
3
5
5

Lang et a., Francos 1027; 8 /
Larson, . ., estate of 8881 I
state ta decson.
1 Nonaequescence reates ony to the Issue, Dd the pettoner reaze ta abe neome upon the canceaton
of a porton of ts mortgage ndebtedness on certan property
1 Nonaequescence s ony wth respect to the hodng that the pettoners woud reaze no ta abe ncome
from the e change of ther o, equpment, and persona property nterest for contngent o payments unt
t y recovered tre cost of the e changed property from the o payments receved.
1 Nonaequescence reates ony to the ssue nvovng a bad-debt deducton of 201.ft).
1 Nonaequescence reates ony to the ssue whether 20,000 receved as damages fur bn ach of contract was
wruabe as ncome In 1935 or n 1936.
7 918 2 2
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26
Nonacquescences Contnued.
Ta payer.
Larson, Rose .1
Lester, ce ., an ncompetent, estate of 2
Lev, eanette
Lpe, Gordon C
Lpe, Suzanne
Lpe, r., Ward C
Ltte Gem Coa Co
M.
Magnus eck rewng Co., Inc
Ma|estc O Corporaton
Marborough ouse, Inc., et a.
Marborough Investment Co.
Marsha, erbert
Marsha, Margaret Whte (formery Margaret
Whte Wood)
Mason et a., Sam ., coadmnstrators of estate of
Sas . Mason
Mason, Sas ., estate of8
Masterson, nna za
McCandess, ohn ., estate of -.-
McCarthy, mmett .8
McCormack, Wam . ._
McGue, G. Percy, estate of
McGue, M. dth, e ecutr of estate of G. Percy
McGue
McGovern, Inc., Patrck
McGowan, Wam ohn, estate of, aso trust
e ecuted by 5 7-_
Mcntyre, Wnfred Wheeer
McLean et u ., Marrs s --
102876
96380
90 52
90 86
90 87
90 52
90 86
90 87
99559
969 8
1009
1009
93517
979 3
101607
9605
98 6
98 6
918 6
100967
103221
91170
L 91171
77 19
77 20
81391
81392
8680
86805
9 02
9 03
1 Nontequescence reates to a Issues e cept the ssue Invovng the deductbty of nterest n the amount
of 1,901.96.
Oft ta decson.
1 Nonacqufescence reates ony to the ssue. Is the pettoner entted to a 1935 oss deducton for the unde-
precated cost of certan casng and other ease equpment whch coud not be removed from a certan o
we whch the pettoner ceased to operate durng that year, because such operaton had become unproft-
abe
Nonacquescence reates to ssue pertanng to bases for deprecaton of pettoner s assets.
1 state ta decson.
Nonacqufescence reates ony to the deductbty of 17,8f 0 under secton 23(c) of the Revenue ct of
1936 for aeged oss of the pettoner s nterest n certan rea property.
1 Nonacqueseence reates ony to the ssue. Dd the Commssoner err In Incudng n gross estate the tota
agreed vaue of the tw parces of rea property Invoved
Pror acquescence pubshed n Cumuatve uetn 19 0-2, page 6, revoked n so far as t reates to the
ssue, Whether or not the pettoners are entted to deductons for percentage depeton based upon sums
receved by them pursuant to certan agreements wth the Guf Producton Co., and, f they are entted tu
depeton, shoud It be computed as a percentage of the gross proceeds from the sae of producton from the
propertes or as a percentage of the actua amount receved by the pettoners from the propertes
McLean et u ., Marrs 8_
Docket
No.
88813
93 0
t 96315
97159
90750
90751
907 9
101112
oard of Ta ppeas.
oume.

1
6
1

6
2
0
0
1
3
3
3
2
2

3
1
1
0
3
. .
1
1
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1
3
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0
1
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2
1

2
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:
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27
Nonacquescencks Contnued.
Ta| payer.
Docket
No.
oard of Ta ppeas.
oume.
Mead, Ges W., estate of 1
Merchants Natona ank of oston, The, e ecu-
tor of estate of Ozro Mer Fed
Merchants Natona ank of Mobe, The, trustee
for Merchants Natona udng Corporaton
Merchants Natona udng Corporaton, for-
mery Merchants Securtes Corporaton
Merdan Thrteenth eatv Co
Mesta, L. W - --
Mche, Morrs
Mchgan Sca Co
Mbank, Dunevy .
Mtche et u ., Chares F
Mtche, Wam ...
Mone Propertes, Inc -
Mooney ectrc Co.
Morehead, atharne oyd..
Morre, ohn dgcry, estate of
Mueer Co., C. F
Mutua Savngs Loan ssocaton, Inc., of Nor-
fok --.
N.
Natona ank of Commerce of Seatte
Natona ank of Topeka, ans., admnstrator of
estate of ohn dgery Morre.-
Natona Paper Products Co., transferor.
Nebraska rdge Suppy Lumber Co
Neson Co., N. 0
Neustadt et a., gnes, trustees u/w Sgmund
Neustadt
Neustadt, Sgmund, Trust under w of
New McDermott, Inc., The.. -
Newport Industres, Inc
Newton, r., ames
Newton Trust, ames --
Ncoa, arry T.
O.
Ortz, ce duPont .
Oswego Fas Corporaton s,
Pacfc Fush-Tank Co
Pacfc Grape Products Co.
Page O Co
97566
/10500
105005 f
99181 1
102155
/ 99181
102155
101968
96531
97311
96786
93050
102736
85612
103862
96072
95 1
103776
8596
. 96331
101321
89720
103776
101165
908 6
10 228
99935
99935
99360
92331
97325
9732
93821
. 98188
93159
10216
103787
97116
90515
9567
96186
1
5
15
5
1
2
3
II
1
5
5
5
2
2
3
0
I
0
3
3
III
5
13
3

1(1
12
12
12
2
6
. .
2
1
1 Gft ta decson.
1 Docket No. 105005, estate ta decson.
Nonacquescence s ony wth respect to the ta ahty of the Income from the so-caed short term trusts.
1 Nonacquescence reates ony to the ssue, Is the pettoner entted to a credt under secton 28(c)2
of the Revenue ct of 1938 In the amount of 13,810, representng 2 per cent of the argest amount of bonds
st any one tme outstandng durng 1936
1 cquescence as to one ssue pubshed n Cumuatve uetn 1939-2, page 28, wthdrawn.
Nonacquescence reates ony to the ssue, Is the Income of a trust pad to the pettoner s dvorced and
remarred wfe ta abe to hm, as the grantor
Nonacquescence reates to a ssues e cept the ssue, whether the pettoner s entted to any deducton
ss the resut of the satsfacton of the defct e stng n her husband s brokerage accounts at the end of the
year 193 .
Nonacquescence reates ony to the ssue nvovng the credt aowabe under secton 28(c) of the
Revenue ct of 1936.
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28
Nonacquescentes Contnued.
Ta payer.
Pamer, Careton
Paraport Theatre Leasng Corporaton
Parker, Shrey D., admnstrator of estate of . .
Larson
Paumgarten, se dde 1
Perkns, Raph 2
P- Group
Phoen State ank Trust Co., trustee under
deed of trust from Mary W. Cushman, as trustee
and transferee 3
Pedras Negras roadcastng Co
Permont Corporaton
Prce et u ., .
Prouty, Ove .1 -
Prudenta Fnanca Corporaton of uncy
Putnam, enry W., estate of
R.
Reaty Operators, Inc
Rebsamen Motors, Inc
Reynods, Inc., R. C.
Reynods, R. ., estate of
Reynods, Zachary Smth, estate of3
Rhodes, Mame D., estate of
Rhodes et a., ugh D., admnstrators of estate of
Mame D. Rhodes 3
Rchardson, Lunsford 1
Robnette, Meta dde 1
Ronrco Corporaton
Rosenhem, Carone
Ross, Frank W
Rowan Drng Co., transferee 5
Rubnsten, Wton 1
Rust, r., et a., . L., e ecutors of estate of . L.
Rust
Rust, . L., estate of
Safe Depost Trust Co. of atmore, trustee under
ws of R. . Reynods and atherne S. ohns-
ton, and deed of atherne S. ohnston
Sagnaw Manstee Lumber Co _.
Sanford Cotton Ms, Inc.
Santary Products Corporaton, The, transferor
Schmdapp, Car .1
Schwabacher, bert
Schwabacher, ames
Schwabacher, May
Schwabacher, Sophe D
oard of Ta ppeas.
Docket
No.
oume.
Pace.
8985
102062
0

1001
108
88S1
103010
96126
98835


1
3
109
701
1225
10 1
92883
970 5
100371
101260
9616
10563
/1026S9
102690
0
3
3

1
6
9 7
297
770
8
27
796
5
517
92387
99532
/ 9801
98017
8639
86395
9128
0

1051
36

356
2
2
1
1 5
1 5
62
9128
85905
103009
103859
10 97
91107
98532
95922
1
39


5


1
62
927
701
1130
1018
1
189
220
95880
95880
1
1
832
832
8639
103302
2
1 5
780
190
5 1
829
1177
1177
1177
1177
95218
101169
5
3
3
3
3
3
3
3
98895
100865
101269
10086
101268
Gft ta decson.
Nonacquesoence reates ony to the ssue, Dd the pettoner sustan a oss n the anont of 13,963.50
on the sae of second preferred and common stock of the I Cutch Machne fc Foundry Co.
state ta decson.
Nonacquesoence reates ony to the sse whether R. C. Reynods, Inc., reazed ta abe gan upon the
purchase of shares of Its own stock and contracts reated thereto n 1936.
Nonacquesoence reates ony to the ssue, Is the pettoner s transferor entted to depeton upon amounts
receved n 1932 from o payments acqured n 1931 for drng wes, the entre cost of whch was deducted
and aowed n ts 1931 ncome ta return
See O. C. M. 22 0 (pace 20 , Cumuatve uetn 19 0-2).
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39
NoN C sc NC Cunt n ted.
Ta payer.
Securty Four Ms Co., The
Seerev, ohn ---
Sheden Land Co. . --
Sherman, Dors ond -
Sherman, ohn ., estate of
Sherman, atherne M., survvng wfe of ohn ( .
Sherman - -
Sherman et a., atherne M., e ecutors of estate of
ohn . Sherman -
Skouras, Chares P
Skouras, Forence L_ _
Skouras, George P
Skouras, Spyros P
Smth, W. ncke
Sobe, Inc., N .-
Soomon, mea 1
Spor S Co., Inc., C.
Spreckes, doph
Sprngfed Industra udng Co., The__- ---
Stacy, Mar|ore Lpe --
Stanart Co., Ltd -
Stark, . . Luteher, e ecutor of estates of M. M.
Stark and W. . Stark
Stark, M. M., estate of -
Stark, W. ., estate of - ---
State-Panters ank Trust Co -- --
State Street Trust Co. et a., admnstrators of
estate of Francs rowne Grnne
Sten, Nathan -
Stem, son L. S. ---
Stmson M Co -
Straus, Fredrch
Straus, Meer --
Straus, Mortz- - -
Strong Manufacturng Co., The
Sun Ppe Lne Co
Sweet, Forence M -
Swope, Lorenzo W., estate of.
Docket
No.
90137
97673
93196
95300
1030 1
1030 1
1030 1
103610
103618
103009
103(111
( 93663
110288
93822
97937
903.
9 621
95639
87300
99 20
96606
1103807
103808
103807
103808
10525
10. 092
83178
9313
10 290
83181
83180
83179
95626
9876
101786
936 8
99262
.103 68-
f103 7
oard of Ta p cas.
oume.
5
3
L
1



5
5
5
5

0
3
0
1
38
3
2
5
5
5
5

0
0
6
0
11
2

1
3

Tayor et u ., arden F.
Tayor, Roand, trustee of nta Mar|ory ard-
wck Trust, Roand Tayor y Trust, Gordon .
ardwck, r., Trust, Donad y Trust, Wam
Newbod y, III, Trust, dares . ardwck
Trust, and Tayor ardwck Trust __.
1 Nonacquesoence reates ony to tht
oss on an aeged sae of certan and tc
Gft U decson.
1 Nonacquesoence reates ony to the year 1936.
Nonacquesoence reates ony to the Issue, re the profts derved by the ta payers durng Ihe ta abe
year from the sae of tmber sub|ect to ta as capta gans or as ordnary Income
state ta decson.
Nonacquesoence reates ony to the ssue, Where termnaton of a trust coud occur ony at the eecton
u the grantor wth concurrence of attorneys who represented two persons nterested n the trust, s the
nterest of the attorneys a substanta adverse nterest
Nonacquesoence reates ony to the ssue nvovng the e change In 1936 of M ) shares of Pressed Stee
Car Co. (S. .) tor stock and rghts In Pressed Stee Car Co. r a.
Issue whether |M ttoner s entted to a deducton for an asserted
another corporaton.
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30
Nonacqukscences Cont Inued.
Ta payer.
Techncraft ngneerng Corporaton
Thomas, Martn D
Thompson, Mary ., e ecutr of estate of Wam
G. Thompson 1
Thompson, Wam G., estate of 1
Totson, Frank F., estate of 1 5 - --
Totson et a., Isabee I., e ecutors of estate of
Frank F. Totson 12
Tsdae, Forence L., estate of
Ttus O Investment Co
Tobn Packng Co., Inc., The
Towne, Wam Stark
Traser, Rchard ., estate of 5
Transcafoma O Co., Ltd.
Trco Securtes Corporaton
The,
U.
Unon Trust Co. of the Dstrct of Coumba,
e ecutor of estate of Caroyn G. Caughey 1
U. S. Industra coho Co. (W. a.) 5
W.
Waker, Wam T.
Warner, ack L.
Washngton Pup Paper Corporaton, transferor-
Watson, rchbad R
Webster, . esser
Webster Trust, Fanne S
Webster Trust No. 1, Warren
Webster, r., et a., Warren, e ecutors of estate of
Warren Webster, Sr
Webster, r., et a., Warren, trustees of Fanne S.
Webster Trust
Webster, r., et a., Warren, trustees of Warren
Webster Trust No. 1
Webster, r., et nc., Warren
Webster, Sr., Warren, estate of
Wengarten, Inc., .
Wenstock, Ma .
Docket
No.
99830
10087
96358
96358
100563
100563
978 2
f 91993
9 877
99 83
99197
91958
73111
85176
99655
90713
9071
92600
97 01
10116
87873
880 8
89650
978 0
978 1
97837
97839
978 1
97837
97838
97839
99707
97312
oard of Ta ppeas.
oume.
5

1
1



2
3
2
1
37
-11

2
0
2
3
2









3
1 state ta decson.
1 Nonacquescence reates ony to the Issue, whether the pettoner has overcome the presumpton that
certan gfts made by the decedent to the natura ob|ects of hs bounty wthn one year of death were made
(n contempaton of death.
Nonacquescence reates ony to that part of the oard s opnon whu-n hods, wthout supportng
evdence, that gans on the sae of corpus of the estate consttuted ncome avaabe for dstrbuton to the
benefcares.
Pror parta acquescence pubshed n Interna Revenue uetn 19 1-38. page 1, revoked.
1 Nonacquescence reates ony to the ssue, Is the ta payer entted to a deducton for rent pad for the
use of vesses of a subsdary whch t operated under a contract provdng that t shoud mantan the
vesses and make good deprecaton
Oft ta decson.
1 Nonacquescence reates to the ssue whether pettoner Is entted to a dvdends pad credt of 27,sn
representng premums In new preferred stock and cash on od preferred stock retred n connecton wth
a nonta abe reorganzaton In so far as the ssue was decded aganst the Commssoner.
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31
NoN C Unwc Ncss Contnued.
Ta payer.
Wenger, Mary .1
West Producton Co
Western d|ustment Inspecton Co
Western Wa ed Paper Co. of Caforna, transferor.
Wether, Samue Prce, e ecutor of the estate of
Gertrude uckne Day
Wheeer, een vans
Wheeer, Robert T
Whte, Ida ., estate of -
Whtng, arret Frances, estate of
Wco , se . ..- -
Wco , Gayord P.
Wco , Lucan T
Wco , Mabe I. .
Wson, Frances S
Wmore Steamshp Co
Wson, ohn P. -
Wood, Orrn G. --
oard of Ta ppeas.
Docket
No.
oume.
Page.
922 5
2
225
88997
1
10 3
100778
5
721
101167
3
5 1
1006 5

52
95528
2
2 6
103222
5
67
93575
1
525
92817

1306
96830
3
931
96831
3
931
80393

373
96827
3
931
99980

583
10 508
5
225
931 0
2
1260
92 89
0
90
1 Nonacquescence reates ony to the Issue, If the ncome of the trust s ta abe to the grantor, are the osses
sustaned by the trust deductbe by her Nonacquescence pubshed n Cumuatve uetn 19 0-2. page
1 . wthdrawn n so far as It reates to the ssue, Is the oss sustaned on capta assets beongng to the trust a
capta or ordnary oss
1 state ta decson.
1 Nonacquescence reates ony to the deductbty of attorney s fees and abstract fees ncurred ncdenta
to the estabshment of forfeture of a ease and obtanne repossesson of the eased premses.
Nonacquescence reates ony to the ssue. re the pettoners ta abe n 1935 as benefcares un-
der the w of mma Lyman Wco upon ncome earned n 1935 by the estate durng admnstraton
1 Nonacquescence reates to the ssues, Whether the ncome of a 2-year trust created for the beneft of
the ta payer s adut son s ta abe to the grantor under secton 166 of the Revenue ct of 193 , and whether
the capta gans of a fetme trust created for the beneft of an adut daughter are ta abe to the grantor
under secton 167 of the Revenue ct of 193
Gft ta decson.
Nonacquescence reates ony to the ssue, Is the vaue of fe nsurance poces to be determned by the
cost to purchase smar contracts as determned by the Commssoner, or s the vaue mted to the cash
furre der vaue as contended by pettoner
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INCOM T RULINGS. P RT I.
. INT RN L R NU COD .
C PT R L INCOM T .
SU C PT R . G N R L PRO ISIONS.
P RT II. COMPUT TION OF N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D FINITION.
Secton 19.22(a)-1: What ncuded n gross 19 2-8-10996
ncome. I. T. 3532
INT RN L R NU COD .
The amount receved by an empoyee as the resut of an award
by the Natona Labor Reatons oard on account of hs beng ds-
charged In voaton of the Natona Labor Reatons ct ( 9 Stat.,
9) consttutes ncome to the recpent. S. S. T. 359 (C. .
1939-1 (Part 1), 305), hodng that such an amount does not con-
sttute wages under Ttes III and I of the Soca Securty
ct, s not governng n determnng whether such an amount con-
sttutes Income.
dvce s requested whether the amount receved by n accord-
ance wth a decson of the Natona Labor Reatons oard repre-
sents ncome sub|ect to Federa ncome ta n vew of S. S. T. 359
(C. . 1939-1 (Part 1),305).
The M Company and the N Company were merged and thereafter
severa of ther empoyees were dscharged. The Natona Labor
Reatons oard nsttuted proceedngs aganst the two companes
aegng voaton of the Natona Labor Reatons ct ( 9 Stat.,
9) n dschargng and certan other empoyees for unon actvty.
The acton was brought by the Government wth the O ssocaton
as an ntervenng party. The Natona Labor Reatons oard
found the defendants guty of voatng the aw and ts decson
was uphed by the courts. It was ordered that and severa others
be renstated n ther postonS| and that they be compensated for any
oss sustaned by reason of havng been dscharged. The M Company
pad the amount of doars, whch represented the dfference
between the amount woud have receved had he remaned n the
company s empoyment and the amount he dd receve n wages or
earnngs from other sources durng the perod he was not empoyed
by the company.
Secton 22(a) of the Interna Revenue Code, as amended, defnes
the term gross ncome to ncude gans, profts, and ncome derved
from saares, wages, or compensaton for persona servce, of what-
(33)
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19.22(a)-2. .
3
ever knd and n whatever form pad, or from professons, vocatons,
trades, busnesses, commerce, or saes, or deangs n property,
whether rea or persona, growng out of the ownershp or use of or
nterest n such property; aso from nterest, rent, dvdends, secur-
tes, or the transacton of any busness carred on for gan or proft,
or gans or profts and ncome derved from any source whatever.
It s hed that the amount of doars receved by from the M
Company shoud be ncuded n gross ncome. (See II. Lebes Co.
v. Commssoner, 90 Fed. (2d), 932.) The fact that n S. S. T. 359.
supra, t was hed that such payments do not consttute wages
wthn the meanng of Ttes III and I of the Soca Securty
ct s mmatera to the queston here at ssue. There the term
wages s defned as a remuneraton for empoyment and the
term empoyment s defned as any servce, of whatever nature,
performed wthn the Unted States by an empoyee for hs em-
poyer. The term gross ncome n the Interna Revenue Code
s broad enough to ncude amounts whch may not be strcty
wages wthn the defnton of that term contaned n the Soca
Securty ct.
Secton 19.22(a)-2: Compensaton for persona 19 2-20-11101
servces. T. D. 5151
TITL 26 INT RN L R NU . C PT R I, SU C PT R . P RT 19
INCOM T .
mendng secton 19.22(a)-2 of Reguatons 103 reatve to
compensaton for persona servces.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 19.22(a)-2 of Reguatons 103 Part 19, Tte 26, Code
of Federa Reguatons, 1910 Sup. s amended by addng to the end
thereof a new paragraph readng as foows:
The vaue of servces need not be ncuded n gross ncome when rendered
drecty and gratutousy to an organzaton descrbed n secton 23(o). Where,
however, pursuant to an agreement or understandng servces are rendered to a
person for the beneft of an organzaton descrbed n secton 23(o) and an
amount for such servces s pad to such organzaton by the person to whom
the servces are rendered, the amount so pad consttutes Income to the person
performng the servces even though at the tme of the agreement or understand-
ng the person makng the payment acknowedges hs abty to make payment
to such organzaton. The second sentence of ths paragraph sha not appy
where such an agreement or understandng has been entered nto pror to May
1 , 19 2 (the date of the approva of Treasury Decson 5151).
(Ths Treasury decson s prescrbed pursuant to sectons 22 and
02 of the Interna Revenue Code (53 Stat, 9, 32. 26 U. S. C, 19 0 ed.,
22,62).)
Norman D. Canst,
ctng Commssoner of Interna Revenue.
pproved May 1 , 19 2.
ohn L. Suv an,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 15, 9 2, 3.33 p. m.)
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35
19.22(b)(3)- .
Secton 19.22(a)-7: Gross ncome of farmers.
INT RN L R NU COD .
Penates under grcutura d|ustment ct of 1938, as amended,
deducted and pad by purchaser of crop. (See I. T. 3530, page 3.)
S CTION 22(b). GROSS INCOM : CLUSIONS
FROM GROSS INCOM .
Secton 19.22(b) (2)-2: nnutes:
Redeposts to retrement fund by renstated cv servce empoyees.
(See I. T. 35 5, page 9.)
Treatment for Federa Income ta purposes of (1) an amount
receved under the provsons of the Cv Servce Retrement ct,
as amended by the ct of une 22, 193 ( 8 Stat., 1201), upon the
death of a cv servce empoyee of the Unted States who was not an
annutant at the tme of hs death, and (2) saary of the decedent
for the ta abe perod pror to hs death.
dvce s requested wth respect to the treatment for Federa
ncome ta purposes of (1) an amount receved under the prov-
sons of the Cv Servce Retrement ct, as amended by the ct
of une 22, 193 ( 8 Stat.. 1201), upon the death of a cv servce
empoyee of the Unted States who was not an annutant at the tme
of hs death, and (2) saary of the decedent for the ta abe perod
pror to hs death.
The Unted States Cv Servce Commsson states that at the tme
of the decedent s death on ugust , 19 1, he had standng to hs
credt n the Cv Servce Retrement and Dsabty Fund the sum
of 12a; doars, whch represented hs retrement contrbutons nto
the fund durng the course of hs empoyment, and that to ths amount
was added 5 doars, nterest computed thereon, makng a tota of
17a; doars due hs estate. Payment was made to the admnstratr
of the decedent s estate by check dated October , 19 1.
Secton 12(d) of the Cv Servce Retrement ct, as amended
by the ct of une 22,193 ( 8 Stat., 1201), reads as foows:
(d) In case an empoyee sha de wthout havng attaned egbty for
retrement or wthout havng estabshed a vad cam for annuty, the tota
amount of hs deductons wth nterest thereon sha be pad, upon the estabsh-
ment of a vad cam therefor, n the foowng order of precedence:
Frst, to the benefcary or benefcares desgnated n wrtng by such empoyee
and recorded on hs ndvdua account;
Second, f there be no such benefcary, to the duy apponted e ecutor or
admnstrator of the estate of such empoyee;
INT RN L R NU COD .
Secton 19.22(b) (3)-: Gfts and bequests.
( so Secton 2, Secton 19. 2-1.)
19 2-2 -11122
I. T. 3557
INT RN L R NU COD .
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I 19.22(b)(3)- .
36
Thrd, If there be no such benefcary, or e ecutor or admnstrator, payment
may be made, after the e praton of 30 days from the date of the death of the
empoyee, to such person or persons as may appear n the |udgment of the Cv
Servce Commsson to be egay entted thereto, and such payment sha be a
bar to recovery by any other person.
Secton 12(f) of the Cv Servce Retrement ct, as amended,
reads as foows:
ach empoyee or annutant to whom ths ct appes may, under reguatons
prescrbed by the Cv Servce Commsson, desgnate a benefcary or bene-
fcares to whom sha be pad, upon the death of the empoyee or annutant
any sum remanng to hs credt (Incudng any accrued annuty) under the
provsons of ths ct.
Secton 22(b)3 of the Interna Revenue Code provdes for the
e cuson from gross ncome and the e empton from ta aton of:
(3) Gfts, bequests, and devses. The vaue of property acqured by gft,
bequest, devse, or nhertance .
Where, under the provsons of the Cv Servce Retrement ct,
as amended, a benefcary, dstrbutee, or ne t of kn receves any part
of the amount standng to the credt of a deceased empoyee, such sum
s e empt from Federa ncome ta under the provsons of secton
22(b)3 of the Interna Revenue Code, supra. (See I. T. 2959, C. .
-1, 88 (193G).) The aggregate of the deductons from the de-
cedent s saary n the sum of 12 doars s, therefore, not sub|ect to
Federa ncome ta n the hands of any such recpent. It s aso not
ta abe as ncome to the decedent s estate snce t passes to the estate
as corpus, havng been ta ed (or requred to be ta ed) to the empoyee.
(See T. D. 3112, C. . ,76 (1921).)
Secton 2(a) of the Interna Revenue Code, as amended, reatng
to the perod n whch tems of gross ncome are ncuded, provdes
n part as foows:
(a) Genera Rue. The amount of a tems of gross ncome sha be Incuded
In the gross ncome for the ta abe year In whch receved by the ta -
payer . In the case of the death of a ta payer there sha be In-
cuded In computng net ncome for the ta abe perod In whch fas the date
of hs death, amounts accrued up to the date of hs death f not otherwse
propery ncudbe n respect of such perod or a pror perod.
In the nstant case, the nterest n the amount of doars had not
been paced to the credt of the empoyee pror to hs death, and even
though t accumuated over the perod n whch the deductons were
made, t was not propery ncudbe n respect of any ta abe perod
pror to 19 1. It s hed, therefore, that the nterest s ta abe ncome
to be ncuded n computng the net ncome of the decedent for the
ta abe perod ended wth the date of hs death. (Cf. O. D. 823, C. .
, 77 (1921).) It foows that to a benefcary, dstrbutee, or ne t of
kn the amount of such nterest s e empt under the provsons of
secton 22 (b) 3 of the Interna Revenue Code, supra.
The saary of the decedent, ncudng the deductons therefrom, for
the ta abe perod pror to hs death s, ke the nterest, ta abe ncome
ncudbe n the return requred to be fed for the decedent for the
ta abe perod ended wth the date of hs death, . e., anuary 1,19 1,
to ugust , 19 1.
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37
19.22(b) ( )- .
Secton 19.22(b) ( )- : Interest upon Unted
States obgatons.
19 2-1-109 5
Mm. 5299
Ta abe and e empt status under Federa ncome ta aws of n-
terest on Unted States savngs bonds ssued (1) pror to March 1,
19 1, and (2) on and after March 1, 19 1.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Ya) h ngton, D. C, December 17,19 f.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
1. The ssuance of Unted States savngs bonds s authorzed by
the Second Lberty ond et as amended. For the purpose of deter-
mnng ta es and ta e empton, the aw provdes that the ncrement
n vaue represented by the dfference between the prce pad for
Unted States savngs bonds and the redempton vaue receved there-
for (whether at or before maturty) sha be consdered as nterest.
UNIT D ST T S S INGS ONDS ISSU D PRIOR TO M RC 1, 19 1.
2. Under e stng aw nterest on Unted States savngs bonds
ssued pror to March 1,19 1, s e empt from ncome or profts ta es
now or nereafter mposed by the Unted States e cept surta es, e cess-
profts and war-profts ta es, and s e empt from such e cepted ta es
to the e tent of nterest on a prncpa amount of bonds not n e cess
of 5,000 (ncudng other bonds owned by the ta payer whch were
ssued under the authorty of the Second Lberty ond ct, as
amended). There s no war-profts ta now mposed by the Unted
States to whch such nterest s sub|ect. The decared vaue e cess-
profts ta and the e cess-profts ta now mposed by the Unted States
and to whch such nterest s sub|ect are appcabe ony to
corporatons.
3. Ta payers may seect each year the bonds ssued pror to March 1,
19 1, comprsng the prncpa amount of 5,000, the nterest from
whch they desre to treat as ta -e empt ncome for the year under
consderaton. The bonds seected may therefore consst of Unted
States savngs bonds and Tvasury bonds ssued pror to March 1,
19 1, a of whch bonds were ssued under the authorty of the Second
Lberty ond ct. as amended.
. In determnng whether the sad prncpa amount of such bonds
ssued pror to March 1, 19 1, owned by a ta payer s wthn or n
e cess of 5,000. the ssue or purchase prce ony s consdered as
prncpa of Unted States savngs bonds and not the maturty vaue.
UNIT D 8T T S S INGS ONDS ISSU D ON ND FT R M RC 1, 19 1.
5. Under the provsons of the Pubc Debt ct of 19 1 nterest
on Unted States savngs bonds ssued on and after March 1, 19 1,
ncrement n vaue as nterest.
seecton of bonds.
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I 19.22(b)( )- .
3S
s not e empt from ncome or profts ta es now or hereafter mposed
by the Unted States. The e empton descrbed n paragraph 2 of
ths mmeograph does not appy to the nterest (ncrement n vaue)
on Unted States savngs bonds ssued on and after March 1, 19 1.
M T OD OF R PORTING INT R ST.
6. very person ownng Unted States savngs bonds s requred
by aw to submt n hs Federa ncome ta return a statement show-
ng the amount of such obgatons owned by hm and the ncome
receved therefrom n such form and wth such nformaton as the
Commssoner may requre.
7. (a) Ta payers who reguary empoy the cash recepts and ds-
bursements method of accountng shoud return the nterest (ncre-
ment n vaue) on Unted States savngs bonds as ncome (ta abe
or e empt), for Federa ncome or profts ta purposes, for the ta
year n whch payment of the redempton vaue of the bonds s
receved (whether before or at maturty); provded, however, that
n the case of the death of a ta payer the nterest (ncrement n
vaue) earned up to the date of hs death sha be returned as ncome
for the ta abe perod n whch fas the date of hs death.
(b) For a ta abe year begnnng after December 31, 19 0, a ta -
payer who makes hs ncome ta returns on the cash recepts and ds-
bursements bass may eect n hs return to treat the nterest (ncre-
ment n vaue) on nonnterest-bearng obgatons ssued at a dscount
as ncome receved n such ta abe year. ta payer makng such
an eecton s requred to report n hs return for the year of the
eecton the nterest (ncrement n vaue actuay fang wthn the
year) and the tota of the ncreases n redempton vaue occurrng
between the date of hs acquston of the bonds and the begnnng
of such year. If any such eecton s made wth respect to any such
obgaton, t sha appy aso to a such obgatons owned by the
ta payer at the begnnng of the frst ta abe year to whch t appes
and to a such obgatons thereafter acqured by hm and sha be
bndng for a subsequent ta abe years, uness upon appcaton by
the ta payer the Commssoner permts hm, sub|ect to such cond-
tons as the Commssoner deems necessary, to change to a dfferent
method.
ampe: ohn Doe makes hs ncome ta return on the caendar
vear bass and computes hs net ncome on the cash recepts and ds-
bursements bass. e purchased the foowng bonds nonnterest-
bearng obgatons ssued at a dscount:
I. Unted States savngs bonds havng a maturty vaue of 10,000.
bearng ssue date of une 1, 1938, for 7,500.
II. Unted States defense savngs bonds. Seres , havng a
maturty vaue of 5,000, bearng ssue date of une 1. 19 1, for 3,750.
III. Unted States savngs bonds. Defense Seres F, havng a
maturty vaue of 10,000, bearng ssue date of December 1, 19 1,
for 7, 00.
In hs return for 19 1 ohn Doe eects to treat the ncreases n the
redempton prces as ncome. The amount of nterest (ncrement n
vaue) he woud report for 19 1 (and for 19 2 and 19 3 f there s
no change n hs hodngs) s as foows:
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39
19.22(b) ( )- .
19 1
19 2
19 3
onds owned by ta payer a nonntcr-
e t-bearng obgatons ssued at ds-
count.
Sub|ect to-
Sub|ect to-
Sub|ect to-
Norma
ta .
Surta .
Norma
ta .
Surta .
Norma
ta .
Surta .
f 10.000 Unted States savngs bonds (ssue
date une 1,1938) for 7,500
None
None
None
200.00
None
None
None
50.00
20.00
66.67
50.00
20.00
None
50.00
70.00
66.67
50.00
70.00
5,000 Unted States defense savngs
bond . Seres (Issue date une 1,19 1)
for 3,750
10,000 Unted Stntes savngs bonds. De-
fense Seres F (ssue date December 1,
19 1), for 7, 00
Tota
None
200.00
70.00
136. 67
120.00
ISO. 67
1 Interest (ncrement n vaue) on prncpa amount of 5,000s totay e empt for reason stated n paragraph
2; therefore, nterest fncrease n vaue as shown by redempton tabe appearng on face of bond) sub|ect
to surta ony s wth respect to prncpa amount (purchase prce) n e cess of 5,000. Purchase prce of
7,500 ess 5,000 equas 2,500 n purchase prce of bonds havng a maturty vaue of 3,333.33. It w be
noted that on the bass of the redempton tabe appearng n the bond there woud be an ncrement n
vaue of 200 as of December 31,19 1.
The e empton descrbed n paragraph 2 of ths mmeograph does not appy to the nterest (ncrement n
vaue) on Unted States savngs bonds ssued on and after M rch 1,19 1.
8. Ta payers who reguary empoy the accrua method of account-
ng shoud return the nterest (ncrement n vaue) on Unted States
savngs bonds as ncome (ta abe or e empt), for Federa ncome or
profts ta purposes, for each ta year when and to the e tent that
t s earned durng the year accordng to the terms of the bonds and
n the amount ndcated n the tabe of redempton vaues shown
thereon.
9. Mmeograph 518 (C. . 19 1-1, 197) s revoked. Inqures
regardng ths mmeograph shoud refer to the number thereof and
the symbos IT: TM.
Guy T. everng,
Commssoner.
Secton 19.22(b) ( M: Interest upon Unted 13 2-11-11023
States obgatons. I. T. 3538
INT RN L R NU COD .
Interest whch accrued on Treasury notes of Ta Seres -19 3,
-19 3, -19 , and -19 , after purchase consttutes ta abe n-
come, for Federa ncome ta purposes, ony when constructvey
receved by the purchaser or hs estate through acceptance of the
notes and accrued nterest thereon by a coector of nterna revenue
n payment of Federa ncome, estate, or gft ta es. Ths rue s
equay appcabe whether the purchaser or hs estate makes re-
turns on the cash recepts and dsbursements bass or on the accrua
bass.
ny nterest reazed whch had accrued on the notes when they
were purchased, and was ncuded n the purchase prce thereof, s
not ncome to the purchaser or hs estate but s a recovery of capta.
dvce s requested reatve to the proper treatment, for Federa
ncome ta purposes, of nterest whch accrued on Treasury notes of
Ta Seres -19 3, -19 3, -19 , and 13-19 .
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19.23(a)-.
0
The notes are sod at par and accrued nterest, one (caendar)
month s nterest beng added to par each month after ugust, 19 1, n
the case of Treasury notes of Ta Seres -19 3 and -19 3, and after
anuary, 19 2, n the case of Treasury notes of Ta Seres -19
and -19 , and the tota (of par and such accrued nterest at the
tme of purchase) s the purchase prce, or cost, of the note. The
notes w be redeemed for cash at the purchase prce at or before
maturty. Ta Seres -19 3 and -19 3 notes w mature ugust
1.19 3, and Ta Seres -19 and -19 notes w mature anuary
1.19 . The notes may be accepted n payment of ncome ta es (cur-
rent and back persona and corporaton ncome ta es, and e cess
profts ta es), and estate and gft ta es (current and back) at par and
accrued nterest to the month, ncusve, n whch presented (but no
accrua beyond the maturty date). Secton 71.1 of Treasury De-
cson 5109 page 359, ths uetn provdes that The notes may be
accepted ony n payment of ncome, estate, and gft ta es (current
and back) due from the orgna purchaser thereof or hs estate.
The purchaser of such notes w not be entted to any nterest thereon
after purchase uness the notes are used for the purpose stated. c-
cordngy, no nterest w accrue on the notes after ther purchase
uness and unt they are accepted n payment of Federa ncome,
estate, and/or gft ta es, owed by the purchaser or hs estate.
In vew of the foregong, t s hed that nterest whch accrued
on Treasury notes of Ta Seres -19 3, -19 3, -19 , and -19 ,
after purchase consttutes ta abe ncome, for Federa ncome ta
purposes, ony when constructvey receved by the purchaser of
the notes or hs estate through acceptance of the notes and accrued
nterest thereon by a coector of nterna revenue n payment of
Federa ncome, estate, or gft ta es, owed by the purchaser or hs
estate. Ths rue s equay appcabe whether the purchaser or hs
estate makes returns on the cash recepts and dsbursements bass
or on the accrua bass. In the case of the former, such nterest
s receved, n effect or constructvey, by beng apped n payment
of ta es owed, and n the case of the atter such nterest accrues
when so apped but not unt then.
ny nterest whch had accrued on the notes when they were
purchased, and whch was ncuded n ther purchase prce, s not
ncome to the purchaser or hs estate n any event, . e., whether
reazed through cash redempton of the notes or through ther
acceptance n payment of ta es, but when reazed s a recovery
of that part of the capta nvested n the notes.
S CTION 23(a). D DUCTIONS FROM GROSS
INCOM : P NS S.
Secton 19.23 (a)-: usness e penses.
INT RN L R NU COD .
mount of speca ta mposed on con-operated amusement and
gamng devces pad by owner of devce to occupant of premses,
on whch devce s ocated. (See I. T. 3539, page 71.)
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1
19.23(a)- .
Secton 19.23(a)-: usness e penses. 19 2-13-11035
( so Secton 23(1), Secton 19.23(1)-1.) I. T. 95 1
INT RN L R NU COD .
Rura ma carrers may not be aowed, for Federa Income ta
purposes, a mnmum deducton of 5 cents a me for the use of ther
automobes n the devery of ma. vdence to support deductons
coverng busness e penses and deprecaton wth respect to such
use s requred.
dvce s requested regardng the aowance for Federa ncome ta
purposes of a unform mnmum deducton of 5 cents a me to cover
the e pense of operaton and mantenance of automobes owned and
used by carrers on rura ma routes.
It s stated that the Post Offce Department makes an aowance of
5 cents a me for the mantenance of automobes used n deverng
ma, and that ths aowance was f ed after e tensve hearngs before
Congressona commttees and consderaton of evdence submtted to
prove that the actua cost of mantenance s n e cess of 5 cents a me.
The ureau s requested to permt a mnmum deducton of 5 cents a
me wthout the necessty of provng the e penses actuay ncurred.
Request s aso made that any carrer who presents facts to |ustfy a
greater aowance be permtted to deduct such amount.
Secton 22(a) of tre Interna Revenue Code provdes n part that
gross ncome ncudes gans, profts, and ncome derved from saares,
wages, or compensaton for persona servce, of whatever knd and n
whatever form pad, or from professons, vocatons, trades, or bus-
nesses, etc., and ncome derved from any source whatever. Under
ths genera defnton, the amount of 5 cents a me pad by the Post
Offce Department to a rura ma carrer for the mantenance of hs
automobe used n carryng on hs busness s ncudbe n gross
ncome for Federa ncome ta purposes.
Secton 23(a) 1 of the Code provdes n part that n computng net
ncome there sha be aowed as deductons a the ordnary and
necessary e penses pad or ncurred durng the ta abe year n carry-
ng on any trade or busness. Secton 19.23(a)- of Reguatons 103
provdes n part that among the tems ncuded n busness e penses
are operatng e penses of automobes used n the ta payer s trade or
busness. Secton 23(1) of the Code provdes n part for the deducton
of a reasonabe aowance for the e hauston, wear and tear of prop-
erty used n the trade or busness. Secton 19.23 (1) 5 of Reguatons
103 provdes, however, that the burden of proof w rest upon the
ta payer to sustan the deducton camed. These provsons of aw
and reguatons gve to the ta payer the rght to deduct a e penses
and a reasonabe amount of deprecaton ncurred n connecton wth
the operaton of hs automobe n the performance of hs dutes as a
rura ma carrer durng the ta abe year. though the Code pro-
vdes for deductons of busness e penses and deprecaton, the amount
of each camed deducton to be aowed s a queston of fact whch
must be supported by proper evdence that the amount camed was
actuay pad or ncurred n the ta abe year n connecton wth the
carrers busness. It s the cear ntent of the aw and reguatons
that ony those deductons whch, the ta payer s abe to prove may he
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I 19.23(a)- .
2
aowed, and, therefore, no f ed mnmum amount may be recognzed
as an aowabe deducton.
In vew of the foregong, t s hed that rura ma carrers may not
be aowed a mnmum deducton of 5 cents a me for the use of ther
automobes for busness purposes; and that deductons camed must
be supported by proper evdence.
Secton 19.23(a)-: usness e penses. 19 2-21-11103
I. T. 3551
INT RN L R NU COD .
Lega e penses ncurred by a State hghway empoyee In de-
fendng hmsef aganst charges preferred aganst hm for mproper
potca actvtes n voaton of the atch ct do not consttute
aowabe deductons as ordnary and necessary busness e penses
under secton 23(a) of the Interna Revenue Code.
dvce s requested whether ega e penses ncurred by a State
hghway empoyee under the crcumstances herenafter stated con-
sttute aowabe deductons for Federa ncome ta purposes as
ordnary and necessary busness e penses.
The ta payer, a cv engneer, has been empoyed by a State hgh-
way dvson for many years. In 19 1 he receved a etter from the
Unted States Cv Servce Commsson reatve to charges that
had been preferred aganst hm for mproper potca actvtes n
voaton of the atch ct. The ta payer dened the charges
and retaned an attorney to defend hm. For such servces, he pad
doars n 19 1. The ta payer states that f he s convcted, he may
be dsmssed from hs poston wth the hghway dvson.
Secton 23(a) of the Interna Revenue Code provdes that n
computng net ncome there sha be aowed as deductons:
the ordnary and necessary e penses pad or ncurred durng
the ta abe year n carryng on any trade or busness . Itacs
supped.
In ornhauser v. Unted States (276 U. S., 1 5, T. D. 222, C. .
TI-2, 267 (1928)) the Supreme Court of the Unted States hed
that where a former partner sued hs copartner for an accountng of
the recepts of a dssoved partnershp and the sut was successfuy
defended, the copartner may be aowed the deducton of attorney s
fees ncurred n the defense of the sut. The opnon of the Court
reads n part as foows:
The Soctor of Interna Revenue n a recent opnon has hed that ega
e penses ncurred by a doctor of medcne n defendng a sut for mapractce
were busness e penses wthn the meanng of the statute. In the course of
the opnon t was sad that such e pendtures were as much ordnary and
necessary busness e penses as they woud be f made by a ma reant n de-
fendng an acton for persona n|ures caused by one of hs devery automobes,
and that n the atter case the deducton woud be aowed wthout queston.
(C. . -, page 226 (1026).)
The bass of these hodngs seems to be that where a sut or acton aganst
a ta payer s dredy connected wth, or. as otherwse sated pro -
matey resuted from, hs busness, the e pense ncurred s a busness e pense
wthn the meanng of secton 21 (a), subdvson (1), of the ct Revenue
ct of 1918 . These rungs seem to us to be sound and the prncpe upon
whch Ihey rest covers the present case. Itacs supped.
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19.23(a)-.
The above-quoted anguage of secton 23(a) 1 of the Interna
Revenue Code s the same as that of secton 21 (a) 1 of the Revenue
ct of 1918 nvoved n the ornhauser case.
In order to be deductbe for Federa ncome ta purposes, the
e penses ncurred by the ta payer n the nstant case, n defendng
hmsef aganst the charges preferred aganst hm, must fa wthn
the provsons of secton 23(a) 1 of the Interna Revenue Code, supra.
Such charges, however, dd not arse out of the ta payer s
busness as a cv engneer empoyed by the State hghway dvson.
The proceedng n whch he s a defendant s nether drecty con-
nected wth, nor dd t pro matey resut from, hs busness. (See
ornhauser v. Unted States, supra.) It s hed, therefore, that the
ega e penses ncurred by the ta payer n defendng hmsef aganst
the charges referred to heren do not consttute aowabe deductons
n hs Federa ncome ta return for 19 1. (See aso Loyd v. Com-
mssoner, 55 Fed. (2d), 812, Ct. D. 5 2, C. . I-2, 268 (1932).)
Secton 19.23(a)-: penses of farmers. 19 2-7-10989
( so Secton 22(a), Secton 19.22(a)-7.) I. T. 3530
INT RN L R NU COD .
The so-caed penates Incurred and pad by producers under the
grcutura d|ustment ct of ) 8, as amended, upon the market-
ng of certan crops n e cess of the farm marketng quotas, are
deductbe under secton 23(a) of the Interna Revenue Code as
ordnary and necessary e penses by the producers who are requred
to pay suc penates. Where, however, the penaty s pad by the
purchaser and deducted from the purchase prce of the crop, the
producer shoud ncude In gross Income ony the amount actuay
receved by hm for the crop, and shoud take no deducton for the
penaty pad by the purchaser.
dvce s requested wth respect to the deductbty, for Federa
ncome ta purposes, of penates ncurred and pad by producers
under the grcutura d|ustment ct of 1938, as amended, upon
the marketng of certan crops n e cess of the farm marketng
quotas of such commodtes. Stuatons whch most commony gve
rse to ths queston are as foows:
1. drect sae s made by a producer to a buyer and the buyer,
us authorzed by the statute and appcabe reguatons of the Secre-
tary of grcuture ssued thereunder, deducts the amount of the
penates due on the commodty from the market prce of the com-
modty, payng to the producer the market prce ess the amount of
penaty deductons.
2. The producer pays to the Unted States the amount of the
penaty whch woud be ncurred wth respect to the marketng of
hs crop and thereafter markets that crop to a buyer, recevng from
such buyer the market prce of the commodty wthout any penaty
deductons.
3. The producer pays to the Unted States durng one ta perod
the amount of penates whch woud be ncurred wth respect to the
marketng of hs crop and markets that crop durng a subsequent ta
perod.
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19.23(a)-.
Under the provsons of the grcutura d|ustment ct of 1938,
as amended, marketng quotas are n effect wth respect to the market-
ng of wheat, cotton, tobacco, and peanuts. Farm marketng quotas
are estabshed for each farm sub|ect to marketng quotas, and any
marketng of a commodty from a farm n e cess of the farm market-
ng quota for the respectve commodty s sub|ect to a penaty at the
rate prescrbed by the ct. though n each nstance the purpose
of the penaty s to keep off the market durng a gven year e cessve
suppes of the respectve commodtes, dfferent methods are pro-
vded to accompsh ths purpose. The penaty rates for the 19 1
marketng year appcabe to the respectve commodtes are as
foows:
Wheat, per bushe 0. 9
Cotton, per pound 0. 07
Tobacco, per pound 0.10
Peanuts, per pound 0. 03
Pubc aw No. 7 , Seventy-seventh Congress, frst sesson, approved
May 26, 19 1, provdes that n the case of wheat the producer s sub-
|ect to the penaty on e cess wheat, but, f the wheat s sod to a buyer
n the Unted States, the buyer s abe for the payment of the penaty
to the Unted States. The producer may store hs wheat on the farm
or esewhere, and aso may obtan a oan on the e cess wheat from the
Commodty Credt Corporaton. In case wheat s stored, or paced
n oan wth the Commodty Credt Corporaton, the producer s re-
qured to secure the payment of the penaty on such e cess wheat and
s abe for the amount of the penaty on any depeton n the amount
of wheat so stored or paced n oan. producer havng e cess wheat
may, pror to the marketng of any wheat from the farm, pay or
secure to the Unted States the amount of penaty due on hs e cess
wheat and receve a marketng card evdencng hs rght to market,
wthout coecton of marketng quota penates, a wneat produced
on the farm. The producer wth e cess wheat may aso market such
wheat to a buyer wthout usng a marketng card, and n ths event
the buyer s requred to pay the penaty to the Unted States on a
wheat so purchased. Under paragraph 8 of Pubc aw No. 7 , how-
ever, the buyer s authorzed to deduct the amount of the penaty due
on the wheat from the prce pad to the producer.
Wth respect to cotton, t s stated that the producer s sub|ect to
the penaty, but, f the sae s to a buyer or other person n the Unted
States, the penaty s requred to be remtted by such buyer or other
person to the Unted States. The buyer may deduct the amount of
penaty from the prce pad to the producer. In the case of cotton,
the. penaty s coected ony upon the marketng of cotton n e cess
of a farm marketng quota, and thus the producer may market hs
fu quota wthout payng any penaty. It s ony when he markets
cotton n e cess of the quota that penates are ncurred. The pro-
ducer may, however, secure the payment of penates to the Unted
States, and n ths event t s possbe that the penates w be pad n.
one ta perod and the cotton marketed n another such perod.
The methods provded n the case of tobacco and peanuts are-
smar to the method used wth respect to wheat.
It s contended that the penates mposed under the grcutura
d|ustment ct of 1938, as amended, dffer mportanty from or--
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5
19.23(a) 1.
dnary penates n that the marketng of e cess wheat, cotton, to-
bacco, or peanuts s permssbe under the ct upon the payment of
the marketng penaty, whereas ordnary a penaty s mposed
as a punshment for an act of commsson or omsson; that the
payment of the penaty mposed by the grcutura d|ustment
ct, as amended, egazes the act wth respect to whch t s mposed,
whe ordnary the payment of a penaty eaves the act wth
respect to whch t was mposed none the ess wrong; and that the
marketng penates prescrbed by the act are remeda and not
puntve n nature.
Sectons 703(a) and 711 of the reguatons pertanng to market-
ng quotas for the 19 1 crops ssued on uy 15, 19 1, by the Unted
States Department of grcuture, grcutura d|ustment dmn-
straton, provde n part:
Set. 703. Payment of penates by producer .
(a) Producers abe for payment of penates. ach producer havng an
Interest n the wheat produced n 19 1 on any farm for whch a farm market-
ng e cess s determned sha be abe to pay the amount of the penaty on
the farm marketng e cess. The amount of the penaty whch any producer
sha pay sha nevertheess be reduced by the amount of the penaty whch s
pad by another producer or a buyer of wheat produced on the farm.
Sec. 711. Report of voatons and court proceedngs to coect
penaty.
It sha be the duty of the county commttee to report In wrtng to the
State commttee each case of faure or refusa to pay the penaty or to remt
the same to the Secretary of grcuture when coected. It sha be the duty
of the State commttee to report each such case n wrtng n quadrupcate
to the Unted States Department of grcuture wth a vew to the nsttuton
of proceedngs by the Unted States attorney for the approprate dstrct, under
the drecton of the ttorney Genera of the Unted States, to coect the pen-
ates, as provded n secton 376 of the ct. (Sec. 376, 52 Stat., 66, 7 U. S. C,
1376.)
mounts pad as penates for voaton of statutes have been hed
tc be nondeductbe for Federa ncome ta purposes ether on the
ground that such e pendtures are not a necessary ncdent to the
operaton of a busness or on the ground of pubc pocy. (See
urroughs udng Matera Co. v Comm- oner, 18 . T. ., 101.
affrmed 7 Fed. (2d), 178, Ct. D. 297, C. . -, 397 (1931), and
Great Northern Raway Co. v. Commssoner, 0 Fed. (2d), 372;
see aso G. C. M. 11358, C. . II-1, 29 (1933), n whch t s hed
that penaty payments n connecton wth ncome ta es, whether on
account of neggence, denquency, or fraud, are not deductbe from
gross ncome.)
though the amounts pad by the producer are. desgnated as pen-
ates n the statute and reguatons referred to above, t appears
that the purpose of the statute s to pace a charge aganst the
producer on the sae of the commodty whch was produced n e cess
of the quota. The statute does not prohbt producers from pro-
ducng the commodty, but merey paces a charge on the e cess of the
uota produced and marketed. The so-caed penates are not pad
or the voaton of, or noncompance wth, a statute or reguaton
or for any ega act, but are pad for the purpose of egazng
the marketng of the e cess producton, whch wth ths condton
the statute sanctons, and are, therefore, made n compance wth
the statute. It s accordngy the vew of ths offce that the so-
caed penates nre deductbe from gross ncome under secton 23(a)
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19.23(a)- .
6
of the Interna Revenue Code n computng net ncome as ordnary
and necessary e penses ncurred n carryng on a trade or busness.
In the frst stuaton outned above, where n a sae by a producer
to a buyer the buyer deducts the amount of the penaty due on the
commodty from ts market prce and pays to the producer such market
prce ess the penaty deducted, the producer w not be requred to
ncude n gross ncome the amount of such penaty deducton snce he
never receved such amount. Ony the amount actuay receved by
hm for hs commodty w be requred to be ncuded n gross ncome
and, snce he dd not pay the penaty on such commodty, there w be
no deducton aowabe under secton 23(a) of the Code for the penaty
attrbutabe to such commodty.
In the second stuaton presented the producer pays the Unted
States the penaty due and then ses the commodty to a buyer at
market prce wthout any penaty deducton. s above ndcated, n
s,uch case the fu amount receved by the producer from the buyer
shoud be ncuded n hs gross ncome and a deducton shoud be taken
under secton 23(a) of the Code for the amounts of such penates n
computng hs net ncome.
In the thrd stuaton presented, the producer pays the Unted States
n one ta perod the penates whch he woud ncur on marketng a
crop but actuay markets that crop n a subsequent ta perod. Where
a farmer reports on the bass of cash recepts and dsbursements, he s
requred to ncude n hs gross ncome amounts receved durng the
year from the sae of products rased durng the ta abe year or pror
years (secton 19.22(a)-7, Reguatons 103), and deductons may be
had ony for the amounts actuay e pended durng the year n carry-
ng on the busness of farmng. (Secton 19.23(a)-, Reguatons
103.) Thus, deductons for the penates pad n one ta abe perod
must be taken n that perod athough the products to whch the pen-
ates are attrbutabe are not sod unt a subsequent perod; and the
fu amount reazed on sae n the subsequent perod must be ncuded
n gross ncome for that perod.
Speca provson s made n the reguatons under whch a farmer
may report hs ncome when the condtons set fort theren are met.
Secton 19.22(a)-7, Reguatons 103, provdes n part:
If a farmer s engaged In producng crops whch take more than a year
from the tme of pantng to the tme of gatherng and dsposng, the ncome
therefrom may, wth the consent of the Commssoner (see secton 19. 1-2), be
computed upon the crop bass; but In any such cases the entre cost of producng
the crop must be taken as a deducton for the year In whch the gross ncome
from the crop s reazed.
Secton 19.23(a)- provdes, n part:
Where a fanner s engaged n producng crops whch take more than
a year from the tme of pantng to the process of gatherng and dsposa, e penses
deducted may, wth to consent of Commssoner (see secton 19. 1-2), be deter-
mned upon the crop bass, and such deductons must be taken n the year n
whch the gross ncome from the crop has been reazed.
In the case of a farmer who reports hs ncome on the accrua bass,
the deducton on account of such penates must be taken n the year
n whch the penates are ncurred athough the products to whch the
penates are attrbutabe are not sod unt a subsequent year.
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7
19.23(b)- .
S CTION 23(b). D DUCTIONS FROM GROSS
INCOM : INT R ST.
Secton 19.23(b)-: Interest. 19 2-10-11010
G. C. M. 23111
INT RN L R NU COD .
Interest charged by n broker on Indebtedness due Mm from a
customer, under the usua type of margn account, Is actua or con-
structvey pad for Federa Income tu purposes ony as the broker
receves payments from the customer or makes coectons for the
account of the customer. Such payments may conss of amounts
receved from (a) the coecton by the broker of dvdends or
nterest for the account of he customer; (6) the sae by (he customer
of securtes hed by the broker or to be receved by hm; or (c) the
depost of cash bv the customer.
Recommended that I. T. 3 8 (C. . 10 1-1, 207) be modfed.
Reference s made to I. T. 3 8 (C. . 19 1-1, 207), reatng to
deductbty of nterest charged by a broker n connecton wth a
oan on a margn account where the customer s (ta payer s) books are
kept on the cash recepts and dsbursements bass. Further consdera-
ton has been gven to the matter n vew of a request for carfcaton
of the rung.
The ast paragraph of I. T. 3 8 , supra, reads as foows:
Ordnary, nterest charged by a broker on a oan to a customer reduces
any credt the customer may have whch s otherwse avn.nhe for wthdrawa
by hm on the date on whch the Interest charge s made. When a customer s
wthdrawabe credt s thus reduced at any tme wthn the ta abe year, payment
of nterest has been effected. If the wthdrawnb e credt of the customer-ta payer
reportng Income on the cash recepts and dsbursements bass Is Insrffccnt to
cover the entre Interest charge, he s entted to n deducton ony to the e tent
that such credt offsets the nterest charge. No deducton may be aowed for
nterest charges whch have not been thus offset by wthdrawabe credt, regard-
ess of the fact that on the date on whch the Interest charge s made, or at the
end of the customer s ta abe year, the then market vaue of coatera hed by
the broker may be suffcent to cover the amount of the onn owng to the broker
pus the accrued nterest thereon. The mere reducton In the ta payer s equty
In the securtes hed by the broker does not consttute constructve payment
of he nterest.
In the request for carfcaton of the rung, a bref descrpton of
the saent characterstcs of the usua margn account s stated as
foows:
When a customer (ta payer) purchases securtes through a broker and
deposts wth the broker ony a porton of the purchase prce, a margn account Is
created. Ths parta payment s commony known as margn. The mnmum
amount of margn that a broker can or w accept s governed by rues pro-
mugated by the Federa Reserve oard, the rues of the stock e change or e -
changes of whch the broker s a member, and n some cases by the broker s own
speca requrements. The account s operated under an agreement known as
customer s agreement.
The margn account as recorded on the broker s books refects the debt ha-
ance, representng the amount oaned to the customer, and the securtes hed as
coatera. From both the customer s and the broker s standpont these are re-
atvey unmportant and merey contrbute to the a-Important eement of equty,
that s, the amount by whch the vaue of the coatera e ceeds the debt baance
In the account.
The debt baance n the account s ncreased by :
a) the chargng of nterest by the broker;
(6) the chargng of a servce charge by the broker;
c) the addtona purchase of securtes by the customer;
(d) the wthdrawa of cash by the customer.
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19.23(b)- .
8
The debt baance In the account Is decreased by :
(o) the coecton by the broker of dvdends or nterest for the account of the
customer;
(6) the sae by the customer of securtes hed by the broker or to be receved
by hm;
(c) the depost of cash by the customer, ether n answer to a ca from the
broker for addtona margn or vountary by the customer.
Under the terms of the customer s agreement the broker has the rght to
refuse to permt an ncrease In the debt baance and to demand that t be re-
duced. Whether he e ercses ether of these rghts usuay depends upon the
equty contaned n the account and not upon the fact that dvdends or nterest
have been coected for the customer, or that other credts have been passed to
the account.
When the debt baance s decreased n a margn account, the equty In the
account ncreases. n ncrease n the vaue of the coatera woud have e ncty
the same effect. Conversey, an ncrease n the debt baance or a decrease n (he
vaue of the coatera woud decrease the equty. quty n a margn account
s an ntegra part thereof .
The customer s agreement n ths case contans provsons read-
ng as foows:
. moneys, securtes, commodtes, or other property whch you may at any
tme be carryng for the undersgned or whch may at any tme be n your
possesson for any purpose, ncudng safekeepng, sha be sub|ect to a genera
en for the dscharge of a obgatons of the undersgned to you, rrespectve
of whether or not you have made advances n connecton wth such securtes,
commodtes, or other property, and rrespectve of the number of accounts the
undersgned may have wth you.
5. securtes and commodtes, or any other property, now or hereafter
hed by you, or carred by you for the undersgned (ether Indvduay or
|onty wth others), or deposted to secure the same, may from tme to tme and
wthout notce to me, be carred n your genera oans and may be pedged, re-
pedged, hypothecated or rehypothecated, separatey or n common wth other
securtes and commodtes or any other property, for the sum due to you thereon
or for a greater sum and wthout retanng n your possesson and contro for
devery a ke amount of smar securtes or commodtes.
6. Debt baances of the accounts of the undersgned sha be charged wth
nterest, n accordance wth your usua custom, and wth any ncreases n rates
caused by money market condtons, and wth such other charges as you may
make to cover your factes and e tra servces.
7. You are hereby authorzed, n your dscreton, shoud the undersgned de
or shoud you for any reason whatsoever deem t necessary for your protecton,
to se any or a of the securtes and commodtes or other property whch may
be n your possesson, or whch you may be carryng for the undersgned .

11. t any tme and from tme to tme, n your dscreton, you may wthout
notce to the undersgned, appy and/or transfer any or a moneys, securtes,
commodtes, and/or other property of the undersgned Interchangeaby between
any accounts of the undersgned (other than from reguated commodty accounts).
In the case of such margn account, any nterest charged by the
broker ncreases the ndebtedness of the customer to the broker. If
he broker deems the coatera suffcent securty for such ncreased
debt, payment of the nterest charged may be postponed. Payment of
nterest charges, as we as other charges servng to ncrease the debt,
s effected by recept of amounts by the broker from the customer or
from others for the account of the customer. Such recepts by the
broker are refected by credts to the customer s account whch serve
to decrease hs debt baance. That s, such credts refect payments
by the customer, thereby reducng hs then outstandng ndebtedness
to the broker. In the absence of agreement to the contrary, such credts
to the customer s account shoud be frst apped as payment of n-
terest prevousy charged by the broker. The e cess of such credts
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15 19.23(b)- .
over nterest due shoud then be apped n payment of the prncpa of
the debt. Charges by the broker subsequent to such payments n turn
ncrease the debt. smutaneous e change of money or checks by the
customer and broker shoud be regarded as a nuty for Federa
ncome ta purposes.
ssentay, a margn account estabshes a debtor-credtor reaton-
shp between the customer and the broker. The fact that the coatera
has a vaue n e cess of that requred, thereby creatng what s some-
tmes referred to as a wthdrawabe baance1 n the customer s favor,
refects a favorabe equty status rather than an actua or constructve
payment of any knd. That s, such a baance merey enabes the
customer to ncrease hs debt to the broker wthout furnshng add-
tona coatera. Such ncrease of debt resuts from (a) the charg-
ng of nterest by the broker; (b) the chargng of a servce charge by
(he broker; (c) the purchase of addtona securtes by the customer;
or (d) the wthdrawa of cash by the customer.
In cases n whch a customer mantans more than one margn ac-
count wth the same broker, nterest charged to one account s not pad
by a credt of that amount from another account f the tota ndebted-
ness of the customer s n effect ncreased by the nterest charged. Such
bookkeepng entres merey serve to transfer the nterest charge from
one account to another.
In vew of the foregong, t s the opnon of ths offce that nterest
charged by a broker on ndebtedness due hm from the customer, under
the usua type of margn account, s actuay or constructvey pad
for Federa ncome ta purposes ony as the broker receves payments
from the customer or makes coectons for the account of the customer.
s ndcated by the above-quoted statement, such payments may con-
sst of amounts receved from (o) the coecton by the broker of
dvdends or nterest for the account of the customer; the sae by
the customer of securtes hed by the broker or to be receved by hm;
(c) the depost of cash by the customer, ether n answer to a ca from
the broker for addtona margn or vountary.
It s recommended that I. T. 3 8 , supra, be modfed to accord wth
the concusons reached heren.
. P. W .NC L,
Chef Counse. ureau of Interna Revenue.
Secton 19.23(b)-: Interest. 19 2-10-11011
I. T. 3.536
INT RN L R NU COP .
In vew of (. C. M. 23111, page 7, ths uetn), I. T. 3 8 (C. .
19 1-1,207) s modfed to accord wth the concusons reached theren.
Secton 19.23(b)-: Interest. 19 2-1 -110 6
( so Secton 22(b), Secton 19.22(b) (2)-2.) I. T. 35 5
INT RN L R NU COD .
The amount desgnated as nterest by secton 12(b) of the Cv
Servce Retrement ct, whch s requred to be pad by a renstated
cv servce empoyee, s not deductbe as nterest pad on n-
debtedness under secton 23(b) of the Interna Revenue Code.
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5 19.23(c)-I.
50
dvce s requested whether the nterest on amounts redeposted
wth the Government by a renstated cv servce empoyee s an
aowabe deducton, for Federa ncome ta purposes, under secton
23(b) of the Interna Revenue Code.
Secton 12(b) of the Cv Servce Retrement ct provdes that
a money returned to an empoyee upon hs resgnaton from the
sen e must, upon renstatement, retransfer, or reappontment to a
oston wthn the purvew of the ct, be redeposted wth nterest
efore any such empoyee may derve any benefts under the ct, but
nterest sha not be requred coverng any perod of separaton from
the servce. The amount refunded s sub|ect to per cent nterest,
compounded on une 30 of each year, from date of reempoyment
n a poston sub|ect to the Retrement ct, and must be pad before
the empoyee s egbe for certan retrement benefts. The rede-
post may be made n a ump sum or by nstament payments.
Under the provsons of secton 23(b) of the Interna Revenue
Code there s aowed a deducton for a nterest pad or accrued
wthn the ta abe year on ndebtedness, e cept on ndebtedness n-
curred to purchase or carry certan obgatons the nterest upon
whch s e empt from ta aton.
Interest has been defned to be compensaton for the use of bor-
rowed money or for the forbearance of money egay due. Under
the Interna Revenue Code, nterest, as a deductbe tem n com-
putng ta abe net ncome, means an amount pad on an uncond-
tona and egay enforceabe obgaton for the payment of money.
(See utenreth v. Commssoner, 115 Fed. (2d), 856; Dane ros,
vo. v. Commssoner, 28 Fed. (2d), 761.)
ccordngy, t s hed that the amount desgnated as nterest by
secton 12(b) of the Cv Servce Retrement ct, whch s requred
to be pad by a renstated cv servce empoyee, s not deductbe as
nterest pad on ndebtedness under secton 23(b) of the Interna
Revenue Code.
S CTION 23(c). D DUCTIONS FROM GROSS
INCOM : T S G N R LLY.
Secton 19.23 (c) -1: Ta es. 19 2-1-109 6
G. C. M. 22998
INT RN L R NU COD ND R NU CTS OF 1928, 1932. 193 , 1936,
ND 1938.
The ta of cents per gaon on gasone and motor fue mposed
by the State of Lousana under the provsons of ct No. 6 of the
e tra sesson of 1928, the addtona ta of 1 cent per gaon mposed
under the provsons of ct No. 1 of the e tra sesson of 1930, and
the ta of 2 cents per gaon mposed under the provsons of ct
No. 87 of the sesson of 193(1 n eu of the ta es prevousy mposed
by the parshes and the cty of New Oreans are deductbe by the
deaer who pays them. If, however, the ta es are added to or made
a part of the busness e pense of the deaer, or are otherwse used
to reduce hs net ncome, they are not deductbe separatcv as ta es.
G. C. M. 8936 (C. . -, 110 (1931)) and G. C. M. 1 970 (C. .
I -2, 69 (1935)) revoked.
In vew of decsons of the Supreme Court of Lousana, reatng
to the gasone and motor fue ta es mposed by that State, ths offce
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51
19.23(c)- .
has reconsdered the concusons reached n G. C. M. 8936 (C. . -,
110 (1931)) and G. C. M. 1 970 (C. . I -2, 69 (1935)).
In those rungs consderaton was gven to the deductbty, for
Federa ncome ta purposes, of a ta of cents per gaon mposed
upon a gasone and motor fue sod, used, or consumed n the
State of Lousana for domestc consumpton ( ct No. 6 of the
e tra sesson of 1928, as amended, Lousana Genera Statutes (part,
1939, chapter 8), and to the deductbty of an addtona ta of
1 cent per gaon mposed under the authorty of rtce I- of the
Consttuton of Lousana, as added by ct No. 1 of the e tra sesson
of 1930. It was hed that these gasone and motor fue ta es were
deductbe by the consumer.
Snce the pubcaton of those rungs, the Supreme Court of
Lousana has hed that these gasone and motor fue ta es are
mposed upon the deaer. In State v. Standard O Co. of Lousana
(190 La., 338, 182 So., 531) the court made the foowng statements:
It s argued that, whe the deaer n gasone s made prmary responsbe
for the ta , yet the ta s n reaty pad by the consumer and not by the
deaer, and that the deaers are ta coectors and not ta payers. In support
of ths argument the State offered n evdence nvoces sent out by the defendant
to fng staton operators, showng the ta as a separate tem. There were
aso ntroduced photographs of pacards dspayed at these fng statons, show-
ng the segregaton of the ta from the prce of gasone. The Intended pur-
pose of these offerngs was to show that the ta s coected from the consumer
when the commodty s sod at reta. It Is sad n bref that the deaers
coect the ta from the consumers and remt t to the State.
The contenton now made by counse for the State that gasone ta Is a
consumer ta pad by the consumng pubc and that the deaers are ta
coectors and not ta payers, s n the teeth of a the statutes and contrary to
numerous decsons of ths court and recent decsons of the Federa
courts.

In practce the reta deaers merey added the amount of the ta to the prce
of the gasone, or passed t on to the consumer. That s the practce of
a deaers n cases of ths knd. In State v. Wson f Co. (179 La., 6 8, 15
So., 636, 638) the court had occason to dscuss the queston whether a franchse
ta Is n fact a consumer ta when the amount of the ta Is passed on to
the consumer. In speakng of the ta , ths court sad (page 638) :
The ta s ad on the manufacturer, whoesaer, or |obber, and remans on
hm. It does not pass to the purchaser of the merchandse, athough ncor-
porated In the b to hm, whether t appear on the b separatey or not. The
purchaser does not pay the ta , athough he may pay the vendor more for the
goods, because of the vendor s obgaton to pay t, but that s a.

The fact that ths defendant requred operators of ts fng statons to
ost notces showng a segregaton of the prce of gasone from the ta
can not be construed as shftng the ta from the deaer to the consumer, be
cause, as a matter of aw, the deaer s requred to pay the ta . The postng
of such notces was merey a matter of busness practce whch coud not
affect the aw.
The concuson reached n the Standard O Co. case, supra, s
consstent wth the reasonng of the Lousana Supreme Court n
other recent cases. In State v. Sncar Refnng Co. (195 La., 288,
19G So., 3 9) the court hed that deaers n gasone or other motor
vehce fue must pay the ta and that t s measured by the tota
gaonage manufactured or mported nto the State for sae, use, or
consumpton theren and not by the gaonage actuay sod, used,
or consumed.
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I 19.23(c)- .
52
In vew of the foregong, t s hed that for Federa ncome ta
purposes the Lousana gasone and motor fue ta es are not deduct-
be by the consumer but are deductbe by the deaer who pays them.
If, however, the ta es are added to or made a part of the busness e -
pense of the deaer, or are otherwse used to reduce hs net ncome,
they are not deductbe separatey bv hm as ta es. ccordngy,
G. C. M. 8936 and G. C. M. 1 970, supra, are revoked.
The concuson reached heren s appcabe aso to the addtona
gasone and motor fue ta of 2 cents per gaon whch s mposed
by ct No. 87 of 1936 (Lousana Genera Statutes Dart, 1939, chap-
ter 9) n eu of the ta es prevousy eved by the parshes and by
the cty of New Oreans for the reason that the reevant provsons
are substantay the same as those of the ta es herenbefore
consdered.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
Secton 19.23(c)-: Ta es.
INT RN L R NU COD .
rtsh bocked accounts as reated to deductons for rtsh ta es
pad or accrued. (See Mn. 5297, page 8 .)
Secton 19.23 (c)-1: Tu es. 19 2-3-10960
I. T. 3526
INT RN L R NU COD ND R NU CTS OF 1928, 1932. 193 , 1936, ND
1938.
G. C. M. 22998 (page 50, ths uetn), hodng that certan Lous-
ana gasone and motor fue ta es are deductbe for Federa ncome
ta purposes by the deaer and not by the consumer, w be apped
ony to the ta abe year 19 1 and subsequent ta abe years.
In G. C. M. 8936 (C. . -, 110 (1931)) and G. C. M. 1 970
(C. . I -2, 69 (1935)) consderaton was gven to the deductbty
for Federa ncome ta purposes of a ta of cents per gaon
mposed upon a gasone and motor fue sod, used or consumed
n the State of Lousana for domestc consumpton ( ct No. 6 of
the e tra sesson of 1928. as amended, Lousana Genera Statutes
Dart, 1939, chapter 8), and to the deductbty of an addtona ta
of 1 cent per gaon mposed under the authorty of rtce I-
of the Consttuton of Lousana, as added by ct No. 1 of the
e tra sesson of 1930, and t was hed that the ta es mposed were
deductbe by the consumer. Snce the pubcaton of G. C. M. 8930.
supra, and G. C. M. 1 970, supra, the Supreme Court of the State of
Lousana has hed that such gasone and motor fue ta es are
mposed upon the deaer. (See State v. Standard O Co. of Lous-
ana, 190 La., 338, 182 So., 531, and State v. Sncar Refnng Co.,
195 La., 288,196 So., 3 9.)
In vew of the aforesad decsons of the Supreme Court of the
State of Lousana, G. C. M. 8936, supra, and G. C. M. 1 970, supra,
have been revoked bv G. C. M. 22998 (page 50, ths uetn), whch
hed that for Federa ncome ta purposes the ta es n queston are not
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53
19.23(c)- .
deductbe by the consumer but are deductbe by the deaer who
pays them. G. C. M. 22998, supra, hed aso that the concuson
reached theren s appcabe to the addtona gasone and motor
fue ta of 2 cents per gaon whch s eved by ct No. 87 of 1936
(Lousana Genera Statutes Dart, 1939, chapter 9), n eu of the
ta es prevousy eved by the parshes and by the cty of New Oreans.
Pursuant to authorty contaned n secton 3791(b) of the Interna
Revenue Code, G. C. M. 22998, supra, w be apped ony to the
ta abe year 19 1 and subsequent ta abe years.
Norman D. Cann,
ctng Comm onrr of Interna Revenue.
pproved December 29, 19 1.
erbert . Gaston,
ctng Secretary of the Treasury.
Secton 19.23(c)-1: Ta es. 19 2- -1096
I. T. 3527
INT RN L R Nt COD NT) R NT CT OF 1028.
New York Cty rea estate ta es accrue at the me when, under
the charter of the cty of New York, the rea property assessment
ros are devered to the coectng offcer wth warrants attached
authorzng coecton of the ta es.
Nonacquescence (C. . 19 0-1, 5) In .ST. . f M. . rrnhrmrr
Co. v. Commtsoner ( 1 . T. ., 2 9), wthdrawn; I. T. 283
(C. . III-2, 189 (19T ) ), revoked, and I. T. 3328 (C. . 193 ) 2,
8 ) modfed to the e tent that It a In confct wth the vews
e pressed heren.
Reference s made to I. T. 283 (C. . III-2, 189 (193 )). wheren
t was hed that n the case of a vendor and a vendee of rea property
n New York Cty, under the provsons of the charter of that cty,
the ownershp of the rea property on May 1 and November 1 of
each year was the event whch determned the abty for the ta es
thereon, and that the ta es accrued, for Federa ncome ta purposes,
on those dates.
The poston so taken was based on the fact that the charter of the
cty of New York then n effect provded for the f ng of the ta abe
status of a rea property assessabe for ta aton n that cty for the
succeedng fsca year on the 1st day of October n each year; for the
devery to the board of adermen on March 1 of certfed assessment
ros; for the f ng by the board of the ta rate and the devery
to the cty coector, on or before March 20, of the assessment ros,
wth warrants attached, drectng the cty coector to coect from
the persons named n the assessment ros the sums mentoned oppo-
ste ther names; and that rea property ta es shoud become due and
payabe, n equa parts, on May 1 and November 1, and shoud be
and become ens on rea property and shoud be deemed to be charges
thereon on those dates and not earer .
Reference s aso made to I. T. 3328 (C. . 1939-2. 8 ), wheren t
was hed that under the charter of the cty of New York, effectve
anuary 1, 1938, rea estate ta es accrued for Federa ncome ta
purposes, for the fsca perod anuary 1, 1939, to une 30. 1939. on
pr 1. 1939, and that for the fsca year begnnng uy 1, 1939,
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19.23(c)- .
5
and subsequent fsca years, one-haf of such ta es accrued on October
1 and one-haf on pr 1. The dfference between the accrua date
as determned n I. T. 283 , supra, and the accrua date as determned
n I. T. 3328, supra, was due to the fact that n the ater charter of
the cty of New York t was provded that the ta es on rea estate
became due and payabe on October 1 and pr 1 and became ens on
the rea property and shoud be deemed to be charges thereon on
those dates (nstead of on May 1 and November 1 as provded n the
earer charter). owever, the poston taken n I. T. 3328, supra,
was n prncpe the same as the poston taken n I. T. 283 , supra,
and the ater rung, n effect, consttuted an affrmance of the earer
rung.
It may be stated that the poston taken n I. T. 283 , supra, and
I. T. 3328, supra, s n accord wth the poston taken by the oard of
Ta ppeas n ts memorandum opnons n 7 th St ret t partment
Corporaton v. Commssoner (Docket No. 521 2, une 23, 1933, and
May 10, 193 ), and n 79th Street partment Corporaton v. Com-
mssoner (Docket No. 52170, une 23, 1933, and May 10,193 ). ow-
ever, n the case of the S. . c M. . ernhemer Co. v. Commssoner
( 1 . T. ., 2 9, nonacquescence, C. . 19 0-1, 5), whch nvoved
the queston of the accrua date of New York Cty rea property
ta es, the oard dd not foow the poston taken by t n ts
memorandum opnons n 7 th Street partment Corporaton v.
Commssoner, supra, and the 79th Street partment Corporaton v.
Commssoner, supra, but hed, n effect, that such ta es accrued
for Federa ncome ta purposes before the end of March when the
ta bs are sent out. The facts n the ernhemer case were brefy
as foows: The ta payer, whch was n the rea estate busness n
New York Cty, and whch for the year 193 and pror years kept
ts books and fed ts returns on a caendar year bass, on May 8,
1935, receved permsson from the Commssoner to change ts ac-
countng perod to a fsca year endng September 30. In December.
1935, the ta payer, whch kept ts books and prepared ts ncome ta
returns on the accrua bass, fed ts ncome ta return for the perod
anuary 1, 1935, to September 30,1935. It ncuded n ts deductons,
n addton to New York Cty rea estate ta es for the perod an-
uary 1, 1935, to une 30, 1935, whch were not questoned by the
ureau, New York Cty rea estate ta es on ths property for the
perod uy 1, 1935, to September 30, 1935. on the theory that these
ta es were propery accruabe n the ta abe perod ended September
30, 1935. The Commssoner dsaowed the deducton n vew of
the fact that under I. T. 283 , supra, and I. T. 3328, supra, these ta es
were not accruabe unt October 1, 1935. The ta es n dspute con-
ssted n part of ta es n the amount of 29,06 .60 on property owned
by the ta payer, whch ta es, athough they were accrued by the ta -
payer for the perod ended September 30, 1935, had not been pad by
that date. The other porton of the dsputed deducton conssted of
ta payments n the amount of 10,011 representng ta es on property
sub|ect to a mortgage. The mortgage was n defaut and, pursuant
to an agreement wth the New York State Mortgage Commsson,
the ta payer pad to the commsson monthy one-twefth of the
nterest, ta es, water rates, and assessments on the premses. Dur-
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55
19.23(c)- .
ng the months of uy, ugust, and September the ta payer pad
The oard n aowng the deducton of the tota amount of ta es
so accrued by the ta payer for the perod ended September 30, 1935,
representng the ta es on ts property for the perod uy 1, 1935,
to September 30, 1935, stated n part as foows:
The oard has hed n certan cases that ta es accrue on the date when they
become a en on the property. .See Mnne M. Cowtrd (39 . T. ., 1158) an
cases there cted. Ths s not, however, a test of unversa appcabty. ( enry
. urche . r., ecutor, 1 . T. ., 55.) In the nderson case
Unted States v. nderson. 260 1 . S.. 22 the Supreme Court observed:
Ony a word need be sad wth reference to the contenton that the ta
upon muntons manufactured and sod n 1016 dd not accrue unt 1017. In
a technca ega sense t may be argued that a ta does not accrue unt
has been assessed and becomes due; but It Is aso true that n advance of the
assessment of a a a the events may occur whch t the amount of the
ta and determne the abty of the ta payer to pay t.
The statutes here Invoved the provsons of the charter of New York Cty
provde for the devery to the board of adermen on March 1 of the certfed
assessment ros, the f ng by the board of the ta rate, the e tenson of the
amounts to be pad, and the devery to the cty coector on or before March 20
of the assessment ros, wth coecton warrants anne ed. They further
provde that a ta es upon rea estate for 1935 and 1930 sha be due and
payabe n two nstaments, respectvey, pr 1 and October 1, and that such
ta es sha be and become ens on the respectve days when they become due
and payabe and not earer, provded, however, that f there be no denquent
ta es a ta payer may antcpate ater payments and pay any subsequenty due
payment at the tme of makng the frst payment, or at any tme pror to October
1, and receve a dscount thereon. It Is stpuated as a fact that the ta bs
are sent to the ta payers durng the month of March.
In the ght of these statutory provsons, certan concusons emerge. It Is
obvous that before the end of March when the ta hs are sent out a the
events whch f the amount of the ta and determne the abty of the
ta payer to pay t have occurred, thereby satsfyng the test ad down In
Unted States v. nderson. It s equay cear that athough the second haf
f the ta es s not techncay due and payabe unt October 1, ths pro-
vson oses a force f the ta payer eects to antcpate the due date and pay
the second haf before October 1. From ths It aso foows that the fact that
a en for the second haf docs not attach unt October 1, can not n ths case
be controng. If n ta payer pad the second haf of hs ta es before October 1.
no en woud ever attneh.
Turnng to the facts, we fnd that the ta es due from pettoner on October 1,
for the perod uy 1 to September 30, 103.r , as to property Invoved In the
frst Issue had been fnay f ed and determned In March. Ta payer had
receved offca notce of the same n the form of a b from the coector,
dated March 26, 1935. The ta b, on ts face, curred notces of the rght to
antcpate payment. Though they were not techncay due unt October 1.
pettoner, n the ght of te facts, accrued them on ts books pror to that
date. Ths acton we beeve to have been pro| er and to have been In accord
wth the prncpes of accrua accountancy. (See Unted States v. nderson,
supra.) On ths pont we reverse the Commssoner.
The oard s decson n the ernhemer case, whch s contrary to
the poston taken n I. T. 283 , supra, and I. T. 3328, supra, was
sustaned by the Crcut Court of ppeas for the Second Crcut n
a per curam opnon (121 Fed. (2d), 5 ) dated uy 7, 19 1, on the
authorty of the decson of the Supreme Court of the Unted States
n Unted States v. nderson (269 U. S., 22, T. D. 3839, C. . -,
179 (1926)), and of the decson of the Crcut Court of ppeas
for the Ffth Crcut n Carondeet udng Co., Inc., v. Fontenot
(111 Fed. (2d), 267).
amount of 10,011.
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I 19.23(c)- .)
66
In vew of the poston taken by the oard n the ernhemer case
to the effect that New York Cty rea property ta es accrue before
the end of March when the ta bs are sent out, whch poston
has been approved by the Crcut Court of ppeas for the Second
Crcut, t s apparent that the ureau s poston that New York
Cty rea property ta es accrue as of October 1 and pr 1 of each
year can not be sustaned. It s beeved that the ureau shoud now
take a poston, reatve to the accrua date of New York Cty rea
property ta es, consstent wth the poston taken by the oard and
the Crcut Court of ppeas for the Second Crcut n the ernhemer
case, notwthstandng the fact that the poston there taken by the
oard s contrary to the poston generay taken by the ureau that
State (or cty) property ta es accrue on the date as of whch the assess-
ment of the ta s made (cf. G. C. M. 21373, C. . 1939-2, 82).
The oard n the ernhemer case dd not specfy the e act date on
whch New York Cty rea estate ta es accrued, but ndcated merey
that t consdered that such ta es accrued n March. Ths was suff-
cent for the purposes of that case, snce the queston there nvoved
was whether these ta es accrued n the ta abe perod ended Sep-
tember 30, 1935. The oard s reasonng, embodyng ts reance
upon ts hodng n enry . urche, r. ecutor, v. Commssoner
( 1 . T. ., 55), whch nvoved the consderaton of speca statutes
appcabe to the ta aton of rea property n Suffok County, N. Y.,
somewhat smar to the provsons of the charter of New York
Cty consdered n the ernhemer case, mpes that t was of the
opnon that the New York Cty rea estate ta es accrued on or before
the 20th day of March, when (under secton 923 of the charter of New
York Cty as t e sted at that tme) the rea property assessment ros
were devered by the presdent of the board of adermen of New-
York Cty to the cty coector wth the proper warrants attached
authorzng the coector to coect the sums mentoned theren. It
s, therefore, hed that New York Cty rea estate ta es accrue at the
tme when, under the charter of the Cty of New York, the rea prop-
erty assessment ros are devered to the proper offcer wth warrants
attached authorzng coecton of the ta es. ( ttenton s nvted
to the fact that, under secton 171 of the charter of the cty of New
York, effectve anuary 1, 1938, the assessment ros of each borough
are to be devered by the presdent of the counc to the treasurer
wth proper warrants attached thereto on or before une 30.)
It s noted that n the ernhemer case the ta payer n ts return for
the perod anuary 1, 1935, to September 30, 1935, accrued, and
took a deducton for, three-fourths of the New York Cty rea property
ta es due for the year 1935, and that the oard sustaned the deduc-
ton. Ths offce does not consder that t foows from the fact that
the oard approved the ta payer s deducton of three-fourths of
the amount of ts New York Cty rea estate ta es for 1935, that the
oard was of the opnon that these ta es, notwthstandng the fact
that they accrued n March, mght nevertheess be aocated on a
monthy or other perodc bass.
It s noted aso that the Crcut Court of ppeas for the Second
Crcut n ts per curam decson affrmng the oard s decson n
ths case cted wth approva the decson of the Crcut Court of
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67
19.23(o)-.
ppeas for the Ffth Crcut n Carondeet udng Co. v. Fontenot,
supra, n whch that court hed that a purchaser of a budng n
New Oreans was entted to a deducton for cty and State ta es
on the budng n an amount proportonate to that part of the year
n whch t owned the budng. It s not beeved, however, that the
court s ctaton of the Carondeet case shoud be taken to ndcate that
the court was of the opnon that ta es, accruabe as of a certan
date, may nevertheess be aocated on a monthy or other perodca
bass.
s ndcated above, the decson n the ernhemer case s contrary
to the genera rue heretofore foowed by the ureau as to the accrua
date of rea property ta es. ccordngy, that decson w not be
gven genera appcaton, but w be apped ony n cases nvovng
New York Cty rea property ta es.
In vew of the foregong, nonacquescence n the decson of the
oard of Ta ppeas n S. . M. . ernhemer Co. v. Comms-
soner, supra (C. . 19 0-1, 5) s wthdrawn, I. T. 283 , supra, s
revoked, and I. T. 3328, supra, s modfed to the e tent that t s n
confct wth the vews e pressed heren.
Secton 19.23(c)-1: Ta es. 19 2-12-11032
I. T. 35 0
INT RN L R NU COD .
The decared vaue e cess-profts ta (orgnay named e cess-
profts ta ) mposed by secton 600, Chapter 2 , of the Interna
Revenue Code, as amended, and the smar e cess-profts ta
mposed by secton 602 of the Revenue ct of 1938, and by secton 106
of the Revenue ct of 1935 (before and after amendment by secton
02 of the Revenue ct of 1936), pad or accrued wthn the ta abe
year, are deductbe for the purposes of computng corporaton
norma-ta net Income and e cess profts net ncome for ta -
abe years begnnng after December 31, 19 0, as we as for ta abe
years begnnng after December 31, 1939, but before anuary 1, 19 1;
and are aso deductbe for the purpose of computng corporaton
surta net ncome for ta abe years begnnng after December 31,
19 0.
The smar e cess-profts ta mposed by secton 702 of the
Revenue ct of 193 , and by secton 216 of the Natona Industra
Recovery ct, Is not deductbe for the above-mentoned purposes.
dvce s requested whether the decared vaue e cess-profts ta
mposed by secton 600, Chapter 2 , of the Interna Revenue Code,
as amended, and the smar e cess-profts ta es mposed by provsons
of pror cts, are deductbe for the purposes of computng corpora-
ton norma-ta net ncome (under secton 13(a)2, Chapter I ,
of the Code, as amended) and e cess profts net ncome (under
secton 711 (a), Chapter 2 , of the Code, as amended) for ta abe years
begnnng after December 31, 1939, but before anuary 1, 19 1, and
for ta abe years begnnng after December 31,19 0; and for the pur-
pose of computng corporaton surta net ncome (under secton
15(a), Chapter I , of the Code, as amended) for ta abe years begn-
nng after December 31,19 0.
Secton 13(a)2 of the Code, as amended, provdes that the term
u norma-ta net ncome means the ad|usted net ncome mnus
7 918 2 8
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5 19.23(c)- .
58
a certan credt for dvdends receved; and secton 13(a) 1 of the
Code, as amended, provdes that the term ad|usted net ncome
means the net ncome mnus a certan credt reatng to nterest
on obgatons of the Unted States and Government corporatons.
Secton 711(a) of the Code, as amended, provdes that the e cess
profts net ncome (for the purpose of the e cess profts ta m-
posed by secton 710, Chapter 2 , of the Code, as amended) for any
ta abe year begnnng after December 31.1939, sha be the norma-
ta net ncome as defned n secton 13(a)2 for such year, e cept that
certan ad|ustments, not matera to the questons heren presented,
sha be made.
Secton 216 of the Natona Industra Recovery ct, approved une
16,1933 ( 8 Stat.. 195, 208), for the frst tme mposed upon ncome of
corporatons an e cess-profts ta n the determnaton of whch
the decared vaue of ther capta was a basc factor: and a smar
u e cess-profts ta was mposed, successvey, by secton 702 of the
Revenue ct of 193 , by secton 106 of the Revenue ct of 1935 (before
and after amendment by secton 02 of the Revenue ct of 1936), b-
secton 602 of the Revenue ct of 1938, and by secton 600, Chapter 2 ,
of the Interna Revenue Code as orgnay enacted. The name of the
ta mposed by secton 600 of the Code was changed to decared
vaue e cess-profts ta , effectve February 10, 1939 (date of orgna
enactment of the Code), by secton 506(a) of the Second Revenue ct
of 19 0, n order more ready to dstngush such ta from the essen-
tay dfferent and addtona e cess profts ta mposed for ta abe
years begnnng after December 31,1939, by secton 710 of Chapter 2
of the Code, whch subchapter was nserted n the Code by secton 201
of the Second Revenue ct of 19 0.
In so far as ta abe years begnnng after December 31, 1939, but
before anuary 1, 19 1, are concerned heren, secton 23(c) of the
Code, as amended, effectve February 10,1939 (date of orgna enact-
ment of the Code), by secton 506(b) of the Second Revenue ct of
19 0, provded:
In computng net Income there sha be aowed as deductons:
Ta es Grnebay. Ta es pad or accrued wthn the ta abe year, e cept
Federa ncome, war-profts, and e cess-profts ta es (other than the
e cess-profts ta mposed by secton 106 of the Revenue ct of 1935 ( 9
Stat. 1019), or by secton 602 of the Revenue ct of 1938 (52 Stat. 507),
and other than the decared vaue e cess-profts ta Imposed by secton 600) ;
From the foregong, t s cear that the decared vaue e cess-
profts ta (orgnay named e cess-profts ta ) mposed by
secton 600 of the Interna Revenue Code, as amended, and the smar
e cess-profts ta mposed by secton 602 of the Revenue ct of
1938, and secton 106 of the Revenue ct of 1935 (before and after
amendment by secton 02 of the Revenue ct of 1936), pad or
accrued wthn the ta abe year, are deductbe for the purposes of
computng corporaton norma-ta net ncome (under secton
13(a)2 of the Code, as amended) and e cess profts net ncome
(under secton 711(a) of the Code, as amended) for ta abe years
begnnng after December 31, 1939, but before anuary 1, 19 1. It
s equay cear that the smar e cess-profts ta mposed by sec-
ton 702 of the Revenue ct of 193 , and by secton 216 of the Natona
Industra Recovery ct, s not deductbe for ether of those purposes.
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59
| I9.23(c -1.
Secton 15(a) of the Code, as amended (effectve for ta abe years
begnnng after December 31,19 0) by secton 10 (a) of the Revenue
ct of 19 1, provdes that the term corporaton surta net ncome
means the net ncome mnus a certan mted credt for dvdends
receved.
Secton 23(c) of the Code, as amended (effectve for ta abe years
begnnng after December 31, 19 0) by secton 202(a) of the Revenue
ct of 19 1, provdes n part:
In computng net ncome (here sha be aowed as deductons:
Ta es Generay.
(1) owance n gen-ra Ta es pad or accrued wthn the ta abe
year, e cept
( ) Federa Income ta es:
( ) war-profts and e cess-profts ta es mposed by Tte II of the
Revenue ct of 1 )17, Tte III of the Revenue ct of 1918, Tte III
of the Revenue ct of 1921, secton 218 of the Natona Industra
Recovery ct, or secton 7 - of the Revenue ct of 193 , or by any
such provsons as amended or suppemented;

(2) cess-profts ta under chapter |e -speca rues. For the pur-
poses of ths subsecton. In the case of te e cess-profts ta mposed by
Subchapter of Chapter 2
( ) The deducton sha be mted to the ta mposed for the ta abe
year, but any porton of such ta pad after the ta abe year sha be
consdered as havng been pad wthn the ta abe year;

In the ght of the reevant provsons and egsatve hstory of
the Revenue ct of 19 1, and the ndcated purpose of the amendment
of secton 23(c) of the Code by secton 202(a) of that ct, t s the
opnon of ths offce (hat the decned vaue e cess-profts ta
(orgnay named e cess-profts ta mposed by secton 600 of
the Code, as amended, and the smar e cess-profts ta mposed
by secton 602 of the Revenue ct of 1938, and by secton 106 of the
Revenue ct of 1935 (before and after amendment by secton 02 of
the Revenue ct of 1936), are not ncuded or referred to n secton
23(c) 1( ) of the Code, as amended by secton 202(a) of the Revenue
ct of 19 1, supra; n other words, they are not mposed by the
statutory provsons theren or by any such provsons as amended
or suppemented, wthn the purvew thereof. ccordngy, such
ta es, pad or accrued wthn the ta abe year, are deductbe, for the
aforementoned purposes, for ta abe years begnnng after December
SI. 19 0, as we as for ta abe years begnnng after December 31,
1939, but before anuary 1, 19 1; and are aso deductbe for the
purpose of computng corporaton surta net ncome (under sec-
ton 15(a) of the Code, as amended by secton 10 (a) of the Revenue
ct of 19 1) for ta abe years begnnng after December 31, 19 0.
vrtue of the e press provson n secton 23(c) 1( ) of the Code,
as amended by secton 202(a) of the Revenue ct of 19 1, the smar
e cess-profts ta mposed by secton 702 of the Revenue ct of
1931, and bv secton 216 of the Natona Industra Recovery ct, s
not deductbe for any of those purposes.
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19.23.(c)-2
60
Secton 19.23(c)-2: Federa dutes and e cse 19 2-7-10989
ta es. Mm. 5319
Interna revenue ta es mposed under the Interna Revenue Code
whch consttute aowabe deductons for Federa ncome ta
purposes.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, anuary 26,191 .
Coectors of Interna Revenue, Interna Revenue gents n Charge,
eads of Fed Dvsons of the Technca Staff, Other Offcers and
mpoyees of the ureau of Interna Revenue, and Others
Concerned:
1. Secton 23(c), Chapter 1, of the Interna Revenue Code, as
amended, ncudng the amendment effected by the Revenue ct of
19 1, permts the deducton from gross ncome of a ta es pad or
accrued wthn the ta abe year, e cept
(1)
( ) Federa ncome ta es;
( ) war-profts and e cess-profts ta es mposed by Tte II of the Reve-
nue ct of 1917, Tte III of the Revenue ct of 1918, Tte III of the Revenue
ct of 1921, secton 216 of the Natona Industra Recovery ct, or secton
702 of the Revenue ct of 193 , or by any such provsons as amended or
suppemented;
(C) ncome, war-profts, and e cess-profts ta es Imposed 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) ;
(D) estate, nhertance, egacy, successon, and gft ta es; and
( ) ta es assessed aganst oca benefts of a knd tendng to Increase the
vaue of the property assessed; but ths paragraph sha not e cude the
aowance as a deducton of so much of such ta es as s propery aocabe
to mantenance or nterest charges.
2. ddtona e ceptons to the genera rue regardng the deduct-
bty of ta es pad or accrued durng the ta abe year are the Federa
empoyment ta es eved upon empoyees and empoyee representatves
by the provsons of secton 1 00, 1500, and 1510 of the Code. Such
ta es are specfcay desgnated as not deductbe by the provsons
of sectons 1 02,1503, and 1512, respectvey, of the Code. Nether are
these ta es deductbe, as such, by the empoyers who, athough charged
by aw wth responsbty for deductng the amount thereof from wage
payments made by them to ther empoyees and the payment of such
sums to the coector, are not prmary abe wth respect thereto.
3. The ta es herenafter referred to consttute aowabe deductons
from the gross ncome of the person aganst whom they are eved,
for the ta abe year n whch pad or accrued (dependent upon the
accountng method empoyed by the ta payer), provded the amounts
thereof are not added to or made a part of the busness e penses of such
person, and/or are not added to or made a part of the cost of the
artces or quanttes of merchandse, or of servces, wth respect to
whch such ta es are pad.
. The chapters and sectons of the Code under whch the Federa
nterna revenue ta es are mposed are treated n ths mmeograph n
the order n whch they appear n the Code. The person who s en-
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61
19.23.(c)-2
tted to deduct the partcuar ta s desgnated n each nstance. The
term person as used heren means an ndvdua, a trust, estate,
partnershp, assocaton, company, or corporaton.
C PT R 2. DDITION L INCOM T S.
5. The decared vaue e cess-profts ta mposed by secton 600, Sub-
chapter , Chapter 2, of the Code s an aowabe deducton from the
gross ncome of the person upon whose ncome t s mposed as s the
e cess profts ta mposed by secton 710, Subchapter , Chapter 2, of
the Code. No other ta eved under Chapter 2 of the Code consttutes
sn aowabe deducton.
C PT R 6. C PIT L STOC T .
6. The capta stock ta under secton 1200, Chapter 6, of the Code s
deductbe from gross ncome by the corporaton or other organzaton
upon whch mposed. The ta accrues on the 1st day of the capta
stock ta ta abe year, . e., uy 1, e cept that wth respect to the cap-
ta stock ta ta abe year wthn whch the corporaton s organzed
the ta accrues on date of organzaton.
C PT R 7. T ON TR NSF RS TO OID INCOM T .
7. The ta mposed by secton 1250, Chapter 7, of the Code upon ct-
zens or resdents of the Unted States, domestc corporatons or partner-
shps, or trusts not foregn, who transfer stock or securtes to a foregn
corporaton as pad-n surpus or as a contrbuton to capta, or to a
foregn trust, or to a foregn partnershp, s an aowabe deducton
from the gross ncome of the persons makng such transfers.
C PT R 9. MPLOYM NT T S.
Subchapter . Federa Insurance Contrbutons ct.
8. The ta mposed by secton 1 10, Part II, Subchapter , Chapter
9. of the Code upon an empoyer wth respect to havng ndvduas n
hs empoy, s an aowabe deducton from the gross ncome of the
empoyer. s stated n paragraph 2 of ths mmeograph, the ta
mposed by secton 1 00, Part I, Subchapter , Chapter 9, s not
deductbe from gross ncome for purposes of the Federa ncome fa
ether by the empoyee upon whose ncome t s mposed or by the
empoyer who coects the amount of the ta from the empoyee
through a deducton from the atter s wages. In those nstances whore
the empoyer does not deduct the amount of the ta from the em-
poyee s wages, but pays such amount out of hs own pocket, the
amount of such payment s an aowabe deducton from the gross
ncome of the empoyer not as a ta , but as a busness e pense and
such amount must be ncuded n gross ncome by the empoyee.
Subchapter . mpoyment by Carrers.
9. The ta mposed by secton 1520. Part III, Subchapter , Chapter
9, of the Code upon an empoyer wth respect to havng ndvduas
n hs empoy s an aowabe deducton from the gross ncome of the
empoyer.
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19.23(o)-2.1
62
SU C PT C. F D R L UN MPLOYM NT T CT.
10. The ta mposed by secton 1600, Subchapter C, Chapter 9, of
the Code upon an empoyer wth respect to havng ndvduas n
hs empoy s an aowabe deducton from the gross ncome of the
empoyer. In connecton wth such ta t s to be remembered that
ony the net amount remanng after appcaton of the credts pro-
vded n secton 1601 w be aowabe as a deducton, nasmuch as-
the contrbutons to State unempoyment funds consttutng the meas-
ure of such credts are themseves aowabe deductons from the gross
ncome of the empoyer.
R ILRO D UN MPLOYM NT INSUR NC CT.
11. though contrbutons mposed upon empoyers and em-
poyee representatves by the Raroad Unempoyment Insurance
ct are not mposed under the Interna Revenue Code nor admn-
stered by the ureau of Interna Revenue and are, therefore, not
wthn the scope of ths mmeograph under a strct constructon of
the denned fed, but because the contrbutons themseves and ther
ncdents and measurements are strkngy smar to the ta mposed
by secton 1600 of the Code t s deemed advsabe to advert thereto
at ths pont. Such contrbutons consttute aowabe deductons
from the gross ncome of the empoyers or empoyee representatves
upon whch they are mposed.
MPLOY S T S UND R C PT R 9.
12. Whe not deductbe, as such, by ether the empoyees or the
empoyers, as ponted out n paragraph 2 of ths mmeograph, and to
that e tent aso not germane to the sub|ect of ths mmeograph, the
amount of the ta es upon the ncomes of empoyees provded for n
secton 1 00, Part I, Subchapter , Chapter 9, of the Code and n
secton 1500, Part I, Subchapter P , Chapter 9, of the Code may const-
tute aowabe deductons from the gross ncome of the empoyer con-
cerned as usness e penses under secton 23(a) 1 Chapter I. of
the Code n case the empoyer pays such sums out of hs own pocket.
In that event the amounts so pad consttute addtona compensaton
to the empoyees concerned and must be ncuded n ther gross ncomes
for Federa ncome ta purposes.
C PT R 10. DMISSIONS ND DU S.
Subchapter . dmssons.
13. The ta es on admssons under secton 1700 (a) and (b) of
Subchapter , Chapter 10, of the Code, as amended, are mposed upon
the amount pad for admsson, and are payabe by the person payng
for the admsson. Such ta es, accordngy, are deductbe from gross
ncome ony by the purchaser. Where an amount s pad n e cess of
the reguar or estabshed prce of admsson, whether n saes made
at the bo offce or at paces other than the bo offce, the e cess amount
s sub|ect to the addtona ta es mposed by subsectons (c) and (d)
of secton 1700. These addtona ta es are payabe by the person
seng the admsson at the e cess prce, and consequenty such add-
tona ta es are deductbe from gross ncome ony by the seer.
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63
19.23(o)-2
1 . The ta on admssons to any roof garden, cabaret, or smar
pace of entertanment as mposed by secton 1700(e) pror to the
amendment of such secton by secton 5 2 of the Revenue ct of 10 1.
s payabe by the person payng for the admsson. ffectve as o
10 a. m. on October 1, 19 1, secton 5 2 of the Revenue ct of 19 1
amended secton 1700(e) so as to change the bass for ta computaton
and to shft the abty for the tu to the person recevng the pay-
ment for admsson, refreshment, servce, and merchandse. ence,
cabaret ta es pad pror to 10 a. m. on Oc tober 1,19 1, are deductbe
from gross ncome by the person (. e., the patron) payng for the
admsson, whe cabaret ta es pad subsequent to 10 a. m. on Octo-
ber 1. 19 1, are deductbe from gross ncome by the person (. e., the
propretor or cabaret operator) recevng the payment for adms-
son, etc.
Subchaptkk . Dues.
15. The ta on dues or membershp fees and on ntaton fees m-
posed by secton 1710, Subchapter , Chapter 10, of the Code on
members of soca, athetc, or sportng cubs or organzatons, s m-
posed upon and s deductbe from gross ncome ony by the member.
C PT R 11. DOCTM NT8. OT INSTRUM NTS, ND PL YING C RDS.
16. The severa documentary stamp ta es mposed under Subchap-
ter , Chapter 11, of the Code by secton 1800 and
(a) Secton 1801 on the s ue of corporate securtes, . e., bonds,
debentures, certfcates of ndebtedness, etc.;
(b) Secton 1802(a) on the ssue of capta stock and smar
nterests;
(c) Secton 1802(b) on saes and transfers of capta stock and
smar nterests;
(d) Secton 180 on certan foregn nsurance poces;
e) Secton 1805 on transfers of nterests n sver buon; and
(/) Secton 1806 on certan passage tckets;
appy wth respect to any party to the ta abe transacton. such
ta es, therefore, are deductbe from gross ncome by the person who
as a party to the transacton, whether drecty or ndrecty through
an agent, purchased the stamps from the Government and used them
n payment of the ta by aff ng them to the document or sub|ect of
the ta and canceng them as requred by the aw and reguatons.
17. The partes to a ta abe transacton may agree among themseves
as to whch one sha pay the ta . Such agreement, however, does not
affect the ta abty of the partes and does not reeve any one of
them from payng the ta . ence, where such an agreement s made
but through defaut the ta s pad by a party other than the one who
had agreed to make the payment, the ta s nevertheess deductbe from
the gross ncome of the person who made the payment ; and such deduc-
ton s aowabe notwthstandng that the person who made the pay-
ment may be entted to cam rembursement from the party n defaut.
If n such case the person payng the ta s rembursed by the party n
defaut, the amount of the rembursement woud be ncudbe n hs
gross ncome.
18. Where the ta s pad by one of the partes to the. transacton but
the burden of the ta s shfted to another party to the transacton
for e ampe, where the amount of the ta s ncuded n the saes prce
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19.23(c)-2.
0
of the sub|ect matter of the ta the other party to the transacton s
not the ta payer entted to deduct the amount of the ta as such from
hs gross ncome. The other party to whom the burden of the ta was
shfted s entted to add the amount thereof to the cost of the sub|ect
matter of the ta for purpose of computng hs gross ncome from the
sae, use, or other dsposton thereof.
19. The ta on payng cards mposed by sectons 1800 and 1807, Sub-
chapter , Chapter 11, of the Code s mposed on the manufacturer
as that term s denned n secton 1831(a) and s deductbe from gross
ncome ony by such person. |obber, deaer, or consumer who rem-
burses the manufacturer for such ta , even though requred to do so by
terms of the contract under whch such artces are acqured, s not
entted to deduct from gross ncome the amount so rembursed as a
payment of ta ; but may add such amount to the cost of the artces
for purpose of computng hs gross ncome from the sae, use, or other
dsposton of the artces.
C PT R 12. S F D POSIT O S.
20. The ta on safe depost bo es mposed by secton 1850, Chap-
ter 12, of the Code s mposed on the person payng for the use of the
safe depost bo and s deductbe from gross ncome ony by such
person.
C PT R 13. CIRCUL TION OT R T N OF N TION L N S.
21. The ta on the amount of crcuaton ssued by any bank, asso-
caton, corporaton, company, or person, mposed by secton 1900,
Chapter 13, of the Code s mposed on the bank, etc., ssung the crcu-
aton and s deductbe from gross ncome ony by such bank, etc.
C PT R 1 COTTON FUTUR S.
22. The ta upon each contract of sae of any cotton for future
devery mposed by secton 1920, Chapter 1 , of the Code s mposed
upon the seer of the cotton nvoved n the contract of sae and s
deductbe from gross ncome ony by such person.
C PT R 15 TO CCO, SNUFF, CIG RS, ND CIG R TT S.
23. The ta es mposed by secton 2000, Chapter 15, of the Code upon
a tobacco, snuff, cgars, cgarettes, and cgarette paper manufactured
n or mported nto the Unted States, and sod by the manufacturer
or mporter, or removed for consumpton or sae, are mposed upon the
manufacturer or mporter and are deductbe from gross ncome ony
by such person.
2 . The foor stocks ta on cgarettes hed by any person for sae
on uy 1, 19 0, mposed by secton 2005 of the Code, as added b-
secton 212 of the Revenue ct of 19 0, s payabe by the person so hod-
ng cgarettes and s deductbe from gross ncome ony by such person.
C PT R 16. OL OM RG RIN . DULT R T D UTT R, ND PROC SS O
renovated butter.
Subchapter a. Oeomargarne.
25. The ta es mposed by secton 2301, Subchapter , Chapter 16, of
the Code upon oeomargarne whch s manufactured and sod, or
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19.23(c)-2.
removed for consumpton or use, are mposed upon the manufacturer
thereof and are deductbe from gross ncome ony by such person.
Subchapter . duterated and Process ob Renovated utter,
26. The ta es mposed by secton 2321, Subchapter , Chapter 16, of
the Code upon aduterated butter and upon process or renovated butter,
whch s manufactured or sod, or removed for consumpton or use, are
mposed upon the manufacturer thereof and are deductbe from gross
ncome ony by such person.
C PT R 17. FILL D C S .
27. The ta mposed by secton 2351, Chapter 17, of the Code upon
fed cheese whch s manufactured s mposed upon the manufacturer
thereof and s deductbe ony by such person.
C PT R 18. MI D FLOUR.
28. The ta mposed by secton 2381, Chapter 18, of the Code upon
the manufacture and sae of m ed four s mposed upon the manu-
facturer or packer thereof and s deductbe from gross ncome ony
by such person.
29. The ta mposed by secton 238 , Chapter 18, of the Code upon
a m ed fours, mported from foregn countres, s mposed upon the
mporter thereof and s deductbe from gross ncome ony by such
person.
C PT R 19. R T IL RS CIS T S.
30. (a) The retaers e cse ta es mposed by sectons 2 00, 2 01,
and 2 02 of Chapter 19 of the Code, as added by secton 552 of the
Revenue ct of 19 1, are payabe by the person seng the ta abe
artces at reta, and are deductbe from gross ncome ony by such
person. In genera, the artces sub|ect to the retaers e cse ta es
are as foows:
(1) The ta mposed by secton 2 00 appes to artces com-
mony or commercay known as |ewery, whether rea or mtaton;
pears, precous and semprecous stones, and mtatons thereof; ar-
tces made of, or ornamented, mounted or ftted wth, precous metas
or mtatons thereof; watches and cocks and cases and movements
therefor; god, god-pated, sver, sver-pated or sterng fatware
or hoow ware; opera gasses; orgnettes; marne gasses; fed gasses;
and bnocuars.
(2) The ta mposed by secton 2 01 appes to rtces made of
fur on the hde or pet, and artces of whch such fur s the component
matera of chef vaue.
(3) The ta mposed by secton 2 02(a) appes to toet prepara-
tons, . e., Perfumes, essences, e tracts, toet waters, cosmetcs,
etroeum |ees, har ok, pomades, har dressngs, har restoratves,
ar dyes, aromatc cachous, toet powders, and any smar substance,
artce, or preparaton, by whatsoever name known or dstngushed;
any of the above whch are used or apped or ntended to be used or
apped for toet purposes.
(b) Secton 2 02(b) provdes n part that the sae of any of the
artces descrbed n secton 2 02(a) to any person operatng a barber
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S 19.23 (c)-2.1
66
shop, beauty paror, or smar estabshment (referred to hereafter
as beauty paror) sha be consdered a sae at reta. s to such
saes, the ta s payabe by the person, . e., manufacturer, |obber,
or deaer, seng the ta abe artces to the beauty paror, and s
deductbe from gross ncome ony by such person.
(c) beauty paror does not ncur any e cse ta abty on ts
use of toet preparatons n gvng treatments to patrons. owever,
secton 2 02(b) further provdes that a resae of toet preparatons
by a beauty paror sha aso be sub|ect to ta as a sae at reta, and
that there sha be credted aganst the ta payabe wth respect to
such resae the amount of ta pad on the sae to the beauty paror.
s to such saes, the ta s payabe by the person operatng the beauty
paror, and s deductbe from gross ncome ony by such person, but
the deducton s mted to the net ta payabe by the beauty paror,
or the amount due after appyng as a credt the ta pad on the sae
to the beauty paror of the toet preparatons resod by t.
(d) Where the e cse ta pad by a manufacturer, |obber, or deaer
wth respect to toet preparatons used by a beauty paror n gvng
treatments to patrons s passed on to the beauty paror, the ta becomes
a part of the cost of the materas used by the beauty paror, and as
such may be ncuded n the operatng e penses of the Deauty paror
aowabe as ncome ta deductons. Where the e cse ta pad by
a manufacturer, |obber, or deaer wth respect to toet preparatons
resod by a beauty paror s passed on to the beauty paror, the ta
becomes a part of the cost of the toet preparatons resod by the beauty
paror, and as such may be ncuded by the beauty paror n the cost
of goods sod for ncome ta purposes. The ta so passed on to the
beauty paror by ts supper of the toet preparatons s propery
ncudbe n ts cost of goods sod; notwthstandng that such ta s
aso apped as a credt n determnng the net amount of the retaers
e cse ta payabe by the beauty paror on ts resae of the toet
preparatons.
C PT R 21. COCONUT ND OT R G T L OILS.
31. cept as provded n secton 2 78 of such chapter, the ta es
mposed by secton 2 70, Chapter 21, of the Code upon the frst domestc
processng of coconut and the other vegetabe os specfed n that
secton are mposed upon the frst domestc processng thereof as
defned n secton 2 77 of that chapter and those ta es are deductbe
from gross ncome ony by the person performng the frst domestc
processng.
32. Secton 2 78, Chapter 21, of the Code provdes that under the
crcumstances set forth theren the abty for the ta es mposed
under the chapter shfts from the person performng the frst domes-
tc processng to hs vendee. In such a case t necessary foows
that the ta s deductbe from the gross ncome of the vendee rrespec-
tve of whether the amount of the ta s pad by the vendee to the
vendor or drect by the vendee to the coector.
C PT R 22. FIS , NIM L, N G T L OILS.
33. The ta es mposed by secton 2 90, Chapter 22, of the Code at the
rates and upon the substances enumerated n that chapter are mposed
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19.23(o)-2.
upon the mportaton thereof nto the Unted States after May 10,
193 , and are a abty of the mporter. ccordngy, such ta es are
deductbe from gross ncome ony by the mporter.
C PT R 28. N RCOTICS.
Subchapter . Opum and Coca Leaves.
3 . The ta mposed by secton 2550, Subchapter , Chapter 23, of
the Code upon opum, coca eaves, any compound, sat, dervatves, or
preparaton thereof, produced n or mported nto the Unted States,
and sod, or removed for consumpton or sae, s mposed upon the
mporter, manufacturer, producer, or compounder, and s deductbe
from gross ncome ony by such person.
Subchapter . Opum for Smokng.
35. The ta mposed by secton 2567, Subchapter , Chapter 23, of
the Code upon a opum manufactured n the Unted States for
smokng purposes s mposed upon the manufacturer thereof and s
deductbe from gross ncome ony by such person.
Subchapter C. Marhuana.
36. The ta es mposed by secton 2590, Subchapter C, Chapter 23, of
the Code upon the transfers of marhuana descrbed theren are mposed
n genera upon the transferee and are deductbe from gross ncome
ony by such person. owever, n the event of a transfer n voaton
of secton 2591 wthout an order form and wthout payment of the
transfer ta mposed upon the transferee, the transferor aso s abe
for the ta and f pad by such transferor the amount thereof may be
deducted from hs gross ncome.
C PT R 2 . W IT P OSP ORDS M TC S.
37. The ta mposed by secton 2651, Chapter 2 , of the Code upon
whte phosphorus matches manufactured, sod, or removed s mposed
upon the manufacturer of such matches and s deductbe from gross
ncome ony by such person.
C PT R 25. FIR RMS.
Subchapter . Pstos and Revovers.
38. The ta mposed by secton 2700, Subchapter , Chapter 25, of
the Code upon pstos and revovers soa or eased by the manufacturer,
producer, or mporter s mposed upon the manufacturer, producer, or
mporter and s deductbe from gross ncome ony by such person.
Subchapter . Machne Guns and Short- arreed Frearms.
39. The ta es mposed by secton 2720, Subchapter , Chapter 25, of
the Code upon frearms transferred n the contnenta Unted States
are mposed upon the transferor and are deductbe from gross ncome
ony by such person.
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19.23(c)-2.
68
C PT R 26 LI UOR.
Subchapter . Dsted Sprts.
0. The ta es mposed by secton 2800, Subchapter , Chapter 26, of
the Code upon dsted sprts as denned n such secton are mposed
upon the dster or mporter or nterna revenue bonded warehouse-
man and are deductbe from gross ncome ony by such person.
Subchapter . Wnes.
1. The ta es mposed by secton 3030, Subchapter , Chapter 26, of
the Code upon the varous knds of wnes specfed theren are mposed
upon the sae or the remova for consumpton or sae of such wnes and
are, therefore, a abty of the producer or mporter. Consequenty,
the amount of such ta es may be deducted from gross ncome ony by
the producer or mporter or propretor of a bonded storeroom upon
whom such abty rests.
2. The ta mposed by secton 3031, Subchapter , Chapter 26, of
the Code upon brandy or sprts used n the fortfcaton of wnes s
mposed upon the producer of such wnes and s deductbe from gross
ncome ony by such person.
SU O PT D. F RM NT D LI UORS.
3. The ta mposed by secton 3150, Subchapter D, Chapter 26, of
the Code upon the fermented quors desgnated theren s mposed
upon the brewng or manufacture and sae, or remova for consumpton
or sae, wthn the Unted States, and s a abty of the brewer. c-
cordngy, the amount of such ta es may be deducted from gross ncome
ony by the brewer.
C PT R 27 OCCUP TION L T S.
. The speca ta es mposed by secton 3200,3206,3210, 3215.3220,
3230, 3250, 3260 of Subchapter , Chapter 27, of the Code, and by sec-
tons 3267 and 3268, as added to such Subchapter by sectons 555 and
556 of the Revenue ct of 19 1, are mposed upon the persons engaged
n the occupatons specfed n each of those sectons and are deductbe
from gross ncome ony by such persons.
C PT R 29. M NUF CTUR RS CIS ND IMPORT T S.
SU C PT R . M NUF CTUR RS CIS T S.
5. The manufacturers e cse ta es mposed upon the artces spec-
fed n sectons 3 00, 3 01, 3 03, 3 0 , 3 05, 3 06, 3 07, 3 09, 3 12, and
3 13, whch are sted beow, are mposed upon the manufacturer, pro-
ducer, or mporter and are deductbe from gross ncome ony by such
persons:
(a) Secton 3 00. Tres and nner tubes.
(6) Secton 3 01. Toet preparatons. (Termnated effectve as of October 1,
19 1.)
(c) Secton 3 03. utomobes, trucks, busses, traers, motorcyces, and parts
and accessores therefor.
(d) Secton 3 0 . Rado recevng sets, phonographs, phonograph records, and
musca nstruments.
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69
19.23(c)-2
(e) Secton 3 05. Refrgerators, refrgeratng apparatus, and ar-condtoners.
(/) Secton 3 06(a) (1). Sportng goods.
(g) Secton 3 06(a) (2). Luggage.
(ft) Secton 3 06(a) (3). ectrc, gas, and o appances.
() Secton 3 06(a) ( ). Photographc apparatus.
(/) Secton 3 06(a) (5). ectrc sgns.
(fc) Secton 3 06(a)(6). usness and store machnes.
(I) Secton 3 0(5(a) (7). Rubber artces.
(m) Secton 3 06 (a)(8) . Washng machnes.
(n) Secton 3 06(a) (9). Optca equpment.
(o) Secton 3 06(a) (10) ectrc ght bubs and tubes.
(p) Secton 3 07. Frearms (e cept those ta ed under sectons 2700 and 2720),
shes, and cartrdges.
( ) Secton 3 09. Matches,
(r) Secton 3 12. Gasone.
( ) Secton 3 13. Lubrcatng os.
6. The foor stocks ta on tres and tubes hed by any person for
sae on October 1, 19 1, mposed by secton 3 00(b) of the Code,
as added by secton 535(c) of the Revenue ct of 19 1, and the
foor stocks ta on matches hed by any person for sae on October
1, 19 1, mposed by secton 3 09(b) of the Code, as added by secton
5 7 of the Revenue ct of 19 1, are payabe by the persons who so
hed the respectve ta abe artces and are deductbe from gross
ncome ony by such persons.
7. The ta mposed upon eectrca energy by secton 3 11, Sub-
chapter , Chapter 29. of the Code s mposed upon the vendor of
such energy and s deductbe from gross ncome ony by such
person.
C PT R 30. TR NSPORT TION ND COMMUNIC TION.
Subchapter . Transportaton of Oh. hy Ppe Lne.
8. The ta mposed by secton 3 60, Subchapter , Chapter 30,
of the Code upon the transportaton of crude petroeum and qud
products thereof by ppe ne s mposed upon the person furnshng
such transportaton and s deductbe from gross ncome ony by
such person.
Subchapter . Teegraph, Teephone, Rado, and Cabe Factes.
9. The severa ta es mposed by secton 3 65, Subchapter , Chap-
ter 30, of the Code, as amended by secton 5 8 of the Revenue ct
of 19 1, wth respect to teephone or rado teephone messages; tee-
graph, cabe, or rado dspatches; eased wre, and teetypewrter, or
takng crcut speca servce; any wre and equpment servce, n-
cudng stock quotaton amd nformaton servces, burgar aarm or
fre aarm servce; and oca teephone servce are mposed upon
the person payng for the servces or factes and are deductbe
from gross ncome ony by such person.
Subchapter C. Transportaton of Persons.
50. The ta es mposed by secton 3 C9, Subchapter C, Chapter 30,
of the Code, as added by secton 55 of the Revenue ct of 19 1,
wth respect to amounts pad wthn the Unted States for trans-
portaton of persons by ra, motor vehce, water, or ar, and to
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S 19.23fc)-2.
70
amounts pad for seatng or seepng accommodatons n connecton
wth such transportaton, are mposed upon the person payng for the
servces or factes and are deductbe from gross ncome ony by
such person.
C PT R 31. DOCUM NTS ND OT R INSTRUM NTS.
51. The ta es mposed by secton 3 80, Chapter 31, of the Code for
and n respect of the documents and other nstruments mentoned and
descrbed n sectons 3 81 and 3 82 are sub|ect to the same admns-
tatve provsons that appy to the stamp ta es mposed under Chap-
ter 11 wth respect to documents, other nstruments, and payng cards.
ccordngy, the rues stated n paragraph 16 reatve to the stamp
ta es mposed under Chapter 11 aso appy to the stamp ta es mposed
under Chapter 31.
C PT R 32. SUG R.
Subchapter . Manufacture.
52. The ta es mposed by secton 3 90, Subchapter , Chapter 32.
of the Code upon manufactured sugar manufactured n the Unted
States are mposed upon the manufacturer as defned n secton 3 92
and are deductbe from gross ncome ony by such person.
C PT R 33. ITUMINOUS CO L.
53. The ta mposed by secton 3520, Chapter 33, of the Code upon
the sae or other dsposa of btumnous coa produced wthn the
Unted States when sod or otherwse dsposed of by the producer s
mposed upon the producer and s deductbe from gross ncome ony
by such person.
C PT R 83 . US OF MOTOR ICL S ND O T3.
5 . The ta es mposed by secton 35 0 of the Code upon the use of
motor vehces and boats s a abty, n the case of motor vehces,
of the person n whose name the vehce s, or s requred to be, regs-
tered, and n the case of boats, of the owner. The ta es n queston
are deductbe from gross ncome ony by the persons named.
G N R L.
55. The defense ta supermposed upon varous of the ta es
mposed under the Code for years pror to 19 1 s, for purposes of ths
mmeograph, merey an addton to the ta to whch t attaches and s
deductbe, or not, n the same manner and to the same e tent as s
the ta to whch t s added.
56. Mmeograph 5200 (C. . 19 1-2, 80) s revoked. Correspond-
ence regardng ths mmeograph shoud refer to the number thereof
and to the symbos IT: TM.
Norman D. Cann,
ctng Commssoner.
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71
5 19.23 (c)-2.
Secton 19.23(c)-2: Federa dutes and e cse 19 2-11-1102
ta es. I. T. 3539
( so Secton 23(a), Secton 19.23(a)-.)
INT RN L R NU COD .
Where the owner of a con-operated amusement or gamng devce
pays to the occupant of the premses on whch the devce s ocated
the amount of the ta mposed by secton 3267(a) of the Interna
Revenue Code, as added by secton 555 of the Revenue ct of 19 1,
such owner may deduct the amount as a busness e pense for
Federa ncome ta purposes.
The amount so receved by the occupant of the premses const-
tutes addtona Income to hm, but he s entted to deduct such
amount as a ta n hs Federa ncome ta return. If the occupant
of the premses s aso the owner of the devce, the ta mposed
by secton 32t7(a of the Code may te deducted as a ta for Fed-
era Income tu purposes n the year when pad or accrued, de-
pendng upon the method of accountng empoyed.
dvce s requested wth respect to the deducton for Federa
ncome ta purposes of the speca ta mposed by secton 3267(a)
of the Interna Revenue Code, as added by secton 555 of the Revenue
ct of 19 1, on con-operated amusement and gamng devces. The
nqury refers partcuary to cases where the occupant of the
premses on whch the machne (devce) s ocated s not the owner
of the machne, and the atter, n order to satsfy the former, pays
the amount of the ta to hm n order that the machne may be a-
owed to operate on such premses.
Secton 3267(a) of the Interna Revenue Code, supra, mposes a
speca ta upon every person who mantans for use, or permts
the use of, a con-operated amusement or gamng devce on any
pace or premses occuped by hm. Secton 3267(b) of the Code
defnes the term con-operated amusement and gamng devces
as meanng certan descrbed types of machnes, and secton 3267(c)
of the Code provdes that an operator of a pace or premses who
mantans for use or permts the use of any con-operated devce
sha be consdered, for the purposes of Subchapter (genera pro-
vsons reatng to regstraton, payment of ta , returns, etc.), to
be engaged n a trade or busness n respect of each such devce.
Secton 323.21 of Reguatons 59 (19 1 edton), whch secton
reates to persons abe for ta , provdes that every person who
mantans for use or permts the use of, a con-operated amusement
or gamng devce on any pace or premses occuped by hm, s
abe to speca ta , and that an operator of such pace or premses
s consdered; for the purposes of the aw, to become engaged n a
trade or busness n respect of each such devce as of the day the
devce s paced on hs premses for use thereon.
Secton 23(c) of the Interna Revenue Code 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. Secton 19.23(c)- of Reguatons 103 states that
n genera ta es are deductbe ony by the person upon whom they
are mposed.
In vew of the foregong, t s hed that the owner of a con-operated
amusement or gamng devce, who pays to the occupant of the prem-
ses on whch the devce s ocated the amount of the ta mposed
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19.23(k)-.
72
by secton 3267(a) of the Interna Revenue Code (as added by secton
555 of the Revenue ct of 19 1) on such devces, may, for Federa
ncome ta purposes, deduct such amount as a busness e pense under
secton 23(a) of the Code. The amount so receved by the occupant
of the premses consttutes addtona ncome to hm, but he s en-
tted to deduct such amount as a ta n hs Federa ncome ta
return. If the occupant of the premses s aso the owner of the
devce, the ta mposed by secton 3267(a) of the Code, supra, may
be deducted as a ta for Federa ncome ta purposes n the year
when pad or accrued, dependng upon the method of accountng
empoyed. (See paragraph of Mm. 5319, page 60, ths uetn;
see generay I. T. 3382, C. . 19 0-1, 12, and rungs theren cted.)
S CTION 23(k). D DUCTIONS FROM GROSS
INCOM : D D TS.
Secton 19.23 (k)-: ad debts. 19 2-13-11036
I. T. 35 2
INT RN L R NU COD .
Where a debt has been charged off and deducted from gross
ncome n a partcuar year and the deducton s dsaowed by the
ureau because the debt was not actuay worthess n that year, the
ta payer s entted to the deducton n the ater year when ts worth-
essness s defntey ascertaned.
dvce s requested whether the M Company w be entted to a
deducton for bad debts n a ater year where such debts were charged
off and deducted from gross ncome n the year n whch the ta payer
consdered the debts to be worthess, but the ureau dsaowed the
deducton on the ground that the worthessness thereof was defntey
ascertanabe n the ater year.
The M Company owns a the outstandng debentures of the N
Company whose chef assets are ts stock hodngs n varous sub-
sdares ocated n enemy and enemy-occuped countres. The M Com-
pany s of the opnon that such debentures became worthess n 19 1
and were propery charged off and deducted from gross ncome for
that year, but n order to avod any controversy whch mght arse
n the event of a determnaton by the ureau at a ater date that the
debentures became worthess n a year subsequent to 19 1, nqury s
made whether the charge-off n 19 1 w support the deductons n
the year or years n whch such tems are defntey ascertaned to be
worthess.
Secton 23(k) of the Interna Revenue Code provdes:
(1) Genera Rue. Debts ascertaned to be worthess and charged off wthn
the ta abe year (or, n the dscreton of the Commssoner, a reasonabe add-
ton to a reserve for bad debts) ; and when satsfed that a debt s recoverabe
ony n part, the Commssoner may aow such debt, n an amount not n e cess
of the part charged off wthn the ta abe year, as a deducton. Ths para-
graph sha not appy n the case of a ta payer, other than a bank, as defned n
secton 10 , wth respect to a debt evdenced by a securty as defned n paragraph
(3) of ths subsecton.
(2) Securtes ecomng Worthess. If any securtes (as defned n para-
graph (3) of ths subsecton) are ascertaned to be worthess and charged off
wthn the ta abe year and are capta assets, the oss resutng therefrom sha,
n the case of ta payer other than a bank, as defned n secton 10 , for the
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73
S 19.23(k)-.
purposes of ths chapter, be consdered as a oss from the sae or e change,
on the ast day of such ta abe year, of capta assets.
(3) Defnton of Securtes. s used In ths subsecton the term secur-
tes means bonds, debentures, notes, or certfcates, or other evdences of
ndebtedness, ssued by any corporaton (ncudng those ssued by a government
or potca subdvson thereof), wth nterest coupons or n regstered form.
In Georga ngneerng Co. v. Commssoner (21 . T. .. 532,
acquescence, C. . -. 2 (1931)), t was hed that n debt whch
was charged off n 1921, but dened as a deducton for that year on the
ground that t was not actuay ascertaned to be worthess n that
year, dd not deprve the ta payer of the deducton n 1923 when the
facts showed that t was actuay worthess n 1923. The oard sad
(page 5 8) :
The fact that the pettoner camed that t had ascertaned the
worthessness of the debt n 1921 does not deprve t of the deducton In 1923
when the facts show that t was actuay worthess n 1 23. The ascertanment,
that s, the fndng out or makng certan of the fact, occurred In 11 23. The fact
aso appears that n 1923 the debt had aready been charged off and remaned
charged off. In that year, therefore, the two requrements as to ascertanment
of worthessness and charge-off e sted.
In vew of the above, t s hed that where a debt has been charged
off and deducted n a partcuar year and the deducton s dsaowed
by the ureau on the ground that the debt was not worthess n that
year, the ta payer s entted to the deducton n the ater year when ts
worthessness s defntey ascertaned.
Secton 19.23(k)-: ad debts. 19 2-16-11060
T. D.5136
TITL 26 INT RN L R NU C PT R I, SU C PT R . P RT 19.
INCOM T .
Deducton n respect of bad debt charged off In prevous ta abe
year. Reguatons 103 amended.
Treasury Department.
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 19.23(k)-(6) s amended by nsertng after the second
sentence thereof the foowng new sentence:
If a ta payer cams a deducton for a debt for the ta nbc year wthn whch the
debt s charged off and such deducton s dsaowed for such year, a deducton may
be aowed for a subsequent ta abe year wthn whch the debt s ascertaned to
be worthess, the charge-off n the pror year, f consstenty mantaned as such,
beng suffcent to meet the requrement of the Interna Revenue Code.
(Ths Treasury decson s ssued under the authorty contaned n
secton 62 of the Interna Revenue Code (53 Stat., 32, 26 U. S. C, 19 0
ed., 62).)
Guy T. everno,
Commssoner of Interna Revenue.
pproved pr 10,19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster pr 13, 19 2, 11.15 a. m.)
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19.23(10-1.
7
Secton 19.23(k)-: ad debts. 19 2-18-11076
( so Secton 117, Secton 19.117-1.) I. T. 35 8
INT RN L R NU COD ND PRIOR R NU L WS.
Treatment for Federa Income ta purposes of a transacton
whereby a credtor accepts a vountary conveyance of property, In-
cudng property pedged as securty for the debt n parta or n
fu satsfacton of the unpad porton of the ndebtedness.
I. T. 3121 (C. . 1937-2, 138) modfed nnd I. T. 3167 (C. .
1938-1, 190) revoked.
In Commssoner v. Svreckes (120 Fed. (2d), 517, Ct. D. 155 ,
page 201, ths uetn), the queston presented was whether a transac-
ton n whch the ta payer (credtor) surrendered promssory notes
and coatera securty n consderaton of a deed to certan rea estate,
aso mortgaged to her as securty for the notes, resuted n a capta
oss, an ordnary oss, or a bad debt. The court hed that the trans-
acton resuted n a bad debt for whch the ta payer was entted to
a deducton under secton 23(k) of the Revenue ct of 193 n the
amount of the dfference between the sum due and the far market
vaue of the rea estate. The decsons n ngham v. Commssoner
(105 Fed. (2d), 971) and Commssoner v. Natona ank of Com-
merce of San ntono, Te . (112 Fed. (2d), 9 6), are n accord wth
the decson n the Spreckes case.
The above-cted decsons |ustfy the adopton of a genera rue
that where a credtor accepts a vountary conveyance of property,
ncudng property pedged as securty for the debt, n parta or n
fu satsfacton of the unpad porton of the ndebtedness, the recept
of the property so conveyed, to the e tent of ts far market vaue
at that tme, sha be consdered as the recept of payment on the
obgatons satsfed. If the vaue of such property s ess than the
bass of such obgatons, the dfference may be deducted for Federa
ncome ta purposes as a bad debt f ascertaned to be worthess and
charged off wthn the ta abe year, e cept that f the obgatons sat-
sfed are securtes (as defned n sectons 23(k)3 and f(f) of the
Interna Revenue Code and correspondng provsons of pror reve-
nue aws), any gan or oss resutng from the transacton s a capta
gan or oss sub|ect to the provsons of secton 117 of the Interna
Revenue Code and correspondng provsons of pror revenue aws.
If the property so acqured s subsequenty sod, the bass for deter-
mnng gan or oss s the far market vaue of the property at the
date of acquston. (See secton 19.23 (k)-3 of Reguatons 103
and smar provsons of pror reguatons whch reate to property
acqured n a forecosure proceedng as dstngushed from that ac-
qured through a vountary conveyance.)
Secton 19. - of Reguatons 103 and correspondng artces of
pror reguatons have been amended by Treasury Decson 5113 page
88, ths uetn to permt the appcaton of the above-stated rue to
cases nvovng deferred payment saes of rea property not on the
nstament pan.
In I. T. 3121 (C. . 1937-2, 138) t was hed, among other thngs,
that where a debt secured by a mortgage s compromsed by the
debtor transferrng tte to the mortgaged property to the credtor
n e change for a reease of the debtor from hs obgaton to the
credtor, the oss, f any, sustaned by the credtor s to be treated
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75
19.23(m)-16.
as arsng from a sae or e change of a capta asset, and s thus
mted by secton 117 of the Revenue cts of 193 and 1936. I. T.
3121, supra, hods further that the oss, f any, s measured 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.
In I. T. 3167 (C. . 1938-1,190) t was hed (syabus) that 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 mta-
ton contaned n secton 117(d) of the Revenue ct of 1936 f the
stock s a capta asset wthn the defnton of secton 117(b)
of that ct.
In vew of the adopton of the rue set forth heren, I. T. 3121,
supra, s modfed and I. T. 3167, supra, s revoked.
The concuson reached heren s, of course, appcabe to cases n
whch a credtor accepts securtes n payment of an ndebtedness. In
appyng such concuson, t s mportant to dstngush cases n
whch a debt s pad from cases n whch the credtor ses or other-
wse transfers the ndebtedness to a thrd party.
S CTION 23(1). D DUCTIONS FROM GROSS
INCOM : D PR CI TION.
Secton 19.23(1)-1: Deprecaton.
INT RN L R NU COD .
utomobes owned and used by rura ma carrers n devery of
ma. (See L T. 35 1, page 1.)
S CTION 23 (m). D DUCTIONS FROM GROSS
INCOM : D PL TION.
Secton 19.23(m)-16: Charges to capta and 19 2-1-109 7
to e pense n the case of o and gas wes. G. C. M. 2303
INT RN L R NU COD ND R NU CTS OF 1932, 193 . 1936. ND 1938.
The opton granted by secton 1923(m)-16(o) of Reguatons
103 to charge to e pense ntangbe drng and deveopment costs
Incurred by o and gas operators ncudes amounts pad to an
ndependent contractor for the drng of a we under a
footage contract, uness such contract Is a turnkey con-
tract. Payments to a contractor under a contract that s nether a
turnkey nor a footage contract are capta e pendtures If the con-
tractor s an ndependent contractor, but may be charged to
e pense under the opton f the contractor s an empoyee or agent
of the operator rather than an ndependent contractor.
n opnon s requested whether n vew of recent decsons by
the oard of Ta ppeas, amounts pad an ndependent contractor
for the drng of an o we on a footage bass may be deducted as n-
tangbe drng and deveopment costs under secton 19.23(m)-
16(a) of Reguatons 103.
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19.23(m)-16.
76
The opton to charge to e pense ntangbe drng and deveop-
ment costs contaned n the cted reguaton was frst granted n
paragraphs 502 and 503, artce 170, of Reguatons 33, revsed,
approved October 3, 1917, and n artce 223 of Reguatons 5.
When the opton was frst granted producers generay were dong
ther own drng. Soon thereafter ndependent contractors be-
came engaged n the we-drng busness and have deveoped an
estabshed ndustry based upon the status of ndependent contractor.
In Od Farmers O Co. v. Commssoner (12 . T. ., 203,
acquescence, C. . II-2, 30 (1928)), amounts pad contractors n
accordance wth turnkey contracts under whch the contractors
furnshed a casng| fue, and materas, and turned over the com-
peted wes to pettoner for a stpuated prce were hed not
deductbe under the opton, the oard statng that payment for
wes when competed bear no resembance to payments for wages,
fue, repars, haung, etc.
The dstncton drawn by the cted decson has been consstenty
foowed by the oard n subsequent cases. mounts pad to a con-
tractor under a turnkey contract have been consstenty dsa-
owed as e pense tems under the ureau practce. In 1932 the cted
provson of the reguatons was restated n ts present form to
refect detas of admnstratve appcaton and practce of ong
standng. (T. D. 333, C. . I-1, 31 (1932).) The above-stated
restrcton on the opton as respects amounts pad contractors under
turnkey contracts was not wrtten nto the reguatons but the
anguage of the reguatons formng the bass for the stated ds-
tncton as to such payments was eft essentay unchanged, and the
prevousy estabshed restrcton on the opton contnued n force.
In the 1932 restatement, t was e pressy stated that Drng
and deveopment costs sha not be e cepted from the opton merey
because they are ncurred under a contract provdng for the dr-
ng of a we to an agreed depth, or depths, at an agreed prce per
foot or other unt of measurement. In the case of /. Rudman v.
Commssoner (36 . T. ., 803), acquescence on ths pont, C. .
1938-1, 26), the oard apparenty regarded the quoted anguage as
permttng amounts pad to a contractor under a footage contract
to be treated as deductbe e penses under the opton; provded the
contract s not a turnkey contract as defned by the oard dec-
sons. That decson aso makes t cear that a contract s no ess
a footage contract because t rected a tota stpuated ump sum
consderaton for drng to a depth of 2,950 feet nstead of an
agreed prce per foot.
There remans for dscusson the status of payments under con-
tracts whch are nether turnkey nor footage contracts as
those terms are defned above whch was the queston presented to
and decded n the recent cases of Retsa Drng Co. v. Commssoner
( 2 . T. ., 1057, acquescence, C. . 19 1-1, 9) (appea pendng
C. C. . 5) and W. D. mbrose v. Commssoner ( 2 . T. ., 1 05,
nonacquescence, C. . 19 1-1, 12) (appea pendng C. C. . 5).
Under the contracts nvoved n the Retsa case, the contractors dd
not agree to furnsh a matera and abor needed. Under one con-
tract the operator agreed to furnsh fue, water, storage tanks, and
connectons. In the other contract the operator agreed to furnsh
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77
19.23(m)-16.
u water, fue, tanks, fow nes and a man to supervse the drng
of the sand area and the runnng of the casng, and aso to swab n
the wes. The oard hed such contracts were not turnkey
contracts. The oard aso ponted out that the fact that the pro-
ducng sands n the fed coud be estmated wthn a few feet, to-
gether wth the contractua provson that the wes were to be
dred to the Woodbne sand found at 3,600 -3,650 , was not the
equvaent of the stpuaton n the contract n the Rudman case
to dr to a depth of 2,950 feet, so as to quafy the contracts
theren as footage contracts under the Rudman case.
The amounts pad to the contractors n the Retsa case were hed
not to be ntangbe drng and deveopment costs, the oard sayng:
the contracts here were not contracts for the empoyment of abor
and the purchase of suppes, matera, and equpment. The reatonshp be-
tween the partes was not that of empoyer and empoyee, but that of Inde-
pendent contractors. The pettoner dd not hre abor or buy materas and
suppes, but agreed to pay an Independent contractor a stated sum for a
fnshed |ob, eavng It to the contractor to make hs own dea for abor and
equpment, and the fact that the pettoner may have furnshed some of the
suppes and some tems of equpment does not change the contracts so as to
brng any porton of the amounts pad to the contractors wthn the provsons
of artce 23(m)-16.
It thus appears that amounts pad to ndependent contractors under
contracts whch are nether turnkey nor footage contracts are
not wthn the opton to e pense ntangbe drng costs.
Such rue s confrmed by the oard s decson n mbrose v. Com-
mssoner, supra. In that case the contracts were cost-pus con-
tracts. The oard dstngushed that case from the Retsa case by
stressng features of the contract whch t beeved estabshed the
empoyer-empoyee reatonshp between the operator and the drer,
and concuded that payments made by the operator were drect e -
pendtures of the operator for ntangbe drng and deveopment
costs under the pertnent reguaton. Such decsons show that n
the opnon of the oard payments made to ah ndependent contrac-
tor under a contract whch s nether a turnkey nor footage
contract, as those terms are defned above, are not wthn the opton,
whe payments to an empoyee or agent of the operator are wthn
the opton.
It shoud be noted that some of the so-caed payments nvoved
n the above-cted cases were n-o payments. Such n-o payments
are not payments by the operator. The operator n such cases does
not personay owe or pay the contractor anythng. Such n-o
payments are n reaty the drer s share of producton ncome ars-
ng from o payment rghts acqured by the drer by reason of hs
nvestment (consstng of the amounts e pended by hm n drng
and competng the we) n an economc nterest n o and gas n
pace. s the operator does not pay the drer anythng there s
no payment by hm representng ether e pense or capta e pend-
ture to hm. (See G. C M. 22730, C. . 19 1-1, 21 .)
Summarzng the above dscusson, t s the opnon of ths offce
that under the controng cases:
(1) Payments to a contractor under a turnkey contract as
defned by the cases cted as controng are capta e pendtures,
though the contract may be aso a footage contract as defned
above.
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19.23(m)-16.
78
(2) Costs ncurred by operators under a footage contract, whch
s not aso a turnkey contract, represent ntangbe drng and
deveopment costs whch may be charged to e pense under the opton.
(3) Payments to a contractor under a contract that s nether a
turnkey nor a footage contract are capta e pendtures f the
contractor s an ndependent contractor; but may be charged to
e pense under the opton f the contractor s an empoyee or agent
of the operator rather than an ndependent contractor.
( ) ntangbe drng and deveopment cost ncurred n dr-
ng and deveopment carred on by operators through empoyees or
agents are wthn the opton.
. P. Wenchb,
Chef Counse, ureau of Interna Revenue.
Secton 19.23(m)-16: Charges to capta and 19 2-22-11109
to e pense n the case of o and gas wes. G. C. M. 232 3
INT RN L R NU COD ND R NU CTS OF 1932, 193 , 1930. ND 1938.
Intangbe drng and deveopment costs Incurred by o and gas
operators may be deducted as busness e penses under the opton
granted by secton 19.23(m)-16(a) of Reguatons 103 and cor-
respondng provsons of pror reguatons Irrespectve of the ega
reatonshp between the ta payer and the drer, 1. e., whether the
drer s an Independent contractor or an empoyee.
G. C. M. 2303 page 75, ths uetn revoked.
In G. C. M. 2303 page 75, ths uetn , whch was based upon the
decsons of the oard of Ta ppeas n W. D. mbrose et a. v.
Commssoner ( 2 . T. ., 1 05) and Retsa Drng Co. v. Com-
mssoner ( 2 . T. ., 1057), t was hed that the opton granted by
secton 19.23(m)-16(a) of Reguatons 103 to charge to e pense
ntangbe drng and deveopment costs ncurred by o and gas
operators ncudes amounts pad to an ndependent contractor for the
drng of a we under a footage contract, uness such contract s
a turnkey contract; and that payments to a contractor under a
contract that s nether a turnkey nor a footage contract are capta
e pendtures f the contractor s an ndependent contractor, but may
be charged to e pense under the opton f the contractor s an empoyee
or agent of the operator rather than an ndependent contractor.
The Crcut Court of ppeas for the Ffth Crcut n the recent cases
of Commssoner v. W. D. mbrose et a. (decded pr 8, 19 2).
Retsa Drng Co. v. Commssoner (decded pr 17, 19 2), and
. C. Laster et a. v. Commssoner (decded pr 17, 19 2) hed,
contrary to the concuson e pressed n G. C. M. 2303 , supra, that
payments representng ntangbe drng and deveopment costs made
by operators of o and gas propertes under contracts whch were not
true turnkev contracts were wthn the opton provded n artce
23(m)-16 of Reguatons 86 and thus deductbe as busness e penses,
rrespectve of the ega reatonshp between the ta payer and the
drer, . e., whether the drer s an ndependent contractor or an
empoyee.
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79
19.23(o)-.
Inasmuch as the resuts of the cted court decsons are n accord
wth the generay recognzed ureau practce prevang pror to the
cted oard decsons, G. C. M. 2303 , supra, s hereby revoked.
M. . Lemng,
ctng Chef Counse, ureau of Interna Revenue.
S CTION 23(o). D DUCTIONS FROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS.
Secton 19.23(o)-: Contrbutons or gfts 19 2-20-11096
by ndvduas. I. T. 35 9
INT RN L R NU COD .
commttee n charge of a fund consstng of ndvdua contr-
butons whch are to be used for the purpose of defrayng the
traveng and hosptazaton e penses of, and to provde support
for, a specfc ndvdua whe he recovers from a serous Iness s
not such an organzaton as s contempated by secton 23(0)2 of
the Interna Revenue Code, as amended, and contrbutons to the
fund are not deductbe n the ndvdua ncome ta returns of the
donors.
dvce s requested whether contrbutons to a fund descrbed
herenafter are deductbe n the Federa ncome ta returns of the
donors for the year 19 1.
It s stated that , formery an empoyee of the M Corporaton,
became serousy and t was necessary for hm to take e tended
eave wthout pay. fter he had been n a santarum for a perod
of two years, the physcans decded that he coud not recover -uness
removed to a hgher and drer cmate. Snce coud not meet the
e penses, hs frends n the M Corporaton organzed the fund,
desgnatng three ndvduas as trustees thereof, and the Fund
Commttee was formed. The money coected by the commttee n
the form of contrbutons to the fund n 19 1 was deposted wth a
bank n trust, the bank beng advsed to dsburse such money n
accordance wth wrtten nstructons from the trustees for the pur-
pose of defrayng s traveng and hosptazaton e penses.
In order that a contrbuton may be deducted n the Federa ncome
ta return of an ndvdua donor, payment must be made wthn the
ta abe year to or for the use of an organzaton of the character
specfed n secton 23(o) of the Interna Revenue Code, as amended
by secton 22 (a) of the Revenue ct of 1939. Secton 23(o)2 of the
Code, as so amended, authorzes (n the case of an ndvdua) the
deducton of contrbutons or gfts made to or for the use of:
corporaton, trust, or communty chest, fund, or foundaton, created or
organzed n the Unted States or n any possesson thereof or under the aw
of the Unted States or of any State or Terrtory or of any possesson of the
Unted States, organzed and operated e cusvey for regous, chartabe,
scentfc, terary, or educatona 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 Indvdua, and no substanta part of the
actvtes of whch Is carryng on propaganda, or otherwse attemptng, to
nfuence egsaton;
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5 19.23(q)-.
80
The tota deducton authorzed by secton 23 (o), supra, may not
e ceed 15 per cent of the ta payer s net ncome as computed wthout
the beneft of such secton.
Whether contrbutons to the fund consttute aowabe deduc-
tons n the ncome ta returns of the ndvdua donors depends
upon whether such contrbutons are to be used e cusvey for
chartabe purposes wthn the meanng of secton 23 (o)2 of the
Interna Revenue Code, as amended. It s apparent that the con-
trbutons were made to the fund for the support of whe he s
recoverng from hs ness and that the money so contrbuted can
not propery be used for any other purpose.
In Cap ndrew Tes v. Commssoner (38 . T. ., 5 5) the
oard of Ta ppeas consdered a camed deducton representng
a contrbuton to a fund beng rased to provde a musca educaton
for a young gr who dd not have suffcent means of her own to
obtan such an educaton. The oard hed that the amount con-
trbuted was not a ega deducton from gross ncome under secton
23 (n) of the Revenue ct of 1932, whch corresponds to secton 23 (o)
of the Interna Revenue Code, as amended, and sad n ts opnon:
We do not thnk that t was the ntenton of Congress to aow
the deducton from gross ncome of a chartabe gft whch was for the beneft
of ony one person.
Other decsons ndcate that the term chartabe purposes, as
used n secton 23(o)2 of the Interna Revenue Code, as amended,
and n correspondng provsons of pror revenue aws, has reference
to pubc rather than prvate chartes and that a contrbuton
to a fund s not deductbe n the Federa ncome ta return of a
donor where specfc ndvduas are desgnated as benefcares.
(See ames Sprunt enevoent Trust v. Commssoner, 20 . T. .,
19, and enry C. Du os v. Commssoner, 31 . T. ., 239.)
In vew of the foregong, t s hed that the Fund Commttee s
not such an organzaton as s contempated by secton 23 (o) 2 of
the Interna Revenue Code; as amended, and contrbutons to the
fund are not deductbe n the ndvdua ncome ta returns of
the donors.
Secton 19.23(o)-: Contrbutons or gfts by ndvduas.
INT RN L R NU COD .
Contrbutons to the Navy Reef Socety. (See I. T. 3550,
page 10 .)
S CTION 23(q). D DUCTIONS FROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS
Y CORPOR TIONS.
Secton 19.23 (q)-: Contrbutons or gfts by corporatons.
INT RN L R NU COD .
Contrbutons to the Navy Reef Socety. (See I. T. 3550,
page 10 .)
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81
19.25- .
S CTION 25. CR DITS OF INDI IDU L
G INST N T INCOM .
Secton 19.25- : Persona e empton of head 19 2-9-11003
of famy. Mm. 5327
( so Secton 25, Secton 19.25-6.)
Rues governng the aowance of persona e empton as the head
of a famy, and credt for dependents.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, February 9, 191 .
Coectors of Interna Revenue, Interna Revenue gents n Charge,
eads of Fed Dvsons of the Technca Staff, and Other Offcers
and mpoyees of the ureau of Interna Revenue Concerned:
ead or a Famy.
1. Secton 25(b) of the Interna Revenue Code provdes for a per-
sona e empton of 1,500 for the head of a famy wthout defnng the
term. smar e empton has been provded for n a pror ncome
ta cts aso wthout defnng such term.
2. The reguatons promugated under the Code and the pror
Revenue cts have defned the term as:
an ndvdua who actuay supports and mantans n one househod
one or more ndvduas who are cosey connected wth hm by bood reatonshp,
reatonshp by marrage, or by adopton, and whose rght to e ercse famy
contro and provde for these dependent ndvduas s based upon some mora or
ega obgaton.
3. The above-quoted defnton of the head of a famy sets forth the
foowng tests whch must be met by a camant for that status:
(a) The camant must actuay support and mantan one or more
dependent ndvduas.
(b) The support and mantenance must be n one househod.
(c) The dependents must be cosey connected wth the camant by
bood reatonshp, reatonshp by marrage, or by adopton.
(d) The camant s rght to e ercse famy contro and provde for
the dependents must be based upon some mora or ega obgaton.
D P ND NTS ND CTU L SUPPO T.
. dependent ndvdua, wthn the meanng of 3(a), above, may
be more than 18 years of age and need not necessary be ncapabe of
sef-support because of menta or physca defects, as s requred n the
case of a dependent for whom the credt of 00 s aowabe. It s
requred that the dependent must n fact be fnancay dependent upon
hs benefactor for support and mantenance and must receve from such
benefactor more than one-haf of the tota sum necessary for that pur-
pose. The amount necessary for support of the dependent s mportant
ony n those nstances where the entre support s not supped by the
camant for the head of a famy status and s then to be determned
upon the bass of the facts present n the ndvdua case. n nd-
vdua s not n fact dependent f he has an ncome adequate for hs
support even though such ncome w not permt the contnuance of a
stye of vng to whch the ndvdua has been accustomed.
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19.25- .
62
ON OUS OLD.
5. The second test, set forth n paragraph 3( ), above, fnds amp-
fcaton n the reguatons (secton 19.25- , Reguatons 103), where t
s provded that the e empton w appy ( ) f the father s absent
on busness, or a chd or other dependent s awav at schoo or on a
vst, the common home beng st mantaned, or ( ) f, through force
of crcumstances, a parent s obged to mantan hs dependent chdren
wth reatves or n a boardng house whe he ves esewhere; but the
e empton w not appy, rrespectve of the queston of support, f,
wthout necessty, the dependent contnuousy makes hs home apart
from hs benefactor, or n the case of a resdent aen wth chdren
abroad. though the above e ampes refer to the father, and a
parent, the crcumstances there cted woud be equay appcabe to
any other ndvdua who s a head of a famy. For e ampe, a
dvorced father, forced to ve apart from hs famy, but furnshng
ther entre support and havng substanta rghts of famy contro
whch he e ercses, meets the one househod test wthn the meanng
of the reguatons. Ths s true of an ndvdua furnshng n the
famy homestead the entre support of dependent reatves when he,
hmsef, because of hs professon, s forced to resde n a dfferent
ocaty. So, too, n the case of a dependent whose menta or phvsca
condton requres attenton and/or treatment whch precudes vng
n one househod.
D GR OF R L TIONS IP R UIR D.
6. The thrd test, stated n paragraph 3(c), above, requres a cose
connecton wth the camant by bood, marrage, or adopton. For
ths purpose, cose connecton by bood e tends to the parents, grand-
parents, and other progentors n the drect ne, nea descendants,
brothers and ssters of the whoe or haf bood, unces, aunts, nephews,
and neces. Frst cousns by bood and cousns of esser degree are
not cosey connected by bood reatonshp.
cose connecton by marrage e tends to stepchdren, stepssters,
stepbrothers, father and mother n aw, and brothers and ssters n
aw. Other degrees of reatonshp by marrage are consdered too
remote to quafy.
dopton through ega proceedngs accordng to the aw of the
|ursdcton s requred n order to meet the test of reatonshp by
adopton. ega guardan does not, soev by reason of such rea-
tonshp, quafy as cosey connected wthn the meanng of the
reguatons.
RIG T TO RCIS F MILY CONTROL ND O LIG TION TO SUI PORT.
7. The rght to e ercse famy contro s generay the rght to
determne the manner n whch the affars of the househod sha be
conducted and ths rght fas naturay to hm who furnshes the
means for ts support and mantenance. In the case of a dvorce
where the support s supped by reason of a court order wthout
conferrng any substanta rght of contro over the dependents, the
test s not met. If, however, n the case of a dvorce, the husband
suppyng the soe means of support pursuant to the decree, s granted
n the decree, and e ercses, a substanta degree of contro, he meets
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83
19.25- .
the prescrbed test even though hs rght of contro s not e cusve.
Occasonay t may happen that the one who furnshes the ma|or
porton, but not a, of the means of support w fa to meet the test
of havng the rght to e ercse famy contro. Such nstances w
most commony arse where a son or a daughter contrbutes to house-
hod funds a sum n e cess of that contrbuted by the natura head of
the famy, but does not n fact thereby secure the rght to contro.
ach such case must be decded upon the partcuar facts.
The test of whether there s a ega obgaton to support another
s reatvey smpe. mora obgaton for ncome ta purposes s
recognzed ony to the e tent of support of ndvduas specfed n
paragraph 6 above.
Cmdt for Dependents.
8. Secton 25(b)2 of the Interna Revenue Code, pror to ts amend-
ment by secton 113 of the Revenue ct of 19 1, provded a credt of
00 for each person (other than husband or wfe) dependent upon
and recevng hs chef support from the ta payer f such dependent
person s under 18 years of age or s ncapabe of sef-support because
mentay or physcay defectve. The amendment referred to em-
nated the credt for one de| Mdent f the ta payer woud not occupy
the status of head of a famy e cept by reason of such dependent(s).
The effect of the amendment s to equaze the amount of the credts
aowabe under practcay dentca crcumstances to a marred nd-
vdua and the head of a famv.
9. Secton 19.25-6 of Reguatons 103 estabshes the foowng
tests whch must be met by a ta payer seekng a credt for a depend-
ent (on account of the provsons of secton 21 of the Code, non-
resdent aens not resdents of ether Canada or Me co can not
under any crcumstances quafy for the credt) :
(a) The person to whom the support s furnshed must be dependent
upon the ta payer.
(b) The ta payer must furnsh the chef support of the person
camed as a dependent.
(c) The dependent person must be under 18 years of age or n-
capabe of sef-support because mentay or physcay defectve.
D P ND NCY.
10. The degree of dependency whch must be shown to e st n order
to be entted to the 00 credt s dentca wth that set forth n para-
graph of ths mmeograph. The dependency must be actua fnan-
ca dependency and not mere ega dependency unaccompaned by
actua support. chd under 18 wth separate ncome from a trust n
an amount suffcent for hs support, but not requred by the terms of
the nstrument to be apped for that purpose, s a dependent of hs
parent for ncome ta purposes f that parent s egay abe for and
actuay furnshes the support of the chd. mnor under 18 years
of age wth separate earnngs suffcent for hs support, n the absence
of emancpaton, may entte hs parent to a dependency credt under
the genera rues appcabe to dependents. In such a case the mnor s
earnngs must be ncuded n the parent s return. Whether or not the
mnor nas been emancpated depends upon the aw of the State as
apped to the facts n each case.
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19. 1-1.
8
C I F 8UITORT.
11. To furnsh the chef support of ; dependent means to furnsh
more than one-haf of the sum requred for that purpose. Ths test s
essentay the same as the one to be met n quafyng as head of a
famy whch s dscussed n paragraph of ths mmeograph.
M NT L OR P YSIC L D FICI NCY.
12. The menta or physca defect renderng a dependent ncapabe
of sef-support need not be a permanent affcton. The credt, or a
prorated part thereof, s aowabe wth respect to ndvduas who by
reason of temporary mpared heath are ncapabe of sef-support
provded the other necessary quafcatons e st. Od age aone may
consttute a suffcent menta or physca defect.
G N R L.
13. The statements contaned n ths mmeograph represent the pres-
ent atttude of the ureau. In the appcaton of the provsons of
ths mmeograph to specfc cases, any subsequent rungs of the
ureau, or any subsequent decsons of the oard of Ta ppeas or
the courts whch have been accepted by the ureau and are contrary
to the provsons of ths mmeograph, shoud be taken nto consd-
eraton.
Norman D. Cann,
ctng Commssoner.
Secton 19.25-6: Credt for dependents.
INT RN L R NU COD .
Rues governng aowance of credt. (See Mm. 5327, page 81.)
P RT I . CCOUNTING P RIODS ND M T ODS OF CCOUNTING.
S CTION 1. G N R L RITL .
Secton 19. 1-1: Computaton of net ncome. 19 2-1-109 8
( so Secton 23(c), Secton 19.23(c)-; Mm. 5297
Secton 131, Secton 19.131-1.)
rtsh bocked accounts as reated to ncome from rtsh
sources to be reported on ncome ta returns fed wth the Unted
States; to payment of rtsh ta es wth respect to any ncome
ncuded n such accounts; and to vauaton of rtsh current assets
at the begnnng and end of the ta abe year for purposes of deter-
mnng ncome from the rtsh branch of a domestc ta payer s
busness.
Rates of converson of rtsh pounds sterng to Unted States
doars appcabe to ncome of varous casses from Great rtan
reazabe from rtsh accounts other than the above.
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85
f 19. 1-1.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, December 16,19 1.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Other Persons Concerned:
The e stng system of so-caed bocked accounts and reated
accounts mantaned by the Unted ngdom ncdent to the contro
by that Government of foregn e change and foregn trade trans-
actons presents from the standpont of Federa ncome ta aton two
probems:
(a) The amount of gross ncome from sources wthn the Unted
ngdom to be reported on Federa ncome and e cess profts ta
returns; and
(b) The foregn e change rates to be apped under the present
methods of rtsh governmenta e change contro n the converson
to Unted States dc ars of ncome from such sources recevabe n
rtsh pounds sterng and ncudbe n such returns.
The rates of e change, n turn, affect deductons from gross n-
come under secton 23(c) of the Interna Revenue Code, credts aganst
Unted States ncome ta under secton 131, Interna Revenue Code,
for rtsh ncome ta es, and converson rates of current assets as
shown by the books of account of rtsh brandes of a domestc
ta payer s busness, the vauaton of whch at the begnnng and end
of the year s a factor n te determnaton of ncome from rtsh
sources. The questons presented affect ctzens of the Unted States
resdent ether n the Unted States or n other countres (ncudng
the Unted ngdom), aen resdents of the Unted States, domestc
partnershps, trusts, and corporatons, and foregn corporatons op-
eratng n the Unted States and camng deductons for rtsh
ta es aocabe to ther ncome from sources wthn the Unted States.
The requrement of the rtsh Treasury that bocked accounts
be opened by certan authorzed banks n Great rtan under Regu-
aton 3 of Defense (Fnance) Reguatons 1939. as amended, be-
came effectve November 23, 19 0 (under Notce from the ank
of ngand). The tems whch may be credted ony to bocked
accounts n Great rtan coverng payments to a nonresdent of
that country are:
(a) Sterng proceeds of securtes drawn for repayment or ma-
turng after the date of Notce from the ank of ngand, or
surrendered after the date thereof for cashng before maturty. Ths
does not appy to Natona savngs certfcates, 3 per cent defense
bonds, or Treasury bs ssued by the rtsh Government.
(b) mounts to be dstrbuted foowng the sae or wndng up
of companes or the dssouton of partnershps.
(c) Legaces and smar payments.
a) Capta payments arsng out of settements.
(e) Proceeds of the sae of rea estate, furnture, pctures, |ewery,
or other movabe assets stuated n the Unted ngdom other than
goods mported for sae n the ordnary course of trade.
The ony way, e cept by speca permsson of the ank of ng-
and, that a nonresdent of the Unted ngdom may reaze on the
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I 19. 1-1.1
86
bocked account n whch sums to hs credt are frozen, s by
converson wth permsson nto specfed governmenta securtes
from whch such nonresdent may receve nterest n sterng whch,
as ncome, s avaabe to hm through regstered account at the
offca e change rate estabshed by the rtsh Treasury. The
offca rate woud aso appy to converson of rtsh ncome ta
pad wth respect to ths tem. ny ncome such as capta gans
otherwse frozen nto any of the capta tems covered by subdvsons
(a), (b), (c), (d), and (e), above, pad nto the bocked account
s not reazabe n any amount and, therefore, not ncudbe n gross
ncome for Federa ncome ta purposes. cept as noted above,
therefore, bocked accounts do not nfuence the amount of rtsh
ncome nor the e change rate at whch such ncome s brought nto
a domestc return, the rate of converson of rtsh ta es, or the
converson of rtsh current assets n the determnaton of ncome.
Income from rtsh sources of varous knds (e cusve of capta
gans), such as saares, pensons, commssons, professona fees, n-
terest on mortgages and securtes, rents, dvdends, patent and copy-
rght royates, trade-mark fees, and profts on commerca transac-
tons receved by a ta payer (whether resdng n Great rtan or
esewhere), f payabe n sterng, whe not wthn the scope of the
bocked account aready dscussed, w be converted to doars at
the offca rate of e change quoted by the ank of ngand as
of the date the payments were made or, n the case of a ta payer on
the accrua bass, then as of December 31 of the ta abe year. Ths
rate s the ony reazabe e change rate for converson of pounds
nto, doars, or vce versa, as a resut of the fact that any payments
n sterng or equvaent doars are reeased under reguatons of
the rtsh Treasury ony through controed accounts wth banks
or other prescrbed nsttutons or frms set up as Speca accounts,
egstered accounts, or Sterng area accounts, whch do not
permt payments to eave the country at other than the offca
rate.
The ob|ectve of the rtsh Government n settng up these
accounts, namey, to nsure that n so far as possbe the trade of
Great rtan be conducted on the bass of offca rates of
e change quoted by the ank of ngand| has been so far reazed
that there s tte free sterng e change now avaabe and there
s very tte dfference between the controed offca e change
rate and the free e change rate on sterng st avaabe on open
market. For reasons smar to those stated above, the rates of
e change, both for converson of rtsh current assets at the begn-
nng and end of the ta abe year and for converson of rtsh ta es
pad wth respect to the ncome nvoved, ether for foregn ta
credt purposes or deducton from gross ncome n the ta payer s
Unted States return, shoud be taken at the offca rate.
The above nstructons are not ntended to be apped to cases
where actua reazaton of the rtsh ncome, or effectuaton of the
payment of rtsh ta es, can be shown to have been accompshed at
rates dfferent from the rtsh offca rate.
These nstructons are based on the e stng stuaton n regard to
e change and fnance between the Unted States and Great rtan
and are sub|ect to modfcaton by events occurrng from tme to
tme.
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87
19. 1-1.
Correspondence regardng ths mmeograph shoud refer to the
number thereof and to the symbos IT: TM.
Gut T. everng,
Commssoner.
Secton 19. 1-1: Computaton of net ncome. 19 2-8-10997
( so Secton 111, Secton 19.111-1.) I. T. 3533
INT RN L R NU COD .
Method of reportng ncome to be empoyed by the M Company on
account of machnes eased to the N Company for use by t upon Gov-
ernment contracts where there Is an opton for the Government to pur-
chase the machnes and a recapture provson.
dvce s requested as to the proper treatment, for Federa ncome
ta purposes, of payments receved by the M Company from the N
Company under a ease contract coverng certan machnes to be used
n connecton wth Government contracts, where there s an opton for
the Government to purchase the machnes and a recapture provson.
Two machnes were eased by the M Company to the N Company
n connecton wth a Government contract hed by the atter com-
pany. These machnes cost appro matey 17a; doars each, and had
a vaue under the contract of 23a doars each. The contract pro-
vdes for a basc renta of 2.3a; doars per month consstng of a spe-
cfed number of hours. Provson s made for decreased payments
n case the machnes are n use for ony a part of a month, and for
ncreased payments n case of overtme use durng any month. Sec-
ton of the contract provdes:
When and f the tota renta pad to the essor for any pece of equpment
sha equa the vaue thereof, pus 1 per cent per month for each month or frac-
ton thereof such pece of equpment sha have been n use, no further renta
sha be pad to the essor and tte to the equpment sha vest n the Govern-
ment, the essor deverng to the Government free of any and a ens and
encumbrances tte to such pece of equpment. t the competon of the work
beng performed by the essee under the prncpa contract, or upon termna-
ton of the prncpa contract, as provded n artce of the prncpa con-
tract, the Government may at ts opton purchase any pece of equpment by
payng the essor the dfference between the vauaton of such pece of equp-
ment, pus 1 per cent per month for each month or part thereof such pece of
equpment sha have been In use and the tota renta therefor pad for such
pece of equpment, provded that f such payment Is made by the Government,
the essor sha dever to the Government, free of any and a ens and encum-
brances, tte to such pece of equpment.
On ths bass the vaue of each machne woud be fuy recovered
n 10 months provded the basc renta of 2.3a doars s receved
each month, and tte to the machne woud pass to the Government
upon recept of further rent n the amount of 1 per cent a month for
the tme the machne was n use. In case a machne s not n use
for suffcent tme for tte to pass through recept of rentas and the
Government e ercses ts opton to acqure tte, the baance of the
vaue of the machne not aready recovered, pus 1 per cent a month
for the tme the machne was n use, woud be receved as a snge
payment.
Upon the bass of the above, and under authorty of secton 1 of
the Interna Revenue Code reatng to accountng perods and meth-
ods of accountng, there may be reported as ncome n each ta abe
year that porton of a amounts receved under the contract whch
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19. - .
88
represents the percentage of proft n a such recepts, so ong as the
tota of such recepts does not e ceed 23a doars, the vaue of each
machne f ed n the contract. Ths shoud be computed as foows:
Doar:
Contract vaue 23
Cost 17
Proft on the transacton O
Percentage of proft to contract vaue. 20.08 per cent.
Payments for months at 2. doars were receved durng the ta abe year
19 1.
Payments receved ( 2.3 doars) 9.2
Proft for year (20.08 per cent of 9.2 doars) 2. #
ny amounts whch represent a f ed fee receved n e cess of the
contract vaue of each machne, 22 doars, shoud be reported as
100 per cent proft.
In the event the amounts receved do not equa the contract vaue
of the machnes and the Government fas to e ercse ts opton, and
the M Company repossesses the machnes, gan or oss shoud be com-
puted for the year n whch repossesson occurs. Such gan or oss s
to be measured by the dfference between the far market vaue of the
machnes repossessed and the bass n the hands of the M Company
of the unpad porton of the contract vaue (that s, the unrecovered
cost) wth proper ad|ustments for any other amounts reazed or
costs ncurred n connecton wth the repossesson. The far market
vaue of the machnes w be represented by ther cost ess a reason-
abe amount of deprecaton to the date of repossesson.
Ths accountng method of returnng ncome shoud be used n the
case of a contracts of the M Company of ths same character, but t
shoud not be used n the case of other contracts whch are substan-
tay dfferent.
S CTION 2. P RIOD IN W IC IT MS OF
GROSS INCOM INCLUD D.
Secton 19. 2 1: When ncuded n gross ncome.
INT RN L R NU COD .
Interest (on saary deductons) pad upon death of a cv servce
empoyee of the Unted States and saary of decedent for ta abe
perod pror to hs death. (See I. T. 3557, page 35.)
S CTION . INST LLM NT SIS.
Secton 19. - : Deferred-payment sae of 19 2-5-10981
rea property not on nstament pan. T. D. 5113
TITL 26 INT RN L R NU . C PT R L SU C PT R , P RTS 3, 9, ND
19. INCOM T .
mendng secton 19. - of Reguatons 103, artce - of
Reguatons 101, 9 , and 86, artce 35 of Reguatons 77 and 7 ,
and artce 0 of Reguatons 69 reatng to gan or oss upon re-
possesson of rea property upon defaut under deferred payment
sae not on the nstament pan, where tte had prevousy passed
to the purchaser.
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89
5 19. .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph 1. Secton 19. - of Reguatons 103 Part 19, Tte
26, Code of Federa Reguatons, 19 0 Sup. and artce - of
Reguatons 101 secton 9. - , Tte 26, Code of Federa Regua-
tons, 1939 Sup. are amended by strkng from the second paragraph
the ast four sentences and by nsertng n eu thereof the foowng:
If the vendor has prevousy transferred tte to the purchaser, and the pur-
chaser defauts n any of hs payments, and the vendor accepts a vountary
reconveyance of the property, n parta or fu satsfacton of the unpad
porton of the purchase prce, the recept of the property so reacqured, to
the e tent of ts far market vaue at that tme, ncudng the far market
vaue of f ed Improvements paced on the property by the purchaser, sha
be consdered as the recept of payment on the obgatons satsfed. If the far
market vaue of the property s greater than the bass of the obgatons of
the purchaser so satsfed (generay, such bass beng the far market vaue of
such obgatons prevousy recognzed In computng ncome), the e cess con-
sttutes ordnary ncome, and f the vaue of such property s ess than the
bass of such obgatons, the dfference may be deducted as a bad debt f
ascertaned to be worthess and charged off wthn the ta abe year, e cept
that f the obgatons satsfed are securtes (as defned n secton 23(k)(3)
and secton 117(f)), any gan or oss resutng from the transacton s a capta
gan or oss sub|ect to the provsons of secton 117. If the property reacqured
s subsequenty sod, the bass for determnng gan or oss s the far market
vaue of the property at the date of reacquston ncudng the far market vaue
of the f ed mprovements paced on the property by the purchaser. See secton
19.23(k)-3 artce 23(k)-3 of Reguatons 101 wth respect to property re-
acqured n a forecosure proceedng.
Par. 2. rtces - of Reguatons 9 secton 8. - , Tte 26,
Code of Federa Reguatons and of Reguatons 86 are amended by
strkng from the second paragraph the ast four sentences and by
nsertng n eu thereof the foowng:
If the vendor has prevousy transferred tte to the purchaser, and the pur-
chaser defauts n any of hs payments, and the vendor accepts a vountary
reconveyance of the property, n parta or fu satsfacton of the unpad por-
ton of the purchase prce, the recept of the property so reacqured, to the
e tent of ts far market vaue at that tme, ncudng the far market vaue
of f ed mprovements paced on the property by the purchaser, sha be con-
sdered as the recept of payment on the obgatons satsfed. If the far
market vaue of the property s greater than the bass of the obgatons of
the purchaser so satsfed (generay, such bass beng the far market vaue
of such obgatons prevousy recognzed n computng ncome), the e cess
consttutes ordnary ncome, and f the vaue of suc property Is ess than the
bass of such obgatons, the dfference may be deducted as a bad debt f
ascertaned to be worthess and charged off wthn the ta abe year, e cept
that f the obgatons satsfed are of the cass specfed n secton 117(f),
any gan or oss resutng from the transacton s a capta gan or oss sub|ect
to the provsons of secton 117. If the property reacqured s subsequenty
od, the bass for determnng gan or oss s the far market vaue of the
property at the date of reacquston ncudng the far market vaue of the
f ed mprovements paced on the property by the purchaser. See artce
23(k)-3 wth respect to property reacqured n a forecosure proceedng.
Par. 3. rtce 35 of Reguatons 77 and of 7 and artce 6 of
Reguatons 69 are amended by strkng from the second paragraph
the ast four sentences and nsertng n eu thereof the foowng:
If the vendor has prevousy transferred tte to the purchaser, and the pur-
chaser defauts In any of hs payments, and the vendor accepts a vountary
7 018
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19.51- .
90
reconveyance of the property, In parta or fu satsfacton of the unpad porton
of the purchase prce, the recept of the property so reacqured, to the e tent
of ts far market vaue at that tme, ncudng the far market vaue of
f ed Improvements paced on the property by the purchaser, sha be con-
sdered as the recept of payment on the obgatons satsfed. If the far
market vaue of the property s greater than the bass of te obgatons of
the purchaser so satsfed (generay, such bass beng the far market vaue
of such obgatons prevousy recognzed n computng Income), the e cess con-
sttutes ordnary ncome, and f the vaue of such property s ess than the
bass of such obgatons, the dfference may be deducted as a bad debt f
ascertaned to be worthess and charged off wthn the ta abe year. If the
property reacqured s subsequenty sod, the bass for determnng gan or
oss s the far market vaue of the property at the date of reacquston In-
cudng the far market vaue of the f ed mprovements paced on the property
by the purchaser. See artce 193 153 of Reguatons 69 wth respect to
property reacqured n a forecosure proceedng.
(Ths Treasury decson s ssued under the authorty contaned
n secton 62 of the Interna Revenue Code (53 Stat., 32, 26 U. S. C,
Sup. , 62), secton 62 of the Revenue cts of 1938, 1936, 193 , 1932,
and 1928 (52 Stat., 80. 26 U. S. C, Sup. I , 62; 9 Stat., 1673,
26 U. S. C, Sup. II, 62; 8 Stat., 700, 26 U. S. C, 62; 7 Stat., 191;
5 Stat., 810), and secton 1101 of the Revenue ct of 1926 ( Stat.,
111).)
Norman D. Cann,
ctng Commssoner of Interna Revenue.
pproved anuary 26, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster anuary 28, 19 2, 11 a. m.)
P RT . R TURNS ND P YM NT OF T .
S CTION 51. INDI IDU L R TURNS.
Secton 19.51- : erfcaton of returns. 19 2-1 -110 7
I. T. 35 6
INT RN L R NU COD .
Income ta returns of cvan empoyees at rmy and Navy bases
beyond the contnenta mts of the Unted States may not be sworn
o before rmy offcers or offcas of the War Department. owever,
such returns may be sworn to before certan desgnated offcers of the
Navy or Marne Corps n accordance wth the authorzaton of the
Secretary of the Navy under authorty of artce 69 of the rtces
for the Government of the Navy (Tte 3 , U. S. C. ., secton 1200).
mercan ctzens resdng n regons of Newfoundand, where t s
mpractcabe or fnancay burdensome to have the oath on ther
returns admnstered by a consu or an authorzed offcer of the Navy
or Marne Corps, may have ther sgnatures wtnessed by two persons
n accordance wth the procedure adopted wth regard to appcatons
for passports and regstratons.
dvce s requested as to the authorty of offcas of the War or
Navy Department or offcers of the rmy or Navy to admnster the
oaths requred on Federa ncome ta returns fed by cvans resd-
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19.51- .
ng at mtary bases n Newfoundand. ttenton s caed to the
fact that many of such cvans are statoned consderabe dstances
from the Unted States consuate and the makng of the oath n the
prescrbed manner s frequenty mpractcabe or fnancay burden-
some.
Secton 19.51- of Reguatons 103 provdes n part :
T|e oath or affrmaton may be admnstered by any person duy
authorzed to admnster oaths for genera purpows 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. Persons n the nave or mtary servce
of the Unted States may verfy ther returns before any ofh u authorzed to
admnster oaths for the purposes of those respectve servces.
Tte 10, U. S. C. ., secton 1586 (artce 11 , rtces of War), pro-
vdes:
ny udge advocate or actng |udge advocate, the presdent of a genera or spe-
ca court-marta, any summary court-marta, the tra |udge advocate or any
assstant tra |udge advocate of a genera or speca court-marta the presdent
or the recorder of a court of nqury, or of a mtary board, any offcer desgnated
to tak. a deposton, any offcer detaed to conduct an Investgaton, and the
ad|utant of any command sha have power to admnster oaths for the purposes
of the admnstraton of mtary ustce and for other purposes of mtary
admnstraton; and In foregn paces where the rmy may 1 servng sha have
the genera powers of a notary pubc or of a consu of the Unted States In the
admnstraton of oaths, the e ecuton and acknowedgment of ega Instruments,
the attestaton of documents, and a other forms of notara acts to be e ecuted
by persons sub|ect to mtary aw. ( une , 1920, ch. 227, Subchapter II, secton
1, 1 Stat., 810.)
It s apparent that the above-quoted statute does not vest any off-
ca of the rmy or of the War Department wth authorty to admns-
ter oaths for genera purposes wthn the meanng of secton 19.51- of
Reguatons 103, supra. Moreover, t has been hed that the phrase
persons n the nava or mtary servce of the Unted States, as used
n the reguatons, means ony the commssoned, noncommssoned,
and ensted personne of the mtary servce, and, therefore, does not
ncude cvan empoyees of the rmy and Navy estabshments. It
foows that rmy offcers may not admnster the oaths n queston.
The statutory authorty of offcas of the Navy, however, s broader
than that of offcas of the rmy or War Department. The ct of
pr 25, 1935, Pubc, No. 8 ( 9 Stat., 161), provdes:
That n paces beyond the contnenta mts of the Unted States where the
Navy or Marne Corps s servng, such offcers of the Navy or Marne Corps
as are authorzed to admnster oaths for the purposes of the admnstraton o
nava ustce and for other purposes of nava admnstraton sha have the
genera powers of a notary pubc or of a consu of the Unted States n the
admnstraton of oaths, the e ecuton and acknowedgment of ega Instruments,
the attestaton of documents, and the performance of a other notara acts.
Under authorty of artce 69 of the rtces for the Government of
the Navy (Tte 3 , U. S. C. ., secton 1200), the Secretary of the
Navy has authorzed n offcers of the Navy and Marne Corps on
actve duty, ncudng retred and reserve offcers, of the ranks of
eutenant (|unor grade) and frst eutenant and above, to admnster
oaths for purposes of nava admnstraton.
It s the opnon of ths offce that, under the provsons of the ct
of pr 25,1935, supra, n paces beyond the contnenta mts of the
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19.51- .
92
Unted States offcers of the Navy and Marne Corps of the ranks
desgnated by the Secretary of the Navy (as above stated) are persons
duy authorzed to admnster oaths for genera purposes wthn the
meanng of secton 19.51 of Reguatons 103, supra.
The ureau has hed that when e ecutng ther ncome ta returns
mercan ctzens n foregn countres may f the servces of a notary
are not avaabe, have ther sgnatures wtnessed by two persons n
accordance wth the procedure adopted wth regard to appcatons for
passports and regstratons, secton 171, Consuar Reguatons, note 1.
(See O. D. 189, C. . 1, 190 (1919), and I. T. 3213, C. . 1938-2, 72.)
The same procedure shoud therefore be foowed n the case of mer-
can ctzens n regons of Newfoundand where t s mpractcabe or
fnancay burdensome to have ther ncome ta returns sworn to
before a consu or an authorzed offcer of the Navy or Marne Corps.
Secton 19.51- : erfcaton of returns. 19 2-2 -11123
I. T. 3558
INT RN L R NU COD .
Income ta returns of cvan empoyees at rmy and Navy
bases beyond the contnenta mts of the Unted States who are
sub|ect to mtary aw under artce 2, rtces of War (10 U. S.
C. ., secton 1 73(d)), may be sworn to before rmy offcers or
offcas of the War Department cothed wth the genera powers of
a notary pubc or of a consu of the Unted States n the admns-
traton of oaths to persons sub|ect to mtary aw under artce
11 , rtces of War (10 U. S. C. ., secton 1586).
I. T. 35 6 page 90, ths uetn modfed.
Reconsderaton has been gven I. T. 35 6 page 90, ths uetn n
so far as t hods that Federa ncome ta returns of cvan em-
poyees at rmy and Navy bases beyond the contnenta mts of
the Unted States may not be sworn to before rmy offcers or
offcas of the War Department.
rtce 11 , rtces of War ( ct une , 1920, 1 Stat., 810; 10
U. S. C. ., secton 1586), provdes that certan desgnated offcers
sha have power to admnster oaths for the purposes of admnstra-
ton of mtary |ustce and for other purposes of mtary admnstra-
ton, and n foregn paces where the rmy may be servng sha
have the genera powers of a notary pubc or of a consu of the
Unted States n the admnstraton of oaths, the e ecuton and ac-
knowedgment of ega nstruments, the attestaton of documents, and
a other forms of notara acts to be e ecuted by persons sub|ect to
mtary aw. Ths provson e tends the power to admnster oaths
to ncome ta returns n foregn paces ony to returns of persons
sub|ect to mtary aw.
rtce 2, rtces of War ( ct une , 1920; 1 Stat., 787; 10
U. S. C. ., secton 1 73), defnes persons sub|ect to mtary aw as
beng:

(d) U retaners to the camp and a persons accompanyng or servng wth
the rmes of the Unted States wthout the terrtora |ursdcton of the
Unted States, and n tme of war a such retaners and persons accompanyng
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5 19.53 1
or servng wth the rmes of the Unted States In the fed, both wthn and
wthout the terrtora ursdcton of the Unted Sates, though not otherwse
sub|ect to these artces.
It s beeved that artce 11 , rtces of War, n vestng such
desgnated offcers wth the genera powers of a notary pubc or of a
consu of the Unted States n the admnstraton of oaths to persons
sub|ect to mtary aw, does, to that e tent, authorze them to ad-
mnster oaths for genera purposes, wthn the meanng of secton
19.51- of Reguatons 103, and, hence, authorzes them to admnster
oaths to ncome ta returns of such persons n foregn paces as may
be sub|ect to mtary aw us provded n artce 2(d), rtces of
War.
In vew of the foregong, I. T. 35 6, supra, s modfed to the e tent
nconsstent herewth.
S CTION 53. TIM ND PL C FOR
FILING R TURNS.
Secton 19.53-1: Tme for fng returns. 19 2-20-11099
T. D.51 9
TITL 26 INT RN L R NU C PT R I. SU C PT R . P RT 19.
INCOM T .
Reguatons 103 amended to conform to Pubc aw 90 (Seventy-
seventh Congress), postponng due dates for ncome ta returns
and payment of ncome ta es n case of certan ndvduas n
the mtary or nava forces of the Unted States and certan
cvan empoyees of the Unted States.
Treasurt Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 103 Part 19, Tte 26, Code of
Federa Reguatons, 19 0 Sup. to Pubc aw 90 (Seventy-seventh
Congress), approved March 7, 19 2, such reguatons are amende.
as foows:
Paragraph 1. Secton 19.53-1 s amended by addng at the end
thereof the foowng sentence:
For provsons reatng to the tme for fng ncome ta returns In the case
of certan ndvduas n the mtary or nava forces of the Unted States
who are servng on sea duty or outsde the contnenta Unted States, and
n the case of certan cvan empoyees of the Unted States who are prsoners
of war or otherwse detaned by any foregn government wth whch the
Unted States s at war, see secton 19.r 6-(b).
Par. 2. The frst sentence of secton 19.53- s amended to read
as foows:
The due date s the date on or before whch a return s requred to be fed
In accordance wth the provsons of the Interna Revenue Code, or, n the
ease of certan ndvduas, n accordance wth the provsons of Pubc aw 90
(Seventy-seventh Congress), approved March 7, 19 2 (see secton 19.56-1 (b)),
or the ast day of the perod covered by an e tenson of tme granted by the
Commssoner or a coector.
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19.53-1.
9
Par. 3. Immedatey precedng secton 19.56-1, the foowng s
nserted:
Pubc aw 90 (Seventy-seventh Congress), approved March 7, 19 2.
That for the purpose of ths ct
(a) the term person means (1) commssoned offcer, warrant
offcer, ensted person (Incudng persons seected under the Seectve
Tranng and Servce ct, as amended), member of the rmy or Navy
Nurse Corps (femae), wherever servng; (2) commssoned offcer of
the Coast and Geodetc Survey or the Pubc eath Servce; and
(3) cvan offcers and empoyees of departments, durng such tme as
they may be assgned for duty outsde the contnenta mts of the
Unted States or In aska ;

(d) the term department means any e ecutve depart-
ment, ndependent estabshment, or agency (ncudng corporatons)
n the e ecutve branch of the Federa Government.

Sec. 13. Notwthstandng any other provson of aw, n the case of
any ta abe year begnnng after December 81, 19 0, no Federa ncome-
ta return of, or payment of any Federa Income ta by
(a) any Indvdua In the mtary or nava forces of the Unted
States, or
(b) any cvan offcer or empoyee of any department
who, at the tme any such return or payment woud otherwse become
due, s a prsoner of war or s otherwse detaned by any foregn
government wth whch the Unted States s at war, or
(c) any ndvdua n the mtary or nava forces of the Unted
States servng on sea duty or outsde the contnenta Unted States
at the tme any such return or payment woud otherwse become
due,
sha become due unt one of the foowng dates, whchever s the
earest:
(1) the ffteenth day of the thrd month foowng the month n
whc he ceases (e cept by reason of death or ncompetency) to
be a prsoner of war, or to be detaned by any foregn government
wth whch the Unted States s at war, or to be a member of the
mtary or nava forces of the Unted States servng on sea duty
or outsde the contnenta Unted States, as the case may be,
uness pror to the e praton of such ffteenth day he agan s a
prsoner of war, or s detaned by any foregn government wth
whch the Unted States s at war, or s a member of the mtary
or nava forces of the Unted States servng on sea duty or outsde
the contnenta Unted States;
(2) the ffteenth day of the thrd month foowng the month
n whch the present war wth Germany, Itay, and apan s ter-
mnated, as procamed by the Presdent; or
(3) the ffteenth day of the thrd month foowng the month
n whch an e ecutor, admnstrator, or conservator of the estate
of the ta payer Is apponted.
Such due date s prescrbed sub|ect to the power of the Commssoner
of Interna Revenue to e tend the tme for fng such return or payng
such ta , as n other cases, and to assess and coect the ta as pro-
vded In sectons 1 6, 273, and 27 of the Interna Revenue Code n cases
n whch such assessment or coecton s eopardzed and n cases of
bankruptcy or recevershp. For the purpose of ths secton, the term
contnenta Unted States means the States and the Dstrct of
Coumba, and the terms ndvdua or member of the mtary
or nava forces of the Unted States means any person n the rmy of
the Unted States, the Unted States Navy, the Marne Corps, the rmy
or Navy Nurse Corps (femae), the Coast Guard, the Coast and Geo-
detc Survey, or the Pubc eath Servce.
Sec. 1 . The provsons of ths ct, appcabe to persons In the
hands of an enemy, sha appy to any person beeaguered or beseged
by enemy forces.

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19.63-1.
Par. . Secton 19.56-1 s amended by nsertng mmedatey pre-
cedng the frst sentence (a) In genera , and hy nsertng at the
end of such secton the foowng new paragraph ( ) :
(6) Certan ndvduas n mtary or nava forces of Unted States and
certan cvan empoyees of Unted States. Ths paragraph (6) appes
ony to returns and payment of ta for ta abe years begnnng after December
31, 19-10. For the purposes of ths paragraph (6), the terms defned n Pubc
aw 90 (Seventy-seventh Congress), approved March 7, 10 2. sha have the
meanngs so assgned to them.
Under the provsons of sectons 13 and 1 of Pubc aw ). the due date
for any Income a return and for any payment (ncudng any nstament
payment) of ncome ta s postponed n the case of any ndvdua n the mtary
or nava forces of the Unted States who. at the tme the return or payment
woud otherwse become due, s servng on sea duty or outsde the contnenta
Unted States. The new due date, In the case of any such postponement, s
the ath day of the thrd month foowng the month n whch the ndvdua
ceases (e cept by reason of death or ncompetency) to be a member of the
mtary or nava forces of the Unted States servng on sea duty or outsde the
contnenta Unted States, uness pror to the e praton of such 15th day he
s a prsoner of war of, or s detaned by, any foregn government wth whch
the Unted States Is at war, or s beeaguered or beseged by enemy forces, or
s agan a member of the mtary or nava forces servng on sea duty or out-
sde the contnenta Unted States.
Under the provsons of sectons 13 and 1 of Pubc aw 90, the due date
for any ncome ta return and for any payment (ncudng any nstament
payment) of ncome ta s aso postponed n the case of any ndvdua n the
mtary or nava forces of the Unted States or any cvan offcer or empoye
of any e ecutve department, Independent estabshment, or agency (Incudng
corporatons) In the e ecutve branch of the Federa Government who, at
the tme the return or payment woud otherwse become due, s a prsoner
of war of, or s otherwse detaned by, any foregn government wth whch
the Unted States s at war, or s beeaguered or beseged by enemy forces.
The new due date, n the case of any such postponement, Is the 15th day of
the thrd month foowng the month In whch the ndvdua ceases (e cept by
reason of death or Incompetency) to be such a prsoner, or to be so detaned,
beeaguered, or beseged, uness pror to the e praton of such 15th day he
Is a member of the mtary or nava forces of the Unted States servng on
sea duty or outsde the contnenta Unted States, or s agan such a prsoner,
or so detaned, beeaguered, or beseged.
The new due date, f t has not prevousy occurred pursuant to the precedng
provsons of ths paragraph (6), s the earer of the two foowng dntes:
(1) the 15th day of the thrd month foowng the month n whch an
e ecutor, admnstrator, or conservator of the estate of the ta payer Is
apponted; or
(2) the 15th day of the thrd month foowng the month n whch the
present war wth Germany, Itay, and apan Is termnated, as procamed
by the Presdent.
See sectons 19.53-1 to 19.53- , ncusve, for provsons reatng to the tme
when an ncome ta return woud otherwse (that s, but for sectons 13 and
1 of Pubc aw 90), become due.
In case the due date for payng the ta (as dstngushed from the due date
of an Instament of the ta ) s postponed under the provsons of Pubc aw
90, the ta may, at the opton of the ta payer, be pad In accordance wth
the provsons of secton 56(b) of the Interna Revenue Code n four equa
Instaments nstead of n a snge payment. In such case the frst nstament
s to be pad on or before the new due date prescrbed by the provsons of
Pubc aw 90, the second Instament on or before the 15th day of the thrd
month, the thrd nstament on or before the 15th day of the s th month, and
the fourth nstament on or before the 15th day of the nnth month, after
such new due date.
In case the due date for payng an Instament of the ta (other than the
frst Instament) s postponed under the provsons of Pubc aw 90, the due
date of each such nstament so postponed s the snge date prescrbed by
such provsons. The precedng sentence may be ustrated by the foowng
e ampe:
ampe. , a member of the Unted States rmy, s wthn the contnenta
Unted States when hs ncome ta return and ta for the caendar year 19 1
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19.53-2.1
06
become due, and he fes hs return and pays the frst nstament of the ta
on or before the due date. serves on duty outsde the contnenta Unted
States on the dates ( une 15, September 15, and December 15, 19 2) when the
remanng three nstaments normay are payabe. In February, 19 3, he
returns to the contnenta Unted States for duty, and does not agan serve
outsde the contnenta Unted States before May 16, 19 3. The ast three
nstaments on s ncome ta for 19 1 a become due on May 15, 19 3, that s,
on the 15th day of the thrd month foowng the month n whch he ceased to
serve outsde the contnenta Unted States.
Par. 5. Secton 19.217-1 s amended by nsertng after the frst
sentence thereof the foowng sentence:
For provsons reatng to the tme for fng ncome ta returns In the case of
certan ndvduas n the mtary or nava forces of the Unted States and
certan cvan empoyees of the Unted States, see secton 19.5(1-1(6).
Par. 6. Secton 19.218-1 s amended by addng at the end thereof
the foowng sentence:
For provsons reatng to the tme for payment of the ta n the case of certan
ndvduas n the mtary or nava forces of the Unted States and certan
cvan empoyees of the Unted States, see secton 19.56-1(6).
(Ths Treasury decson s ssued under the authorty contaned n
sectons 62 and 3791 of the Interna evenue Code (53 Stat., 32. 67,
26 U. S. C, 19 0 ed., 62, 3791) and sectons 1, 13, and 1 of Pubc aw
90 (Seventy-seventh Congress), approved March 7, 19 2.)
Gut T. everng,
Commssoner of Interna Revenue.
pproved May 11, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 12, 19 2, 11.36 a. m.)
Secton 19.53-2: tensons of tme for fng 19 2-5-10975
returns. I. T. 3529
( so Secton 729, secton 30.729-1, Regua-
tons 109.)
INT RN L R NU COD .
Pocy to be foowed wth respect to appcatons for e tensons
of tme for fng Federa ncome and e cess profts ta returns
for the caendar year 19 1 and for fsca years endng n 19 2.
dvce has been requested wth respect to the pocy whch w be
foowed by the ureau of Interna Revenue wth respect to e ten-
sons of tme for fng Federa ncome and e cess profts ta returns
for the caendar year 19 1 and for fsca years endng n 19 2.
Due to the nvovement of ths country n the present word war
and the urgent need for revenue, t s essenta that appcatons for
e tensons of tme for fng Federa ncome and e cess profts ta
returns for the caendar year 19 1 and fsca years endng n 19 2
be aowed ony n those cases where, n the ght of the reasons gven
by the ta payer, the aowance s fuy |ustfed. ccordngy, a
such appcatons for e tensons of tme must show most unusua and
mertorous crcumstances whch |ustfy the e tenson requested.
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97
65.
appcatons for e tensons of tme for fng returns shoud
be fed drecty wth the coector of nterna revenue for the dstrct
n whch the ta payer s requred by aw to fe the return.
ppcatons by ndvduas for e tenson of tme to fe returns
w contnue to be passed upon by the coector of nterna revenue
as heretofore.
ppcatons by corporatons for e tensons of tme to fe returns
whch, n the |udgment of the coector of nterna revenue, do not
mert favorabe acton, w be dened by hm. ppcatons whch,
n hs |udgment, warrant favorabe acton w be referred by hm
to the ureau n Washngton for consderaton. Such appcatons
by corporatons w be granted ony under the crcumstances above
ndcated and then ony by the Commssoner.
Secton 19.53- : Due date of return.
INT RN L R NU COD .
Reguatons 103, amended. (See T. D. 51 9, page 93.)
S CTION 55. PU LICITY OF R TURNS.
19 2-10-11016
T. D.5120
TITL 26 INT RN L R NU C PT R I, P RT 58, SU P RT .
Reguatons governng the nspecton of corporaton statstca
transcrpt cards by the Offce of Prce dmnstraton.
Treasury Department,
Washngton, D. C.
Coectors of Interna Revenue and Others Concerned:
Pursuant to the provsons of sectons 55(a) and 702(b) of the
Revenue ct of 193 ; secton 106(c) of the Revenue ct of 1935;
secton 55(a) of the R venue ct of 1936; sectons 55(a) and 602(c)
of the Revenue ct of 1938; and sectons 55(a) and 603 of the In-
terna Revenue Code, corporaton statstca transcrpt cards pre-
pared bv the ureau of Interna Revenue from corporaton ncome
and decared vaue e cess-profts (termed pror to October 8, 19 0.
merey e cess-profts) ta returns made under the Revenue cts of
193 , 1936, 1938, or the Interna Revenue Code, or under such Rev-
enue cts and Code as amended, for any ta abe year begnnng after
une 30, 1935. and endng before uy 1, 19 1. may be open to nspec-
ton by the Offce of Prce dmnstraton. The nspecton of such
transcrpt cards heren authorzed may be made by any offcer or
empoyee of the Offce of Prce dmnstraton duy authorzed by
the dmnstrator to make such nspecton. Upon wrtten notce by
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98
such dmnstrator to the Secretary of the Treasury gvng the
casses of corporatons whose transcrpt cards t s desred to nspect,
the Secretary and any offcer or empoyee of the Treasury Depart-
ment, wth the approva of the Secretary, may furnsh such Offce of
Prce dmnstraton wth any data on such cards or may make the
cards or any of them avaabe n the offce of the Commssoner of
Interna Revenue for nspecton and copyng by the Offce of Prce
dmnstraton or by such e amners or agents as the dmnstrator
thereof may desgnate. The nformaton so obtaned may be pub-
shed or dscosed n statstca form provded such pubcaton does
not dscose, drecty or ndrecty, the name or address of any cor-
porate ta payer. ( . O. 9076, February 26, 19 2, and sees. 55(a),
702(b), 8 Stat., 698, 770, 106(c), 9 Stat., 1019, sec. 55(a), 9 Stat.,
1671, sees. 55(a), 602(c), 52 Stat., 78, 568, sees. 55(a), 602, 53 Stat.,
29, 111; 26 U. S. C, 55, 3 1, 3 2, 26 U. S. O, 19 0 ed., 55 (a), 603.)
. MORG NT TT, r.,
Secretary of the Treasury.
pproved February 26,19 2.
Frankn D. Roosevet,
The Whte ouse.
(Fed wth the Dvson of the Federa Regster March 2, 19 2, 10.52 a. m.)
CUTI ORD R INSP CTION Y T OFFIC OP PRIC DMINISTR TION
OF CORPOR TION ST TISTIC L TR NSCRIPT C RDS PR P R D FROM INCOM
ND D CL R D LU C SS-PROFITS T R TURNS.
y vrtue of the authorty vested n me by sectons 55(a) and 702(b)
of the Revenue ct of 193 ( 8 Stat., 698, 770); secton 106(c) of the
Revenue ct of 1935 ( 9 Stat., 1019); secton 55(a) of the Revenue
.ct of 1936 ( 9 Stat., 1671); sectons 55(a) and 602(c) of the Revenue
ct of 1938 (52 Stat.. 78, 568); and sectons 55(a) and 603 of the
Interna Revenue Code (53 Stat., 29, 111), t s hereby ordered that
corporaton statstca transcrpt cards prepared by the ureau of
Interna Revenue from corporaton ncome, decared vaue e cess-
profts (termed pror to October 8, 19 0, merey e cess-profts) ta
returns made under the Revenue cts of 193 , 1935, 1936, 1938, or the
Interna Revenue Code, or under such Revenue cts and Code us
amended, for any ta abe year begnnng after une 30. 1935, and
endng before uy 1,19 1, may be open to nspecton by the Offce of
Prce dmnstraton; 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 such cards by the Offce of Prce dmnstraton, approved by me
ths date.
Ths order sha be pubshed n the Federa Regster.
Frankn D. Roosevet.
The Whte ouse,
February 26,19 2.
(9076)
(Fed wth the Dvson of the Federa Regster February 27, 19 2, 10. 9 a. m.)
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99
55.
19 2-17-1107
T. D.5138
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 58, SU -
P RT I. INSP CTION OF CIS T R TURNS.
Reguatons governng the nspecton of e cse ta returns.
Treasury Department,
Washngton, D. C, pr 15,19 .
To Coectors of Interna Revenue and Others Concerned:
Secton 58.610. Intro DUcroRT.- -(a) Secton 55(a) (2) of the In-
terna Revenue Code, as amended, provdes:
nd a returns made under ths chapter, subchapters , , D, and
of chapter 2, subchapter of chapter 3, chapters , 7, 12, and 21, sub-
chapter of chapter 29, and chapter 30, sha consttute pubc records
and sha be open to pubc e amnaton and nspecton to such e tent as
sha be authorzed n rues and reguatons promugated by the Presdent.
(b) 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 16,1933 ( 8 Stat., 195,209), 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 penates, as returns made under Tte II of the Revenue ct
of 1926; and a returns made under ths ct after the date of enactment
of the Natona Industra 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 rues and reguatons promugated by the
Presdent.
(c) Secton 55(a) (Tte I) of the Revenue ct of 193 , 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 penates, as returns made under Tte II of the Revenue ct
of 1926; 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 authorzed In rues and reguatons promugated by
the Presdent.
Sec. 58.611. Inspecton of cse Ta Returns. Pursuant to the
above-mentoned provsons of aw e cse ta returns fed wth respect
to any ta mposed by Chapter 7 or 12 or 21, or Subchapter of
Chapter 29, or Chapter 30, of the Interna Revenue Code, or fed
after une 16, 1933, wth respect to any ta mposed by Tte I ,
. or II of the Revenue ct of 1932, or fed wth respect to the
ta mposed by Tte I of the Revenue ct of 193 , or by any of
the above-mentoned provsons as amended, sha be open to nspecton
to the same e tent as provded wth respect to ncome ta returns n
Subpart and sectons 63C.31, 63C.32, 63C.33 (a), 63C.3 , 63C.35,
63C.36, and 63C-37 of Subpart D of Treasury Decson 929, approved
ugust 28,1939 C. . 1939-2, 91 , as amended by Treasury Decson
991, approved uy 20.19 0 C. . 19 0-2,92 26 C. F- 1939 Sup.,
58.301 to 58.307, both ncusve, 58.331 to 58.337, both ncusve,
19 0 Sup., 58.333(a) .
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19.56-1.
100
(Ths Treasury decson s ssued under the authorty contaned
n secton 55(a)(2), as amended, of the Interna Revenue Code (53
Stat., 29, 26 U. S. C., 55, 19 0 ed.); secton 55 (Tte I), as amended,
of the Revenue ct of 1932 ( 7 Stat., 189); and secton 55(a) of the
Revenue ct of 193 ( 8 Stat., 680).)
. MoRG NT U, r.,
Secretary of the Treasury.
pproved pr 20, 19 2.
Frankn D. Roosevet,
The Whte owe.
(Fed wth the Dvson of the Federa Regster pr 21, 10 2, 3.20 p. m.)
S CTION 56. P YM NT OF T .
19 2-9-1100
I. T. 353
INT RN L R NU COD .
Where separate Federa Income ta returns are fed by a husband
and wfe, Treasury notes of Ta Seres -19 3, -19 3, -19 , and
-19 , nscrbed n the name of one spouse, may not be used to
satsfy the ncome ta abty of the other spouse. Ths rue s
equay appcabe where the husband and wfe are resdents of a
communty property State.
dvce s requested whether, n the case of husband and wfe fng
separate Federa ncome ta returns, Treasury notes of Ta Seres
-19 3, -19 3, -19 , and -19 , nscrbed n the name of one
spouse, may be used to satsfy the ncome ta abty of the other
spouse. The nqury reates partcuary to such returns fed n
communty property States.
In vew of the provsons of Treasury Department Crcuar No. 667
(C. . 19 1-2,112), as amended. Treasury Department Crcuar No. 67
page 361, ths uetn , and Treasury Decson 5109 page 359, ths
uetn , t s hed that where separate Federa ncome ta returns
are fed by a husband and wfe, Treasury notes of Ta Seres -19 3.
-19 3, -19 , and -19 . nscrbed n the name of one spouse,
may not be used to satsfy the ncome ta abty of the other spouse.
Ths rue s equay appcabe where the husband and wfe are
resdents of a communty property State.
Secton 19.56-1: Date on whch ta sha be pad.
INT RN L R NU COD .
Reguatons 103, amended. (See T. D. 51 9, page 93.)
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101
19.101-1.
SU C PT R C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S OF T .
S CTION 101. MPTIONS FROM T
ON CORPOR TIONS.
Secton 19.101-1: Proof of e empton. 19 2-11-11025
T. D. 5125
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 19.
INCOM T .
mendng reguatons 103 as to proof of e empton of organza-
ton and makng such amendment appy to Reguatons 101, 9 ,
86, and 77.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. 0.
To Coectors of Interna Revenue and Others Concerned:
Paragraph 1. Secton 19.101-1 of Reguatons 103 Part 19, Tte 26,
Code of Federa Reguatons, 19 0 Sup. s amended to read as
foows:
Sec. 19.101-1. Proof of e empton. corporaton s not e empt merey because
t s not organzed and operated for proft. In order to estabsh ts e empton
t s necessary that every organzaton camng e empton fe wth the co-
ector for the dstrct n whch s ocated the prncpa pace of busness or
prncpa offce of the organzaton an affdavt or a questonnare as set forth
beow. n organzaton camng e empton under secton 101 (1), (3), ( ),
e cept a bona fde credt unon, (6), (7), (8), (9), (10), (12), (1 ), or (16)
sha fe the form of questonnare approprate to ts actvtes, fed out n
accordance wth the nstructons on the form or ssued therewth. Copes
of the foowng questonnare forms may be obtaned from any coector:
For corporatons camng e empton under secton 101(6), Form 1023; under
secton 101 (1), (3), (7), or (8), Form 102 ; under secton 101(9), Form 1025;
under secton 101 (10), (1 ), or (16), Form 1026; under secton 101( ), e cept
bona fde credt unons, Form 1027; and under secton 101(12), Form 1028.
other organzatons camng e empton, ncudng bona fde credt unons, sha
fe an affdavt showng the character of the organzaton, the purpose for whch
t was organzed, ts actua actvtes, the sources of ts ncome and the dspos-
ton of such ncome, whether or not any of ts ncome s credted to surpus or
may nure to the beneft of any prvate sharehoder or ndvdua, and n gen-
era a facts reatng to ts operatons whch affect ts rght to e empton.
To each such affdavt or questonnare sha be attached a copy of the artces
of ncorporaton, decaraton of trust, or other nstrument of smar mport,
settng forth the permtted powers or actvtes of the organzaton, the by-aws
or other code of reguatons, and the atest fnnnca statement showng the
assets, abtes, recepts, and dsbursements of the organzaton. n organza-
ton camng e empton under secton 101 (5), (6), e cept organzatons or-
ganzed and operated e cusvey for regous purposes, (7), (8), (9), or (1 ),
sha aso fe wth the other nformaton specfed heren a return of nformaton
on Form 990 reatve to the busness of the organzaton for the ast compete
year of operaton.
The words prvate sharehoder or ndvdua n secton 101 refer to ndvd-
uas havng a persona and prvate nterest n the actvtes of the corporaton.
though regous or apostoc assocatons or corporatons e empt under secton
101(18) are reeved from payng the ta , they are requred to fe returns of
ncome (see secton 19.101(18)- ).
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19.101-.
102
In the case of the partcuar casses of organzatons sted beow, the foow-
ng addtona nformaton sha be emboded n or attached to, and made a
part of, the affdavt or questonnare referred to above:
(a) Mutua nsurance companes sha submt (1) copes of the poces or
certfcates of membershp; (2) f any substanta amount of ncome s camed
to be hed for the payment of osses or e penses, a statement based upon a
reabe tabe of oss e perence demonstratng that the amount so hed for
the payment of osses s reasonaby necessary; or n the case of e penses, a
statement based upon reabe statstcs showng that the e penses were ncurred
or that n a probabty they w be ncurred;
(6) In the case of hodng companes camng e empton under secton 101(1 ),
f the organzaton for whch tte s hed has not been specfcay notfed n
wrtng by the ureau of Interna Revenue that It Is hed to be e empt under
secton 101, the hodng company sha submt the nformaton ndcated heren
as necessary for a determnaton of the status of the organzaton for whch tte
s hed.
The coector, upon recept of the affdavt, or questonnare, and other papers,
w e amne them as to competeness and w forward competed documents to
the Commssoner for decson as to whether the organzaton s e empt. In
addton to the Informaton specfed heren, the Commssoner may requre any
addtona nformaton deemed necessary for a proper determnaton of whether
a partcuar organzaton s e empt under secton 101, and when deemed advs-
abe n the Interest of an effcent admnstraton of the nterna revenue aws
he may n the cases of partcuar types of organzatons provde addtona ques-
tonnares or otherwse prescrbe the form In whch the proof of e empton sha
be furnshed.
When an organzaton has estabshed ts rght to e empton, It need not
thereafter make a return of Income or any further showng wth respect to
ts status under the aw, uness t changes the character of Its organzaton
or operatons or the purpose for whch t was orgnay created, e cept that
every organzaton e empt or camng e empton under secton 101 (5), (6),
e cept organzatons organzed and operated e cusvey for regous purposes,
(7), (8), (9), or (1 ), sha fe annuay returns of nformaton on Form 990
wth the coector for the dstrct n whch Is ocated the prncpa pace of bus-
ness or prncpa offce of the organzaton. The frst return of nformaton on
Form 990 requred by ths reguaton sha be for the ta abe year endng n
19 1 and sha be fed on or before May 15,19 2. The returns for subsequent ta -
abe years sha be fed on or before the 1st day of the thrd month foowng
the cose of the ta abe year. See secton 19.101 (18)-1 wth respect to returns
by regous or apostoc assocatons or corporatons e empt under secton
101(18). See aso sectons 275(a) and 276(a) wth respect to the statute of
mtatons.
Coectors w keep a st of a organzatons hed to be e empt to the end
that they may occasonay nqure nto ther status and ascertan whether or
not they are observng the condtons upon whch ther e empton s predcated.
The e empton under secton 101 referred to n ths secton and sectons
19.10 D-1 to 19.101(13)-1, ncusve, from fng returns of ncome does not
appy to returns of Informaton (see sectons 1 7 to 1 9, ncusve).
Par. 2. The foregong provsons reatve to proof of e empton
under secton 101 of the Interna Revenue Code are hereby made app-
cabe n the case of any organzaton whch cams e empton under
the Revenue ct of 1938,1936, 193 , or 1932 and whch has not proven
e empton under the correspondng provsons of Reguatons 101
rPart 9. Tte 26, Code of Federa Reguatons, 1939 Sup. , 9 Part
3, Tte 26, Code of Federa Reguatons , 86, or 77 The foregong pro-
vsons reatve to the fng annuay of returns of nformaton on
Form 990 are hereby made appcabe to organzatons hed e empt
under the sectons of the Revenue ct of 1938, 1936, 193 , or 1932
whch correspond to secton 101 (5), (6), (7), (8), (9), or (1 ) of the
Interna Revenue Code.
(Ths Treasury decson s ssued under the authorty contaned
n sectons 62 and 101 of the Interna Revenue Code (53 Stat., 32, 33,
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103
19.101(6)- .
as amended by 53 Stat., 876, 26 U. S. C, 19 0 ed., 62, 101); sectons
62 and 101 of the Revenue cts of 1938, 1936, and 193 (52 Stat, 80,
26 U. S. C, Sup., 62, 101; 9 Stat., 1673, 26 U. S. C. Sup., 62, 101;
8 Stat., 700, 26 U. S. C, 62, 101); and sectons 62 and 103 of the
Revenue ct of 1932 ( 7 Stat., 191, 193).)
Norman D. Cann,
ctng Commssoner of Interna Revenue.
pproved March 5, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 6, 19 2, 9.51 a. m.)
Secton 19.101 (6)-: Regous, chartabe, 19 2-6-10983
scentfc, terary, and educatona or- G. C. M. 23063
ganzatons and communty chests.
INT RN L R NU COD ND 1 RIOR R NU L WS.
The decson of the Unted States Crcut Court of ppeas for
the Second Crcut n Roche s each, Inc., v. Commssmer (96
Fed. (2d), 776, Ct. D. 1359, C. . 1938-2, 230), hodng that a corpo-
raton organzed for the purpose of, and engagng n, busness
actvtes was e empt from Income ta aton under secton 103(6)
,of the Revenue ct of 1928 as a corporaton organzed and operated
|e cusvey for chartabe purposes, athough t dd not dspense
charty but merey produced ncome for such purpose to be admn-
stered by another ta -e empt corporaton, shoud no onger be
foowed by the ureau.
G. C. M. 20853 (C. . 1938-2, 166), G. C. M. 21610 (C. . 1939-2,
103), and G. C. M. 22116 (C. . 19 0-2, 100) modfed.
Reconsderaton has been gven to the queston whether the ureau
shoud contnue to foow the decson of the Unted States Crcut
Court of ppeas for the Second Crcut n Roche s each, Inc., v.
Commssoner (96 Fed. (2d), 776, Ct. D. 1359, C. . 1938-2, 230).
In Roche s each, Inc., v. Commssoner, supra, an ndvdua,
shorty before hs death, organzed a busness corporaton to whch
he transferred hs rea estate and bathng beach busness n e change
for a of the corporaton s capta stock. y hs w e ecuted on
the date of transfer he bequeathed the stock to testamentary trustees
for the purpose of estabshng a chartabe foundaton. In ac-
cordance wth the ntenton e pressed n hs w, the net ncome of
the busness corporaton was, after testator s death, devoted e -
cusvey to the foundaton for the chartabe purposes set forth n
the w. It was hed that such busness corporaton was e empt
from ncome ta aton under secton 103(6) of the Revenue ct of
1928 as a corporaton organzed and operated e cusvey for chartabe
purposes, athough t dd not dspense charty but merey produced
ncome for such purpose to be admnstered by another ta -e empt
corporaton.
The decson n the Roche s each, Inc., case, athough contrary
to the genera poston theretofore taken by the ureau, was accepted
as a precedent n other cases nvovng facts substantay the same
as those obtanng n that case. (See G. C. M. 21610, C. . 1939-2,
103.)
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I 19.101(6)- .
10
In G. C. M. 20853 (C. . 1938-2, 166) and G. C. M. 22116 (C. .
19 0-2, 100) the prncpe ad down n Roche s each, Inc., v.
Commssoner, supra, was recognzed.
Ths offce has gven further consderaton to the genera queston
nvoved, and s now of the opnon that the decson of the Unted
States Crcut Court of ppeas for the Second Crcut n Roche s
each, Inc., v. Commssoner, supra, shoud no onger be foowed
by the ureau. ccordngy, G. C. M. 20853, G. C. M. 21610, and
G. C. M. 22116 are hereby modfed to the e tent that they end ap-
prova to the decson n Roche s each, Inc., v. Commssoner, supra.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
Secton 10.101 (6)-: Regous, chartabe, scen- 19 2-20-11097
tfc, terary, and educatona organzatons I. T. 3550
and communty chests.
( so Secton 23(o). Secton 19.23(o)-; Secton
23 (q), Secton 19.23 (q)-.)
INT RN L R NU COD ND PRIOR R NU CTS.
The Navy Reef Socety s entted to e empton under secton
101(6) of the Interna Revenue Code and correspondng prov-
sons of pror Revenue cts.
Contrbutons to the socety are deductbe from gross ncome
for Federa ncome ta purposes by ndvduas and corporatons,
sub|ect to the mtatons provded n sectons 23(o) and 23 (q) of the
Code, respectvey, and correspondng provsons of pror Revenue
cts.
dvce s requested whether the Navy Reef Socety s e empt
from Federa ncome ta aton under the provsons of secton 101(6)
of the Interna Revenue Code and correspondng provsons of pror
Revenue cts, and whether contrbutons thereto are aowabe
deductons n the ncome ta returns of the donors.
The Navy Reef Socety was ncorporated n 190 under the aws
of the Dstrct of Coumba. The partcuar ob|ects and busness
of the socety, as set forth n ts amended certfcate of ncorporaton,
are as foows:
to coect funds and provde reef for dependent wdows, mnor
orphan chdren, and mothers of deceased offcers and ensted men of the
reguar Navy and Marne Corps of the Unted States; to ad n securng em-
poyment for such wdows and mothers, and n the educaton of such orphan
chdren.
The ad of the socety may aso, wth the approva of the board of man-
agers, be e tended n speca cases of dstress to persons of the reguar Navy
and Marne Corps, or to the members of ther fames.
It appears that the socety asssts the dependents of offcers and
men who de whe n the nava servce and grants oans, wthout
nterest charge, to men n the servce to ad them n payng for
the hosptazaton of ther fames. Operatons are carred on
through au ares ocated at nava statons. arous au ares
make speca arrangements for hosptazaton and for vstng nurses
to care for nava personne. Income s derved from the sae or Chrst-
mas cards, card partes, donatons, footba games, entertanments,
etc. Funds are dsbursed for the hosptazaton of dependents of
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105
19.101(11)- .
offcers and ensted men of the reguar Navy and Marne Corps,
emergency oans, reef gratutes, and operatng e penses.
It s hed that the Navy Reef Socety s entted to e empton
under the provsons of secton 101(6) of the Interna Revenue Code
and the correspondng provsons of pror Revenue cts.
Contrbutons made to the Navy Reef Socety by ndvdua
donors are deductbe by such ndvduas n arrvng at ther ta -
abe net ncome n the manner and to the e tent provded by secton
23 (o) of the Interna Revenue Code and the correspondng prov-
sons of pror Revenue cts. Contrbutons to the socety by cor-
poratons are deductbe to the e tent provded by secton 23 (q) of
the Code and the Revenue cts of 1936 and 1938.
Secton 19.101 ()-: Farmers or other mutua 19 2-21-1110
ha, cycone, casuaty, or fre nsurance com- I. T. 3552
panes or assocatons.
INT RN L R NU COD .
The purchase of Unted States defense savngs bonds and the
recept of Income therefrom by farmers mutua Insurance companes
w not affect the status of such companes whch have been hed
to be e empt from Federa ncome ta aton under the provsons
of secton 101(11) of the Interna Revenue Code or the correspond-
ng provsons of pror Revenue cts.
dvce s requested whether farmers mutua nsurance companes,
whch have been hed to be e empt from Federa ncome ta aton
under secton 101(11) of the Interna Revenue Code or the corre-
spondng provsons of pror Revenue cts, w |eopardze such
e empt status by the purchase of Unted States defense savngs bonds
and the recept of ncome therefrom.
Secton 101(11) of the Interna Revenue Code provdes that the
foowng organzatons sha be e empt from ta aton under Chapter
1 of the Code, reatng to ncome ta :
Farmers or other mutua ha, cycone, casuaty, or re Insurance companes
or assocatons (ncudng nternsurers and recproca underwrters) the Income
of whch s used or hed for the purpose of payng osses or e penses;
Correspondng provsons of the Revenue ct of 1938 and pror
Revenue cts contan anguage whch s dentca wth the above-
quoted anguage.
In I. T. 3 99 (C. . 19 1-2, 78) t was hed that the M Lodge, whch
has been hed to be e empt from Federa ncome ta under secton
101 (3) of the Interna Revenue Code, s not sub|ect to Federa ncome
ta on nterest receved by t on Unted States savngs bonds. I. T.
3 99, supra, reads n part as foows:
Therefore, any organzaton whch has estabshed ts e empton from Federa
ncome ta aton under the provsons of secton 101 of the Interna Revenue
Code or correspondng provsons of pror Revenue cts s not abe to Federa
ncome ta on any of ts ncome, ncudng nterest on, and the gan from the
sae of. Unted States bonds ssued before, or on or after, March 1, 19 1.
It s hed that the purchase of Unted States defense savngs bonds
and the recept of ncome therefrom by farmers mutua nsurance
companes w not affect the status of such companes whch have
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19.111-1.
106
been hed to be e empt from Federa ncome ta aton under the
provsons of secton 101(11) of the Interna Revenue Code or the
correspondng provsons of pror Revenue cts.
SUPPL M NT . COMPUT TION OF N T INCOM .
S CTION 111. D T RMIN TION OF MOUNT OF,
ND R COGNITION OF, G IN OR LOSS.
Secton 19.111-1: Computaton of gan or oss.
INT RN L R NU COD .
Gan or oss on machnes used on certan Government contracts.
(See I. T. 3533, page 87.)
Secton 19.111-1: Computaton of gan or oss. 19 -2-19-11082
G. C. M. 23162
INT RN L R NU COD .
Under the terms of a fowage deed e ecuted In consderaton
of a certan sum of money, the ta payer corporaton granted, sod,
and conveyed to the Unted States a perpetua easement to food
desgnated propertes at such Infrequent ntervas as not to deprve
the ta payer of any substanta benefca use of the propertes; the
corporaton dd not se and dspose of the ands and Improvements
concerned, nor dd It merey receve payment n advance for antc-
pated future damages to ts trad or busness.
ed: The amount receved shoud be apped by the ta payer
corporaton aganst the cost or other bass of the propertes to whch
the easement appertans n determnng gan or oss from sae or
other dsposton of the propertes. In the event that the payment
e ceeds the bass for determnng gan or oss on the propertes
affected by tho easement, the e cess woud consttute recognzed
gan for the ta abe year In whch the payment was receved or
accrued.
n opnon s requested wth respect to the status, for Federa
ncome ta purposes, of an amount receved by-a ta payer corpora-
ton from the Federa Government n connecton wth ts food contro
pro|ects on the Msssspp Rver and ts trbutares.
The payment made was consderaton for an agreement whereby
the Government was granted the rght under certan condtons, to
food desgnated portons of the propertes of the ta payer, the atter,
however, retanng tte to the and and fu use thereof e cept when
t s fooded. The amount of the payment appears to be ess than the
gan or oss bass of the and and mprovements thereon.
Under the provsons of a fowage deed e ecuted n anuary,
19 1, the ta payer corporaton granted, sod, and conveyed to the
Unted States or ts assgns:
the fu, compete, and perpetua rght, power, prvege, and easement or
servtude In, on, and to the ands descrbed beow, for the purpose of utzng
the same as a foodway, of overfowng by foodwaters of the Msssspp Rver
and ts trbutares n accordance wth the provsons of ct No. 391, Seventeth
Congress, beng n ct for the contro of foods on the Msssspp Rver and
Its trbutares, and for other purposes, approved May 15, f S, as amended by
Pubc ct No. 678, Seventy-fourth Congress, approved une 1.1, 1938, and Pubc
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107
15 19.111 .
ct No. 761, Seventy-ffth Congress, approved une 28, 1938 52 Stat., 12151 ;
the and u, on, and to whch the rghts above descrbed are offered, beng
descrbed as foows: ere foows descrpton of certan tracts or parces of
and.
such rghts and prveges In and to the sad above-descrbed property as
may be used and en|oyed wthout Interferng wth or abrdgng the prveges,
rghts, easements and servtudes hereby conveyed to the Unted States are
e pressy reserved to the owners.
The sad vendor hereby reeases the Unted States of merca or ts assgns,
cffcers, agents, and empoyees from any and a cams for any and a oss,
-osts, damage, or e pense resutng from overfow and the e ercse of the ease-
ments or servtudes heren conveyed.
To have and to hod the rghts, powers, prveges, and easements or servtudes
hereby conveyed unto the Unted States of merca, or ts assgns, forever.
The prce and consderaton for ths transfer and conveyance Is the sum of
doars, cash n hand pad, the recept and adequacy of whch s hereby
acknowedged and fu acquttance and dscharge granted therefor.
The provson of secton of Pubc ct No. 761, supra, pursuant
to whch the easement agreement was obtaned, reads n part as
foows:
The Unted States, rrespectve of other provsons of aw, may, wthn the
dscreton of the Chef of ngneers, acqure fowage easements over a ands
not sub|ect to frequent overfow n the tchafaaya asn beow the attude of
rotz Sprngs.
The ta payer s propertes whch are covered by the fowage deed
consst of certan portons of two ots, together wth a mprove-
ments thereon, upon the arger one of whch the ta payer s pant
s ocated. That s a the and whch the ta payer has n ths par-
tcuar foodway area. The pant s stuated on fed-n and whch,
though cose to the water s edge of a bay, s a few feet hgher than a
nearby raroad brdge. s protecton to the propertes, there s a
sea wa about feet hgh, and the pant s about 3 feet off the ground.
The ta payer s use of the propertes has not thus far been changed or
affected n any way whatsoever as a resut of the fowage easement
granted by the ta payer.
n easement has been defned as a rght whch one person has to
use the and of another for a specfc purpose or a servtude mposed
as a burden upon and (17 mercan ursprudence, asements,
secton 2, page 923). (To the same effect, see Tffany on Rea Prop-
ertv, 3rd edton, chapter 1 , secton 756.)
Informaton submtted by a representatve of the dtrct engneer
for the War Department shows that the eevaton of the and n the
nstant case s such that overfow shoud occur about once a year
for ow areas and about once every 160 years for hgh areas. The
ta payer s presdent stated that every year there woud be some food-
ng of the property by ordnary hgh water, but wth no damage to
the pant, and that ony n the event of an unusua food every 10
or 15 years woud there be damage to the pant. It s apparent, there-
fore, that the facts of ths case ceary dstngush t from Z7. L. Scaes
v. Commssoner (10 . T. ., 102 , acquescence, C. . II-2, 35
(1928)), wheren the oard of Ta ppeas aowed a oss as a deduc-
ton, hodng that a grant of a perpetua easement and rght of way
to a evee mprovement dstrct, by whch the owner was deprved of
practcay a benefca nterest theren and was merey the hoder
of the bare ega tte, shoud be consdered a sae for the purposes of
that proceedng. In the Scaes case, as a resut of the conveyance of the
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19.112(f)-.
108
easement and rght of way and the work done by the evee mprove-
ment dstrct, the and was covered wth water about 10 months every
year, usuay from 8 to 12 feet deep, and at no tme after the construc-
ton of a evee was t free of overfow for more than 2 months at a tme.
ccordng to statements made by the representatve of the dstrct
engneer for the War Department, the amount pad by the Unted
States for the fowage easement n the nstant case represents 20 per
cent of the fee vaue, was determned from a fee apprasa of the
and and mprovements, and was the ma mum amount consdered rea-
sonabe by the War Department. e stated further t s consdered
that the rghts of the Government under the easement w not affect
the vaue of the ta payer s propertes n e cess of the prce pad for
the easement and that, snce the acquston of easements n the area
s dscretonary, condemnaton to acqure tte woud not ordnary
be resorted to shoud a property owner refuse to e ecute an agree-
ment, n whch event cams for damages woud have to be entertaned
n case of overfow. In other words, the consderaton for the fow-
age deed was measured, at east n so far as was possbe by nego-
taton and wthout resort to the rght of emnent doman or tga-
ton, by the estmated dmnuton n vaue of the affected propertes
(for any and a purposes for whch they were or mght be utzed)
caused by the burden of the fowage easement.
In vew of the foregong, t s the opnon of ths offce that the
ta payer corporaton, under the fowage deed e ecuted by t n
consderaton of the payment of a specfed sum of money, granted,
sod, and conveyed to the Unted States a perpetua easement to food
the desgnated propertes at such nfrequent ntervas as not to deprve
the ta payer of any substanta benefca use of the propertes, and
that the corporaton dd not, n form or effect, se and dspose of the
and and mprovements concerned, nor merey receve payment n
advance for antcpated future damages to ts trade or busness. c-
cordngy, the amount receved shoud be apped by the ta payer
corporaton aganst the cost or other bass of the propertes to whch
the easement appertans n determnng gan or oss from subsequent
sae or other dsposton of the propertes. In the event that such a
payment n any smar case shoud e ceed the bass for determnng
gan or oss on the propertes affected by the easement, the e cess woud
consttute recognzed gan for the ta abe year n whch the payment
was receved or accrued. (Cf. I. T. 2621, C. . I-1, 67 (1 932).)
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
S CTION 112(f). R COGNITION OF G IN OR LOSS:
IN OLUNT RY CON RSIONS.
Secton 19.112(f)-: Renvestment of proceeds 19 2-22-11110
of nvountary converson. I. T. 355
INT RN L R NU COD .
The confscaton by a State of dary catte rased by , the ta -
payer, because of ther reacton to a dsease test, and the purchase
by hm of smar catte to repace them consttute an nvountary
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109
19.112(f)- .
converson of property under the provsons of secton 112(f) of
the Interna Revenue Code on whch no gan or oss Is recognzed,
provded the money receved for the confscated catte can be def-
ntey traced as havng been e pended forthwth In the purchase of
smar catte. Where the amount pad for the catte purchased
to repace those confscated Is greater than the amount receved
from the State, the bass for gan or oss of the former s the df-
ference between the amount pad for them and the amount re-
ceved from the State.
dvce s requested whether the confscaton by a State of dary
catte rased by a ta payer, because of ther reacton to a dsease
test, and the purchase by the ta payer of smar catte to repace
them consttute an nvountary converson of property under the
provsons of secton 112(f) of the Interna Revenue Code.
, the ta payer, was requred durng the year 19 1 to dspose of a
number of hs dary catte for the sum of doars, nasmuch as the
catte reacted to a certan dsease test and were confscated under
the aws of the State. These catte had been rased by . In order
to repace them, he mmedatey purchased other dary catte at a
greater cost than the amount receved from the State for the con-
fscated catte.
Secton 112(f) of the Interna Revenue Code reads n part as
foows:
(f) Invountary Conversons. If property (as a resut of an
e ercse of the power of requston or condemnaton ) Is compu-
sory or Invountary converted nto money whch s forthwth In
good fath, under reguatons prescrbed by the Commssoner wth the ap-
prova of the Secretary, e pended n the acquston of other property smar
or reated n servce or use to the property so converted, no gan
or oss sha be recognzed. If any part of the money s not so e pended, the
gan, If any, sha be recognzed, but n an amount not n e cess of the money
whch s not so e pended.
Secton 19.112(f)- of Reguatons 103, reatng to renvestment
of proceeds of nvountary converson, states that the provsons of
secton 112(f) of the Code, supra, are appcabe to property used
for farmng purposes.
On the bass of the above-stated facts, t s hed that may treat
the confscaton by the State of hs darv catte, as the resut of ther
reacton to a dsease test, and the purchase of other dary catte to
repace them as an nvountary converson of property under the
on whch no gan or oss s recognzed, provded the money receved
for the confscated catte can be defntey traced as havng been e -
pended forthwth n the purchase of smar catte. (See secton
19.112(f)- of Reguatons 103, supra.)
ssumng that the confscated catte had a zero bass for gan or
oss purposes, snce they were rased by the ta payer and presum-
aby a e penses ncdent to ther rasng were camed as deductons
n Federa ncome ta returns for pror years, the bass of the newy
acqured catte s the dfference between the amount pad for such
catte and the amount receved from the State for those whch were
confscated.
provsons of secton
Interna Revenue
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19.113(a) (2)-.
110
S CTION 113(a). D UST D SIS FOR D T RMINING
G IN OR LOSS: SIS (UN D UST D) OF PROP RTY.
Secton 19.113(a) (2)-: Property transmtted 19 2-16-11068
by gft after December 31, 1920. T. D. 5137
( so Secton 19.113(a) (3)-.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R . P RT 19.
INCOM T .
mendng secton 19.113(a) (2)- of Reguatons 103 and artce
113(a) (2)- of Reguatons 101, 9 , and 86, reatng to the bass
of property acqured by gft after December 31, 1920, and amend-
ng secton 19.113(a) (3)- of Reguatons 103 and artce
113(a) (3)- of Reguatons 101, 9 , and 86, reatng to the bass
of property acqured by transfer n trust after December 31, 1920.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph 1. Secton 19.113(a) (2)- of Reguatons 103 Part 19,
Tte 26, Code of Federa Reguatons, 19 0 Sup. and artce
113(a) (2)- of Reguatons 101 secton 9.113(a) (2)-, Tte 26,
Code of Federa Reguatons, 1939 Sup. , of Reguatons 9 secton
3.113(a) (2)-, Tte 26, Code of Federa Reguatons , and of
Reguatons 86 are amended as foows:
( ) y changng subsecton (a) to read as foows:
(a) Property ncuded. Secton 113(a)(2) appes to a property acqured
after December 81,1920, by gft. It does not appy to property acqured by
(1) transfer n trust (see secton 113(a) (3)) ; or
(2) devse or bequest (see secton 113(a)(5)).
Secton 113(a)(2) appes to a gfts of whatever descrpton (e cept gfts
made by a transfer n trust), whenever and however made, perfected, or takng
effect; whether n contempaton of or ntended to take effect n possesson or
en|oyment at or after the donor s death; or whether made by means of the
e ercse (other than by w) of a power of appontment or revocaton, or any
other power.
( ) y changng the thrd sentence of the second paragraph of
subsecton (b) to read as foows:
In the hands of every person acqurng property by gft, the bass s aways
the same, whether such person receves the property mmedatey upon the
transfer by th donor, or as remanderman under the Instrument of gft, or
whether such person s any other person to whom such unform bass U
appcabe.
(C) y strkng subsecton (d) thereof, and by reetterng sub-
secton (e) as subsecton (d).
Par. 2. Secton 19.113(a) (3)- of such Reguatons 103 and artce
113(a) (3)-1 of such Reguatons 101, 9 , and 86 are amended by
strkng as a gft by transfer n trust, or n the second sentence
thereof, and by strkng the ast sentence of the frst paragraph.
(Ths Treasury decson s ssued under the authorty contaned n
sectons 62, 113(a)(2), and 113(a)(3) of the InternaRevenue Code
(53 Stat., 32, 0, and 1:26 U. S. C, sectons 62,113(a) (2), 113(a) (3)),
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I It 19.116-3.
and sectons 62, 113(a)(2), and 113(a)(3) of the Revenue cts of
1938, 1936, and 193 (52 Stat, 80, 90; 9 Stat., 1673, 1682; 8 Stat.,
700,706).)
Guy T. everno,
Commssoner of Interna Revenue.
pproved pr 11, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster pr 13, 19 2, 3. 5 p. m.)
Secton 19.113(a) (3)-: Transfer n trust after
December 31, 1920.
INT RN L R NU COD .
Reguatons 103, amended. (See T. D. 5137, page 110.)
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
Secton 19.115-3: arnngs or profts. 19 2-13-11037
( so Secton 718; Reguatons 109, Secton 30.718-2.). I. T. 35 3
INT RN L R NU COD .
For purposes of both nvested capta and dvdends, In the case
of a corporaton eectng the amortzaton deducton as prescrbed
n secton 12 of the Interna Revenue Code, as amended, the earn-
ngs and profts are reduced by amortzaton of the bass of emergency
factes.
dvce has been requested concernng the effect of amortzaton of
the bass of emergency factes a deducton from gross ncome wth
respect to such amortzaton beng authorzed n sectons 23 (t) and
12 of the Interna Revenue Code, as amended upon (1) earnngs
and profts as a factor n the determnaton of equty nvested capta
under secton 718(a) for e cess profts ta purposes, and upon (2)
earnngs or profts out of whch corporate dstrbutons to sharehoders
may be made as dvdends under secton 115(a) for ncome and e cess
profts ta purposes.
very corporaton, at ts eecton, as prescrbed n secton 12 , supra,
s entted to the deducton wth respect to the amortzaton of the
ad|usted bass, determned under secton 12 (f), of any propery
certfed emergency facty (secton 12 (e)) based on a perod of 60
months. The deducton wth respect to amortzaton s whoy or
partay (secton 12 (g)) n eu of (secton 12 (a)) the deducton
provded by secton 23(1) reatng to e hauston, wear and tear, and
obsoescence.
For purposes of both nvested capta and dvdends, n the case
of a corporaton eectng the amortzaton deducton as prescrbed n
secton 12 , 6upra, the earnngs and profts are reduced by amortza-
ton of the bass of emergency factes. (Cf. secton 19.115-3,
Reguatons 103, as amended by t. D. 502 , C. . 19 0-2, 110.)
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19.12 -2.
112
S CTION 116. CLUSIONS FROM GROSS INCOM .
Secton 19.116-1: Income of foregn governments, 19 2-10-11021
ambassadors, and consus. T. D. 512
TITL 26 INT RN L R NU C PT R I, SU C PT R , P RT 10.
INCOM T .
Income of ambassadors, mnsters, and other dpomatc per-
sonne Reguatons 103 amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. 0.
To Coectors of Interna Revenue and Others Concerned:
Paragraph 1. Secton 19.116-1 of Reguatons 103 Part 19, Tte
26, Code of Federa Reguatons, 19 0 Sup. s amended
) y strkng out the second paragraph thereof.
) y emnatng from the thrd paragraph thereof the foowng:
(other than ambassadors, mnsters, and members of ther househods, ncudng
secretares, attaches, and servants).
Par. 2. The amendment made by ths Treasury decson sha be
effectve for ta abe years begnnng after December 31, 19 1.
(Ths Treasury decson s ssued under the authorty of secton 116
of the Interna Revenue Code (53 Stat., 56,26 U. S. C, 19 0 d., 116).)
Norman D. Cann,
ctng Commssoner of Interna Revenue.
pproved March 5, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 6, 19 2, 9.51 a. m.)
S CTION 117. C PIT L G INS ND LOSS S.
Secton 19.117-1: Meanng of terms.
INT RN L R NU COD .
cceptance by credtor of vountary conveyance of property, n-
cudng property pedged as securty for the debt, n parta or n
fu satsfacton of the unpad porton of the ndebtedness. (See
I. T. 35 8, page 7 .)
S CTION 12 . MORTIZ TION D DUCTION.
Secton 19.12 -2: mortzaton deducton 19 -9-11006
Genera rue. T. D. 5119
( so Secton 19.12 -9.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 19. INCOM
T .
Reguatons 103 amended to conform to Pubc aw 36 (Seventy-
seventh Congress), smpfyng the procedure n connecton wth the
amortzaton of certan factes.
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113
5 19.12 -2.
Treasury Department,
Offce or Commssoner or Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 103 Part 19, Code of Federa
Reguatons, 19 0 Sup. to the provsons of Pubc aw 36 (Seventy-
seventh Congress), approved February 6, 19 2, such reguatons are
amended as foows:
Paragraph 1. y nsertng mmedatey precedng secton 19.12 -1,
as added by Treasury Decson 5016. approved October 23,19 0 C. .
19 0-2. 119 , and as amended by Treasury Decson 5019, approved
May 29,19 1 C. . 19 1-1,255 , and Treasury Decson 510 , approved
December 23, 19 1 C. . 19 1-2, 131 , the foowng:
Pubc aw 36, approved February 6, 19 2.
Resoved by the Senate and ouse of Representatves of the Unted States of
merca n Congress assembed, That, effectve as of October 8, 19 0, secton
12 (1), as amended, of the Interna Revenue Code, s hereby repeaed.
Par. 2. y amendng the frst sentence of secton 19.12 -2, as added
by Treasury Decson 5016 and amended by Treasury Decson 5101,
to read as foows:
If the Secretary of the Department concerned makes the requred certfcaton
of necessty, a corporaton s entted, at ts eecton, to a deducton wth respect
to the amortzaton of the ad|usted bass of an emergency facty, such amortza-
ton to be based generay on a perod of 60 months.
Par. 3. y strkng out secton 19.12 -9, as added by Treasury Dec-
son 5016 and amended by Treasury Decsons 50 9 and 510 .
(Ths Treasury decson s ssued under the authorty contaned n
Pubc aw 36 (Seventy-seventh Congress), approved February 6,
19 2, and secton 62 of the Interna Revenue Code, 53 Stat., 32
(26 U. S. C.,62).)
Norman D. Cann,
ctng Commssoner of Interna Re venue.
pproved February 23, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(FIIpO wth the Dvson of the Federa Regster February 2 , 19 2, 11.35 a. m.)
Secton 19.12 -2: mortzaton deducton 19 2-15-11056
Genera rue. T. D. 513.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 19.
INCOM T .
mendng secton 19.12 -2 of Reguatons 103, reatng to the amor-
tzaton of emergency factes.
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 19.12 -2 of Reguatons 103 Part 19, Code of Federa Regu-
atons, 19 0 Sup. , as added by Treasury Decson 5016, approved
October 23,19 0 C. . 19 0-2,119 , and as amended by Treasury Dec-
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I 19.12 -9.
11
son 510 , approved December 23,19 1 C. . 19 1-2, 131 , and Treas-
ury Decson 5119, approved February 23, 19 2 page 112, ths u-
etn , s amended as foows:
(1) y strkng out the second sentence thereof.
(2) y nsertng after the frst paragraph thereof the foowng new
paragraph :
Wth respect to an emergency facty, no amortzaton deducton sha be
aowed for the ta abe year n whch or wth whch the ta payer eects to
begn the 60-month amortzaton perod uness, wth respect to such facty, a
certfcate of necessty pursuant to secton 12 (f) (1) s made pror to the makng
of such eecton, or pror to December 1, 19 1, whchever Is ater (see secton
12 (f)(3)).
(3) y nsertng mmedatey after the ast paragraph thereof
the foowng new paragraph:
ampe (3). On une 15, 19 1, the Z Corporaton, whch makes ts n-
come ta returns on the caendar year bass, competes the constructon of an
emergency facty at a cost of 110,000. In ts ncome ta return for 19 1,
fed on March 15, 19 2, the Z Corporaton eects to take amortzaton deduc-
tons wth respect to such facty and to begn the 60-month amortzaton
perod wth uy, the month foowng ts competon. No certfcate of neces-
sty wth respect to such facty s made unt pr 10, 19 2, and therefore
no amortzaton deducton wth respect to such facty s aowabe for any
month n the ta abe year 19 1. The Z Corporaton s entted, however, to
take a deducton for deprecaton of such facty for the ta abe year 19 1,
such deducton beng assumed, for the purposes of ths e ampe, to be 2,000.
ccordngy, the ad|usted bass of such facty at the end of anuary. 19 2 (wth-
out regard to the amortzaton deducton for such month), s 108,000 ( 110.-
000 mnus 2,000). For the ta abe year 19 2, the Z Corporaton s, wth
respect to such facty, entted to an amortzaton deducton of 2 ,000, computed
as foows:
Monthy amortzaton deductons:
anuary ( 108,000 - - 5 ) 2,000
February ( 106,000, or 108,000 mnus 2,000, 53) 2. 000
March ( 10 ,000. or 106,000 mnus 2,000, - -52) 2. 000
For the remanng nne months (smary computed) 18,000
Tota amortzaton for 19 2 2 . OO0
Snce the Z Corporaton eected n ts return for 19 1 to take amortzaton
deductons wth respect to such facty and to begn the 60-month amortzaton
perod wth uy, 19 1, t must compute ts amortzaton deductons for the
12 months n the ta abe year 19 2 on the bass of the remanng months of the
estabshed 60-nonth amortzaton perod, as Indcated n the above computa-
ton.
(Ths Treasury decson s ssued under the authortv contaned
n secton 62 of the Interna Revenue Code (53 Stat, 32, 26 U. S. C,
19 0 ed., 62).)
Guy T. everng,
Commssoner of Interna Revenue.
pproved pr 1, 19 2.
ohn L. Su|tvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster pr 3, 19 2, 10.03 a. m.)
Secton 19.12 -9: Rembursement by Unted States
for cost of facty.
INT RN L R NU COD .
Reguatons 103, amended. (See T. D. 5119, page 112.)
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115
19.131-8.
SUPPL M NT C CR DIT G INST T .
S CTION 131. T S OF FOR IGN COUNTRI S ND
POSS SSIONS OF UNIT D ST T S.
Secton 19.131-1: nayss of credt for ta es.
INT RN L R NU COD .
rtsh bocked accounts as reated to credt for rtsh ta es
pad or accrued. (See Mn. 5297, page 8 .)
Secton 19.131-5: Countres whch do or do 19 2-10-11012
not satsfy the smar credt requrement. I. T. 3537
INT RN L R NU COD .
The State of ctora, Commonweath of ustraa, satsfes the
smar credt requrement of secton 131(a)3 of the Interna
Revenue Code.
dvce s requested whether the State of ctora, Commonweath
of ustraa, satsfes the smar credt requrement of secton 131(a)3
of the Interna Revenue Code.
Secton 131(a) of the Interna Revenue Code provdes n part as
foows:
(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 chapter, e cept the ta
mposed under secton 102, sha be credted wth:

(3) en resdent of Unted States. In the case of an aen resdent of
the Unted States, the amount of any such ta es pad or accrued durng the
ta abe year to any foregn country, f the foregn country of whch suc
aen resdent s a ctzen ot sub|ect, n mposng such ta es, aows a smar
credt to ctzens of the Unted States resdng n such country;
Secton 1 S of the ctora Income Ta ( ssessment) ct of
December 21, 1936, provdes n genera that ncome derved by a res-
dent from sources wthout the State of ctora s e empt from ncome
ta where that ncome s not e empt from ncome ta n the country
where t s derved, or where the ta payer s abe for royaty or e port
duty n any country outsde ctora n respect of goods from the sae
of whch the ncome s derved.
It s hed that the State of ctora satsfes the smar credt requre-
ment of secton 131 (a)3 of the Interna Revenue Code. (Cf. I. T. 3331,
C. . 1939-2,130.)
Secton 19.131-8: Lmtatons on credt for 19 2-10-11019
foregn ta es. T. D. 5122
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 19.
INCOM T .
Computaton of mtaton upon the credt for foregn ta es n rea-
ton to e cess profts ta under Chapter 2 . Reguatons 103
amended.
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19.131-8.)
116
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 103 Part 19, Tte 26, Code of
Federa Reguatons, 19 0 Sup. , reatng to the ncome ta under the
Interna Revenue Code, to the Revenue ct of 19 1 (Pubc aw 250,
Seventy-seventh Congress), approved September 20,19 1, such regua-
tons are amended as foows:
Secton 19.131-8 s amended by addng at the end thereof the
foowng:
Under the provsons of secton 202, Revenue ct of 19 1, amendng secton
23(c) of the Interna Revenue Code, the e cess profts ta mposed by Subchap-
ter of Chapter 2 s, for years begnnng after December 31, 19 0, aowed as a
deducton n the computaton of net ncome for the purposes of Chapter 1. n
aquot part of such e cess profts ta sha be attrbutabe to the net ncome from
sources wthn each foregn country. The amount so attrbutabe Is that propor-
ton of the tota e cess profts ta whch the e cess profts net ncome from
sources wthn such country bears to the tota e cess profts net Income. In the
determnaton of the mtaton provded n secton 131(b)(1), reatng to the
amount of credt aganst the norma ta , the numerator of the mtaton fracton
sha refect reducton for the amount of the e cess profts ta thus attrbuted
to the net ncome from sources wthn the foregn country.
The operaton of ths method of computng the mtaton fracton may be
ustrated by the foowng e ampe reatng to a domestc corporaton for the
caendar year 19 1:
cess profts credt 100, 000. 00
Net ncome for ta abe year (before deductng e cess
profts ta ):
From sources n country 50, 000.00
From sources n Unted States 80,000. 00
Tota net ncome 130,000.00
Less: Credt for dvdends receved (85 per cent of 10,000 dv-
dends from a domestc corporaton) 8,500.00
Norma ta net Income (before deductng e cess profts ta ) 121,500.00
cess profts ta net ncome:
Net ncome from sources n country 50, 000. 00
Less : d|ustments under secton 711 None.
cess profts net ncome from sources n country 50, 000. 00
Net ncome from sources n Unted States 80,000. 00
Less: Dvdends from domestc corporatons as above 8, 500. 00
71,500.00
Less: d|ustments under secton 711 None.
71, 500. 00
cess profts net Income 121,500,00
Less: cess profts credt pus specfc e empton of 5,000 105. 000. 00
d|usted e cess profts net Income 16, 500. 00
cess profts ta 5, 775. 00
Norma ta net Income (before deductng e cess profts ta ) 121,500.00
Less: cess profts ta 5, 775. 00
Norma ta net Income 115, 725. 00
Norma ta and surta (before foregn ta credt) 35,62 . 75
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117
1 1.
Computaton of foregn ta credt for purposes of norma ta and surta .
Foregn ta pad on country Income 16,000. 00
Net ncome from country ad|usted for ratabe part of e cess profts
ta deducton:
, , 50,000 (e cess
foO.OOO (net ncome profts net ncome
from sources n from country ) 5,775 (tota e -
country before- ce8s rofts ta ) - 7,623. 6
deductng e cess 1 uw u c.
profts ta ) feS9 Pyofts net
ncome)
Norma ta net ncome U5 725- 00
Lmtaton on credt (secton 131(b) (1)) :
7,623. 6
35,62 .75 - 1 , 660. 89
115,725.00
mount aowabe as credt 1 , 660. 39
Computaton of credt for the purposes of e cess profts ta .
Foregn ta pad on country ncome 16,000.00
mount aowed as credt wth respect to ta mposed by Chapter 1_._ 1 , 660. 39
aance avaabe as a credt for purposes of the e cess profts ta 1,339. 61
Lmtaton on credt (sectons 131(b) (1) and 729(d) (1)) :
50,000 (e cess profts net ncome from country )
121,500 (entre e cess profts net ncome) 715 2,376.5
mount aowabe as credt 1, 339. 61
Smary, under secton 131(b)(2), the ta payer s net ncome from sources
wthout the Unted States sha be reduced by that porton of the tota e cess
profts ta whch Is attrbutabe to the net ncome from sources wthout the
Unted States.
(Ths Treasury decson s ssued under the authorty contaned n
secton 131 of the Interna evenue Code (53 Stat., 56,26 U. S. C, 10 0
d., 131) and secton 202 of the Revenue ct of 19 1 (Pubc aw 250,
Seventy-seventh Congress).)
Norman D. Cann,
ctng Commssoner of Interna Revenue.
pproved March 2, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 2, 19 2, .53 p. m.)
SUPPL M NT D. R TURNS ND P YM NT OF T .
S CTION 1 1. CONSOLID T D R TURNS OF
R ILRO D CORPOR TIONS.
19 2-11-11026
T. D.5127
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 23.
INCOM T .
Reguatons 10 , reatng to consodated ncome ta returns of
affated raroad and Pan- mercan trade corporatons, amended.
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1 1.1
118
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 10 Part 23, Tte 25, Code of Federa Reguatons,
19 0 Sup. are amended as foows:
Paragraph 1. Secton 23.2 s amended as foows:
( ) y strkng from (b) the ast sentence n the second para-
graph and nsertng n eu thereof the foowng:
The opton to treat such foregn corporaton as a domestc corporaton so that
t may be ncuded n a consodated return must be e ercsed at the tme of
makng the consodated return, and can not be e ercsed at any tme thereafter.
If the eecton s e ercsed to treat such foregn corporaton as a domestc
corporaton, t must be ncuded n the consodated return of the affated
group of whch t s a member for each year thereafter for whch such group
makes or s requred to make a consodated return.
( ) y strkng from (b) the ast sentence n the fourth para-
graph and nsertng n eu thereof the foowng:
corporaton ceases to be a member of an affated group when the members
of the group cease to own drecty at east 95 per cent, or, n the case of Pan-
mercan trade corporatons, the parent corporaton ceases to own drecty 100
per cent, of ts stock.
(C) y changng paragraph (e) to read as foows:
(e) Ta .
The term ta means the ncome ta mposed by the Code, and Incudes
any nterest, penaty, addtona amount, or addton to the ta , payabe n
respect thereof.
(D) y changng paragraph (/) to read (g), and by nsertng n
such paragraph mmedatey precedng the e presson net ncome,
secton 21 the foowng: corporaton surta net ncome,
secton 15 ; .
( ) y nsertng mmedatey after paragraph (e) the foowng:
(f) Consodated return.
The term consodated return means a consodated Income ta return.
Par. 2. Secton 23.13(a) s amended by strkng the perod at the
end, and by nsertng n eu thereof: of the affated group.
Par. 3. Secton 23.1 s amended to read as foows:
Sec. 23.1 . ccountng Perod of an ffated Gboup.
The ta abe year of an affated group whch makes a consodated ncome
ta return sha be the same as the ta abe year of the common parent corpora-
ton ; and, upon havng eected to fe consodated returns, each subsdary cor-
poraton sha, not ater than the cose of the frst consodated ncome ta ta -
abe year endng thereafter, adopt an annua accountng perod, fsca year or
caendar year as the case may be, n conformty wth that of the common parent.
If a change of accountng perod s made by a subsdary n order to conform
wth that of the common parent and f the requrements of secton 19. 8-1,
Reguatons 103, reatng to notce of change, can not otherwse be comped
wth, such notce sha be furnshed at or before the tme of fng the conso-
dated return.
Wth respect to computatons for years nvoved n the change to the con-
sodated bass, see secton 23.32.
Par. . Secton 23.15 s amended by changng paragraphs (b), (c),
and (d) to read, respectvey, (c), ( /), and (e), and by nsertng
mmedatey after paragraph (a) the foowng:
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119
5 1 1.
(6) Labty of a Corporaton n ankruptcy or Recevershp.
If, at the tme of fng a consodated return, one or more, but not a, of the
members of the n fated group are n bankruptcy under the aws of the Unted
States or n recevershp n any court of the Unted States or of any State,
Terrtory, or the Dstrct of Coumba, then the abty under paragraph (a)
of each such member of the group wth respect to the perod covered by such
return sha not e ceed such porton of the consodated ta abty for such
perod as the severa corporatons ncuded n the consodated return may,
sub|ect to the approva of the Commssoner, agree upon, or, n the absence
of such an agreement, an amount equa to ts abty for such year computed
as f a separate return had been fed.
Par. 5. Secton 23.16(a) s amended us foows:
( ) y nsertng mmedatey after the second semcoon n the
thrd sentence the foowng:
notce and demand for payment of ta es w be gven ony to the common
parent, and such notce and demand sha be consdered as a notce and demand
to each such corporaton;
( ) y strkng from the fourth sentence that porton foowng
the semcoon and by nsertng n eu thereof the foowng:
any notce and demand for payment w name each corporaton whch was
a member of the affated group durng any part of such perod (but a faure
to Incude the name of any such corporaton w not affect the vadty of
the notce and demand as to the other corporatons) ; and any dstrant (or
warrant n respect thereof), any evy (or notce n respect thereof), any notce
of a en, or any other proceedng to coect the amount of any assessment,
after the assessment has been made, w name the corporaton from whch
such coecton s to be mado.
Pah. 6. Secton 23.30 s amended as foows:
( ) y changng the headng of paragraph (6) to read: Years
egnnng n 191f.
( ) y strkng the astersk at the end of paragraph (b), and
by nsertng mmedatey after such paragraph the foowng:
(c) Years egnnng fter December SI. 191,0.
In the case of an affated group whch makes, or s requred to make, a
consodated return for any ta abe year begnnng after December 31, 19 0,
the ta abty of each corporaton for the perod durng such year that It
was a member of such group sha be computed upon the consodated norma-ta
net ncome and the consodated corporaton surta net ncome of the group,
determned n accordance wth these reguatons. (See, however, secton 23.15,
reatng to the abty of the members of the group.)
Par. 7. Secton 23.31(a) s amended as foows:
( ) y strkng out the headng and that porton of the paragraph
precedng the numbered subparagraphs, and by nsertng n eu
thereof the foowng:
(a) Defntons Years egnnng Pror to anuary 1,19 1.
(1) In Genera.
In the case of an affated group of corporatons whch makes or s requred
to make a consodated return for any ta abe year begnnng pror to anuary
1,19 1, and e cept as otherwse provded n these reguatons
( ) y changng the subparagraph formery desgnated as (1)
to read as foows:
(1) The consodated net ncome sha be the combned net ncome of the
severa affated corporatons, reduced, n the case of a ta abe year begnnng
In 19 0, by the consodated net operatng oss deducton ;
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1 1.
120
(C) y changng the subparagraph formery desgnated as (2)
to read as foows:
() The consodated ad|usted net Income sha be the consodated net
Income mnus the combned credt of the severa affated corporatons provded
n secton 26(a), reatng to nterest on certan obgatons of the Unted States
and Government corporatons;
(D) y renumberng as ( ) the subparagraph formery desg-
e presson n such subparagraph the foowng: of the severa
affated corporatons havng net ncome, and by nsertng mme-
datey precedng the semcoon at the end of such subparagraph the
foowng:
computed wthout regard to the quafcatons e pressed n paragraph (c) re-
atng to net operatng oss deductons.
( ) y renumberng as ( ) the subparagraph formery desgnated
(10), and by renumberng as (aa) and (ho), respectvey, of nferor
subdvson ( ) the nferor subdvsons formery desgnated (t)
and ().
(F) y renumberng as (), (v), (v), (v), (v), and (v),
respectvey, the subparagraphs formery desgnated as (3), ( ),
Par. 8. Secton 23.31(a ) s amended as foows:
( ) y strkng out the headng and nsertng n eu thereof
the foowng:
(2) Tears egnnng n 19S9.
( ) y changng the subparagraph formery desgnated as (1) to
read as foows:
() The consodated speca cass net ncome sha be the consodated ad|usted
net ncome mnus the consodated credt for dvdends receved;
(C) y renumberng as () and (), respectvey, the subpara-
graphs formery desgnated as (2) and (3).
Par. 9. Secton 23.31 (aaa) s amended as foows:
( ) y strkng out the headng and that porton of the para-
graph precedng the numbered subparagraphs, and by nsertng n
feu thereof the foowng:
(3) Years egnnng n 19. t0.
In the case of an affated group of corporatons whch makes or Is requred
to make a consodated return for ta abe years begnnng after December 31,
1939, and before anuary 1, 19 1, and e cept as otherwse provded n these
reguatons
( ) y changng the subparagraph formery desgnated as (1) to
read as foows:
() The consodated norma-ta net Income sha be the consodated ad-
usted net Income mnus the consodated credt for dvdends receved;
(C) y renumberng as (v) the subparagraph formery desg-
nated as ( ), and by nsertng mmedatey after the second paren-
thetca e presson n such subparagraph the foowng:
of the severa affated corporatons havng net ncome.
(D) y renumberng as () and (), respectvey, the subpara-
graphs formery desgnated as (2) and (3).
nated
second parenthetca
(5), (6), (7), and (8).
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121
( M.
Par. 10. Secton 23.31 s further amended by nsertng mmedatey
after paragraph (a) (3) (v) (C) the foowng:
(6) Defntons Years egnnng fter December 31, 19 0.
In the case of an affated group of corporatons whch makes or s requred
to make a consodated return for any ta abe year begnnng after December 31,
19 0, and e cept as otherwse provded n these reguatons
(1) The consodated net ncome sha be the combned net ncome of the
severa affated corporatons
() Mnus any consodated net operatng oss deducton.
() Pus any consodated net short-term capta gan, and
() Pus or mnus, as the case may be, any consodated net ong-term
capta gan or consodated net ong-term capta oss;
(2) The consodated net short-term capta gan sha be the e cess of the
sum of the short-term capta gans of the severa affated corporatons over the
sum of the short-term capta osses of such corporatons;
(3) The consodated net ong-term capta gan sha be the e cess of the sum
of the ong-term capta gans of the severa affated corporatons over the sum
of the ong-term capta oss of such corporatons;
( ) The consodated net ong-term capta oss sha be the e cess of the sum
of the ong-term capta osses of the severa affated corporatons over the sum
of the ong-term capta gans of such corporatons;
(5) The consodated net operatng oss deducton sha be an amount equa
to the consodated net operatng oss carry-over reduced by the amount, f any,
by whch the consodated net Income (computed wth the e ceptons and mta-
tons provded n secton 122(d)) e ceeds the consodated norma-ta net In-
come (computed wthout any net operatng oss deducton) ;
(6) The consodated net operatng oss carry-over sha be the sum of
() The amount of the consodated net operatng oss, f any, for the
frst precedng ta abe year,
(II) The amount of the consodated net operatng oss, f any, for the
second precedng ta abe year reduced by the e cess, f any, of the conso-
dated net ncome (computed wth the e ceptons and mtatons provded n
secton 122(d)) for the frst precedng ta abe year over the consodated
net operatng oss for the thrd precedng ta abe year, and, wth respect
to net operatng osses sustaned by a corporaton for ta abe years pror
to the frst ta abe year n respect of whch ts ncome Is ncuded n the
consodated return
(III) The amount of the net operatng oss, If any, sustaned by such
corporaton for the frst precedng ta abe year, and
(v) The amount of the net operatng oss, f any, sustaned by such
corporaton for the second precedng tn abe year reduced by the e cess,
f any, of the net ncome of such corporaton for the frst precedng ta abe
year or, f the ncome of such corporaton s Incuded In the consodated
return for the frst precedng ta abe year, ether the net ncome of such
corporaton ncreased by the separate net short-term and ong-term capta
gans of such corporaton or the consodated net ncome for such year
(computed n ether case wth the e ceptons and mtatons provded n
secton 122(d)), whchever s the esser, over the net operatng oss of
such corporaton for the thrd precedng ta abe year;
(7) The consodated net operatng oss sha be an amount equa to the
e cess of the combned net operatng osses of the severa affated corpora-
tons havng net operatng osses (computed sub|ect to the e ceptons and
mtatons provded n secton 122(d)) over the sum of
(I) The combned net ncome of the severa affated corporatons hav-
ng net ncome (ad|usted wth respect to the e ceptons and mtatons
provded n secton 122(d) n connecton wth the computaton of net
operatng osses), and
() The consodated net short-term capta gan and the consodated
net ong-term capta gan;
(8) The consodated norma-ta net ncome sha be the consodated
ad|usted net ncome mnus the consodated credt for dvdends receved;
(9) The consodated ad|usted net ncome sha be the consodated net
ncome mnus the consodated credt reatng to nterest on certan obgatons
of the Unted States and Government corporatons;
7 918 -
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1 1.1
122
(10) The consodated credt for dvdends receved sha be an amount equa
to 85 per cent of the aggregate dvdends, of the cass wth respect to whch
credt s aowed by secton 26(b), receved by the severa affated corpora-
tons, but not n e cess of 85 per cent of the consodated ad|usted net ncome;
(11) The consodated credt reatng to nterest on certan obgatons of
the Unted States and Government corporatons sha be an amount equa to
the aggregate of the nterest, of the cass wth respect to whch credt Is
aowed by secton 26(a), receved by the severa affated corporatons;
(12) The consodated corporaton surta net ncome sha be the consodated
net ncome mnus the consodated credt for dvdends receved, computed by
mtng such credt to 85 per cent of the consodated net Income In eu of 85 per
cent of the consodated ad|usted net Income;
(13) The consodated dvdends pad credt sha be the sum of
(1) The consodated basc surta credt, and
() The consodated dvdend carry-over;
(1 ) The consodated basc surta credt sha be the sum of
() The aggregate amount of dvdends pad by the severa affated
corporatons durng the ta abe year,
() The combned consent dvdends credts of the severa affated
corporatons provded n secton 28, and
() The consodated net operatng oss credt;
(15) The consodated dvdend carry-over sha be the sum of
() The amount, If any, by whch the consodated basc surta credt for
the frst precedng ta abe year e ceeds the consodated ad|usted net ncome
for such year, and
() The amount of the consodated basc surta credt for the second
precedng ta abe year reduced by the consodated ad|usted net ncome for
such year, and further reduced by the amount, f any, by whch the con-
sodated ad|usted net ncome for the frst precedng ta abe year e ceeds
the sum of
( ) The consodated basc surta credt for such year, and
( ) The e cess, f any, of the consodated basc surta credt for
the thrd precedng ta abe year over the consodated ad|usted net Income
for such year,
and, wth respect to the unused basc surta credt of a corporaton for ta -
abe years pror to the frst ta abe year n respect of whch ts ncome s
ncuded n the consodated return
() The amount, f any, by whch the basc surta credt of such cor-
poraton for the frst precedng ta abe year e ceeds the ad|usted net ncome
of such corporaton for such year, and
(v) The amount of the basc surta credt of such corporaton for the
second precedng ta abe year reduced by the ad|usted net ncome of such
corporaton for such year, and further reduced by
( ) The e cess, f any, of the ad|usted net ncome of such corporaton
for the frst precedng ta abe year over the sum of
(aa) The basc surta credt of such corporaton for such year, and
(66) The amount, f any, by whch the basc surta credt of such
corporaton for the thrd precedng ta abe year e ceeds the ad|usted
net ncome of such corporaton for such year, or
( ) If the ncome of such corporaton Is ncuded n the consodated
return for the frst precedng ta abe year, the esser of the amount of
the e cess computed under ( ) or the e cess, f any, of the consodated
ad|usted net ncome for the frst precedng ta abe year over the sum of
(aa) The consodated basc surta credt for such year, and
(65) The amount, f any, by whch the basc surta credt of
such corporaton for the thrd precedng ta abe year e ceeds the
ad|usted net ncome of such corporaton for such year;
(16) The consodated net operatng oss credt sha be an amount equa to
the consodated net operatng oss, computed for the purposes of the net oper-
atng oss credt, for the precedng ta abe year, but not n e cess of the con-
sodated ad|usted net Income for the ta abe year;
(17) The consodated net operatng oss, computed for the purposes of the
net operatng oss credt, sha be the sum of
() The e cess of the combned net operatng osses of the severa affated
corporatons havng net operatng osses, computed sub|ect to the e ceptons
and mtatons provded In secton 26(c) (2), over the combned net ncome,
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123
f M.
ad|usted wth respect to the e ceptons and mtatons provded In such
subsecton n connecton wth the computaton of net operatng osses, of
the severa affated corporatons havng net ncome, and
() Wth respect to the net operatng oss sustaned by a corporaton for
the ta abe year pror to the frst ta abe year n respect of whch ts ncome
s ncuded n the consodated return, the amount of such net operatng oss
for such pror ta abe year, sub|ect to the e ceptons and mtatons pro-
vded n secton 26(c)(2), n an amount not n e cess of the ad|usted net
ncome of such corporaton for the ta abe year computed wthout regard
to the quafcatons e pressed n (d)(1) () and ().
Par. 11. The secton formery desgnated 23.31(6) s amended as
foows:
( ) y changng the headng thereof to read as foows:
(c) Computatons Years egnnng Pror to anuary 1, 19 1.
( ) y strkng the perod at the end of the frst sentence of the
frst paragraph, and by nsertng n eu thereof the foowng:
, and wthout takng Into account any net operatng oss deducton.
(C) y strkng from the second paragraph thereof the foowng:
the speca cass net ncome, the norma-ta net ncome,
(D) y strkng from the second paragraph thereof the e pres-
son, secton 22(a) and nsertng n eu thereof: secton 122(a).
( ) y strkng the word and from the e presson, and
the credt provded by secton 27(a)( ) reatng to amounts used
or rrevocaby set asde to pay or to retre ndebtedness, appearng
n that porton of the second paragraph precedng the numbered
subparagraphs, and by nsertng mmedatey after such e presson
the foowng:
and gans or osses from saes or e changes of capta assets,
(F) y strkng from subparagraph (6) the word and ; by
strkng the perod at the end of subparagraph (7) and nsertng a
semcoon and the word and n eu thereof; and by nsertng the
foowng new subparagraph:
(8) In the computaton of gans-or osses from saes or e changes of cap-
ta assets, there sha be emnated any gans or osses arsng n ntercom-
pany transactons.
Par. 12. Secton 23.31 s further amended by renumberng as (e)
and (g), respectvey, the paragraphs formery desgnated (c) and
(e), and by nsertng mmedatey precedng the paragraph renum-
bered (e) the foowng:
( t) Computatons Years egnnng fter December SI, 19 /0.
In the case of affated corporatons whch make, or are requred to make,
a consodated return for a ta abe year begnnng after December 31, 19 0,
and e cept as otherwse provded n these reguatons
(1) The net ncome of such corporatons sha be computed n accordance
wth the provsons coverng the determnaton of net ncome of separate cor-
poratons, e cept
(1) There sha be emnated unreazed profts and osses n transac-
tons between members of the affated group and dvdend dstrbutons
from one member of the group to another member of the group (referred
to n these reguatons as Intercompany transactons),
() No net operatng oss deducton sha be taken nto account, and
() No capta gans or osses sha be taken nto account.
Intercompany profts and osses whch have been reazed by the group through
fna transactons wth persons other than members of the group, and Inter-
company transactons whch do not affect the consodated ta abe net Income,
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12
sha not be emnated. s used In ths paragraph, the term net Income
ncudes the case n whch the aowabe deductons of a member (not Incudng
any net operatng oss deducton) e ceed ts gross ncome.
(2) The ad|usted net ncome, the dvdends receved of a cass wth respect
to whch credt s aowed by secton 26(b), the nterest receved of a cass
wth respect to whch credt s aowed by secton 26(a), the short-term capta
gans and osses and the ong-term capta gans and osses as defned n secton
117(a), the net operatng oss as defned n secton 26(c) (2) for the purpose of the
net operatng oss credt, the net operatng oss as defned n secton 122(a) for
the purpose of the net operatng oss deducton, the amount of dvdends pad,
and the consent dvdends credt aowed pursuant to secton 28 sha be computed
and determned n the.case of each affated corporaton n the same manner and
sub|ect to the same condtons as f a separate return were fed, e cept
() The net ncome used n any such computaton sha be the net ncome
of the corporaton determned n accordance wth the provsons of ths
secton;
() In the computaton of the dvdends receved, there sha be e cuded
a dvdends receved from other members of the affated group;
() In the computaton of short-term capta gans and osses and ong-
term capta gans and osses, there sha be emnated any gans or osses
arsng n ntercompany transactons;
(v) In the computaton of the net operatng oss as defned, ether n
secton 26(c) (2) or n secton 122(a), the provsons of ths secton pertanng
to the determnaton of net ncome sha appy;
(v) In the computaton of dvdends pad, there sha be e cuded a
dvdends pad by one member of the group to another; and
(v) In the computaton of the consent dvdends credt, no amounts
sha be ncuded wth respect to consents gven by other members of the
group.
(3) In no case sha there be ncuded n the consodated net operatng oss
carry-over under (6) (6) () and (v) of ths secton (reatng to net operatng
osses sustaned by a corporaton n years pror to the frst ta abe year n
respect of whch ts ncome s ncuded n the consodated return) an amount
n e cess of the net ncome of such corporaton (computed wth the e ceptons
and mtatons provded n secton 122(d)) ncuded n the computaton of the
consodated net Income for the ta abe year ncreased by the separate net short-
term and ong-term capta gans of such corporaton.
( ) If a porton of the consodated net operatng oss carry-over arses pur-
suant to the provsons of (6) (6) () or (v) of ths secton (reatng to osses
sustaned by a corporaton pror to the frst ta abe year n respect of whch
Its ncome s Incuded n the consodated return), the consodated net operatng
oss deducton sha not be ess than the amount of such porton reduced by
the amount, f any, by whch the net ncome of such corporaton (computed wth
the e ceptons and mtatons provded n secton 122(d)) e ceeds the norma-ta
net ncome of such corporaton (computed wthout any net operatng oss deduc-
ton but takng nto account any net ong-term capta oss), or, n the case of
two or more such corporatons, the sum of such portons so reduced.
(5) If, In the computaton of the consodated net operatng oss carry-over
for the second consodated return perod In respect of whch the ncome of a
corporaton s ncuded n the consodated returns of the group, there s nvoved
the net operatng oss separatey sustaned by such corporaton for the second
precedng ta abe year together wth a consodated net operatng oss for the
second precedng ta abe year, or f, for the second consodated return perod
n respect of whch the ncome of two or more members of the affated group
s ncuded n the consodated returns of the group, there are nvoved the net
operatng osses separatey sustaned by such corporatons for the second preced-
ng ta abe year, no porton of the consodated net ncome for the frst precedng
ta abe year sha be taken nto account more than once In gvng effect to the
provsons of (6) (6) () and (v) of ths secton (reatng to the computaton
of that part of the consodated net operatng oss carry-over attrbutabe to
osses of the second precedng ta abe year).
(6) If, n the computaton of the consodated dvdend carry-over for the
second consodated return perod n respect of whch the ncome of a corporaton
Is ncuded n the consodated return of the group, there s nvoved a separate
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125
t ).
unused. basc surta credt of such corporaton for the second precedng ta abe
year together wth a consodated unused basc surta credt for the second
precedng ta abe year, or f, for the second consodated return perod n respect
of whch the ncome of two or more members of the affated group s ncuded
n the consodated return of the group, there are nvoved the separate unused
basc surta credts of such corporatons for the second precedng ta abe year,
no porton of the e cess of the consodated ad|usted net ncome over the con-
sodated basc surta credt for the frst precedng ta abe year sha be taken
nto account more than once n gvng effect to the provsons of (6) (15) () and
(v) of ths secton reatng to the computaton of that part of the dvdend
carry-over attrbutabe to the unused basc surta credt of the second precedng
ta abe year.
Par. 13. Secton 23.31 s further amended by strkng out the para-
graph formery desgnated as (d) and nsertng n eu thereof the
(/) Net Operatng Loss Deducton, Net Operatng Loss Credt, and Dvdend
Carry-over fter Consodated eturn Perod.
The consodated net operatng oss (whether computed for the purpose of the
deducton or the credt) or the unused consodated basc surta credt of an
affated group for any consodated return perod of the group sha be used n
computng the net operatng oss deducton, the net operatng oss credt, or the
dvdend carry-over, as the case may be, n the return of the common parent
corporaton (or the consodated net operatng oss deducton, the consodated net
operatng oss credt, or the consodated dvdend carry-over n the consodated
return of another affated group of whch such common parent becomes a mem-
ber) for a ta abe year subsequent to the ast consodated return erod of the
group n the same manner, to the same e tent, upon the same condtons, and
sub|ect to the same mtatons as f, durng the ta abe year n whch such oss
or such unused basc surta credt orgnaed and contnung to the date of the
termnaton of the group, the group had been a snge corporaton, the common
parent corporaton; and no net operatng oss or unused basc surta credt
attrbutabe to a consodated return perod of a group sha be used n computng
the net operatng oss deducton, the net operatng oss credt, or the dvdend
carry-over of a subsdary (or the consodated net operatng oss deducton, the
consodated net operatng oss credt, or the consodated dvdend carry-over
of another affated group of whch such subsdary becomes a member) for any
ta abe year subsequent to the ast consodated return perod of the group. No
part of any unused basc surta credt of a corporaton for a year pror to the
frst consodated return perod of the affated group of whch such corporaton
becomes a subsdary sha be used In computng the dvdend carry-over of such
corporaton (or the consodated dvdend carry-over of another affated group
of whch such subsdary becomes a member) for any ta abe year subsequent to
the ast consodated return perod, but any part of such unused basc surta credt
whch, e cept for ths restrcton, mght be so used sha be treated as attrbutabe
to the common parent corporaton of the group for a year n whch such common
parent had no ad|usted net ncome and no other basc surta credt. No part of
any net operatng oss sustaned by a corporaton pror to the frst consodated
return perod of the affated group of whch such corporaton becomes a sub-
sdary sha be used n computng the net operatng oss deducton of such cor-
poraton (or the consodated net operatng oss deducton of another affated
group of whch such corporaton becomes a member) for any ta abe year sub-
sequent to the ast consodated return perod, but any part of such net operatng
oss whch, e cept for ths restrcton, mght be so used sha be treated as havng
been sustaned by the common parent corporaton of the group.
Par. 1 . Secton 23.33 s amended as foows:
( ) y changng the tte thereof to read: Gan or Loss From
Sae of Stock, or onds or Other Obgatons.
( ) y strkng out the e presson, any bond or obgaton ssued
by another corporaton and nsertng n eu thereof the foowng:
any bond or other obgaton ssued or ncurred by another
corporaton.
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126
(C) y renumberng as (a) the paragraph formery desgnated
(1), and by strkng out the frst parenthetca e presson appearng
theren and nsertng n eu thereof the foowng:
(by sae, or n compete or parta qudaton not Invovng cash n an amount n
e cess of the ad|usted bass of both the stock and the bonds and other ndebted-
ness qudated, or otherwse).
(D) y renumberng as (b) the Daraerar|h formery desgnated (2).
( ) y renumberng as (c) the paragraph formery desgnated
(3), and by strkng from the parenthetca e presson appearng
theren the ast three words and nsertng n eu thereof the foow-
ng: stock, or bonds or other obgatons.
Par. 15. Secton 23.3 s amended as foows:
( ) y strkng from paragraph (b) the parenthetca e presson
and by nsertng n eu thereof: ut see secton 23.38(6).
( ) y strkng from paragraph (c)(1) the ast parenthetca
e presson and by nsertng n eu thereof the foowng:
, but wthout regard to any ad|ustment under the ast sentence of secton
113(a) (11) wth respect to osses of the ssung corporaton sustaned by such
corporaton after t became a member of the affated group and ncuded n a
consodated ncome ta return of the group.
(C) y strkng paragraph (e) and nsertng n eu thereof the
foowng:
(e) Defnton of Loss, Consodated Loss, and Net Loss or Net
Operatng Loss.
s used n ths secton the term oss means the e cess over the gross
ncome of the ssung corporaton of the sum of Its aowabe deductons (not
ncudng any net oss or net operatng oss deducton) pus the proportonate
part propery attrbutabe to such corporaton of the credts reatng to nterest
on certan Government obgatons and dvdends receved aowabe n com-
putng consodated norma-ta net ncome, the consodated speca cass net
ncome, or consodated net Income sub|ect to ta ; the term consodated oss
means the e cess of the sum of the osses, separatey computed, over the sum
of the norma-ta net Income, the speca cass net ncome, or the net ncome
sub|ect to ta , separatey computed, of the severa members of the affated
group, determned n accordance wth the provsons of the Code, or the Revenue
ct, and pursuant to the provsons of consodated returns reguatons, appcabe
to the perod; and the term net oss or net operatng oss means the net
oss or net operatng oss, as the case may be, determned n accordance wth
the provsons of the Code, or the Revenue ct, and pursuant to the provsons
of consodated returns reguatons, appcabe to the perod.
Par. 16. Secton 23.35 s amended to read as foows:
Sec. 23.35. Sae or onds ob Other Obgatons ass foe Determnng Gan om
Loss.
In the case of a sae or other dsposton by a corporaton, whch s (or has
been) a member of an affated group whch makes (or has made) a conso-
dated ncome ta return for the ta abe year 1929 or any subsequent ta abe
year, of bonds or other obgatons ssued or ncurred by another member of
such group (whether or not ssued or Incurred whe It was a member of the
group and whether ssued or ncurred before, durng, or after the ta abe year
1929), the bass of each bond or obgaton, for determnng the gan or oss upon
such sae or other dsposton, sha be determned n accordance wth the Code
(see, partcuary, secton 113), but the amount of any oss otherwse aowabe
sha be decreased by the e cess (f any) of the aggregate of the deductons
computed under paragraph (c) (2) of secton 23.3 over the sum of the aggre-
gate bases of the stock of the debtor corporaton as computed under paragraph
(c)(1) or ( t), as the case may be, hed by the members of the group. (See,
aso, secton 23. 0, reatng to dsaowance of oss upon ntercompany bad
debts.)
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127
u.
Par. 17. Secton 23.36 s amended by changng the tte thereof to
read: Lmtaton on owabe Losses on Sae of Stock, or onds
or Other Obgatons.
Par. 18. Secton 23.37(a) s amended by strkng out the frst para-
graph and nsertng n eu thereof the foowng:
Gan or oss sha not be recognzed upon a dstrbuton durng a consodated
return perod, by a member of an affated group to another member of such
group, n canceaton or redempton of a or any porton of ts stock, e cept
(1) Where such dstrbuton s n compete qudaton and redempton of
a of ts stock (whether n one dstrbuton or a seres) and of ts bonds and
other ndebtedness, f any, fas wthout the provsons of secton 112(b) (6), and
s the resut of a bona tde termnaton of the busness and operatons of such
member of the group, In whch case It sha be treated as a sae of the stock,
or bonds or other ndebtedness, the ad|ustments specfed In sectons 23.3
and 23.35 w be made, and secton 23.38 w be appcabe; or
(2) Where such a dstrbuton wthout the provsons of secton 112(b) (6) s one
made n cash In an amount n e cess of the ad|usted bass of the stock, and
bonds and other ndebtedness, n whch case gan sha be recognzed to the
e tent of such e cess.
Par. 19. Secton 23.38 (c) s amended as foows:
( ) y strkng out that porton of subparagraph (3) precedng
the numbered subdvsons and by nsertng n eu thereof the
foowng:
Where property s acqured durng a ta abe year begnnng after December
31, 193S, upon a dstrbuton (not a compete qudaton wthn the provsons
of secton 112(b)(6)) n whch gan or oss to the dstrbutee s not recognzed
as provded In secton 23.37(a), the bass of such property sha be the same as
the bass (determned In accordance wth sectons 111 to 115, ncusve, and
sectons 23.3 and 23.35) of the stock and the bonds and other obgatons e -
changed therefor, ad|usted
( ) y renumberng as (3) (), (), and (), respectvey, the
subparagraphs formery desgnated (3) ( ), ( ),and (C).
(C) y renumberng as ( ) (), (), (), and (v), respectvey,
the subparagraphs formery desgnated as ( ) ( ), ( ), (C), and
(D).
Par. 20. Secton 23.39 s amended as foows:
( ) y renumberng as subparagraph (1) the paragraph for-
mery desgnated (a), and by nsertng mmedatey precedng suc
subparagraph the foowng new paragraph headng:
(a) Years egnnng Pror to anuary 1,19 1.
( ) y renumberng as subparagraph (2) the paragraph formery
desgnated (b), and by strkng the astersk at the end and nsertng
n eu thereof the foowng:
(6) Years egnnng fter December SI, 19 0.
(1) Consodated Return for Frst Year of ffaton.
If the ncome of an affated corporaton s ncuded n a consodated return
for the perod Immedatey foowng the date upon whch such corporaton became
a member of the affated group, the vaue of ts openng Inventory to be used
n computng the consodated net ncome sha be the proper vaue of the cosng
nventory used n computng ts net ncome for the precedng ta abe year.
(2) Consodated Return fter Separate Return by ffates.
If a corporaton whch s a member of the affated group for the frst conso-
dated return perod was a member of the group In the precedng ta abe year,
the vaue of ts openng nventory to be used In computng the consodated net
ncome for the frst consodated return perod sha be the proper vaue of the
cosng nventory used n computng ts net ncome for the precedng ta abe
year decreased n the amount of profts or Increased n the amount of osses.
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128
refected n such Inventory whch arose n transactons between members of the
affated group and whch have not been reazed by the group through fna
transactons wth persons other than members of the group.
(3) Separate Returns Made fter Consodated Returns.
If a corporaton whch was a member of an affated group n a consodated
return perod makes or s requred to make a separate return for the succeedng
ta abe year, the vaue of Its openng nventory to be used n computng ts net
ncome for such succeedng ta abe year sha be the proper vaue of ts cosng
nventory used n computng consodated net ncome for the ast consodated
return perod.
Par. 21. Secton 23. 0(a) s amended by strkng at the end thereof
the words, any other member of the group. and by nsertng n
eu thereof the foowng:
any other corporaton whch was a member of the group as of the ast day of
the ta abe year or whch was qudated by the group durng such year e cept
as a oss n connecton wth a qudaton of such other member n whch osses
are recognzed pursuant to secton 23.37(a).
Par. 22. Secton 23. 1(6) s amended by nsertng mmedatey pre-
cedng the words n determnng the gan or oss to the ssung com-
pany the foowng:
and n a transacton other than a dstrbuton n a qudaton n whch gan or
oss to the dstrbutee s recognzed pursuant to secton 23.37(a),
Par. 23. Secton 23. 2 s amended as foows:
( ) y nsertng the foowng new paragraph headng mmed-
atey after the secton headng:
(a) Years egnnng Pror to anuary 1,19 1.
( ) y strkng and 117(d) and nsertng n eu thereof the
foowng: 117 (d) and (e), and 122 (d).
(C) y nsertng mmedatey after the words consodated re-
turn perod the foowng: begnnng pror to anuary 1,19 1.
(D) y strkng the astersk at the end and nsertng n eu thereof
the foowng:
(6) Years egnnng fter December 31, 19 0.
The provsons of sectons 23 (g) and (k), 117 (d) and e), and 122(d) wth
respect to gans and osses from saes or e changes of capta assets sha be
apped, n respect of such gans and osses sustaned durng a consodated return
perod begnnng after December 31, 19 0, as f the affated group were the
ta payer.
Wth respect to a net short-term capta oss sustaned by a corporaton n a
year pror to the frst consodated return perod n respect of whch the ncome
of such corporaton s ncuded n the consodated return, such oss (n an amount
not n e cess of the net ncome of such corporaton for such year or n e cess
of the net short-term capta gan of such corporaton for the frst consodated
return perod) sha, for the purposes of secton 117(e), reatng to a net
short-term capta oss carry-over, be treated as f such net short-term capta
oss had been sustaned by the affated group.
consodated net short-term capta oss sustaned by the affated group
durng the ast consodated return perod of the group (n an amount not n
e cess of the consodated net ncome for such year) sha be treated n the
succeedng ta abe year, sub|ect to the e cepton provded n secton 117(e), as
a short-term capta oss of the common parent corporaton. No porton of any
consodated net short-term capta oss sustaned durng a consodated return
perod of an affated group sha be used n computng short-term capta osses
of a subsdary for any subsequent ta abe year.
Par. 2 . Secton 23. 3 s amended as foows:
( ) y nsertng the foowng new paragraph headng mmed-
atey after the secton headng:
(a) Years egnnng Pror to anuary 1,19 1-
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129
t 19.1 3-1.
( ) y strkng from that porton of the secton precedng the
numbered subparagraphs the words the consodated return perod
and by nsertng n eu thereof the foowng: a consodated return
perod begnnng pror to anuary 1,19 1.
(C) y strkng from subparagraphs (1) and (2) the e presson
secton 23.31 (b) and by nsertng n each case n eu thereof the
foowng: secton 23.31 (c).
(D) y strkng the astersk at the end and nsertng n eu thereof
the foowng:
(6) Years egnnng fter December SI, 19 0.
The credt aowed to an affated group for ta es pad or accrued durng a
consodated return perod begnnng after December 31, 19 0, to any foregn
country or to any possesson of the Unted States (under secton 131) sha be
computed and aowed as f the affated group were the ta payer.
(Ths Treasury decson s ssued under the authorty contaned n
secton 1 1 of the Interna evenue Code (53 Stat., 58), as amended
by secton 210 of the Revenue ct of 1939 (53 Stat., 8(56), secton 152
of the Interna Revenue Code (53 Stat., 880), and sectons 10 and
118 of the Revenue ct of 19 1 (Pubc aw 250, Seventy-seventh
Congress).)
Norman D. Cann,
ctng Commssoner of Interna Revenue.
pproved March 5, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 6, 19 2, p. m.)
S CTION 1 3. WIT OLDING OF T
T SOURC .
Secton 19.1 3-1: Wthhodng ta at source. 19 2-9-11005
( so Secton 1 ; Secton 19.1 -1.) I. T. 3535
INT RN L R NU COD .
Wthhodng of ta at the source under sectons 1 3(b) and 1
of the Interna Revenue Code, as amended, s requred to be made
at the rates n effect on the date the dvdend check s orgnay
Issued, rrespectve of whether the check s ater returned because
of defectve address or a new check s subsequenty ssued to
repace the orgna whch has been ost.
dvce s requested as to the rates of ta requred to be wthhed
at the source under sectons 1 3(b) and 1 of the Interna Revenue
Code, as amended, n cases where t s necessary to rema or ressue a
dvdend check after a change n the wthhodng rate has become
effectve. These cases fa, generay, under the foowng categores:
(1) Checks returned by the post offce because of defectve or
ncorrect addresses.
(2) Dvdends payabe to stockhoders whose funds are bocked
under the ecutve Order of the Presdent.
(3) Where orgna checks are ost and repacement checks have to
be ssued.
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19.162-1.
130
Payor corporatons and ther dvdend dsbursng agents w be
hed abe for the wthhodng of ta at the rates n effect on the
date the dvdend check s frst drawn, rrespectve of whether such
check s ater returned by the posta authortes because of defectve
or ncorrect address, or whether a new check s subsequenty ssued
to repace the orgna whch has been ost. ccordngy, n these
types of cases, annua wthhodng return, Form 10 2, must be fed
for the year n whch the dvdend check was orgnay ssued to
report the ta whch s requred to be deducted and wthhed at that
tme under secton 1 3(b) or secton 1 of the Interna evenue
Code, as amended.
S CTION 1 . P YM NT OF CORPOR TION
INCOM T T SOURC .
Secton 19.1 -1: Wthhodng n the case of non-
resdent foegn corporatons.
INT RN L R NU COD .
Dvdend checks returned or ost after change of ta rate. (See
L T. 3535, page 129.)
SUPPL M NT . ST T S ND TRUSTS.
S CTION 162. N T INCOM .
Secton 19.162-1: Income of estates and 19 2-23-11117
trusts. I. T. 3556
INT RN L R NU COD .
The fng of a speca bond by an e ecutor or admnstrator n
the Dstrct of Coumba does not, n Itsef, have the effect of term-
natng admnstraton of the estate for Federa ncqme ta purposes
where the e ecutor or admnstrator s not the soe bentfcary of
the estate. The fna dstrbuton of the assets of the estate to the
benefcary (or benefcares) determnes the cosng of admnstra-
ton of the estate wthn the meanng of secton 162(c) of the Interna
Revenue Code and secton 19.162-1 of Reguatons 103.
I. T. 2925 (C. . I -2, 1 8 (1935)) dstngushed.
dvce s requested whether I. T. 2925 (C. . I -2, 1 8 (1935))
s appcabe to a case n whch a speca bond s fed n the Dstrct
of Coumba by an e ecutor or admnstrator who s not the soe
benefcary of the estate.
I. T. 2925, supra, deas wth a case n whch the soe benefcary
of the estate of a decedent who ded n March, 1935, was aso e ecutor
of the estate, and a speca bond was fed by the e ecutor n pr,
1935, u: der secton 26 of the Code of Law for the Dstrct of Coumba
(secto 26 of the ct approved March 3, 1901, 31 Stat., 1189; Tte
29, sect on 133, of the 1929 Code of the Dstrct of Coumba). That
secton (now codfed as Tte 20, secton 303, of the 19 0 Code of the
Dstrct of Coumba) provdes as foows:
Speca bond. If the e ecutor s the resduary egatee of the persona estate
of the testator, or provded the resduary egatee of fu age sha notfy hs
consent to the court, he may, nstead of the bond prescrbed as aforesad, gve
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131
19.162-1.
bond wth securty approved by the court, and n a penaty prescrbed by the
court, condtoned to pay a the debts and |ust cams aganst the testator, and
a damages whch sha bu recovered aganst hm as e ecutor, and a egaces
bequeathed by the w, n whch case he sha not be requred to fe any
Inventory or render any account. nd f such bond be gven by the e ecutor,
he sha be answerabe for the fu amount of a debts, cams, and damages
that may be recovered aganst hm as e ecutor as f he were sued In hs own
rght, and any egatee may recover the fu amount of hs egacy n a sut on the
e ecutor s bond or n equty, and the gvng of the bond sha be consdered an
assent to the egacy: Provded, That the surety or suretes In sad bond sha not
be abe for a greater amount than the penaty thereof.
In vew of the fact that the same ndvdua was the soe benefcary
and e ecutor of the estate n the case on whch I. T. 2925, supra, was
based, and that upon the fng of hs speca bond and ts approva
by the court n pr, 1935, he, as e ecutor, became answerabe for the
fu amount of a debts, cams, and damages that mght be recov-
ered aganst hm as e ecutor as f he were sued n hs own rght and
was reeved from returnng an nventory and from fng accounts,
t was hed that the approva and acceptance of hs speca bond by
th| court had the effect of a dstrbuton to hm of the entre estate,
sub|ect to hs persona abty for the decedent s debts and the |ust
cams aganst the decedent s estate. It was aso hed that the perod
of admnstraton or settement of the estate was cosed upon the fng
of the speca bond and ts approva by the court, and that the entre
estate, ncudng the ncome thereof from the date of death, was
dstrbuted to the e ecutor as the soe benefcary durng the estate s
ta abe year 1935. It was further hed that the entre ncome of the
estate was ta abe to the soe benefcary, snce secton 162(c) of the
Revenue ct of 193 provdes that n the case of ncome receved by
estates of deceased persons durng the perod of admnstraton or
settement the amount of the ncome of te estate for ts ta abe year
whch s propery pad or credted durng such year to any egatee,
her or benefcary sha be aowed as a deducton n computng the
net ncome of the estate and sha be ncuded n computng the net
ncome of the egatee, her, or benefcary.
Secton 275 of the Code of Law for the Dstrct of Coumba (sec-
ton 275 of the ct approved March 3,1901,31 Stat., 1189, as amended
bv the ct approved une 30, 1902, 32 Stat., 528; Tte 29, secton
103, of the Dstrct of Coumba Code, 1929 edton; Tte 20, secton
203, of the Dstrct of Coumba Code, 19 0 edton), whch provdes
for the fng of speca bonds by admnstrators of estates, s smar
to secton 20 of the Code of Law for the Dstrct of Coumba, supra,
provdng for the fng of speca bonds by e ecutors of estates.
The courts of the Dstrct of Coumba have not passed on the
queston whether the fng of such a speca bond by an e ecutor or
admnstrator n the Dstrct of Coumba has the effect, n and of
tsef, of cosng the admnstraton of the estate on the date of e ecu-
ton of the bond, or whether, despte the gvng of such a bond,
there s nevertheess a perod of admnstraton (durng whch the
estate must be recognzed as a ta abe entty for Federa ncome ta
purposes) foowng the fng of the bond. though some confct
e sts n other |ursdctons where, by statute, speca bonds may be
fed, the neary unanmous vew appears to be that the fng of such
a bond does not accompsh the cosng of the estate. (See Lafferty v.
Peopes Savngs ank, 76 Mch., 35, 3 N. W., 3 ; Thompson v. Pope s
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19.212-2.
132
state, 77 Neb., 338, 109 N. W., 98; Pym v. Pym, 118 Ws., 662, 96
N. W., 29; reamer v. reamer, 52 an., 597, 35 Pac, 21 .)
In reamer v. reamer, supra, the court made the foowng
statement:
There has been some dscusson upon the much-controverted queston of
whether the gvng of such a speca bond vested the property and assets of the
estate n the resduary egatee, and cosed the admnstraton of the estate.
Upon ths queston the authortes are not unform. (Lafery v. ank, 70 Mch.,
210, 38 N. W., 221; 1 Woerner, dm r, 3 .) The authortes strongy
sustan the vew that an acton upon the bond s not the ony remedy of credtors
or egatees, and that the gvng of such a bond does not cose the admnstraton,
nor whoy deprve the probate court of |ursdcton over the e ecutor and
the estate.
In vew of what appears to be the neary unanmous opnon of the
courts of other |ursdctons n smar cases, t s hed that the fng
of a speca bond by an e ecutor or admnstrator n the Dstrct of
Coumba does not, n tsef, have the effect of termnatng admns-
traton of the estate for Federa ncome ta purposes where the
e ecutor or admnstrator s not the soe benefcary of the estate.
The fna dstrbuton of the assets of the estate to the benefcary (or
benefcares) determnes the cosng of admnstraton of the estate
wthn the meanng of secton 162(c) of the Interna Revenue Code
and secton 19.162-1 of Reguatons 103.
The case consdered n I. T. 2925, supra, consttutes an e cepton
to the genera rue above ad down. In that case the e ecutor was
aso the soe benefcary of the estate, and there was no necessty for
a fna dstrbuton of the assets of the estate other than that rep-
resented by the takng possesson of the persona assets by the e ecutor
(and benefcary) as of the date of the gvng of the speca bond.
ccordngy, n such a case the date of the approva of the speca bond,
n effect, marked the date of the dstrbuton of the assets of the estate.
SUPPL M NT . NONR SID NT LI N INDI IDU LS.
S CTION 212. GROSS INCOM .
Secton 19.212-2: cuson of earnngs 19 2-25-11129
of foregn shps from gross ncome. I. T. 3559
( so Secton 231, Secton 19.231-3.)
INT RN L R NU COD .
Panama st satsfes the equvaent e empton provsons of sec-
tons 212(b) and 231(d) of the Interna Revenue Code, n vew of
resouton No. 230 of the Mnstry of the Treasury and Fnance of
Panama dated March 12, 19 2.
dvce s requested whether Panama st satsfes the equvaent
e empton provsons of sectons 212(b) and 231(d) of the Interna
Revenue Code n vew of artce 1, Chapter I, of aw No. 52 of May 23,
19 1, estabshng the ncome ta , as passed by the Natona ssemby
of Panama, and resouton No. 230, sgned by the Mnster of the Treas-
ury and Fnance of the Repubc of Panama on May 12,19 2.
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133
19.21 -1.
In I. T. 3 65 (C. . 19 1-1, 268), frst pubshed n I. R. . 19 1-15,
dated pr 1 ,19 1, t was hed that Panama satsfed such e empton
provsons, based upon the aw then n effect.
rtce 1, Chapter I, of aw No. 52 of May 23, 19 1, effectve uy 1,
19 1, reads as foows:
rtce 1. There Is estabshed a ta on ta abe Income as defned heren of
a persons, whether natura or urdca, whether domestc or foregn, whether
or not domced n Panama, whch ncome s obtaned wthn the terrtory of the
Repubc of Panama, correspondng to the prevous ta year on account of empoy-
ment, busness, ndustry, commerce, professon, trade or any other occupaton,
or arsng from any knd of rea or persona property or from any other source
wthn the country, rrespectve of the pace where the sad ncome s receved.
Resouton No. 230, dated March 12, 19 2, provdes n part as fo-
ows :
s the ncome (revenues) produced by Internatona martme trade by mer-
chant vesses of the U. S. . or of any other country are not specfed as ta abe
n artce 1 of aw No. 52 of May 23, 19 1,
IT IS R WIT R SOL D:
That the ncome arsng from martme commerce of merchant vesses of the
Unted States or of any other naton cang at Panamanan ports s not sub|ect
to the ncome ta created by aw No. 52 of May 23.19 1.
ccordngy, n vew of resouton No. 230, t s hed that Panama
st satsfes the equvaent e empton provsons of sectons 212(b)
and 231 (d) of the Interna Revenue Code.
S CTION 21 . CR DITS G INST N T INCOM .
Secton 19.21 -1: Credts to nonresdent 19 2-6-1098
aen ndvduas. G. C. M. 230C6
INT RN L R NU COD .
nonresdent aen Indvdua who s a resdent of Canada or
Me co s entted to a credt of 00 for each person quafyng
under the aw as a dependent. Secton 25(b)2( ) of the Inter-
na Revenue Code, as amended by secton 113 of the Revenue ct of
19 1, s not appcabe to such cases.
n opnon s requested whether a nonresdent aen ndvdua who
s a resdent of Canada or Me co s entted to a credt of 00 for
each dependent for ta abe years begnnng after December 31, 19 0,
or whether secton 25(b)2( ) of the Interna Revenue Code, as
amended by secton 113 of the Revenue ct of 19 1, s appcabe to
such an ndvdua so as to deny credt for one dependent f the ta -
payer woud not occupy the status of head of a famy e cept by rea-
son of there beng one or more dependents for whom he woud be
entted to credt under subparagraph ( ) of secton 25(b)2.
Secton 21 of the Interna Revenue Code, as amended by secton
111(b) of the Revenue ct of 19 1, provdes:
Sec. 21 . Credts ganst Net Income.
In the case of a nonresdent aen ndvdua the persona e empton aowed
by secton 25(b) (1) of ths chapter sha be ony 750. The credt for depend-
ents aowed by secton 25(b)(2) sha not be aowed n the case of a non-
resdent aen ndvdua uness he s a resdent of a contguous country.
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19.21 -1.1
13
Secton 113 of the Revenue ct of 19 1 provdes:
Sec. 113. Credts foe Dependents.
Secton 25(b) (2) of the Interna Revenue Code (reatng to credt for depend-
ents) s amended to read as foows:
(2) Credt fob dependents.
( ) owance n Genera. 00 for each person (other than husband
or w. fe) dependent upon and recevng hs chef support from the ta payer
If such dependent person s under eghteen years of age or s ncapabe of
sef-support because mentay or physcay defectve.
( ) cepton for Certan eads of Fames. If the ta payer woud
not occupy the status of head of a famy e cept by reason of there beng
one or more dependents for whom he woud be entted to credt under sub-
paragraph ( ), the credt under such subparagraph sha be dsaowed
wth respect to one n such dependents.
The ntent of Congress n enactng secton 113 of the Revenue ct
of 19 1 s set forth n the report of the Senate Fnance Commttee
(Rept. 673, Part 1, page 28 C. . 19 1-2, 66 , as feows:
Secton 113. Credt for Dependents.
Ths secton s the same as secton 110 of the ouse b whch amends
secton 25(b)2 of the Interna Revenue Code reatve to the credt for dependents.
In the case of the head of a famy or a marred person vng wth husband
or wfe, the e stng aw provdes as a credt aganst net ncome a persona
e empton pus 00 for each dependent other than husband or wfe. Under
these provsons, a marred person vng wth husband or wfe and havng no
dependents receves as a ma mum credt the persona e empton. On the other
hand, an unmarred person mantanng a home for a person who aso quafes
as a dependent may receve n addton to the same persona e empton a
credt for 00 for such dependent. The proposed egsaton dsaows the
credt for one dependent n cases where the ta payer s status as head of a
famy s occasoned soey by the e stence of one or more of such dependents.
The amendment w not affect any case e cept one n whch the ta payer occu-
pes the status as head of a famy soey by reason of the e stence of a person
tor whom he s aso entted to the credt for a dependent. For nstance, t w
not operate to reduce the credt n the case where a wdower s mantanng
a home for two chdren, ony one of whom quafes as a dependent. In such
case, the status as head of a famy s not occasoned soey by e stence of the
chd In respect of whom the credt of 00 s aowed and consequenty the
ta payer may he entted to the persona e empton nowed the head of a
famy pus the 00 credt, the same as under e stng aw.
It thus appears that the purpose of the amendment to secton
25(b) 2 of the Interna Revenue Code by secton 113 of the Revenue
ct of 19 1 was to prevent an ndvdua from obtanng two bene-
fts, vz, an ncreased persona e empton and a 00 credt n the
cases descrbed, and that the secton was ntended to appy ony to
a ta payer who not ony s head of a famy but aso receves the
credt of 1,500 aowed to the head of a famy. Snce a nonresdent
aen ndvdua s not aowed a credt of 1,500 as the head of a
famy and a dependent does not n hs case gve rse to such credt,
t seems cear that the e cepton for certan heads of fames con-
taned n secton 25(b)2( ), as amended by secton 113 of the Rev-
enue ct of 19 1, s not appcabe to nonresdent aen ndvduas.
It foows that a nonresdent aen ndvdua who s a resdent of
Canada or Me co s entted to a credt of 00 for each person
quafyng under the aw as a dependent, n addton to a persona
e empton of 750 aowed by secton 21 of the Interna Revenue
Code.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
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135 19.262-2.
S CTION 217. R TURNS.
Secton 19 217-1: Tme and pace for fng returns
of nonresdent aen ndvduas.
INT RN L R NU COD .
Reguatons 103, amended. (See T. D. 51 9, page 93.)
S CTION 218. P YM NT OF T .
Secton 19 218-1: Date on whch ta sha be pad
by nonresdent aen ndvdua.
INT RN L R NU COD .
Reguatons 103, amended. (See T. D. 51 9, page 93.)
SUPPL M NT I. FOR IGN CORPOR TIONS.
S CTION 231. T ON FOR IGN CORPOR TIONS.
Secton 19.231-3: cuson of earnngs of foregn
shps from gross ncome.
INT RN L R NU COD .
Panama, equvaent e empton provsons of sectons 212(b) and
231 (d) of the Interna Revenue Code. (See L T. 3559, page 132.)
SUPPL M NT . C IN TR D CT CORPOR TIONS.
S CTION 2G2. CR DIT G INST N T INCOM .
Secton 19.262-2: Credts aowed Chna Trade 19 2-21-11105
ct corporatons. I. T. 3553
INT RN L R NU COD .
In the case of Chna Trade ct corporatons, such speca dv-
dends as coud have been dstrbuted on or before March 15, 19 2,
out of the earnngs of the year 19 1 but for the condtons prevang
In Chna snce the cose of 19 1 w be recognzed as a credt
aganst net ncome for the year 19 1, f dstrbuted on or before
une 15, 19 2.
dvce s requested whether n vew of present condtons n Chna,
the tme mt for the decaraton and dstrbuton of speca dvdends
by Chna Trade ct corporatons w be e tended.
The pertnent provsons of aw appcabe to the queston pre-
sented are contaned n secton 2G2 of the Interna Revenue Code, as
amended, whch reads n part as foows:
(a) owance of Credt. For the purpose ony of the ta es Imposed by
ectons 13, 1 , 15, and GOO of ths tte and secton 106 of the Revenue ct
of 1935 there sha be aowed, n the case of a corporaton organzed under
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19.262-2.
136
the Chna Trade ct, 1922, n addton to the credts aganst net ncome other-
wse aowed such corporaton, a credt aganst the net ncome of an amount
equa to the proporton of the net ncome derved from sources wthn Chna
(determned n a smar manner to that provded n secton 119) whch the
par vaue of the shares of stock of the corporaton owned on the ast day of the
ta abe year by (1) persons resdent n Chna, the Unted States, or possessons
of the Unted States, and (2) ndvdua ctzens of the Unted States or Chna
wherever resdent, bears to the par vaue of the whoe number of shares of
stock of the corporaton outstandng on such date: Provded, That n no case
sha the dmnuton, by reason of such credt, of the ta mposed by such
secton 13, 1 , or 15 (computed wthout regard to ths secton) e ceed the
amount of the speca dvdend certfed under subsecton (b) of ths secton;
and n no case sha the dmnuton, by reason of such credt, of the ta
mposed by such secton IOC or 600 (computed wthout regard to ths secton)
e ceed the amount by whch such speca dvdend e ceeds the dmnuton
permtted by ths secton In the ta mposed by such secton 13, 1 , or 15.
(b) Speca Dvdend. Such credt sha not be aowed uness the Secretary
of Commerce has certfed to the Commssoner
(1) The amount whch, durng the year endng on the date f ed by aw
for fng the return, the corporaton has dstrbuted as a speca dvdend
to or for the beneft of such persons as on the ast day of the ta abe year
were resdent In Chna, the Unted States, or possessons of the Unted
States or were ndvdua ctzens of the Unted States or Chna, and
owned shares of stock of the corporaton;
(2) That such speca dvdend was n addton to a other amounts, pay-
abe or to be payabe to such persons or for ther beneft, by reason of
ther nterest n the corporaton; and
(3) That such dstrbuton has been made to or for the beneft of such
persons n proporton to the par vaue of the shares of stock of the cor-
poraton owned by each; e cept that f the corporaton has more than one
cass of stock, the certfcates sha contan a statement that the artces
of ncorporaton provde a method for the apportonment of such speca
dvdend among such persons, and that the amount certfed has been ds-
trbuted n accordance wth the method so provded.

s stated n secton 19.262 3 of Reguatons 103, the term speca
dvdend means the amount whch durng the year endng on
March 15 succeedng the cose of the corporaton s ta abe year s
dstrbuted as a speca dvdend to or for the beneft of such persons
as on the ast day of the ta abe year were resdent n Chna, the
Unted States, or possessons of the Unted States, or were ndvdua
ctzens of the Unted States or Chna, and owned shares of stock
of the corporaton.
Chna Trade ct corporatons are domestc corporatons and fe
returns on the caendar year bass. Secton 53 of the Interna
Revenue Code provdes that returns made on the bass of the ca-
endar year sha be made on or before the 15th day of March foow-
ng the cose of the caendar year. Under secton 19.53-3 of Regua-
tons 103, however, an e tenson of tme to une 15, 19 2, foowng
the cose of the ta abe year for fng returns of ncome on the
caendar year bass for 19 1 s granted to domestc corporatons whch
transact ther busness and keep ther records and books of account
abroad.
In vew of the present stuaton n Chna, the ureau w recognze
speca dvdend dstrbutons by Chna Trade ct corporatons n
19 2 f dstrbuted on or before une 15, 19 2, wth the understandng
that ths e ceptona rung s to be construed as appcabe ony to
the year 19 1; that n subsequent years the reguatons whch pre-
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137
19.262-2.
scrbe March 15 as the ast day on whch such dvdends may be
dstrbuted for the purpose of the statute w govern ths sub|ect;
and that n order for such dvdends dstrbuted on or before une 15,
19 2, to be recognzed as a credt aganst net ncome for the caendar
year 19 1, they must be dstrbuted out of earnngs for the year 19 1.
In other words, ony such dvdends as coud have been dstrbuted
on or before March 15, 19 2, out of the earnngs of the year 19 1
but for the condtons prevang n Chna snce the cose of 19 1
w be recognzed as a credt aganst net ncome for the year 19 1,
f dstrbuted on or before une 15, 19 2.
Gut T. evehnq,
Commssoner of Interna Revenue.
pproved.
ohn L. Suvan,
ctng Secretary of the Treasury.
Secton 19.262-2: Credts aowed Chna Trade 19 2-26-11133
ct corporatons. I. T. 3561
INT RN L R NU COD .
In the case of Chna Trade ct corporatons, such speca dv-
dends as coud have been dstrbuted on or before March 15,
19 2, out of the earnngs of the year 19 1 but for condtons pre-
vang n Chna snce the cose of 19 1 w be recognzed as a
credt aganst net ncome for the year 19 1, f dstrbuted on or
before September 15, 19 2.
Tme for fng returns for 19 1 by Chna Trade ct corporatons
e tended to September 15, 19 2.
I. T. 3553 page 135, ths uetn modfed.
dvce s requested whether the tme mts for the decaraton and
dstrbuton of speca dvdends, and for the fng of Federa ncome
ta returns, by Chna Trade ct corporatons for the caendar year
19 1, as e tended by I. T. 3553 page 135, ths uetn , w be
further e tended.
In vew of the e traordnary condtons e stng n Chna, on
account of whch the nformaton necessary to the decaraton and
dstrbuton of speca dvdends s unavaabe, the ureau w
recognze speca dvdend dstrbutons by Chna Trade ct cor-
poratons n 19 2 f dstrbuted pror to September 15, 19 2, wth
the same understandng as set forth n I. T. 3553, supra.
In vew of the same crcumstances, a further e tenson of tme
to September 15, 19 2, s hereby granted Chna Trade ct corpora-
tons for fng ther Federa ncome ta returns for the caendar
year 19 1. Those Chna Trade ct corporatons avang themseves
of ths addtona e tenson of tme w be charged wth nterest
at the rate of 6 per cent per annum on the frst and second nsta-
ments of ta from the orgna due dates, March 15 and une 15,
respectvey, unt pad.
Under the provsons of e stng aw (secton 53 of the Interna
Revenue Code), a further e tenson of tme beyond September 15,
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19. 00-1.1 138
19 2, may not be granted Chna Trade ct corporatons for the fng
of ther returns for the caendar year 19 1.
I. T. 3553, supra, s modfed accordngy.
Gut T. b verno,
Commssoner of Interna Revenue.
pproved.
ohn L. Suvan,
ctng Secretary of the Treasury.
SUPPL M NT T. INDI IDU LS WIT GROSS INCOM FROM C RT IN SOURC S OF
3,000 OR L SS.
S CTION 00. IMPOSITION OF T .
Secton 19. 00-1: Scope and appcaton of 19 2-15-11055
Suppement T. I. T. 35 7
INT RN L R NU COD .
mounts receved by empoyees as rembursements and per dem
aowances for traveng e penses consttute compensaton for
persona servces wthn the meanng of secton 00, Suppement
T, of the Interna Revenue Code, as added by secton 102 of the
Revenue ct of 19 1, whch suppement reates to ndvduas wth
gross ncome from certan sources of 3,000 or ess. Such amounts
must be Incuded n gross ncome by persons fng Form 10 0
(Optona Unted States Indvdua Income Ta Return) and no
part thereof s an aowabe deducton f that form s used.
If Optona Income Ta Return, Form 10 0 , s fed, the eecton
made s rrevocabe and Income Ta Return, Form 10 0, may
not thereafter be fed for the same ta abe year.
dvce s requested wth respect to the amount to be ncuded n
gross ncome by empoyees who receve rembursements and per dem
aowances for traveng e penses and who fe Form 10 0 (Optona
Unted States Indvdua Income Ta Return) under the provsons
of secton 00, Suppement T, of the Interna Revenue Code, as
added by secton 102 of the Revenue ct of 19 1. It s stated that
the queston has arsen n cases of traveng men recevng compensa-
ton and aso rembursement for traveng e penses, per dem aow-
ances, etc. The foowng types of cases have been submtted:
1. receves
2, 00 commsson; 500 rembursement of traveng e penses, per
dem aowances, etc. e has adequate records of aowabe traveng
e penses of 00.
2. receves
2, 00 commsson; 300 rembursement of traveng e penses, per
dem aowances, etc. e has adequate records of aowabe traveng
e penses of 350.
Secton 23(a) 1 of the Interna Revenue Code provdes n part that
n computng net ncome there sha be aowed as deductons traveng
e penses (ncudng the entre amount e pended for meas and odg-
ng) whe away from home n the pursut of a trade or busness. Sec-
ton 19.23(a)-2 of Reguatons 103 provdes n part that f an nd-
vdua receves a saary and s aso repad hs actua traveng e penses,
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139
19. 00-1.
he sha ncude n gross ncome the amount so repad and may deduct
such e penses. Secton 19.23(a)-2 provdes further that f an nd-
vdua receves a saary and aso an aowance for meas and odgng,
as, for e ampe, a per dem aowance n eu of subsstence, the amount
of the aowance shoud be ncuded n gross ncome and the cost of
such meas and odgng may be deducted therefrom.
Senate Report No. 6 3, Part 1, Seventy-seventh Congress, frst ses-
son, on the revenue b of 19 1 (C. . 19 1-2, 66, at 73) reads n
part as foows:
In order that persons In the ower Income ta brackets, partcuary those
brought n by the reducton of the persona e emptons, may be caused a mnmum
of dffcuty n fng out ther returns, the optona use of a smpfed return s
proTded where the gross ncome of the ta payer does not e ceed 3,000. If the
ta payer eects to use ths smpfed pan, the amount of the ta may be ready
ascertaned by reference to a tabe contaned In the b. Ths smpfed return
may be used ony where the ta payer s Income s derved soey from saares,
wages, compensaton for persona servces, dvdends, nterest, rent, annutes, or
royates. If the ta payer eects to use ths method, no deductons or credts
aganst net ncome are aowed. In eu of these deductons and credts, the ta
provded n the tabe represents a reducton of 10 per cent of the ta that woud
otherwse be payabe wthout suc deductons or credts. Ths 10 per cent
reducton has been found to be the effect of the average amount of deductons
taken by persons n the ower Income brackets.
Secton 00, Suppement T, of the Interna Revenue Code, as added
by secton 102 of the Revenue ct of 19 1, provdes for a progressve
ta , at the eecton of ndvduas, on ncomes rangng from 750 to
3,000 per annum, consstng whoy of saary, wages, compensaton for
ersona servces, etc. s ndcated n the Senate report referred to
eren, an arbtrary aowance for deductons to whch a ta payer
woud be entted was taken nto consderaton n determnng the aver-
age amount of ta whch woud ordnary be payabe upon the desg-
nated gross ncomes enumerated n secton 00 of the Code. The use
of Form 10 0 , the return prescrbed for secton 00 of Suppement T,
s not mandatory. In ths connecton, t shoud be noted that secton
02, Suppement T, of the Interna Revenue Code, as added by secton
102 of the Revenue ct of 19 1, provdes that the eecton referred to
n secton 00 sha be consdered to have been made f the ta payer fes
the return prescrbed for Suppement T and such eecton sha be
rrevocabe. In some cases n whch Form 10 0 has been fed t
may deveop that the ta payer woud have been abe for ess ta had
he fed Form 10 0 (Unted States Indvdua Income Ta Return),
whch provdes for the aowance of Deductbe e penses ncurred
n connecton wth Saares and other compensaton for persona
servces. (See tem 1 of Form 10 0.) If Form 10 0 s fed, how-
ever, the eecton made s rrevocabe, and Form 10 0 may not there-
after be fed for the same ta abe year.
In vew of the foregong, t s hed that amounts receved by em-
poyees as rembursements and per dem aowances for traveng e -
penses consttute compensaton for persona servces wthn the
meanng of secton 00, Suppement T, of the Interna Revenue Code,
as added by secton 102 of tne Revenue ct of 19 1. It foows that
n the cases of and , supra, f the optona return, Form 10 0 , s
fed, the amount to be reported on ne 1 thereof (saary, wages, and
compensaton for persona servces) n the case of s 2,900, and the
amount to be reported n the case of s 2,700.
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Regs. 109, 30.71 (a)- .
1 0
SU C PT R . C SS PROFITS T .
S CTION 711. C SS PROFITS N T INCOM .
Reguatons 109. Secton 30.711 (a)- : Ta for
perod of ess than 12 months.
19 2-5-10976
G. C. M. 2306
INT RN L R NU COD .
fna e cess profts ta return coverng the perod anuary 1,
19 0, to une 30, 19 0, as of whch date the M Company ceased opera-
tons and was dssoved, the corporaton retanng no assets, s a
return for a perod of s months. Under secton 711 (a)3 of the
Interna Revenue Code, the e cess profts net ncome shoud he paced
on an annua bass.
n opnon s requested whether, n the case of the M Company,
whch fed a fna e cess profts ta return for the perod anuary 1,
19 0, to une 30, 19 0, the e cess profts net ncome shoud be paced
on an annua bass.
Pror to 1939, the ta payer, the M Company, reported ts ncome on
a fsca year bass, fng ts ast return on such bass for the fsca year
ended ugust 31,1939. The corporaton obtaned permsson to change
ts accountng perod to the caendar year bass and fed a return for
the perod September 1, 1939, to December 31, 1939. s of une 30,
19 0, the corporaton ceased operatons and was dssoved, and, as of
the cose of busness on that date, a of ts assets were transferred to
a partnershp composed of ts former stockhoders. In uy, 19 0, an
ncome ta return was fed n whch was ncuded the ncome receved
durng the perod anuary 1,19 0, to une 30,19 0. Subsequent to the
enactment of the Second Revenue ct of 19 0, on October 8, 19 0,
whch added Subchapter ( cess Profts Ta ) to Chapter 2 of the
Interna Revenue Code, an e cess profts ta return was fed coverng
the same perod. The e cess profts credt provded by secton 712 of
the Interna Revenue Code was computed under secton 713 of the Code,
. e., an e cess profts credt based on ncome.
Secton 7(b) of the Interna Revenue Code provdes as foows:
(b) Income Computes) on ass of Short Perod. Where a separate return s
made under subsecton (a) on account of a change n the accountng perod, and
n a other cases where a separate return s requred or permtted, by reguatons
prescrbed by the Commssoner wth the approva of the Secretary, to be made
for a fractona part of a year, then the ncome sha be computed on the bass of
the perod for whch separate return s made.
Secton 8(a) of the Interna Revenue Code reads n part as foows:
(a) Ta abe Year. Ta abe year ncudes, In the case of a return
made for a fractona part of a year under the provsons of ths chapter chapter
1 or under reguatons prescrbed by the Commssoner wth the approva of the
Secretary, the perod for whch such return s made.
Secton 711 (a)3 of the Interna Revenue Code provdes n part as
foows:
(3) Ta abe Year Less Than Tweve Months. If the ta abe year s a perod
of ess than tweve months the e cess profts net ncome sha be paced on an
annua bass by mutpyng the amount thereof by the number of days n the
tweve months endng wth the cose of the ta abe year and dvdng by the
number of days In the ta abe year.
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1 1
Regs. 109, 30.713-1.
The ast sentence of secton 30.711 (a)- of Reguatons 109, reatng
to the e cess profts ta under the Interna Revenue Code, as amended
by the Second Revenue ct of 19 0, provdes as foows:
The frst ta abe year of a corporaton whch fes a return of In-
come receved or accrued from the date of ts ncorporaton to the end of Its frst
accountng perod s a perod of ess than 12 months, where the perod between
the date of ncorporaton and the end of such frst accountng perod s ess than
12 months.
Secton 30.729-1 of Reguatons 109, supra, reads n part as foows:
Sec. 30.720-1. Tme and pace for fng returns. The e cess profts
ta return of a corporaton of Income receved or accrued from the date of ts
ncorporaton to the end of ts frst accountng perod, where the perod between
the date of ncorporaton and the end of such perod s ess than 12 months,
sha be consdered as a return for a fractona part of a year, and sha be
fed wthn the tme prescrbed for fng returns for ta abe years of ess
than 12 months.
In the nstant case the facts show that the corporaton was dssoved
on une 30, 19 0, and retaned no assets whatever. Under such cr-
cumstances, ths offce can not dstngush, n so far as the present
nqury s concerned, between the case of a new corporaton and one
whch has competey dssoved.
Ths offce s of the opnon, therefore, that the e cess profts ta
return fed by the M Company coverng the perod anuary 1, 19 0,
to une 30, 19 0, as of whch date the ta payer corporaton ceased
operatons and was dssoved, the corporaton retanng no assets,
s a return for a perod of s months; and that under the provsons
of secton 711 (a)3 of the Interna Revenue Code, supra, the e cess
profts net ncome shoud be paced on an annua bass. To hod
otherwse woud mean that aganst the s months ncome there
woud be aowed an e cess profts credt based on an average base
perod net ncome nvovng 12 months.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
S CTION 713. C SS PROFITS CR DIT-
S D ON INCOM .
Reguatons 109, Secton 30.713-1: cess 19 2-5-10977
profts credt based on ncome Determna- G. C. M. 230 7
ton of average base perod net ncome.
INT RN L R NU COD .
In computng the average base perod net Income for e cess
profts ta purposes under secton 713(f) of the Interna Revenue
Code, as amended by secton of the cess Profts Ta mend-
ments of 10 1, where there wns a defct for the frst haf of the
base perod, t shoud be gven ts fu effect as a defct and not
treated as zero. Therefore, such a defct shoud be added to the
net ncome for the second haf of the base perod to determne the
dfference to be dvded by 2 under paragraph (3) of secton 713(f)
dvce s requested whether, n the appcaton of secton 713(f)
of the Interna Revenue Code, as amended, reatng to the computa-
ton of the average base perod net ncome for e cess profts ta
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Regs. 109, 30.713-1.
1 2
purposes, a defct for the frst haf of the base perod shoud be
treated as zero, or whether t shoud be gven ts fu effect as a defct
n determnng the dfference between the aggregate of the e cess
profts net ncome for each of the ta abe years n the frst haf of
the base perod and the aggregate of the e cess profts net ncome
for each of the ta abe years n the second haf of the base perod.
The foowng stuaton s assumed for the purpose of ustraton:
1936 (defct) ( 2,500)
1937 (defct) ( 2,500)
1938 (defct) ( 5,000)
1939 30, 000
It w be observed that n the assumed statement of facts the
aggregate of the e cess profts net ncome for each of the years
n the frst haf of the base perod s mnus 5,000 and the aggre-
gate of the e cess profts net ncome for each of the years n the
second haf of the base perod s 25,000 ( 30,000 mnus 5,000). The
queston presented s whether the mnus 5,000 for the frst haf
shoud be treated as zero, so that the dfference between the amounts
for each haf w be 25,000, or whether the mnus 5,000 for the
frst haf shoud be added to the pus 25,000 for the second haf,
makng a dfference of 30,000.
Under the e cess profts ta aw reef s afforded to corporatons
whch e perenced rapd growth durng the base perod, by permt-
tng such corporatons to take an e cess profts credt (aganst e -
cess profts net ncome before computng e cess profts ta ) n an
amount equa to the greater of the credts computed under aternatve
methods. (See oume 87, Part 2, Congressona Record, page 1379.)
Wth a vew to effectuatng the manfest ntent of Congress to gve
the ta payer the beneft of the greater of the e cess profts credts
computed under secton 713 or secton 71 , respectvey, secton
713(f), n so far as appcabe, provdes as foows:
(/) verage ase Perod Net Incomb: Increased arnngs In Last at
of ase Perod. The average base perod net ncome determned under ths sub-
secton sha be determned as foows:
(1) y computng, for each of the ta abe years of the ta payer n ts
base perod, the e cess profts net ncome for such year, or the defct
n e cess profts net ncome for such year;
(2) y computng for each haf of the base perod the aggregate of the
e cess profts net ncome for each of the ta abe years n such haf, reduced, f
for one or more of such years there was a dtfct n e cess profts net ncome,
by the sum of such dtfcts. For the purposes of such computaton, f any
ta abe year s party wthn each haf of the base perod there sha be ao-
cated to the frst haf an amount of the e cess profts net ncome or defct n
e cess profts net ncome, as the case may be, for such ta abe year, whch
bears the same rato thereto as the number of months fang wthn such haf
bears to the entre number of months n such ta abe year; and the remander
sha be aocated to the second haf;
(3) If the amount ascertaned under paragraph (2) for the second
haf s greater than the amount ascertaned for the frst haf, by dvdng
the dfference by two;
( ) y addng the amount ascertaned under paragraph (3) to the
amount ascertaned under paragraph (2) for the second haf of the
base perod;
Secton 713(f)2 requres the computaton for each haf of the base
perod of the aggregate of e cess profts net ncome for each of the
ta abe years n such haf, reduced, f for one or more of such years
there was a defct n e cess profts net ncome by the sum of such
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1 3
Regs. 109, 30.71 -2.
defcts. Itacs supped. In the assumed statement of facts, for
the frst haf of the base perod there were no years n whch an e cess
profts net ncome e sted, and, therefore, the aggregate of e cess
profts net ncome for such haf s zero. Ths aggregate fgure of zero
s, however, by the very terms of the statute, to be reduced by the sum
of the defcts n e cess profts net ncome n such haf. The sum of
the defcts n such haf s 5,000. There s n the aw no ndcaton
that when the sum of the defcts of e cess profts net ncome s greater
than the aggregate of e cess profts net ncome the atter can not be
reduced by the former to a fgure beow zero. In fact, t s a far
assumpton that had Congress ntended otherwse t woud have so
provded, as, for e ampe, t dd n secton 713(d) 3, whch provdes
that In no case sha the average base perod net ncome be ess
than zero. Reducng the aggregate e cess profts net ncome of zero
doars by the sum of the defcts n e cess profts net ncome n the
amount of 5,000 resuts n a 5,000 defct n the net aggregate earn-
ngs for the frst haf of the base perod.
In the second haf of the base perod, the aggregate of the e cess
profts net ncome s 30,000 (the e cess profts net ncome for 1939),
and that fgure reduced by the sum of the defcts n e cess profts net
ncome (the 5,000 defct n 1938) gves a resutng net aggregate of
earnngs n the second haf of the base perod of 25,000.
Secton 73(f)3 provdes that f the amount ascertaned under
paragraph (2) for the second haf s greater than the amount ascer-
taned for the frst haf, the dfference s to be dvded by 2. The df-
ference between two amounts s that amount whch when added to the
smaer of the two amounts equas the arger amount. Ths construc-
ton derves some support from secton 30.713-1 (c)2 of Reguatons
109 as added by Treasury Decson 50 5 (C. . 19 1-1, 69), whch pro-
vdes that n makng the computaton under secton 713(f) a defct
n e cess profts net ncome for any ta abe year s not counted
as zero as n the case of the computaton under the genera average
method descrbed n subsecton (b) of ths secton. s apped to the
nstant case, the dfference between a tota defct of fve thousand do-
ars ( 5,000) ana a net aggregate earnngs of twenty-fve thousand
doars ( 25,000) s 30,000.
It s, therefore, the opnon of ths offce that n the assumed state-
ment of facts the amount by whch the earnngs for the second haf of
the base perod e ceed the earnngs for the frst haf of the base perod
s, wthn the meanng of secton 713(f) of the Interna Revenue Code,
30,000.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
S CTION 718. UITY IN ST D C PIT L.
Reguatons 109, Secton 30.718-2: Determnaton of
day equty nvested capta ccumuated earnngs
and profts.
INT N L R NU COD .
ffect of amortzaton deductons under secton 12 of the Interna
Revenue Code, as amended. (See I. T. 35 3, page 111.)
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Regs. 109, 30.720-1.
1
S CTION 720. DMISSI L ND IN DMISSI L SS TS.
Reguatons 109, Secton 30.720-1: Reducton of 19 2-25-11130
average nvested capta for nadmssbe assets. I. T. 3500
INT RN L R NU COD .
The certfcate of membershp In the M Chamber of Commerce
owned by the N Company consttutes an nadmssbe asset wthn the
purvew of secton 720 of the Interna Revenue Code for Federa
e cess profts ta purposes.
dvce s requested whether the certfcate of membershp n the M
Chamber of Commerce hed by the N Company consttutes an adms-
sbe or nadmssbe asset wthn the purvew of secton 720 of the
Interna Revenue Code, for the purpose of computng the e cess profts
ta abty of the N Company.
The M Chamber of Commerce was ncorporated under the aws of
the State of R. Shares of stock n the M Chamber of Commerce were
not ssued, but membershp certfcates were ssued to those members
who purchased a benefca nterest n the net worth of the corporaton,
membershps carryng the rght to eect offcers, etc. Over a perod of
years there has been an accumuaton of net worth, whch n 19 0
amounted to neary a mon doars, desgnated on the corporaton s
books as Surpus. No capta accounts showng the capta pad n
by each member e st. owever, the net worth, or surpus, s aocated
to the severa hundred members.
Under secton 715 of the Interna Revenue Code, defnng nvested
capta for the purpose of computng the e cess profts ta under the
nvested capta method, provson s made for reducng the average
nvested capta, determned under secton 716, by an amount com-
puted under secton 720 reatng to nadmssbe assets. Secton
720(a) 1( ) of the Code defnes nadmssbe assets to mean stock n
corporatons, wth certan e ceptons not matera here. Constru-
ng secton 720 of the Code by tsef, t mght be argued that the cost
of the N Company s membershp certfcate shoud be hed to be an
admssbe asset by reason of the fact that such asset does not conform
wth the ownershp of stock n a corporaton. It seems, however,
to have been the evdent ntent of the statute to requre a broader n-
terpretaton of the term stock. Such vew s borne out by reference
to secton 728 of the Code, wheren t s provded that The terms
used n ths subchapter sha have the same meanng as when used n
Chapter 1. Secton 3797(a) thereof (defntons) provdes n part
as foows:
(3) Corporaton. The term corporaton ncudes assocatons, ont-stock
companes, and Insurance companes.
(7) Stock. The term stock ncudes the share n an assocaton, |ont-stock
company, or nsurance company.
(8) Sharehoder. The term sharehoder ncudes a member n an assoca-
ton, |ont-stock company, or nsurance company.
member of a corporaton, by reason of the ownershp of a share
of benefca nterest n the net worth of such body evdenced by
a membershp certfcate, s, n so far as abty for Federa ta es
s concerned, n the same category as one who owns a stock certfcate
n a corporate body as evdence of hs pro rata ownershp theren.
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1 5
Regs. 109, 30.722-3.
The N Company s a member of the M Chamber of Commerce, a
corporaton, and owns a share n the net worth of such corporaton.
The ownershp of such share, even though evdenced by a so-caed
membershp certfcate nstead of a stock certfcate, s the equvaent
of the ownershp of stock n a corporaton.
It s hed, therefore, that the certfcate of membershp n the M
Chamber of Commerce hed by the N Company shoud be treated as
an nadmssbe asset n the appcaton of secton 720 of the Interna
Revenue Code n the computaton of the N Company s e cess profts
ta abty.
S CTION 722. D USTM NT OF NORM L
S P RIOD N T INCOM .
Reguatons 109, Secton 30.722-3: Determna- 19 2-23-11120
ton of substtute average base perod net ncome. T. D. 5153
( so Reguatons 109, Secton 30.722-5.)
TITL 28 INT RN L R NU . C PT R I, SU C PT R . P RT 30.
C SS PROFITS T .
mendng sectons 30.722-3 (e) and (e) and 30.722-5(o) of Regu-
atons 109, reatng to the nterrupton or dmunton of norma
producton, output, or operaton and abnormay arge tems of
ncome and abnormay sma tems of deductons n the base perod.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 109 Part 30, Tte 26, Code of Federa Reguatons,
19 1 Sup. , as added by Treasury Decson 50 5, approved May 3,
19 1 C. . 19 1-1, 69 , are amended as foows:
Paragraph 1. Secton 30.722-3(c) s amended as foows:
(1) y changng the thrd sentence to read as foows:
Such average producton, output, or operaton may be estabshed by the average
amount of producton, output, or operaton for the four prevous ta abe years,
or, f the ta payer was not n e stence for four prevous ta abe years, then
for the prevous ta abe years durng whch t was n e stence, for other
prevous base perod ta abe years durng whch t was not n e stence but for
whch an e cess profts net ncome s estabshed under ths secton, and for so
many of the succeedng ta abe years endng before une 1, 19 0, as do not
make the tota ta abe years n the test perod more than four.
(2) y nsertng mmedatey after the thrd sentence the foowng
sentence:
In determnng the average amount of producton, output, or operaton wth
respect to products or servces of the same cass, the amount of producton, out-
put, or operaton for a year n the base perod for whch there was a dfference
n the character of the busness or an nterrupton or dmnuton of norma
producton, output, or operaton caused by an abnorma event s the amount of
producton, output, or operaton estabshed for such year; the amount of pro-
ducton, output, or operaton ad|usted as provded heren sha be used In com-
putng the average amount of producton, output, or operaton for the appcaton
of secton 722(a) (3) ( ) to a subsequent ta abe year.
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Regs. 109, 30.729-1.
1 6
Par. 2. Secton 30.722-3 (e) s amended by changng n the second
paragraph the second sentence thereof to read as foows:
In such a case, the average amount of gross ncome of the same cass or of
deductons of the same cass sha be determned by averagng the amounts of
such cass for the four prevous ta abe years, or, f the ta payer was not n
e stence for four prevous ta abe years, then for the prevous ta abe years
durng whch t was n e stence, for other prevous base perod ta abe years
durng whch t was not n e stence but for whch an e cess profts net ncome
s estabshed under ths secton, and for so many of the succeedng ta abe years
endng before une 1, 19 0, as do not make the tota ta abe years n the test
perod more than four.
Par. 3. Secton 30.722-5(a) s amended by changng tem number
(9), n the st of tems of nformaton requred, as foows:
(1) y strkng out and at the end of subdvson ();
(2) y strkng out the semcoon at the end of subdvson ()
and nsertng n eu thereof , and ;
(3) y nsertng mmedatey after subdvson () the foow-
ng:
(v) f a dfference n the character of busness s aso the bass of the
appcaton, the producton, output, or operaton whch the ta payer woud
have had for each of the ta abe years n the base perod for whch ad|ust-
ments were made under secton 722(a)(3)( ), and a detaed statement
showng how such amounts were determned.
(Ths Treasury decson s ssued under authorty contaned n
secton 62 of the Interna Revenue Code (53 Stat., 32; 26 U. S. C,
secton C2), as made appcabe by secton 729 of the Interna Reve-
nue Code, added by the Second Revenue ct of 19 0 (Pubc, No.
801, Seventy-s th Congress, thrd sesson), and secton 6 of the -
cess Profts Ta mendments of 19 1 (Pubc aw 10, Seventy-seventh
Congress).)
Gut T. everng,
Commssoner of Interna Revenue.
pproved une , 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster une 5,19 2, .18 p. m.)
Reguatons 109, Secton 30.722: ppcaton for
reef under secton 722.
INT RN L R NU COD .
Rsguatons 109, amended. (See T. D. 5153, page 1 5.)
S CTION 729. L WS PPLIC L .
Reguatons 109, Secton 30.729-1: Tme and pace for
tng returns.
nterna revenue code.
ppcatons for e tenson of tme for fng returns. (See I. T.
3529, page 96.)
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1 7
730.
Reguatons 109, Secton 30.729-1: Tme and 19 2-1 -110 9
pace for fng returns. T. D. 5131
TITL 28 INT RN L R NU C PT R I, SU C PT R , P RT 30.
C SS PROFITS T .
mendng secton 30.729-1 of Reguatons 109, reatng to returns
for a fractona part of a year.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 30.729-1 of Reguatons 109 Part 30, Tte 26, Code of
Federa Reguatons, 19 1 Sup. s amended by changng the ast
sentence of the frst paragraph thereof to read as foows:
The e cess profts ta return of a corporaton of ncome receved or accrued
(1) from the date of Its ncorporaton to the end of ts frst accountng
perod, where the perod between the date of ncorporaton and the end of
such perod s ess than 12 months, or
(2) from the begnnng of ts ast accountng perod to the date t ceases
operatons and s dssoved, retanng no assets, where the perod between
the begnnng of the accountng perod and such date s ess than 12 months,
sha be consdered as a return for a fractona part of a year consstng of
such perod, and sha be fed wthn the tme prescrbed for fng returns
for ta abe years of ess than 12 months.
(Ths Treasury decson s ssued under the authorty contaned n
sectons 729 and 3791 of the Interna Revenue Code (1939), 53 Stat.,
67, (19 0), 5 Stat., 989 (U. S. C, Tte 26, sectons 729 and 3791).)
Norman D. Cann,
ctng Commssoner of Interna Revenue.
pproved March 31, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster pr 2, 19 2, 11. 6 a. m.)
S CTION 730. CONSOLID T D R TURNS.
19 2-11-11027
T. D.5126
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 33.
C SS PROFITS T .
Reguatons 110, reatng to consodated e cess profts ta
returns, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 110 Part 33, Tte 26, Code of Federa Reguatons,
19 1 Sup. are amended as foows:
Paragraph 1. Secton 33.16(a) s amended as foows:
( ) y nsertng mmedatey after the second semcoon n the
thrd sentence the foowng:
notce and demand for payment of ta es w be gven ony to the common
parent, and such notce and demand sha be consdered as a notce and demand
to each such corporaton;
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5 730.
1 8
( ) y strkng from the fourth sentence that porton foowng
the semcoon and by nsertng n eu thereof the foowng:
any notce and demand for payment w name each corporaton whch was a
member of the affated group durng any part of such perod (but a faure
to ncude the name of any such corporaton w not affect the vadty of
the notce and demand as to the other corporatons) ; and any dstrant (or
warrant n respect thereof), any evy (or notce In respect thereof), any notce
of a en, or any other proceedng to coect the amount of any assessment, after
the assessment has been made, w name the corporaton from whch such
coecton s to be made.
Par. 2. Secton 33.30 s amended as foows:
( ) y changng the headng of paragraph (c) to read:
In case of profts from mnng strategc metas for years begnnng pror to
anuary 1, 19 1.
( ) y strkng for any ta abe year from the frst sentence of
paragraph (c) and nsertng n eu thereof for any ta abe year
begnnng pror to anuary 1,19 1.
Par. 3. Secton 33.31(a) s amended as foows:
( ) y strkng out subparagraph (16) and nsertng n eu
thereof the foowng:
(16) The consodated e cess profts credt based on nvested capta
(I) For a ta abe year begnnng pror to anuary 1,19 1, sha be 8 per cent
of the consodated nvested capta for such year, and
(II) For a ta abe year begnnng after December 31, 19 0, sha be 8
per cent of the consodated nvested capta for such year not n e cess
of 5,000,000 pus 7 per cent of that porton of the consodated Invested
capta for such year n e cess of 5,000,000;
( ) y strkng out and at the end of subdvson () of sub-
paragraph (18) and nsertng n eu thereof or any amount under
secton 718(a)(6) for new capta, ; by strkng out the semcoon
at the end of subdvson () of such subparagraph and nsertng n
eu thereof a comma and the word and ; and by nsertng at the
end of such subparagraph the foowng:
() For a ta abe year begnnng after December 31, 19 0, an amount
equa to 25 per cent of the consodated new capta for such year;
(C) y renumberng as (2 ) the subparagraph formery desg-
nated (23), and by strkng therefrom the e presson (a) (22) ()
and nsertng n eu thereof (a) (23) ().
(D) y changng subparagraphs (21). (22), (2 ), (25), (26), (27),
(28), (29), (30), (31), (32), and (33) to read, respectvev, (22), (23).
(25), (26), (27), (28), (29), (30), (31), (32), (33), and (3 ), and
by nsertng mmedatey after subparagraph (20), the foowng:
(21) The consodated new capta for a ta abe year begnnng after December
31, 19 0, sha be an amount equa to the aggregate new capta of the severa
affated corporatons for each day of such year (sub|ect to the mtatons
Imposed by secton 718(a)(6) (D), ( ), and (F) of the Code) dvded by the
number of days n such year; the mtatons mposed by secton 718(a) (6) (D),
( ), and (F) wth respect to ncreases n nadmssbe assets, ma mum new
capta aowabe, and reductons on account of dstrbutons out of pre-19 1
accumuated earnngs and profts sha be determned by reference to aggregate
equty nvested capta (computed wthout regard to (b) (2) (v) ( ) of ths
secton), the aggregate accumuated earnngs and profts, the aggregate nadms-
sbe assets, the aggregate borrowed capta, the aggregate money or property
pad n but e cuded by reason of secton 718(a) (6) ( ) or ( ), and the aggre-
gate dstrbutons, of the severa affated corporatons, computed n each case
pursuant to the provsons of these reguatons, both wth respect to the ta abe
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1 9
730.
year for whch the computaton Is beng made and wth respect to the begnnng
of the frst ta abe year begnnng after December 31, 19 0, and ntervenng years
(regardess of whether or not such corporatons were affated and regardess
of whether or not consodated returns were made or were requred pror to the
current year, e cept that no emnaton of ntercompany profts or osses sha
be made for separate return years) In the same manner and to the same e tent
as f such aggregates were, respectvey, the equty nvested capta, the accumu-
ated earnngs and profts, the nadmssbe assets, the borrowed capta, the
money or property pad n, and the dstrbutons, of a separate corporaton;
Par. . Secton 33.31 ( ) s amended as foows:
( ) y nsertng mmedatey after the words the accumuated
earnngs and profts or defct n accumuated earnngs and profts
as of the begnnng of the ta abe year, appearng n that porton
of subparagraph (2) precedng subdvson (), the foowng:
the new capta for any day of a ta abe year begnnng after December 31,
19 0, the equty nvested capta, the borrowed capta, the amount of dstrbu-
tons from earnngs and profts for the purposes of new capta computatons,
( ) y changng subdvsons (v) ( ), (C), (D). ( ), (G),
and ( ) of subparagraph (2) to read, respectvey, (v) (C), (D),
( ) , (F), (10, and (I), and by nsertng mmedatey after sub-
dvson (v) ( ) of subparagraph (2) the foowng:
( ) For a ta abe year begnnng after December 31, 19 0, there sha
be e cuded any amount under secton 718(a)(6) for new capta;
(C) y nsertng n subdvson (v) ( ) of subparagraph (2),
renumbered (v) (F) by ths Treasury decson, mmedatey after
the words, by reference to the bass of such stock the foowng:
, or of other property, and by strkng from such subdvson the
parenthetca e presson appearng theren and nsertng n eu
thereof the foowng:
(not ncudng as a precedng owner a member or former member of the group
from whch such stock or other property was acqured durng a consodated
ncome or e cess profts ta return perod, whether n compete or parta
qudaton or otherwse, and not ncudng as such stock the stock acqured
from another member wth a bass determned under secton 113(a)(7) of the
Code, or a correspondng secton of pror revenue aws, f, mmedatey pror to
the transfer, such stock was hed by such other member wth a bass by
reference to whch ths nferor subdvson (secton 33.31(6) (2) (v) (F))
woud be Inappcabe, and not ncudng as such stock the stock acqured n
a qudaton sub|ect to the provsons of secton 112(b)(6) of the Code, or
a correspondng secton of pror revenue aws, f, mmedatey pror to such
qudaton, the stock of the qudated corporaton was hed by the dstrbutee,
or the stock acqured n such qudaton was hed by the qudated corpora-
ton, wth a bass by reference to whch ths nferor subdvson woud be
Inappcabe),
and by strkng from (aa) of such nferor subdvson (C) and
(D) and nsertng n eu thereof (D) and ( ).
(D) y strkng out the nferor subdvson formery desgnated
(F) of subparagraph (2)(v), and by nsertng n eu thereof the
foowng:
(G) In the case of a member of the affated group the stock of whch
s hed by other members of such group wth a bass for determnng oss
upon a sae or e change not f ed, ether drecty or ndrecty, by refer-
ence to the bass of such stock, or of other property, n the hands of any
precedng owner (not ncudng as a precedng owner a member or former
member of the group from whch such stock or other property was ac-
qured durng a consodated Income or e cess profts ta return perod,
whether n compete or parta qudaton or otherwse, but ncudng as
such stock the stock acqured from another member wth a bass de-
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S 730.
150
termned under secton 113(a)(7) of the Code, or a correspondng secton
of pror revenue aws, f, mmedatey pror to the transfer, such stock
was hed by snch other member wth a bass by reference to whch ths
Inferor subdvson (secton 33.31(6) (2) (v) (G)) woud be appcabe, and
ncudng as such stock the stock acqured n a qudaton sub|ect to the
provsons of secton 112(b)(6) of the Code, or a correspondng secton
of pror revenue aws, f, mmedatey pror to such qudaton, the stock
of the qudated corporaton was hed by the dstrbutee, or the stock
acqured n such qudaton was hed by the qudated corporaton, wth
a bass by reference to whch ths nferor subdvson woud be appca-
be), there sha be e cuded as of the date on whch such corporaton
became a member of the group wthn the meanng of secton 730(d) that
porton of ts average nvested capta attrbuted to the shares of stock
so hed; there sha aso be e cuded, as of the date of any subsequent
acquston, that porton of ts average nvested capta attrbutabe to
shares of stock smary acqured and hed by other members of the
group; no addton sha be made on account of money or property (not
ncudng stock of another member of the group hed wth a bass by
reference to whch (F) s appcabe) thereafter pad n for stock hed
by any other member of the group or as pad-n surpus or a contrbuton
to capta pad n wth respect to shares of stock sub|ect to the provsons
of ths paragraph; and no reducton sha be made on account of any
dstrbuton thereafter made to any other member of the group; stock
of one member of the group Indrecty acqured or hed through the ac-
quston or ownershp of stock of another member of the group (not
ncudng stock ndrecty acqured or hed through the acquston or
ownershp of stock n a member whch owns, drecty or ndrecty, stock
n the acqurng corporaton) sha, to the e tent the stock of such other
member s of the character descrbed n ths paragraph, be deemed to be
of the same character: thus, f the P Corporaton acqures for cash a
the stock of the S1 Corporaton whch n turn owns a the stock of the
S1 Corporaton, the consodated average nvested capta of the P-S -S
group w be the average nvested capta of the P Corporaton (pus ts
accumuated earnngs and profts and any earnngs and profts accumu-
ated by S1 and S1 after acquston by P) regardess of the manner n
whch S1 acqured the stock of S ;
( ) y strkng out nferor subdvson ( ) of subparagraph
(2) (v), and by nsertng n eu thereof the foowng:
( ) In the case of a member of the affated group the stock of whch s
hed by other members of such group wth a bass for determnng oss upon
a sae or e change not f ed, ether drecty or ndrecty, by reference to the
bass of such stock, or of other property, n the hands of any precedng owner
(not ncudng as a precedng owner a member or former member of the group
from whch such stock or other property was acqured durng a consodated
ncome or e cess profts ta return perod, whether n compete or parta
qudaton or otherwse, but ncudng as such stock the stock acqured from
another member wth a bass determned under secton 113(a)(7) of the Code,
or a correspondng secton of pror revenue aws, f, mmedatey pror to the
transfer, such stock was hed by such other member wth a bass by reference
to whch ths nferor subdvson (secton 33.31(6) (2) (v) ( )) woud be ap-
pcabe, and ncudng as such stock the stock acqured n a qudaton sub-
|ect to the provsons of secton 112(b)(6) of the Code, or a correspondng
secton of pror revenue aws, f. Immedatey pror to such qudaton, the
stock of the qudated corporaton was hed by the dstrbutee, or the stock
acqured n such qudaton was hed by the qudated corporaton, wth a
bass by reference to whch ths nferor subdvson woud be appcabe),
there sha be e cuded as of the date on whch such corporaton became a mem-
ber of the group wthn the meanng of secton 730(d) that porton of ts
earnngs and profts, or defct n earnngs and profts, prevousy accumuated
and propery aocabe to the shares of stock so hed; there sha aso be e -
cuded, as of the date of any subsequent acquston, any earnngs and profts,
or defct n earnngs and profts, prevousy accumuated and propery ao-
cabe to any shares of stock smary acqured and hed by other members
of the group; and stock of one member of the group ndrecty acqured or
hed through the acquston or ownershp of stock of another member of the
group (not ncudng stock ndrecty acqured or hed through the acqus -
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151
f 730.
ton or ownershp of stock In a member whch owns, drecty or ndrecty,
stock n the acqurng corporaton) sha, to the e tent the stock of such other
member s of the character descrbed In ths paragraph, be deemed to be of the
same character;
(F) y strkng out subdvson (v)(C) of subparagraph (2) and
nsertng n eu thereof the foowng:
(C) Wth respect to dstrbutons from such accumuated earnngs and
profts made durng the ta abe year by one member of the affated group
to another member of the group, such accumuated earnngs and profts of
the dstrbutee sha be ncreased n an amount equa to that by whch
such accumuated earnngs and profts of the dstrbutor are decreased.
(G) y strkng from subdvson (v) (F) of subparagraph (2) the
e presson (b)(v)(F) and nsertng n eu thereof (b) (2) (v)
(G).
( ) y changng subdvsons (v), (v), (v), and ( ) of sub-
paragraph (2) to read, respectvey, ( ), ( ). ( ), and ( ), and
by nsertng mmedatey after subdvson (v)(G) of such subpara-
graph the foowng:
(v) In the computaton of new capta for any day of a ta abe year
begnnng after December 31, 10 0, the ad|ustments provded n secton
718(a)(6) (D), ( ),and (F) sha be dsregarded ;
(v) In the computaton of equty nvested capta (whch, under ths
secton, may be a mnus amount), effect sha be gven to the ad|ustments
prescrbed In ( )(2)(v) of ths secton (reatng to the computaton of
average nvested capta) to the e tent that such ad|ustments pertan to
the computaton of equty Invested capta;
(v) In the computaton of borrowed capta, there sha be e cuded
the amount of any outstandng ndebtedness of the corporaton owng to
another member of the affated group;
( ) In the computaton of dstrbutons from earnngs and profts for the
purposes of new capta computatons, Intercompany dstrbutons sha be
dsregarded;
(I) y strkng from subparagraph (G) the e presson (a) (31)
() and nsertng n eu thereof (a) (32) (), and by nsertng
mmedatey precedng the perod at the end of such subparagraph
the .foowng: but wth ts net ncome computed sub|ect to the
provsons of (b) (1) () of ths secton.
( ) y strkng from subparagraph (7) the e presson (a) (31)
() and (v) and nsertng n eu thereof (a) (32) () and (v).
Par. 5. Secton 33.33 s amended as foows:
( ) y changng the tte thereof to read: Gan or Loss From
Sae of Stock, or onds or Other Obgatons.
( ) y strkng out the e presson, any bond or obgaton ssued
by another corporaton and nsertng n eu thereof the foowng:
any bond or other obgaton ssued or ncurred by another corpo-
raton.
(C) y strkng out the frst parenthetca e presson appearng
n paragraph (a) and nsertng n eu thereof the foowng:
(by sae, or In compete or parta qudaton not Invovng cash n an amount
n e cess of the ad|usted bass of both the stock and the bonds and other ndebted-
ness qudated, or otherwse).
(D) y strkng from the parenthetca e presson appearng n
paragraph (c) the ast three words and nsertng n eu thereof the
foowng: stock, or bonds or other obgatons.
Par. 6. Secton 33.3 (c) s amended by strkng from subparagraph
(I) the words or e cess profts.
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730.
152
Par. 7. Secton 33.35 s amended to read as foows:
Sec. 33.35. Sae of onds or Other Obgatons ass for Determnng Gan
or Loss.
In the case of a sae or other dsposton by a corporaton, whch s (or has
been) a member of an affated group whch makes (or has made) a conso-
dated ncome or e cess profts ta return for the ta abe year 1929 or any sub-
sequent ta abe year, of bonds or other obgatons ssued or ncurred by another
member of such group (whether or not ssued or ncurred whe t was a mem-
ber of the group and whether ssued or ncurred before, durng, or after the
ta abe year 1929), the bass of each bond or obgaton, for determnng the
gan or oss upon such sae or other dsposton, sha be determned n accord-
ance wth the Code (see, partcuary, secton 113), but the amount of any oss
otherwse aowabe sha be decreased by the e cess (f any) of the aggregate
of the deductons computed under paragraph (c)(2) of secton 33.3 over the
sum of the aggregate bases of the stock of the debtor corporaton as computed
under paragraph (c)(1) or (d), as the case may be, hed by the members of
the group. (See, aso, secton 33. 0, reatng to dsaowance of oss upon
ntercompany bad debts.)
Par. 8. Secton 33.36 s amended by changng the tte thereof to
read: Lmtaton on owabe Losses on Sae of Stock, or onds
or Other Obgatons.
Par. 9. Secton 33.37(a) s amended by strkng out the frst para-
graph and nsertng n eu thereof the foowng:
Gan or oss sha not be recognzed upon a dstrbuton durng a consodated
return perod, by a member of an affated group to another member of such
group, n canceaton or redempton of a or any porton of ts stock, e cept
(1) Where such dstrbuton s n compete qudaton and redempton of a
of ts stock (whether n one dstrbuton or a seres) and of ts bonds and other
ndebtedness, f any, fas wthout the provsons of secton 112(b)(6), and s
the resut of a bona fde termnaton of the busness and operatons of such
member of the group, n whch case t sha he treated as a sae of the stock,
or bonds or other Indebtedness, the ad|ustment specfed n sectons 33.3 and
33.35 w be made, and secton 33.36 w be appcabe; or
(2) Where such a dstrbuton wthout the provsons of secton 112(b)(6)
s one made n cash n an amount n e cess of the ad|usted bass of the stock,
and bonds and other ndebtedness, n whch case gan sha be recognzed to the
e tent of such e cess.
Par. 10. Secton 33.38(c) (3) s amended by strkng out the porton
precedng the numbered subdvsons and by nsertng n eu thereof
the foowng:
Where property s acqured durng a ta abe year begnnng after December 31,
1939, upon a dstrbuton (not a compete qudaton wthn the provsons of
secton 112(b)(6)) n whch gan or oss to the dstrbutee s not recognzed
as provded n secton 33.37(a), the bass of such property sha be the same
as the bass (determned n accordance wth sectons 111 to 115, Incusve, and
sectons 33.3 and 33.35) of the stock and the bonds and other obgatons
e changed therefor, ad|usted
Par. 11. Secton 33. 0 s amended as foows:
( ) y strkng at the end of paragraph (a) the words any other
member of the group. and nsertng n eu thereof the foowng:
any other corporaton whch was a member of the group as of the ast day of
the ta abe year or whch was qudated by the group durng such year e cept
as a oss n connecton wth a qudaton of such other member n whch osses
are recognzed pursuant to secton 33.37(a).
( ) y strkng the parenthetca e presson at the end of para-
graph (b) and nsertng n eu thereof: (See secton 33.35.)
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153
Regs. 109, 30.73 -1.
Par. 12. Secton 33. 1 ( ) s amended by nsertng mmedatey pre-
cedng the words n determnng the gan or oss to the ssung
company the foowng:
and n a tra:.sacton other than a dstrbuton In a qudaton n whch gan or oss
to the dstrbutee s recognzed pursuant to secton 33.37(a),
(Ths Treasury decson s ssued under the authorty contaned n
secton 730(b) of the Interna Revenue Code, added by the cess
Profts Ta ct of 19 0 (5 Stat., 989), and sectons 201, 203, 20 ,
and 205 of the Revenue ct of 19 1 (Pubc aw 250, Seventy-seventh
Congress).)
Norman D. Cann,
ctng Commssoner of Interna Revenue.
pproved March 5, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 6.19 2, p.m.)
S CTION 73 . D USTM NT IN C S OF POSITION IN-
CONSIST NT WIT PRIOR INCOM T LI ILITY.
Reguatons 109, Secton 30.73 -1: Purpose 19 2-5-10980
and scope of secton 73 . T. D. 5112
( so Reguatons 109, Secton 30.73 -2.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R . P RT 30. C SS
PROFITS T .
mendng sectons 30.73 -1 and 30.73 -2 of Reguatons 109.
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 109 Part 30, Tte 26, Code of Federa Reguatons,
19 1 Sup. are amended as foows:
Paragraph 1. Secton 30.73 -1 (b), as added by Treasury Decson
50 5, approved May 3,19 1 C. . 19 1-1, 69 , s amended by strkng
out subdvson (2) and nsertng n eu thereof the foowng:
(2) The term predecessor means a person (other than the ta payer) who
has transferred property
(1) whch, for ncome ta purposes for any ta abe year, has at any
tme been treated, or
() whch s treated for e cess profts ta purposes,
as havng. In the hands of the ta payer (or In the hands of a predecessor of
the ta payer under the defnton contaned n ths paragraph, but wthout
regard to cause () of that defnton) a substtuted bass determned drecty
or ndrecty by reference to the bass n the hands of such person.
Par. 2. Secton 30.73 -2 (c), as added by Treasury Decson 50 5,
s amended by nsertng mmedatey after the second paragraph the
foowng new paragraphs:
Nether the Commssoner nor the ta payer s requred to adopt an nconsst-
ent poston wth respect to the treatment of an tem or transacton n the
determnaton of the e cess profts credt because of the fact that such tem
7 918
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3798.
15
or transacton was Incorrecty treated In the determnaton of the ncome ta
abty of the ta payer, or a predecessor, for a pror ta abe year or years,
under the aw appcabe to such year or years. Such tem or transacton may,
n the determnaton of the e cess profts credt, be treated n a manner con-
sstent wth the ncorrect treatment accorded n the determnaton of the
ncome ta abty f nether the Commssoner nor the ta payer ob|ects.
ther the Commssoner or the ta payer, however, may nsst upon the correct
treatment of such tem or transacton n the determnaton of the e cess profts
credt under the aw appcabe to the e cess profts ta ta abe year, but such
acton consttutes the mantenance of an nconsstent poston and w resut
n an ad|ustment under secton 73 , f the party nsstng upon such treatment
Is the party who woud be adversey affected by such ad|ustment.
ta payer whch has taken an nconsstent poston wth respect to an tem
or transacton affectng the determnaton of ts e cess profts credt may, upon
notce to the Commssoner n wrtng, wthdraw from such poston.
(Ths Treasury decson s ssued under the authorty contaned n
secton 62 of the Interna evenue Code (53 Stat., 32; 26 U. S. C,
Sup. , 62), as made appcabe by secton 729 of the Interna Reve-
nue Code, added by the Second Revenue ct of 19 0 (Pubc, No. 801,
Seventy-s th Congress, thrd sesson), and secton 73 of the Interna
Revenue Code as added by secton 11 of the cess Profts Ta
mendments of 19 1 (Pubc aw 10, Seventy-seventh Congress).)
Norman D. Cann,
ctng Commssoner of Interna Revenue.
pproved anuary 26, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster anuary 28,19 2, 11 a. m.)
Reguatons 109, Secton 30.73 -2: Crcumstances of
ad|ustment.
INT RN L R NU COD .
Reguatons 109, amended. (See T. D. 5112, page 153.)
C PT R 38. MISC LL N OUS PRO ISIONS.
S CTION 3798. MPTION OF INSOL NT
N S FROM T .
19 2-2-10955
G. C. M. 22985
INT RN L R NU COD ND R NU CT OF 192 .
Cams of genera credtors of an nsovent State bank n Te as
are on a party wth cams of depostors wthn the meanng of
secton 6 .1 6) of Treasury Decson 9 8 (C. . 19 0-1, 7 ).
owever, secton 37P8 of the Interna Revenue Code reatng to
the Immunty of nsovent banks s for the beneft of depostors and
not for genera credtors, and the reason for deferrng ta cams
of the Government no onger e sts after n depostors have been
pad n fu even though some of the other credtors have not been
pad n fu.
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155
3798.
S. M. 86 (C. . I -2, 9 (1925)) modfed to the e tent that It
s n confct wth secton 6 .11(6) of Treasury Decson 958 or
wth concusons reached heren.
n opnon s requested as to the appcabty of secton 3798 of
the Interna Revenue Code and Treasury Decson 958 (C. . 19 0-1,
7 ) reatng to the mmunty of nsovent banks to stuatons n the
State of Te as where a of the depostors have been pad n fu
but some of the credtors have not been pad n fu. The questons
presented nvove (1) rghts of prorty between depostors and gen-
era credtors of nsovent banks n the State of Te as and (2) the
mport of the words appcabe aw as used n secton 6 .11(6)
of Treasury Decson 958.
Secton 6 .11(6) of Treasury Decson 958 provdes as foows:
Genera credtors. Whe the Immunty from ta coecton s for protecton
of depostors, and not for the beneft of genera credtors, n some cases the
mmunty w not end unt the assets are suffcent to cover ndebtedness of
credtors generay. Ths stuaton w e st where under appcabe aw the
cams of genera credtors are on a party wth those of depostors, so that
to pay depostors n fu t s necessary to pay a credtors n fu. Itacs
supped.
The words appcabe aw as used n secton 6 .11(6) of
Treasury Decson 958, quoted above, are construed by the ureau
to refer to an appcabe Federa or State statute, or prncpe of
aw, whch has been accepted by the Federa or State courts. It has
been concuded from a study of the decsons of the Te as courts
that t shoud be hed n cases nvovng nsovent State banks n
Te as, that the cams of genera credtors of such banks are on a
party wth the cams of genera depostors wthn the meanng of
secton 6 .11(6) of Treasury Decson 958, supra.
It shoud be noted however that the purpose or secton 6 .11(6)
of Treasury Decson 958, supra, s to prevent a staemate n the
payment of the cams of depostors of an nsovent bank whch
mght resut from the fact that the qudator of such a bank was
faced, on the one hand, wth the requrement of a Federa statute
that ta cams of the Federa Government be pad n preference to
the cams of credtors of the bank, and on the other hand, wth the
requrement of a State statute that credtors of the bank share equay
wth depostors n the dstrbuton of the assets of the bank. c-
cordng where the depostors of an nsovent bank have been pad
n fu wthout recourse, even though some, or a of the credtors
of the bank have not been pad n fu, the necessty for concedng
the rght of the unpad credtors to be pad n fu, before the ta
cams of the Federa Government are satsfed, no onger e sts, and
n such cases the cams of the Federa Government shoud be gven
prorty over the cams of such unpad credtors.
S. M. 86 (C. . I -2, 9 (1925)), whch hods n part that Fed-
era statutes controng assessment, coecton, and payment of Fed-
era ta es may not be affected by State egsaton, and that a State
may not prevent the coecton of Federa ta es by egsaton dstrb-
utng the proceeds of nsovent banks n such a manner so as to
|eopardze the prorty rght of payment provded bv Federa statute,
or sancton assessment and/or coecton of Federa ta es whch the
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23(e), rt. 23(e)- .
156
ct of March 1, 1879 (20 Stat., 351, secton 3798 I. R. C), has pro-
hbted or curtaed, s modfed to the e tent that t s n confct wth
secton 6 .11(6) of Treasury Decson 958, or wth the concusons
reached n ths memorandum.
. P. Wfnche,
Chef Counse, ureau of Interna Revenue.
. R NU CT OF 1938.
SU TITL G N R L PRO ISIONS.
P RT II. COMPUT TION OF N T INCOM .
S CTION 23(c). D DUCTIONS FROM GROSS
INCOM : T S G N R LLY.
rtce 23 (c)-: Ta es.
R NU CT OF 1938.
Gasone and motor fue ta es mposed by the State of Lousana.
G. C. M. 8936 (C. . -, 110 (1931)) and G. C. M. 1 970 (C. .
I -2, 69 (1935)) revoked. (See G. C. M. 22998, page 50.)
rtce 23(c)-1 : Ta es.
R ND CT OF 1038.
Certan Lousana gasone and motor fue ta es. Retroactve
appcaton of G. C. M. 22998 page 50, ths uetn . See I. T. 3526,
page 52.)
S CTION 23(e). D DUCTIONS FROM GROSS INCOM :
LOSS S Y INDI IDU LS.
rtce 23(e)-: Losses by ndvduas. 19 2-13-11038
I. T. 35
R NU CT OF 1038.
oss sustaned upon the sae of resdenta property acqured
by the ta payer for renta purposes and so used for severa years, but
whch was ater occuped by hm as hs persona resdence and was
so used at the tme of sae, s not deductbe for Federa ncome ta
purposes.
dvce s requested as to the aowabe oss, f any, for Federa n-
come ta purposes, on the sae of rea property whch was acqured
by and hed by hm for severa years for proft, but whch was for
severa years thereafter and up to the tme of ts sae used as hs
persona resdence wth permanent or ndefnte abandonment of the
proft motve durng such use.
The rea property n queston was purchased by , the ta payer
(not engaged n the rea estate busness), n 1928 for renta purposes
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157
23(e), rt. 23(e)-.
at a cost of 25,000. Deprecaton of 1,800 was aowabe from the
date of purchase to anuary 1, 1935, on whch date the property was
occuped by the ta payer as hs persona resdence. The far market
vaue on anuary 1,1935, was 22,000. On anuary 1, 1938, the prop-
erty was sod for 16,000. Thus, a oss was sustaned through the
sae, a part of whch was attrbutabe to the perod durng whch the
property was rented and a part to the perod durng whch t was
used as a persona resdence. The nqury presented s whether the
oss, or any porton thereof, s aowabe as a deducton.
Secton 23(e)2 of the Revenue ct of 1938 provdes that n com-
putng net ncome there sha be aowed as deductons:
(e) Losses by Indvduas. In the case of an ndvdua, osses sustaned
durng the ta abe year and not compensated for by nsurance or otherwse

(2) f ncurred n any transacton entered nto for proft, though not
connected wth the trade or busness .
rtce 23(e)- of Reguatons 101 provdes n part as foows:
oss on the sae of resdenta property purchased or constructed by the
ta payer for use as hs persona resdence and so used by hm up to the tme
of the sae s not deductbe. If, however, property so purchased or constructed
s pror to ts sae rented or otherwse approprated to ncome-producng pur-
poses and s used for such purposes up to the tme of ts sae, a oss from the
sae of the property, computed as provded n secton 111, s, sub|ect to the
mtatons provded n secton 117, an aowabe deducton n an amount not
to e ceed the e cess of the vaue of the property at the tme t was approprated
to ncome-producng purposes (wth proper ad|ustment for deprecaton) over
the amount reazed from the sae. Itacs supped.
In Dr. . C. aoeh v. Commssoner ( . T. . memorandum
opnon, September 26, 19 1) the pettoner, n a transacton entered
nto for proft n 1925, acqured resdenta property for nvestment
and to produce renta ncome. The property was rented from about
the date of purchase to 1930 when t became vacant, and a short tme
thereafter pettoner and hs famy moved nto t and contnued to
make t ther home unt 1937, when he purchased another resdence
and sod the one he had been occupyng. fter pettoner moved out
the house was not agan rented. The oard of Ta ppeas n ts
opnon stated n part as foows:
It s true that when pettoner purchased ths resdenta property n 1925
he purchased t for the purpose of Investment. e ntended to rent t and
thereby make t ncome producng property. e dd rent t and receved ncome
therefrom for a consderabe perod. owever, n 1030 t became vacant and
pettoner and hs famy moved nto t as ther own prvate resdence. They
contnued to ve there unt 1937 when they decded to acqure a new home.
When pettoner acqured hs new home he sod the od one n whch he had
been vng for appro matey seven years. Under these crcumstances we thnk
the nstant case fas wthn the ambt of such cases as R. C. nyss (35 . T. .,
1128) ; Dupuy O. Warrck ( . T. ., 1068). In the atter case we sad, bearng
upon the sub|ect of the sae of property whch at the tme of sae was beng
used as resdenta property, as foows:
s a resut of ts contnued use as such, the purchase and sae of ths
property ost the characterstcs of a transacton entered nto for proft, even
though a prrft makng motve may have e sted at the tme of ts acquston.
R. C. ayss, supra.) Respondent dd not err n dsaowng the deducton of
5,500 as a oss ncurred n a transacton entered nto for proft.
We sustan the Commssoner n hs dsaowance of ths camed oss.
The oard of Ta ppeas n the aock case hed, therefore, that
by reason of the use by pettoner of the property there nvoved for
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23(m), rt. 23(m)-16.
158
seven years as hs prvate resdence the orgna transacton by whch
he acqured such property for renta purposes ost the characterstcs
of a transacton entered nto for proft, and that the oss sustaned
from dsposton of the property was not a proper deducton under
the provsons of secton 23(e)2 of the Revenue ct of 1936. The
anguage of secton 23(e)2 of the Revenue ct of 1936 s the same as
that of secton 23(e)2 of the Revenue ct of 1938, supra, appcabe
to the nstant case.
ppyng the prncpe of the aock case, supra, to the facts pre-
sented n the nstant case, t s hed that no porton of the oss sus-
taned upon sae of the property here nvoved s aowabe as a deduc-
ton under the provsons of secton 23(e) 2 of the Revenue ct of
1938, supra, snce the orgna transacton by whch the ta payer
acqured the property had, pror to the sae, ost the characterstcs
of a transacton entered nto for proft. (See aso Loyd ones v.
Commssoner (39 . T. ., 531, nonacquescence as to another ssue,
C. . 1939-2, 55).)
S CTION 23 (k). D DUCTIONS FROM GROSS
INCOM : D D TS.
rtce 23(k)-: ad debts.
R NU CT OF 1938.
cceptance by credtor of vountary conveyance of property, n-
cudng property pedged as securty for the debt, n parta or n
fu satsfacton of the unpad porton of the ndebtedness. (See
I. T. 35 8, page 7 .)
S CTION 23 (m). D DUCTIONS FROM GROSS
INCOM : D PL TION.
rtce 23(m)-16: Charges to capta and to e pense
n the case of o and gas wes.
R NU CT OF 1038.
ppcabty of opton to e pense drng costs n connecton wth
varous knds of drng contracts. (See G. C. M. 2303 , page 75.)
rtce 23(m)-16: Charges to capta and to e pense
n the case of o and gas wes.
R NU CT OF 1038.
ppcabty of opton to e pense drng costs n connecton wth
varous knds of drng contracts. (See G. C. M. 232 3, page 78.)
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159 101, rt. 101-1.
S CTION 23(o). D DUCTIONS FROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS.
rtce 23(o)-1: Contrbutons or gfts by ndvduas.
R NU CT OF 1938.
Contrbutons to the Navy Reef Socety. (See I. T. 3550, page 1G .)
S CTION 23(q). D DUCTIONS FROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS
Y CORPOR TIONS.
rtce 23(q)-: Contrbutons or gfts by corporatons.
R NU CT OF 1038.
Contrbutons to the Navy Reef Socety. (See I. T. 3550, page 10 .)
P RT IW- CCOUNTING P RIODS ND M T ODS OF CCOUNTING.
S CTION . INST LLM NT SIS.
rtce - : Deferred-payment sae of rea property
not on nstament pan.
R NU CT OF 1938.
Reguatons 101, amended. (See T. D. 5113, page 88.)
P RT . R TURNS ND P YM NT OF T .
S CTION 55. PU LICITY OF R TURNS.
R NU CT OF 1938.
Reguatons governng the nspecton of corporaton statstca
transcrpt cards by the Offce of Prce dmnstraton. (See T. D.
5120, page 97.)
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S OF T .
S CTION 101. MPTIONS FROM T
ON CORPOR TIONS.
rtce 101-1: Proof of e empton.
R NU CT OF 1938.
Proof requred for certan casses of corporatons. (See T. D. 5125,
page 101.)
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5 115, rt. 115-7.
160
rtce 101(6)-1: Regous, chartabe, scentfc,
terary, and educatona organzatons and com-
munty chests.
R NU CT OF 1938.
Corporaton organzed for the purpose of, and engagng n, bus-
ness actvty. (See G. C. M. 23063, page 103.)
rtce 101(6)-1: Regous, chartabe, scentfc,
terary, and educatona organzatons and com-
munty chests.
R NU CT OF 1938.
Navy Reef Socety. (See I. T. 3550, page 10 .)
SUPPL M NT . COMPUT TION OF N T INCOM .
S CTION 113(a). D UST D SIS FOR D T RMINING
G IN OR LOSS: SIS (UN D UST D) OF PROP RTY.
rtce 113(a) (2)-: Property transmtted by gft after
December 31, 1920.
R NU CT OF 1938.
Reguatons 101, amended. (See T. D. 5137, page 110.)
rtce 113(a) (3)-: Transfer n trust after December 31, 1920.
R NU CT OF 1938.
Reguatons 101, amended. (See T. D. 5137, page 110.)
S CTION 115. DISTRI UTION Y CORPOR TIONS.
rtce 115-7: Stock dvdends. 19 2- -10972
T. D. 5110
TITL 20 INT RN L R NU C PT R I, SU C PT R . P RTS 3 ND 9.
INCOM T .
Reguatons 9 and 101 amended. Stock dvdends and stock
rghts.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
rtce 115-7 of Reguatons 9 secton 3.115-7, Tte 26. Code of
Federa Reguatons and artce 115-7 of Reguatons 101 secton
9.115-7, Tte 26, Code of Federa Reguatons, 1939 Sup. are each
amended by strkng out a of the matter appearng after the frst
sentence thereof.
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161
131, rt. 131-8.
(Ths Treasury decson s ssued under the authorty contaned n
secton 62 of the Revenue ct of 1936 ( 9 Stat., 1673, 26 U. S. C. Sup.
(2) and secton 62 of the Revenue ct of 1938 (52 Stat., 80, 26
U. S. C, Sup. 62).)
Gut T. everng,
Commssoner of Interna Revenue.
pproved anuary 19, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster anuary 20, 19 2, 3.58 p. m.)
S CTION 117. C PIT L G INS ND LOSS S.
btce 117-1: Meanng of terms.
R NU CT OF 1938.
cceptance by credtor of vountary conveyance of property, n-
cudng property pedged as securty for the debt, n parta or n
fu satsfacton of the unpad porton of the ndebtedness. (See
I. T. 35 8, page 7 .)
SUPPL M NT C CR DITS G INST T .
S CTION 131. T S OF FOR IGN COUNTRI S ND
POSS SSIONS OF UNIT D ST T S.
btce 131-8: Lmtatons on credt for 19 2-2 -1112
foregn ta es. Ct. D. 1561
ncome ta revenue acts of 1936 and 1938 decson of su reme court.
1. Credts ganst Ta Credt owabe to Domestc Corpora-
ton for Ta es Pad by Foregn Subsdary.
domestc corporaton recevng dvdends from a foregn subsd-
ary s entted, under secton 131(f) of the Revenue cts of
1936 and 1938, to a ta credt on account of foregn ncome ta es
pad by the subsdary upon or wth respect to ts accumuated
profts, mted to the proporton of the tota foregn ta es pad by
the subsdary whch ts accumuated profts bear to the tota
profts, whch accumuated profts, by defnton, are Its tota ta -
abe profts ess ta es pad.
2. Reguatons Power or Commssoner to Pbomu ate Regua-
ton Changng, for the Future, an arer Practce.
ntecedent admnstratve nterpretaton ong n force, under
whch a dfferent method of computng credt was provded, does not
render t mpossbe for the Commssoner to promugate n regua-
ton changng, for the future, the earer practce. The new regua-
ton defntey governs ths case, was made pror to the years In
controversy, and comports wth the pan meanng of the statute.
3. Decson ffrmed.
Decson of the Court of Cams (19 1) ( 1 Fed. Supp., 537)
affrmed.
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131, rt. 131-8.
162
Supreme Court of the Unted States.
mercan Chce Co., pettoner, v. The Unted States.
On wrt ot certorar to the Court of Cams.
une 1, 19 2.
OPINION.
Mr. ustce Roberts devered the opnon of the Court.
Ths case Invoves the appcaton of secton 131(f) of the Revenue cts of
1936 and 19381 whch aows a ta credt to domestc corporatons In respect of
Income receved from foregn subsdares.
Durng the ta abe years 1936, 1937, and 1938, the pettoner, a domestc cor-
poraton, receved dvdends from foregn subsdares of whch t was soe stock-
hoder. The subsdares pad ta es upon ther earnngs to the countres of ther
domce. In Its ncome ta returns the pettoner camed the credt aowed
by secton 131 for the foregn ta es so pad. The Commssoner of Interna
Revenue computed the credt at a ess sum than that the pettoner camed. The
pettoner pad the resutant ta es and presented cams for refund, whch were
re|ected. Ths acton was brought n the Court of Cams for asserted overpay-
ments.
The soe matter n controversy s the proper method of arrvng at the credt
granted by secton 131. That secton permts a domestc corporaton to credt
aganst Its ta the amount of Income, war-profts, and e cess-profts ta es pad
or accrued durng the ta abe year to any foregn country, wth certan mts
set by subsectons (b) (1) and (2). The purpose of the provson, ke that of
ts predecessor, secton 238 of the Revenue ct of 1921, s to obvate doube ta a-
ton.
Secton 131(f), deang wth ta es of a foregn subsdary, provdes that, for
the purpose of the secton, a domestc corporaton recevng dvdends from such
a subsdary n any ta abe year sha be deemed to have pad the same pro-
porton of any ncome, war-profts, or e cess-profts ta es pad by the subsdary
to a foregn country, upon or wth respect to the accumuated profts of the
subsdary from whch such dvdends were pad, whch the amount of such
dvdends bears to the amount of such accumuated profts. ccumuated
profts of the subsdary are defned as the amount of ts gans, profts, or
ncome n e cess of the Income, war-profts, and e cess-profts ta es mposed
upon or wth respect to such profts or ncome.
The partes are n agreement as to the fracton to be used n cacuatng the
proporton. The numerator s the dvdends receved by the parent. The denom-
nator Is the accumuated profts of the subsdary. The d pute reates to
the mutpcand to whch the fracton Is to be apped. The pettoner says
t s the tota foregn ta es pad by the subsdary. The respondent says t s
the ta es pad upon or wth respect to the accumuated profts of the subsdary;
. e., so much of the ta es as s propery attrbuted to the accumuated profts,
or the same proporton of the tota ta es whch the accumuated profts bear to
the tota profts. The Court of Cams so hed. Snce severa decsons have
gone the other way, we granted certorar.
If the anguage of the Revenue ct s to be gven effect, the Government s vew
seems correct. The statute does not purport to aow a credt for a stated pro-
porton of the tota foregn ta es pad or the foregn ta es pad upon or wth
respect to tota foregn profts, but for ta es pad upon or wth respect to
the subsdary s accumuated profts, whch, by defnton, are ts tota ta abe
profts ess ta es pad.
If, as s admtted, the purpose s to avod doube ta aton, the statute, as
wrtten, accompshes that resut. The parent receves dvdends. Such dv-
dends, not ts subsdary s profts, consttute ts ncome to be returned for ta aton.
9 Stat., 1S S, 1606 ; 52 Stat.. 7, 506 ; 26 D. S. C, secton 131.
2 Stat, 227. 258.
urnet v. Chcago Portrat Co. (285 U. S., 1).
foregn corporaton of whose votng stock the ta payer owns a ma|orty.
1 Fed. Supp., 537.
F. W. Wootcorth Co. v. Unted States (91 Fed. (2d). 973) ; Internatona Mng Co. v.
Unted States (89 C. Cs., 128, 27 Fed. Supp., 592) ; umnum Co. of merca v. Unted
States (123 Fed. (2d), 615).
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163
5 131, rt. 131-8.
The subsdary pays ta on, or n respect of, ts entre profts; but, snce the
parent receves dstrbutons out of what s eft after payment of the foregn ta
that s, out of what the statute cas accumuated profts, t shoud receve a
credt ony for so much of the foregn ta pad as reates to or, as the ct says,
s pad upon, or wth respect to, the accumuated profts.
ence we thnk that, under the pan terms of the ct, the Commssoner and
the court beow were rght n mtng the credt by the use as mutpcand of a
proporton of the ta pad abroad appropratey refectng the reaton of accu-
muated profts to tota profts of the subsdary. ut the pettoner nssts that
the egsatve hstory and a ong Induged admnstratve constructon requre
us, n effect, to ede the phrase upon or wth respect to the accumuated
profts of the foregn subsdary.
Secton 2- 0(c) of the Revenue ct of 1918 aowed the domestc parent recev-
ng dvdends from a foregn subsdary a credt for the same proporton of the
ta es pad by the foregn corporaton durng the ta abe year to any foregn
country whch the amount of the dvdends receved by the parent durng the ta -
abe year bore to the tota ta abe ncome of the subsdary upon or wth respect
to whch such ta es were pad.
Ths provson had the same ob|ect as secton 131 of the Revenue cts of 1936
and 1938; that s, to avod doube ta aton. The dffcuty wth t was that t dd
not reate the credt to the accumuated profts or surpus of the subsdary out of
whch the dvdends were pad. Thus, f dvdends were pad out of surpus earned
n pror years, and It happened that the subsdary pad no ta to the foregn
country n the ta abe year In queston, the parent coud cam no credt whatever.
There were other eccentrc resuts fowng from the provson of the ct of 1918.
In the Revenue ct of 1921 secton 238(e) was the anaogous secton. The
draftsman of the secton stated to the Senate commttee n charge of the measure:
I rewrote the od provson, safeguardng t from some abuses whch t was open
to and cosng up some of the gaps that were n the od provson. Secton 238(e)
s substantay the same as secton 131(f). The ateratons of secton 2 0(c) of
the ct of 1918 were made to permt dentfcaton of the accumuated profts of
each ta abe year out of whch the dvdends mght have been pad and to gve
credt for a proporton of the subsdary s ta es attrbutabe to such accumuated
profts.
The charman of the Senate Fnance Commttee ndcated that the cacuaton
of the proporton of foregn ta pad woud be e acty the same as t had been
under the 1918 ct. ut ths woud be true ony f the dvdends were pad n a
gven year out of the pror year s earnngs and ta es were pad n the same year
n respect of the same pror year s earnngs. The pettoner seeks In ths case
to appy the proporton provded by the 1918 ct; but ths Is to gnore the atera-
tons made n that ct n 1921 whch have ever snce been retaned. In commt-
tee hearngs and n Congressona reports wth respect to the purpose and effect
of the changes wrought by the 1921 ct there were statements ndcatng an
understandng that the credt was to be proportoned to the dvdends made ava-
abe to the parent n ths country.
The Treasury made no reguaton appcabe to secton 238(e) of the Revenue
ct of 1921. It provded a form for reportng the ta , whch sanctoned the pet-
toner s method of computng the credt; and, from 1921 to 1930, the Commssoner
cacuated credts for foregn subsdares ta es by that method. In 1930, how-
ever, the Treasury promugated a new form whch requred the credt to be com-
puted n the way the Commssoner dd n the present case; and promugated
Reguatons 77 under the Revenue ct of 1932, whch, In artce 698, requred the
computaton of the credt n the same manner. The reguatons have snce re-
maned unchanged: See Reguatons 103 (sectons 19.131-3 and 19.131-8). -
though the reguatons defntey govern ts case, and were made pror to the
years n controversy, the pettoner nssts that the antecedent admnstratve
Interpretaton ong n force renders t mpossbe for the Commssoner to pro-
mugate a reguaton changng for the future the earer practce, even though the
new reguaton comports wth the pan meanng of the statute. We thnk the
contenton can not be sustaned.
The |udgment s affrmed.
Ch. 18. 0 Stat., 1057. 10 2.
Ch. 136. 2 Stnt.. 227. 253.
e vrrng v. Wtshre Co. (308 U. S., 90 Ct. D. 1 2 , C. . 1939-2. 213) ; everng
v. Reynod (313 U. S., 28) ; Whte v. Wnchester Country Cub (No. 83, October term,
19 1).
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22(a), rt. 22(a)-. 16
INCOM T RULINGS. P RT II.
R NU CTS OF 1937 ND 1936.
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION OF N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D FINITION.
rtce 22(a)-: What ncuded n gross
ncome.
19 2-12-11033
Ct. D. 15 6
ncome ta revenue acts of 193 and 1936 decson of supreme court.
1. Gross Income Separaton oreement nnuty Contract
Income Ta abe to Wfe Loca Law urden of Proof.
Pursuant to an opton gven to the husband n a separaton agree-
ment entered nto n 1913 and amended n 1916, the arrangement
made theren for monthy payments to the wfe for fe was
termnated n 1917, soon after she had obtaned an absoute dvorce
n Te as, and the husband purchased an annuty contract provdng
for payment to the wfe of the same monthy sum for fe as had
been provded n the agreement. Nether amony nor a property
settement was mentoned n the dvorce decree. ed: The ncome
from the annuty contract consttutes ta abe ncome to the wfe,
where she has not sustaned the burden of showng that under the
Te as aw the court retaned the power to reaocate the ncome from
the contract or to contro t n any way as an ncdent of ts power to
requre the husband to support the wfe, or that the court mposed
a persona obgaton on the husband n respect to the settement
n queston. There s no barrer under the ncome ta aws to ta ng
the hoder of an annuty on the ncome receved, however hs
nterest n the fund whch produces the ncome may be descrbed.
2. Cases paned.
everng v. Ftch (309 U. S., 1 9) Ct. D. 1 39, C. . 19 0-1,165 ,
everng v. Leonard (310 U. S., 80) Ct. D. 1 5 . C. . 19 0-1,
1751, and everng v. Fuer (310 U. S., 69) Ct. D. 1 53, C. . 19 0-1,
172 , e paned.
3. Decson ffrmed.
Decson of the Unted States Crcut Court of ppeas, Second
Crcut (120 Fed. (2d), 228) (19 1), affrmng decson of the Unted
States oard of Ta ppeas ( 2 . T. ., 91) (19 0), affrmed.
osephne S. Pearce, pettoner, v. Commssoner of Interna Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
Mr. ustce Dougas devered the opnon of the Court.
Pettoner and her husband separated n 1913. There was an agreement pro-
vdng for monthy payments by the husband for her support. That agreement
was amended n 1916 so as to provde monthy payments to her of 500 for fe.
er husband, however, was gven an opton to termnate the arrangement by
purchasng an annuty contract from a fe nsurance company whch woud
Supreme Court of the Unted States.
March 9, 19 2.
opnon.
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22(a), rt. 22(a)-.
pay pettoner 500 a month for the rest of her fe. In 1917 pettoner obtaned
an absoute dvorce n Te as, her husband enterng a persona appearance.
Nether amony nor a property settement was mentoned n the dvorce decree.
There were no chdren. Severa months after the dvorce Mr. Pearce pur-
chased an annuty from an nsurance company for pettoner s beneft. The
annuty provded for a payment of 500 per month durng her fe.
Nether pettoner nor Mr. Pearce ncuded the 6,000 receved by her under
the annuty contract n ther Federa ncome ta returns for 1935 and 1936.
The Commssoner sent defcency notces to both of them. ach appeaed to
the oard of Ta ppeas. t the hearng the Commssoner contended that the
payments were ncome of pettoner. The oard uphed that contenton. ( 2
. T. ., 91.) The crcut court of appeas affrmed the |udgment of the oard,
one |udge dssentng. (120 Fed. (2d), 228.) We granted the petton for
certorar because of the manner n whch that court apped the rue of ever-
ng v. Ftch (309 U. S., 1 9 Ct. D. 1 39, C. . 19 0-1, 165 ) and everng v.
Leonard (310 U. S., 80 Ct. D. 1 5 , C. . 19 0-1, 175 ) n case the e -wfe
rather than the husband was sought to be ta ed on aeged amony payments.
The crcut court of appeas reached the concuson that pettoner was abe
by the foowng ne of reasonng. The determnaton of the Commssoner
that the monthy payments were ncome of pettoner was presumptvey cor-
rect; the burden to show error rested on pettoner. (Wech v. everng, 290
U. S., I, 115 Ct. D. 755, C. . II-2, 112 (1933) .) rror mght be shown
by submttng cear and convncng proof heverng v. Ftch, supra, 156)
that the payments were made pursuant to a contnung obgaton of her former
husband to provde for her support, so as to make the rue of Dougas v. Wcuts
(296 D. S., 1 Ct. D. 10 1, C. . I -2, 250 (1935) ) appcabe. The burden
of estabshng error s not sustaned by a dvorced wfe merey by showng
that an obgaton of her former husband mght have contnued despte the
dvorce. Snce It s doubtfu and uncertan under Te as aw whether pet-
toner s former husband was dscharged of hs marta obgaton by the set-
tement In queston, pettoner faed to show that the presumptvey correct
determnaton that she was abe was erroneous.
We do not thnk that that was a correct appcaton of the rue of the Ftch
and Leonard cases. Those cases hod that the ncome s ta abe to the former
husband not ony where t s cear that payments to hs e -wfe were
made pursuant to a contnung abty created by hs contract or by
oca aw but aso where hs undertakng or oca aw makes that queston
doubtfu or uncertan. Those cases, ke Dougas v. Wcuts, supra, nvoved
stuatons where the dvorced husband was sought to be ta ed on payments
to hs e -wfe. ut the rue whch they e press suppes the crtera for deter-
mnng, n absence of a dfferent statutory formua, whether payments receved
by the e -wfe are propery ta abe to her or to her dvorced husband. If the
Commssoner proceeds aganst the e -wfe, she sustans her burden of rebuttng
hs presumptvey correct determnaton merey by showng doubts an uncer-
tantes as to whether the payments were made pursuant to her former husband s
contnung obgaton to support her. If the Commssoner proceeds aganst
her former husband he sustans hs burden by submttng cear and convncng
proof that the payments were not made pursuant to any such contnung ob-
gaton. everng v. Fuer, 310 U. 8., 69 Ct. D. 1 53, C. . 19 0-1, 172 .)
The other course woud make the abty of the dvorced wfe or the dvorced
husband whoy dependent on the eecton of the Commssoner to proceed aganst
one rather than the other where, for e ampe, oca aw was uncertan. ut
the rue of Dougas v. Wcuts, supra, rests on a more substanta bass. Its
roots are In oca aw and the undertakngs of the husband. It cas for the
use of the same crtera whether the husband or the wfe s sought to be ta ed.
We thnk, however, that pettoner has not mantaned her burden n ths case.
er former husband was not under a contnung contractua obgaton to con-
trbute to her support. For the agreement made n 1916 provded for the termna-
ton of hs persona obgaton to make payments to her n the event that he pur-
chased the desgnated annuty. nd so far as Te as aw s concerned, she has not
mantaned her burden. er showng as to Te as aw s ustrated by the
foowng.
y statute n Te as amony may be awarded durng the pendency of a sut for
a dvorce unt a fna decree sha be made n the case (13 ernon s Cv
Stats., artce 637.) Ths statute s e cusve n Its very nature, and no
amony can be decreed by any court n ths State e cept under ts e press terms.
(Martn v. Martn, 17 S. W. (2d), 789, 791-792.) It has been broady stated n
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22(a) rt. 22(a)- .
166
Phps v. Phps (203 S. W., 77, 79) that, In ths State the ega duty of the
husband to support hs wfe ceases upon the severance of the marta bonds, nor
has a court the power to decree that a husband or hs property may be sub|ected
to such support after dvorce. Permanent amony Is not provded for by Te as
statutes. nd see Pape v. Papc (13 Te . Cv. Rep., 99) ; oyd v. oyd (22 Te .
Cv. Rep., 200). It s, however, provded by statute that the dvorce court sha
order a dvson of the estate of the partes n such a way as the court sha
deem |ust and rght, havng due regard to the rghts of each party and ther ch-
dren, If any. (13 ernon s Cv Stats., artce 638.) That power e tends
not ony to communty property but to the separate property of the husband.
( parte Scott, 133 Te ., 1; Cark v. Cark, 35 S. . (2d), 189; erg v. erg,
115 S. W. (2d), 1171; enton v. Cark, 67 S. W. (2d), 37.) t tmes the dvorce
court has made such a dvson of the estate as apparenty to mpose on the
husband a persona obgaton to make stated payments to hs wfe. (Wey v.
Wey, 33 Te ., 358.) Furthermore, a dvorce decree whch does not sette the
rghts of the partes to communty property may not precude a subsequent sut
by the wfe to estabsh her rghts n t. (See Gray v. Thomas, 83 Te ., 2 6.)
nd the decree may be corrected to conform to the ntenton of the partes.
( eer v. eer, 135 Te ., 260.) The power of the court to modfy a property
settement prevousy approved, so as to gve the wfe an nterest n property not
covered by the earer decree, has been dened n absence of fraud or mstake.
(Cannon v. Cannon, 3 S. W. (2d), 13 .) Pettoner chaenges the reabty
of the atter case because on appea the case was dsmssed for want of |urs-
dcton (121 Te ., 63 ), whch meant ether dsagreement wth the reasonng
but approva of the resut, or ack of |ursdcton. (3 ernon s Cv Stats., artce
1728.) nd see Repubc Ins. Co. v. Schoo DM. (133 Te ., 5 5).
We need not, however, endeavor to resove that doubt. Nor need we specuate
as to the power of the court at some future tme to order a dvson of property
n ths case and as an Incdent thereto to mpose on pettoner s husband a per-
sona obgaton as was apparenty done by the dvorce decree n Wey v. Wey,
supra. (See 6 Te . L. Rev., 3 , dscussng em v. em, 291 S. W. 6 8.) For
even though pettoner estabshed that the dvorce court retaned that broad
power, not specfcay reserved, and even though we assume that the power to
make a dvson of property s the equvaent of a power to provde permanent
amony, she has not mantaned her burden of rebuttng the presumptvey cor-
rect determnaton of the Commssoner that the ncome from ths annuty con-
tract was ta abe to her. In order to mantan that burden she woud have to
show that It was at east doubtfu and uncertan whether the Te as court, as an
Incdent of Its power to requre the husband to support hs wfe, retaned contro
over ths annuty contract or the ncome from t. That at east Is the resut
uness we are to broaden the base on whch the Ftch, Fuer, and Leonard cases
rest.
Those cases Invoved so-caed amony trusts. In each the trust was rrevocabe.
In each the husband had an obgaton to support hs wfe.
In the Ftch case the trust provded that the wfe was to receve durng her fe
S600 a month from the ncome of the trust property; the husband, the baance.
We hed that the husband had not shown by cear and convncng proof that
n Iowa dvorce aw the court has ost a ursdcton to ater or revse the
amount of ncome payabe to the wfe from an enterprse whch has been
paced n trust. For a that we know t mght retan the power to reaocate
the Income from that property even though t acked the power to add to or
subtract from the corpus or to tap other sources of ncome. If t dd have such
power, then It coud be sad that a decree approvng an amony trust of the knd
here nvoved merey paced upon the pree stng duty of the husband a partcu-
ar and specfed sancton. (309 U. S., at 156.) nd n speakng of the amony
trust nvoved n Dougas v. Wcuts, supra, we stated (151-152) :
It s pan that there the amony trust, whch was approved by the dvorce
decree, was merey securty for a contnung obgaton of the ta payer to support
hs dvorced wfe. That was made evdent not ony by hs agreement to make up
any defcences In the 15,000 annua sum to be pad her under the trust. It
was aso confrmed by the power of the Mnnesota dvorce court subsequenty
to ater and revse ts decree and the provsons made theren for the wfe s bene-
ft. Lkewse consstent wth the use of the amony trust as a securty devce
was the provson that on death of the dvorced wfe the corpus of the trust was
to be transferred back to the ta payer.
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167
5 22(a), rt. 22(a)-.
In the Leonard case ncome from the trust was to be pad to the wfe for her
fe whch together wth ncome from other property was estmated at 30,000 a
year. separaton agreement provded that the husband woud pay hs wfe an
addtona 35,000 each year durng her fe so that her aggregate net ncome for
the mantenance of hersef and her chdren woud be 65,000 a year. The sepa-
raton agreement aso provded that n the event the husband s abty to make
the annua payment of 35,000 became mpared he mght appy to a court for a
reducton of hs obgaton of not ess than 10,000 a year. We hed that the hus-
band had not sustaned hs burden of showng that oca aw and the amony
trust gave hm a fu dscharge from hs obgaton to support hs wfe. (310
U. S., 86.) The trust and the undertakng n the separaton agreement were n-
tegra parts of an arrangement by whch the mantenance and support of the
wfe were secured. (Page 85.) We noted that t was not cear under New York
aw whether or not such a settement coud be remade by the court, though there
was some authorty whch ndcated that the dvorce court s reserved power mght
be e ercsed where the provson n the separate agreement, approved by the
decree, s for support and mantenance. (Pages 86-87.) In vew of that fact
and the nature of the settement, we concuded that the husband had not shown
that the trust was not mere securty for hs contnung obgaton to support hs
wfe.
In the Fuer case t was cear under Nevada aw that the court retaned no
contro over the dvorce decree whch approved the trust settement. Snce there
was no such reserved power and snce the trust contaned no contractua under-
takng by the husband for support of the wfe, we concuded that hs obgaton to
support had been pro tanto dscharged. We hed, however, that the husband was
ta abe on a 0 weeky payment whch he had agreed to make to hs wfe. ut
that fact dd not make hm ta abe on ncome from the trust aso, snce the pro-
vson for weeky payments and the trust were not so Interreated or nterde-
pendent as to make the trust a securty for the weeky payments. (Page 73.) We
aso noted (page 76) that though the dvorce decree e tngushes the husband s
pree stng duty to support the wfe, and though no provson of the trust agree-
ment paces such obgaton on hm, that agreement may nevertheess eave hm
wth suffcent nterest In or contro over the trust as to make hm the owner of
the corpus for purposes of the Federa ncome ta under the rue of everng v.
Cfford (309 U. S., 331 Ct. D. 1 , C. . 19 0-1, 105 ).
Thus a property settement made for the purpose of mantanng or supportng
the wfe may be treated for ncome ta purposes as mere securty for the husband s
contnung obgaton dependent on such consderatons as whether t contans,
or s nterreated wth, contractua obgatons of the husband for her support;
whether the court has a reserved power to ater or modfy t; or whether the
husband retans any substanta nterest In the property conveyed. Where the
settement carres some of the earmarks of a securty devce, then the power of
the court to add to the husband s persona obgatons may be especay sgnfcant.
(See everng v. Leonard, supra.) ut where, as here, the settement appears
to be absoute and outrght and on ts face vests In the wfe the ndca of com-
pete ownershp, t w be treated as that whch It purports to be n absence of
evdence that t was ony a securty devce for the husband s contnung obgaton
to support. There may be dffcuty n pacng a partcuar case on one sde of
the ne rather than the other. ut as stated by Mr. ustce omes In Irwn v.
Gavt (268 U. S., 161,168 T. D. 3710, C. . I -1, 123 (1925) ), That Is the ques-
ton In pretty muen everythng worth argung In the aw. ( nd see arrson v.
8chaffner, 312 D. S., 579, 583.)
s we have sad, pettoner has made no showng whatsoever that the Te as
court retaned the power to reaocate the ncome from ths annuty contract or
to contro It n any way as an ncdent of ts power to requre the husband to
support the wfe. She has not shown that the dvorce court mposed any persona
obgaton on the husband In respect to the settement In queston. nd she Is
not aded by those cases whch enforce agreements of the husband to make perodc
payments to the wfe. (See ohnson v. ohnson, 1 S. W. (2d), 805.) There Is
no such agreement here. Proof that the Te as court mght add to the husband s
persona obgatons as an Incdent to a future property settement s no substtute
for proof that the court had the power to remake ths property settement after
It was consummated. ence there s no ground for concudng that ths sette-
ment whch Is absoute on ts face s mere securty for an obgaton of a husband
to support hs wfe.
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22(a), rt. 22(a)- .
168
The correct ground for refusng to ta such ncome to the husband Is merey
that It s the ump sum whch dscharges hm and not the future ncome receved
by the wfe. (Pau, Fve Years wth Dougas v. Wcuts, 53 arv. L. ev., 1,
17, note .) We noted n everng v. Fuer, supra, page 7 , that outrght trans-
fers of property to the wfe, though provdng for her mantenance and support,
were no dfferent from cases where any debtor, vountary or under the com-
puson of a court decree, transfers securtes, a farm, an offce budng, or the
ke, to hs credtor In whoe or parta payment of hs debt. We do not thnk
that t woud be proper to e tend the rue of Dougas v. Wcuts, supra, to such a
stuaton. The possbty that the dvorce court mght add to the husband s per-
sona obgaton does not ater the resut. s n the Fuer case, the transfer of
property to the wfe mght resut ony n a parta dscharge of the husband s ob-
gaton. If the husband undertook, or was drected, to make other payments, he
mght be ta abe on them. ut the fact that he Is ta abe on a part of the pay-
ments receved by the wfe does not necessary make hm ta abe on a. ( e-
verng v. Fuer, supra, 73.) ence the statement n everng v. Ftch, supra,
page 156, that t must be cear that oca aw and the amony trust have gven
the dvorced husband a fu dscharge and eave no contnung obgaton however
contngent s to be read In ght of the fact that the amony trust n that case
was deemed to be a mere securty devce for the husband s contnung obgaton
to support. For the husband was reeved from payment of the ta on ncome
from the property settement n the Fuer case though he hud a contnung
obgaton to pay the wfe 0 a week.
If the rue of Dougas v. Wkuts. supra, Is not to be e tended to ths type of
case, then on the showng whch has been made the husband woud have sus-
taned hs burden n case the Commssoner had proceeded aganst hm. (Cf.
Mtche v. Commssoner, 38 . T. ., 1336.) Ceary then, the wfe may not
escape.
Such cases as everng v. orst (311 U. S., 112), everng v. ubank (311
U. S., 122), and arrson v. Schaffner, supra, are not opposed to ths resut.
Those cases deat wth stuatons where the ta payer had made assgnments of
ncome from property. e was hed ta abe on the ncome assgned by reason of
the prncpe that the power to dspose of Income s the equvaent of ownershp
of It and that the e ercse of the power to procure ts payment to another, whether
to pay a debt or to make a gft, s wthn the reach of the Federa ncome ta
aw. ( arrson v. Schaffner, supra, 580). ut n those cases the donor or
grantor had parted wth no substanta nterest n property other than the
specfed payments of ncome. (Id., 583.) ere he has parted wth the corpus.
nd the ta s upon ncome as to whch, n the genera appcaton of the Revenue
cts, the ta abty attaches to ownershp. ( ar v. Commssoner, 300 U. S.,
5, 12 Ct. D. 1205, C. . 11)37-1, 175 .) Fnay, there s no barrer under tne
ncome ta aws to ta ng the hoder of an annuty on the ncome receved, how-
ever hs nterest In the fund whch produces the ncome may be descrbed. (Cf.
Irwn v. Gavt, supra.)
ffrmed.
Dssentng opnon by Mr. ustce Frankfubteb, n whch the Chef ustce
|ons.
rtce 22(a)-: What ncuded n gross ncome. 19 2-16-11061
( so Secton 161, rtce 161-1; Secton 162, G. C. M. 2316
rtce 162-1.)
R NU CT OF 1936.
Where, under the terms of a trust nstrument, , the ta payer-
benefcary, may demand the entre net ncome of the trust created
by hs father, the ncome of the trust s ncudbe In the gross
ncome of even though he does not demand the ncome and t s
accumuated prmary for hs beneft pursuant to the terms of the
trust Instrument. Ths resut s not atered by the fact that the
trustees are gven dscreton (when approved by a ma|orty of the
actng trustees) to pay to the grantor s wfe such part of the ncome
of the undstrbuted prncpa for each year as she sha request, by
wrtten notce to the trustee on or before February 1 In each year,
be pad to her.
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169
22(a), rt. 22(a)-.
n opnon s requested whether the ncome of a trust created for
the beneft of s ta abe for Federa ncome ta purposes to the
trust or to the benefcary, the ta abe year nvoved beng 1936.
The ta payer, , s benefcary of a trust created by , hs father.
The trust nstrument provdes that from and after the tme when
the ta payer reaches the age of 30 years (whch he dd pror to the
ta abe year nvoved) the trustees sha pay to hm, f he demands
t, the entre net ncome of the trust estate, accumuatng and addng
to the prncpa any part of the ncome not so demanded. The trustees
are authorzed n ther dscreton to pay such part of the prncpa
to the ta payer as he may request, but, n any event, they are drected
to pay one-thrd n vaue of the prncpa to hm f he shoud demand
t upon hs attanment of the age of 35 years, and to pay a the re-
mander of the prncpa to hm f he shoud demand t upon hs
attanment of the age of 0 years. Upon the death of the ta payer
before he sha have receved the whoe of the prncpa, the trustees
are to dstrbute the trust estate n accordance wth the ta payer s
ast w and testament, or, n defaut thereof, to hs hers at aw.
The trustees are aso authorzed n ther dscreton (but ony when
approved by a ma|orty of the actng trustees) to pay to C, the grantor s
wfe, such part of the ncome of the undstrbuted prncpa for each
year as she sha request, by wrtten notce devered to the trustees
on or before February 1 n that year, be pad to her.
The ta payer aeges that the ncome for the year 1936 s ta abe
to the trust snce he dd not demand t and t was accumuated pur-
suant to the terms of the trust nstrument. e rees on the anguage
of sectons 161 and 162 of the Revenue ct of 1936, reatng to mpo-
ston of ta and to net ncome, respectvey, n the case of estates
and trusts.
Secton 22(a) of the Revenue ct of 1936 reads n part as foows:
(a) Genera Defnton.- Gross ncome ncudes gans, profts, and ncome
derved from saares, wages, or compensaton for persona servce, of whatever
knd and In whatever form pad, or from professons, vocatons, trades, busnesses,
commerce, or saes, or deangs n property, whether rea or persona, growng
out of the ownershp or use of or nterest n such property; aso from nterest,
rent, dvdends, securtes, or the transacton of any busness carred on for gan
or proft, or gans or profts and ncome derved from any source what-
ever.
Income from property hed n trust may, n speca crcumstances,
be ta ed under secton 22(a), supra, to a ta payer other than the one
to whom the ncome woud be ta ed under a tera appcaton of the
trust sectons of the statute. (See Dougas v. Wcuts, 296 U. S., 1,
Ct. D. 10 1, C. . I -2,250 (1935); everng v. Cfford, 309 U. S.,
331, Ct. D. 1 , C. . 19 0-1, 105.) The e tent to whch the ta payer
contros the trust corpus, or commands the trust ncome, and the
e tent to whch he may, drecty or ndrecty, beneft from such
ncome are among the prncpa crcumstances to be consdered n
determnng whether the ncome s to be ta ed under secton 22(a)
nstead of beng ta ed to another person under the tera anguage
of sectons 161 and 162. Secton 22(a) may be appcabe to a case
n whch the ta payer coud have receved the trust ncome and used
t for hs beneft, even though he actuay eected to aow the ncome
to accumuate n trust for others. (See Whteey v. Commssoner,
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22(a), rt. 22(a)- .
170
120 Fed. (2d), 782, certorar dened, 62 S. Ct., 110, wheren trust
ncome was hed ta abe to the grantor under secton 22(a) because
he coud have eected to use such ncome n dscharge of hs obgaton
to support and educate hs mnor chdren nstead of aowng t
to accumuate for them.) It s not necessary n the nstant case to
go that far, nasmuch as the accumuaton of ncome n ths nstance
s prmary for the beneft of the ta payer hmsef nstead of for the
beneft of others.
If an ndvdua has the requste contro or command over the
ncome from property hed n trust, such ncome may be ta ed under
secton 22(a), supra, to one who s nether the grantor nor the person
to whom the ncome woud be ta ed under a tera appcaton of
sectons 161 and 162. (See Rchardson v. Commssoner, 121 Fed.
(2d), 1, wheren the trust nstruments accorded to grantor s husband,
ndvduay, the power, nter aa, to cance and termnate the trust
agreements and thereupon to take over the corpus of each trust as
hs own property, the court hodng that the trust ncome was ta abe
to the husband (trustee) under secton 22(a).)
It remans, then, to appy the foregong prncpes to the nstant
case. The ta payer coud have eected to receve a doars n trust
ncome but dd not do so, permttng t to accumuate prmary for
hs own beneft. It s beeved that n these crcumstances the trust
ncome shoud be ncuded n the return of the ta payer-benefcary
under the provsons of secton 22(a), supra. Nor does t appear that
such concuson s necessary atered by the fact that the ta payer s
mother (grantor s wfe) mght have receved such ncome had she
requested t before February 1,1936, and had a ma|orty of the trustees
favoraby entertaned such request. Dstrbuton to her dd not occur,
and the trust ncome, therefore, became avaabe to the ta payer.
The dfference between the power vested n the mother and that vested
n the ta payer s that the mother s rghts are condtoned upon favor-
abe acton by the trustees, whereas the ta payer s eectve rghts are
uncondtona as to a ncome not dstrbuted to hs mother.
It s beeved that decsons such as the one n zabeth S. Svrague
v. Commssoner (8 . T. ., 173, acquescence, C. . II-2, 37
(1928)), apparenty supportng the contenton of the ta payer, may
be dsposed of argey upon the bass that the Commssoner dd not
rey on secton 22(a), supra, n those cases. (Cf. ty, ecutor, v.
Unted States, 63 Ct. Cs., 55, T. D. 076, C. . I-2, 233 (1927);
. Lea W. Stokes v. Commssoner, 28 . T. ., 12 5.) It s aso be-
eved that the nstant case s dstngushabe from obes v. Crooks
(33 Fed. (2d), 1016), because n the atter case the ma|orty of the
benefcares had to agree to a demand upon the trustee before the
trust ncome coud be dstrbuted to them.
In vew of the foregong, t s the opnon of ths offce that the
ncome of the trust created by for the beneft of s ncudbe n
the gross ncome of the ta payer-benefcary ( ) for the year 1936.
. P.Wenche,
Chef Cownse, ureau of Interna Revenue.
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171
22(a), rt. 22(a)-16.
rtce 22(a)-16: cquston or dsposton
by a corporaton of ts own capta stock.
19 2-22-11111
Ct. D. 1558
INCOM T R NU CT OF 1936 D CISION OF COURT.
1. Gross Incomk Profts from Sae of Stock cquston ob
Dsposton by Corporaton of Its Own Stock.
corporaton whch, n 1030 and 1031, bought on margn shares
of ts own stock wth the ntenton of retrng them, but Instead
carred them on the books for s years as treasury stock and sod
them In 1037, s sub|ect to ta on the amount of proft reazed from
such sae, under the provsons of secton 22(a) of the Revenue ct
of 1936 and artce 22(a)-16 of Reguatons 0 . The corporaton
reazed a gan ust as f t had purchased the stock of any other
corporaton on margn on a ow market and sod t ater at a profc
on a hgher market.
2. adty of Reguatons.
rtce 22(a)-16 of Reguatons 9 does not attempt to enarge,
repea, or modfy the statute, and Is a vad e ercse of the Treasury
Department s rue-makng power.
3. Certorar Dened.
Petton for certorar dened May 5, 19 2.
Unted States Crcut Court of ppeas fob the Ffth Crcut.
Maron . en, Coector of Interna Revenue, v. Natona Manufacture d
Storet Corporaton.
125 Fed. (2d), 239.
ppea from the Dstrct Court of the Unted States for the Mdde Dstrct of Georga.
McCobd, Crcut udge: avng purs|ed and e hausted ts admnstratve
remedes, Natona Manufacture Stores Corporaton fed sut aganst the
coector to recover an aeged overpayment of Income ta for Its fsca year
endng une 30, 1937. The case was tred wthout a |ury, and the court entered
fndngs of fact and concusons of aw and entered udgment for the ta payer
aowng a refund of 5,155.30.
The matera facts are not dsputed. The appeee s a Deaware corpora-
ton wth Its man offce In tanta, Ga. Pror to the year 1930 Its offcers
determned that t woud be to the best Interest of the corporaton to purchase
and retre shares of ts common stock at such tmes as It was fet that the
stock coud be purchased at a prce advantageous to the corporaton. In
pursuance of ths pocy the corporaton has purchased stock from tme to tme
at a prce ower than book vaue, and has retred t. In 1930 and 1031
Natona purchased 6,900 shares of ts stock on the open market for 3,8 2.50.
It was the ntenton of the company to retre ths bock of stock. The stock
was purchased through ayden-Stone Co., a brokerage house. The corpora-
ton was unabe to pay the fu purchase prce of the stock, and ayden-Stone
Co. agreed to accept a 50 per cent payment and keep possesson of the stock
and carry the baance of the ndebtedness. The presdent of appeee, Mr.
Fo , who had charge of the purchase and sae of the 6,900 shares of stock,
testfed that the stock was bought on 50 per cent margn.
Wth the comng on of the depresson, Natona was unabe to pay the ba-
ance due ayden-Stone Co. The stock was not canceed and retred rs had
been Intended, but was hed by ayden-Stone Co. and carred on the ta payer s
books as treasury stock at a nomna vaue of 1 per share. In 1937 the
ta payer s need for cash workng capta had Increased, and n the same year
ayden-Stone Co. made demand for payment. The company thereupon deter-
mned to se the 6,900 shares of common stock. On March 15. 1937, the bock
of stock was sod to a syndcate of tanta brokers for 10 per share, a prce
anuary 28, 19 2.
OPINION.
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22(a), rt. 22(a)-16.
172
beow the far vaue of the shares and beow the market prce. Prom ths sae,
after deducton of ta and e penses, Natona reazed 68,718.15, beng an
e cess of 2 ,875.65 over the purchase prce of the shares n 1930 and 1031.
Ths e cess amount was reported as proft n the corporaton s ncome ta
return for the fsca year endng une 30, 1937, and ncome ta was pad
accordngy. The ta payer contends here as t dd before the coector and n
the court beow that ths amount was erroneousy ncuded n ncome.
The sae of the stock havng occurred durng the fsca year endng une 30,
1937, the Revenue ct of 1936 governs the dsposton of ths case. Secton
22(a) of the Revenue ct of 1936 provdes that gross ncome ncudes gans,
profts, and Income derved from saes or deangs n property,
whether rea or persona, growng out of the ownershp or use of or nterest
n such property; . Treasury Reguatons 9 , promugated under the
Revenue ct of 1936, provdes:
rt. 22(a)-16. cquston or dsposton by a corporaton of ts own capta
stock.

ut f a corporaton deas n ts own shares as t mght n the shares of
another corporaton, the resutng gan or oss s to be computed n the
same manner as though the corporaton were deang n the shares of
another.
Ths provson was aso contaned n artce 22(a)-16 of Treasury Reguatons
86, promugated under the Revenue ct of 193 .
From 1920 to 193 the Treasury reguatons under the successve Revenue
cts provded that where a corporaton purchased any of Its stock and hed It
as treasury stock the sae of such stock w be consdered a capta transac-
ton. corporaton reazes no gan or oss from the purchase or
sae of Its own stock. See Reguatons 5; artces 5 2 and 563; Reguatons
62, artces 5 3 and 563; Reguatons 65, artce 5 3 (192 ); Reguatons 69,
artce 5 3 (1926) ; Reguatons 7 , artce 66 (1928) ; Reguatons 77, artce 66
(1932). The reguatons were amended on May 2, 193 , by Treasury Decson
30 (C. . III-1, 36), so as to emnate the provson that a corporaton
reazes no gan or oss from the purchase or sae of ts own stock, and
ncuded n ts stead anguage substantay the same as that In the above quoted
provson of Reguatons 9 , artce 22(a)-16 (1936), and Reguatons 86.
artce 22(a)-16 (193 ).
In support of the concusons and |udgment of the court beow, the appeee
contends that the orgna Treasury reguatons had acqured the force and effect
of aw by vrtue of the fact that Congress had repeatedy reenacted the
Revenue ct wthout change n the defnton of gross ncome contaned In
secton 22(a), and that the Treasury Department was wthout authorty to
amend or otherwse change the reguatons. (Cf. . R. Squbb Sons v.
evcrng, 98 Fed. (2d), 69.) The coector, on the other hand, ponts to the
fact that there has been no substanta change n the reguatons snce 193 ,
and contends that the admnstratve practce dscosed by the reguatons has
been suffcenty ong contnued and unform to |ustfy an assumpton that
Congress has adopted ther nterpretaton by reenactng the anguage construed
by them.
In everng v. Remods Co. (306 U. S., 110 Ct. D. 1383, C. . 1939-1, 225 ),
the Supreme Court had under consderaton the amendment and change n the
Treasury reguatons adopted under the Revenue cts through 1932. The Court
hed that the amended reguatons coud not, under the facts there shown, be
retroactvey apped to cover a transacton consummated n the ta abe year
1929. The Court dd not pass upon the vadty of the reguaton If prospectvey
apped. Wthout decdng the pont, the Court sad, It may be that by the
passage of the Revenue ct of 1936 the Treasury was authorzed thereafter to
appy the reguaton n ts amended form.
In the atter case of everng v. Wshre O Co. (308 U. S., 90 Ct. D. 1 2 ,
C. . 1939-2, 213 ), the Supreme Court hed that a reguaton nterpretng one
ct does not become frozen nto another ct merey by reenactment of that
provson, so that admnstratve nterpretaton can not be changed prospectvey
through e ercse of approprate rue-makng powers. ( so see everng v.
Reynods, 313 U. S., 28.)
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173
23(c), rt. 23(c)-.
The case at bar does not present a queston of retroactve appcaton of
reguatons such as was condemned n Ievcrng v. Reynods Co., supra, or
Commssoner v. Pan- mercan L. Ins. Co. (I Fed. (2d), 306). rtce 22(a)-16
of Reguatons 9 was n fu force and effect when Natona sod Its 6.900
shares of stock n 1937. The reguaton does not attempt to enarge, repea,
or modfy the statute, and Is a vad e ercse of the Treasury Department s rue-
makng power.
The appeee further contends that the sae of the stock was purey a capta
transacton whch dd not gve rse to ncome, and that the ower court propery
hed that even f the questoned reguaton be hed vad t dd not appy to the
transacton for the reason that pantff dd not dea In ts own shares as
t mght dea n the shares of another corporaton. Ths contenton s wthout
mert. The Natona Manufacture Stores Corporaton purchased the stock
on 50 per cent margn, carred t on the books for s years as treasury stock,
and then sod t aod reazed 2 ,875.65 n e cess of ts purchase prce. Ths
e cess amount was made avaabe to the corporaton, and was used by t
to ncrease ts workng capta. The ta payer reazed a gan ust as f t had
purchased the stock of any other corporaton on margn on a ow market and
sod t ater at a proft on a hgher market. We thnk t cear that Natona
reazed a ta abe accesson to ncome n the amount of 2 ,875.65, f we take
words n ther pan popuar meanng as they shoud be taken here. (Unted
States v. rbu Lumber Co., 28 U. S., 1 Ct. D. 20, C. . -2, 356 (1931) ;
cf. ammond Iron Co. v. Commssoner, 122 Fed. (2d), .)
ppeee s not entted to a refund of the ta pad. The |udgment s reversed.
Fosteb, Crcut udge, dssented.
S CTION 23(c). D DUCTIONS FROM GROSS INCOM :
T S G N R LLY.
btoe 23(c)-: Ta es. 19 2-23-11119
Ct. D. 1559
INCOM T R NU CT OF 1936 D CISION OF SUPR M COURT.
L Gross Income Deductons Ta es Pad Wthn Ta abe
Year greement by Purchase to Pay State and Cty
Ta es mounts so Pad Consttute Part of Cost.
Durng 1936 and 1937 the ta payers purchased varous parces
of rea estate In Maryand upon whch State and cty ta es for the
current year had not been pad at the tme of purchase, and, pur-
suant to contract, pad the amount of such ta es; the vendors
undertook to bear the burden of that porton of the ta es arth-
metcay aocabe to the fracton of the year that had e pred pror
to the date of purchase, and ad|ustments were made n the purchase
prce to refect ths arrangement. ed: The amounts so pad by
the purchasers dd not consttute ta es pad wthn the meanng
of secton 23(c) of the Revenue ct of 1936 but were part of the
cost of the propertes, and hence were not deductbe from gross
ncome. Under the oca aw such ta es consttuted a en on the
rea estate and a persona abty of the vendors pror to the sae,
and the purchasers can not deduct the amounts, or any porton
thereof, pad to dscbarge abtes f ed aganst ther predecessors
n tte by the aws of Maryand. Partes can not change the nc-
dence of oca ta es by ther agreement.
2. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, Fourth
Crcut (19 1) (123 Fed. (2d), 399), afSrmng decson of the Ds-
trct Court of the Unted States for the Dstrct of Maryand (19 1)
(36 Fed. Supp., 722), reversed,
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23(c), rt. 23(c)- .
17
Supreme Court of the Unted States.
M. ampton Magruder, Coector of Interna Revenue for the Dstrct of Mary-
and, pettoner, v. Frederck M. Suppee and zabeth Ot. Suppee, hs Wfe.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Fourth Crcut.
May 25, 19 2.
OPINION.
Mr. ustce Murphy devered the opnon of the Court.
Durng the years 1936 and 1937 respondents purchased varous parces of
rea estate n atmore, Md. In each Instance the State and cty ta es on the
rea estate for the current year had not been pad at the tme of purchase. The
varous contracts provded for the apportonment of these current rea estate
ta es, respondents agreeng to pay the amount of the ta es, and the vendors
undertakng to bear the burden of that porton of the ta es arthmetcay
aocabe to the fracton of the year that had e pred pror to the date of purchase.
d|ustments were accordngy made n the purchase prces to refect ths
arrangement.
Respondents pad the oca authortes the fu amounts necessary to ds-
charge the ta abty. In ther 1936 and 1937 ncome ta returns, whch were
on the cash bass, they deducted that porton of those ta es aocabe to the
perods after purchase. The Commssoner of Interna Revenue rued that the
amounts n queston were not deductbe under secton 23(c) of the Revenue ct
of 1936 ( 9 Stat, 16 8, 1659), but nstead were merey part of the cost of the
propertes. ccordngy, he made a defcency assessment whch was pad under
protest. Ths sut for refund foowed. The dstrct court hed the amounts
were deductbe, and the crcut court of appeas affrmed on the authorty of ts
prevous decson n Commssoner v. Rust s state (116 Fed. (2d), 636 Ct. D.
1508, C. . 19 1-1, 302 ). We granted certorar because of an asserted confct
wth fson v. Commssoner (98 Fed. (2d), 508 Ct. D 1 09, C. . 1939-2, 19S ).
The queston for decson s whether the amounts apportoned by respondents
on the bass of the fractons of the ta abe years remanng after the severa
purchases consttute ta es pad wthn the ta abe year wthn the meanug
of secton 23(c) of the Revenue ct of 1936 ( 9 Stat, 16 8, 1639), and hence
are deductbe.
The gudng prncpe for determnng whether a payment satsfyng a ta a-
bty s a ta pad wthn the meanng of secton 23(c) s furnshed by the
appcabe Treasury reguaton, whch states that In genera ta es are deductbe
ony by the person upon whom they are Imposed. (See Coston v. urnet,
59 Fed. (2d), 867; Sma v. Commssoner, 27 . T. ., 1219; Pau, Seected Studes
n Federa Ta aton, Second Seres, 2 .) Resort must be had here to the aws
of Maryand and of the cty of atmore to determne upon whom the State and
cty rea estate ta es were mposed. (Wash-McOure Co. v. Commssoner,
97 Fed. (2d), 983, 98 ; cf. everng v. Fuer, 310 U. S., 69, 7 -75; and see Pau,
op. e t. supra, 23-2 .)
To ustrate concretey the workngs of the Maryand ta system wth respect
to respondents purchases the property bought on May 10, 1936, may be taken
as typca of a the other transactons. The assessment date, or date of
fnaty, for both State and cty ta es was October 1, 1935. These ta es were
1 Ssc. 23. Deductons from Gross Incomb.
In computng net Income there sha be aowed as deductons:

(c) Ta es Gnbray. Ta es pad or accrued wthn the ta abe year, .
36 Fed. Supp., 722.
123 Fed. (2d), 399.
rtce 23(c)- of Treasury Reguatons 9 , promugated under the Revenue ct of
1936. Ths s a reguaton of ong standng. See Treasury Reguatons SR. promugated
under the Revenue ct of 193 , artce 23(c)- : Treasury Reguatons 77, promented
under the Revenue ct of 1932, artce 151 : Treasurv Reguatons 7 , promugated under
the Revenue ct of 1928, artce 151 : Treasury Reguatons 69 promugted under
the Revenue ct of 1926. artce 181; Treasury Reguatons 65, promugated under the
Revenue ct of 192 , artce 131.
nn. Code of Maryand (Fack, 1939), voume 2, artce 81, secton 26(b), provdes
that State and oca ta es sha have the same date of fnaty as s provded by oca aw,
and the date of fnaty for atmore wth respect to anv ta year s October 1 of the
precedng year. See Code, Pubc Loca Laws of Maryand (Fack, 1930), artce ,
secton 0.
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175
23(c), rt. 23(c)-.
for the caendar year 1936 and became due and payabe on anuary 1, 1936,
athough the defaut date for cty ta es was not unt uy 1, 1936, and for State
ta es anuary 1,1937. oth the State and the cty had ens aganst the property
from the due date, anuary 1,1936. nd, respondents vendor became personay
abe for these ta es before the sae. n acton of assumpst coud have been
brought aganst hm for the ta es at any tme after the due date. ad he sod
the property between October 1, 1935, and anuary 1, 1936, he apparenty woud
st have remaned personay abe, and If he had gone nto bankruptcy after
such sae the ta ng authortes woud have had a provabe cam aganst hm.
(In re Wes, Fed. Supp., 329; cf. atmore v. Perrn, 178 Md., 101, 107.)
It s thus apparent that ta ens had attached aganst the propertes and that
respondents predecessors n tte had become personay abe for the ta es
pror to any of the purchases. The attachment of a en for ta es aganst prop-
erty before Its sae has been hed to prohbt the vendee from deductng as
ta es pad, amounts pad by hm to dscharge ths abty. (Lfson v. Com-
mssoner, 98 Fed. (2d), 508; Wash-McOure Co. v. Commssoner, 97 Fed. (2d),
983: Merchants ank udng Co. v. everng, 8 Fed. (2d), 78 Ct. D. 1189,
C. . 1937-1, 189 ; everng v. Mssour State Lfe Insurance Co., 78 Fed. (2d),
781.) ta en s an encumbrance upon the and, and payment subsequent to
purchase, to dscharge a pree stng en Is no more the payment of a ta n any
proper sense of the word than s a payment to dscharge any other encumbrance,
for nstance a mortgage. It s true that respondents here coud not have re-
taned the propertes uness the ta es were pad, but t s aso true that they
coud not retan them wthout payng the purchase prce. It s no answer
therefore to say that the property was burdened wth the ta es and that re-
spondents became obgated to pay them. There was a burden, but t was con-
tractuay assumed. In dschargng ths assumed obgaton respondents were
not payng ta es mposed upon them wthn the meanng of secton 23(c). For
ony the person ownng the property at that tme . e., when the ta en at-
taches) s sub|ected to the burden whch the aw mposes; and ony the person
who has been thus sub|ected to the burden of the ta s entted to a deducton
for payng t. Payment by a subsequent purchaser s not the dscharge of a
burden whch the aw has paced upon hm, but s actuay as we as theoret-
cay a payment of purchase prce; for, after the en attaches and the ta ng
authorty becomes pro tanto an owner of an nterest n the property, payment
of the ta by a purchaser s nothng but a part of the payment for unencumbered
tte. ( udge Parker, dssentng n Commssoner v. Rust s state, 116 Fed.
(2d), 636, 6 1.)
Furthermore, respondents pad ta es for whch ther vendors were personay
abe. Ths was ceary the payment of a ta mposed upon another and there-
fore not deductbe by respondents. (Cf. Wash-McOure Co. v. Commssoner,
97 Fed. (2d), 983; Oatens Investment Co. v. Commssoner, 36 . T. ., 309;
ohsaat v. Commssoner, 0 . T. ., 528. nd see Commssoner v. Co card,
110 Fed. (2d), 725, 727 Ct. D. 1 58, C. . 19 0-1, 123 .)
Thus ether a pree stng ta en or persona abty for the ta es on the
part of a vendor s suffcent to forecose a subsequent purchaser, who pays the
amount necessary to dscharge the ta abty, from deductng such payment
as a ta pad. Where both en and persona abty concde, as here, there
can be no other concuson than that the ta es were mposed on the vendors.
Respondents smpy pad ther vendors ta es; they can not deduct the amounts,
or any porton thereof, pad to dscharge abtes so frmy f ed aganst ther
predecessors In tte by the aws of Maryand.
The vew of the court beow that the partes contractua arrangement for
apportonment of the ta burden was controng Is untenabe. Partes can not
Ta es are mposed annuay on a caendar year basts. See nn. Code of Maryand
(Fack, 1939), voume 2, artce 81, secton 26 (a) and (b) ; Code, Pubc Loca Laws of
Maryand (Fack, 1930), artce , secton -10.
See nn. Code of Maryand (Fack, 1939), voume 2, artce 81, secton 6(b), whch
provdes that State ta es are payabe on anuary 1. Secton 6(a) provdes that oca
ta es sha be payabe n accordance wth oca aw, and under oca aw atmore ta es
are due on anuary 1. (Code, Pubc Loca Laws of Maryand (Fack, 1930), artce ,
secton 0 )
Code, Pubc Loca Laws of Maryand (Fack, 1930), No. , secton 0; nn. Code of
Maryand (Fack, 1939), voume 2. artce 81, secton 7 .
nn. Code of Maryand (Fack, 1939), voume 2, artce 81. secton 72.
10 nn. Code of Maryand (Fack, 1939, voume 2, artce 81, secton 15 . (See County
Commtmonere of Frederck County v. Cagett, 31 Md., 210 ; aenctt v. M. t C. C. of Ocean
Cty. 118 Md.. 11 , 119; Free v. Oreene, 175 Md., 36, 1.)
u The opnon beow was a per curam affrmance on the authorty of Commanoner v.
Runt s state (116 Fed. (2d), 636). The court there reed on the fact that the partes
had agreed to apporton the ta obgaton. (Page 6 0.)
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23(m), rt. 23(m)-10.
176
change the ncdence of oca ta es by ther agreement. nd It s mseadng to
speak of rea estate ta es as appcabe to the fractona part of a ta perod
foowng purchase. Such ta es are smpy one form of rasng revenue for the
support of government. They are not ke rent, nor are they pad for the prv-
ege of occupyng property for any gven perod of tme.
The |udgment beow Is reversed.
rtce 23(c)-1: Ta es.
R NU CT OF 1936.
Gasone and motor fue ta es mposed by the State of Lousana.
G. C. M. 8936 (C. . -, 110 (1931)) and G. C. M. 1 970 (C. .
I -2, 69 (1935)) revoked. (See G. C. M. 22998, page 50.)
rtce 23(c)-1 : Ta es.
R NU CT OF 1936.
Certan Lousana gasone and motor fue ta es. Retroactve
appcaton of G. C. M. 22998 page 50, ths uetn . (See I. T. 3526,
page 52.)
S CTION 23 (k). D DUCTIONS FROM GROSS
INCOM : D D TS.
rtce 23(k)-: ad debts.
R NU CT OF 1936.
cceptance by credtor of vountary conveyance of property, n-
cudng property pedged as securty for the debt, n parta or n
fu satsfacton of the unpad porton of the ndebtedness; I. T. 3121
(C. . 1937-2, 138) modfed and I. T. 3167 (C. . 1938-1, 190) re-
voked. (See I. T. 35 8, page 7 .)
S CTION 23 (m). D DUCTIONS FROM GROSS
INCOM : D PL TION.
rtce 23(m)-10: Depeton d|ustments of 19 2-18-11077
accounts based on bonus or advanced royaty. Ct. D. 1553
INCOM T R NU CTS OF 1026 ND 1936 D CISION OF COURT.
1. Deducton Depeton owance O and Gas Leases Sur-
render of Unproductve Leases mount of Depeton -
owance Restored to Income Upon Surrender.
Where a andowner made o and gas eases n 1926 for terms
of 10 years and so ong as o or gas mght be produced, for whch
he receved cash bonuses, and deducted the 27 per cent depeton
aowed by secton 20 (c)2 of the Revenue ct of 1926 n returnng
ncome for that year, upon the surrender of certan of the eases
n 1936 wthout any o or gas havng been produced therefrom
the Commssoner dd not err n restorng to Income for the year
1936 the amounts of the depeton aowances taken n 1926.
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177
23(m), rt. 23(m)-10.
2. Deducton Depeton owance On. and Gas Leabes
Ranch Property Leased n Separate Parces ach Lease
Consttutes The Property for Income and Depeton
Purposes.
Where the owner of property whch had been operated as a
Snge ranch eased t n 1926 for o and gas operatons n sepa-
rate parces to varous essees, each ease rather than the ranch
as a whoe s to be treated as the property the ncome from
whch was sub|ect to percentage aowances for depeton under
secton 20 (c)2 of the Revenue ct of 1926.
8. Rehearng Dened.
Petton for rehearng dened uy 7, 19 1.
. Certorar Dened.
Petton for certorar dened November 17, 19 1.
Unted States Crcut Court of ppeas for the Ffth Crcut.
. T. Sneed, r. (Terry Thompson et a., Independent ecutors, substtuted
pettoners n the pace and stead of . T. Sneed, r., Deceased), pettoners, v.
Commssoner of Interna Revenue, respondent.
119 Fed. (2d), 767.
Petton for revew of decson of the Unted States oard of Ta ppeas.
efore Sbey, omes, and McCord, Crcut udges.
May 5, 19 1.
OPINION.
Sbey, Crcut udge: The man queston s, Where a andowner has made
o and gas eases for whch he receved bonuses and has taken the 27 /| per cent
depeton aowances as a deducton n returnng ths ncome, and the eases
are n a ater year surrendered wthout any producton, cau the amount of
the depeton aowances be treated as ncome n the ta account for the
ater year nother queston s whether the andowner may treat hs entre
ranch, on parts of whch these and other eases were made, as one property
n respect of depeton, or must he dea wth each ease as the property.
The ta payer Sneed, ownng a tract of 80.000 acres n the Te as Panhande
whch he operated as a snge ranch, n 1926 after o and gns had been ds-
covered eased t for such operatons n many separate parces to dfferent
essees for terms of 10 years and so ong as o or gas mght be produced.
esdes the usua royates, a cash bonus was receved on each ease. Many
eases were deveoped and producton both of o and gas secured. Twenty-
s of the eases coverng about 5,000 acres were not deveoped, though cover-
ng the same gas and o poo, but were surrendered n 1936. t that date
the gas pressures under the ground had, because of producton, been reduced
an average of 11 per cent, ndcatng that the gas reserve had been corre-
spondngy dmnshed. The ands thus freed were by the ta payer agan
eased n 1936, but smaer bonuses were receved on whch percentage depe-
ton aowances were agan taken. The Commssoner restored to ncome
the depeton aowances deducted from the bonuses n the 1926 ta returns,
aggregatng (as corrected) 33,528, and assessed addtona ta es for the year
1936, reyng upon Reguatons 69, artce 210(d) of the year 1926 and Regua-
tons 9 , artce 23(m)-10(c) for 1936, and hs Genera Counse s Memorandum
1 8 (C. . I -1, page 98), whch construed the reguatons wth respect
to the decson n errng v. Commssoner (293 U. S., 322 Ct. D. 90 . C.
I -1, 303 (1935) ), then recenty rendered. It was by reason of the errng
case that the oard of Ta ppeas n November, 1935, aowed Sneed the
depeton deductons on hs 1926 ncome ta es. Sneed v. Commssoner, 33
. T. ., 78.) The oard of Ta ppeas sustaned the Commssoner s
assessment of ta es for 1936 ( 0 . T. ., 1136), and ths petton for revew
foowed, prosecuted by Sneed s e ecutors.
Snce the 80,000-acre tract, throughout whch the 26 eases n controversy
are scattered, has suffered arge producton and an average 11 per cent
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23(m), rt. 23(m)-10.
178
depeton of gas reserve as a whoe, and snce the oard has hed In Cra b v.
Commssoner ( 1 . T. .. 686) that If there be any producton there can
be no restoraton to ncome of depeton aowances, ta payer contends t
s mportant to decde whether the whoe 80,000 acres he owns n a body s
the property mentoned n Revenue ct of 1926, secton 20 (c)2, In the
case of o and gas wes the aowance for depeton sha be 27 per centum
of the gross ncome from the property durng the ta abe year. The Crabb
case s now before us on revew, but not on the pont for whch ta payer has
cted t. We e press no opnon on that pont, but assumng t we decded,
we hod that the property means generay each separate tract, f operated
by the owner, or each separate ease f eases are made. The aowance for
depeton, as dstngushed from the mode of measurng t, s made (as t has
been n pror and ater cts) n the other sectons defnng deductons, secton
21 (9) for ndvduas and 23 (8) for corporatons, thus: In the case
of mnes, o and gas wes, other natura deposts, and tmber, a reasonabe
aowance for depeton accordng to the pecuar condtons n
each case; such reasonabe aowance n a cases to be made under rues and
reguatons to be prescrbed by the Commssoner wth the approva of the
Secretary. We thnk the power to defne by reguaton e tends to the
provsons n secton 20 (c)2 touchng the aternatve percentage aowance
as a measure of the depeton, as we as the measure by cost or dscovery
vaue. The e presson the property In reference to percentage depeton
admtted of reguatory defnton and Reguatons 69 (1926), artce 221, pro-
vded: In genera the property, as the term s used n secton 20 (c)2
and ths artce, refers to the separate tracts or eases of the ta payer. We
hed the statute and the reguaton, as to the owner of tracts whch he
operated and eases whch he worked, prevented hs aggregatng the prop-
ertes nton Petroeum Co. v. Commssoner, 71 Fed. (2d), 20). The pres-
ent ta payer seeks to dstngush that decson because he worked no property,
but ony eased Irs ranch for others to work. We thnk that by easng t n
separate parces to dfferent persons he separated t nto as many dfferent
propertes as there were eases made. ach ease stands to tsef, and both
essor and essee are equay bound so to treat It. There Is a provson n
ater reguatons that where two or more mnera propertes are Incuded In
a snge tract or parce of and the ta payer s Interest In such mnera prop-
ertes may be consdered to be a snge property, provded such treatment
s consstenty foowed. If t appes here at a there Is no proof of the
consstent treatment by ths ta payer of hs whoe ranch as one mnera prop-
erty; t rather appears that the eases have been separatey deat wth. ach
of the 26 eases here Invoved s a separate property as respects depeton.
Turnng to the man queston, the ta payer frst urges that by the surrender
of the eases In 1936, unworked, no ncome was reazed n that year and none
can be charged to hm. It s not a good repy that Sneed got back the easehod
nterest n the and n 1936. If that be the ground of ncome, the vaue n 1936
of what he got back woud be n queston. nd In truth he got nothng back;
the ease smpy pershed accordng to ts orgna terms. The Commssoner s
poston Is not that he got and back but that the occurrences In 1936 deveoped
a change In status of so much of the money ncome receved n 1926 as then
went unta ed because t stood for an antcpated depeton of hs o reserve,
and beng a return of capta was not Income sub|ect to ta aton. It Is too we
setted to requre further dscusson that when o and gas reserves are eased
for bonus and royaty, the bonus s an advance royaty, and Incudes not ony
gan whch Is Income but aso a return of capta about to be depeted whch s
not Income. The segregaton of ths return of capta s the purpose of a de-
peton aowances. s to royates, the depeton actuay happens as the roy-
aty accrues, so the present queston can hardy occur. s to the bonus, the
depeton has not yet happened, and there was a queston whether a deducton
therefor coud be taken unt t dd happen. Ths court, n errng v. Comms-
soner (70 Fed. (2d), 785), sad not. The Supreme Court (293 U. S., 322) re-
versed, hodng the depeton deducton ought to be taken out of the ncome when
the ncome s receved and not when the antcpated depeton occurs. The
Court foresaw the queston we now have In case the ease e pres wthout any
actua depeton under t, but e pressed no opnon on t. It dd, however, say
there was no dfference In substance between the percentage depeton aowance
In case of gas and o wes and the cost bass depeton aowance whch pror
to 1926 was the ony way of measurng t, and whch may st aternatvey be
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179 23(m), rt. 23(m)-10.
resorted to f t s arger. The court asserted: The nature and purpose of the
aowance s the same n both cases, ctng Unted States v. Dakota-Montana
O Co. (288 U. S., 59, 67 Ct. D. 655, C. . II-1, 2 3 (1033) ), where t was
sad of the percentage aowance: There s no ground for supposng that Con-
gress by provdng a new method for computng the aowance for depeton n-
tended to break wth the past and narrow the functon of that aowance. The
reasonabe nference s that t dd not and that depeton ncudes under the
1926 ct precsey what t ncuded under the earer cts. In fact n a the
cts the aowance s authorzed, as above ponted out, n dentca words n
sectons provdng the deductons from ncome. Its measure s aways set forth
n wdey separated sectons, whether by a percentage whch s assumed to fary
represent the return of capta, or by a cacuaton on the bass of cost and actua
remova of mneras.
The deducton for depeton from a bonus receved never represents an actua
but aways an antcpated depeton. If the antcpated depeton does not occur
and t becomes certan t never w, t then becomes pan that what was thus
deducted s not a return of capta, but gan ke the remander of the bonus
pad. n ad|ustment s due. Shoud t be made by reopenng the ta sette-
ment for the year the bonus was receved and the deducton taken That woud
be most ogca and accurate. ut the mtaton statutes, whch woud prevent
t n ths case, do not provde for t, and admnstratve convenence s aganst
t. The Commssoner from the very begnnng, under the broad reguatory
power attached to every authorzaton of the deducton for depeton, soved the
probem by requrng an addton to ncome n the year when the status as n-
come of the amount deducted becomes cear. The provson was carred forward
n the 1926 Reguatons 69, artce 216(d) : Upon the e praton, termnaton,
or abandonment, wthout the remova of any or a of the mnera contempated
by the ease the essor sha be requred to restore to capta account the e cess
of depeton theretofore aowabe In respect of the bonus and royaty payments
over the actua depeton or oss n vaue sustaned as a resut of the operatons
under the ease, and a correspondng amount must be returned as ncome for
the year n whch the ease e pres, termnates, or s abandoned. In that year
(and snce) there was added (e) In eu of the treatment provded for n the
above paragraphs, the essor of o and gas wes may take as a depeton deduc-
ton 27 per cent, etc. It Is argued that whe the cost or dscovery
vaue bass deducton Is and aways has been sub|ect to (d) above quoted, the
meanng of (e) Is that the percentage deducton s absoute and fna. The
Commssoner s Genera Counse dd not thnk so when he rued upon the matter
n 1935, after the decson n the errng case (C. . I -1, page 98) ; but he
hed that the meanng of the errng case, n connecton wth Murphy O Co. v.
urnet (2S7 U. S., 299 Ct. D. 619, C. . II-1, 231 (1933) ), whch deat wth
a cost-bass depeton aowance and referred wth approva to the reguaton
under dscusson, was that the deducton was the same n nature and purpose
however measured, and the reguaton meant to treat thorn ake when the ease
ended wthout producton. Ths amounts to sayng that (e) s n eu of (a)
(6) (c) and of (d) perhaps so far as t speaks of a capta account, but not so
far as restoraton to ncome s concerned. The percentage depeton aowance
s more favorabe to the ta payer, as ts choce In ths and other cases shows.
It ought not to be made st more favorabe by makng It fna n the case of a
bonus deducton. The whoe reasonng n the errng case s that Congress n-
tended to aow a smpe measure of the deducton to be substtuted for a com-
pcated one, but to eave the nature of the deducton as f ed by the reguatons
otherwse unchanged. We adopt that vew. Sneed took hs deductons n 1926,
under the aw and reguatons then e stng, and e s bound to restore them to
Income n 1930 when t became certan that the supposton of a return of capta
was untrue, and they were reveaed as pure gan.
The chargng as Income n 1936 of gan actuay receved n 1926 nvoves no
consttutona queston. Under the s teenth amendment, that whch Is not n-
come can not be ta ed as such, but there s no requrement as to the year n
whch Income sha be ta ed. Congress coud f decenna perods nstead of
annua ones. It has In genera adopted the annua pan, but has authorzed
ether actua recepts and dsbursements or accrua as the bass of the account-
ng. On the atter bass, there may be a dfference of years n enterng the tems
on the account from what woud have been true on a bass of actua recepts and
dsbursements. ut these two bases are eastc, for n the Revenue ct of 1926,
secton 200(d) whch drects Income and deductons to be accounted for n the
year receved and pad or accrued, there s an e cepton: Uness n order to
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180
ceary refect Income the deductons or credts shoud be taken as of a dfferent
perod. Smar anguage occurs n the other cts. The cear refecton of
ncome that ought to be ta ed s the man ob|ect. (See Guaranty Trust Co. v.
Commssoner, 303 U. S., 93 at page 88 Ct. D. 1327, C. . 1938-1, 2581.) Wth
or wthout the ad of a reguaton, there have been many cases of ths so-caed
restoraton to ncome of a deducton taken n a pror year. On the accrua
bass, f a ta , or e pense, or other deducton s taken one year as accrued, but
t turns out n another year that there was no such abty or a ess one, the
matter s corrected by a charge to ncome as though there had been a recovery
back. (Chareston d W. C. Ry. Co. v. urnet, 50 Fed. (2d), 3 2; Chcago.
R. 1. d P. Ry. Co. v. Commssoner, 7 Fed. (2d), 990; Nash v. Commssoner, 88
Fed. (2d), 77.) So when on a cash bass a debt s deducted as bad and n another
year s coected n whoe or n part, the matter s corrected not by gong back
to the year of deducton, but by a charge to ncome n the ater year. ( skn
Marne Co. v. Commssoner, 66 Fed. (2d), 776 Ct. D. 806, C. . III-1, 229
(193 ) ; Putnam ank v. Commssoner, 50 Fed. (2d), 158 Ct. D. 15, C. .
-2, 2 9 (1931) .) nd when property Is sod to be pad for n nstaments, and
ony part of what s pad s returned as gan, but the property s gotten back
wthout any refund, so that a that was receved turns out to be gan, the add-
ton s made to ncome n the year the addtona gan appears to be such. (Com-
pare Waker v. Coector, 119 Fed. (2d), 58.) So when a deducton for an e -
empt reserve s taken, and the reserve s reeased n a ater year, the reeased
fund s ta ed as ncome n the atter year though not earned then. (See Mary-
and Casuaty Co. v. Unted States, 2. 1 U. S., 3 2, 352; Commssoner v. Daas
Tte d Guaranty Co., 119 Fed. (2d), 211. See aso Wchta State ank v.
Commssoner, 69 Fed. (2d), 595 Ct. D. 8 7, C. . III-2, 187 (193 ) ;
Marne Transport Co. v. Commssoner, 77 Fed. (2(1), 177.) ven though the
appcabe reguatons be thought not whoy cear, we thnk the Commssoner s
acton was |ust and |ustfed.
It s further argued that snce the Revenue ct of 1932, secton 113(b) deat
wth ad|ustment of the bass for computng gan or oss n saes n respect of per-
centage and dscovery vaue depeton aowances pror to 1932 wthout re-
ferrng to the matter of eases endng wthout producton, no ad|ustment for the
atter can be had. We do not thnk our present probem s so reated to the pro-
vsons of that secton as to be affected by t. Nether a sae nor the cost bass
for computng gan or oss thereon s here nvoved.
In summaton, we are of opnon that where there s omsson or error n an
annua return, correcton generay s to be made on that return wthn the
statutes of mtatons; but n speca cases, because of msrepresented facts
creatng an estoppe, the ta payer n a ater return may be hed to those facts.
ut where the return s correct on the facts as they were when t was made, but
occurrences n a ater year ater the case, the ad|ustment s generay to be made
n the atter year. Ths does substanta |ustce, gves more stabty to the an-
nua ta settements, escapes the compcaton of mtaton statutes, and serves
admnstratve convenence. Ths case cones wthn the atter rue.
ffrmed.
rtce 23(m)-16: Charges to capta and to e pense
n the case of o and gas wes.
R NU CT OF 1936.
ppcabty of opton to e pense drng costs n connecton wth
varous knds of drng contracts. (See G. C. M. 2303 , page 75.)
rtce 23(m)-16: Charges to capta and to e pense
n the case of o and gas wes.
R NU CT OF 1936.
ppcabty of opton to e pense drng costs n connecton
wth varous knds of drng contracts. (See G. C. M. 232 3, page 78.)
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181 27(f), rt. 27(f)-.
S CTION 23(o). D DUCTIONS FROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS.
rtce 23(o)-1: Contrbutons or gfts by ndvduas.
NU CT OF 1936.
Contrbutons to the Navy Reef Socety. (See I. T. 3550, page 10 .)
S CTION 23(q). D DUCTIONS FROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS
Y CORPOR TIONS.
rtce 23(q)-: Contrbutons or gfts by corporatons.
R NU CT OF 1936.
Contrbutons to the Navy Reef Socety. (See I. T. 3550, page 10 .)
S CTION 27(f). CORPOR TION CR DIT FOR DI ID NDS
P ID: DISTRI UTIONS IN LI UID TION.
rtce 27(f)-: Dvdends pad credt for 19 2-19-11083
dstrbutons n qudaton. Ct. D. 1556
INCOM T R NU CT OF 1936 D CISION OF SUPR M COURT.
1. Dstrbutons n Lqudaton Credt fob Dvdends Pad.
corporaton makng a qudatng dstrbuton to ts parent cor-
poraton of cash and property consttutng surpus earned after
February 28, 1913, s entted, n computng ts undstrbuted profts
ta , to a dvdends pad credt under secton 27 (a) and (f) of the
Revenue ct of 1936 wth respect to such dstrbuton, even though
the qudaton comped wth secton 112(b)6 of that ct under
whch no gan or oss to the dstrbutee was recognzed as a resut
of such dstrbuton. Secton 27(f), reatng to dstrbutons n
qudaton, standng aone, |ustfes the deducton camed. Sec-
ton 27(h), whch denes a dvdends pad credt f any part of a
dstrbuton s not a ta abe dvdend In the hands of the ds-
trbutee, and secton 115(h), whch reates to dstrbuton of a
ta payer s stock or securtes, are not appcabe.
2. Reguatons adty.
The provsons of artce 27(f)- of Reguatons 9 , denyng a
dvdends pad credt under facts such as appear n ths case, are
not ony contradctory of the pan terms of secton 27(f) of the
Revenue ct of 1936, the anguage of whch s drect and unambgu-
ous, but attempt to add a suppementary egsatve provson and
are accordngy nvad.
3. Decsons ffrmed.
Decson of the Unted States Crcut Court of ppeas, Fourth
Crcut (122 Fed. (2d), 361 (19 1)), affrmng decson of the
Unted States oard of Ta ppeas ( 2 . T. ., 1020 (19 0)),
affrmed.
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f 27(f), rt. 27(0-1.1
182
Supreme Court of the Unted States.
uy T. everng, Commssoner of Interna Revenue, pettoner, v. Credt
ance Corporaton.
On petton for wrt of certorar to the Unted States Crcut Court of ppeas for the
Fourth Crcut.
pr 27, 19 2.
OPINION.
Mr. ustce Roberts devered the opnon of the Court
The Commerca Credt Co., a Deaware corporaton, acqured and owned
over 99 per cent of the capta stock of the respondent, a New York corpora-
ton actvey engaged n busness. In 1936 the respondent s stockhoders and
drectors resoved to qudate the corporaton and to make dstrbuton to
ts stockhoders n qudaton. Part of the dstrbuton so made n 1936 was
of cash and property consttutng surpus earned after February 28, 1913, of
the vaue of 950,73 . Of ths Commerca Credt Co. s share was 9 7,228.
Further dstrbutons were made n 1937 and fna dstrbuton n 1938, and
the corporaton was egay dssoved. The qudaton comped wth the pro-
vsons of secton 112(b)6 of the Revenue ct of 1936,1 under whch no gan
or oss for ta purposes was attrbutabe to Commerca Credt Co. as a resut
of the dstrbuton. That corporaton dd not, n 1936, dstrbute to ts stock-
hoders an| of the dstrbuton receved by t from the respondent and dd not
apporton or aocate any part thereof to the respondent.
The queston s, to what dvdends pad credt s the respondent entted
under the appcabe sectons of the Revenue ct of 1936.
y secton 1 there was mposed for the frst tme a ta upon undstrbuted
net ncome. In order to compute the base for ths evy the dvdends pad
credt s to be deducted from ad|usted net ncome.
Secton 27 deas wth the credt for dvdends pad. Subsecton (a) provdes
that, for the purposes of Tte I of the ct, the dvdends pad credt sha be
the amount of dvdends pad durng the ta abe year. ach of the addtona
subsectons deas wth a separate topc reatng to the computaton and aow-
ance of the credt. The ony ones here of mportance are (f) and (h).
(f) Dstrbutons n Lqudaton. In the case of amounts dstrbuted n
qudaton the part of such dstrbuton whch s propery chargeabe to the
earnngs or profts accumuated after February 28, 1913, sha, for the pur-
poses of computng the dvdends pad credt under ths secton, be treated as a
ta abe dvdend pad.
(h) Nonta abe Dstrbutons. If any part of a dstrbuton (ncudng
stock dvdends and stock rghts) s not a ta abe dvdend n the hands of
such of the sharehoders as are sub|ect to ta aton under ths tte for the
perod n whch the dstrbuton s made, no dvdends pad credt sha be
aowed wth respect to such part.
The ta payer nssts that the dstrbuton n queston s governed by the pro-
vsons of (f). The Government asserts that t s not, for these reasons: that
the phrase whch s propery chargeabe to the earnngs or profts, accumuated
after February 28, 1913, takes the dstrbuton out of the purvew of the
secton; that (h) denes the beneft of (f) to the ta payer f the money or prop-
erty transferred s not ta abe to the dstrbutee; that the pocy of the ct, and
the purpose underyng provsons other than secton 27, requre that (f) be
not construed as permttng the credt where the dstrbuton gves rse to no
ta upon the dstrbutee, and that an appcabe reguaton precudes the credt.
The Government s second contenton has been sustaned by the Crcut Court
of ppeas for the Ffth Crcut, but both the frst and t|e second have been
overrued by the Crcut Court of ppeas for the Second Crcut, and by the
oard of Ta ppeas and the court beow In the nstant case. In vew of
the confct we granted certorar.
9 Stat., 16 8. 1679.
Sectons 1 , 27. and 112. ( 9 Stat.. 16 8. 1635. 1665, 1678.)
Centenna O Co. v. Thoman (109 Fed. (2d), 359: utcheson, ., dssentng).
Commssoner v. ay Mfg. Corporaton (122 Fed. (2d), 3).
2 . T. ., 1020; 122 Fed. (2d), 361,
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183
27(f), rt. 27(0-1-
1. though a dstrbuton n qudaton of earnngs whch accrued subse-
quenty to February 28, 1913, does not consttute a dvdend n the proper sense
of the term, subsecton (f) categorcay decares that a qudatng dstrbu-
ton, to the e tent It s composed of such earnngs, sha, for the purposes of
computng the dvdends pad credt he treated as a ta abe dvdend pad.
Pany the secton ntends that a dstrbuton of such earnngs sha be con-
sdered a dvdend. Further t provdes that the dstrbutng corporaton may
use the amount n computng ts credt for dvdends pad. nd, to put the
matter beyond cav, the secton aso says that the dstrbuton sha be treated
as the payment to the dstrbutee of a ta abe dvdend.
The Government, however, contends that the cause propery chargeabe to
the earnngs or profts accumuated after February 28, 1913, means propery
chargeabe to the dstrbutee as such earnngs or profts. The argument has,
we thnk, rghty been re|ected by a the courts whch have consdered t.
The ne drawn In a of the Revenue cts between profts accumuated before
the enactment of the frst ncome ta ct and after that date for dstngush-
ng capta and Income furnshes the reason for the nserton of the cause n
subsecton (f). Secton 27 deas wth a credt to the dstrbutng corporaton
and the phrase fnds ts proper offce n mtng the amount of the dstrbuton
n qudaton whch may be consdered a dvdend from earnngs or profts as
dstngushed from one composed of capta. We, therefore, concude that (f),
standng aone, |ustfes the deducton camed by the respondent.
2. It s urged that the sweepng provson of (h) precudes the appcaton
of (f) n the crcumstances dscosed, because (h) denes the credt uness the
amount dstrbuted Is ta abe to the dstrbutee. y concesson the dstrbu-
ton here does not resut n gan or oss to the parent company. The argu-
ment s n effect that (h) creates an e cepton to the rue formuated by (f).
s above sad, each of the subsectons of secton 27 deas wth a specfc
and partcuar topc. Subsecton (f) deas wth dstrbutons n qudaton
whe subsecton (h) deas wth nonta abe dstrbutons. If (f) appes
n ths case, (h) s eft to cover a substanta fed of other sorts of dstrbu-
tons. We shoud, of course, read the two sectons as consstent rather than
confctng, f that be possbe. ere t Is not ony possbe but begets no
absurd or mpractca resut. We hod that (h) s not appcabe to the facts
of ths case and that (f) Is.
3. The pettoner ponts out that the Revenue ct of 1936 Introduced a new
pocy, to ta undstrbuted earnngs In order to prevent a ta payer from
accumuatng unta ed surpus by forcng the payment of dvdends whch
become ta abe In the hands of the dstrbutee. Ths s true, but t s aso
true that the ct made dstrbutons to parent corporatons nonta abe n order
to encourage the smpfcaton of corporate structures. It was avowedy for ths
reason that secton 112(b)6 provded that no gan or oss to the parent company
shoud n such case be recognzed, and t may we be that subsecton (f) of secton
27 was nserted wth the same purpose. The Government nssts that as secton
115(h) provdes that a dstrbuton of the ta payer s stock or securtes, or those
of another corporaton, sha not be consdered a dstrbuton of earnngs or profts
of the ta payer f no gan to the dstrbutee from the recept of such stock or
securtes s recognzed by the aw, subsecton (f) must be read n the ght of the
pocy thus decared by secton 115(h). The atter secton s rreevant to ths
controversy because the dstrbuton here was n property and money and not n
stock or securtes. Secton 115(h) was amended n 1938 subsequent to the con-
summaton of the transacton here n queston to Incude money or property, but
we can not, as the Government suggests, read nto the secton, as t stood when
the transacton took pace, an ntent derved from the pocy dscosed by the
subsequent amendment.
We sha not burden ths opnon by e tended reference to the egsatve
hstory of the ct of 1936. It s enough to say that t s nconcusve and, to
some e tent, supports the arguments of both partes. ut whatever may be
sad of the pocy behnd the statute s provsons, we are not at berty to
dsregard the drect and unambguous anguage of subsecton (f).
. Treasury Reguatons 9 , artce 27(f), decare that one makng a qu-
datng dstrbuton of earnngs accumuated snce February 28, 1913, must be
dened the dvdends credt n respect of such dstrbuton uness the amount
dstrbuted s ta abe n the same year to the dstrbutee, but further provdes
etmch v. emann (276 U. S., 233 T. D. 217. C. . II-2. 238 (1928)1).
9 Stat.. 1688.
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101, rt. 101-1.
18
that f the dstrbutee, In that year, makes a dstrbuton whch enttes It
to a dvdends credt t may aocate a proper proporton thereof to the ds-
trbutor of the qudatng dvdend. It s nssted that the stuaton presented
to the Treasury by the varous provsons of the Revenue ct of 1936 was
confused and compe and the adopton of the reguaton was proper n the
crcumstances and shoud contro.
In vew of what we have sad as to the pan meanng of subsecton (f),
we thnk that no compe ty or confuson s dscoverabe and that the regua-
ton not ony was contradctory of the pan terms of the subsecton but at-
tempted to add a suppementary egsatve provson, whch coud ony have
been enacted by Congress. We hod, therefore, that the court beow was rght
In refusng to gve effect to the reguaton.
The |udgment s affrmed.
The Chef ustce took no part n the consderaton or decson of ths case.
Mr. ustce ack, Mr. ustce Reed, and Mr. ustce Dougas dssent. Tney
are of the opnon that snce artce 27(f) of Treasury Reguatons 9 resoves
the ambgutes between secton 27(f) and secton 27(h) of the Revenue ct
of 1936 t s a vad nterpretatve reguaton and a proper e ercse of the
rue-makng authorty.
P RT I . CCOUNTING P RIODS ND M T ODS OF CCOUNTING.
S CTION . INST LLM NT SIS.
btce : Deferred-payment sae of rea property
not on nstament pan.
R NU CT OF 1936.
Reguatons 9 , amended. (See T. D. 5113, page 88.)
P RT . R TURNS ND P YM NT OF T .
S CTION 55. PU LICITY OF R TURNS.
R NU CT OF 1936.
Reguatons governng the nspecton of corporaton statstca
transcrpt cards by the Offce of Prce dmnstraton. (See T. D.
5120, page 97.)
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S OF T .
S CTION 101. MPTIONS FROM T
ON CORPOR TIONS.
rtce 101-1: Proof of e empton.
R NU CT OF 1036.
Proof requred for certan casses of corporatons. (See T. D.
5125, page 101.)
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185 5 112(b), rt. 112(b)(5)- .
ktc|b 101(6)-1: Regous, chartabe, scentfc,
terary, and educatona organzatons and com-
munty chests.
R N CT OF 1930.
Corporaton organzed for the purpose of, and engagng n, bus-
ness actvty. (See G. C. M. 23063, page 103.)
rtce 101(6)-1: Regous, chartabe, scentfc,
terary, and educatona organzatons and com-
munty chests.
R NU CT OF 1936.
Navy Reef Socety. (See I. T. 3550, page 10 .)
SUPPL M NT . COMPUT TION OF N T INCOM .
S CTION 112(b). R COGNITION OF G IN OR LOSS:
C NG S SOL LY IN IND.
rtce 112(b) (5)-: Transfer of property to 19 2-2 -11125
corporaton controed by transferor. Ct. D. 1560
INCOM T R NG CT OF 1936 D CISION OF SUPR M COURT.
1. Gan ob Loss change of onds of ankrupt Corporaton
fob Stock n Nhw Corporaton Property Incudes qu-
tabe Interest.
The ta payers, owners of bonds of a subsdary corporaton whch,
wth ts parent, fed pettons n bankruptcy, receved n e change
for ther bonds common stock and ncome bonds of a new company
organzed pursuant to a pan of reorganzaton under secton 77 of
the ankruptcy ct. Under such pan the new company was to re-
ceve the assets of the debtor corporaton; the stockhoders of the
atter were to receve no nterest n the new corporaton, but n e -
change for ther stock were to receve warrants for purchase of
shares of the new corporaton; the new company was to assume the
obgatons of the bonds of the parent and to ssue ncome bonds
and common stock n e change for bonds of the subsdary. ed:
Under the facts, the transacton met the requrements of secton
112(b)5 of the Revenue ct of 1936 and no gan s recognzed a-
though the far market vaue of the new securtes e ceeded the bass
of the od. When stockhoders are e cuded and credtors of an
Insovent corporaton become stockhoders of the new corporaton,
the ownershp of the equty n the debtor corporaton effectvey
passes to the credtors at east when bankruptcy proceedngs were
nsttuted, and property as used In secton 112(b)F ncudes
such an equtabe nterest. benefca owner of. or equtabe
camant to, property Is not precuded from consummatng an e -
change whch quafes under secton 112(b)5 merey because the
actua conveyance Is made by hs trustee or tte hoder. Ths con-
cuson s supported by the egsatve hstory of secton 112(b)5.
2. Decson ffrmed.
Decson of the Unted States Crcut Court of ppeas, Tenth Cr-
cut (19 1) (112 Fed. (2d), 380). affrmng decson of the Unted
States oard of Ta ppeas (19 0) ( 2 . T. ., 73), affrmed.
7 918 2 7
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( 112(b), rt. 112(b)(5)- . 186
Supreme Court of the Unted States.
Ouy T. cverng, Commssoner of Interna Revenue, pettoner, v. Cement
Investors, Inc.
uy T. everng, Commssoner of Interna Revenue, pettoner, v. ames .
Newton Trust.
Ouy T. everng, Commssoner of Interna Revenue, pettoner, v. ames .
Necton, r.
On wrts of certorar to the Unted States Crcut Court of ppeas for the Tenth Crcut
une 1, 19 2.
OPINION.
Mr. ustce Dougas devered the opnon of the Court
The ssue presented by these cases s whether under secton 112(b)5 of the
Revenue ct of 1936 ( 9 Stat., 16 S, 1678, 26 U. S. C, secton 112(b)5) the gan
of the ta payers from the transactons n queston shoud be recognzed.
The ta payers owned rst mortgage bonds of Coorado Industra Co. whch
was a whoy owned subsdary of the Coorado Fue Iron Co. The bonds were
guaranteed both as to prncpa and nterest by the parent company. fter
defauts on these bonds and on other bonds ssued by the parent company each
company ted a petton under secton 77 of the ankruptcy ct. pan of
reorganzaton was formuated by commttees of the securty hoders. It pro-
vded for the formaton of a new company to whch a the assets of the two
debtor companes woud be transferred. The new company woud assume the
obgatons of the bonds of the od parent company, Coorado Fue Iron Co., and
ssue ncome bonds and common stock n e change for the bonds of the od
subsdary company, Coorado Industra Co. The stockhoders of the debtor
companes woud receve no nterest n the new company; but n e change for
ther stock they woud receve warrants for the purchase of shares of the new
company. pprova of the pan by the requste percentage of securty hoders
was obtaned. The pan was contnned by the court n pr, 1936, and was
duy consummated as foows: The debtor companes, the bankruptcy trustee,
and the trustee under the ndenture securng the bonds of the od subsdary
company conveyed the assets of the debtors to the new company. The new
securtes were ssuabe to or on the order of the reorganzaton managers who
were actng, as stated n the pan, as agents of the securty hoders. The
reorganzaton managers effected an e change of the od securtes for the new on
or about September 1, 1936. Immedatey after the consummaton of the pan a
of the ssued shares of the new company (552,6G0 shares of common out of an
authorzed ssue of 1,000,000 shares) beonged to the former hoders of the
bonds of the od subsdary company. No stock was ssued by the new company
to other partes unt October, 1936. when 37 shares were ssued on e ercse of the
warrants. y une, 1938, ony 65 shares had been ssued to hoders of the
warrants.
ach of the ta payers n these cases e changed hs Coorado Industra Co.
bonds for ncome bonds and common stock of the new company. In each case
the far market vaue of the new securtes e ceeded the bass of the od. The
Commssoner determned defcences on the ground that the proft from the e -
change was a ta abe gan. The oard of Ta ppeas hed for the ta payers.
(See 2 . T. ., 73.) The crcut court of appeas affrmed (122 Fed. (2d), 380,
16) hodng, nter aa, that the e change met the requrements of secton
112(b) 5. We granted the pettons for certorar because the appcaton of
secton 112(b)5 to recevershp or bankruptcy reorganzatons rased mportant
probems n the admnstraton of the ncome ta aw.
It s pan from everng v. Southwest Consodated Corporaton (315 U. S.,
Ct. D. 15 , page 290, ths uetn ), whch nvoved dentca defntons of the
term reorganzaton as are nvoved here, that ths transacton does not meet
the requrements of secton 112(g)( ) of the 1936 ct.1 The assets of the od
1 In everng v. Southwest Consodated Corporaton, upra. no queston as to the ap-
geahty of secton 112(b) ) was nvoved. The ony ( eston rased or consdered by the
oan or the crcut court of appeas or passed on by ths Court was whether or not the
transacton n queston quafed as a reorganzaton under secton 112(g) of the
193 ct.
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187 5 112(b), rt. 112(b)(5)- .
companes were not acqured n e change soey for votng stock of the new
company, snce ncome bonds and warrants were aso ssued. It s aso cear
that the requrements of secton 112(g)(C) were not satsfed snce cause O
contempates that the od corporaton or ts stockhoders, rather than ts cred-
tors, sha be n the domnant poston of contro mmedatey after the trans-
fer and not e cuded or reegated to a mnorty poston. (Id., page .) ut
t does not necessary foow that secton 112(b)5 s nappcabe.
Secton 112(b)5 provdes:
No gan or oss sha be recognzed If property s transferred to a corporaton
by one or more persons soey In e change for stock or securtes n such cor-
poraton, and mmedatey after the e change such person or persons are n con-
tro 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 Interest n the property pror to the
e change.
Contro Is defned n secton 112(h) to mean
the ownershp of stock possessng at east SO per centum of the tota combned
votng power of a casses of stock entted to vote and at east 80 per centum
of the tota number of shares of a other casses of stock of the corporaton.
If t may be sad that property was transferred by the bondhoders to the new
corporaton, then the other requrements of secton 112(b)5 were satsfed. For
the bondhoders, as owners of a of the outstandng shares of the new corpora-
ton were n contro of t mmedatey after the e change. nd t has not
been dsputed that the stock and ncome bonds acqured by each bondhoder were
substantay In proporton to hs Interest In the assets of the debtor companes
pror to the e chnnge. Pettoner, however, mantans that the ony transfer
wthn the meanng of secton 112(b)5 was effected by the debtor companes, the
bankruptcy trustee, and the ndenture trustee; and that the e change of the bonds
for the new securtes was merey part of the mechancs for consummaton of the
pan and not an e change by whch property was transferred to the new
corporaton. Though we agreed wth the atter proposton, t woud not neces-
sary foow that the requrements of secton 112(b)5 were not met.
In case of reorganzatons of nsovent corporatons the credtors have the rght
to e cude the stockhoders entrey from the reorganzaton pan. When the
stockhoders are e cuded and the credtors of the od company become the stock-
hoders of the new, It conforms to reates to date ther equty ownershp from
the tme when the processes of the aw were nvoked to enforce ther rghts of
fu prorty. ( crcrng v. abama sphat Ic Lmestone Co., 315 U. S., Ct
D. 15 2, page 21 , ths uetn).) Under that approach the ownershp of the
equty n these debtor companes effectvey passed to these credtors at east when
secton 77 proceedngs were Insttuted. ut however ther nterest n the prop-
erty may be descrbed, It ceary was an equtabe cam n or to t. It was that
equtabe Interest wth whch the pan deat. The transfer of the propertes of
the debtor companes to the new corporaton was made pursuant to that pan.
The pan was approved by the requste percentage of these credtors, as requred
by secton 77 (e) of the ankruptcy ct. Thus t Is far to say that the prop-
erty transferred was property n whch the credtors had an equtabe nterest
and that the transfer was made wth ther authorty and on ther behaf. Cer-
tany property as used n secton 112(b)5 ncudes such an Interest n property.
nd we see no reason to concude that a benefca owner of, or equtabe camant
to, property Is precuded from consummatng an e change whch quafes under
secton 112(b)5 merey because the actua conveyance Is made by hs trustee or
tte hoder. In stuatons comparabe to ths one the oard of Ta ppeas has
hed that secton 112(b)5 s appcabe. (Lecke v. Commssoner, 37 . T. .,
252; Mer d Pane v. Commssoner, 2 . T. ., 580. Cf. Rockford rck d Te
Co. v. Commssoner, 31 . T. ., 537.) We accept Its vew.
The egsatve hstory of secton 112(b)5 supports that concuson. Secton
112(b)5 and the reorganzaton provsons are rather cosey reated. (See
Mer, endrcks, and verett, Reorganzatons and Other changes n Income
Ta aton (1931), ch. 6.) Whe the reorganzaton provsons are restrcted to
ntercorporate transactons, secton 112(b)5 s not so confned, snce the phrase
one or more persons ncudes ndvduas, trusts or estates, partnershps and
corporatons. (Treasury Reguatons 0 , artce 112(b) (5)-.) ut there s no
Indcaton that the reorganzaton provsons were desgned as the e cusve
method of deferrng recognton of gan or oss In a cases of corporate read|ust-
ments or reorganzatons. The hstory of secton 112(b)5 makes cear that It too
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133(a), rt. 131(a)(2)- .
188
was desgned to functon In that fed ( mercan Compress Warehouse Co. v.
ender, 70 Fed. (2d), 655, 657-658) and to permt deferment of gans or osses
where there has been a mere change In the form of ownershp or where the ta -
payer has not cosed out a osng venture. (Portand OU Co. v. Commssoner,
109 Fed. (2d), 79, 88.) Secton 112(b)5 derves from secton 202(c)3 of the
1921 ct. ( 2 Stat., 229, 230.) Its egsatve hstory shows that It was desgned
to permt read|ustments wthout present recognton of gan or oss by aow-
ng property to be transferred to a controed corporaton by an ndvdua, a
partnershp, a corporaton, or others. (See earngs, Senate Commttee on
Fnance, proposed Revenue ct of 1921, S ty-seventh Congress, frst sesson, May
9-27,1921, pages 536-537, 5 6, 557-558; Mag, Ta abe Income (1936), pages 123-
131.) If a transacton meets the requrements of secton 112(b)5, the bass of the
property n the hands of the acqurng corporaton s the same as t woud be
n the hands of the transferor. (Secton 113(a)8.) (See P. . rren d Son,
Inc., v. Commssoner, 116 Fed. (2d), 718.) smar resut obtans n case of a
transacton whch quafes as a reorganzaton. (See secton 113(a)7( ).)
nd the theory underyng the two basc provsons s the same. (Mer, en-
drcks, and verett, op. ct., pages 30 , 0 ; S. Rept. No. 398, S ty-eghth Congress,
frst sesson, Commttee Reports on the evenue cts, 1913-1938, C. . 1939-1
(Part 1), pages 278-279.) The cose reatonshp between secton 112(b)5 and the
reorganzaton provsons s further evdenced by the fact that they overap to
a degree. Thus a transacton whch meets the requrements of cause or cause
C of secton 112(g) may aso quafy under secton 112(b)5. In short, the reor-
ganzaton provsons do not furnsh the e cusve methods for securng a defer-
ment of gans or osses arsng out of transactons popuary known as corporate
read|ustments or reorganzatons. The nstant transacton comes fary wthn
the famy of busness read|ustments for whch secton 112(b)5 was desgned.
ence the fact that t can not meet the statutory standards of a reorganzaton
does not necessary mean that t can not quafy as an e change, any more than
the faure to satsfy one cause of the reorganzaton provsons means that
none can be satsfed.
ut the argument seems to be that even though there was an e change
whch met the requrements of secton 112(b)5, there was nevertheess a gan
whch s ta abe. That gan, t s suggested, arose from the acquston by the
ta payers of ther equtabe nterest n the propertes n substtuton for ther od
bonds. nd t s argued that unke the stuaton whch obtans under the
reorganzaton provsons ( everng v. abama sphatc Lmestone Co.,
supra), secton 112(b)5 covers ony the e change tsef and not the antecedent
steps n connecton wth a pan of reorganzaton. Thus the contenton seems
to be that snce a gan arose from a transacton whch was separate and dstnct
from and anteror to the e change of property for the new securtes, t must
be recognzed under the genera rue of secton 112(a). We e press no vew on
that contenton. The defcences were not assessed on that transacton but
ony upon the e change of stock and securtes n the new corporaton for bonds
of the od. We w not consder here for the frst tme the queston whether a
ta abty may have been ncurred under secton 112(a) by reason of the
earer transacton, a queston not fary wthn the ssues as framed by the
Commssoner and hence not decded beow. (Cf. everng v. Wood, 309 D. S.,
3 , 3 9.)
ffrmed.
S CTION 113(a). D UST D SIS FOR D T RMINING
G IN OR LOSS: SIS (UN D UST D) OF PROP RTY.
rtce 113(a) (2)-: Property transmtted by gft after
December 31, 1920.
R NU CT OF 1936.
Reguatons 9 , amended. (See T. D. 5137, page 110.)
. Rept. No. 350, S ty-seventh Congress, frst sesson : S. Rept. No. 275, S ty-seventh
Congress, frst sesson. Commttee Reports on the Revenue cts, 1913-1938 (C. . 1939-1
(Part 1), pages 175-176, 188-189.
For the resut whch woud otherwse obtan n such stuatons see Insurance Tte
Ouarantee Co. v. Commtsoner (36 Fed. (2d), 8 2 Ct. D. I S, C. . I -1, 279 (1930) ),
and cues cted.
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189 tt 131, rt. 131-8.
btce 113(a) (3)-1: Transfer n trust after December 31, 1920.
R NU CT OF 1936.
Reguatons 9 , amended. (See T. D. 5137, page 110.)
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
rtce 115-7: Stock dvdends.
R NU CT OF 1938.
Reguatons 9 , amended. (See T. D. 5110, page 160.)
S CTION 117. C PIT L G INS ND LOSS S.
rtce 117-1: Meanng of capta assets.
R NU CT OF 1936.
Gan from retrement of Chcago ont Stock Land ank bonds.
(See I. T. 3531, page 223.)
rtce 117-1: Meanng of capta assets.
R NU CT OF 1936.
cceptance by credtor of vountary conveyance of property, ncud-
ng property pedged as securty for the debt, n parta or n fu
satsfacton of the unpad porton of the ndebtedness; I. T. 3121 (C. .
1937-2,138) modfed and I. T. 3167 (C. . 1938-1,190) revoked. (See
I. T. 35 8, page 7 .)
SUPPL M NT C CR DITS G INST T .
S CTION 131. T S OF FOR IGN COUNTRI S ND
POSS SSIONS OF UNIT D ST T S.
rtce 131-8: Lmtatons on credt for foregn ta es.
R NU CTS OF 19S6 ND 1937.
Credt aowabe to domestc corporaton for ta es pad by foregn
subsdary. (See Ct. D. 1561, page 161.)
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1 5, rt. 1 5-1.
190
SUPPL M NT D. R TURNS ND P YM NT OF T .
S CTION 1 5. P N LTI S.
rtce 1 5-1: Penates. 19 2-3-10961
Ct. D. 1537
INCOM T R NU CTS OF 1932, 193 , ND 1936 D CISION OF SUPR M
COURT.
1. vason of Ta Indctment for Conspracy to oate, and fob
oaton of, Fedeba Statute Dstrbuton of Corporate
Dvdends Under Guse of Commssons Submsson to ury
of ueston of Reasonabeness of owance for Persona
Servces Suffcency of vdence.
In the prosecuton of certan sharehoders and e ecutves of a
corporaton for conspracy to voate, and for voaton of, secton
1 5 of the Revenue cts of 1932, 193 , and 1936, n attemptng to
evade Federa ncome ta es of the corporaton through a fraudu-
ent scheme whereby, under the guse of payng commssons, whch
were deducted from gross ncome, the corporaton dstrbuted dv-
dends deducton of whch the statute does not permt, t was not
error to submt to the |ury the queston of whether or not the
defendants wfuy attempted to make unreasonabe aowances for
persona servces, where from the evdence t appeared that some
such servces were performed. The evdence was suffcent to afford
the |ury a ratona bass upon whch to concude that the sums
deducted as commssons were more than a reasonabe aow-
ance for compensaton for the servces rendered.
2. Constructon of Pena Statute.
Secton 1 5 of the Revenue cts of 1932, 193 , and 1936, standng
aone, are not vague nor do they deegate pocy-makng powers to
ether court or |ury. The mere fact that a pena statute s so
framed as to requre a |ury upon occason to determne a queston
of reasonabeness s not suffcent to make t too vague to afford a
practca gude to permssbe conduct.
Supreme Court of the Unted States.
The Unted States of merca, pettoner, v. ames M. Ragen.
The Unted States of merca, pettoner, v. rnod W. ruse.
The Unted States of merca, pettoner, v. Lester . ruse.
On wrts of certorar to the Unted States Crcut Court of ppeas for the Seventh Crcut.
anuary 5, 19 2.
opnon.
Mr. ustce ack devered the opnon of the Court.
Secton 1 5 of the Revenue ct of 1932 provdes that 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 . ( 7 Stat., 217.) (There are dentca provsons In
the Revenue cts of 193 and 1936.) ( 8 Stat, 725; 9 Stat., 1703.) Pettoners
were ndcted, tred, and convcted n the dstrct court for conspracy to voate,
and for voaton of, ths provson. The crcut court of appeas, one |udge ds-
sentng, reversed. (Unted States v. Moasky. 118 Fed. (2d), 128.) ecause
questons of mportance n the enforcement of ths crmna statute and the ad-
mnstraton of the revenue aws were rased, we granted certorar. (313
U. S.( 557.)
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191
1 5, rt. 1 5-1.
In computng net corporate ncome sub|ect to ta , a deducton s permtted for
a the ordnary and necessary e penses pad or ncurred durng the ta abe
year n carryng on any trade or busness, ncudng a reasonabe aowance for
saares or other compensaton for persona servces actuay rendered .
(Sec. 23(a), Revenue cts of 1932, 193 , and 1936.) ( 7 Stat., 179; 8 Stat., 688;
9 Stat., 1658.) Dvdends dstrbuted from net corporate profts are not aow-
abe deductons. ut commssons, If ncurred as necessary busness e penses
and as a reasonabe aowance for persona servces actuay rendered, are deduct-
be from gross Income. The arger the aowabe deducton the smaer are the
net ta abe Income and the ta mposed. The frst four counts of the ndctment
set out attempts by the defendants to evade ncome ta es of the Consensus Pub-
shng Co. for the years 1933 to 1936, through a frauduent scheme whereby,
under the guse of payng commssons whch were deducted from gross ncome,
the corporaton dstrbuted dvdends deducton of whch the statute does not
permt. The ffth count sets out a conspracy to accompsh smar resuts for
the years 1929 to 1936.
fter an e amnaton of the evdence n the record ncudng numerous e hbts,
we are satsfed that the ury coud |ustfaby have found the foowng facts
to be true:
The Consensus Pubshng Co., an Inos corporaton, was organzed n 1929
to carry on the busness of preparng run-down sheets, day buetns contan-
ng nformaton on horse racng, and seng tht n to bookmakers. The orgna
stock ownershp was dstrbuted among rnod ruse (20 shares), ames Ragen,
Sr. (20 shares), Wam Moasky (30 shares), and Cecea Investment Co. (30
shares), a hodng company controed by Moses nnenberg, the domnant fgure
n severa other corporatons whch were engaged n enterprses connected wth
bettng on horse races. ruse and Ragen were e ecutves n other nnenberg
companes. Moasky aone ved n St. Lous, where Consensus conducted ts
prncpa busness operatons, but he deegated to one Gordon rooks, an empoyee
of another corporaton owned by Moasky, the |ob of coectng recepts, preparng
records and reports, and supervsng prntng for Consensus, work whch took
rooks an hour and a haf a day on the average e cept for the one day each
week when the preparaton of operatng reports for the Chcago offce requred
about three hours.
For severa years Consensus made a weeky dstrbuton of money to ts share-
hoders n drect proporton to ther hodngs. In the perod covered by the
ndctment, ony the 30 per cent of the dstrbuton gong to Cecea Investment
Co. was treated as dvdends n Consensus ta returns. The remanng 70 per
cent, athough referred to n some of the corporaton s confdenta weeky reports
to stockhoders durng the perod as dvdends, was nevertheess n ts Income
ta return deducted from gross ncome as commssons. The deductons thus
camed were 10,761 n 1929, 62,961 n 1930, 0 ,791 n 1931, 57,255 n 1932,
5 ,538 n 1933, 60,172 n 193 , 76,71 n 1935, and 119,756 n 1936. The book-
keepng system under whch 70 per cent of the funds remanng after payment of
e penses was charged as commssons was set up n 1929 n accordance wth
nstructons from rnod ruse.
In 193 , ruse, havng earned of a decson of the oard of Ta ppeas that
dstrbutons of profts as commssons woud not be aowed as a deductbe
e pense f made n accordance wth stock hodngs, set n moton a seres of
transactons retroactvey modfyng the reatonshp between Consensus and ts
stockhoders. e drected an empoyee to destroy the orgna stock book of the
company, ssue new stock certfcates bearng the date of ncorporaton (Septem-
ber 18, 1929), and then mmedatey to came the new certfcates and ssue a
snge certfcate for 100 shares to the Cecea Investment Co. In 1935 or 1936,
ruse ordered the drawng up of wrtten yeary contracts of empoyment for the
severa years from 1930 on between Consensus and the ndvduas to whom
commsson payments had snce the ncepton of the company been made. In
each contract, the compensaton was to correspond Identcay wth the amount
that had aready actuay been pad.
cept for deays n destroyng the orgna stock book and the orgna stock
certfcates, ths pan was prompty carred out. Moreover, corporate mnutes
were drawn up. appropratey back dated, whch set out the stock Issue and
the empoyment contracts as f they were actua events contemporaneous wth the
fase dates of recordng.
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192
mong the back dated contracts were severa between Consensus and the
respondent Lester ruse, son of rnod. These together wth a back dated
assgnment by rnod to Lester of hs contract of empoyment wth Consensus
were to afford ostensbe documentaton of a shft to Lester, after March, 1933,
of the share that had formery gone to rnod.1 Smary, after 1931, Con-
sensus pad the share that had formery gone to Ragen to Ragen s son. ere,
too, a set of back dated papers documentng the shft was fabrcated. fter
ther sons became the nomna recpents of commssons, ruse and Ragen
contnued to be connected wth the affars of Consensus. ruse, for e ampe,
drected the creaton of the spurous papers and records aready descrbed, and
Ragen from tme to tme at east unt 1935 sgned commsson checks of
Consensus whch were pad n reguar course.
If, from the foregong and other supportng evdence In the record, the |ury
coud have found that any one of the defendants had, wth the Intentona
cooperaton of the others, receved commssons wthout renderng any
servces whatsoever, It woud have been possbe for the tra |udge to have
submtted the case to the ury wthout cang upon It to decde any questons
of reasonabeness of compensaton for servces actuay rendered. If, however,
each defendant had performed some servce for the corporaton, the |ury woud
have had to consder whether or not the commssons had ntentonay
been made e cessve so that a porton of payments made n the guse of meet-
ng e penses actuay consttuted a dstrbuton of dvdends. There was ev-
dence whch, f beeved, tended to estabsh that each defendant had performed
some servce, athough of an rreguar and undefned nature. ence, t seems
to us entrey proper for the tra |udge to have submtted the case to the ury
wth a charge not necessary cang for a determnaton of whether a or
none of the commssons pad to each defendant were dvdends, but per-
mttng a determnaton of whether the commssons were ntentonay made
to ncude substanta amounts whch shoud have been treated as dvdends.
Upon such a charge, the |ury found rnod ruse and Ragen guty on a fve
counts, and Lester ruse guty on counts and 5.
In the charge as gven, the crcut court of appeas found reversbe error.
The gst of the court s argument Is contaned In the foowng e cerpt from
the opnon:
We have reached the concuson that where a statute permts a reasonabe
deducton for servces, a crmna prosecuton can not be mantaned by proof
other than that such servces were not rendered. It Is not suffcent to aege
or prove that a deducton camed for servces s unawfu because the amount
1 Or to hs wfe. From ugust, 1932, to March, 1933, Consensus dstrbuted 20 per cent
of Its earnngs to Mrs. rnod ruse. No e panaton Is apparent In the record.
ecause of ths and other crcumstances showng Ragen s contnued partcpaton n the
affars of Consensus, we concude that the argument, separatey made on hs behaf, that
there was Insuffcent evdence to estabsh hs connecton wth any scheme to evade ta es.
Is wthout mert.
The cruca portons of the dstrct |udge s charge to the ury are as foows :
If these sums dstrbuted were dstrbuted as a part of the profts of the corporaton,
then they shoud have been accounted for n the ncome ta report to the Consensus com-
pany as profts and upon that the corporaton shoud have pad a ta , whch It dd not.
If, on the other hand, they were Intended to and represented actua bona fde compen-
saton to empoyes of ths corporaton n the ordnary operaton of ts busness ; n other
words, f they were ordnary and necessary e penses of the operaton of the busness, then
they were propery deductbe as they were deducted and no ta was due upon them.

We are concerned ony wth the queston of whether these men have entered Into a con-
spracy, nto a scheme whereby as a resut ths corporaton, the Consensus company, under
toe guse of commssons, dstrbuted to Its sharehoders sums that actuay represented a
dvson of profts.
If these defendants had that knd of pan and carred It out. If they wfuy and Inten-
tonay entered Into such an arrangement, there woudn t be any queston of ther gut.

It Is not necessary for the Government under ths Indctment to prove that a of the sums
bo dstrbuted to these defendants were profts. It s not necessary that the Government
prove a of the fgures precsey as they are charged In the ndctment. It Is suffcent If
you fnd beyond a reasonabe doubt that the defendants Intentonay dverted profts of
ths concern, n the amount charped n the ndctment or substanta parts thereof, dverted
them from the form of profts and receved them n the form of commsson.
1 Moasky, ames Ragen, r., and the Consensus Pubshng Co. were aso found guty.
The Government has not sought revew of the crcut court of appeas reversa of the con-
vcton of Moasky and ames Ragen, r., whch Invoved addtona Issues of no reevance
to the respondents here. The corporaton dd not take an appea from the |udgment of the
dstrct court.
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193
t 1 5, rt. 1 5-1.
charged s unreasonabe. Such a charge woud eave to the trer of the facts
the responsbty for f ng the standard by whch a defendant s gut woud be
determned. The standard woud vary accordng to the vews of dfferent courts
and |ures. Such a theory woud be voatve of the defendant s consttutona
rghts, and vod. (Unted States v. L. Cohen Grocery Co., 255 U. S., 81 ;
Internatona arvester Co. v. entucky, 23 U. S., 216, 221 ; Cons v.
entucky, 23 U. S., 63 , 638 )
Determnaton of aowabe deductons by reference to a standard of rea-
sonabeness s not unusua under Federa Income ta aws. For e ampe, the
deductons aowed for deprecaton and obsoescence, for bad debts, and for
ordnary and necessary busness e penses (other than compensaton for servces)
are desgnated n the Interna Revenue Code as reasonabe. (53 Stat., 1,
sees. 23(1), 23(k), 23(a).) If, as the opnon beow suggests, the ony
queston that can propery be submtted to the |ury s whether the entre
deducton s fabrcated, an unconsconabe ta payer can mmunze hmsef from
the crmna sanctons for ta evason by the smpest of e pedents. e need
ony fnd a egtmate tem of deducton and then pad t as much as hs purpose
requres. y transformng the queston Shoud any deducton have been
made nto Was the deducton made n e cess of a reasonabe aowance
he can, f the theory accepted beow be correct, argey destroy the deterrent
effect of a pena statute passed by Congress.
We have concuded, however, that the ground of decson beow s untenabe.
The mere fact that a pena statute s so framed as to requre a |ury upon
occason to determne a queston of reasonabeness s not suffcent to make t
too vague to afford a practca gude to permssbe conduct. (Cf. Nash v.
Unted States, 229 U. S., 373.) The cases cted by the court of appeas affrm
no such proposton. In the Cohen Grocery case, ths Court hed a convcton
under secton of the Lever ct ( 1 Stat., 297, 298) unconsttutona because
the statute eft open the wdest concevabe nqury, the scope of whch no
one can foresee and the resut of whch no one can foreshadow or adequatey
guard aganst, and because an attempt to enforce the secton woud be the
e act equvaent of an effort to carry out a statute whch n terms merey
penazed and punshed a acts detrmenta to the pubc Interest when un|ust
and unreasonabe n the estmate of the court and |ury. (Unted States v.
Cohen Grocery Co., supra, 89.) In the Internatona arvester case, ths Court
e pressed the vew that assurance that the State statute there n ssue was com-
ped wth caed for gfts that manknd does not possess. (Internatona
arvester Co. v. entucky, supra, 22 .) nd n the Cons case, the same
statute was sad to ca for a determnaton of conduct not accordng to the
actuates of fe, or by reference to knowabe crtera, but by specuatng upon
magnary condtons. (Cons v. entucky, supra, 638.)
No such unworkabe standards are nvoved here. Secton 1 5 of the Revenue
ct of 1932 standng aone s not vague nor does It deegate pocy makng
powers to ether court or ury. It decares that any person who wfuy
attempts n any manner to evade or defeat any ta mposed by the ct
sha be guty of a feony and specfes penates n addton to
those otherwse provded by aw. That such acts of bad fath are not beyond
the ready comprehenson ether of persons affected by the ct or of |ures
caed upon to determne voatons need not be eaborated. Nor does the
partcuar mode of evason here aeged, ntentona deducton of dvdends n
the guse of compensaton for persona servces, so transform the nature of
the offense as to make the actors ess aware that they are commttng t or
ures ess competent to detect t. The statutory specfcaton of permssbe
deducton here n queston Is of ong standng. For years thousands of corpo-
ratons have fed ncome ta returns n accordance wth the drecton to deduct
a reasonabe aowance for saares or other compensaton for persona servce
actuay rendered, and there has not been any apparent genera confuson
bespeakng nadequate statutory gudance. fndng of unconsttutona un-
certanty n ths secton of the ct as apped here woud be a negaton of
e perence and common sense.
On no constructon can the statutory provsons here nvoved become a trap
for those who act n good fath. mnd ntent upon wfu evason s ncon-
sstent wth surprsed Innocence. (Cf. Gorn v. Unted States, 312 U. S., 19:
Unted tatet v. Moatky, supra, 139.
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19
ygrade Provson Co. v. Sherman. 206 U. S., 97; Omaechevarra v. Idaho,
2 6 U. S.. 3 3.) nd the charge gven by the tra court ampy nstructed
the ury that scenter s an essenta eement of the offense.
We concude that t was not error to submt to the |ury the queston of
whether or not the respondents attempted to make unreasonabe aowances
for persona servces. The respondents, however, rase a further ob|ecton
gong not to the proprety of such a submsson as a matter of aw, but to the
nsuffcency of the evdence upon whch the |ury coud have found an answer
to the queston submtted. They contend that the record dscoses that the
recpents of commssons performed some servces; that the record fas to
show that the servces dscosed were the ony servces rendered: that there
was no drect testmony as to the tota amount of servces rendered or the
reasonabe vaue thereof; and that, therefore, the |ury had no ratona bass
upon whch to concude that the sums deducted as commssons were more
than a reasonabe aowance for compensaton for the servces rendered. We
must re|ect ths contenton.
The busness conducted by Consensus, a busness whch, accordng to the test-
mony of a person who was n mmedate charge of ts ma|or operatons, normay
requred ony an hour and a haf day of managera supervson, woud hardy
seem to ca for addtona e ecutve servces worth what Consensus pad In
commssons. The same wtness testfed that he had never seen some of the
recpents of commssons, and that hs ony contact wth one of them was two
teephone conversatons. Ths testmony, too, bees partcpaton by the respond-
ents n the busness actvtes of Consensus to a degree |ustfyng payment of the
hgh commssons equa on the average to about haf of gross revenues and
amountng each year to severa tmes a other wages and saares as a qud,
pro qud for ther servces. Moreover, there s the addtona crcumstance,
damagng to the respondents contenton, that year n and year out, 30 per cent
of earnngs after deducton of e penses was pad to the Cecea Investment Co. as
dvdends, and 70 per cent to the respondents or other ndvduas as comms-
sons. Ths unformty n the computaton of compensaton Is dffcut to
reconce wth the varatons n e tent and knd of persona servces whch one
woud e pect to fnd n accounts refectng bona fde aowances for persona
servces. Further, there s the crcumstance that the commsson payments
were aways n proporton to orgna stock hodngs. nd darkenng the whoe
pcture s the atmosphere of purposefu conceament evnced by the destructon
of some mportant corporate papers and the fabrcaton of others. We are con-
vnced that a of ths s suffcent to support a fndng by. the ury that the re-
spondents wfuy attempted to make unreasonabe aowances for persona
servces.
The respondents aso urge that there was a fata varance between the ndct-
ment and the proof n that the ndctment aeges that the commsson payments
were actuay dvdends In ther entrety whereas the evdence Indcates that
some servces were performed. The ffth count of the Indctment does refer to
a of the moneys pad by vrtue of the so-
caed empoyment contracts as In truth and n fact, dstrbutons of profts
and dvdends. ut the gravamen of the charge s dstrbuton of dvdends n
the guse of commssons, and the respondents can not fary cam that they
were not adequatey apprsed of the nature of the offense. ny varance whch
e sted, at most a matter of the e tent of the aeged ta evason, nvoves no
eements of surprse pre|udca to the respondents efforts to prepare ther
defense. (Cf. erger v. Unted States, 295 U. S., 78; ennett v. Unted States,
227 U. S.. 333.)
The respondents have made further contentons whch we concude after con-
sderaton are wthout mert.
The |udgment of the crcut court of appeas s reversed and that of the dstrct
court affrmed.
It s so ordered.
Mr. ustce Robebts, Mr. ustce Mubphy, and Mr. ustce ackson took no
part n the consderaton or decson of ths case.
In 1936, for e ampe, commssons amounted to 119,75C as compared wth 8,810
pad out for other wages and saares.
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195 | 162, rt. 162-1.
SUPPL M NT . ST T S ND TRUSTS.
S CTION 161. IMPOSITION OF T .
rtce 161-1: Imposton of the ta .
R NU CT OF 1036.
Trust ncome sub|ect to uncondtona demand of ta payer-bene-
fcary. (See G. C. M. 2316 , page 168.)
S CTION 162. N T INCOM .
rtce 162-1: Income of estates and trusts.
R NU CT OP 1936.
Trust ncome sub|ect to uncondtona demand of ta payer-bene-
fcary. (See G. C. M. 2316 , page 168.)
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22(a), rt. 22(a)-20. 196
INCOM T RULINGS. P RT III.
R NU CTS OF 1935 ND 193 OR PRIOR CTS.
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION OF N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D FINITION.
rtce 22(a)-20: Income to essor corporaton 19 2-5-10978
from eased property. Ct. D. 15 0
INCOM T R NU CTS OF 1928, 1932, ND 193 D CISION OF SUPR M
COURT.
1. Gross Income Payments of Dvdends by Lessee to Stock-
hoders of Lessor, Under Lease n Perpetuty Wth No
Defeasance Cause Federa Ta es Pad on Such Dv-
dends Income to Lessor.
Under the provsons of a ease n perpetuty, wth no defeasance
cause, the essee of raroad property pad drecty to the stock-
hoders of the essor corporaton annua dvdends on the par vaue
of ts shares wthout deducton for any Federa ta es, and pad a
ta es due to the Unted States on account of such dvdends.
ed: The dvdend payments made to the essor s stockhoders and
the Federa ncome ta es pad on account thereof consttute ncome
reazed by the essor and are propery ta abe to t.
2. Decson Foowed.
Lucas v. ar (281 U. S., I) (1930), foowed.
S. adty of Reguatons.
rtce 70 of Reguatons 7 and 77, and artce 22(a)-20 of Regu-
atons 86, are vad.
. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, Seventh
Crcut (118 Fed. (2d), 17 (19 1), reversed.
Supreme Court of the Unted States.
The Unted States of merca, pettoner, v. oet Chcago Raroad Co.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Seventh Crcut.
anuary 19, 19 2.
OPINION.
Mr. ustce Dougas devered the opnon of the Court.
y an ndenture denomnated a ease respondent n 186 granted, demsed
and eased to Chcago ton Raroad Co. a of Its raroad property, rea
and persona. The ease was In perpetuty upon specfed terms and cond-
tons. The Chcago ton Raroad Co. covenanted and agreed, nter aa, to
guarantee and pay quartery to the hoders of the 15,000 shares of capta
stock of respondent an annua dvdend of 7 per cent on the par vaue of the
shares; to depost wth a desgnated depostory specfed monthy sums to be
paced to the credt of the stockhoders and to be hed as a fund for the purpose
of payng the dvdends; to pay the dvdends wthout any deducton for any
Federa ta whatsoever; to pay a ta es whch may be due to the Unted
States on account of sad dvdend so pad from tme to tme ; and to pedge
to respondent 87 parts out of 257 of the gross recepts of the ne between the
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( 22(a), rt. 22(a)-20.
ctes of ton and Chcago for the purpose of securng the performance of ts
varous covenants. The ease contaned no defeasance cause.
The annua dvdend s 7 per share and totas 105,000. Ths amount has
been pad drecty to respondent s stockhoders every year snce 186 by Ch-
cago ton Raroad Co. unt acquston of the property n 1931 by the ton
Raroad Co., and snce then by the atter company. The dspute here s over
Federa ncome ta es for the years 1931, 1932, 1933, and 193 . Respondent, a
corporaton organzed and e stng under the aws of Inos, fed ts ncome
ta return for each of those years reportng the 105,000 of dvdends pad ts
sharehoders as ts ncome. The resutng ta was pad each year by the ton
Raroad Co. In addton the atter pad each year for respondent an add-
tona ta on the amount of the ncome ta on 105,000 on the theory that the
atter consttuted addtona ta abe Income to respondent. Respondent fed
cams for refund for the addtona ta pad n 1931 and for a the ncome
ta es pad .on ts behaf for the other years n queston on the theory that the
ncome on whch those ta es were pad was not reazed by t. On re|ecton
of those cams by the Commssoner respondent nsttuted sut n the dstrct
court. That court rendered |udgment for the pettoner. The crcut court of
appeas reversed, one |udge dssentng. (118 Fed. (2d), 17 .) We granted
the petton for certorar because of the confct between that decson and the
governng prncpes of God d Stock Teegraph Co. v. Commssoner (83 Fed.
(2d), 05 Ct. D. 119 , C. . 1937-1, 262 ), Unted States v. Northwestern Tee-
graph Co. (83 Fed. (2d), 68), and Pacfc d tantc Teegraph Co. v. Comms-
soner (83 Fed. (2d), 69 Ct. D. 1195, C. . 1937-1, 266 ), decded by the Crcut
Court of ppeas for the Second Crcut.
Respondent urges, and the court beow hed, that ths so-caed ease n per-
petuty wthout a defeasance cause dvested respondent of a rght, tte and
nterest n the property and vested a fu and ndefeasbe tte n the grantee.
(See uck v. Chcago d ton Raroad Co., 86 111.. 352, 35 -355; Chcago, urng-
ton d uncy R. R. Co. v. oyd, 118 111.. 73.) Respondent aso argues that the
Indenture of 186 vested a rghts to payment of dvdends n Its stockhoders and
dvested t of any rght to, or contro over, such payments. Respondent therefore
contends that a corporaton whch does not own or contro property and has no
rght to, or contro over, any Income from the property can not be n recept of
ncome, constructvey or otherwse.
Such consderatons do not dspose of ths controversy. In Lucas v. ar (281
U. S., I), ths Court hed that a husband s saary was ta abe to hm though by
contract wth hs wfe haf of t vested In her when pad. Mr. ustce omes sad
(pages 11 -115) : There s no doubt that the statute coud ta saares to those
who earned them and provde that the ta coud not be escaped by antcpatory
arrangements and contracts however skfuy devsed to prevent the saary when
pad from vestng even for a second n the man who earned t. That seems to us
the mport of the statute before us and we thnk that no dstncton can be taken
accordng to the motves eadng to the arrangement by whch the fruts are
attrbuted to a dfferent tree from that on whch they grew.
Precsey that approach was taken n artce 70 of Treasury Reguatons 7 .
promugated under the Revenue ct of 1928. It provdes n part:
Where a corporaton has eased ts property n consderaton that the essee
sha pay n eu of other renta an amount equvaent to a certan rate of dvdend
on the essor s capta stock or the Interest on the essor s outstandng ndebted-
ness, together wth ta es, nsurance, or other f ed charges, such payments sha
be consdered renta payments and sha be returned by the essor corporaton as
ncome, notwthstandng the fact that the dvdends and nterest are pad by the
essee drecty to the sharehoders and bondhoders of the essor. The fact that a
corporaton has conveyed or et ts property and has parted wth ts management
and contro, or has ceased to engage n the busness for whch It was orgnay
organzed, w not reeve t from abty to the ta .
That ong standng reguaton1 s pany appcabe here. It covers varous
knds of conveyances and eases ncudng those where the grantor or essor has
parted wth a rghts of management and contro over the property. If vad, t
governs ths case whatever may be the ega ncdents of the 186 ndenture under
Inos aw. Its vadty seems cear. It s a permssbe defnton of one tem of
1 Ths reguaton dates from artce 80, Treasury Reguatons 33 (191 ed.). nd sea
artce 102. Treasury Reguatons 33 (1918 ed.). Provsons smar to those quoted In the
te t are contaned In artce 70, Treasury Reguatons 77, promugated under the Revenue
ct of 1932, and In artce 22(a)-20 of Treasury Reguatons 86, promugated under the
Revenue ct of 193 .
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23(a), rt. 23(a)- .
198
gross ncome under secton 22(a) of the Revenue ct of 1928 ( 5 Stat., 791, 797.)
Payments made drecty to sharehoders by the essee or transferee of corporate
property are propery recognzed as Income to the corporaton by reason of the
reatonshp of a corporaton to ts sharehoders. The fact that there s an antc-
patory arrangement whereby the ta payers s not even a condut of the payments
Is no more sgnfcant n ths type of case than t was n Lucas v. ar, supra.
The reatonshp between respondent and Its sharehoders ts an abdng one.
They obtan the dvdend payments because of ther status as sharehoders.
questons of the rghts of credtors asde, there can be no doubt that a corporaton
may normay dstrbute ts assets among Its stockhoders. When t undertakes to
do so, ts act s nonetheess a corporate act though ts sharehoders receve new
contractua rghts enforceabe by them aone aganst the transferee. That s to
say ther rghts to receve the proceeds on the dsposa of corporate assets are
strcty dervatve n orgn. The fact that the consderaton s made dstrbutabe
to them drecty over a ong perod of tme rather than n one ump payment does
not ater the character of those rghts. In each case ther cams to the proceeds
fow from the corporaton and are measured by the stake whch they have n t.
For the renta or purchase payments for the property conveyed by respondent
coud not awfuy be pad to another wthout Its authorty; and t coud not aw-
fuy dspose of them to others wthout the consent of ts sharehoders. (Cf. Ray-
oestos-Manhattan, Inc., v. Unted States, 296 U. S., 60 Ct. D. 1039. C. . I -2,
00 (1935) .) The fact that the corporaton may reman In e stence ony to
mantan a stock transfer book s mmatera. The umbca cord between t and
Its sharehoders has not been cut. The dstrbuton made s n performance of
the obgaton owed by the corporaton to them. For these reasons the reguaton
In queston merey conforms to accepted ega theory. The concuson that the
dvdend payments made to respondent s stockhoders were ncome reazed by t
kewse marks no Innovaton In ncome ta aw. That s ndcated not ony by
Lucas v. ar, supra, but aso by those cases whch hod that, Income s not any
the ess ta abe ncome of the ta payer because by hs command t Is pad drecty
to another n performance of the ta payer s obgaton to that other. (Ray-
bestos-Manhattan, Inc., v. Unted States, supra, 6 , and cases cted.) The reach
of the ncome ta aw s not to be demted by technca refnements or mere
formasm. everng v. Cfford, 309 U. S., 331 Ct. D. 1 , C. . 19 0-1, 105 .)
Snce the dvdend payments made to respondent s stockhoders were Income
reazed by t, the Federa ncome ta on those sums whch was pad by the ton
Raroad Co. was kewse Income ta abe to respondent. (Od Coony Trust Co.
v. Commssoner, 279 U. S., 716 Ct. D. 80, C. . III-2, 222 (1929) ; Unted States
v. oston d Mane R. Co., 279 U. S., 732 Ct. D. 73, C. . III-2, 315 (1929).
The |udgment of the crcut court of appeas s reversed and that of the dstrct
court affrmed.
It Is so ordered.
Mr. ustce Roberts dd not partcpate In the consderaton or decson of ths
case.
S CTION 23(a). D DUCTIONS FROM GROSS
INCOM : P NS S.
rtce 23(a)-: usness e penses. 19 2-13-11039
Ct. D. 15 7
INCOM T R NU CT OF 193 D CISION OF SUPR M COURT.
L Deductons Saes Commssons Purchase and Sae of Se-
curtes Ordnary and Necessary usness pense Offset
ganst Se no Prce.
Saes commssons pad n 193 and 1935 by a ta payer engaged n
the busness of buyng and seng securtes as n trader on hs own
account are not deductbe as ordnary nnd necessary e penses under
secton 23(a) of the Revenue ct of 193 , but are to be treated as
Lke defntons of cross Income are contaned In secton 22(a) of the Revenue ct of
1932 ( 7 Stat., 169, 178) and In secton 22(a) of the Revenue ct of 193 ( 8 Stat., 680.
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199
U 23(a), rt. 23(a)-.
offsets aganst seng prce reevant ony to the determnaton of
capta guns or o ses. The cause when such commssons are not
an ordnnry and necessary busness e pense. frst appearng In
artce 281 of Reguatons 77 and retaned n artce 2 -2 of R ga-
tons 86, was ntended to be and s controng ony n the case of
deaers n securtes.
2. Decson ftbmed.
Decson of the Unted States Crcut Court of ppeas, Nnth
Crcut (19 1) (119 Fed. (2d), 667), reversng, as to hs Issue, de-
cson of the Unted States oard of Ta ppeas (19 0) ( 1 . T. .,
120 ), affrmed.
Supreme Court of the Unted States.
doph . Spreckes, pettoner, v. Guy T. everng, Commssoner of Interna
Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut.
March 16,19 2.
OPINION.
Mr. ustce ack devered the opnon of the Court.
Durng 193 and 1935, the pettoner bought and sod stocks, bonds, and com-
modtes. In connecton wth the saes, he pad seng commssons to brokers,
and n hs books these commssons were deducted from seng prce before net
proft or oss was determned. In hs ncome ta returns for 193 and 1935,
he treated the commssons smary, not makng deductons for them as ordnary
and necessary busness e penses. In 1939, however, In the course of proceedngs
before the oard of Ta ppeas,1 the pettoner asserted that he was entted
to ta refunds for the reason that hs faure to make deductons for the com-
mssons had resuted n overpayment n both years. The oard sustaned hs
contenton In part, hodng that the seng commssons coud propery have been
deducted as ordnary and necessary busness e penses, that the refund camed
for 1935 shoud be aowed, but that the refund camed for 193 was barred by
the appcabe statute of mtatons. ( 1 . T. ., 120 .) The crcut court of
appeas reversed, hodng that the camed deductons for seng commssons
were not permssbe, and fndng t unnecessary therefore to determne whether
the refund cam for 193 was tmey. (119 Fed. (2d), 667.) ecause of a
confct In decsons of crcut courts of appea, we granted certorar to consder
the queston : re saes commssons pad by a ta payer engaged n the busness of
buyng and seng securtes deductbe as ordnary and necessary e penses under
secton 23(a) of the Revenue ct of 193 , or are they to be treated as offsets
aganst seng prce reevant ony to the determnaton of capta osses or gans
In everng v. Wnm (305 U. S., 79) we hed that a ta payer who bought
and sod securtes coud not deduct the commssons pad on hs purchases as a
busness e pense. though the Wnm case arose under the Revenue ct of
1932, the statutory provsons and reguatons there reevant are Identca wth
those agan n controversy here. nd the concuson we reached there that
a genera reguaton desgnatng commssons as one of a ong st of deduct-
1 These proceedngs had been Intated In connecton wth other Issues, not reevant here.
Wth the decson beow and Commssoner v. Covngton (120 Fed. (2d), 768 (C. C. .
5)). compare Wnm v. Comm toner (93 Fed. (2d), 9 (C. C. . 2)) and Neuberger v.
Commttoner (10 Fed. (2d), 8 9 (C. C. . 2)).
though the pettoner aeges that some of the commssons were pad on saes of
commodtes. It does not appear from the record that the pettoner asked for separate
treatment of these commssons before ether the oard of Ta ppeas or the crcut court
of appeas. Nor was such separate treatment requested before ths Court.
8 Stat.. 680, 688. The statute provdes :
In computng net Income there sha be aowed as deductons :
(a) nsfs. the ordnary and necessary e penses pad or Incurred durng the
ta abe year In carryng on any trade or busness. Incudng a reasonabe aowance for
saares or other compensaton for persona servces actuay rendered.
mong the Items Incuded n busness e penses arc commssons
advertsng and other seng e penses . ( rtce 121 of Treasury Reguatons
77, under the Revenue ct of 1932 ; artce 23(a)- of Treasury Reguatons 88, under the
Revenue ct of 193 .)
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23(a), rt. 23(a)- .
200
be busness e penses s not controng n the face of a specfc reguaton per-
tanng to commssons on securtes transactons s equay appcabe here.
The specfc reguaton pertanng to securtes transactons provdes:
Commssons pad n purchasng securtes are a part of the cost prce of such
securtes. Commssons pad n seng securtes, when such commssons are
not an ordnary and necessary busness e pense, are an offset aganst the seng
prce.
If there s any |ustfcaton for treatng saes commssons dfferenty from
purchase commssons, t must depend upon the sgnfcance of the cause when
such commssons are not an ordnary and necessary busness e pense. Ths
cause frst appeared n Treasury Reguatons 77, accompanyng the Revenue ct
of 1932. In the ncome ta reguatons pror to that tme, t was consstenty pre-
scrbed that commssons pad on purchases and saes of securtes were to be
treated as part of the cost or seng prce and were not otherwse to be deductbe.1
nd n everng v. Unon Pacfc Go. (293 U. S., 282, 286), ths Court e pressy
recognzed that such commssons have been consstenty treated not
as tems of current e pense, but as addtons to the cost of the property or
deductons from the proceeds of sae.
What, then, s the sgnfcance of the quafyng cause frst appearng n the
reguatons of 1932, and what effect s to be gven to t Pror to the forma
adopton of the reguatons of 1932, the Commssoner of Interna Revenue per-
mtted one e cepton to what appears to have been an otherwse unform practce
of treatng commssons on the saes of securtes as mere offsets aganst seng
prce. Ths e cepton was made n the case of the deaer n securtes, one who
as a merchant buys securtes and ses them to customers wth a vew to the
gans and profts that may be derved therefrom. 1 It refects the vew that
there are practca consderatons of accountng convenence whch make t as
dffcut for such deaers n many nstances to set commssons off aganst the
proceeds of ndvdua saes as It woud be for the merchant of other wares
to treat hs seng e penses ony as a seres of subtractons from the seng
prce reazed on partcuar tems of hs stock. Incorporaton of the cause
when such commssons are not an ordnary and necessary busness e pense
was ntended to provde forma recognton for an estabshed busness usage,
based on the pecuar necesstes of securtes deaers, a usage to whch the Com-
mssoner had aready gven nforma acquescence.1 For the casua buyer and
seer of securtes, or even for the arge scae trader on hs own account, as
here, the practca obstaces to treatng saes commssons as offsets aganst
seng prce do not e st. In ths very case, for e ampe, the ta payer apparenty
found t more convenent to foow ths method n keepng hs own busness
records.
We therefore concude that the cause when such commssons are not an
ordnary and necessary busness e pense was ntended to be and s controng
ony n the case of securtes deaers. In the case of a trader on hs own account
where there are no compeng practca grounds for treatng saes commssons as
such an e pense, we fnd no persuasve reason for dstngushng, under the statute
and reguatons, between saes commssons ke those before us and purchase
commssons ke those of the Wnm case. The |udgment of the court beow s
accordngy affrmed.
Mr. ustce ackson took no part n the consderaton or decson of ths case.
rtce 282 of Treasury Reguatons 77, under the Revenue ct of 1032; artce 2 -2 of
Refatons 86. under te Revenue ct of 193 .
7 See. e. g., artce 8. paragraph 10, of Treasury Reguatons 33, revsed, under the Revenue
ct of 1916 : artce 203 of Treasury Reguatons 5, under the Revenue ct of 1918.
See artce 22(c)-5 of Treasury Reguatons 86, under the Revenue ct of 193 .
See ureau of Interna Revenue G. C. M. 15 30 C. . I -2, 59 (1935) .
10 Ibd.
u s the Government ponts out In Its bref, a deaer s ta abty under the Revenue
cts of 1932 and 193 woud ordnary have been the same whether the commssons he pad
on saes were treated as deductbe busness e penses or offsets aganst seng prce. For
n genera, hs gnns or osses woud not have been capta gans or osses as denned In those
cts. (See secton 101 (c)8 of the Revenue ct of 1932, 7 Stat., 169, 192 ; secton 117(b)
of the Revenue ct of 193 , 8 Stat. 680. 71 .)
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201
23(k), rt. 23(k)-3.
S CTION 23(c). D DUCTIONS FROM GROSS
INCOM : T S G N R LLY.
rtce 23(c)-1: Ta es.
R NU CTS OF 1928, 1932, ND 193 .
Gasone and motor fue ta es mposed by the State of Lousana.
G. C. M. 8936 (C. . -, 110 (1931)) and G. C. M. 1 970 (C. .
I -2, 69 (1935)) revoked. (See G. C. M. 22998, page 50.)
rtce 23(c)-1: Ta es.
R NU CTS OF 1928, 1932, ND 193 .
Certan Lousana gasone and motor fue ta es. Retroactve app-
caton of G. C. M. 22998 see page 50, ths uetn . (See I. T. 3526,
page 52.)
rtce 23(c)-: Ta es.
R NU CT OF 1928.
Date of accrua of New York Cty rea estate ta es. I. T. 283
(C. . III-2, 189 (193 )), revoked. (See I. T. 3527, page 53.)
S CTION 23 (k). D DUCTIONS FROM GROSS
INCOM : D D TS.
rtce 23(k)-: ad debts.
R NU CT OF 193 ND PRIOR R NU L WS.
cceptance by credtor of vountary conveyance of property, ncud-
ng property pedged as securty for the debt, n parta or n fu
satsfacton of the unpad porton of the ndebtedness; I. T. 3121 (C. .
1937-2, 138) modfed. (See I. T. 35 8, page 7 .)
rtce 23(k)-3: Uncoectbe defcency upon 19 2-18-11078
sae of mortgaged or pedged property. Ct. D. 155
INCOM T R NU CT OF 193 D CISION OF COURT.
Deducton Loss ad Debt mount Deductbe.
The ta payer n 1930 oaned a sum of money upon a promssory
note secured by certan shares of stock and a mortgage upon cer-
tan rea property. y 193 the debtor had apsed Into defaut In
payment of the nterest on the note and became denquent In pay-
ment of ta es on the rea estate, and the ta payer, n consderaton
of a deed to the mortgaged property, canceed the debtor s n-
debtedness to her, returned the stock to hm, and n that year
charged off the ndebtedness on her books, whch she kept on the
cash recepts and dsbursements bass. ed: The transacton re-
suted n a bad debt for whch the. ta payer was entted to a
deducton n 193 , under secton 23(k) of the Revenue ct of 193 ,
n the amount of the dfference between the sum due and the far
market vaue of the rea property.
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23(k), rt. 2300-3.
202
Unted States Crcut Court of ppeas fob the Nnth Crcut.
Commssoner of Interna Revenue, pettoner, v. ma de retteve Spreckes,
respondent.
120 Fed. (2d), 517.
Upon petton to revew a decson of the Unted States oard of Ta ppeas.
efore Wbur, Garrecht, and eay, Crcut udges.
une 12, 19 1.
OPINION.
Garrecht, Crcut udge: The snge queston presented by ths petton for
revew, as stated by the oard of Ta ppeas s whether a transacton n
whch the ta payer surrendered promssory notes and coatera securty, n con-
sderaton of a deed to certan rea estate, aso mortgaged to her as securty for
the notes, resuted n a capta oss, an ordnary oss, or a bad debt.
The oard found the facts to be substantay as foows:
une 10, 1930, the ta payer, a resdent of San Francsco, Caf., oaned to her
brother-n-aw, Rudoph Spreckes, upon hs promssory note, the sum of 100,-
000, due one day after date wth nterest at 5 per cent, secured by 10,000 shares
of capta stock of Rea Property Investment Corporaton. Rudoph Spreckes
was the owner of a of the capta stock of sad corporaton. In December,
1930, the ta payer, consderng certan transactons entered nto by Rudoph
Spreckes mpared the vaue of the coatera, demanded and receved from
Rudoph Spreckes as addtona securty, a mortgage upon certan rea property
known as the Sobre sta farm, ocated n Sonoma County, Caf.
y 193 Rudoph Spreckes had apsed nto defaut n payment of the nterest
on the 100,000 note and the ta es on the Sobre sta farm became denquent.
In 1933 ma de retteve Spreckes pad ta es on the Sobre sta farm to the
amount of 6,650.98, n order to protect her mortgage. She demanded payment
of her note and threatened forecosure. Rudoph offered to convey the farm to
ma de retteve Spreckes f she woud cance the note and return to hm the
10,000 shares of stock coatera. fter Investgaton of the varous factors, she
concuded (and the oard found) that the stock of Rea Property Investment
Corporaton was vaueess; that Rudoph s fnanca condton was such that no
recovery coud have been made by her under a defcency |udgment shoud she
forecose the mortgage on the farm. Thereafter, on May 1 , 193 , she took a
deed to the farm from Randoph Spreckes, canceed hs ndebtedness to her and
returned to hm the stock n Rea Property Investment Corporaton. On that
date the far market vaue of Sobre sta farm was 37,152. fter recevng
the deed, the ta payer, who kept her books and made her ncome ta returns on
the cash recepts and dsbursements bass, charged off on her books the n-
debtedness of Rudoph Spreckes.
s noted above. ma de retteve Spreckes pad out 6,650.98 n ta es n
1933 to protect her securty. On May 1 , 193 , there were addtona ta es
accrued of 1,220.17, nsurance premum e pred of 86.25, whch, wth the
100,000 orgnay oaned, amounted to a tota debt of 107,957.39. From that
amount the ta payer deducted 37,152, as the far market vaue of the farm,
pus the porton of the nsurance premums pad, une pred on May 1 , 193 , of
8 .38, makng a tota of 37,236.38. The respondent charged off the remander
of 70,721.01 durng the caendar year 193 , and camed that sum as a deducton
as a bad debt n her ncome ta return for that year. The Commssoner ds-
aowed the deducton, but the oard of Ta ppeas concuded n favor of the
(o p;yer and permtted the deducton. The matter s before us on the
Commssoner s petton for revew.
The appcabe statute, secton 23 of the Revenue ct of 193 ( 8 Stat., 680,
688-689), provdes that n computng net ncome there sha be aowed as
deductons:
(e) Losses by Indvduas. In the case of an ndvdua, osses sustaned
durng the ta abe year and not compensated for by Insurance or otherwse
(1) f ncurred n trade or busness; or
(2) f ncurred n any transacton entered Into for proft, though not
connected wth the trade or busness;

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203
| 23(k), rt. 23(10-3.
( ) Capta Losses. Losses from saes or e changes of capta assets sha
be aowed ony to the e tent provded In secton 117(d).
(k) ad Debts. Debts ascertaned to be worthess and charged off wthn
the ta abe year (or, In the dscreton of the Commssoner, a reasonabe add-
ton to a reserve for bad debts) ; and when satsfed that a debt Is recoverabe ony
n part, the Commssoner may aow such debt, In an amount not n e cess of
the part charged off wthn the ta abe year, as a deducton.
Secton 117(d) of sad ct ( 8 Stat., 715), referred to above, permts osses from
aes or e changes of capta assets to be deducted ony to the e tent of 2,000
pus the gans from such saes or e changes. rtce 23(k)-3 of Reguatons 86,
promugated under the Revenue ct of 193 , provdes (as was provded n pror
years by artce 193 of Reguatons 7 -75 and 77):
If mortgaged or pedged property Is awfuy sod (whether to the credtor
or another purchaser) for ess than the amount of the debt, and the mortgagee
or pedgee ascertans that the porton of the Indebtedness remanng unsatsfed
after such sae Is 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 Income from whch has been returned by hm) as a bad debt for
the ta abe year n whch It s ascertaned to be whoy or partay wurthess
and charged off. In addton, f the credtor buys In the mortgaged or pedged
froperty, 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 capta or repre-
sent an Item 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 Is bd In by the ta payer n the absence of cear
and convncng proof to the contrary. If the credtor subsequenty ses the prop-
erty so acqured, the bass for determnng gan or oss Is the far market vaue
of the property at the date of acquston.
ccrued Interest may be Incuded as part of the deducton ony f t has
prevousy been returned as Income.
In ths factua stuaton, had Mrs. Spreckes forecosed her mortgage and
bought n the mortgaged property for the sum of 37,152, found to be the far
market vaue of the mortgaged property, she woud, under artce 23(k)-3 of
Reguatons 86, have been entted to a bad debt deducton to the e tent camed
heren. The oss reazed woud have been recognzed and aowed under the
reguatons. (3 Pau and Mertens, Law of Income Ta aton, secton 28.78, pages
67-169; Commssoner v. Frehofcr, 3 Cr., 102 Fed. (2d), 787. Compare, how-
ever, Interna Revenue C. . 1937-2, pages 138-139 ( I- 0-8952, I. T. 3121).)
Is Mrs. Spreckes faure to adhere to the form of stntutory forecosure of such
mportance as to bar her rght to the deducton We aso nqure whether the
transacton consummated the sae or e change of a capta asset, or whether
t amounted to a smpe purchase, wth, as yet, no reazed gan or oss to the
ta payer.
Our frst ncnaton s that ths purchase theory Is the answer to the
probem, wth the e tngushment of the mortgagor s ndebtedness servng as
the consderaton, but the queston s not to be resoved so smpy. rtce
23(k)-3 of Reguatons 86, whch recognzes that a oss may be reazed by a
forecosng mortgagee, s to be taken Into the reckonng.
The Commssoner, when ths case was before the oard of Ta ppeas, urged
upon the oard that the precse queston for determnaton heren had been
before the oard In the ppea of arry Payne ngham (38 . T. ., 913), n
whch the oard s decson had favored the Commssoner, and that the facts
n the Spreckes case and the ngham case were amost precsey parae.
The oard s opnon n ths (the Spreckes) case rectes that Mrs. Spreckes
stated the facts In the two cases were ndstngushabe but strongy
urged error n the oard s decson n the ngham case. Subsequenty to the
submsson of the Instant case to the oard for decson, the Crcut Court of
ppeas for the Second Crcut handed down ts opnon n ngham v. Com-
mssoner (105 Fed. (2d), 971), whch had been brought before t, reversng
the oard s decson. Wth the partes to ths case n agreement before the
oard as to the controng effect of the ngham case, the oard foowed the
rue of that case and entered ts decson n favor of Mrs. Spreckes. The Com-
mssoner now suggests to ths court that there Is one dstncton between the
ngham and the Spreckes case, namey, that as consderaton for the deed
gven by the mortgagor the ta payer-mortgagee not ony canceed the mortgage
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23(k), rt. 23(k)-3.
20
or s ndebtedness (as n the ngham case) but aso transferred certan shares
of stock whch she hed as coatera for the oan and whch the oard of Ta
ppeas has found to be worthess. ecause of the worthessness of ths stock
we thnk ths s a dstncton wthout a dfference and do not further concern
ourseves wth ths tem. We w now e amne the ngham case n some deta.
In 1926 ngham sod Forda rea estate to one Copp for 500,000, of whch
50,000 was pad n cash and 50,000 by the e ecuton of four promssory notes,
secured by a mortgage on the rea estate, due March 15, 1926, 1927, 1928, and
1929, respectvey. ngham returned the entre proft on the sae n 1926. Copp
pad the frst note, part of the prncpa on the remanng notes, and the Interest
on a notes up to March 15, 1931. fter September 15, 1931, he was unabe and
faed to make further payments on ether the prncpa or the nterest. ng-
ham attempted to coect the notes or secure reconveyance of the rea estate.
Unsucccessfu, ngham commenced forecosure; ater, a settement was effected,
whereby Copp reconveyed the property to ngham at an apprased vaue of
2 2,500, and ngham e ecuted a satsfacton of the mortgage and canceed and
surrendered the unpad notes to Copp. The queston was whether the resut of
the transacton was a capta oss to ngham, an ordnary oss, or a bad debt.
The oard s opnon, purportng to foow Roger v. Commssoner (37 . T. .,
897), hed the transacton consttuted a sae or e change of capta assets and
that the oss was a capta oss. On petton to revew n the Crcut Court of
ppeas for the Second Crcut, that court sad (105 Fed. (2d), 971, 972) :
It s sad by the oard that Copp s nterest n the rea estate
whch he reconveyed to the pettoner, an admtted capta asset, was sod for
the notes whch, though canceed and returned to the maker, were capta assets
aso. The nub of the controversy s whether or not the notes were n the stated
crcumstances such assets wthn the meanng of the statute.
What may have been property n the hands of the hoder of the notes smpy
vanshed when the surrender took pace and the maker receved them. e then
had, at most, ony hs own obgatons to pay hmsef. ny theoretca concept
of a sae of the notes to the maker n return for what he gave to get them back
must yed before the hard fact that he receved nothng whch was property n
hs hands but had merey succeeded n e tngushng hs abtes by the
amounts whch were due on the notes. There was, therefore, no sae of the
notes to hm In the ordnary meanng of the word and no e change of assets for
assets snce the notes coud not, as assets, survve the transacton. That beng
so, such a settement as the one ths pettoner made nvoved nether a sae nor
an e change of capta assets wthn the meanng of the statute.
The decson of the oard of Ta ppeas was reversed.
In vew of the reance paced upon the oard s decson n the ngham case
by the Commssoner when the Instant case was before the oard for consdera-
ton, and the ta payer s acknowedgment there of the smarty, and our own
concuson thereof, t woud appear that the ngham case shoud be controng
In the crcumstances. It s suggested, too, that our decson n Rogers v. Com-
mssoner (103 Fed. (2d), 790, certorar dened, 308 U. S. 580), handed down
pror to the fng of the opnon In the ngham case by the Court of ppeas
for the Second Crcut needs to be reconced wth that case. The two decsons
upon hasty e amnaton may appear confctng, but coser nspecton w not
bear ths out. In the Rogers case the ta payers purchased certan property by
the payment of cash, the assumpton of a mortgage, and the gvng of ther own
promssory note for the baance. Thereafter, they pad off the note secured by
the mortgage whch they had assumed, but ater when the note whch they had
gven (whch was secured by a deed of trust) fe due, they decned to make
payment and offered to convey the property to the hoder of the note f the atter
woud cance and surrender the note. Ths was agreed to and the transacton
consummated. The ta payers camed the unrecovered cash nvestment as an
ordnary oss; the oard hed the oss to be a capta net oss recognzabe ony
to a certan specfed percentage. We hed the transacton amounted to a sae
of an admtted capta asset and affrmed the oard. In answer to the conten-
ton that the transacton was not a sae because the ta payers had receved
nothng, we ponted out that In Caforna the e tngushment of a pree stng
debt consttutes a vauabe consderaton for a sae, and then sad (page 792) :
There was no showng or Intmaton that the pettoners were fnancay
unabe to pay the ndebtedness. The stuaton s anaogous to one where the
mortgagor ses the property to a thrd party for a sum equa to the amount
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23(k), rt. 23(k)-3.
due on hs note and then pays the note wth that money. The resut to the ta -
payer woud be e acty the same as here, athough It coud not there be man-
taned that the ta payer receved nothng of vaue for the property.
We observed that the property was the medum n whch the debt was pad.
If the mortgagor n the nstant case had sod the farm at ts far market vaue
to a thrd person and then used the proceeds of the sae to pay the note, we woud
have a reazed oss suffered by the mortgagee to the e tent of the dfference
between the far market vaue of the property and the amount due on the note.
The sae woud have been between the mortgagor and the thrd person, to
whch the mortgagee was not a party. The money receved by the mortgagee
woud have been receved n payment of an obgaton, whch s not a sae.
(Farbanks v. Unted States, 9 Cr., 95 Fed. (2d), 79 , 796, affrmed, 306 U. S., 36.)
The property was the medum n whch the debt was pad. The dfference
between the sum due and the far market vaue of the property amounted to a
reazed bad debt oss and was deductbe. If the mortgagor ses the property
to an outsder for cash, and then uses the cash to compromse the mortgage debt,
then accordng to I. T. 3121, the credtor may deduct the unpad baance as an
ordnary oss. If the argument of equvaent resuts s to be apped, there Is no
reason for a dfferent treatment f the mortgagee accepts the property (havng
a vaue ess than the debt) drecty from the mortgagor Instead of recevng cash
whch has been reazed by the mortgagor upon a sae to an outsder. (Ran-
doph . Pau n 8 Yae Law ourna, 1315, 1327.)
udge Parker of the Fourth Crcut, n Pender et a. v. Commssoner (110 Fed.
(2d), 77, 79), dstngushes the Rogers and the ngham cases by sayng that
the ngham case nvoved a bad debt deducton by a note hoder who had
accepted a conveyance of mortgaged property n satsfacton of the debt. It Is
perfecty cear that a note hoder n such case has nether sod nor e changed
property, but has merey made a coecton on the Indebtedness due hm.
In Commssoner v. ectro-Chemca ngravng Co., Inc. (2 Cr., 110 Fed.
(2d), 61 . affrmed 311 U. S., 513, 85 L. d., 299), the queston was whether a
oss sustaned by the ta payer through sae of ts factory by forecosure shoud
be mted by the capta oss provson of the Revenue ct of 198 , or whether
the ta payer was entted to deduct the actua oss reazed. The oard of Ta
ppeas reached the atter concuson, but the Court of ppeas reversed, ctng
Rogers v. Commssoner, supra. The court sad (page 616) :
ngham v. Commssoner (2 Cr., 105 Fed. (2d), 971) s not n confct wth
the decson we have reached. In the ngham case t was hed that the
vendor-mortgagee mght deduct hs fu oss resutng from canceaton of notes
secured by a purchase money mortgage and takng back the property n e -
change. It s true that the stuaton somewhat resembed one where there s a
forecosure sae wthout defcency |udgment. ut the ngham case Invoved
ta aton of the mortgagee, who coud be sad ony to have sod the notes.
That a canceaton of notes Is not a sae of them to ther maker was the
ground the court reed on. It dd not determne that the mortgagor dd not
se the rea estate to the mortgagee, wth the canceaton of the notes as con-
sderaton. In Rogers v. Commssoner (9 Cr., 103 Fed. (2d), 790), the Nnth
Crcut hed In smar crcumstances that the mortgagors had effected a sae
and confned ther deductbe oss to the statutory mtaton. etween a stua-
ton ad|usted by canceaton of the mortgage notes n return for a vountary
deed of the and, when the ad|ustment s made wth knowedge of the possbe
resort to forecosure, and a stuaton where forecosure s actuay resorted to,
there woud seem to be tte dfference. In both stuatons, the resut Is the
same: the mortgagee receves back the and, and the mortgagor s freed of
abty on the mortgage notes, to some e tent at east.
(See Commssoner v. Nat. ank of Commerce, etc., 5 Cr., 112 Fed. (2d), 9 6,
9 7: owes Lunch, Inc., v. Unted States, Ct. CI., 33 F. Supp., 235, 2 0. Com-
pare Pon v. Commssoner, 3 Cr., 11 Fed. (2d), 17 ; Sae v. everng, Ct.
p. D. C, 85 Fed. (2d), 819.)
sde from the dstnctons and notwthstandng the ncetes and refnements
In the decsons heren quoted, cted, and dscussed, Mrs. Spreckes oss woud
be consdered, by the average busness man and ayman, as a bad debt oss.
Common sense Indcates the same concuson and shoud preva. (Rhodes v.
Commssoner, 6 Cr., 100 Fed. (2d). 966, 969; Commssoner v. Nat. ank of
Commerce, etc., supra ; everng v. ndes, Cr., 7 Fed. (2d), 537, 539.)
The decson of the oard of Ta ppeas Is affrmed.
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S 65.
206
S CTION 23(m). D DUCTIONS FROM GROSS
INCOM : D PL TION.
rtce 23(m)-16: Charges to capta and to e pense
n the case of o and gas wes.
R NU CTS OP 1932 ND 103 .
ppcabty of opton to e pense drng costs n connecton wth
varous knds of drng contracts. (See G. C. M. 2303 , page 75.)
rtce 23(m)-16: Charges to capta and to e pense
n the case of o and gas wes.
R NC CTS OF 1932 ND 193 .
ppcabty of opton to e pense drng costs n connecton wth
varous knds of drng contracts. (See G. C. M. 232 3, page 78.)
S CTION 23(o). D DUCTIONS FROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS.
rtce 23(o)-: Contrbutons or gfts by ndvduas.
R NU CT OF 193 ND PRIOR R NU CTS.
Contrbutons to the Navy Reef Socety. (See L T. 3550, page 10 .)
P RT I . CCOUNTING P RIODS ND M T ODS OF CCOUNTING.
S CTION . INST LLM NT SIS.
rtce : Deferred-payment sae of rea property
not on nstament pan.
R NU CTS OF 1926, 1928, 1932, ND 193 .
Reguatons 69, 7 , 77, and 86, amended. (See T. D. 5113, page 88.)
P RT . R TURNS ND P YM NT OF T .
S CTION 55. PU LICITY OF R TURNS.
R NU CT OF 193 .
Reguatons governng the nspecton of corporaton statstca
transcrpt cards by the Offce of Prce dmnstraton. (See T. D.
5120, page 97.)
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207 | 106.
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . T S OF T .
S CTION 101. MPTIONS FROM T
ON CORPOR TIONS.
rtce 101-1: Proof of e empton.
R NU CTS OF 1932 ND 193 .
Proof requred for certan casses of corporatons. (See T. D. 5125.
page 101.)
rtce 101 (6)-1: Regous, chartabe, scentfc,
terary, and educatona organzatons and com-
munty chests.
R NU CT OF 193 ND PRIOR R NU CTS.
Corporaton organzed for the purpose of, and engagng n, bus-
ness actvty. (See G. C. M. 23063, page 103.)
rtce 101(6)-1: Regous, chartabe, scentfc,
terary, and educatona organzatons and com-
munty chests.
R NU CT OF 193 ND PRIOR R NU CTS.
Navy Reef Socety. (See I. T. 3550, page 10 .)
TITL I. INCOM ND C SS-PROFITS T S.
S CTION 106. C SS-PROFITS T .
Secton 106. 19 2-1-10952
Ct. D. 1535
C PIT L STOC T C SS PROFITS T R NU CT OF 1935 D CISION
of supreme court.
1. Decared aue ass for Determnng cess Profts Ta
rror n Frst Return May Not e mended fter -
praton of Due Date.
The bass for determnng e cess profts ta under secton 106 of
the Revenue ct of 1935 s the ad|usted decared vaue determned,
as provded n secton 105 of that ct, n a capta stock ta return,
tmey fed. though by mstake the vaue was set at 600,000 n-
stead of 1,000,000, such error may not be corrected n an amended
return fed after the une tended or statutory due date had e pred,
no e tenson of tme for fng havng been sought by the ta payer.
The mandate of the statute that the vaue as decared n the frst
return can not be amended must be taken to precude an amend-
ment after the due date.
2. Case Dstngushed.
ag gar Co. v. everng (19 0) (Ct D. 1 33, C. . 19 0-1, 237)
(308 U. S., 889) dstngushed.
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106.)
208
3. Decson ffrmed.
Decson of the Unted States Crcut Court of ppeas, Thrd
Crcut (19 1) (117 Fed. (2d), 572), affrmng decson of the
Unted States oard of Ta ppeas (19 0) ( 1 . T. ., 278),
affrmed.
Supreme Coubt of the Unted States.
Scafe Company, pettoner, v. Commssoner of Interna Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut.
December 22, 19 1.
OPINION.
Mr. ustce Dougas devered the opnon of the Court.
On uy 29, 1936, pettoner fed ts capta stock ta 1 return for the perod
ended une 30, 1936. Ths return was prepared by pettoner s treasurer and
sgned by pettoner s presdent. The treasurer had been nstructed by pet-
toner s vce presdent to pace upon the capta stock a vaue of 1,000,000. y
mstake the vaue was decared at 600,000. Ths error was not noted by
pettoner s presdent when he sgned the return. When the error was ater
dscovered, a new return was prepared decarng the vaue of the stock to be
1,000,000. Ths return was odged wth the coector on September 3, 1936,
and a remttance of 00 to cover the addtona capta stock ta computed on
the hgher vauaton was tendered. The coector refused to accept the amended
return1 and the remttance of the addtona 00. Pettoner then fed a
petton wth the oard of Ta ppeas for a redetermnaton of ts e cess
profts ta for 1936, camng that that ta shoud be computed on the bass
of a decared vaue for ts capta stock of 1,000,000. The oard sustaned
the acton of the Commssoner. ( 1 . T. ., 278.) The crcut court of
appeas affrmed. (117 Fed. (2d), 572.) We granted the petton for certorar
because of a confct between that hodng and the decson of the Crcut Court
of ppeas for the Second Crcut n Lerner Stores Corporaton (Md.) v. Com-
mssoner (118 Fed. (2d), 55).
Secton 105(f) of the Revenue ct of 1935 ( 9 Stat, 101 , 1018) provdes
that the ad|usted decared vaue of the ta payer s capta stock sha be the
vaue as decared In the frst return. The vaue so decared can not be
amended. (Secton 105(f).) The return must be made wthn one month after
the cose of the year wth respect to whch the ta Is mposed. (Secton 105(d).)
Whe the Commssoner by rues and reguatons may e tend the tme for
makng the return, no e tenson sha be for more than 60 days. (Secton
105(d).) Under artce 37(6) of Treasury Reguatons 6 (1936 ed.) an e ten-
son of tme for fng the return and payng the ta sha be granted ony upon
wrtten appcaton under oath fed on or before the statutory due date and on
a showng of reasonabe cause for an e tenson. Pettoner sought no such
e tenson. It dd, however, fe the amended return wthn the 60-day perod.
Secton 105(a) of the Revenue ct of 1935 ( 0 Stat., 101 , 1017), as amended by
secton 01 of the Revenue ct of 1936 ( 9 Stat, 16 8, 1733), provdes:
For each year endng une 30, begnnng wth the year endng une 30, 1936, there
s hereby Imposed upon every domestc corporaton wth respect to carryng on or dong
busness for any part of such year an e cse ta of 1 for each 1,000 of the ad|usted
decared vaue of ts capta stock.
Pettoner sought to en|on the coector from refusng to accept the amended return.
The b was dsmssed by the dstrct court. (It m. . IScafe Sons Co. v. Drtscod. 18 Fed.
Supp., 7 8.) The crcut court of appeas affrmed. (9 Fed. (2d), 66 .) Ths Court
dened certorar. (305 T . S.. 803.)
Secton 106(a) of the Revenue ct of 1935 ( 9 Stat, 101 , 1019), provdes:
There s hereby Imposed upon the net Income of every corporaton for each ncome-ta
ta abe year endng after the cose of the frst year In respect of whch t s ta abe under
secton 105, an e cess profts ta equa to the sum of the foowng :
6 per centum of such porton of Its net Income for such ncome-ta ta abe year as s
n e cess of 10 per centum and not n e cess of 15 per centum of the ad|usted decared vaue ;
12 per centum of such porton of Its net ncome for such ncome-ta ta abe year as
Is In e cess of 15 per centum of the ad|usted decared vaue.
Secton 106(b) provdes that the ad|usted decared vaue sha be determned as pro-
vded n secton 105 as of the cose of the precedng ncome-ta ta abe year (or as of the
date of organzaton If It bad no precedng ncome-ta ta abe year).
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209
108.
We agree wth the court beow that the amended return was propery
dsaowed. frst return means a return for the frst year n whch the
ta payer e ercses the prvege of f ng ts capta stock vaue for ta purposes,
and ncudes a tmey amended return for that year. ( aggar Co. v. everng,
308 U. S., 380, 305 Ct. D. 1 33, C. . 10 0-1, 237 .) The return fed on
September 3, 1936, was not tmey. The statute s not ambguous. Once the
perod for fng the frst return has e pred, the vaue decared can not
be amended. Uness an e tenson had prevousy been obtaned, the perod
for fng ended one month after the cose of the ta abe year whch n ths
case was une 30, 1936. Unke the stuaton n aggar Co. v. everng, supra,
the due date of the return had not been e tended. Nor dd the statute make
mandatory or automatc an e tenson for 60 days. It merey gave the Com-
mssoner the power to e tend the due date under approprate rues and
reguatons. nd the atter made no provson for an e tenson after the
e praton of the statutory perod. It s mmatera that dfferent rues and
reguatons mght have been promugated under whch an e tenson mght have
been obtaned n ;he crcumstances of ths ease. The mportant consderaton
s that ths amended return was fed after the une tended or statutory due
date had e pred. In absence of an e tenson a ater due date woud have no
statutory sancton. (See . . Rey Investment Co. v. Commssoner, 311 U. S.,
55 Ct. D. 1 69, C. . 10 0-2, 225 .) Furthermore, the mandate of the statute
that the decaraton of vaue contaned n the frst return can not be amended
must be taken to precude an amendment after the due date f that prohbton
s to have rea vtaty.
ut pettoner argues that a court of equty has power to reeve aganst such
mstakes. (Cf. Moffett, odgkns Carke Co. v. Rochester, 178 U. S., 373.) Its
contenton s that the amended return refects ts orgna ntent rather than a
shft n poston. ut we can not treat ths case ke a case for reformaton of a
contract. We are deang here wth an ct of Congress whch not ony prescrbes
the formua for determnng the tme wthn whch a return may be fed but
whch aso e pcty states that a decaraton of vaue contaned n the orgna
return may not be amended. ence no e tenson of the due date may be had
e cept pursuant to the procedure whch has cear statutory sancton. If we were
to grant pettoner the e tenson whch t asks, we woud be performng a egs-
atve or admnstratve, not a |udca, functon.
The resut n ndvdua cases may be harsh. ut that may be true n case of
any statute of mtatons. s we ndcated n . . Rey Investment Co. v.
Commssoner, supra, such consderatons, though a bass for an appea to Con-
gress for reef n ndvdua cases, are not approprate grounds for reef by the
courts from the strctness of the statutory demand.
ffrmed.
Secton 106. 19 2-1-10953
Ct. D. 1536
capta stock ta e cess profts ta revenue act of 1935 decson
of supreme court.
1. Decared aue ass fob Determnng cess Profts Ta
rror n Frst Return May Not be mended fter pra-
ton of Dub Date.
The bass for determnng e cess profts ta under secton 106 of
the Revenue ct of 1035 Is the ad|usted decared vaue determned,
as provded n secton 105 of that ct, n a capta stock ta return
There are to be dstngushed those cases adverted to In . . Rey Investment Co. T.
Commssoner, supra, page 68, where the Treasury has provded for correcton of certan
errors or mscacuatons n the orgna returns. Such an e ampe Is artce 3-2 of
Treasury Reguatons 86 provdng for the fng of amended returns for the purpose of
deductng osses whch were sustaned durng a pror ta abe year
Thus Prvate ct No. 199 (ch. 0, 50 Stat., 101 ), provdes that the orgna decared
vaue of the ackson Casket k Manufacturng Co., notwthstandng the decaraton n Its
returm for the year endng une 30, 1936, shoud be a vaue computed on the bass of 125
per share of Its capta stock. From the commttee report t appears that due to a mstake
by Western Unon Teegraph Co. n transmttng a message from the presdent of the
companv to ts casher, the atter fed a return In whch the vaue of the capta stock
was decared to be 175 per share rather than 125 per share as the presdent had drected.
( . Rept. No. 777, Seventy-ffth Congress, frst sesson ; S. Rept. No. 730, Seventy-ffth
Congress, frst sesson.)
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106.
210
fed wthn a granted e tenson of tme. though by mstake the
vaue was set at 25,000 nstead of 2,500,000, such error may not
be corrected n an amended return ted after the perod for whch
an e tenson coud have been granted by the Commssoner.
2. CoNSTrrmnoN LTT of Statute.
Sectons 105 and 1 6 of the Revenue ct of 1935 do not consttute
an unawfu deegaton of egsatve authorty contrary to, nor
voate the terrtora unformty requred by, rtce I, secton 8,
of the Consttuton, nor do they voate the ffth amendment
S. Case Foowed.
Scafe Co. v. Commssoner, decded ths day Ct. D. 1535, page
207, ths uetn , foowed.
. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, Second
Crcut (19 1) (118 Fed. (2d), 55), reversng memorandum opnon
of the Unted States oard of Ta ppeas (19 0), reversed.
Supreme Court of the Unted States.
Ouy T. everng, Commssoner of Interna Revenue, pettoner, v. Lerner
Stores Corporaton ( fd.)
On wrt of certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
December 22, 19 1.
opnon.
Mr. ustce Dougas devered the opnon of the Court
Ths s a companon case to Scafe Co. v. Commssoner, No. 57, decded ths
day Ct. D. 1535, page 207, ths uetn . The ta n dspute s respondent s
e cess profts ta for the fsca year 1937. Respondent fed a tmey capta
stock ta return for the frst year ended une 3D, 1936, n whch the decared
vaue of ts capta stock was stated to be 25,000. Ths return was fed
September 27, 1936, an e tenson of tme unt September 29, 1936, havng been
obtaned. The fgure of 25,000 was erroneous due to a mstake made by an
empoyee of respondent. When the error was dscovered an amended return
was tendered n whch the decared vaue of the capta stock was gven as
2,500,000. Ths was on anuary 27, 1937, more than 60 days after the statu-
tory due date. The amount of the ta , penaty and nterest on the hgher
amount was tendered. The amended return was not accepted and the amount
of the remttance was refunded. Pettoner, n determnng respondent s net
ncome sub|ect to the e cess profts ta for the fsca year ended anuary 31,
1937, used the decared vaue of 25,000 appearng n the orgna return. The
order of the oard of Ta ppeas sustanng the Commssoner was reversed
by the crcut court of appeas. (SFed. (2d), 55.)
On the ssue of tmeness of the amended return the decson n the Scafe
case s determnatve. The case for dsaowance of the amendment s even
stronger here, for the amended return was fed beyond the perod for whch
any e tenson coud have been granted by the Commssoner. The hardshp
resutng from the mspaced decma pont Is pan. ut Congress not the
courts s the source of reef.
Respondent n ts bref tenders another ssue. It contends here as t dd
before the oard and the crcut court of appeas, that sectons 105 and 106
of the Revenue ct of 1935 consttute an unawfu deegaton of egsatve
authorty contrary to rtce I, secton 8 of the Consttuton; that they voate
the ffth amendment; and that the capta stock and e cess profts ta es ben|c
based on guesses and wagers are beyond the deegated powers of Congress.
The oard and the crcut court of appeas rued adversey to respondent on
these consttutona ssues. Respondent fed no cross-petton for certorar.
Yet a respondent, wthout fng a cross-petton, may urge In support of the
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211
106.
|udgment under revew grounds re|ected by the court beow. (Langnes v.
Green, 282 U. S., 531, 538-539; Pubc Servce Commsson v. avemcyer, 296
U. S., 506, 509; McGodrck v. Compagne Generate Transatantque, 309 U. S.,
30, 3 .)
The consttutona Issues however are wthout substance. s we noted In
aggar Co. v. everng (308 U. S., 389, 391-392, 39 Ct. D. 1 33, C. . 19 0-1,
237 ) the capta stock ta and the e cess profts ta are cosey nterreated
The decared vaue of the capta stock s the bass of computaton of both
ta es. The decared vaue for the frst year s the vaue decared by the
corporaton n ts frst return; the decared vaue for subsequent years1 s
the orgna decared vaue as changed by certan specfed capta ad|ustments.
(Secton 105(f), evenue ct of 1935, 9 Stat., 101 , 1018.) The ta payer s free
to decare any vaue of the capta stock for the frst year whch t may choose.
Whe a ow decaraton of vaue decreases the amount of the capta stock ta , t
Increases the rsk of a hgh e cess profts ta . On the other hand, a hgh
decaraton of vaue whe decreasng the ta on e cess profts, ncreases the
capta stock ta . y aowng the ta payer to f for tsef the amount of the
ta abe base for purposes of computaton of these ta es, Congress avoded
the necessty of prescrbng a formua for arrvng at the actua vaue of
capta a probem whch had been found productve of much tgaton
under earer ta ng cts. ( aggar Co. v. everng, supra, 39 .) (See 1
onbrght, auaton of Property, 577-59 .) t the same tme t guarded
aganst oss of revenue to the Government through understatements of cap-
ta by provdng a formua whch woud In such crcumstances resut In an
Increase In the e cess profts ta . ( aggar Co. v. everng, supra, 39 .)
There Is present no unawfu deegaton of power. Congress has prescrbed
the method by whch the ta es are to be computed. The ta payer here s gven
a choce as to vaue. Whe the decson whch t makes has a pronounced effect
upon ts ta abty, that s not uncommon In the ta fed. Congress has f ed
the crtera n ght of whch the choce s to be made. The eecton whch the
ta payer makes can not affect anyone but tsef.
The contenton that these provsons of the ct run afou of the ffth amendment
s kewse wthout mert. cam of unreasonabe cassfcaton or nequaty
In the ncdence or appcaton of a ta rases no queston uuder the ffth amend-
ment whch contans no equa protecton cause. (La ee Iron Works v. Unted
States, 256 U. S., 377 T. D. 3051, C. . 3, 359 (1920), T. D. 3181, C. . , 372
(1921) ; Sunshne nthracte Coa Co. v. dkns, 310 U. S., 381, 01 Ct. D. 1 57,
C- . 19 0-1, 258 .) The proprety or wsdom of a ta on profts computed n
reference to a specfed crteron of vaue of capta stock s not open to chaenge
In the courts. (La ee Iron Works v. Unted States, supra, 393.) That beng
true there s no consttutona reason why Congress may not because of admns-
tratve convenence aone (Carmchae v. Southern Coa t Coke Co., 301 U. S.,
95, 511, and cases cted) avod tgous vauaton probems and rey on the
sef-nterest of ta payers to pace a far vauaton on ther capta stock. s
was stated n Rochester Gas ectrc Corporaton v. McGowan (115 Fed. (2d),
953, 955). To say that Congress coud not choose a scheme mpemented by
such md sanctons, as an aternatve to actuay computng an e cess profts
ta wth a the uncertanty and tgaton whch that had Invoved, woud be
most unreasonaby to crcumscrbe ts powers to estabsh a convenent and
fe be fsca system.
Nor do we have here any ack of that terrtora unformty whch s requred
by rtce I, secton 8 of the Consttuton. (La ee Iron Works v. Unted States,
supra, 392.)
Reversed.
There Is no mtaton of tme on the use of the orgna decared vaue under the 1938
ct. It shoud be noted, however, that secton 1202 of the Interna evenue Code (see
aucton 601(f) of the Revenue ct of 1938, 52 Stat.. 7, 566) provdes that the ad|usted
decared vaue sha be determned wth respect to 3-year perods begnnng wth the year
endng une 30. 1938. and each thrd year thereafter. That ad|usted decared vaue
enters Into the computaton of the e cess profts ta under sectons 600 and 601 of the
Interna Revenue Code.
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112(g), rt. 112(g)-2.
212
SUPPL M NT . COMPUT TION OF N T INCOM .
S CTION 112(g). R COGNITION OF G IN OR LOSS:
D FINITION OF R ORG NIZ TION.
rtce 112 (g) -2: Defnton of terms. 19 2-7-10990
Ct. D. 15 1
ncome ta revenue act of 1932 decson of supreme court.
1. Reorganzaton Transfer of Corporate Property fob Cash
and Stock Mesne Conveyances ass for Deprecaton.
Pursuant to a pan of reorganzaton formuated by a bondhod-
ers commttee, wth whch was deposted certan bonds of the
Corporaton, the commttee acqured at forecosure sae certan prop-
erty prevousy owned by the Corporaton but whch, as a resut of
mesne conveyances, was hed at the tme of defaut by the T Corpora-
ton and an ndvdua and was transferred by qutcam deed n
consderaton for the payment of cash to the commttee whe fore-
cosure proceedngs were pendng. The consderaton pad by the
commttee on the forecosure sae was the surrender of the deposted
bonds pus cash. new corporaton, formed by the bondhoders,
acqured the property from the commttee, ssued a of ts stock
to the depostng bondhoders, and pad cash to the non-assentng
bondhoders. ed: These transactons dd not consttute a reor-
ganzaton wthn the meanng of secton 112 (1)1 of the Revenue
ct of 1932 snce the property was not acqured by the commttee or
by the new corporaton from the Corporaton, and consequenty
the new corporaton was not entted to use the bass of the Cor-
poraton n computng deprecaton.
2. Case Dstngushed.
No. 328, everng v. abama sphatc Lmestone Co.; decded
ths day Ct. D. 15 2, page 21 , ths uetn , dstngushed.
3. Decson ffrmed.
Decson of the Unted States Crcut Court of ppeas, Nnth Cr-
cut (118 Fed. (2d), 511) (19 1), reversng decson of the Unted
States oard of Ta ppeas ( 0 . T. ., 882) (1039), affrmed.
Supreme Court of the Unted States.
ondhoders Commttee, Marborough Investment Co., Frst Mortgage onds,
pettoner, v. Commssoner of Interna Revenue.
Marborough ouse, Inc., pettoner, v. Commssoner of Interna Revenue.
On wrts of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut.
February 2, 19 2.
opnon.
Mr. ustce Dougas devered the opnon of the Court.
The prmary queston nvoved n these cases s whether the transacton In
queston quafed as a reorganzaton under that porton of secton 112()
of the Revenue ct of 1932 ( 7 Stat., 169,19G) whch provdes: The term reor-
ganzaton means ( ) a merger or consodaton (ncudng the acquston by
one corporaton of substantay a the propertes of another cor-
poraton) .
In 1927 the Marborough Investment Co. ssued ts bonds In the prncpa
amount of 500,000. They were secured by ts apartment budng n Seatte
and the persona property theren. There was a defaut n May, 1932. bond-
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213
5 112(g), rt. 112(g)-2.
hoders commttee was formed and there were deposted wth It more than 97
per cent of the tota of over 50,000 face amount of the bonds then outstandng.
In vew of everng v. bana sphatc Lmestone Co., No. 328, decded ths day
Ct. D. 15 2, page 21 , ths uetn , the precse mechancs whereby the reorgan-
zaton was consummated are not matera. Suffce t to say that pursuant to a
pan of reorganzaton formuated by the commttee under the broad powers
accorded t n the depost agreement, there was a forecosure and sae; the com-
mttee was the successfu bdder at the prce of 3 0, 25 whch was pad by the
surrender of deposted bonds pus cash; Marborough ouse, Inc., was formed
by the bondhoders; It acqured the property from the commttee and ssued a
of ts stock to the depostng bondhoders; and non-assentng bondhoders were
pad n cash ther pro rata share of the purchase prce. In determnng the
ncome ta abty of the commttee for a part of 1933 and of the new corpora-
ton for a part of 1933 and for 193 and 1935 the Commssoner used as the bass
for computng deprecaton the prce bd at the forecosure sae. The oard of Tu
ppeas found that nether the far market vaue of the deposted bonds pus
the cash e pended n parta payment nor the far market vaue of the property
was n e cess of 3 0, 25 at the date of the forecosure sae or when the com-
mttee took possesson. The oard hed that snce the new corporaton had ac-
qured the property n connecton wth a reorganzaton, t was entted to use
the bass n the hands of the od corporaton, ess deprecaton. ( 0 . T. ., 882.)
The crcut court of appeas reversed. (118 Fed. (2d), 511.)
For the reasons stated n everng v. abama sphatc Lmestone Co., supra,
ths transacton ceary woud have been a reorganzaton wthn the meanng
ot secton 112() but for one fact. That fact Is that the property was not
acqured by the commttee or the new corporaton from Marborough Investment
Co.1 In December, 1928. severa years pror to the nsovency reorganzaton,
Marborough Investment Co., the ssuer of the bonds, had transferred the property
to another corporaton. s a resut of mesne conveyances the property was
hed n May, 1932 by State Deveopers, Inc., and one Cooey. Whe the fore-
cosure proceedngs were pendng that corporaton and Cooey e ecuted and
devered a qutcam deed to the property n consderaton of the payment of
the cash sum of 10,025 whch was furnshed by the commttee.
In vew of these crcumstances there was no reorganzaton wthn the
meanng of secton 112(1)1. The parenthetca part of cause , whch s reevant
here covers the acquston by one corporaton of substantay a of the
propertes of another corporaton. Cause covers certan transfers by a
corporaton of a or a part of ts. assets to another corporaton where the
transferor or ts stockhoders contnue n contro. These were not propertes
of Marborough Investment Co. It had ong snce ceased to own them. It was
not the transferor. Furthermore, secton 113(a)7 authorzes a carry-over of
the bass of the propertes n the hands of the transferor, not ther bass n
the hands of one who may have occuped an earer poston n the chan of
ownershp. ence t s mmatera that under the rue of everng v. abama
sphatc Lmestone Co.. supra, the bondhoders had succeeded to a of the
propretary nterest n Marborough Investment Co. The property whose bass
s n controversy here was not acqured from t. Nor was there a reoganzaton
as between the commttee or the new corporaton on the one hand and State
Deveopers, Inc., and Cooey on the other. Cooey was an ndvdua. The
reorganzaton provsons n queston cover ony Intercorporate transactons.
Secton 113(a)8 provdes for a carry-over of the bass of the propertes n the
hands of the transferor f the property was acqured by a corporaton affpr
December 31, 1920, by the ssuance of ts stock or securtes n connecton wth
a transacton descrbed n secton 112(b)5. Secton 112(b)5 Incudes transfers
1 Tbe commttee took possesson of the property and managed It for a part of the year 1033
pror to tbe date when the new corporaton acqured t. The oard hed that the commttee
was ta abe as a corporaton on the Income receved durng that perod by t. The com-
mttee dd not petton for revew of that determnaton by the crcut court of appeas.
Though respondent apparenty dd not urge ths pont before the oard or the court
beow, t may of course support the |udgment here by any matter appearng n the record,
(e Tue v. Scofed, 308 T . S., 15, 21, and cases cted.)
y secton 11 (a) the bass upon whch deprecaton s aowed s the ad|usted bass
provded In secton 113(b) for tbe purpose of determnng gan or oss. y secton 113(b)
ncb ad|usted bass s the bass determned under secton 113(a). y secton 113(a) tbe
bass of property sha be cost, wth enumerated e ceptons. One of those e ceptons s
contaned n secton 113(a)7 set forth n Pam Sprngs odng Corporaton v. Commt-
tnner, No. 603, decded ths day Ct. D. 15 3. page 217, ths uetn , note 1.
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112(g), rt. 112(g)-2.
21
by Indvduas; but It requres that the transferor reman n contro. Cooey
and State Deveopers, Inc., were bought out for cash.
It s argued that If the commttee s acquston of the propertes s to be
treated as a purchase rather than a reorganzaton, the cost to the commttee
shoud be measured by the amount of the cash advanced by the commttee pus
the face vaue of the deposted bonds. There s no foundaton for that contenton.
The cost of assets bd In by a mortgage credtor on forecosure Is to be determned
by the far market vaue of the property. (See artce 193, Treasury Reguatons
77; everng v. New Presdent Corporaton. 122 Fed. (2d). 92. 96-97.) though
the Commssoner used the bd prce n ascertanng the bass, the oard found
that the market vaue of the assets dd not e ceed that amount. Respondent
therefore suggests that a remand to the oard to ascertan the far market vaue
s not necessary. ccordngy the |udgment beow Is
ffrmed.
Mr. ustce Roberts dd not partcpate n the consderaton or decson of ths
case.
rtce 112(g)-2: Defnton of terms. 19 2-7-10991
Ct. D. 15 2
ncome ta revenue act of 1928 decson of supreme court.
1. Reorganzaton Transfer of ssets of ankrupt Corpora-
ton for Cash and Stock ass for Deprecaton and
Depeton.
Pursuant to a reorganzaton pan proposed by a credtors com-
mttee of a bankrupt corporaton and consummated wth the ad of
the bankruptcy court, nvountary bankruptcy proceedngs were
Insttuted and the credtors commttee bd n the assets of the
corporaton, the prce beng pad by cash, by agreements of the
credtors to accept stock of a new corporaton In fu dscharge of
ther cams, and by an offer of the commttee to meet certan costs.
Thereafter, a new corporaton was formed pursuant to the pan,
and acqured a the assets of the bankrupt corporaton n con-
sderaton of the Issuance of Its stock to the credtors and the
payment of cash to nonassentng credtors. ed.: The transacton
consttuted a reorganzaton wthn the meanng of secton
112(1)1 of the Revenue ct of 1928, and In computng deprecaton
and depeton the new corporaton was entted to treat ts assets
as havng the same bass as n the hands of the od corporaton.
Under the above statutory provsons t s mmatera that the
transfer shfted the ownershp of the equty n the property from
the stockhoders to the credtors of the od corporaton. The sepa-
rate steps were no more than Intermedate procedura devces ut-
zed to enabe the new corporaton to acqure a the assets of
the od one pursuant to a snge reorganzaton pan.
2. Case Dstngushed.
he Tue v. Scofed, Coector (308 T . S., 15 Ct. D. 1 32, C. .
19 0-1, 151 (19 0) ), dstngushed.
3. Decson ffrmed.
Decson of the Unted States Crcut Court of ppeas, Ffth
Crcut (119 Fed. (2d), 819) (19 1), affrmng decson of the
Unted States oard of Ta ppeas ( 1 . T. ., 32 ) (19 0),
affrmed.
Secton 112(b)5 provdes In part: No gan or oss sha be recognzed f property
Is transferred to a corporaton by one or more persons soey In e change for stock or
securtes In such corporaton, and mmedatey after the e change such person or persons
are In contro of the corporaton.
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215 112(g), rt. 112(g)-a.
Sufreve Court of th Unted States.
Guy T. everng, Commssoner of Interna Revenue, pettoner, v. abama
sphatc Lmestone Co.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Ffth Crcut.
February 2,19 2.
OPINION.
Mr. ustce Dougas devered the opnon of the Court.
Respondent n 1931 acqured a the assets of abama Rock sphat, Inc.,
pursuant to a reorganzaton pan consummated wth the ad of the bankruptcy
court. In computng ts deprecaton and depeton aowances for the year
193 , respondent treated ts assets as havng the same bass whch they had
n the hands of the od corporaton. The Commssoner determned a defcency,
computed on the prce pad at the bankruptcy sae. The oard of Ta ppeas
re|ected the poston of the Commssoner. ( 1 . T. ., 32 .) The crcut
court of appeas affrmed. (119 Fed. (2d), 819.) We granted the petton for
certorar because of the confct between that decson and- Commssoner v.
Pam Sprngs odng Corporaton (119 Fed. (2d.), 8 (5), decded by the Crcut
Court of ppeas for the Nnth Crcut, and everng v. New Presdent Cor-
poraton (122 Fed. (2d), 92), decded by the Crcut Court of ppeas for the
ghth Crcut.
The answer to the queston turns on the meanng of that part of secton
112() of the Revenue ct of 1928 ( 5 Stat., 791, 818) whch provdes: The
term reorganzaton means ( ) a merger or consodaton (ncudng the
acquston by one corporaton of substantay a the propertes of
another corporaton. .
The essenta facts can be stated brefy. The od corporaton was a subsdary
of a corporaton whch was n recevershp n 1929. Stockhoders of the parent
had fnanced the od corporaton takng unsecured notes for ther advances.
Maturty of the notes was approachng and not a of the notehoders woud agree
to take stock for ther cams. ccordngy a credtors commttee was formed
ate In 1929 and a pan of reorganzaton was proposed to whch a the notehoders,
e cept two, assented. The pan provded that a new corporaton woud be formed
whch woud acqure a the assets of the od corporaton. The stock of the new
corporaton, preferred and common, woud be ssued to the credtors n satsfac-
ton of ther cams. Pursuant to the pan nvountary bankruptcy proceedngs
were nsttuted n 1930. The apprased vaue of the bankrupt corporaton s assets
was about 155,000. Its obgatons were about 838,000, the unsecured notes wth
accrued nterest aggregatng somewhat over 793,000. The bankruptcy trustee
ofTered the assets for sae at pubc aucton. They were bd n by the credtors
commttee for 150,000. The prce was pad by 15,000 n cash, by agreements of
credtors to accept stock of a new corporaton n fu dscharge of ther cams,
and by an offer of the commttee to meet the varous costs of admnstraton, etc.
Thereafter respondent was formed and acqured a the assets of the bankrupt
corporaton. It does not appear whether the acquston was drecty from the
od corporaton on assgnment of the bd or from the commttee. Pursuant to the
pan respondent ssued ts stock to the credtors of the od corporaton over 95
per cent to the notehoders and the baance to sma credtors. Nonassentng
credtors were pad n cash. Operatons were not nterrupted by the reorganza-
ton and were carred on subsequenty by substantay the same persons as before.
From the Pneas case (287 U. S., 62) to the Le Tue case (308 U. S., 15) t
has been recognzed that a transacton may not quafy as a reorganzaton
under the varous Revenue cts though the tera anguage of the statute s sat-
sfed. (See Pau, Studes n Federa Ta aton (3d seres), pages 91 et seq.) The
Pneas case ntroduced the contnuty of nterest theory to emnate those trans-
actons whch had no rea sembance to a merger or consodaton (287 U. S.,
70) and to avod a constructon whch woud make evason of ta aton very
1 Pettoner now takes the poston that the new bass shoud be measured by the market
vaue of tbe assets rather than the bd prce. (See ondhoders Commttee v. Comms-
soner. No. 128. decded th day.)
1 nd see Commssoner v. taeman (89 Fed. (2d). 5S), and Commssoner . Newberry
Lumber Chem. Co. (9 Fed. (2r1). 7 . whch are In accord wth the decson beow.
If there was a reorgansaton. the respondent was entted to use the asset bass of
the od corporaton as provded n secton 113(a)7.
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112(g), rt. 112(g)-2.
216
easy. (Id., 69.) In that case the transferor receved In e change for Its prop-
erty cash and short term notes. Ths Court sad (d., 70) Certany, we thnk
that to be wthn the e empton the seer must acqure an nterest n the affars
of the purchasng company more defnte than that ncdent to ownershp of ts
short-term purchase-money notes. In the Le Tue case, we hed that the term
of the obgaton receved by the seer was mmatera. Where the consdera-
ton s whoy n the transferee s bonds, or part cash and part such bonds, we
thnk t can not be sad that the transferor retans any propretary nterest n the
enterprse. (308 U. S., 20- 21.) On the bass of the contnuty of nterest
theory as e paned n the Le Tue case t s now earnesty contended that a
substanta ownershp nterest n the transferee company must be retaned by
the hoders of the ownershp Interest n the transferor. That vew has been
foowed by some courts. (Commssoner v. Pam Sprngs odng Corporaton,
supra; everng v. New Presdent Corporaton, supra.) Under that test there
was no reorganzaton n ths case snce the od stockhoders were emnated
by the pan, no porton whatever of ther propretary nterest beng preserved for
them n the new corporaton. nd t s cear that the fact that the credtors were
for the most part stockhoders of the parent company does not brdge the gap.
The equty nterest n the parent s one step removed from the equty nterest In
the subsdary. In any event, the stockhoders of the parent were not granted
partcpaton n the pan qua stockhoders.
We concude, however, that t s mmatera that the transfer shfted the owner-
shp of the equty n the property from the stockhoders to the credtors of the od
corporaton. Pany the od contnuty of Interest was broken. Techncay that
dd not occur n ths proceedng unt the |udca sae took pace. For practca
purposes, however, t took pace not ater than the tme when the credtors took
steps to enforce ther demands aganst ther nsovent debtor. In ths case, that
was the date of the nsttuton of bankruptcy proceedngs. From that tme on
they had effectve command over the dsposton of the property. The fu prorty
rue of Northern Pacfc R. Co. v. oyd (228 U. S., 82) appes to proceedngs n
bankruptcy as we as to equty recevershps. (Case v. Los ngees Lumber
Products Co., 308 U. S., 106.) It gves credtors, whether secured or unsecured,
the rght to e cude stockhoders entrey from the reorganzaton pan when the
debtor s nsovent. (See In re 620 Church St. dg. Corporaton, 2 )9 U. S., 2 .)
When the equty owners are e cuded and the od credtors become the stockhoders
of the new corporaton, t conforms to reates to date ther equty ownershp
from the tme when they nvoked the processes of the aw to enforce ther rghts
of fu prorty. t that tme they stepped nto the shoes of the od stockhoders.
The sae dd nothng but recognze offcay what had before been true In fact.
everng v. New aven S. L. R. Co., 121 Fed. (2d), 985, 987.)
That concuson nvoves no confct wth the prncpe of the Le Tue case.
bondhoder Interest n a sovent company pany s not the equvaent of a
propretary nterest, even though upon defaut the bondhoders coud retake the
property transferred. The mere possbty of a propretary nterest s of course
not ts equvaent ut the determnatve and controng factors of the debtor s
nsovency and an effectve command by the credtors over the property were
absent n the Le Tue case.
Nor are there any other consderatons whch prevent ths transacton from
quafyng as a reorganzaton wthn the meanng of the ct. The Pneas
case makes pan that merger and consodaton as used In the ct Incudes
transactons whch; are beyond the ordnary and commony accepted meanng
of those words. (287 U. S., 70.) Insovency reorganzatons are wthn the
famy of fnanca read|ustments embraced n those terms as used n ths par-
tcuar statute. Some contenton, however. Is made that ths transacton dd
not meet the statutory standard because the propertes acqured by the new
corporaton beonged at that tme to the commttee and not to the od corpora-
ton. That s true. Yet the separate steps were Integrated parts of a snge
scheme. Transtory phases of an arrangement frequenty are dsregarded under
these sectons of the Revenue cts where they add nothng of substance to the
compete affar. (Gregory v. everng, 293 U. S., 05; everng v. ashford.
302 U. S., 5 .) ere they were no more than ntermedate procedura devces
utzed to enabe the new corporaton to acqure a the assets of the od one
pursuant to a snge reorganzaton pan.
ffrmed.
Mr. ustce Robekts dd not partcpate In the consderaton or decson of
ths case.
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217
112(g), rt. 112(g)-2.
rtce 112(g)-2: Defnton of terms.
19 2-7-10992
Ct. D. 15 3
INCOM ND C SS P OFITS T R NU CT OP 1932 D CISION OF
SUPR M COURT.
1. Reorganzaton Transfer of ssets of Insovent Corporaton
for Cash, Stock, and onds ass for Deprecaton.
Pursuant to a pan of reorganzaton proposed by a bondhoders
commttee of an nsovent corporaton, a new corporaton ssued ts
preferred stock and certan shares of ts common stock to the
assentng bondhoders of the nsovent corporaton and a of ts
remanng stock to an ndvdua n return for certan servces, the
atter ndvdua agreeng to transfer an amount of such stock to the
soe stockhoder of the nsovent corporaton n return for certan
servces. t trustee s and forecosure saes the new corporaton
acqured a the property of the nsovent corporaton n e change
for cash and bonds. ed: The transacton consttuted a reorgan-
zaton wthn the meanng of secton 112(1) 1( ) of the Revenue
ct of 1932, and n computng deprecaton the new corporaton s
entted to treat ts assets as havng the same bass as n the hands
of the od corporaton. The ega procedure empoyed by the cred-
tors s not matera; the crtca facts are that the od corporaton
was nsovent and that ts credtors took steps to obtan effectve
command over ts property.
2. Case Foowed.
No. 328, everng v. abama sphatc Lmestone Co., decded
ths day Ct. D. 15 2, page 21 , ths uetn , foowed.
8. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, Nnth
Crcut (119 Fed. (2d), 8 6) (19 1), reversng memorandum dec-
son of the Unted States oard of Ta ppeas (19 0), reversed.
Pam Sprngs odng Corporaton, pettoner, v. Commssoner of Interna
Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut.
Mr. ustce Dougas devered the opnon of the Court.
Ths case s a companon case to everng v. abama sphatc Lmestone Co.,
No. 328, decded ths day. Ths, too, was an nsovency reorganzaton, though
a dfferent procedure was empoyed to consummate t The od corporaton had
outstandng about 300,000 face amount of frst mortgage bonds, secured by a
en on ts reaty. The property, whch was an hote, was eased to an operatng
company. In 1931, as a resut of transactons not reevant here, one Pnney
became the soe stockhoder of the od corporaton and of the operatng company.
The furnture and f tures In the hote were owned by the operatng company.
They were covered by a chatte mortgage whch, together wth the ease on the
hote, were assgned and pedged as part of the securty for the bond ssue. In
1931 both companes were n fnanca dffcutes and nsovent, at east n the
equty sense. bondhoders commttee was formed whch receved deposts of
more than haf of the face amount of the bonds. Pettoner was formed n 1932.
Pursuant to the pan of reorganzaton 6 shares of pettoner s preferred stock and
shares of ts common stock were ssued to assentng bondhoders for each 1,000
bond. In addton a of pettoner s remanng common stock was ssued to one
Lacoe n return for hs agreement to pay the costs of ncorporatng pettoner up
to 1,000 and for hs agreement to end money to pettoner. efore the actua
ssuance of any of the shares, Lacoe agreed to transfer 1,000 shares of the common
stock to Pnney, the soe stockhoder of the two companes, for hs servces n the
reorganzaton and as an nducement to hm to contnue as manager of the hote.
None of the stock of pettoner, however, was ssued to any stockhoder or former
7 918 2 8
Supreme Court of the Unted States.
February 2, 19 2.
opnon.
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112(g), rt.2(g)-2. 218
stockhoder of ether of the companes for any rghts any of them had as stock-
hoders. In May, 1032, the ndenture trustee decared the prncpa of the bonds
due and payabe. Pursuant to the terms of the ndenture, the trustee sod a of
the propertes of the od corporaton, ncudng the ease and chatte mortgage,
to pettoner, the hghest bdder. The bd prce was 61,800. It was satsfed by
the payment of about 18,700 n cash and by the devery to the trustee of bonds
of a face amount of 202,000 for the baance. Forecosure proceedngs aganst
the od corporaton and the operatng company were then nsttuted. t the
forecosure sae the furnture and f tures, comprsng a of the property of the
operatng company, were bought In by pettoner.
The Commssoner, In determnng a defcency n pettoner s ncome and
e cess profts ta for the fsca year ended May 31, 1036, dsaowed deprecaton
deductons on both the reaty and persona property on the bass of cost to the
od corporaton and operatng company.1 e used as the bass the cost of the
assets to pettoner pus the cost of addtons. The oard of Ta ppeas sus-
taned the Commssoner s determnaton wth respect to the persona property
but re|ected t wth respect to the reaty. The crcut court of appeas sustaned
the Commssoner on both ponts. (119 Fed. (2d), 8 6.)
Though the petton for certorar rased the queston, pettoner now concedes
that the acquston of the furnture and f tures from the operatng company was
not a reorganzaton wthn the meanng of secton 112()( ) of the Revenue
ct of 1932. So we do not reach that ssue. s respects the assets acqured
from the od corporaton, we thnk there was a reorganzaton wthn the
meanng of secton 112(1)1 ( ) of the 1032 ct. That provson Is the same n
the 1932 ct as n the 1928 ct whch was Invoved n everng v. abama
sphatc Lmestone Co., supra. That case Is determnatve of ths controversy.
The transacton fts the tera anguage of the statute. The new corporaton
acqured the assets drecty at the trustee s and the forecosure gaea The ega
procedure empoyed by the credtors s not matera. The crtca facts are that
the od corporaton was nsovent and that ts credtors took steps to obtan
effectve command over ts property. For the reasons stated n everng v.
abama sphatc Lmestone Co., supra, the credtors at that tme acqured the
equvaent of the propretary nterest of the od equty owner. ccordngy, the
contnuty of Interest test Is satsfed.
Reversed.
Mr. ustce Roberts dd not partcpate n the consderaton or decson of ths
case.
rtce 112(g)-2: Defnton of terms. 19 2-7-10993
Ct. D. 15
INCOM ND C SS PROFITS T R NU CT OP 193 D CISION OF
supreme court.
1. Reorganzaton Transfer of Corporate ssets for otng
Stock, Warrants, and Cash ass for Determnng Gan ob
Loss.
Pursuant to a pan of reorganzaton, the bondhoders commttee
of a corporaton purchased a the assets of the corporaton at fore-
cosure and recevershp saes, and transferred such assets to a new
1 Secton 113(a)7 of the 1932 ct ( 7 Stat., 169, 198) provdes n part:
(a) ass (Unad|usted) or Property. The bass of property sha be the cost of such
property ; e cept that

(7) Transfers to corporaton where contro of property remans n same per-
sons. If the property was acqured after December 31. 1917, by a corporaton In connecton
wth a reorganzaton, and Immedatey after the transfer an nterest or contro In such
property of 50 per centum or more remaned n the same persons or any of them, then the
bass sha be the same as t woud be In the hands of the transferor, ncreased n the amount
of gan or decreased In the amount of oss recognzed to the transferor upon such transfer
under the aw appcabe to the y ar n whch the transfer was made.
That provson s appcabe here. (See secton 11 (a), secton 113(b). secton 118(a) 12
of the Revenue ct of 193 . 8 Stat., 6 0.) The property here nvoved was acqured after
February 28 1913, n a ta abe year pror to anuary 1, 193 , as requred by secton
113(a)12. Respondent argues that ths transacton was not a reorganzaton wthn
the meanng of ecton 113(a)7. nd he ponts out that contro was not In the par-
tcpatng credtors snce the ma|orty of the new common stock had been dstrbuted, for
a consderaton other than an e change of bonds, to Lacoe and Pnney. ut he does not
contend that assumng there was a reorganzaton, and Interest In the property of
0 per cent or more dd not reman n the same persons (the bondhoders) Immedatey after
the transfer.
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219 112(g), rt. 112(g)-2.
corporaton In e change for votng common stock and cass and
stock purchase warrants. Most of the stock was Issued to the bond-
hoders, and a sma porton, together wth cass warrants, was
ssued to the unsecured credtors; cass warrants were ssued to
the preferred and common stockhoders; and cash was pad to non-
partcpatng securty hoders. ed: The transacton does not con-
sttute a reorganzaton wthn the meanng of secton 112(g)
of the Revenue ct of 193 , and the new corporaton s not entted
to use the bass of the od corporaton n determnng gan or osa
Under ths statute the contnuty of nterest test s made much
strcter than n the earer cts. The statutory requrement that the
acquston be n e change soey for votng stock s not met f prop-
ertes are acqured n e change for a consderaton other than, or
n addton to, votng stock; and the statutory requrement that the
transferor or ts stockhoders, or both, be n contro of the transferee
corporaton s not met f the bondhoders receve a ma|orty of the
stock of the new company.
2. Case Dstngushed.
No. 328, everng v. abama sphato Lmestone Co., decded
ths day tCt. D. 15 2, page 21 , ths uetn , dstngushed, snce t
Invoved dfferent statutory provsons.
3. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, Ffth
Crcut (119 Fed. (2d), 561 (19 1)), affrmng memorandum decson
of the Unted States oard of Ta ppeas (1939), reversed.
Supreme Court of the Unted States.
Guy T. everng, Commssoner of Interna Revenue, pettoner, v. Southwest
Consodated Corporaton.
On wrt of certorar to the Dnted States Crcut Court of ppeas for the Ffth Crcut.
February 2, 19 2.
OPINION.
Mr. ustce Dougas devered the opnon of the Court.
The prmary probem n ths case Is whether the transacton In queston
quafed as a reorganzaton under secton 2(g) of the Revenue ct of
193 . ( 8 Stat, 680, 705.) Secton 112(g) provdes:
s used In ths secton and secton 113
(1) The term reorganzaton means ( ) a statutory merger or conso-
daton, or ( ) the acquston by one corporaton n e change soey for a or
a part of Its votng stock: of at east 80 per centum of the votng stock and
at east 80 per centum of the tota number of shares of a other casses of stock
of another corporaton; or of substantay a the propertes of another corpo-
raton, or (C) a transfer by a corporaton of a or a part of ts assets to another
corporaton f mmedatey after the transfer the transferor or Its stockhoders
or both are n contro of the corporaton to whch the assets are transferred, or
(D) a recaptazaton, or ( ) a mere change n dentty, form, or pace of
organzaton, however effected.
Respondent fed an ncome and e cess profts ta return for a part of the
year 193 and for the entre year 1935, reportng a net oss for each year.
Pettoner, n determnng defcences, made certan ad|ustments on the theory
that the acquston by respondent n 193 of a of the assets of ts predecessor,
Southwest Gas Uttes Corporaton, was not a reorganzaton, as defned In
secton 112 (g). The cost bass of the assets n the hands of the od corporaton
had been about 9,000,000. They were purchased at forecosure and recevershp
saes for 752,000. Respondent used the former fgure as the bass n computng
gans and osses on the acqured assets. Thus t deducted some 75,000 as bad
debts. Pettoner n usng the ower fgure as the bass aowed that deducton
ony to the e tent of 1.26. Defcences computed on that theory showed a net
Income, rather than a net oss, for each year. The oard of Ta ppeas
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9 112(g), rt. 112(g)-2.
220
re|ected the Commssoner s vew.1 The crcut court of appeas affrmed the
udgment of the oard. (119 Fed. (2d), 561.)
The od corporaton was burdened wth some 2,870,000 face amount of frst
en bonds, certan unsecured cams, and ssues of preferred and common
stock. There was a defaut In nterest on the bonds n May, 1932. bond-
hoders commttee was formed whch obtaned the depost of about 85 per cent
of the bonds outstandng. Members of the commttee became drectors of the
od corporaton and begnnng n the fa of 1932 were n contro of It. In
193 equty recevers were apponted by the Deaware chancery court. pan
of reorganzaton was formuated whch was approved by the court. The pan
caed for the formaton of a new company whch woud acqure the assets
of the od n e change for votng common stock and cass and cass stock
purchase warrants. Most of the common stock, ssued under the pan, was
to go to the bondhoders; a sma porton, together wth the cass warrants,
was to be ssued to the unsecured credtors. Cass warrants were to be
Issued to the preferred and common stockhoders. Pursuant to the pan and a
court order, the assets securng the bonds were sod by the Indenture trustee
at a forecosure sae In 193 . They were bd n by the bondhoders commttee
for 660,000. The unpedged assets aso were sod at pubc aucton and were
bought n by the commttee for 92,000. Respondent was thereupon formed
and the commttee transferred a the assets of the od corporaton to It. The
oard found that the far market vaue of the assets at that tme was
1,766,69 .98. The stock and warrants of respondent were dstrbuted pursuant
to the pan. Nonpartcpatng securty hoders, ownng 0,000 face amount
of obgatons, receved about 106,680 n cash. The cash necessary to make
ths payment was obtaned by a oan from a bank. The oan was assumed
by the respondent and ater repad by t. bout 9,300 shares of common
stock and 2,760 cass warrants were Issued to the credtors; over 18, 5
cass warrants were Issued to the stockhoders. Cass warrants carred
the rght to buy one share of common stock at 6 a share durng 193 , the prce
beng ncreased 1 per share each year unt e praton n 1938. Cass war-
rants carred the same rght e cept that the prce was 10 a share durng
193 and was ncreased by 5 per share each year unt e praton n 1938.
There were 1,760 cass warrants and ,623 of the cass warrants e ercsed.
On the bass of the far market vaue of the assets at the tme they were
acqured n the reorganzaton, respondent computes that the cass warrants
had a vaue of 29 each and the cass warrants a vaue of 25 each.
Under the statute nvoved n everng v. abama sphatc Lmestone
Co., No. 328, decded ths day, there woud have been a reorganzaton here.
For the credtors of the od company had acqured substantay the entre
propretary nterest of the od stockhoders. (See everng v. Mnnesota Tea
Co.. 296 U. S., 378 Ct. D. 1060, C. . -1, 189 (1936) .) ut cause of
secton 112(g) of the 193 ct effects an mportant change as respects transac-
tons whereby one corporaton acqures substantay a of the assets of another.
(See S. Rcpt. No. 558, Seventy-thrd Congress, second sesson, Commttee Re-
ports, Revenue cts 1913-1938, pages 5C8-599 C. . 1939-1 (Part 2) .) The
contnuty of nterest test s made much strcter. (See Pau, Studes In Fed-
era Ta aton (3d Seres), 36- 1.) Congress has provded that the assets of
the transferor corporaton must be acqured n e change soey for votng
stock of the transferee. Soey eaves no eeway. otng stock pus some
other consderaton does not meet the statutory requrement. (See endrcks,
Deveopments n the Ta aton of Reorganzatons, 3 Co. L. Rev., 1198, 1202-
1203.) Congress, however, n 1939 amended cause of secton 112(g) by add-
ng, but In determnng whether the e change s soey for votng stock the
assumpton by the acqurng corporaton of a abty of the other, or the fact
that property acqured s sub|ect to a abty, sha be dsregarded. (53
Stat., 871.) That amendment was made to avod the consequences of Unted
States v. ender (303 U. S., 56 Ct. D. 1328, C. . 1938-1, 285 ). (See .
Rept. No. 855, Seventy-s th Congress, frst sesson, pages 18-20; S. Rept. No,
6 8, Seventy-s th Congress, frst sesson, page 3.) nd It was made retro-
actve so as to ncude the 193 ct. (53 Stat, 872.) ut wth that e cepton,
1 The petton for revew by the ta payer contended that ths transacton was a reorgan-
saton wthn the purvew of secton 112(c) and therefore that the carry-over bas
proved a secton 113(a)7 was appcabe. No other ssues were rased or consdered by
the oard or the court beow. We pass ony on that queston eavng open such other
questons as may be appropratey presented to the oard.
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221
t 112(g), rt. 112(g)-2.
the requrements of secton 112(g)( ) are not met If propertes are acqured
n e change for a consderaton other than, or n addton to, votng stock.
Under that test ths transacton fas to quafy as a reorganzaton under
cause .
In the frst pace, securty hoders of the od company ownng 0,000
face amount of obgatons were pad off n cash. That cash was rased durng
the reorganzaton on a oan from a bank. Snce that oan was assumed by
respondent, t s argued that the requrement of cause , as amended n 1939,
was satsfed. ut n substance the transacton was precsey the same as f
respondent had pad cash pus votng stock for the propertes. We search the
egsatve hstory of the 1939 amendment n van for any ndcaton that t
was desgned to do more than to ater the rue of the ender case. That
case deat wth a stuaton where an ndebtedness whch antedated the trans-
acton n queston was assumed by the transferee. There the debt assumed
ceary was a abty of the other corporaton. The stuaton here s qute
dfferent. The rghts of the securty hoders aganst the od corporaton were
drastcay atered by the sae made pursuant to the pan. The sae not ony
removed the en from the property and atered the rghts of the securty
hoders In t; t aso mted and defned the rghts of the ndvdua credtors
f they eected to take cash rather than partcpate n the pan. (See Wener,
Confctng Functons of the Upset Prce, 27 Co. L. Rev., 132, 137-138.) In
everng v. abama sphatc Lmestone Co., supra, we regarded the severa
steps In a reorganzaton as mere Intermedate procedura devces utzed to
enabe the new corporaton to acqure a the assets of the od one pursuant to
a snge reorganzaton pan. Under that approach part of the consderaton
whch respondent pad for the propertes of ts predecessor was cash n the
amount of about 106,680. The fact that t was pad to the bank rather than
to the od corporaton or ts credtors s mmatera. The requrement to pay
cash arose out of the reorganzaton Itsef. It derved, as dd the requrement
to pay stock, from the pan pursuant to whch the propertes were acqured.
It was a necessary ncdent of the court decree whch wped out the abty
of the od corporaton and substtuted another one n ts pace. Though the
abty assumed had Its orgn n obgatons of the transferee, ts nature
and amount were determned and f ed n the reorganzaton. It therefore
can not be abeed as an obgaton of the other or predecessor corporaton
wthn the meanng of the 1939 amendment. Nor can the property be sad to
have been acqured sub|ect to that abty wthn the purvew of that
amendment. The words sub|ect to normay connote n ega parance an
absence of persona obgaton. That seems to be the case here, for the precedng
cause of the amendment covers the case of assumpton.
In the second pace, the warrants whch were ssued were not votng stock.
Whatever rghts a warrant hoder may have to requre the obgor corpora-
ton to mantan the ntegrty of the shares, covered by the warrants (see
ere, Studes n the Law of Corporaton Fnance (1928), pages 136-1 2) he s
not a sharehoder. (Gay v. urgess Ms, 30 R. I., 231. Cf. Mes v. Safe De-
post Co., 259 U. S., 2 7, 252.) s rghts are whoy contractua. s stated
by omes, ., n Parknson v. West nd Street Ry. (173 Mass., 6, 8), he
does not become a stockhoder by hs contract n equty any more than at
aw. t tmes hs rght may e pre on the consodaton of the obgor cor-
poraton wth another. Id.) If at the tme he e ercses hs rght there are
no authorzed and unssued shares to satsfy hs demand, he w get damages
not specfc performance. ( ratten v. Catawssa Raroad Co., 211 Pa., 21.
nd see an en v. Inos Centra Raroad Co., 7 osw., 515.) Thus he
does not have, and may never acqure, any ega or equtabe rghts n shares
of stock. (Lsman v. Mwaukee, L. S. W. Ry. Co., 161 Fed., 72, 80, affrmed
170 Fed., 1020.) nd he can not assert the rghts of a sharehoder. (See
s, Convertbe Securtes, 19 Caf. L. Rev., 1, .) ccordngy, the
acquston n ths case was not made soey for votng stock. nd t makes
no dfference that n the ong run the une ercsed warrants e pred and nothng
but votng stock was outstandng. The crtca tme s the date of the e change.
In that posture of the case t s no dfferent than If other convertbe securtes
had been ssued, a of whch had been converted wthn the converson perod.
The contrary vew e pressed In a etter by the Commssoner dated anuary 2T 1937,
does not have the status of a forma rung of the Treasury nor does It seem to refect an
estabshed course of admnstratve constructon.
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I 113(a), rt. 113(a)(3)- .
222
Nor can ths transacton quafy as a reorganzaton under cause C of
secton 112(g) 1. That cause requres that Immedatey after the transfer
the transferor or Its stockhoders or both be In contro of the transferee
corporaton. Contro s defned In secton 112(h) as the ownershp of at
east 80 per centum of the votng stock and at east 80 per centum of the tota
number of shares of a other casses of stock of the corporaton. ere con-
tro at the crtca date was not n the od corporaton or ts stockhoders.
The partcpatng credtors had receved pursuant to the pan rghts to receve
over a ma|orty of the stock of the new company even though a of the warrants
aocated to stockhoders had been ssued and e ercsed. The contrary concuson
was reached n Commssoner v. Cement Investors, Inc. (122 Fed. (2d), 380,
38 ), on the theory that the bondhoders of the nsovent predecessor company
coud be regarded as ts stockhoders wthn the meanng of secton 112(g)(C),
snce they had acqured an equtabe nterest n the property and were empowered
to suppant the stockhoders. We have adopted that theory In everng v.
abama sphatc Lmestone Co., supra, n determnng whether the bondhoders
had retaned a suffcent contnuty n nterest so as to brng the transacton
wthn the statutory defnton of merger or consodaton contaned n the
Revenue cts pror to 193 . ut It s one thng to say that the bondhoders
stepped nto the shoes of the od stockhoders so as to acqure the propretary
nterest n the Insovent company. It s qute another to say that they were
the stockhoders of the od company wthn the purvew of cause C. In the
atter Congress was descrbng an e stng, specfed cass of securty hoders of
the transferor corporaton. That cass, as we have seen, receved a partcpaton
n the pan of reorganzaton. For purposes of cause C they must be counted
In determnng where contro over the new company ay. They can not be
treated under cause C as somethng other than stockhoders of the od com-
pany merey because they acqured a mnorty Interest n the new one. Indeed
cause C contempates that the od corporaton or ts stockhoders, rather than
Its credtors, sha be n the domnant poston of contro mmedatey after
the transfer and not e cuded or reegated to a mnorty poston. Pany the
norma pattern of nsovency reorganzaton does not ft ts requrements.
Cause D s kewse Inappcabe. There was not that reshuffng of a capta
structure wthn the framework of an e stng corporaton contempated by the
term recaptazaton. nd a transacton whch shfts the ownershp of the
propretary nterest In a corporaton s hardy a mere change n dentty, form,
or pace of organzaton wthn the meanng of cause .
Reversed.
Mr. ustce Roberts dd not partcpate n the consderaton or decson of ths
case.
S CTION 113(a). D UST D SIS FOR D T RMINING
G IN OR LOSS: SIS (UN D UST D) OF PROP RTY.
rtce 113(a) (2)-: Property transmtted by gft after
December 31,1920.
R NU CT OF 103 .
Reguatons 86, amended. (See T. D. 5137, page 110.)
rtce 113(a) (3)-: Transfer n trust after December 31, 1920.
R NU CT OP 193 .
Reguatons 86, amended. (See T. D. 5137, page 110.)
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223
117, rt. 117-1.
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
rtce 115-1: Dvdends. 19 2-22-11112
I. T. 3555
R NU CT OF 1918.
Payments made by the M Company on Its cass and cass
debentures n accordance wth the terms thereof do not consttute
Interest on ndebtedness for Federa Income ta purposes. O. D.
1060 (C. . 5, 193 (1921)) revoked.
In O. D. 1060 (C. . 5,193 (1921)) t was hed that payments made
by the M Company on ts debentures were payments by way of
nterest on ts obgatons and that the ta payer, as a hoder of such
debentures, was requred to fe ownershp certfcates on Form 1001
when recevng payments made by the corporaton under the terms
of the debentures.
Reconsderaton has been gven to O. D. 1060, supra. It now
appears that the M Company has outstandng three ssues of secur-
tes denomnated cass debentures, cass debentures, and capta
stock, respectvey. The debentures are not secured by any coatera;
they have no f ed maturty date on whch the face amounts become
uncondtonay payabe; they bear no f ed percentage of nterest
uncondtonay payabe; upon sae of the property of the corporaton
or upon reorganzaton, they are subordnated to the payment of a
other ens and charges; and n eu of nterest on the debentures,
avaabe net earnngs are dstrbutabe, as decared by the board of
drectors, frst n payment of 2y2 per cent of the face vaue of cass
debentures, then n payment of 2y per cent of the par vaue of the
capta stock, then n payment of another 2y2 per cent of the cass
debentures and of the capta stock, pro rata, and fnay the baance
of such earnngs, f any, s to be paa to the hoders of cass deben-
tures. None of these contempated payments s cumuatve. In the
event of any sae or reorganzaton, the net proceeds from the prop-
erty of the corporaton (after payment of a ens and charges
thereon) are dstrbutabe frst n payment of the cass debentures
and the capta stock, pro rata, and then n payment of the cass
debentures. The hoders of debentures are not entted to vote.
Upon the bass of the above-stated facts, t s hed that for Federa
ncome ta purposes the cass and cass debentures ssued by the
M Company shoud be treated as stock, and payments made to the
hoders of such debentures shoud be treated as dvdends and not
as nterest. O. D. 1060, supra, s hereby revoked.
S CTION 117. C PIT L G INS ND LOSS S.
rtce 117-1: Meanng of capta assets. 19 2-7-1099
I. T. 3531
R NU CTS OP 193 ND 1936.
The gan reazed upon the retrement of Chcago ont Stock
Land ank bonds consttutes capta gan under the provsons of
secton 117(f) of the Revenue cts of 193 and 1936.
dvce s requested whether gan reazed upon the retrement
of Chcago ont Stock Land ank bonds s capta gan sub|ect to
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117, rt. 117-1.
22
the provsons of secton 117(f) of the Revenue cts of 193 and
1936. The queston arses wth respect to ta abty for Federa
ncome ta purposes of certan dstrbutons made by the recever of
the bank. In many cases the bonds were purchased at a matera
dscount and the dstrbutons were n e cess of the cost of the bonds.
Secton 117(a) of the Revenue ct of 193 provdes that n the
case of a ta payer, other than a corporaton, ony certan prescrbed
percentages of the gan or oss recognzed upon the sae or e change
of a capta asset sha be taken nto account n computng net ncome.
Secton 117(f) of the Revenue ct of 193 provdes as foows:
(f) Rethement of onds, tc. For the purposes of ths tte, amounts
receved by the hoder upon the retrement of bonds, debentures, notes, or
certfcates or other evdences of ndebtedness ssued by any corporaton (n-
cudng those ssued by a government or potca subdvson thereof), wth
nterest coupons or n regstered form, sha be consdered as amounts receved
n e change therefor.
Secton 117(a) and 117(f) of the Revenue ct of 1936 contans
anguage dentca wth that n secton 117(a) and 117(f) of the
Revenue ct of 193 , supra.
In Unted States v. Stewart (311 U. S., 60, Ct. D. 1 66, C. . 19 0-2,
199) t was hed that gans reazed from deangs n farm oan bonds
ssued by |ont stock and banks under the Federa Farm Loan ct of
1916 consttute ta abe ncome and are not e empt from Federa ncome
ta aton as ncome derved from the bonds wthn the meanng of
secton 26 of the Federa Farm Loan ct, whch provdes that the bonds
and the ncome derved therefrom sha be e empt from Federa
In McCan v. Commssoner and everng v. Thomson, ecutr
(311 U. S 527, Ct. D. 1 81, C. . 19 1-1, 378), the Supreme Court of
the Unted States hed that upon surrender of bonds or debentures n
e change for a money payment ess than cost, a ta payer may not
deduct the oss from hs gross ncome as a bad debt under secton 23 (k)
of the Revenue ct of 193 , but must treat t as a capta oss under
secton 117(f) of that ct. In construng the atter provson, the
Court sad the word retrement s broader n scope than redemp-
ton, not synonymous wth t, and hed that retrement s not
mted to vountary acton on the debtor s part n fufment of hs
promse to pay.
In Wam . No v. Commssoner ( 3 . T. ., 96) the precse
queston here presented was consdered and decded. The oard of
Ta ppeas hed that the payments made by the recevers for the |ont
stock and banks, the bonds of whch were there nvoved, one of the
banks beng the Chcago ont Stock Land ank, consttuted amounts
receved by the hoder upon the retrement of bonds wthn the pur-
vew of secton 117 (f) of the Revenue ct of 193 , and that the gans
were ta abe as capta gans rather than as ordnary ncome. The
oard cted and reed upon the decson n the McCan and Thomson
cases, supra. (See aso Gertrude . Chase v. Commssoner, . T. .,
39, reatng n part to gan from retrement of Chcago ont Stock
Land ank bonds.)
In vew of the foregong, t s hed that the gan reazed upon the
retrement of Chcago ont Stock Land ank bonds consttutes
capta gan under the provsons of secton 117(f) of the Revenue cts
of 193 and 1936.
ta aton.
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uo.
rtce 117-1: Meanng of capta assets.
R NU CT OF 193 ND PRIOR R NU L WS.
cceptance by credtor of vountary conveyance of property, n-
cudng property pedged as securty for the debt, n parta or n
fu satsfacton of the unpad porton of the ndebtedness; I. T.
3121 (C. . 1937-2,138) modfed. (See I. T. 35 8, page 7 .)
SUPPL M NT D. R TURNS ND P YM NT OF T .
S CTION 1 5. P N LTI S.
rtce 1 5-1: Penates.
vason of ta through dstrbuton of corporate dvdends under
guse of commssons. (See Ct. D. 1537, page 190.)
SUPPL M NT L. SS SSM NT ND COLL CTION OF D FICI NCI S.
S CTION 272. PROC DUR IN G N R L.
rtce 272-2: Coecton of a defcency.
R NU CT OF 192 .
S. M. 86 (C. . I -2, 9 (1925)) modfed. (See G. C. M. 22985,
page 15 .)
TITL L G N R L DMINISTR TI PRO ISIONS.
S CTION 1101 (R NU CT OF 1926, S M ND D).
COURT R I W OF O RD S D CISION.
19 2-19-11C8
Ct. D. 1555
INCOM T R NU CT OF 193 D CISION OF SUPR M COURT.
1. Stock Saes Long and Short ccounts Fndngs of
Fact bt oard of Ta ppeas Concusveness vdence.
The oard of Ta ppeas made fndngs of fact that a broker,
actng under authorty from the ta payer to consder her ong
and short accounts as a unt, treated certan saes made through
her short account as saes of ong shares where the ta payer
hed an equa or greater number of the same knd In her ong
accounts, and on the bass of these and other subsdary fndngs
made the utmate fndng that such saes were ntended to be and
were actuay e ecuted as ordnary saes. The true character of
the short account s a queston of fact, and the crcut court
of appeas may not substtute ts vew of the facts for that of the
oard. The fndngs of the oard are supported by substanta
evdence and are therefore concusve.
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226
2. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, Thrd
Crcut (12 Fed. (2d), 156 (19 1)), reversng decson of the
Unted States oard of Ta ppeas ( 2 . T. ., 173 (19 0)),
reversed.
Supreme Coukt of the Unted States.
Wmngton Trust Co., ecutor of ce duPont Ortz, Deceased, pettoner, v.
Guy T. everng, Commssoner of Interna Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut.
pr 27, 19 2.
OPINION.
Mr. ustce Dougas devered the opnon of the Court.
The soe queston presented by ths case s whether certan saes of shares
of stock made by the ta payer, pettoner s decedent, were short saes or saes
of ong stock. If they were not short saes, then the ta payer was
|ustfed n deductng from dvdends credted to the ong shares the amount
of dvdends charged to the shares sod.
The ta payer mantaned severa accounts wth a brokerage house reguar,
speca, and short. The reguar and speca accounts were ong
accounts. Durng the years 193 and 1935 the ta payer s ong accounts were
credted wth dvdends on certan shares. Durng the same years her short
account was charged wth dvdends on shares of the same stock Issues. The
ta payer dd not ncude n her Income ta returns for 193 and 1935 the
dvdends credted to her ong accounts on the theory that the amount of
stock whch she owned was not the number of shares credted to her n the
ong accounts but ony the number of shares by whch her ong poston
e ceeded her short poston n each of the stock Issues hed In the severa
accounts. The Commssoner assessed defcences on the theory that the saes
made through the short account were n fact short saes and that the
dvdends charged to the short account represented addtona cost of the
shares and coud not be offset aganst the dvdends credted to the ong
accounts. ccordngy he rued that the ta payer was ta abe on a of the
dvdends credted to her ong accounts. On a petton for revew the oard
of Ta ppeas found that the saes made through the short account were
saes of shares hed n the ta payer s ong accounts. It therefore hed that
the dvdends charged to the short account shoud be offset aganst the
dvdend credts. ( 2 . T. ., 173.) The crcut court of appeas reversed.
(12 Fed. (2d), 156.) We granted the petton for certorar mted to the
queston whether the saes In the short account were In fact short saes,
because the acton of the crcut court of appeas n settng asde the fndngs
of the oard on that ssue was seemngy erroneous under the rue of such
cases as everng v. Lazarus d Co. (308 U. S., 252).
The fndngs of the oard were substantay as foows: The saes In ques-
ton were saes of shares of whch the ta payer hed an equa or greater number
of the same knd n her ong accounts. In every such Instance the broker,
actng under authorty from the ta payer to consder a her accounts as a unt,
treated the saes through the short account as saes of the ta payer s ong
shares. None of these saes was abeed as a short sae. The broker
requred no margn and chnrged no short sae ta . e credted the short
account wth the proceeds and made an entry theren showng devery of the
shares at the tme of the e ecuton of the saes to the purchaser. In no such
case dd the broker borrow any stock from other brokers or customers. O ders
were e ecuted on the stock e change n the reguar way and devery was made
on the ne t fu busness day from certfcates In street names hed by the
broker s New York correspondents. Those street certfcates ncuded shares
hed by the broker for the ta payer, though none of them was specfcay
desgnated as beongng to the ta payer. The ta payer was aowed nterest
on the proceeds of sae. Dvdends were coected for the ta payer ony on the
number of shares by whch her ong poston e ceeded her short poston.
On the other hand, whenever the ta payer s ong accounts contaned no
shares of the knd sod, the broker e ecuted the sae as a short sae, requred
the customary margn, charged the short sae ta , and made devery from
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227
Msc.
borrowed stock. On the bass of such facts the oard found that the saes
n queston were ntended to be and were actuay e ecuted as ordnary saes,
or saes of shares hed n the ta payer s ong accounts.
In overturnng that fndng of fact the crcut court of appeas ad great
emphass on the manner n whch the transactons were entered on the ta payer s
books. It aso noted that gans or osses were not reported at the moment of
the saes but ony when the coverng transacton was competed and that the
certfcates used n competng the saes were In no way desgnated as beongng
to the ta payer. nd t aso stated that t coud not be sad that the broker dd
not use borrowed stock to make deveres on the short saes. On that aspect
of the case respondent ays prmary emphass. The contenton s that the
ta payer s ong stock was not devered n consummaton of the saes
n the short account, snce the broker merey made devery out of certfcates
In street names hed by It or for ts account, nstead of borrowng from other
brokers, and snce none of those street certfcates was n any way desgnated
as the ta payer s. It s urged that the facts beng undsputed, the queston
of whether stock was borrowed to compete the saes was a queston of aw
as respects whch the oard dd not have the fna say.
The true character of the short account a a queston of fact to be
determned n the ght of the outward or manfested ntenton of the ta payer
and the way n whch the account was actuay managed. The desgnaton of
the accounts, the fact that as a matter of bookkeepng saes made through
the short account apparenty were not refected n the ong accounts,
the method of reportng gans or osses are some evdence to support the con-
cuson of the court beow. ut there are numerous other crcumstances whch
ook the other way. They are embraced n the severa subsdary fndngs
whch the oard made and whch we have enumerated. Those fndngs are
supported by substanta evdence and are abundant |ustfcaton for the oard s
utmate fndng that the saes made through the short account were ordnary
saes. It s the functon of the oard, not the crcut court of appeas, to
weeh the evdence, to draw nferences from the facts, and to choose between
confctng Inferences. The court may not substtute ts vew of the facts
for that of the oard. Where the fndngs of the oard are supported by sub-
stanta evdence they are concusve. ( cverng v. Lazarus d Co., supra;
everng v. ehoe, 309 U. S., 277 Ct. D. 1 7, C. . 19 0-1, 187 , and cases
cted.) Under the statute the court may modfy or reverse the decson of
the oard ony f It s not n accordance wth aw. ( Stat., 110, 26 U. S. C,
secton 11 1 (c).) In ths case the crtera whch the oard empoyed n deter-
mnng whether the saes were short saes comped wth the ega prncpes
announced n Provost v. Unted States (269 U. S., 3 T. D. 3811, 0. . -,
17 (1926) ).
Reversed.
MISC LL N OUS.
19 2-21-11106
Ct. D. 1557
ncome and profts ta es |udca code decson of supreme court.
1. Sut ganst Coector udgment Not bes |udcata n Sut
ganst Unted States.
|udgment n a sut aganst a coector, beng persona, Is not
res |udcata of the ta payer s cam n a sut aganst the Unted
States, even though the two suts were based upon cams for refund
of ta es for the same year.
2. Decson Reaffrmed.
Sage v. Unted States (1919) (250 U. S.,33) reafrmed.
8. Decson ffrmed.
Decson of the Court of Cams (19 1) (36 Fed. Supp., 332)
affrmed.
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228
Supreme Court op the Unted States.
The Unted States, pettoner, v. Nunnay Investment Co.
On wrt of certorar to the Court of Cams.
May 11, 19 2.
OPINION.
Mr. ustce Fbankfttrteb devered the opnon of the Court.
Ths s a sut aganst the Unted States to recover ta es for the year 1920.
In that year the ta payer, the respondent here, sod ts busness and a ts
assets to another corporaton. The consderaton conssted of cash and the
assumpton of certan of the respondent s obgatons, Incudng Federa ta es
for prevous years. The purchaser pad part of these ta es In 1920, the reman-
der n 1921 and 1922. In determnng a defcency for the year 1920, the
Commssoner empoyed a ower bass of the assets sod than was used by the
respondent. The Commssoner computed the seng prce by ncudng the fu
amount of the ta es whch the purchaser agreed to assume. fter payng the
assessed ta , the respondent fed a cam for refund, aegng ony that the
Commssoner had understated the bass of the assets sod. In due course a
sut was brought aganst the coector In the dstrct court. settement was
reached under whch |udgment for the ta payer was entered. In accordance
wth ther agreement, nether party appeaed.
Thereafter, the respondent fed a second refund cam, assertng that the
ta es assumed by the purchaser whch were not pad In 1920 were not ta abe
to the respondent n that year. Ths cam was re|ected, and a sut aganst
the Unted States was begun n the Court of Cams. odng that the |udg-
ment aganst the coector n the dstrct court was not res udcata of the ta -
payer s cam n ths sut aganst the Unted States, the Court of Cams (wth
one |udge dssentng) gave |udgment for the respondent. (36 Fed. Supp., 332.)
In vew of the Importance of ths queston n the admnstraton of the Federa
ncome ta aw and ts reaton to the decson n Moore Ice Cream Co. v. Rose
(289 U. S., 373 Ct. D. 676, C. . II-1, 3 1 (1933) ), we brought the case
here. (31 U. S., .)
Neary a quarter-century ago n Sage v. Unted States (250 U. S., 33) ths
Court upon fu consderaton announced the doctrne that the Unted States
s a stranger to a |udgment resutng from a sut brought aganst a coector,
and that surh a |udgment s, therefore, not a bar n a subsequent acton
upon the same cam aganst the Unted States. Ths was not a nove doctrne.
The resut was drawn from the concepton of a sut aganst a coector as
persona, snce he was ||ersuuuy esponsbe for egay e actng moneys
under the cam that they were due as ta es. Such a persona remedy
aganst the coector, derved from the common-aw acton of ndebtatus
assumpst, has aways been part of our fsca admnstraton. Uness the
appcaton gven to ths remedy by the doctrne of the Sage case has been
dspaced by Congress or renounced by ater decsons of ths Court, the
udgment must stand. Concededy Congress has not done so. nd athough
recognton has been made of the technca nature of a sut aganst a coector,
no support can be found for the contenton that the Sage doctrne has been
dscarded as an anachronsm. On the contrary, the rue has been reaffrmed
n an unbroken ne of authorty.
Soon after the decson n the Sage case, the queston was presented whether
an acton aganst a coector coud be contnued aganst Ms successor. Ths
Court hed that t coud not, because the Sage case had setted that such a
sut was persona. (8 .e Smetanka v. Indana Stee Co.. 257 U. S., 1 Ct
D. 17, C. . 5, 251 (1921) ; Unon Trust Co. v. Warde, 258 U. S., 537 T. D.
3338, C. . 1-2, 310 (1922) .) In ankers Coa Co. v. urnet (287 U. S., 308),
a sut aganst a coector wth respect to ta es for the years 191 -1919 had
resuted n a determnaton that the ta payer was entted to a depeton
aowance of 5 cents per ton on coa mne royates. It was contended that
ths determnaton was res |udcata of that ssue n a subsequent acton
aganst the Commssoner reatng to ta es for ater years. The Court, agan
reyng on the Sage case, reeeted the argument n these words: Wth respect
to ths contenton t s suffcent to say that the sut n the dstrct court was
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229
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not aganst the Commssoner of Interna Revenue, the respondent here, but
aganst the coector, |udgment aganst whom s not res ad |udcata aganst
the Commssoner or the Unted States. (287 U. S., at 312.)
The Government eans heavy upon Moore Ice Cream Co. v. Rose (289 U. S.,
373). In that case the consttutonaty of secton 101 of the Revenue ct of
192 ( 3 Stat., 253, 3 3), provdng that a ta payer may recover an unawfu
Federa ta even though he pad the ta wthout protest, was uphed as apped
to a payment wthout protest made pror to the enactment of the provson.
In reachng hs concuson, the Court noted that under R. S. secton 989
(28 D. S. C, secton 8 2), a coector who acts under the drectons of the
Secretary of the Treasury, or other proper offcer of the Government s en-
tted as of rght to a certfcate convertng the sut aganst hm nto one aganst
the Government . sut aganst a coector who has coected a ta
n the fufment of a mnstera duty s to-day an anomaous rec of bygone
modes of thought. e s not suabe as a trespasser, nor s he to pay out of
hs own purse. e s made a defendant because the statute has sad for many
years that such a remedy sha e st, though he has been guty of no wrong,
and though another s to pay. There may have been utty n such
procedura devces n days when the Government was not suabe as freey as
now. They have tte utty to-day, at a events where the compant
aganst the offcer shows upon ts face that n the process of coectng he was
actng n the ne of duty, and that n the ne of duty he has turned the money
over. In such crcumstances hs presence as a defendant s merey a remeda
e pedent for brngng the Government nto court. (289 U. S., at 381-383.)
The Government urges that even though the Moore Ice Cream case was not
concerned wth the concusveness of a udgment n a sut aganst the coector,
ts ratonae undermned the Sage doctrne. ut such has not been the
nfuence of the Moore Ice Cream case on the subsequent course of decsons
reevant to our purpose. Tat v. Western Maryand Ry. Co. (289 U. S.,
620 Ct. D. 683, C. . II-1, 351 (1933) ), decded by a unanmous Court
three weeks after the decson n the Moore Ice Cream case, s ncontro-
vertbe proof that the Sage doctrne was eft unmpared. The Court there
hed that a |udgment n a sut aganst the Commssoner was bndng
n the subsequent acton aganst the Unted States and the coector. The doc-
trne n the Sage case was e pcty reaff-med: In a sut for unawfu
e acton the abty of a coector s not offca but persona. (Sage v. Unted
Mates. 250 U. S. 33; Smetanka v. Indana Stee Co., 257 U. S., 1; Graham t
Foster v. oodce, 282 U. S., 09, 30 Ct. D. 287, C. . -, 191 (1931) .)
nd for ths reason a |udgment n a sut n whch he was a party does not
concude the Commssoner or the Unted States. ( ankers Pocahontas Coa Co.
v. urnet, 287 U. S., 308, 311.) We thnk, however, that where a queston has
been ad|udged as between a ta payer and the Government or ts offca agent,
the Commssoner, the coector, beng an offca nferor n authorty, and
actng under them, s n such prvty wth them that he s estopped by the
|udgment. (298 U. S., at 627.)
More recenty, n Sunshne Coa Co. v. dkns (310 U. S., 381), where the
prncpe of res |udcata was apped to suts to whch an admnstratve
agency was a party, the Court agan e pressy adhered to the doctrne of
the Sage case: Cases hodng that a |udgment n a sut aganst a coector
for unawfu e acton s not a bar to a subsequent sut by or aganst the
Commssoner or the Unted States (Sane v. Unted States. 250 U. S. 33;
ankers Pocahontas Coa Co. v. urnet, 287 U. S., 308) are not In pont, snce
the sut aganst the coector s persona and ts ncdents, such as the nature
of the defenses open and the aowance of Interest, are dfferent. (310 U. S.,
at 03.) nd earer n ths term n Unted States v. aes (31 U. S., 186)
n speakng of the rght of a ta payer to mantan separate suts aganst a
coector and the Government for ta payments made to two coectors on
Income derved from a snge transacton n a snge ta year, the Court sad:
The |udgment aganst the coector Is a persona |udgment, to whch the
Unted States Is a stranger e cept as t has obgated tsef to pay t. (See
Sage v. Unted States, supra; Smetanka v. Indana Stee Co., supra, , 5.)
Whe the statutes have for most practca purposes reduced the persona
abty of the coector to a fcton, the course of the egsaton ndcates
ceary enough that It s a fcton ntended to be acted upon to the e tent
that the rght to mantan the sut and Its ncdents, unt |udgment rendered,
are to be eft undsturbed. . The rght to pursue the common aw
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230
acton aganst the coector s too deepy mbedded n the statutes and udca
decsons of the Unted States to admt of so radca a departure from ts
tradtona use and consequences as the Government now urges, wthout further
Congressona acton. (31 U. S. at 199-200.)
In summary, therefore, an mposng seres of opnons has fortfed the
orgna authorty of the Sage doctrne. No doubt the precse queston rased
n each of these cases was dfferent from the one now before us, and each cose
mght have been decded wthout reference to the prncpes underyng the
rue n the Sage case. ut ths ony serves to emphasze the obduracy of
the doctrne as part of the hstorca scheme of revenue admnstraton. It
woud have been easy n a of these cases to dsspate the force of the doctrne
whch the Sge case represents by re|ectng It and restng the decson n
that case upon the aternatve ground afforded by the ct of uy 27, 1912
(ch. 256, 37 Stat., 2 0). That ths ong ne of cases shoud have referred to
and reed upon the Sage case wthout re|ectng the doctrne for whch t was
cted ony undernes st further ts persstence.
ven when ths Court found that the common-aw rght to sue the coector
had argumentatvey been wthdrawn (see Cary v. Curts, 3 ow., 236), Con-
gress prompty restored that rght. ( ct of February 26, 18 5, ch. 22, 5 Stat.,
727.) The probem of ega remedes approprate for fsca admnstraton rests
wthn easy Congressona contro. Congress can dea wth the matter compre-
hensvey, unembarrassed by the mtatons of a tgaton nvovng ony one
phase of a compe probem. The Government Itsef does not now ask us to
|ettson the whoe noton of sung a coector personay. It merey asks us
to emnate one consequence of that concepton. In the fed of custom dutes
Congress has devsed a comprehensve and nterreated scheme of admnstratve
and udca remedes. (See ct of une 17, 1930, 6 Stat., 590, 73 , 19 U. S. C,
sectons 151 -1515; Freund, dmnstratve Powers over Persons and Property,
pages 553-560.) It the doctrne of the Sage case s now to be abandoned,
such a determnaton of pocy n the admnstraton of the ncome ta aw
shoud be made by Congress, whch mantans a ont Commttee on Interna
Revenue Ta aton charged wth the duty of nvestgatng the operaton of the
Federa revenue aws and recommendng such egsaton as may be deemed
desrabe.
ffrmed.
Mr. ustce ackson took no part n the consderaton or decson of ths
case.
Mr. ustce ack, Mr. ustce Dougas, and Mr. ustce tbnes dssent.
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MPLOYM NT T S,
INT RN L R NU COD .
C PT R 9, SU C PT R . F D R L INSUR NC CONTRI UTIONS
CT.
Secton 1 26: Defntons. 19 2-20-11098
Reguatons 106, Secton 02.20 : Who are empoyees. m. T. 28
( so Subchapter C (Federa Unempoyment Ta ct),
Secton 1607; Reguatons 107, Secton 03.20 .)
Supervsory personne performng servces pursuant to a contract
between , an archtect, and the M ousng uthorty of the cty
of R are empoyees of for purposes of the ta es Imposed by the
Federa Insurance Contrbutons ct and the Federa Unempoy-
ment Ta ct.
dvce s requested whether servces performed hy supervsory
personne pursuant to a contract between , an archtect, and the M
ousng uthorty of the cty of R are empoyees of for empoy-
ment ta purposes.
The M ousng uthorty of the cty of R (herenafter caed the
uthorty) s a body corporate and potc, organzed and e stng
under and by vrtue of the aws of the State of R, and has been hed
to be an nstrumentaty contempated by the frst cause of para-
graphs (7) of sectons 1 26(b) and 1607(c), as amended, of the
Federa Insurance Contrbutons ct and the Federa Unempoyment
Ta ct, respectvey. , an archtect, was engaged to render pro-
fessona servces n preparng pans, specfcatons, and drawngs
for a pro|ect undertaken by the uthorty. Under the terms of the
contract, must supervse the constructon of the pro|ect. Secton
3(h) of the contract provdes n part that n order to provde fu
fed superntendence under the drecton of the archtect, , together
wth the uthorty, sha make a mutua determnaton of the number
and character of supervsory personne requred for such supern-
tendence, ncudng necessary nspecton and accountng. Such
requste personne sha be engaged by the archtect at the wrtten
drecton and wth the specfc approva of the uthorty at such
saares as are mutuay agreed upon; and these saares sha be pad
by the uthorty upon presentaton of the archtect s certfed state-
ments. Such fu fed superntendence, when authorzed, sha con-
tnue at the opton of the uthorty, and may be dscontnued at
any tme by the uthorty upon wrtten notce gven two weeks n
advance to the archtect.
When a contract for constructon s ssued, the uthorty s n-
formed by the archtect as to the number of nspectors whch are
(231)
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Regs. 106, 02.20 .
232
necessary for supervsng the constructon. These nspectors are
chosen by the archtect, approved by the uthorty, and are speca-
zed n a partcuar fed of empoyment under the supervson of
the archtect. Once the uthorty has approved the nspectors, ts
|ursdcton over them ceases, snce the archtect contros ther dutes
and ssues orders for ther work. Such nspectors check the progress
of the constructon, make compants reatve to voatons of the
pans and specfcatons, and perform such other dutes as are as-
sgned by the archtect. The nspectors report drecty to the
archtect. t no tme does the uthorty come n contact wth, or
e ercse contro over, the nspectors n the performance of ther
dutes. If there s any voaton of the pans and specfcatons, the
uthorty ooks to the archtect under the terms of hs contract, and
n order to save hmsef harmess under the contract, the archtect
retans contro of the nspectors n order to see that hs part of the
contract s fathfuy performed. The uthorty has no rght of
drecton or contro over the supervsory personne, and ts rght to
dscontnue the servces of such personne s based on economc con-
sderatons ony. The suppes used by the supervsory personne
are furnshed by the archtect.
Under the facts presented, t s hed that the supervsory personne
performng servces pursuant to a contract entered nto between the
archtect and the M ousng uthorty of the cty of R, are em-
poyees of for purposes of the ta es mposed by the Federa Insur-
ance Contrbutons ct and the Federa Unempoyment Ta ct.
Secton 1 26: Defntons. 19 2-21-11107
Reguatons 106, Secton 02.20 : Who are empoyees. m. T. 29
( so Subchapter C (Federa Unempoyment Ta ct),
Secton 1607; Reguatons 107, Secton 03.20 .)
Servces performed for the M Natona ank by members of
the qudatng commttee of such bank consttute empoyment
for purposes of the ta es mposed by the Federa Insurance Con-
trbutons ct and the Federa Unempoyment Ta ct, In effect
snce December 31, 1939.
dvce s requested whether members of the qudatng commttee
of the M Natona ank are empoyees of such bank for empoyment
ta purposes.
The stockhoders of the M Natona ank, on une 1, 1935, passed
a resouton to dscontnue busness and to qudate the assets of
the bank, appontng fve ndvduas to serve as members of a qu-
datng commttee under the supervson of the board of drectors.
The bank has mantaned ts corporate e stence and has submtted
annua reports to the Comptroer of the Currency, and ts stock-
hoders hod annua meetngs at whch they eect offcers, drectors,
and members of the qudatng commttee to serve durng the ensung
year. The qudatng commttee whch meets weeky, or more fre-
quenty f necessary, has been engaged n qudatng the assets of the
bank under the supervson of the drectors and ts members receve
remuneraton for ther servces. Tte to the assets of the bank has
not been transferred to the qudatng commttee, and bs of sae
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233
Regs. 106, 02.20 .
and other documents transferrng such assets to others are sgned
by the offcers of the bank.
Servces performed on and after anuary 1, 1910, by members of
the qudatng commttee under the crcumstances descrbed const-
tute empoyment for purposes of the Federa Insurance Contrbu-
tons ct and the Federa Unempoyment Ta ct, and the remunera-
ton therefor s sub|ect to the ta es mposed under such cts.
Secton 1 26: Defntons. 19 2-22-11113
Reguatons 106, Secton 02.20 : Who are empoyees. m. T. 30
( so Subchapter C (Federa Unempoyment Ta ct),
Secton 1607; Reguatons 107, Secton 03.20 .)
Wndow trmmers performng servces for the M Dspay Co.
are empoyees of that company for purposes of Subchapters and
C, Chupter 9, of the Interna Revenue Code.
dvce s requested whether wndow trmmers performng servces
for the M Dspay Co. are empoyees of that company for empoyment
ta purposes.
The M Dspay Co. (herenafter caed the company) s engaged
n the busness, of settng up, decoratng, and nstang store wndow
advertsng dspays for manufacturers of varous products. Such
dspays are paced n store wndows of varous reta estabsh-
ments. The arrangements between the manufacturer and the com-
pany are made by correspondence, and the procedure s nsttuted
when the manufacturer notfes the company that the atter has been
awarded the contract for a certan number of dspays at a set prce
per dspay and requests the company to submt a st of stores n
whch the dspays are to be nstaed or ndcates the ocatons
chosen by the manufacturer. The ocatons may be chosen by the
manufacturer, by ts saesmen, by the company, and n some n-
stances by the trmmers themseves. When the ocatons are decded
upon, the manufacturer forwards the requred number of dspays
and a set of detaed nstructons as to the method of nstaaton to
be foowed. In some nstances, materas for backgrounds, founda-
tons, and streamers, and other necessary materas are purchased by
the company at ts own e pense for the competon of the nstaa-
ton.
The company contracts oray wth a wndow trmmer to set up a
certan number of dspays n specfed stores at a desgnated prce
per nstaaton. e s not permtted to hre hepers or assstants,
and f more than one person s requred for a partcuar assgnment,
that person s supped by the company. The trmmer agrees not
to compete wth the company and not to advertse or hod hmsef out
as beng n the dspay servce busness. e does not have an estab-
shed pace of busness, teephone number, statonery wth appro-
prate etterheads, or other commerca ndcatons of an ndependent
enterprse.
The trmmer s e perenced and e pert n hs work and nasmuch
as detaed nstructons are furnshed wth each dspay, he can per-
form the work wthout supervson. The company customary
checks the work at ts competon and f t s not propery nstaed,
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Regs. 106, 02.208.
23
any mperfecton must be remeded to the satsfacton of the com-
pany.
On the bass of the foregong facts, t s hed that the wndow
trmmers are empoyees of the M Dspay Co. for the purposes of
Subchapters and C, Chapter 9, of the Interna Revenue Code.
Secton 1 26: Defntons. 19 2-13-110 2
Reguatons 106, Secton 02.208: grcutura abor. m. T. 26
( so Subchapter C (Federa Unempoyment Ta ct),
Secton 1607; Reguatons 107, Secton 03.208.)
Servces performed by empoyees of the M Company In ceanng,
packng, and storng seed peas and beans do not consttute agrcu-
tura abor wthn the meanng of secton 1 20(h) of the Federa
Insurance Contrbutons ct and secton 1607(1) of the Federa
Unempoyment Ta ct.
dvce s requested whether servces performed by empoyees of
the M Company n ceanng, packng, and storng seed peas and beans
consttute agrcutura abor wthn the meanng of sectons
1 26(h) and 1607(1) of the Federa Insurance Contrbutons ct
and the Federa Unempoyment Ta ct, respectvey.
The M Company s engaged n the processng of peas and beans
for the purpose of ther sae as seeds and n connecton therewth
mantans a warehouse and m. The company does not own any of
the farms upon whch the peas and beans are grown but t has under
contract appro matey O acres cutvated by the farm owners.
The company s entre nvestment s n equpment used for ceanng,
packng, and shppng purposes.
The company enters nto wrtten contracts wth farmers for the
pantng, cutvatng, and harvestng of the peas and beans whch
the company handes, processes, and ses as seed to commerca mar-
kets. The contracts provde that the owner of the farm, who s
termed a grower, agrees to pant, cutvate, harvest, and dever
the crop produced from seeds furnshed by the company, and the
atter agrees to pay the grower a certan prce for each pound of
the seed produced from the harvested crop. The cost of the seed
furnshed to the grower s deducted from the amount pad to hm
by the company. The seed peas and beans are shpped and sod
by the company n ther raw state, havng been processed to the e tent
or beng ceaned and sorted n the company s m. The servces of
the empoyees under consderaton ncude dumpng beans nto the
m, hepng oad cars, etc.
In vew of the provsons of sectons 1 26(h) of the Federa In-
surance Contrbutons ct and secton 1607(1) of the Federa Unem-
poyment Ta ct, servces performed n handng, dryng, gradng,
processng, packng, packagng, storng, or deverng agrcutura
or hortcutura commodtes consttute agrcutura abor ony
f such servces are rendered as an ncdent to ordnary farmng opera-
tons or, n the case of fruts and vegetabes, as an ncdent to the
preparaton of such fruts or vegetabes for market. It s hed that
seed peas and beans are not fruts and vegetabes for purposes of
the above-mentoned provsons of aw. Therefore, servces per-
formed n the handng, dryng, gradng, processng, packng, pack-
agng, storng, or deverng of seed peas and beans consttute
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235
Regs. 106, 02.208.
agrcutura abor ony f they are rendered as an ncdent to
ordnary farmng operatons.
Secton 02.208(e) of Reguatons 106, promugated under the Fed-
era Insurance Contrbutons ct, and secton 03.208(c) of Regua-
tons 107, promugated under the Federa Unempoyment Ta ct,
provde that servces are performed as an ncdent to ordnary farm-
ng operatons f they are rendered n the empoy of the producer or a
cooperatve organzaton or group of producers of the commodty to
whch such servces reate, and f they are of a character ordnary per-
formed by the empoyees of a farmer or a cooperatve organzaton
or group of farmers as a prerequste to the marketng of the com-
modty n ts unmanufactured state.
In the nstant case the servces performed n the ceanng, packng,
and storng of seed peas and beans are not rendered n the empoy of
ether the producer of the commodty or a cooperatve organzaton or
group of such producers. It s accordngy hed that such servces are
not performed as an ncdent to ordnary farmng operatons and are
not e cepted from empoyment as agrcutura abor for
empoyment ta purposes.
Secton 1 26: Defntons. 19 2-17-11070
Reguatons 106, Secton 02.208: grcutura m. T. 27
abor.
( so Subchapter C (Federa Unempoyment Ta ct),
Secton 1607; Reguatons 107, Secton 03.208.)
Servces performed by empoyees of the M Company n connecton
wth the handng, packng, packagng, proctssng, gradng, storng,
or deverng of wanuts do not ou ttute agrcutura abor
wthn the meanng of secton 1 26(h) of the Federa Insurance
Contrbutons ct and secton 1607(1) of the Federa Unempoy-
ment Ta ct.
dvce s requested whether servces performed by empoyees of the
M Company n connecton wth the handng of wanuts purchased by
the company consttute agrcutura abor wthn the meanng of
sectons 1 26(h) and 1607(1) of the Federa Insurance Contrbu-
tons ct and the Federa Unempoyment Ta ct, respectvey.
The M Company s engaged n the busness of buyng, processng,
packng, and seng wanuts. In vew of the provsons of secton
1 26(h) of the Federa Insurance Contrbutons ct and secton
1607(1) of the Federa Unempoyment Ta ct, servces performed
n handng, dryng, gradng, processng, packng, packagng, storng,
or deverng agrcutura or hortcutura commodtes consttute
agrcutura abor ony f such servces are rendered as an ncdent
to ordnary farmng operatons or, n the case of fruts and vegetabes,
as an ncdent to the preparaton of such fruts or vegetabes for mar-
ket. It s hed that wanuts are not fruts and vegetabes for pur-
poses of the above-mentoned provsons of aw. Therefore, servces
performed n the handng, packng, packagng, processng, gradng,
storng, or deverng of wanuts consttute 8 agrcutura abor ony
f they are rendered as an ncdent to ordnary farmng operatons.
Secton 02.208(e) of Reguatons 106, promugated under the Fed-
era Insurance Contrbutons ct, and secton 03.208(e) of Regua-
tons 107, promugated under the Federa Unempoyment Ta ct,
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Regs. 106, 02.213.
236
provde that servces are performed as an ncdent to ordnary farm-
ng operatons f they are rendered n the empoy of the producer or a
cooperatve organzaton or group of the producers of the commodty
to whch such servces reate, and f they are of a character ordnary
performed by the empoyees of a farmer or a cooperatve organzaton
or group of farmers as a prerequste to the marketng of the com-
modty n ts unmanufactured state.
In tre nstant case the servces performed n the handng of wanuts
are not performed n the empoy of the producer or a cooperatve asso-
caton or group of the producers of the commodty to whch they
reate. It s accordngy hed that servces performed by the empoyees
of the M Company n connecton wth the handng of wanuts are not
e cepted from empoyment as agrcutura abor for empoy-
ment ta purposes.
Secton 1 26: Defntons. 19 2-8-10998
Reguatons 106, Secton 02.213: Unted States Mm. 5323
and nstrumentates thereof.
( so Subchapter C (Federa Unempoyment Ta ct),
Secton 1607 | Reguatons 107, Secton 03.213; and
Soca Securty ct, Sectons 811 and 907; Regua-
tons 91 and 90, rtces 11 and 206(5)-(6).)
State banks whch are members of the Federa Reserve System
and certan organzatons whch are members of the Federa ome
Loan ank System are not nstrumentates of the Unted States
for Federa empoyment ta purposes. Ths rung s nonretroactve
to the e tent that ta w not be requred wth respect to servces
performed pror to anuary 1, 19 0.
S. S. T. (C. . -2, 388 (1936)) and S. S. T. 109 (C. .
1937-1, 21), revoked. Mm. 5003 (C. . 19 0-1, 203) modfed.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, anuary 31, 19 3.
Coectors of Interna Revenue and Others Concerned:
1. In S. S. T. (C. . -2, 388 (1936)) the ureau of Interna
Revenue rued that State banks whch were members of the Federa
Reserve System were nstrumentates of the Unted States under
the ta ng provsons of the Soca Securty ct, and that servces
performed ay ndvduas n the empoy of such organzatons came
wthn the e cepton contaned n sectons 811(b)6 and 907(c)5 of
that ct. In S. S. T. 109 (C. . 1937-1, 21) a smar rung was
made wth respect to budng and oan assocatons, savngs and
oan assocatons, cooperatve banks, homestead assocatons, nsur-
ance companes, and savngs banks, chartered by the varous States,
whch were members of the Federa ome Loan ank System. The
rungs were aso appcabe under the Federa Insurance Contr-
butons ct and the Federa Unempoyment Ta ct, respectvey, n
force pror to anuary 1, 19 0. (S. S. T. 371, C. . 1939-2, 266.)
s a resut of the rungs, no ta was requred to be pad wth respect
to servces performed pror to anuary 1, 19 0, n the empoy of
such organzatons.
2. Reconsderaton of the rungs pubshed as S. S. T. and
S. S. T. 109 resuts n the determnaton that such rungs are
erroneous. ccordngy, the rungs are hereby revoked.
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237
Regs. 106, 02.21
3. It s hed that State banks whch were members of the Federa
Reserve System pror to anuary 1, 19 0, and that budng and oan
assocatons, savngs and oan assocatons, cooperatve banks, home-
stead assocatons, nsurance companes, and savngs banks, chartered
by the varous States, whch were members of the Federa ome
Loan ank System pror to anuary 1, 19 0, were not nstrumen-
tates of the Unted States wthn the purvew of sectons 811(b)6
and 907(c)5 of the Soca Securty ct and sectons 1 26(b)6 and
1607(c) 5 of the Interna Revenue Code n force pror to anuary
1, 19 0.
. Wth few e ceptons, the organzatons descrbed n S. S. T.
and S. S. T. 109 reed on that rung, and dd not pay ta es wth,
respect to servces performed n ther empoy pror to anuary 1,
19 0. The coecton of such ta es undoubtedy woud mpose a hard-
shp on such organzatons and ther empoyees. Therefore, under
the authorty granted n secton 3791(b) of the Interna Revenue
Code, the rung stated n paragraph 3, above, w be apped wth-
out retroactve effect to the e tent that no ta w be requred to
be pad wth respect to servces performed pror to anuary L 19 0,
n the empoy of the organzatons descrbed n S. S. T. and S. S. T.
109. ach such organzaton, however, must prompty fe wth the
coector of nterna revenue the nformaton returns on Forms SS-2
and SS-2a or Form SS-a whch are requred by Reguatons 91.
ny organzaton whch pad or pays ta wth respect to servces
performed pror to anuary 1, 19 0, w not be entted, by reason
of ths rung, to refund, credt, or ad|ustment of such ta .
5. In paragraphs 1 and 30 of Mmeograph 5003, dated anuary
27, 19 0 (C. . 19 0-1, 203), the ureau rued that empoyment ta es
are appcabe wth respect to servces performed on or after anuary
1, 19 0, n the empoy of organzatons such as those descrbed above.
Such rung s correct, and s not modfed by ths mmeograph. In
paragraphs 13 and 29 of Mmeograph 5003, however, reference was
made to the status of such organzatons as nstrumentates of the
Unted States. Paragraphs 13 and 29 of Mmeograph 5C03 are hereby
modfed to accord wth the rung stated n paragraph 3, above.
6. Correspondence reatng to ths mmeograph shoud refer to ts
number and to the symbos C: RR.
Norman D. Cann,
ctng Commssoner.
pproved anuary 31,19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
Secton 1 26: Defntons. 19 2-25-11131
Reguatons 106, Secton 02.21 : States and m. T. 31
ther potca subdvsons and nstrumentates.
( so Subchapter C (Federa Unempoyment Ta ct),
Secton 1607; Reguatons 107, Secton 03.21 .)
Servces performed for the O Defense Counc of the State of R are
e cepted from empoyment under secton 1 26(b)7 of the Federa
Insurance Contrbutons ct and secton 1607(c)7 of the Federa
Unempoyment Ta ct.
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Regs. 106, 02.227.
238
dvce s requested whether servces performed for the O Defense
Counc of the State of R are e cepted from empoyment under sec-
tons 1 26(b)7 and G07(c)7 of the Federa Insurance Contrbutons
ct and the Federa Unempoyment Ta ct, respectvey.
The O Defense Counc was formed pursuant to an act of the egsa-
ture of the State of R. Under such egsaton, a State counc of
defense s estabshed for the genera purpose of promotng State and
Natona securty by formuatng and assstng n the e ecuton of
pans for the mobzaton and effcent utzaton of the resources and
factes of the State and for the coordnaton and drecton of State
and oca actvtes reated to State and Natona defense. Such eg-
saton authorzes the estabshment of councs of defense n the ctes
and countes of the State by desgnated offcas and provdes that each
as are vested n and mposed upon the State counc. It s provded,
aso, that these councs sha perform such dutes as the State counc
may prescrbe. The members of the councs are to receve no com-
pensaton but may be rembursed for ther reasonabe and necessary
e penses ncurred n the performance of ther dutes. ach cty and
county s authorzed and empowered to approprate and make ava-
abe to the councs such sums of money as may be deemed necessary
to meet e penses. The actvtes of the councs are decared to be
proper cty and county purposes for whch the moneys of the cty or
county may be spent.
The O Defense Counc s an unncorporated organzaton formed
under authorty of the above-mentoned act and s engaged n enrong
and tranng vounteer workers and n procurng the equpment neces-
sary n the furtherance of the ar rad protecton system of the Unted
States. Its actvtes are controed by N County Counc of Defense,
ts charman was apponted by that organzaton, and he, as we as the
members of the counc, s sub|ect to dsmssa by the county counc.
ndvduas engaged n connecton wth the actvtes of the counc,
e cept a nght watchman, serve wthout compensaton.
On the bass of the presented facts, t s ned that the servces per-
formed for the O Defense Counc of the State of R are e cepted from
empoyment under secton 1 26(b) 7 of the Federa Insurance Con-
trbutons ct and secton 1607(c)7 of the Federa Unempoyment
Ta ct.
Secton 1 26: Defntons. 19 2-26-1113
Reguatons 106, Secton 02.227: Wages. m. T. 32
( so Subchapter C (Federa Unempoyment Ta
ct), Secton 1607; Reguatons 107, Secton 03.227.)
Payments made by the O Company to former empoyees caed
Into actve servce wth the R State Guard, whch payments suppe-
ment amounts receved by them from the State, do not consttute
wages for purposes of Subchapters and C, Chapter 9, of
the Interna Revenue Code.
dvce s requested whether payments made by the O Company to
former empoyees of the company servng n the R State Guard
consttute wages for empoyment ta purposes.
counc sha have the
and dutes wthn ts |ursdcton
c | 1 T r_ _
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239
Regs. 107, 03.208.
The O Company s board of drectors voted to pay empoyees who
are caed for servce wth the R State Guard the dfference between
the amount whch they woud receve f performng servces for the
company and the amount they receve from the State. No servces
are performed for the company by these ndvduas from the tme
of ther nducton nto the servce of the State, and t s antcpated
that they w be on guard duty for the duraton of the present war.
In S. S. T. 9 (C. . -2, 20 (1936)) t was hed that payments
made by the M Company to ts empoyees who are absent from work
whe servng n the State Natona Guard consttute wages for
empoyment ta purposes. In that case the empoyment reatonshp
between the M Company and ts empoyees was not dsturbed by
ther temporary servce n the State Natona Guard. In the nstant
case, however, there s a termnaton of the empoyment reatonshp
between the company and the empoyees when they are caed nto
actve servce wth the R State Guard.
It s hed that payments made by the O Company to former em-
poyees of the company caed for actve servce n the R State Guard
do not consttute wages for purposes of Subchapters and C,
Chapter 9. of the Interna Revenue Code. (See S. S. T. 06, C. .
19 0-2, 26 .)
C PT R 9, SU C PT R C F D R L UN MPLOYM NT T CT.
Secton 1607: Defntons.
Reguatons 107, Secton 03.20 : Who are empoyees.
Supervsory personne performng servces for , an archtect,
under contract wth the M ousng uthorty of the cty of R.
(See m. T. 28, page 231.)
Secton 1607: Defntons.
Reguatons 107, Secton 03.20 : Who are empoyees.
Members of qudatng commttee performng servces for the M
Natona ank. (See m. T. 29, page 232.)
Secton 1607: Defntons.
Reguatons 107, Secton 03.20 : Who are empoyees.
Wndow trmmers. (See m. T. 30, page 233.)
Secton 1607: Defntons.
Reguatons 107, Secton 03.208: grcutura abor.
Ceanng, packng, and storng seed peas and beans. (See m. T.
26, page 23 .)
Secton 1607: Defntons.
Reguatons 107, Secton 03.208: grcutura abor.
andng of wanuts. (See m. T. 27, page 235.)
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Regs. 90, rt. 211.
2 0
Secton 1607: Defntons.
Reguatons 107, Secton 03.213: Unted States and
nstrumentates thereof.
Labty pror to anuary 1, 19 0, for empoyment ta es of State
banks and certan organzatons whch are members of the Federa
Reserve System and the Federa ome Loan ank System,
respectvey. (See Mm. 5323, page 236.)
Secton 1607: Defntons.
Reguatons 107, Secton 03.21 : States and ther potca
subdvsons and nstrumentates.
Indvduas performng servces for the O Defense Counc of the
State of R. (See m. T. 31, page 237.)
Secton 1607: Defntons.
Reguatons 107, Secton 03.227: Wages.
Pavments made by empoyer to former empoyees servng wth
the R State Guard. (See m. T. 32, page 238.)
T S UND R SOCI L S CURITY CT
Secton 902: Credt aganst ta . 19 2-11-11028
Reguatons 90 (as amended), rtce 211: Credt Ct. D. 15 5
of contrbutons aganst ta .
( so Secton 802; Reguatons 91 (as amended),
rtce 20 ; and ankruptcy ct of 1938, Sec-
tons 57(|) and 6 (a) .)
soca securty ta es soca securty act bankruptcy act-
decson OF SUPR M COURT.
1. ankruptcy Prorty of Cam of Unted States ankrupt
mpoyer Cam to be Treated s for Ta Rather Than for
- Debt.
cam of the Unted States aganst the estate of a bankrupt empoyer
for amounts due under sectons 801 and 802 of Tte III of the Soca
Securty ct s a cam for ta es due by the bankrupt rather than for
a debt and s entted to the prorty accorded by secton 6 a( ) of the
ankruptcy ct.
2. ankruptcy Prorty of Cam of Unted States Credt for
Contrbutons to State Unempoyment Fund Penaty.
cam of the Unted States aganst the estate of a bankrupt empoyer
for amounts due under secton 901 of Tte I of the Soca Securty
ct, ess any credt aowabe under the provsons of secton 902 of
that tte, s entted to the prorty accorded by secton 6 a ( ) of the
ankruptcy ct for the fu net amount aowabe. The provsons of
secton 902 aowng as a credt aganst the ta mposed by secton 901
the amount of contrbutons to a State unempoyment fund (such credt
not to e ceed 90 per centum of the ta aganst whch t Is credted)
do not Impose a penaty, wthn the meanng of secton 57| of the
ankruptcy ct, upon an empoyer who has faed or refused to con-
trbute to a State unempoyment fund. The dena of the credt s not
the e acton of a penaty.
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2 1
Regs. 90, rt. 211.
3. ankruptcy ssrrs Insuffcent to Meet Cams of State and
Federa Governments Determnaton of mounts owabe
gebrac Formua.
In determnng the amount of credt aowabe under secton 902 of
Tte I of the Soca Securty ct n the case of a bankrupt empoyer
who has made no contrbuton to the State unempoyment fund and
whose assets are Insuffcent to meet the tota ta cams of the Federa
and State Governments, a certan agebrac formua adopted by the
dstrct court and approved by the crcut court of appeas may be used
to determne the proper amount to be aowed on the cam of the
State for ts unempoyment fund and the resutant amount to be aowed
on the cam of the Unted States for the ta under secton 901.
. Decson Reversed n Part and ffrmed n Part.
Decson of the Unted States Crcut Court of ppeas. Second Crcut
(118 Fed. (2d), 537) (19 1), reversed as to (1) and affrmed as to (2)
and (3).
Supreme Court of the Unted States.
Unted States of merca, pettoner, v. State of New York.
State of New York, pettoner, v. Unted States of merca.
On wrts of certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
March 2, 19 2.
opnon.
Mr. ustce yrnes devered the opnon of the Court,
The Unted States and the State of New York seek revew of a udgment of
the Crcut Court of ppeas for the Second Crcut reversng n part a dstrct
court order for the dstrbuton of the assets of a bankrupt estate. The Inde-
pendent utomobe Forwardng Corporaton was ad|udcated a bankrupt on
pr 26, 1938. tota of 3,053.20 eventuay became avaabe for dstrbuton.
Ths amount was nsuffcent even to meet those cams of the Federa and State
Governments whch were assertedy entted to prorty as tu es under secton
(a)( ) of the ankruptcy ct.1 The Federa cams of ths character were
for amounts due under sectons 801 and 802 of Tte III and under secton 901
of Tte I of the Soca Securty ct,3 and for certan ta es as to whch no
queston s rased n ths case. The State cams were for payments due ts
unempoyment nsurance fund, and for ta es not n Issue here.
The State s appea from the dstrct court s frst order of dstrbuton was
dscontnued by agreement of the partes because the Soca Securty ct had
beer e tensvey amended whe the appea was pendng. second order was
thereupon entered by the dstrct court. The State agan appeaed to the crcut
1 Sec. 6 . Debts whch have prorty. a. The debts to have prorty, n advance of the
payment of dvdends to credtors, and to be pad n fu out of bankrupt estates, and the
order of payment, sha be ( ) ta es egay due and owng by the bankrupt to
the Unted States or any State or any subdvson thereof (U. S. C. Tte 11,
secton 10 .)
C. 531. 9 Stat., 636, 639.
Sec. 801. Income ta on empoyees. In addton to other ta es, there sha be eved, co-
ected, and pad upon the Income of every Indvdua a ta equa to the foowng percentages
of wages (as defned In secton 811) receved by hm after December 3L 1036, wth respect
to unempoyment (as denned n secton 811) after such date: (1) Wth respect to em-
poyment durng the caendar years 1937, 1938, and 1939, the rate sha be 1 per centum.
(U. S. C. Tte 2 secton 1001.)
Sec 802. (a) 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. very
empoyer requred so to deduct the ta s hereby made abe for the payment of such ta ,
and Is hereby Indemnfed aganst the cams and demands of any person for the amount of
any such payment made by such empoyer. (U. S. C, Tte 2, secton 1002.)
Sec. 901. On and after anuary 1. 1936, every empoyer (as denned In secton 907) sha
pay for each caendar year an e cse ta , wth respect to hnvng Indvduas In hs empoy,
equa to the foowng percentages of the tota wages (as defned n secton 907) payabe
by hm (regardess of the tme of payment) wth respect to empoyment (as defned In sec-
ton 907) durng such caendar year: (2) wth respect to empoyment durng
the caendar year 1937 the rate sha be 2 per centum. (U. S. C, Tte 2, sec-
ton 1101.)
C. 666, 53 Stat., 1360,1399. See notes 9 and 10, nfra.
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Regs. 90, rt. 211.
2 2
court of appeas. It contended that the share of the assets granted to the Fed-
era Government was e cessve for three reasons (1) tho cam based on secton
801 of Tte III of the Soca Securty ct was a cam for a debt rather than
for ta es and thus was not entted to prorty under secton 6 (a)( ) of the
ankruptcy ct; (2) no more than 10 per cent of the cam based on secton
001 of Tte I of the Soca Securty ct was entted to aowance because
the baance consttuted a cam for a penaty rather tan a ta and thus fe
wthn the prohbton of secton 57( ) of the ankruptcy ct; and (3) the
credt aganst the Tte I cam provded for n secton 902 was ncorrecty
cacuated. The crcut court of ppeas sustaned the State s contenton wth
respect to the Tte III cam and reversed to that e tent the order of the
dstrct court, but re|ected the State s arguments wth respect to the cam under
Tte I .
Frst. The cam based on Tte III. Secton 801 bears the headng In-
come ta on empoyees and provdes for a ta upon the ncome of every
Indvdua equa to 1 per centum of the wages receved by hm wth respect
to empoyment durng 1937. Secton 802(a) provdes that ths ta sha be
coected by the empoyer of the ta payer, by deductng the amount of the ta
from the wages as and when pad. The empoyer s made abe for the pay-
ment of the ta . y reguaton, pursuant to Tte III, the Treasury Depart-
ment has e pcty rued that the ta may be assessed aganst the empoyer,
regardess of whether he has n fact deducted t from the empoyee s wages.
The crcut court hed that the empoyer was abe ony as an agent bound
to pay whether ts duty to coect was performed or not and that hs
abty was for a debt rather than for ta es.
s authorty for ths vew t reed upon ts decson of the same date In
Cty of New York v. Ferng (118 Fed. (2d), 329). The cty saes ta Invoved
In that case was ad upon recepts from saes of persona property. The vendor
was requred to coect the amount of the ta from the vendee separatey from
the saes prce. e was obged to report perodcay concernng hs recepts
from saes and to turn over to the cty comptroer the ta es due, whether or
not he had actuay coected them from the purchasers. If the vendor faed
to coect the ta , the vendee was requred to report the transacton and to pay
the ta drecty. Thus, the procedure contempated was that the purchaser shoud
bear the burden of the ta , but that the seer shoud coect and transmt It to
the comptroer. If the seer dd not obtan t from the purchaser, however, the
comptroer was authorzed to proceed to coect t from ether of them. The
crcut court of appeas hed that the cam of the cty aganst a bankrupt vendor
for the amount of the saes ta outstandng was a cam for a debt and not for
ta es, wthn the meanng of secton 6 (a)( ). We reversed ths decson and
hed that the burden mposed upon the seer by the cty ta ng act had a the
characterstcs of a ta entted to prorty under secton 6 (a)( ). (313
U. S., 283.)
We thnk that our decson n the Ferng case s controng here. The New
York Cty saes ta nvoved n that case and the obgaton mposed by sectons
801 and 802 of Tte III of the Soca Securty ct can not be dstngushed n
any matera respect. It was observed n the Ferng case that whe the saes
ta was ntended to rest upon the purchaser n Its norma operaton, both
the vendor and the vendee are made abe for payment of the ta n nvtum
and the ta may be summary coected by dstrant of the property
of ether the seer or the buyer. (313 U. S., 283, at 287.) The burden of the
ta provded for by sectons 801 and 802 kewse w normay rest upon the
empoyee, but the Commssoner of Interna Revenue may proceed to coect It
from the empoyer whether or not he has deducted It from the wages of the
empoyee.
Two dstnctons between the cases are urged by the State. One s that sec-
ton 802(a) of Tte III provdes that the ta sha be coected by the em-
poyer of the ta payer and thus reveas a Congressona ntent that ony a cam
aganst the empoyee shoud be treated as one for a ta . The other asserted
dstncton s that Tte III n ts entrety s desgned to Impose two dstnct
ta es; secton 801 mposes an ncome ta upon the empoyee, whe secton 80
Sec. 57. (|) Dpbts owng to the T ntod States or any State or subdvson thereof as a
penaty or forfeture Rhn not be aowed, e cept for the amount of the pecunary oss
sustaned by the act. transacton, or proceedng out of whch the penaty or forfeture arose,
wth reasonabe and actua costs occasoned thereby and such nterest as may have accrued
thereon accordng to aw. (U. S. C tte 11, secton 03( ).)
oth the pertnent State and Federa cams are for the year 1937.
Treasury Reguatons 91, artce 505.
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2 3
Regs. 90, rt. 211.
Imposes an e cse ta upon the empoyer. ut a ta for purposes of secton
6 (a) ( ) ncudes any pecunary burden ad upon ndvduas or property for
the purpose of supportng the Government, by whatever name t may be caed.
(New ersey v. nderson, 203 U. S., 83, 92.) though he may not be referred
to n sectons 801 and 802 as the ta payer, and athough he may aso be sub|ect
to the e cse ta prescrbed by secton 80 , the pan fact s that the empoyer
s abe for the secton 801 ta whether or not he has coected t from hs
empoyees. We therefore hod that the Tte III cam of the Unted States
aganst the estate of ths bankrupt empoyer s entted to the prorty afforded
by secton 6 (a) ( ).
Second. The cam under Tte I . Secton 901 mposes upon ths empoyer,
In addton to the obgatons dscussed above, ah e cse ta equa to 2
per centum of the tota wages payabe by hm durng 1937. Secton 902, however,
permts hm to credt aganst the ta mposed by secton 901 the amount
of hs 1937 contrbutons to the State unempoyment fund, but provdes that
the tota credt sha not e ceed 90 per centum of the ta aganst whch t s
credted.
(a) The State contends that secton 902(a) n effect e acts a penaty, equa
to 90 per cent of the amount of the ta eved by secton 901, from an empoyer
who fas to make the payments to the State unempoyment fund requred by
State aw. Snce secton 57( ) of the ankruptcy ct provdes that cams by
the Unted States for penates are not aowabe, t argues, ony 10 per cent of
the ta mposed by secton 901 s actuay a ta for purposes of secton 6 (a) ( )
of the ankruptcy ct. There s no mert to ths contenton. Whe the
ssue here s cast n somewhat dfferent terms, t s smar n outne to that
rased by the consttutona ob|ecton to the ct whch was set to rest n Steward
Machne Co. v. Davs (301 U. S., 5 8 Ct. D. 1236, C. . 1937-1, ). There t
was argued that the 90 per cent credt provsons amounted to coercon of the
States whch was repugnant to the tenth amendment and to the Federa system.
The Court recognzed that the effect of the scheme was to encourage the States
to estabsh and mantan unempoyment nsurance funds and thus to cooperate
wth the Federa Government n meetng a common probem. It observed that
every rebate from a ta when condtoned upon conduct s n some measure a
temptaton but t concuded that to hod that motve or temptaton s
equvaent to coercon s to punge the aw n endess dffcutes, and to accept
a phosophca determnsm by whch choce becomes mpossbe. (301 U. S.,
at 589-590.) These consderatons are equay pertnent to the suggeston that
the 90 per cent rebate arrangement consttutes the mposton of a penaty,
wthn the meanng of secton 57( ) upon an empoyer who fas or refuses to
contrbute to a State fund. The amount of the ta assessabe under secton 901
s defnte and f ed, once the snge varabe, the tota of the wages pad durng
the year, s determned. though the empoyer s free to obtan a credt aganst
t by contrbutng to hs State fund, It can not be sad that t s any the ess a
ta because the empoyer has faed, ether through choce or ack of resources,
to make such a contrbuton. ther the State or the Federa Government
must provde the money to meet the requrements of reef to the unempoyed.
y hs contrbutons to the State, an empoyer has dmnshed the demand upon
the fnanca resources of the Federa Government. ut by hs faure to con-
trbute, the empoyer has ncreased ths demand and sharpened the necessty
for obtanng the revenues requred to satsfy t. The effort by the Unted
States to obtan the revenue by denyng the credt must be regarded as the
evyng of a ta and not as the e acton of a penaty.
(6) Fnay the State contends that the dstrct court apped an ncorrect
formua n determnng the amount of the credt deductbe under secton 902.
Secton 902 provdes: The ta payer may credt aganst the ta mposed by
secton 901 of ths chapter the amount of contrbutons, wth respect to empoy-
ment durng the ta abe year, pad by hm (before the date of fng hs return
Sue. 80 . cse ta on empoyers. In addton to other ta es, every empoyer sha
pay an e cse ta . wth respect to havng Indvduas In hs empoy, equa to the foowng
percentages of the wages (as defned n secton 811) pad by hm after December 31. 1036,
wth respect to empoyment (as defned n secton 811) after such date: (1) Wth respect
to empoyment durng the caendar years 1937, 1938. and 1939. the rate sha be 1 per
centum. (D. S. C. Tte 2, secton 100 .)
See note , supra.
In 1939 Congress undertook to put an end to any doubts on ths queston by provdng
In secton 902(1) of the amendments to the Soca Securty ct that no part of the ta
mposed by Tte I shoud be deemed a penaty or forfeture wthn the meanng of secton
7( ) rf the ankruptcy ct. (C. 666. 53 Stat., 1360.1 00.)
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Regs. 90, rt. 211.
2
for the ta abe year) 10 Into an unempoyment fund under a State aw. The
tota credt aowed to a ta payer under ths secton for a contrbutons pad
Into unempoyment funds wy respect to empoyment durng such ta abe year
sha not e ceed 90 per centum of the ta aganst whch t Is credted .
In the case of a bankrupt who has not made any contrbuton to the State unem-
poyment fund at the tme of ad|udcaton and whose assets are nsuffcent
to meet the tota of the cams of equa prorty, the cacuaton of the credt
s beset wth some dffcuty. The amount avaabe for the State s cam for
ts unempoyment nsurance fund s contngent upon the sums aowed on the
other cams, ncudng that of the Federa Government under secton 901. The
amount to be aowed on the cam of the Unted States s n turn dependent
upon the credt deductbe from t under the terms of secton 902. nd ths
credt under secton 902 s determned by the sum granted on the State s unem-
poyment nsurance fund cam.
ecause of ths mutua dependence the courts beow have accepted and ap-
proved an agebrac souton of the probem. Under ths souton the cam for
the ta assessed under secton 901 s dmnshed by subtractng from t an
amount equa to the sum aowed to the State for ts unempoyment fund. The
formua by whch ths s accompshed s reducbe to a quadratc equaton
capabe of souton by the recognzed method.
s aganst ths agebrac souton, the State urges an arthmetca cacuaton
whch woud afford t a arger share of the assets. In bref, the State s theory
Is as foows: The amount of each of the severa cams of the State and of the
Unted States shoud be dvded by the sum of the assets avaabe. The per-
centage of the assets due on each cam s thus determned. The tota of the
assets avaabe s then mutped n turn by these percentages, and the actua
sum to be aowed on each cam s found. owever, the amount aowed on
the Federa Government s cam under secton 901 s then mutped by 10 per
cent. The sum equa to ths 10 per cent s thereupon concusvey granted to
the Unted States. ut the remanng amount, equa to 90 per cent, s returned
to the estate as a second fund to be dvded among a the cams n the same
manner. The share of ths second fund whch by ths computaton woud go
to the Unted States on ts secton 901 cam s agan mutped by 10 per cent,
wth the baance of 90 per cent returnng to form a thrd fund. The process
Is repeated unt the st undstrbuted assets reach a vanshng pont.
It w be observed that whe the one souton s agebrac and the other
arthmetc, there s tte to choose between them In terms of compe ty.
The obvous fact Is that nether the ankruptcy ct nor the Soca Securty
ct afford the courts any meanngfu assstance In sovng the probem rased
by ths case. nd ther egsatve hstory s equay barren.
The State ob|ects to the formua apped beow because ts effect s to accord
the Unted States a arger sum n doars and cents on Its secton 901 cam
than t woud receve f the avaabe assets were suffcent to dscharge n fu
a of the prorty cams. Ths Is true because, under secton 902, the Unted
States woud be entted to no more than 10 per cent of Its secton S )1 cam
f the unempoyment fund cam of the State was pad n fu. We agree that
ths resut s somewhat ncongruous. owever, the method of compuaton
urged by the State embodes so basc an error that we can not accept It. Sec-
ton 902 permts the credt aganst the ta mposed by secton 901. Under
the State s formua the credt s reckoned n terms of a sum determned by
that formua to be actuay avaabe to the Unted States on ts secton 901
cam rather than In terms of the whoe amount actuay due under that
secton. We thnk that the words the ta mposed must mean the ta
demanded or assessed or due . It can hardy be thought to mean the
ta pad or the amount avaabe for payment of the ta . The formua
adopted by the dstrct court avods ths error by credtng the undetermned
sum avaabe to the State unempoyment fund aganst the tota ta assessed
or camed under secton 901. We therefore hod that the dstrct court and the
crcut court of appeas dd not err In adoptng and usng that formua.
10 Ths condton had not been comped wth n the present case. owever, the 1939
amendments to the Soca Securty ct, whch resuted In the dsmssa of the frst appea
by stpuaton, provded that the credt shoud be aowed on payments to the State fund
wthout regard to the date of payment, f the assets of the ta payer are, at any tme
durng the 59-day perod foowng uch date of enactment, n the custody or contro of a
recever, trustee, or other fducary apponted by, or under the contro of, a court of com-
petent |ursdcton. (Secton 901(a) (8). C. 666, 53 Stat, 1360. 1399.) Ths bankrupt
estate quafed under ths provson.
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2 5
6 (a) .
The |udgment of the crcut court of appeas Is reversed wth respect to the
cam under Tte III, but Is otherwse affrmed. The case s remanded to
permt the renstatement of the |udgment of the dstrct court.
Reversed.
Secton 802: Deducton of ta from wages.
Reguatons 91 (as amended), rtce 20 : Coecton
of, and abty for, empoyees ta .
ankrupt empoyer, treatment of Government s cam for empoyees
ta . (See Ct. D. 15 5, page 2 0.)
Sectons 811 and 907: Defntons.
Reguatons 91 and 90, rtces 11 and 206(5)-(6): Gov-
ernment empoyees.
Labty pror to anuary 1, 19 0; for empoyment ta es of State
banks and certan organzatons whch are members of the Federa
Reserve System and the Federa ome Loan ank System,
respectvey. (See Mm. 5323, page 236.)
N RUPTCY CT OF 1938.
Secton 57(|): Proof and aowance of cams.
Ta under Tte I of the Soca Securty ct not a penaty. (See
Ct. D. 15 5, page 2 0.)
Secton 6 (a) : Debts whch have prorty.
Determnaton of Government s cam for ta under Tte I , Soca
Securty ct. (See Ct. D. 15 5, page 2 0.)
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MISC LL N OUS T S.
TITL III. ST T T . (1926)
S CTION 302. GROSS ST T .
Reguatons 70 (1929), rtce 10: Character
of nterests ncuded.
19 2-17-11073
Ct. D. 1552
ST T T R NU CT OF 1926 D CISION OF SUPR M COURT.
1. Gboss state Trust Phopebty Interest of Decedent at Ttm|
of Death Une ercsed Genera Power of ppontment.
The decedent, who ded at the age of 20 years, was a benefcary
under three trusts, from one of whch he was to receve a porton
of the ncome unt he reached the age of 28, at whch tme, If vng,
he was to receve the trust property and accumuated Income; from
the other trusts he was to receve the ncome for fe, sub|ect to
certan restrctons unt reachng the age of 28. ach of the trusts
gave the decedent a genera testamentary power of appontment
over the trust property; In defaut of the e ercse of such power
the propertes were to go to hs descendants, or, f none, to hs
brother and ssters and ther ssue per strpes. ed: The decedent
at the tme of hs death dd not have, by vrtue of the genera power
of appontment, even If never e ercsed, such an nterest n the trust
property as to requre ts Incuson n hs gross estate under secton
302(a) of the Revenue ct of 1926.
2. Gross state Trust Property Genera Power of ppont-
ment Compromse Settement Cam ased Upon Purpobted
ercse of Power.
Where the decedent by w purported to e ercse a genera power
of appontment n favor of hs brother and ssters, and after tga-
ton the severa camants agreed to a compromse under whch a
porton of the trust property went to the brother and ssters, that
porton of the property whch can be mputed to the cam based on
the attempted e ercse of the power of appontment s ncudbe n
the gross estate of the decedent under secton 302(f) of the Revenue
ct of 1926.
3. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, Fourth
Crcut (121 Fed. (2d), 307 (19 1)), affrmng decson of the Unted
States oard of Ta ppeas ( 2 . T. ., 1 5 (19 0)), reversed.
Ouy T. everng, Commssoner of Interna Revenue, pettoner, v. Safe Depost
Trust Co. of atmore, Trustee Under Ws of R. . Reynod and atherne
8. ohnston, etc., et a.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Fourth Crcut
pr 13, 19 2.
Mr. ustce ack devered the opnon of the Court
ecause of the mportance n the admnstraton of the Federa estate ta of
the questons Invoved, we granted certorar to revew the |udgment of th
Supreme Court of the Unted States.
opnon.
(2 8)
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2 7
Regs. 70 (1929), rt. 10.
crcut court of appeas (121 Fed. (2d), 307) affrmng a decson of the oard
of Ta ppeas ( 2 T. ., 1 5).
Zachary Smth Reynods, age 20, ded on uy 6, 1932. t the tme, he was
benefcary of three trusts: one created by hs father s w n 1918, one by
deed e ecuted by hs mother n 1923, and one created by hs mother s w In 192 .
From hs father s trust, the decedent was to receve ony a porton of the Income
pror to hs twenty-eghth brthday, at whch tme, f vng he was to become
the outrght owner of the trust property and a accumuated Income. s
mother s trusts drected that he en|oy the Income for fe, sub|ect to certan
restrctons before he reached the age of 28. ach of the trusts gave the decedent
a genera testamentary power of appontment over the trust property; n defaut
of e ercse of the power the propertes were to go to hs descendants, or If he
had none, to hs brother and ssters and ther ssue per strpes.
The Commssoner Incuded a the trust property wthn the decedent s gross
estate for the purpose of computng the Federa estate ta . The oard of Ta
ppeas and the crcut court of appeas, however, hed that no part of the trust
property shoud have been Incuded.
I. The case presents two questons, the frst of whch s whether the decedent
at the tme of hs death had by vrtue of hs genera powers of apwntnent, even
If never e ercsed, such an nterest In the trust property as to requre ts ncuson
n hs gross estate under secton 302(a) of the Revenue ct of 1926 ( Stat.,
9, 70). Ths secton 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
Intangbe, wherever stuated
(a) To the e tent of the Interest theren of the decedent at the tme of hs
death;
The Government argues that at the tme of hs death the decedent had an
Interest n the trust propertes that shoud have been ncuded n hs gross
estate, because he, to the e cuson of a other persons, coud en|oy the Income
from them; woud have receved the corpus of one trust upon reachng the age
of 28; and coud aone decde to whom the benefts of a the trusts woud pass
at hs death. These rghts, t s sad, were attrbutes of ownershp substantay
equvaent to a fee smpe tte, sub|ect ony to specfed restrctons on aenaton
and the use of Income. The respondents deny that the rghts of the decedent
wth respect to any of the three trusts were substantay equvaent to ownershp
n fee, emphaszng the practca mportance of the restrctons on aenaton and
the use of ncome, and argung further that the decedent never actuay had the
capacty to make an effectve testamentary dsposton of the property because he
ded before reachng hs ma|orty.
We fnd t unnecessary to decde between these confctng contentons on the
economc equvaence of the decedent s rghts and compete ownershp.1 For even
If we assume wth the Government that the restrctons upon the decedent s use
and en|oyment of the trust propertes may be dsmssed as neggbe and that
he had the capacty to e ercse a testamentary power of appontment, the queston
st remans: Dd the decedent have at the tme of hs death such an nter-
est as Congress ntended to be ncuded In a decedent s gross estate under secton
302(a) of the Revenue ct of 1920 It s not contended that the benefts durng
fe whch the trusts provded for the decedent, termnatng as they dd at hs
death, made the trust propertes part of hs gross estate under the statute. nd
vewng secton 302(a) n ts background of egsatve, |udca, and admnstra-
tve hstory, we can not reach the concuson that the words Interest
of the decedent at the tme of hs death were ntended by Congress to ncude
property sub|ect to a genera testamentary power of appontment une ercsed by
the decedent.
The forerunner of secton 302(a) of the Revenue ct of 1926 was secton
202(a) of the Revenue ct of 1016 (39 Stat., 777). In Unted tate v. Fed
(2f 5 U. S., 257), ths Court hed that property passng under a genera power
of appontment eweresed by a decedent was not such an Interest of the
decedent as the 1916 ct brought wthn the decedent s gross estate. Whe
In decnng to pass upon ths Issue, we do not re|ect the prncpe we have often
recognzed that the reates of the ta payer s economc Interest rather than the ncetes
of the conveyancer s art shoud determne the power to ta . (See Curry v. McCaness, 307
t;. S.. 357, 871, and cases there cted.) Nor do we deny the reevance of ths prncpe as a
gude to statutory nterpretaton where, unke here, the ansunge of a statute and 1U
statutory hstory do not afford more specfc ndcatons of egsatve Intent. ( evern
v. C rd, 309 U. S 331 ICt. D. 1 , C. . 19 0-1, 105 .)
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egs. 70 (1929), rt. 10.
2 8
the hodng was mted to e ercsed powers of appontment, the approach of
the Court, the authortes cted, and certan e pct statements1 n the opnon
eft tte doubt that the Court regarded property sub|ect to une ercsed
genera powers of appontment as smary beyond the scope of the statutory
phrase nterest of the decedent.
fter the Fed case, the provson t passed upon was reenacted wthout
change n the Revenue ct of 1921 (secton 02(a), 2 Stat., 278) and n the
Revenue ct of 192 (secton 302(a), 3 Stat, 30 ). If the mpcatons of
the Fed opnon wth respect to une ercsed powers had been consdered con-
trary to the ntendment of the words nterest of the decedent t s reasonabe
to suppose that Congress woud have added some carfyng amendment.
If the counterparts n the earer cts of secton 302(a) of the Revenue ct
of 1926 dd not requre the ncuson of property sub|ect to an une ercsed
genera testamentary power of appontment wthn the decedent s gross estate,
there s no bass for concudng that the amendment of 1926 changed the ct
n ths respect. Pror to 1926 an nterest of the decedent was to be ncuded
n hs gross estate ony f sub|ect after hs death to the payment
of the charges aganst hs estate and the e penses of ts admnstraton
and sub|ect to dstrbuton as part of hs estate. In the 1926 ct
ths quafcaton was abandoned. In the report accompanyng the b whch
emboded ths change, the ouse Commttee ou Ways and Means stated ony
that In the Interest of certanty t s recommended that the mtng an-
guage sha be emnated n the proposed b, so that the gross
estate sha ncude the entre nterest of the decedent at the tme of hs
death n a the property. Nothng n the report suggested that the change
was ntended to have any reevance to powers of appontment, and no such
ntenton can reasonaby be nferred from the amended secton tsef. It Is
noteworthy that the reguatons of the ureau of Interna Revenue ssued
after passage of the 1926 ct contan no ndcaton that the Treasury Depart-
ment regarded the amendment as affectng une ercsed powers of appontment.
On the other hand, the artce pertanng to powers of appontment was rencor-
porated n the 1926 reguatons wth the same content, so far as here reevant,
as the correspondng artce n the ast reguatons ssued pror to the 1926 ct.
When It was hed n the Fed case that property sub|ect to an e ercsed
genera testamentary power of appontment was not to be ncuded n the
decedent s gross estate under the Revenue ct of 1916, ths Court referred to
an amendment passed n 1919 whch specfcay decared property passng under
an e ercsed genera testamentary power to be part of the decedent s gross
estate. The passage of ths amendment, sad the Court, ndcates that Con-
gress was at east doubtfu whether the prevous ct ncuded property passng
by appontment. In the face of such doubts, whch can not reasonaby be
supposed to have been ess than doubts wth respect to une ercsed powers,
Congress nevertheess specfed ony that property sub|ect to e ercsed powers
shoud be ncuded. From ths deberate sngng out of e ercsed powers
aone, wthout the corroboraton of the other matters we have dscussed, a
Congressona Intent to treat une ercsed powers otherwse can be deduced. t
the east, secton 302(f) of the 1926 ct,1 the counterpart of the 1919 amendment
referred to n the Fed case, represents a course of acton foowed by Congress
. g.: ut the e stence of the power does not of tsef vest any estate n-the donee.
(Page 20. .)
If there be no appontment, It the property sub|ect to the power goes accordng
to the dsposton of the donor. (Pace 26 .)
the nterest n queston was not property of Mrs. Fed at
ber death. (Pane 26 .)
In urnet v. uryehem (288 U. S.. 2F0. 288 Ct. D. 636. C. . II I, 37 (1933) , ths
Court stated : Unted States v. Fed hods that under the Revenue ct of 1916
the sub|ect of a power created by another s not a part of the estate of the
decedent to whom the power was commtted. It s to be noted that no dstncton was
recognzed between e ercsed and une ercsed powers under the rue of the Fed case.
ouse Report No. 1. S ty-nnth Congress, frst sesson. 15.
s rtce 2 of Treasury Reguatons 70 (1926 ed.) under the Revenue ct of 1926;
rt-e 2 of Treasury Reguatons 68 (192 ed.) under the Revenue ct of 192 .
U ted S ates v. F , d, surra 2P5.
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 Intangbe,
wherever stuated

(f) To the e tent of any property passng onder a genera power of appontment
e ercsed by the decedent (1) by w, or (2) t y deed e ecuted In contempaton of, or
Intended to take effect In possesson or en|oyment at or after, hs death, e cept In case
of a bona fde sae for an adequate and fu consderaton In money or money s worth;
( Stat., 9, 70-71.)
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2 9
Regs. 70 (1929), rt. 10.
snce 1919 entrey consstent wth a purpose to e cude from decedents gross
estates property sub|ect to une ercsed genera testameut ry powers of appont-
ment.
In no udca opnon brought to our attenton has It been hed that the gross
estate of a decedent ncudes, for purposes of the Federa estate ta , property
sub|ect to an une ercsed genera power. On the contrary, as the court beow
ponts out, the courts have been at pans to consder whether property passed
under a genera power or not so as to be ta abe under secton 302(f), a con-
sderaton whch woud have been absoutey unnecessary f the estate were
ta abe under 302(a) because of the mere e stence of a genera power whether
e ercsed or not. (121 Fed. (2d), 307, 312.) In addton, the unform admn-
stratve practce unt ths case arose appears to have paced an nterpretaton
upon the Federa estate ta contrary to that the Government now urges. No
reguatons ssued under the severa Revenue cts, ncudng those In effect at
the tme ths sut was Intated, prescrbe that property sub|ect to an un-
e ercsed genera testamentary power of appontment shoud be ncuded In a
decedent s gross estate. ecause of the combned (ffect of a of these crcum-
stances, we beeve that u departure from the ong-standng, generay ac-
cepted constructon of secton 302(a), now contested for the frst tme by the
Government, woud overrde the best ndcatons we have of Congressona ntent.
II. The second queston s the treatment to be gven, under secton 302(f) of
the Revenue ct of 1920, to a share of the trust property passng to the decedent s
brother and ssters as a resut of a compromse settement wth other camants.
Shoud that share be ncuded n whoe or In part wthn the decedent s gross
estate as property passng under a genera power of appontment e ercsed by
the decedent by w
The cam of the brother and ssters was based upon: (1) a purported e ercse
of the power of appontment n ther favor by the decedent In a w he e ecuted
In New York, and In the aternatve, (2) ther rght to take n defaut of appont-
ment under the terms of the trusts. ach of the two chdren of the decedent (1)
dened the vadty of the New York w and (2) chaengng the rght of the
brother and ssters to take n defaut, ndependenty asserted hs own. These
Issues, compcated by many other factors whch It s unnecessary here to dscuss,
were never fnay resoved by |udca decson, athough there had been much
tgaton Invovng them In the North Carona courts. ventuay, the severa
camants agreed to a compromse under whch 37 per cent of the trust property
went to the brother and ssters. The compromse was confrmed by a |udgment
of the North Carona Superor Court and ths udgment was affrmed by the
North Carona Supreme Court. (208 N. O., 576.)
The Government contends that a porton of the share receved by the brother
and ssters refects recognton by the other camants as we as by the North
Carona courts of the asserton that the power of appontment was vady e er-
csed ; and that under the doctrne approved by ths Court n I/|ch v. nvy (305
U. S., 188), that porton must be treated as though t actuay passed pursuant
to an effectve e ercse of the power.
The Lyeth case, ke the one now before us, came to ths Court after a compro-
mse settement. n her of the decedent had contested the vadty of the dece-
dent s w n whch no provson had been made for hm. The her and the
devsees and egatees under the w entered nto a compromse provdng that
the w be probated and that a specfc sum be pad to the her. We hed that
the money the her receved pursuant to the compromse shoud be treated, wth
respect to hs ta abty under the Federa Income ta statute,1 as If acqured
by nhertance for the reason that t was possbe for hm to receve It ony
because of hs standng as an her and of hs cam n that capacty.
The cam of the decedent s brother and ssters here, so far as tnted on the
vadty of the purported appontment, had ts roots, ke the camed nvadty
of the w n the Lyeth case, n an ssue never decded n tgaton. If It had
been tgated to fna |udgment by a competent trbuna and the brother and
ssters had succeeded n estabshng the vadty of the e ercse of the power.
See. e. g., everng v. Ornne (29 U. S.. 153) ; Rothen rs v. Fdety-Phadepha
Trutt Co. (112 Fed. (2d). 758).
See I Pau, Federa state and Oft Ta aton. 2r : . s ong as there s no actua
or constructve e ercse of the power, there can be no ta under the present statute.
Secton 22(b)8 of the Revenue ct of 1932 ( 7 Stat., 178). under whch the Lyeth
case arose, e empted from the ncome ta the vaue of property acqured by
Inhertance .
u Lyeth v. oey, supra, 196.
7 918 2 9
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Regs. 70 (1929), rt. 10. 250
the Incuson In the decedent s gross estate of what they woud have receved as
appontees, pursuant to secton 302(f), coud not serousy be questoned. In
the Lyeth case we sad that the dstncton sought to be made between acqus-
ton through such a |udgment and acquston by a compromse agreement n eu
of such a |udgment s too forma to be sound. u There s no ess reason for the
same concuson here.
The respondents contend that the prncpe of the Lyeth case, announced by the
Court wth respect to ncome ta abty, shoud not be controng where, as here,
the queston s one of estate ta abty. It s urged that ta es shoud not be
nfuenced by what occurs after the ta abe event; that t s reasonabe to consder
a compromse precedng the recept of ncome n connecton wth an ncome ta ;
but that a compromse occurrng after the decedent s death, whch s the ta abe
event under an estate ta , shoud not be consdered. Whatever may be the
genera rue n ths respect, ths Court has ceary recognzed, In everng v.
Grnne (29 U. S., 153), that events subsequent to the decedent s death, events
controed by hs benefcares, can determne the Incuson or not of certan
assets wthn the decedent s gross estate under secton 302(f). In that case
the decedent had e ercsed a genera testamentary power of appontment, an
act whch under secton 302(f) brngs the property sub|ect to the power wthn
the gross estate. The subsequent renouncement by the appontees of the rght
to receve by appontment and ther eecton to take as remandermen n defaut
of appontment were hed by ths Court to pace the property sub|ect to the power
outsde the scope of secton 302(f).
The respondents further contend that |udca determnatons havng been
made n the State courts that the attempted appontment was nvad, the share
of the brother and ssters In the compromse refects ony ther aternatve cam
to the trust property. Whe there are e pct statements n the opnon of the
North Carona Superor Court that the attempted appontment was nvad, these
statements must be regarded as superseded by the opnon whch the North
Carona Supreme Court, whose determnaton consttuted the fna approva of
the compromse, rendered on appea. For, In the course of that opnon the
supreme court gave cear recognton to the aeged vadty of the decedent s
attempted appontment as a bass of the cam the brother and ssters asserted.
The court stated (208 N. C, 578, 618) :
Serous and grave questons of aw and facts were rased. The |udgment
sets them out and we refer to same, a troubesome, but we w consder one
for e ampe: The vadty and effect of the aeged w e ecuted In New York
by Zachary Smth Reynods, as a bass of the offer of the brother and ssters
of Zachary Smth Reynods.
Inconsstent statements made n the course of a decree ssued by the Crcut
Court of atmore, Md., can not be regarded as overcomng the force of the
foregong, snce the decree purported ony to authorze and drect the Maryand
trustee to dvde the trust property n accordance wth the compromse as
approved n North Carona.
ow much, f any, of the 37M per cent gong to the decedent s brother and
ssters shoud be mputed to the cam based on the attempted e ercse of the
power of appontment and how much to ther aternatve cam we do not
decde. In remandng ths case to the oard of Ta ppeas for a determna-
ton of ths ssue, we recognze that a decson must necessary be an ap-
pro maton derved from the evauaton of eements not easy measured. In
matters so practca as the admnstraton of ta aws and n the decson of
probems connected wth them, a hgh degree of precson s often mpossbe
to acheve. ut t s far better to make such a rough estmate as the data
w permt than competey to gnore the reates of the compromse because
of the dffcutes of evauaton.
The udgment of the crcut court of appeas Is reversed wth drectons to
remand to the oard of Ta ppeas for further proceedngs not nconsstent
wth ths opnon.
Reversed.
The Chef ustce, Mr. ustce Roberts, Mr. ustce Frankfurter, and Mr.
ustce yrnes concur In the opnon of the Court upon the frst queston decded
and dssent from the decson of the second queston.
u/d.
See Ithaca Trutt Co. v. Unted State (27 ) U. S.. 151, 155 ICt. D. 61. C. . III-,
313 (1920) ).
Cf. Unted States v. Ludev (27 IT. S . 21). ). 302 fT. D. 0 6. C. . I 2. r.7 (1927)1).
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251
Regs. 79 (1936;. fcrt. 9.
TITL III. GIFT T . (1932)
S CTION 50 . N T GIFTS.
Reguatons 79 (1936), rtce 9: Net gfts. 19 2-1-109 9
Ct. D. 1533
GIFT T R NU CT OF 1932 D CISION OF COURT.
1. Petton fob Revew Moton to mend ssgnments of bbob to
Incude New Issue Power of Coubt to Consder Pont Not
Presented eow.
though the Commssoner n a moton for eave to amend hs pet-
ton for revew sought to obtan reversa of the oard s decson upon
a pont not presented beow, the court has the power to consder the
new pont where Intervenng decsons In other cases have put a dffer-
ent face upon the tgaton.
2. Gfts n Trust cusons Present ob Future Interests n
Property Power of Trustees to ppy Income ob Prncpa
Towards tngushment of ncumbrances ganst Trust
Property.
The ta payer n 1937 made a gft to trustees to augment a trust
fund estabshed n 193 for the beneft of her chdren. The decara-
ton of trust empowered the trustees In ther dscreton to acqure
property sub|ect to mortgage or other encumbrances, to use ether trust
ncome or prncpa, or both, to e tngush any such encumbrances,
and to pay the net Income to the benefcares for fe, wth reman-
ders over at ther deaths, after a encumbrances were pad n fu.
ed: The gft of an mmedate fe Interest n ncome s to be re-
garded as a present nterest; but where the absoute rght of bene-
fcares to en|oyment of the ncome s postponed unt the happenng
of a future event, an e cuson n respect of each donee Is not aowabe
to the donor under secton 50 (b) of the Revenue ct of 1932 merey
because the trustee s Invested wth an mmedate dscretonary power
to make advancements.
8. Remand to oard of Ta ppeas Whether enefcares Took
Present or Future Interests Redetermnaton of Defcency.
Snce the queston as to the nature of the nterests of the benefc-
ares was not tgated before the oard, the case s remanded to permt
the ta payer to be heard upon that Issue. The oard may redetermne
the defcency n accordance wth ts fndngs, and the Commssoner
may then cam a defcency n addton to the amount stated In bs
defcency notce.
. Decson Reversed.
Memorandum opnon of the Unted States oard of Ta ppeas
(19 0), reversed.
Unted States Crcut Court of ppeas for the Frst Crcut.
Commssoner of Interna Revenue, pettoner for revew, v. Mary . randegee.
123 F. (2d), 08.
Petton for revew of decson of Unted States oard of Ta ppeas.
efore Magbuder, Mahoney, and Woodbury, .
October 30, 19 1.
opnon.
Magbuder, .: In 1937 Mary . randegee, the ta payer heren, made a gft
to trustees of property vaued at 35,000 n augmentaton of a trust fund whch
she had estabshed In 193 . The queston before us s whether, n computng
the 1937 gft ta , the ta payer s entted to take an e cuson In respect of
each of four benefcares, whch s aowabe uness the gfts were of future
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Regs. 79 (1936), rt. 9.
252
nterests In property wthn the meanng of secton 50 (b) of the Revenue
ct of 1932 ( 7 Stat., 169, 2 7), readng as foows:
(b) Gfts Less 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.
y the decaraton of trust, dated pr 18, 193 , the trustees were empowered
to acqure property, rea or persona, from sad Mary . randegee, or any
one ese, by gft or by purchase. In ether case, they may acqure property
sub|ect to any mortgage or other encumbrances they see ft, whch they may
assume f they see ft. Further, they were empowered to se, e change,
mortgage or pedge any of the trust property, and were gven dscretonary
power to pay, ether from prncpa or ncome or both, any mortgages or
other charges or obgatons gven by them or on property acqured by them,
makng payments on account or n fu f and whenever they see ft. Paragraph
of the trust nstrument provded:
. Durng the contnuance of the trust, the trustees may pay the net Income
from the trust property n equa shares to the chdren of sad Mary . ran-
degee, the survvors and survvor of them, the ssue who may from tme to
tme be vng of any of sad chdren who have ded to receve by rght of
representaton the share of the net ncome ther parent or ancestor woud have
receved f vng. nd after a mortgages and other charges or obgatons
aganst property acqured by the trustees by gft or purchase, ncudng mort-
gages and other charges or obgatons gven n substtuton therefor, are pad
n fu (as to whch facts the decsons of the trustees sha be concusve) the
trustees sha, durng the contnuance of the trust, pay the net ncome from the
trust property as aforesad. Payments of ncome sha be made quartery and
there sha be no apportonment of ncome on the death of any person entted
thereto.
The trust was to contnue unt the death of the survvor of the four chdren
now vng of Mary . randegee ; and upon ts termnaton the trust property
was to be dstrbuted among, the then vng ssue of the chdren per strpes
or n defaut of such Issue to arvard Coege. These four chdren were a
vng n 1937 when the gft n queston was made.
On her gft ta return for 1937, the ta payer camed a separate e cuson
n respect of each of the four benefcares. The Commssoner, feeng hmsef
constraned by Commssoner v. Wes (88 Fed. (2d), 339 (C. C. . 7, 1937)
Ct. D. 1310, C. . 1938-1, 516 ), and Commssoner v. rebs (90 Fed. (2d), 880
(C. C. . 3, 1937) Ct. D. 1311, C. . 1938-1, 518 ), rued that the trust estate,
rather than the benefcares severay, must be consdered to be the donee;
and hence aowed ony one e cuson of 5,000 and gave notce of a defcency
accordngy.
The oard of Ta ppeas, on the ta payer s petton for redetermnaton of
the defcency, hed that she was entted to four e cusons, based on the number
of benefcares, and hence decded that there was no defcency. Necessary
ths decson must have assumed sub sento that the gfts to the benefcares
were not of future nterests n property. In the proceedngs before the oard,
the Commssoner reed soey upon the contenton that the trust was the donee
whch contenton, f we taken, woud have requred the aowance of one e cu-
son of 5,000 because the nterest of the trustees, on behaf of the trust, was
certany a present rather than a future nterest. The Commssoner dd not
make the aternatve contenton that f the benefcares were deemed to be the
donees of the gft, then no e cuson at a was permssbe because the
benefcares took future Interests n property.
In hs orgna assgnments of error fed on pr 19, 19 0, wth hs petton
for revew of the oard s decson, the Commssoner adhered to the poston
that the trust was the donee wthn the meanng of secton 50 (b). Thereafter,
the Supreme Court n everng v. utchng (312 T . S., 393 (19 1)), hed that
where a donor conveys property In trust for the beneft of numerous benefcares
he Is entted to separate e cusons of 5,000 for each benefcary, provded the
benefcares are gven present Interests. There foowed aso numerous cases
defnng the meanng of the phrase future nterests n property. (Unted
States v. Pezer, 312 U. S., 399 (19 1) Ct. D. 1 95, C. . 19 1-1, 1 ; Ryerson
v. Unted States, 312 U S., 05 (19 1) Ct. D. 1 96, C. . 19 1-1. 3 ; Wech v.
Pane, 120 Fed. (2d), 1 1 (C. C. . 1, 19 1) ; Commssoner v. arbour, 121 Fed.
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253
Regs. 79 (1936), rt. 9.
(2d); 72S (C. C. . 3, 19 1) ; evertg v. ar, 121 Fed. (2d), 9 5 (C. C. . 2,
19 1) ; Commssoner v. Tayor (C. C. . 3, ugust 22, 19 1) ; opkns v.
Uaffruder (CC . , September 10, 19 1).)
These decsons suggested to the Commssoner that though the utehngs
case had rendered untenabe hs orgna contenton n the case at bar, never-
theess he had n fact underestmated the ta payer s defcency because the
benefcares took future nterests n property and hence not even one e cuson
shoud have been aowed.
ccordngy, the Commssoner moved n ths court for eave to amend the
assgnments of error set forth n hs petton for revew by addng two new
assgnments as foows:
6. The oard of Ta ppeas erred n fang to hod that the gfts made
n 1937 were future nterests n property.
7. The oard of Ta ppeas erred n fang to hod that the ta payer
was entted to no e cusons wth respect to the gfts made In 1937.
We aowed the amendment. Though the Commssoner thus sought to obtan
a reversa of the oard s decson upon a pont not presented beow, here s
now no doubt of our power to consder the new pont, where ntervenng de-
csons In other cases have put such a dfferent face upon the tgaton; and
we thought we ought to aow the amendment n vew of orme v. everng
(312 U. S., 552 (19 1) Ct. D. 1 98, C. . 19 1-1, 315 ) ; evcrng v. Rchter
(312 U. S., 561 (19 1)) ; everng v. ar (121 Fed. (2d), 915 (C. C. . 2,
19 1)) ; Commssoner v. arbour (121 Fed. (2d), 728 (C. C. . 3, 19 1)), and
opkns v. Magruder (C. C. . . September 10, 19 1).
Comng then to the merts, whch were fuy argued before us, we refer to
our recent decson n Wech v. Pane (120 Fed. (2d), 1 1), for a genera ds-
cusson of what Congress meant by future nterests n property.
On the face of the trust nstrument, the nterest whch the benefcares
receve at the outset Is qute dfferent n nature from the nterest to whch
they succeed upon the happenng of a future event, that s, upon the payment n
fu of a mortgages or charges aganst property acqured by the trustees.
Whe any such mortgages or encumbrances reman undscharged, the trus-
tees have power to wthhod a ncome from the benefcares. Ths s not
the ordnary power, Imped even wthout e press provson In the trust deed,
to wthhod a reasonabe amount of the ncome to meet present or antcpated
e penses whch are propery chargeabe to ncome. ( m. L. Inst. Restate-
ment of Trusts, secton 182, comment b; Shrk v. Waker, 298 Mass., 251 (193D.)
Dnder the power conferred upon the trustees n the case at bar, they coud
appy a the ncome, or Indeed a or any part of the prncpa, of the 1937
gft toward the e tngushment of e stng charges aganst the property; thus
they are n effect authorzed to accumuate the ncome unt the net vaue of
the trust property s augmented by an amount equa to that of such outstandng
encumbrances. It s true that the trustees have a dscreton to pay the net
ncome to the benefcares n equa shares; and the rght of the benefcares to
receve such ncome at any tme the trustees shoud choose to gve t to them
s no doubt a knd of nterest of whch a court of equty may take
cognzance. (See Fuham v. Commssoner, 110 Fed. (2d), 916, 918 (C. O. .
1, 19 0).) ut If t may be caed a present Interest there s st the dffcuty
that such an nterest s nherenty ncapabe of vauaton. ( everng v. ar,
121 Fed. (2d), 9 5, 9 7 (C. C. . 2, 19 1).) Where the absoute rght of the
benefcares to en|oyment of the ncome s postponed unt the happenng of a
future event, a 5,000 e cuson n respect of each donee Is not aowabe to the
donor under secton 00 (b) merey because he has Invested the trustee wth
an mmedate dscretonary power to make advancements. Wech v. Pane,
supra; Commssoner v. Tayor, supra; everng v. ar, supra.) nd ths
s so whether or not the trustee happens to pay over ncome to the benefcares
durng the year n whch the gft s made. The nature of the nterest of the
donees s determned as of the date of the gft, not by what the trustee may
subsequenty choose to do n the e ercse of hs dscretonary power. (See
everng v. ar, supra, at page 9 7.)
If and when the mortgages and encumbrances are dscharged n fu the
nterest of the benefcares, theretofore contngent upon the trustees dscreton,
s succeeded by a more substanta nterest, for the trustees n such event come
under a mandatory duty to pay the net Income In equa shares to the survvor
or survvors of the chdren and to the ssue of any deceased chd per strpes.
ut vewed from the date of the 1937 gft, such succeedng Interest s ceary
a future nterest under the decded cases. The unquafed rght to ncome
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Regs. 70 (1936), rt. 9.
25
s mted to commence u use and en|oyment at a future date or tme. See
defnton of future nterests n artce 11 of Treasury Reguatons 79 (1936
ed.).1 Indeed, one or more of the chdren mght de wthout ever comng nto
such use and en|oyment. It can make no dfference whether the future date,
on whch the Interest commences n en|oyment, s f ed by the attanment of a
certan age by the benefcares, as n Wech v. Pane, supra, Comms oner v.
Tayor, supra, and Commssoner v. arbour, supra, or by the death of a named
person, as n opkns v. Magruder, supra, and n one of the trusts In ever-
ng v. ar, supra, or by a change n the personne of the trustees, as In an-
other of the trusts n everng v. ar, supra, or by payment n fu of certan
mortgages and encumbrnnces as In the case at bar.
The record before us does not dscose the fu story. It does not appear
whether the trustees ever acqured any property sub|ect to mortgage gr other
encumbrance or, f they dd, whether the same had been dscharged pror to
the gft In 1937. The burden of proof was upon the ta payer to show that the
Commssoner s determnaton was ncorrect. ( everng v. Tayor, 293 U. S.,
507, 515 (1935) Ct. D. 912, C. . I -1, 168 (1935) .) It can not be nferred
from the face of the trust nstrument aone that no defcency s due. To
show that the benefcares took present rather than future nterests under
the terms of the trust, the ta payer woud have to estabsh that when the
gft was made n 1937 there were no mortgages or other encumbrances out-
standng, the e stence of whch woud postpone the unquafed rght of the
benefcares to en|oyment of the net ncome. The ta payer shoud be gven
an opportunty, upon remand, to estabsh, If she can, the e stence of such
a state of facts, snce the ssue as to the nature of the nterests was not
tgated at the hearng before the oard. ( onne v. everng, 312 U. S., 552,
560 (19 1) ; everng v. Rchter, 312 U. S., 561, 562 (19 1) Ct D. 1 97, C. .
19 1-1, 31 .) There shoud be a rehearng before the oard on the ssue
whether the benefcares took future nterests n property, and the oard
w redetermne the defcency n accordance wth ts fndngs on that ssue.
t ths rehearng the Commssoner w have an opportunty to assert a de-
fcency n addton to the amount stated n hs defcency notce, based on the
ground that not even one e cuson shoud have been aowed f the nterests
of the benefcares were future nterests wthn the meanng of secton 50 (b).
See I. R. C. sectons 1012(e) and 11 1(c)(1).
In the foregong dscusson we have assumed that the gft of an mmedate
fe Interest In ncome s to be regarded as a present nterest, and we so hod.
That queston, we note, was eft open n Ryerson v. Unted States (312 U. S.,
05, 09 (19 1)), and everng v. ar (121 Fed. (2d), 9 5, 9 7 (C. C. .
2, 19 1)). The Government has not made the e treme contenton that the gfts
In queston woud st be deemed future nterests n property even though
at the date of the gfts n 1937 the donees acqured the unquafed rght to
the present en|oyment of the net ncome. In ordnary usage a fe tenant
under a trust, havng the rght to the mmedate benefca en|oyment of the
ncome, s consdered as havng a present nterest, even though possesson of the
corpus s wthhed from hm or postponed. ( m. L. Inst. Restatement of
Property Future Interests, secton 153.) We do not beeve that the Com-
mssoner Intended to mpy the contrary n the genera anguage of hs defn-
ton of future nterests referred to above.1 Indeed, under artce 11 of Treasury
Reguatons 79 (1933 ed.), the Commssoner gves an ustraton of a gft to
a trustee to pay the ncome to the donor s wfe durng her fetme and at her
death to dever the property to hs two daughters. It s stated that In cacua-
tng the amount of the net gfts sub|ect to ta there shoud be subtracted 5,000
from the vaue of the fe estate gven to the wfe, the necessary mpcaton
beng that the wfe takes a present Interest; but the nterest of the daughters
beng future nterests no e cusons are to be aowed on account thereof.
The decson of the oard of Ta ppeas s reversed and the case s re-
manded to the oard for further proceedngs n conformty wth ths opnon.
1 Future Interests s a ega term, and Incudes reversons, remanders, and other
nterests or estates, whether vested or contngent, and whether or not supported by a par-
tcuar nterest or estate, whch are mted to commence n use, posseson, or en|oyment
at some future date or tme.
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255 Regs. 6 (1938), rt. 2.
C PIT L STOC T .
INT RN L R NU COD .
S CTION 1200. T .
Reguatons 6 (1938), rtce 2: Dong busness. 19 2-17-11071
( so Secton 105, Revenue ct of 1935, as amended, Ct. D 1551
and Secton 601, Revenue ct of 1938, and rt-
ce 2 of Reguatons 6 (1936).)
capta stock ta revenue acts of 1935 and 1938 and nterna
revenue code decson of supreme court.
1. Cobpobaton Carryng on ob Dong usness Organzed
for Purpose of Lqudatng nother Corporaton.
reaty corporaton organzed n 1935 by the protectve commttee
for the bondhoders of a defunct raway company for the purpose
of qudatng certan propertes of the defunct company whch the
commttee had acqured through forecosure, and whch carred on
negotatons for the sae of such propertes, made saes, rented un-
sod property under short-term eases, and dstrbuted net Income to
ts stockhoders (former bondhoders of the raway company) was
carryng on or dong busness wthn the meanng of secton
105(a) of the Revenue ct of 1935, secton 601 of the Revenue ct of
1938, and secton 1200(a) of the Interna Revenue Code, and was
therefore sub|ect to the ta mposed by those sectons.
2. Reguatons adty and ppcabty.
rtce 3(a)5 of Reguatons 6 (1936 and 1938 edtons), whch
provdes that dong busness ncudes actvtes of a corporaton
engaged n the qudaton of property, s vad am appcabe to the
ta payer, and s not nconsstent wth artce 3(b)2 of the regu-
atons, reatng to the actvtes of a corporaton organzed for, or
whch has reduced ts actvtes to, the mere ownng and hodng of
specfc property.
3. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, Fourth
Crcut (120 Fed. (2d), 1 (19 1)), affrmng decson of the Dstrct
Court of the Unted States for the Dstrct of Maryand (35 Fed.
Supp., 3 0 (19 0)), reversed.
Supreme Court of thh Unted States.
. ampton Magruder, Coector of Interna Revenue, pettoner, v. Washngton,
atmore d nnapos Reaty Corporaton.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Fourth Crcut
pr 13, 19 2.
OPINION.
Mr. ustce Mubphy devered the opnon of the Court.
Ths s a sut for refund of capta stock ta es pad by respondent for the years
endng une 30, 1936, through 1939. We are asked to determne whether re-
spondent was carryng on or dong busness wthn the meanng of secton
105(a) of the Revenue ct of 1935 (ch. 829, 9 Stat., 1017) and subsequent cts,
whch provde:
For each year endng une 30, begnnng wth the year endng une 30, 1936,
there s hereby mposed upon every domestc corporaton wth respect to carry-
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Regs. 6 (1938), rt. 2.
256
ng on or dong busness for any part of such year an e cse ta of 1. 0 for each
1,000 of the ad|usted decared vaue of ts capta stock. 1
Respondent was organzed n 1935 wth broad corporate powers under the aws
of Maryand by the protectve commttee for the bondhoders of the defunct
Washngton, atmore nnapos Raway Co. It was formed for the purpose
of qudatng certan propertes formery beongng to the raway company
whch the commttee had acqured through forecosure. mong the propertes
receved by respondent from the commttee were certan rghts of way, easements,
termna propertes, and other rea estate ocated n atmore, nnapos, and
Washngton, as we as at the other ponts aong the ne of the raroad, and the
stock of a reaty hodng company whch owned another reaty company, both
of whch had been subsdares of the raway company for the purpose of hodng
ega tte to rea estate. The vaue of the propertes receved n 1935, as shown
by respondent s baance sheet, was 19,250.
Snce ts ncorporaton respondent has been carryng on negotatons for the
sae of the propertes acqured, seng them from tme to tme as satsfactory
offers were receved, and rentng unsod propertes under short term eases n an
attempt to earn the carryng charges pendng utmate sae. Recepts from saes
durng the -year perod here n queston were appro matey 075,000, and rentas
amounted to 136,000. t the end of ths perod respondent s books st showed
propertes worth 122,000. net ncome, e cept sma reserves for contn-
gences, was dstrbuted as receved to the stockhoders, former bondhoders of
the raway company.
Respondent pad capta stock ta es for the four years n queston and then
brought ths sut for refund of the payments n the dstrct court. The court
hed that because respondent was a qudatng corporaton, t was not carryng
on or dong busness wthn the meanng of the capta stock ta and was there-
fore e empt. In so hodng the court refused to gve effect to the Treasury regu-
aton camed to be appcabe. (35 Fed. Supp., 3 0.) The crcut court of
appeas affrmed. (120 Fed. (2d), 1.) We granted certorar because of the
mportance of the queston n the admnstraton of the Revenue cts. (31
U. S., .)
The reguaton, artce 3(a)5, provdes:
rt. 3. Iustratons. (a) Genera. In genera dong busness ncudes
any actvtes of a corporaton whether t engages n

(5) the ordery qudaton of property by negotatng saes from tme to
tme as opportunty and |udgment dctate and dstrbutng the proceeds as
qudaton s effected for e ampe, the qudaton of an estate, or of prop-
ertes taken over from another corporaton, or of the sharehoders fractona
Interests n partcuar property;
If the reguaton s both appcabe and vad, respondent manfesty can not
preva.
On the queston of appcabty there can be no doubt for the anguage of the
reguaton precsey descrbes respondent s actvtes. We nd wthout sub-
stance respondent s assertons that artce 3(6)2 s nconsstent wth artce
3(o)5 and that t more e acty fts the facts of ths case. Durng the perod n
queston respondent dd not fa nto that state of quetude, covered by the spe-
cfc anguage of artce 3(6)2, n whch t was merey ownng and hodng spe-
cfc property and dstrbutng the resutng proceeds. (See Zonne v. Mnneapos
Syndcate, 220 U. S., 187; cf. on aumbach v. Sargent Land Co., 2 2 U. S., 503,
516-517.) On the contrary, respondent was actvey engaged n fufng the pur-
pose of ts creaton, the qudaton of ts hodngs for the best obtanabe prce.
1 Ths anguage has not been changed, e cept for the ta perods and the amount of the
ta . In the subsequent cts coverng the ta perod here n queston. (See secton 01,
Revenue ct of 1036, ch. 600, 9 Stat, 1733: secton 601. Revenue ct of 1938, ch. 289,
52 Stat., 565.) The provson s now ncorporated n secton 1200(a) of the Interna
Revenue Code.
rtce 3( )5 of Treasury Reguatons 6 (1936 edton).
ceptons. Ordnary the e ceptons to dong busness are restrcted to mted
actvtes of a corporaton, such as

(2) the dstrbuton of the avas of property and the dons ony of such acts
as may be necessary for the mantenance of Its corporate status n the case n whch
the corporaton ether was organzed for, or has reduced Its actvtes to, the mere
ownng and hodng of specfc property.
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257
Regs. 6 (1938), rt. 0.
rtce 3(o)5 Is both a contemporary and a ong-standng admnstratve
nterpretaton, havng been n tffect n substantay the same form snce 1918,
e cept for the perod from 1926 to 1933 when the ta was not mposed. We are
of the opnon that t s vad, as we as appcabe. The cruca words of the
statute, carryng on or dong busness, are not so easy of appcaton to
varyng facts that they eave no room for admnstratve nterpretaton or
eucdaton. To be sure, n many, f not n most Instances, the factua stuaton
w be so e treme as to eave no doubt whether a corporaton s dong busness
or not. ut the nuances of facts between the two e tremes have produced a
nebuous fed of confuson whch has been recognzed by courts strvng to h
cose cases nto one category or the other. Interpretatve reguatons, such as
artce 3(a)5, are approprate ads toward emnatng that confuson and
uncertanty. (Cf. nrverv| v. Wshre O Co., 308 U. S., 90, 102 Ct. D. 1 2 ,
C. . 1939-2, 213 ; Te te Ms Securtes Corporaton v. Commssoner, 31 U. S.,
, No. 3 , ths term.)
Reversed.
S CTION 1202, S M ND D Y S CTION 301 OF T R NU CT
OF 1939.
Recttatto s 6 (1938), rtce 6: d|usted 19 2-16-11C62
vaue. Ct. D. 1550
capta stock ta nterna revenue code decson of court.
1. ankr-pt Corporaton ass for Determnaton of Ta
d|usted Decared aue.
In the case of a corporaton ad|udcated a bankrupt on May 13,
1910, the capta stock ta mposed by secton 1200(a) of the Interna
Revenue Code for the fsca year ended une 30, 19 0, s to be deter-
mned upon the bass of the ad|usted decared vaue of the capta
stock, as provded by secton 1202 of the Code, rather than upon the
rea vaue of the assets as determned by the bankruptcy court. The
pan Import of the statute and reguatons s that the capta stock
ta s a ta eved as an e cse nganst the corporaton for the prv-
ege of carryng on or dong busness for the whoe or any part of the
fsca year, and snce the corporaton dd carry on and do busness
throughout tte fsca year unt the ad|udcaton of bankruptcy, the
tu had n effect accrued and such bankruptcy can work no change
n the method of ts ascertanment or n the amount of the ta .
2. Decson Reversed.
Decson of the Dstrct Court of the Unted States for the Southern
Dstrct of Caforna, Centra Dvson (19 0) (37 Fed. Supp., 3 2),
reversed.
3. Certorar Dened.
Petton for certorar dened February 9,19 2.
rtce 5 of Treasury Reguatons 38. ssued under the Revenue ct of 1916 (ch. 63,
39 Stat.. 7. )6), provded :
corporaton formed to take over msceaneous stocks, bonds, and other
property, to negotate the sae of the varous tems from tme to tme as opportunty and
|udgment dctate, and to dstrbute the proceeds from tme to tme as qudaton Is effected,
Is organzed for proft and whe engaged n such qudaton s carryng on busness.
T provson, wth mnor changes n wordng, was contnued n Trensury Reguatons 50
Uf 9 ed.), artce 18: (1920 ed.), artce 11; Treasury Reguatons 6 (1922 ed.), artce
12 : 1192 ed.). artce 12; (1933 ed.). artce 22 ; (193 ed.), artce 33. In 1936 Treasury
Reguatons 6 were reorganzed and the substance of the provson quoted above was
contnued as artce 3(a)5 of the 1936 edton. No change was made In the 1938 edton.
See aton . Phoen Securtes Co. (22 Fed. (2d). 97. 9S) ; Unte States v. //o/c UkS
Redwood Co. (25 Fed. (2d). 958 fT. D. 2 , C. . II-2. 3F0 (1928))) ; armar Coa Co.
v. ener (31 Fed. (2d). 725, 727): rgonaut Consodated Mnm| Co. v. nderson (52
Fed. (2d), 55. 58 (Ct. D. 0 . C. . -2, 1 (1931) ) ; mercan Investment Securtes
Co. v. Unted States (112 Fed. (2d), 231, 232).
The d e sons of ths Court Iustrate the dffcut probems of cassfcaton encountered.
(See Cedar Street Co. v. Park Reaty Co.. 220 U. S., 107, 170; on Paumbneh v ament
Land Co.. 22 . 8.. 503: dwards v. C7; e I opper Co.. 270 U. S.. . 2 IT. D. 3857, C. .
-. 10 (1926)1; Phps v. /nfernafonn| Satf Co., 27 U. S., 718 wth whch compare
Zonne v. Unneapos Syndcate, 220 U. S.. 187; UcCoach v. neh Raway Co.. 228
D. S., 295; Unted States v. mery, 237 U. S.. 28.)
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Regs. 6 (1938), rt. 6. 258
Unted States Crcut Court of ppeas for the Nnth Crcut.
Unted States of merca, appeant, v. George T. Ctoggn, a Trustee n ank-
ruptcy of the state of cme Traffc Sgna Co., a Corporaton, ankrupt,
appeee.
123 Fed. (2d), 32.
Upon appea from the Dstrct Court of the Unted States for the Southern Dstrct of
Caforna. Centra Dvson.
efore Denman. Mathews, and Stephens, Crcut udges.
November 18, 19 1.
OPINION.
Stephens, Crcut udge: Ths s an appea from a |udgment of the dstrct
court refusng to confrm, and vacatng order of the referee f ng and aowng
capta stock ta under 26 U. S. C. ., Interna Revenue Code secton 1200(a),
for the year endng une 30, 19 0, n the sum of 202 aganst appeee, George T.
Goggn, as trustee In bankruptcy of the estate of cme Traffc Sgna Co., a cor-
poraton, bankrupt, and determnng that the bankruptcy court has the power to
determne the capta stock ta n accordance wth the rea vaue of the assets
of the bankrupt estate, rather than accordng to the ad|usted decared vaue as
determned n accordance wth secton 1202 of the Interna Revenue Code (as
amended by secton 301 of the Revenue ct of 1939, eh. 2 7, 53 Stat., 862).
Under secton 1200(a) of he Interna Revenue Code a capta stock ta s m-
posed on every domestc corporaton wth respect to carryng on or dong bus-
ness for any part of such year, In ths case beng the year endng une 30,
19 0, and the ta s measured by the ad|usted decared vaue of the capta
stock. Under secton 1202 the ad|usted decared vaue for that year s the vaue
as decared by the corporaton n ts return for the year ended une 30, 1938,
sub|ect to such ad|ustments as are specfcay authorzed by the statute.
ppeee, on ugust 1,1938, fed a capta stock ta return for the year endng
une 30, 1938, n whc the capta stock was gven a decared vaue of 200,000.
The 1939 capta stock ta return, fed on uy 28, 1939, reported an ad|usted de-
cared vaue of 198, 12. 6 for the ta payer s stock. The corporaton was ad-
|udcated bankrupt May 13, 19 0, and the trustee refused to sgn the 19 0 return
prepared by the coector of nterna) revenue, and the coector thereupon made
the return n accordance wth secton 3612 of the Interna Revenue Code, but
the record does not show on what date. In the preparaton of ths 19 0 return
the coector started wth the ad|usted decared vaue of 198, 12. 6 reported In
the bankrupt s 1939 capta stock ta return. The sum of 13, 6.20 was deducted
from ths amount as the amount of oss occurrng durng the prevous ncome
ta year, accordng to the ta payer s books. The record does not ndcate
whether the ta payer kept ts books on the bass of a caendar or fsca year.
Thus an ad|usted decared vaue of 18 ,906.26 was arrved at for the ta year
endng une 30, 19 0. On uy 15, 19 0. the coector fed the cam of the
Unted States for ta es aganst the bankrupt.
No queston s rased as to the correctness of the ad|usted decared vaue of
18 ,906.20 ts determned by the coector, f such ad|usted decared vaue s to
be determned as provded by secton 1202 of the Interna Revenue Code, but
t s camed that by reason of the ad|udcaton of bankruptcy of appeee n
May 13. 19 0, a new and dfferent ta ng entty s nvoved, and that the bank-
ruptcy court shoud determne the ta n accordance wth the rea vaue of the
assets of the bankrupt estate. It s admtted that the trustee was abe to obtan
no more than 5,100 from the sae of a of the bankrupt s assets.
What was the effect of the ad|udcaton of bankruptcy on the ad|usted de-
cared vaue Secton 1202(c) of the Interna Revenue Code provdes that the
year n whch bankmptcy Is termnated sha be a decaraton year, but ths s
not to say that the method of arrvng at the vaue of the capta stock of a
corporaton n bankruptcy for part of a ta abe year, for capta stock ta pur-
poses shoud be vared from that of other corporatons, f Congress had so
ntended t coud have so provded.
Treasury Reguatons 6 (1938 edton), artce 1 21 provde: (/) The
term ta abe year means any 12-month perod after une 30, 1937, begnnng
uy 1 and endng une 30, or any fractona part thereof. Itacs added.
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259 Regs. 6 (1036), rt.
(fc) The term ncome-ta ta abe year means a caendar year, fsca year, or
fractona part of a year wth respect to whch the corporaton Is requred to
fe a Federa ncome ta (m) The term decaraton year means
(1) the frst year of each 3-year perod for whch a corporaton, whether do-
mestc or foregn, s sub|ect to the ta , (2) the capta stock ta year begnnng
wth or wthn an ncome-ta ta abe year wthn whch bankruptcy or recever-
shp due to nsovency, of a domestc corporaton, s termnated.
rtce 35 provdes: Return of corporaton n recevershp. If at the tme
for fng a return a the property of a corporaton s n custody of a recever
(Incudng a trustee n bankruptcy or other ke representatve) the return sha
be fed by the recever. Where the busness was operated by the corporaton
for any part of the ta abe year, the return of the recever sha be compete,
ncudng (1) a decared vaue for the capta stock f the return s made for
a decaraton year, or (2) an ad|usted vaue for the capta stock f the return
s made for an ad|ustment year . Itacs added.
rtce states: Thus, for the decaraton year ended une 30,
1938, the vaue sha be decared as of December 31, 1937, f the corporaton
makes ts ncome ta returns on a caendar year bass, or as of the cose of
any other month from uy, 1937, to and ncudng une, 1938, f ts ncome ta
returns are made on the bass of a fsca year endng wth such month.
It s our opnon, and we hod, that the pan Import of the ct and the regua-
tons s that the capta stock ta for the year endng une 30, 19 0, was a ta
eved as an e cse aganst the corporaton for the prvege of carryng on or
dong busness for the whoe or for any part of such fsca year, and that snce
sad corporaton dd carry on and dd do busness throughout sad fsca year,
and up unt the ad|udcaton of bankruptcy May 13, 19 0, that such capta
stock ta had n effect accrued and such bankruptcy can work no change n
the method of ts ascertanment or of the amount of sad ta . It s n short
an ndebtedness of the corporaton the same as any other obgaton owed by
the corporaton at the tme of the bankruptcy proceedngs and must be so
treated.
The effect on the questons treated heren of ad|udcaton of bankruptcy, n
any subsequent ta years, s not before us.
Reversed.
S CTION 105 OF T R NU CT OF 1935.
Reguatons 6 (1936), rtce : Orgna decared
vaue.
Decared vaue shown n frst return may not be amended after
e praton of due date. (See Ct. D. 1535, page 207, and Ct. D. 1536,
page 209.)
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Regs. 6 (19 0), 316.2 .) 260
M NUF CTUR RS CIS T S.
INT RN L R NU COD .
S CTION 3 06(a)7, S DD D Y S CTION 551 OF T R NU CT
OF 19 1. RU R RTICL S.
Reguatons 6 (19 0), Secton 316.150: Scope 19 2-3-10962
of ta . T. D. 5107
TITL 26 INT RN L R NU . C PT R I, SU C PT R C. P RT 310.
M NUF CTUR RS CIS T S.
Secton 316.150 of Reguatons 6 (19 0 edton), added by Treas-
ury Decson 5099, approved November 28, 19 1 C. . 19 1 2, 267 ,
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 6 (19 0 edton) Part 316, Tte 26, Code of Federa
Reguatons, 19 0 Sup. , as amended bv Treasury Decson 5099, ap-
proved November 28, 19 1 C. . 19 1-2, 207 Part 316 of such
Tte 26, 19 1 Sup. , reatng to e cse ta es on saes by the manu-
facturer under the Interna Revenue Code, as amended, are hereby
amended as foows:
The frst paragraph of secton 316.150 s amended to read as
foows:
Subsecton (a) (7) of secton 3 06, as added by secton 551 of the Revenue
ct of 19 1, mposes a ta on the sae by the manufacturer of any artce of
whch rubber Is the component matera of chef weght, e cept artces of foot-
wear such as shoes, rubbers and boots; artces especay desgned for hospta
or surgca use; and artces ta abe under any other secton of Chapter 29 of
the Code, as amended.
(Ths Treasury decson s ssued under the authorty contaned n
secton 551 of the Revenue ct of 19 1 (Pubc aw 250, Seventy-
seventh Congress), and secton 3791 of the Interna Revenue Code (53
Stat., 67; 26 U. S. C, Sup. , 3791).)
Gut T. everno,
Commssoner of Intema Revenue.
pproved anuary 15, 19 2.
on L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster anuary 1C, 19-12, 3. 0 p. m.)
S CTION 3 2. T -FR S L S.
Reguatons 6 (19 0), Secton 316.2 : Saes to 19 2-2-10956
States or potca subdvsons thereof and to S. T. 925
the Unted States.
( so Secton 31 .2 , Reguatons 1 (1939).)
Saes of artces (ta abe under Chapter 20 of the Interna Rev-
enue Code) to the Federa Depost Insurance Corporaton are hed
e empt as saes for the e cusve use of the Unted States, wthn
the meanng of secton 3 2 of the Code.
S. T. 8 2 (C. . -2, 3 6 (1936)) modfed.
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dvce s requested whether the e empton from manufacturers
e cse ta es provded n secton 3 2 of the Interna Revenue Code
appes to saes to the Federa Depost Insurance Corporaton of
artces ta abe under Chapter 29 of the Code.
Secton 3 2 provdes:
Under reguatons prescrbed by the Commssoner wth the approva of the
Secretary, no ta under ths chapter sha be mposed wth respect to the sae
of any artce

(3) for the e cusve use of the Unted States, any State, Terrtory of
the Unted States, or any potca subdvson of the foregong, or the
Dstrct of Coumba.
In S. T. 8 2 (C. . -2. 3 6 (1936)) t was hed that saes of
artces ta abe under Tte I of the Revenue ct of 1932, as
amended, to a corporaton the capta stock of whch was whoy
owned by the Unted States were saes for the e cusve use of the
Unted States, wthn the meanng of secton 620(3) of the Revenue
ct of 1932, as amended (same as secton 3 2 of the Interna Reve-
nue Code), and were, therefore, e empt from ta , provded the ev-
dence requred by the reguatons was furnshed. The Federa De-
post Insurance Corporaton was ncuded among the e ampes of
corporatons whose capta stock was ony party owned by the Unted
States and to whch saes of ta abe artces coud not be made
ta -free.
Upon further consderaton, and n the ght of addtona evdence,
t s ned that the capta stock of the Federa Depost Insurance Cor-
poraton s whoy owned by the Unted States, and that the e emp-
ton provded n secton 3 2 of the Interna Revenue Code appes
to saes to such corporaton of artces ta abe under Chapter 29 of
the Code, provded the evdence requred by secton 31 .2 of Regu-
atons (1939) and secton 316.2 of Reguatons 6 (19 0) s
furnshed.
S. T. 8 2, supra, s modfed by omttng the Federa Depost In-
surance Corporaton from the e ampes of corporatons whose capta
stock s ony party owned by the Unted States.
S CTIONS 2700, 2721, ND 3 2.
19 2-5-10982
T. D.511
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 70.
Reguatons reatng to ta -free saes of artces for use of
Unted States, any State, Terrtory of the Unted States, or any
potca subdvson of the foregong, or the Dstrct of Coumba.
Srctons 70.0 to 70.5 are Issued under authorty of sectons 2732. 3 2, and 3701 of
the Interna Revenue Code (53 Stat., 2 , 16, 67; 26 U. S. C, 10 0 d., 2732, 3791).
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262
Treasubt Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Tabe of Contents.
Secton.
70.0. Introductory.
70.1. Defntons.
705. Saes for the use of the Unted States.
70.3. Proof of e empton.
70. . Records.
70.5. ppcaton of reguatons.
Secton 70.0. Introductory. These reguatons dea wth the ap-
pcaton of the statutory e emptons from e cse ta es mposed under
Chapters 25 and 29 of the Interna Revenue Code to artces sod for
use of the Unted States.
Secton 2700(b) (1) of the Interna Revenue Code, whch reates to
the ta mposed by Subchapter of Chapter 25 on saes of pstos
and revovers, reads as foows:
Sec. 2700. Ta .

(b) emptons.
(1) Saes for use of federa government or states.
Pstos and revovers sod for the use of the Unted States, any
State, Terrtory, or possesson of the Unted States, any pot-
ca subdvson thereof, or the Dstrct of Coumba, sha be
e empt from the ta mposed by subsecton (a).

Sec. 2721. emptons.
(a) Transfers empt. Ths subchapter and Part III of sub-
chapter of Chapter 27 sha not appy to the transfer of frearms (1)
to the Unted States Government, any State, Terrtory, or possesson
of the Unted States, or to any potca subdvson thereof, or to the
Dstrct of Coumba .
Secton 3 2(3) of the Interna Revenue Code, whch reates to
the manufacturers e cse ta es mposed by Chapter 29, reads as
foows:
Sec. 3 2. Ta -Free Saes.
Under reguatons prescrbed by the Commssoner wth the approva
of the Secretary, no ta under ths chapter sha be mposed wth re-
spect to the sae of any artce

(3) for the e cusve use of the Unted States, any State, Terr-
tory of the Unted States, or any potca subdvson of the fore-
gong, or the Dstrct of Coumba.
Sec. 70.1. Defntons. s used n these reguatons
(a) The term prme contract means a contract made by the
Unted States; and the term prme contractor means the party
contractng wth the Unted States n a prme contract.
(b) The term purchase artce means any artce purchased as
such by the Unted States under a prme contract.
(c) The term constructon artce means any artce for use
as equpment, matera, or suppes, by a prme contractor n per-
formng a prme contract provded however, that payment for the
artce s made by the Unted States.
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(d) The term subsdary .artcemeans any artce, whch by
tsef or after beng combned by any person wth other artces, s
ncorporated n a purchase artce or a constructon artce.
(e) The term ncorporated n refers to any process whereby a
subsdary artce enters nto the producton of another subsdary
artce, a purchase artce, or constructon artce, so as to become
a part thereof, and not be merey consumed n such producton.
(/) The term subcontract means a contract for the purchase
of subsdary artces; and the term subcontractor means any party
to a subcontract other than a prme contractor.
Sec. 70.2. Saes for the use of the Unted States. Under these
reguatons, a saes and transfers of purchase artces and construc-
ton artces are deemed to be e empt from the e cse ta es mposed
by Chapters 25 and 29 of the Interna Revenue Code, f they are to
be utzed by the Unted States or to be dsposed of by the Unted
States to a foregn government, provded however, that the prce of
the purchase artce or constructon artce does not ncude a ta on
the sae or transfer of such artce under Chapter 25 or 29 of the
Interna Revenue Code.
Sub|ect to the provsons of secton 70.3(6), the e emptons aso
appy to a subsdary artces, rrespectve of whether the sub-
contractor s deang wth a prme contractor or wth another sub-
contractor, provded, however, that (1) the prce of the artce
does not ncude a ta on the sae or transfer thereof under Chapter
25 or 29 of the Interna Revenue Code, and (2) the artce s n-
cuded at such ta -free bass n the prce of the purchase artce,
constructon artce, or other subsdary artce n whch t s
ncorporated.
The e emptons do not appy n any case where an artce s sod
or transferred at a prce ncudng a ta mposed under Chapter
25 or 29 on the sae or transfer of such artce. owever, the n-
cuson of a subsdary artce, whch was sod or transferred by the
producer thereof at a prce ncudng ta , n another subsdary
artce, purchase artce, or constructon artce w not defeat the
e empton appcabe wth respect to such other subsdary artce,
purchase artce, or constructon artce, f the prce of such atter
artces does not ncude a ta on the sae or transfer thereof.
The appcaton of these e emptons s ustrated, n part, by the
foowng e ampes:
ampe 1. prme contractor producng automobes for the
Unted States orders the tres needed for such automobes from
subcontractor , the producer thereof, and aso orders generators
from subcontractor , who for the producton of the generators
orders rubber nsuated wre from the producer or subcontractor C.
The saes by the prme contractor and a the subcontractors are
e empt, f n each case the sae prce does not ncude a ta mposed
under Chapter 29 of the Interna Revenue Code on the sae of the
artce. In ths e ampe, the e empton woud not appy to the
rubber nsuated wre f sod at a prce ncudng ta . ut the fact
that such wre s ncuded at that prce n the cost of the generator
and the automobe woud not defeat the e empton appcabe to the
generator and the automobe, f they are sod at a prce not n-
cudng a ta . on the sae or transfer thereof.
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ampe 2. prme contractor engaged n the ateraton and re-
par of a warehouse eased by the Unted States purchases certan
refrgeratng components for nstaaton n the warehouse. The
sae of the refrgeratng components by the producer to the prme
contractor s e empt f made at a prce not ncudng ta . In ths
e ampe, the e empton woud not be defeated merey because the
use of the refrgeratng components mght utmatey nure to the
essor upon termnaton of the ease.
Sec. 70.3. Proof of e empton. (a) Purchase artces and construc-
ton artces. In the case of purchase artces and constructon art-
ces, the e empton sha be evdenced by a propery e ecuted certf-
cate, Form 109 . Such form may be modfed, n so far as necessary,
wth respect to transactons nvovng constructon artces.
In a cases, the e empton certfcate, Form 109 , sha be e ecuted
by an authorzed offcer or representatve of the Unted States, and
sna be furnshed to the prme contractor, where the purchase artce,
o constructon artce, or any subsdary artce to be ncorporated
n such artce s to be purchased on a ta -free bass. Where the
prme contract contempates that ony the purchase artce or the
constructon artce s to be purchased on a ta -free bass, the e emp-
ton certfcate sha ncude an approprate statement mtng ts
appcaton to such artce. Where the prme contract contempates
that not ony the purchase artce or constructon artce (whether
or not ta abe) but one or more subsdary artces to be ncorporated
theren are to be purchased on a ta -free bass, the e empton certf-
cate sha ncude an approprate statement authorzng the prme
contractor to ssue certfcates of e empton wth respect to such sub-
sdary artces.
snge certfcate of e empton, Form 109 , may be gven wth
respect to a the purchase artces and constructon artces comng
wthn the sub|ect matter of a snge contract.
(b) Subsdary artces. In the case of ta e empt saes or trans-
fers of subsdary artces comng wthn the scope of these regua-
tons, the e empt character of the sae or transfer sha be evdenced
by a certfcate of e empton e ecuted by the vendee and furnshed to
hs vendor substantay n whchever of the foowng forms s
appcabe:
MPTION C RTIFIC T .
(For use by prme contractor.)
, 1D._
(Date.)
The undersgned hereby certfes that the artces specfed n the accompany-
ng order or on the reverse sde hereof are purchased from
(Name of vendor.)
for the Unted States under Government contract ;
(Number or other Identfcaton.)
that he now has In hs possesson a certfcate of e empton furnshed by the
(Unted.States wth respect to such contract; and that such certfcate authorzes
m to Issue ths e empton certfcate.
t |s understood that the frauduent use of ths certfcate to secure e emp-
ton w sub|ect the undersgned and a guty partes to a fne of not more
tn 10,000, or to mprsonment for not more than fve years, or ,both, together
wth costs of prosecuton.
(Name.
( ddress,)
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MPTION C RTIFIC T .
(For use by subcontractor.)
,19
(Date.)
The undersgned hereby certfes that the artces specfed n the accompany-
ng order or on the reverse sde hereof are purchased from
(Name of vendor.)
for ncorporaton n whch are to be devered to
(Subsdary artces.)
; that the prce to be charged sad vendee
(Subcontractor s vendee.)
contempates that the aforesad artces and the subsdary artces are to be
purchased on a ta -free bass; and that the undersgned now has n hs pos-
sesson an e empton certfcate furnshed by sad vendee certfyng that the
above-named subsdary artces are to be ncorporated utmatey n other artces
for use of the Unted States under Government contract
(Number or
other dentfcaton.)
It s understood that the frauduent use of ths certfcate to secure e empton
w sub|ect the undersgned and a guty partes to a fne of not more than
10,000, or to mprsonment for not more than fve years, or both, together
wth costs of prosecuton.
(Name.)
( ddress.)
n e empton certfcate sha not be ssued by a prme contractor
wth respect to any subsdary artce to be ncorporated n the pur-
chase artce or constructon artce covered by hs prme contract
uness he s so authorzed by the e empton certfcate, Form 109 ,
ssued to hm by the Unted States.
n e empton certfcate ha not be ssued by a subcontractor
wth respect to any subsdary artce comng wthn the sub|ect mat-
ter of the subcontract wth hs vendee uness (1) the subsdary art-
ce s purchased on a ta -free bass and w be ncuded at such bass
n the prce charged by the subcontractor to hs vendee and (2) the
subcontractor has receved a certfcate of e empton from hs vendee
certfyng that the subsdary artce s destned for use of the Unted
States under a specfed Government contract.
The e empton certfcate sha be e ecuted by an offcer of the cor-
poraton, where the prme contractor or subcontractor s ncorporated,
a member of the frm, where the prme contractor or subcontractor
s not ncorporated, or n any case, by an ndvdua specfcay des-
gnated and authorzed for that purpose by the prme contractor or
subcontractor.
snge certfcate of e empton may be gven wth respect to a
subsdary artces to be purchased under a snge subcontract. The
certfcate of e empton sha be gven n a cases by the prme con-
tractor or subcontractor purchasng the subsdary artce to the
vendor subcontractor, where such artce or another subsdary artce
to be ncorporated theren s to be purchased on a ta -free bass.
Sec. 70. . Records. very person makng ta -free saes or trans-
fers of purchase artces, constructon artces, and subsdary artces
under these reguatons sha mantan accurate and compete records
wth respect to a such transactons. The records of a prme con-
tractor sha ncude a copv of the contract made wth the Unted
States, the e empton certfcate furnshed to the prme contractor
under such contract, and copes of a e empton certfcates furnshed
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by hm to hs subcontractors. The records of a subcontractor sha
ncude the e empton certfcate furnshed hm by hs vendee and
copes of a e empton certfcates furnshed by hm to hs vendors.
Such records sha at a tmes be open for nspecton by nterna reve-
nue offcers, and sha be mantaned for a perod of at east four years
from the ast day of the month foowng the month n whch the
ta -free sae or transfer was made.
Sec. 70.5. ppcaton of reguatons. For the perod of the emer-
gency and unt further notce these reguatons may be foowed, n
heu of e stng reguatons, wth respect to prme contracts and sub-
contracts n effect on, or made on or after, the effectve date of these
reguatons; but wth respect to a contract n effect on such date, these
reguatons sha appy ony to purchase artces, constructon art-
ces, and subsdary artces, devered on or after such date by the
manufacturer, producer, or mporter thereof to hs vendee.
These reguatons may, n so far as appcabe, aso be foowed wth
respect to saes and transfers of artces ta abe under Chapters 25
and 29 of the Interna evenue Code for the e cusve use of any State,
Terrtory of the Unted States, potca subdvson of the foregong
such as a county, cty, town, or other muncpaty, or the Dstrct,
of Coumba.
Norman D. Cann,
ctng Commssoner of Interna Revenue.
pproved anuary 27, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster anuary 28, 19 2, 11 a. m.)
19 2- -10986
T. D. 5115
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 60.
Reguatons reatng to ta -free saes to foregn governments of
artces for e port.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Durng the perod of the emergency and unt further notce, and
regardess of any contrary provson of any other reguaton, the pro-
cedure heren estabshed may be foowed wth respect to artces
wthn the scope of Chapters 23 and 29 of the Interna Revenue Code
sod by manufacturers or producers to foregn governments for e port.
Where such procedure s foowed, such artces, when sod by the
manufacturer or producer to a foregn government, w be regarded
as havng been sod for e port and n due course e ported.
There must be furnshed to the manufacturer or producer, and he
must have n hs possesson pror to passage of tte, a certfcate of a
duy authorzed representatve of the foregn government statng
that the artces are purchased for e port, and w not be further
manufactured pror to e port. snge certfcate may be gven to
eover a artces supped under a partcuar contract.
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267
ac
The contract, together wth the certfcate or certfcates gven by
the foregn representatve, must be preserved by the manufacturer
for a perod of at east four years from the ast day of the month n
whch the ast devery under the contract s made, and must be
ready accessbe for nspecton by nterna revenue offcers.
The certfcate sha be n form substantay as foows:
MPTION C RTIFIC T .
For use when artces are purchased from the manufacturer or producer by a foregn
government for eport.)
The undersgned hereby certfes that he Is
(Offca desgnaton of Oov-
of ; that he s authorzed to e ecute ths
ernment representatve.) (Country.)
certfcate; and that the artces specfed In the accompanyng order or on the
reverse sde hereof, are purchased from for e port under
(Name of vendor.)
contract , and w not be further manufactured pror
(Number and symbos.)
to e port.
It Is understood that the frauduent use of ths certfcate to secure e empton
w sub|ect a guty partes to a fne of not more than 10,000, or to mprson-
ment for not more than fve years, or both, together wth costs of prosecuton.
(Sgnature.)
(Sees. 2705, 2732, 3791, 53 Stat., 289, 29 , 67; 26 U. S. C, 19 0 ed.,
2705, 2732, 3791.)
Norman D. Cann,
ctng Comms oner of Interna Revenue.
pproved February 6, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster February 6, 19 2, .13 p. m.)
19 2-2-10957
S. T. 926
In the absence of any treaty wth the Unted States provdng
e empton from Federa e cse ta es, e empton of the consuar
offcers of a foregn government from Federa e cse ta es s aow-
abe ony where the ega ncdence of the ta fas drecty upon
the foregn government, . e., where the abty arses n the
performance by such offcers of governmenta functons for ther
government, and the foregn government Is drecty obgated to pay
such ta es.
S. T. 681 (C. . II-1, 55 (1933)), as suppemented and mod-
fed, revoked n part.
dvce s requested whether consuar offcers of foregn govern-
ments are e empt from payment of the Federa e cse tu es mposed
by the Interna Revenue Code, as amended by the Revenue cts of
19 0 and 19 1.
The Unted States has entered nto a number of treates wth for-
egn governments whch provde that consuar offcers of such govern-
ments sha be e empt from drect ta es eved upon ther persons or
upon ther property. Ths type of treaty e empton, however, ap-
pes ony to drect ta es, such as, for e ampe, a captaton ta or a
ta upon the ownershp of property, and does not appy to ndrect
ta es such as the e cse ta es mposed by the Interna Revenue Code.
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268
In the absence of any treaty wth the Unted States provdng
e empton from Federa e cse ta es, e empton of the consuar off-
cers of a foregn government from the payment of such ta es s
aowabe ony where the ega ncdence of the ta fas drecty upon
the foregn government. Thus, the e empton appes ony where
the consuar offcer ncurs abty for the payment of Federa e cse
ta es by reason of the performance of governmenta functons of hs
government, and the foregn government s drecty obgated to pay
such ta es.
Ordnary, the ega ncdence of such e cse ta es as those m-
posed by Chapter 29 of the Interna Revenue Code, as amended, w
not fa upon the foregn government, as such ta es are mposed upon
the sae of ta abe artces by the manufacturer, producer, or m-
porter thereof. The ncuson of such ta es n the sae prce of such
artces s consdered as addtons of tems of busness e pense to the
sae prce of the artces sod. The fact that the economc burden of
such ta es may be borne by a foregn government s mmatera, |ust
as n cases where the economc burden of a State ta whch devoves
upon the Unted States s nsuffcent to enabe the Unted States to
obtan e empton from the payment thereof. (Sae State of abama
v. ng oozer et a., 62 S. Ct., 3; Curry v. Unted States et a.,
62 S. Ct., 8.)
S. T. 681 (C. . II-1, 55 (1933)), as suppemented and modfed
by S. T. 720 (C. . III-1, 37 (193 )), S. T. 829 (C. . -1, 16
(1936)), S. T. 857 (C. .1937-1, 338), S. T. 861 (C. . 1937-1, 339),
and S. T. 863 (C. . 1937-2, 523), reatng to the stamp ta mposed
upon passage tckets, s revoked to the e tent that t s nconsstent
wth ths rung.
Inspecton of e cse ta returns. (See T. D. 5138, page 99.)
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269
Regs. 99, rt. 303.
SUG R.
INT RN L R NU COD .
S CTION 3 93. PORT TION.
Reguatons 99, btce 303: Lmtaton
on aowance.
19 2-15-11057
Ct. D. 15 9
CIS T S SUG R CT OF 1937 INT RN L R NU COD D CISION
OF COURT.
Cam fob Refund Whether Tmey Fed Constructon of
Statute of Lmtaton.
cam, fed on ugust , 1939, for refund of e cse ta es pad
pursuant to the Sugar ct of 1937 on sugar manufactured and
e ported between September 3 and October 15, 1937, was not tmey
fed. Pubc aw 807, enacted October 8, 19 0, whch amended
secton 3 U3 of the Interna Revenue Code secton 0 of the Sugar
ct of 1937, ncorporated nto the Code effectve as of March 1, 1939
and enarged the tme for fng cams for refund under that secton
from one year to two years from the tme the rght to refund has
accrued, does not operate to revve the cam whch, under secton
3 93 of the Code before amendment, was barred on or before October
15, 1938. statute of mtaton w not be construed to affect
causes of acton aready barred at the date of the amendment of
the mtng statute, uness no other constructon s possbe.
Unted States Dstrct Court fob the- Southern Dstrct of New York
Nuomone Co., pantff, v. Unted States of merca, defendant.1
ubebt, D. .: Defendant moved pursuant to rue 12, F. R. C. P., to dsmss the
compant upon the ground that the cam Invoved heren s barred by an app-
cabe statute of mtatons.
The facts nvoved are not n dspute.
On or about November 30, 1937, the pantff pad to the coector of nterna
revenue for the frst coecton dstrct of New York State the sum of 1,319.21
as e cse ta es upon sugar manufactured by the pantff n the Unted States
pursuant to the Sugar ct of 1937 (50 Stat., 903 et seq.; Tte 7, U. S. C, sectons
1100 et seq.) The ct further provded that any e cse ta pad was refundabe
to the manufacturer If the sugar ta ed was e ported and no drawback had been
or woud be camed (secton 0 of Sugar ct of 1937, 50 Stat., 91 ; 7 U. S. C,
secton 115 ). Ths rght to a refund was condtoned upon the fng of the
cam for a refund wthn one year from the tme the rght to refund had accrued.
rtce 303 of Reguatons 99 f ed as the date on whch the sugar nvoved was
e ported the date of the accrua of the rght to refund. Pantff e ported the
sugar upon whch the ta of 1,319.21 was pad durng the perod between
September 3, 1937, and October 15, 1937.
On ugust , 1939, the pantff fed ts cam for a refund of sad ta .
In the nterm, on February 10, 1939, the provsons of the Sugar ct of 1937
were physcay ncorporated Into the Interna Revenue Code (53 Stat, 1 et seq.)
and secton 0 of sad ct became secton 3 93 of the Code, effectve as of March
1, 1939 (I. R. C, secton 3 98). The provsons of the Sugar ct were deemed
to be repeaed e cept as to e stng rghts, remedes, etc. (I. R. C, secton ).
The pertnent secton of the Code nvoved heren, secton 3 93, provdes:
Sec. 3 93. portaton.
(a) Refund of Ta Pad. Upon the e portaton from the Unted States to a
foregn country, or the shpment from the Unted States to any possesson of
Not pubshed n Federa Reporter.
November 1 , 19 1.
opnon.
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Regs. 90, rt. 303.1
270
the Unted States e cept Puerto Rco, of any manufactured sugar, or any
artce manufactured whoy or party from manufactured sugar, wth respect
to whch ta under the provsons of secton 3 00 has been pad, the amount of
such ta sha be pad by the Commssoner to the consgnor named n the b
of adng under whch the artce was e ported or shpped to a possesson, or
to the shpper, f the consgnor waves any cam thereto In favor of such
shpper: Provded, That no such payment sha be aowed wth respect to any
manufactured sugar, or artce, upon whch, through substtuton or otherwse,
a drawback of any ta pad under secton 3500 has been or s to be camed
under any provsons of aw made appcabe by secton 3501.
(b) Perod foe Fng Refund Cam. No payment sha be aowed under
ths secton uness wthn one year after the rght to such payment has accrued
a cam therefor s fed by the person entted thereto.
From a consderaton of sad statute It s apparent that the cam for refund
fed by the pantff on ugust , 1939, for ta es pad upon sugar e ported on
or before October 15, 1937, was not tmey fed. Pantff cams, however, that
t s entted to the benefts of Pubc aw 807 (5 Stat., 1022) enacted October
8, 19 0, whch amended secton 3 93 of the Interna Revenue Code and enarged
the tme for fng cams for refunds under sad secton from one year to two
years.
The pertnent part of sad pubc aw provded:
(b) Perod for Fng Refund Cam. No payment sha be aowed under
ths secton uness wthn two years after the rght to such payment has
accrued a cam therefor s fed by the person entted thereto.
The queston presented by defendant s moton s whether Pubc aw 807,
supra, amendng secton 3 93, I. R. C, operates to revve the pantff s cam
for refund whch under secton 3 93 before the amendment was barred on or
before October 15, 1938. If the 2-year statute of mtaton provded for n
Pubc aw 807 appes, then pantff s cam havng been fed on ugust ,
1939, was tmey.
It s we setted that statutes operate prospectvey rather than retroactvey
uness a contrary egsatve ntent appears. (Unted States v. eth, 3 Cranch,
399, 13; Co v. art, 260 D. 8., 27, 3 .) Ths rue of constructon appes
to statutes of mtaton as we as to other statutes. (Sohn v. Waterson,
17 Wa., 596; Fuerton Co. v. Northern Pacfc, 266 U. S., 35; Wam Danzer
Co. v. Guf R. R., 268 U. S., 633 ; 37 Corpus urs No. 10; Wood on Lmtatons
(2d d.), voume 1, page 1.)
statute of mtaton w not be construed to affect causes of acton aready
barred at the date of the amendment of the mtng statute, uness no other
constructon Is possbe. (Rchards v. Carpenter, 261 Fed., 72 (6th Cr.).)
In Wam Danzer Co. v. Guf R. R., supra, the pantff s rght to fe a cam
had become barred at the tme of the enactment of subsequent egsaton.
The court dsmssed the cam as not tmey statng at page 636:
It Is setted by the decsons of ths court that the apse of tme not ony
barred the remedy but aso destroyed the abty of defendant to pantff.
(Phps v. Grand Trunk Ry., 236 U. S., 662, 666; Lousve Cement Co. v.
Interstate Commerce Commsson, 2 6 U. S., 638, 6 2; ansas Cty Southern
Ry. v. Wof, 261 U. S., 133, 139.) On the e praton of the 2-year perod, t
was as If abty had never e sted. nd ths court appyng the rue of con-
structon that a statutes are to be consdered prospectve uness the anguage
Is e press to the contrary or there s a necessary mpcaton to that effect,
recenty has hed that secton 206(f) does not appy to causes of acton whch
were barred by a State statute of mtatons before the passage of the
Transportaton ct (Fuerton Co. v. Northern Pacfo, 206 U. S., 35, 37).
ppyng these consderatons to the case at bar, I am of the opnon that
Pubc aw 807, supra can not be sad to operate to revve pantff s cam
whch was barred pror to ts enactment by the aw then prevang. ccord-
ngy the moton of the defendant s granted and the compant dsmssed.
Sette order.
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271 IRegs. 3, (19 1), 101.5.
DMISSIONS T S.
INT RN L R NU COD .
S CTION 1700, S M ND D.
Reguatons 3 (19 1), Secton 101.5: Free and 19 2-13-110
reduced rate admssons. T. D. 5129
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 101.
T S ON DMISSIONS, DU S, ND INITI TION F S.
Secton 101.5 of Reguatons 3 (19 1 edton) amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 3 (19 1 edton) Part 101, Tte 26, Code of Federa
Reguatons, 19 1 Sup. , as amended by Treasury Decson 5096,
approved November 1, 19 1 C. . 19 1-2, 260 , reatng to the
ta es on admssons, dues, and ntaton fees under Chapter 10 of
the Interna Revenue Code, as amended, are hereby further amended
as foows:
Subdvson (a) of secton 101.5 s amended to read as foows:
(a) Genera rue. person admtted free or at a reduced rate to any
pace at a tme when and under crcumstances under whch an admsson
charge s made to other persons, s abe to ta (e cept as provded n (b)),
In an amount equvaent to the ta on the amount pad by such other persons
for the same or smar accommodatons.
Where persons n a certan group or cass, such as students 12 years of age
or over, women, or members of a partcuar organzaton, are admtted at a
prce ess than the estabshed prce of admsson to the pubc generay, they
are abe for ta based on the estabshed prce of admsson to other persons
for the same or smar accommodatons. Women admtted free or at reduced
rates to dances or any other pace are abe for ta based on the estabshed
prce of admsson to other persons.
If tckets or cards of admsson are ssued the ta shoud be coected at the
tme of the Issuance of such tckets or cards, whe f no tckets or cards are
used ta shoud be coected when the persons are admtted.
(Ths Treasury decson s ssued pursuant to the authorty con-
taned n secton 3791 of the Interna Revenue Code (53 Stat., 67;
26 U. S. C, 19 0 ed., 3791).)
Norman D. Cann,
ctng Commssoner of Interna Revenue.
pproved March 26, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 27, 19 2, 11.06 a. m.)
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Regs. 3 (1932), rt. 0.
272
TITL . T ON DMISSIONS ND DU S. (1926)
S CTION 501, S M ND D Y S CTION 13 OF T R NU CT
OF 1928.
Reguatons 3 (1932), rtce 0: Dues or 19 2- -10969
membershp fees. Ct. D. 1538
T ON DMISSIONS ND DU S R NU CTS OF 1928 ND 928 D CISION
of supreme court.
1. Dues or Membershp Pees Payments for Gof Prveges n
ddton to nnua Dues Constructon of Statute.
Payments made by members of a country cub for certan annua,
gof prveges, n addton to annua dues, are sub|ect to the ta
on dues or membershp fees mposed by secton 501 of the Reve-
nue ct of 1926, as amended by secton 13 of the Revenue ct of
1928. Payment for the rght to repeated and genera use of a com-
mon cub facty for an apprecabe perod of tme amounts to
dues or membershp fees If the payment s not f ed by each
occason of actua use. The Treasury s vews, e pressed contrm-
poraneousy wth the empoyment of the term dues or membershp
fees In the Revenue cts, and consstenty pressed e cept as t
thought |udca authorty dctated otherwse, are hghy reevant
and matera, and are entted to serous consderaton In constru-
ng the statute.
2. Decson Re|ected n Prncpe.
The doctrne of Wed v. Nchos (1925) (9 Fed. (2d), 977)
re|ected.
3. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, Frst
Crcut (19 1) (117 Fed. (2d), 1 6), affrmng decson of the Unted
States Dstrct Court for the Dstrct of Massachusetts (1939)
(30 Fed. Supp., 1 2), reversed.
Supreme Court of the Unted States.
Thomas W. Whte et at, former Coectors of Interna Revenue for the Dstrct
of Massachusetts, pettoners, v. Wnchester Country Cub.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Frst Crcut.
anuary 12, 19 2.
opnon.
Mr. ustce ackson devered the opnon of the Court.
We must decde whether members payments to the Wnchester Country Cub
for certan prveges consttuted dues or membershp fees sub|ect to
the ta mposed by secton 501 of the Revenue ct of 1320 ( Stat., 9, 2), as
umended by secton 13 of the Revenue ct of 1928 ( 5 Stat., 791, 86 ), on
amounts pad as dues or membershp fees to any soca, athetc, or sportng
cub or organzaton, f the dues or fees of an actve resdent annua member
are n e cess of 25 per year.
Snce 1929 and durng the perod here n queston the cub s by-aws provded
for annua dues of 50, whch entted a member to a the prveges of the
cub e cept gof. y payng 35 more, for mted prveges, a member
became entted to pay gof durng the year, e cept on specfed days; by payng
50 for fu prveges, he got the prvege of payng at any tme durng
the year. but a sma porton of the members acqured gof prveges of one
sort or the other.
arous forms of famy prveges, enttng one or more of a member s
famy to use the cubhouse and to pay tenns and gof, coud be had by a
member upon payment of specfed addtona sums, whch were ess If he had
gof prveges than f he dd not.
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273
Regs. 3 (1932), rt. 0.
The cub year began anuary 1 and, accordng to the by-aws, dues and
fees were payabe on March 1. The practce was to b members durng
March for dues and prveges for the year. Prveges were acqured
nformay, the practce beng to et the cub s otcers know ether oray or n
wrtng what prveges were desred. member was bed for the prveges
he had prevousy hed f he had not ndcated that he no onger desred them,
but f he ater gave notce that, ho dd not desre a gven prvege, no attempt
was made to coect the amount bed for t. If a member requested prveges
pror to ugust 1, he was bed for the fu year; for prveges thereafter
requested e was bed for ony haf a year. Sutabe ad|ustment was aso
made f prveges were dropped n the mdde of the year.
Durng the perod from November 27. 1931, to anuary 9, 1935, ta es n the
amount of 9,211.25 were e acted on account of payments to the cub for the
varous prveges mentoned above. On November 16, 1935, the cub duy
fed cams for refund on behaf of ts members, and after the Commssoner of
Interna Revenue had re|ected them, t Insttuted suts n the Unted States
Dstrct Court for the Dstrct of Massachusetts aganst the three coectors of
nterna revenue to whom the ta es had been pad. The dstrct court entered
udgments for the cub, and the Crcut Court of ppeas for the Frst Crcut
affrmed them upon consodated appea. (117 Fed. (2d), 1 0.) Certorar was
granted n ths case and n Maron Crcket Cub v. Unted States, decded by the
Court of ppeas for the Thrd Crcut (119 Fed. (2d), 578) because of an asserted
confct between the two decsons. (313 U. S., 5. 5; 31 U. S., .)
The generaty of dues or membershp fees, the words by whch the governng
statute desgnates the payments upon whch the ta s ad, necesstates con-
sderaton of ther egsatve background. arer Revenue cts those of 1917,
1918, 1921, and 192 had ad a ta n the same terms u on payments to cubs
such as the respondent.1
The Treasury construed these words on severa occasons not ong after they
were frst empoyed In these Revenue cts. Treasury Reguatons 3 (Part 2),
artce 12, ssued under the Revenue ct of 1918, and approved March 28, 1919,
gave as e ampes of ther appcabty the foowng: (5) certan gof cub s
dues are 15 per year. Of ths amount 10 Is e pended n the purchase for the
member of a season tcket to a muncpa gof course. The whoe 15 s, never-
theess, ta abe as dues. (6) certan gof cub charges a green fee of 1
for each guest that uses the course. Such a fee s not pad as dues or member-
shp fees, and s, therefore, not ta abe as such. (7) The members of a certan
curng cub pay annua dues of 20. y the payment of 10 e tra per year
the prvege of skatng on the cub s rnk can be secured for the member s famy.
payment of ths e tra 10 s ta abe as a membershp fee. The same e ampes
are gven n ths artce as revsed on December 3, 1920, wth the addton of the
foowng e ampe: (13) certan gof cub the dues and fees of whch are
ta abe ssues to wves of members cards enttng them to the use of the course
for one year, makng a charge of 10 therefor. The amounts pad for such cards
are ta abe.
These e ampes were retaned n three subsequent edtons of the reguatons,
ssued under the Revenue cts of 1921 and 192 , whch aso ndded the generazed
statements thnt sub|ect to the ta are e tra charges whch are mposed upon
members for the prvege of usng certan addtona factes for a perod of
tme, as, for e ampe, an addtona charge of 00 per annum mposed upon
members of a country cub for the prvege of usng the gof nks. greens
fee charged to a guest s not ta abe, uness the rght or prvege granted In
return Is for a perod of tme, such as a season.
Further, abet sght, evdence of the Treasury s vew s found n S. T. 357
(C. . 1-1, 3 ), as foows: Where a payment for the use of guf nks or
smar prvege afforded by a cub covers a perod of tme, such as a
season, t s sub|ect to the ta on dues . Ths appes ake to payments
made by members and nonmembers.
On December 30, 1925, the Unted States Dstrct Court for the Dstrct of
Massachusetts hed, however, that a charge to a member for the use of a cub s
gof course for a perod of s months was not Incuded wthn the words dues
1 Secton 701 of the Revenue ct of 1017 ( 0 Stnt.. 300, 319) ; secton 801 of the Revenue
ct of 1918 ( 0 Stat., 1057. 1121) : secton 801 of the Revenue ct of 1921 ( 2 Stut.. 227
291) ; secton 501 of the Revenue ct of 1921 ( 3 Stat., 253, 321).
Treasury Reguatons 3 (Part 2), artce 9. as Issued anuary 11 1922, under the
Revenue ct of 1921. and as revsed pr 18, 1922; Treasury Reguatons 3 (Part 2),
artce 9. under the Revenue ct of 192 .
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Regs. 3 (1932), rt. 0.) 27
or membershp fees, on the ground that they were meant to cover ony f ed
and defnte charges appcabe to a members of each partcuar cass of mem-
bershp. (Wed v. Nchos, 9 Fed. (2d), 977.)
No appea from ths decson was perfected, a b of e ceptons beng wth-
drawn by the Government on March 23, 1926. The Revenue ct of 1926 whch,
ke ts predecessors, contaned the words dues or membershp fees wthout
any defnton thereof, was approved on February 26, 1926. Thereafter, and on
May 21, 1926, a revson of the reguatons was promugated whch omtted a
the matter quoted above e cept e ampes (5) and (6). The Revenue ct of
1928, contanng an e press defnton of dues and membershp fees n a
respect not here matera, was enacted whe the reguaton was n the same
form, and before any court had decded another case ke the Wed case. Sub-
sequent edtons of the Treasury reguatons, ssued after the enactment of the
Revenue ct of 1928 and before any further statutory treatment of the sub|ect,
retaned e ampe (6), but substtuted for e ampe (5) the foowng: certan
gof cub has two casses of members. Cass members pay 0 per year dues
and are entted to the fu prveges of the cub, Incudng the use of the gof
course. Cass members pay 25 per year dues and are entted to the prveges
of the cubhouse, but do not en|oy the prvege of the gof course. The tota
dues of 0 pad by cass members are sub|ect to ta , and, snce the dues of
such members are n e cess of 25 per year, the dues of 25 pad by cass
members are aso sub|ect to the ta .
Durng a perod after the decson of the Wed case the Treasury apparenty
sought to determne ta abty under the doctrne of that case, rather than
accordng to ts own pror vews. In 1930, and before the begnnng of the
perod nvoved n ths case there ssued, however, a Genera Counse s Memo-
randum whch, whe payng p servce to the doctrne of the Wed case,
construed and apped t n such manner as to requre the mposton of a ta
on facts apparenty substantay smar to those before us here. The Comms-
soner of Interna Revenue has consstenty foowed ths decson snce ts
promugaton. fforts were made n cases subsequenty tgated n the courts
to obtan decsons f ng the meanng of defnte and f ed charge and par-
tcuar cass of membershp as used n the statement of the Wed doctrne,
resutng n hodngs of ta abty n three nstances, and of nonta abty n
three besdes the present. Foran v. McLaughn (59 Fed. (2d), 158, certorar
dened, 287 U. S., 637), the frst court decson rendered after the decson of
the Wed case tsef, hed that the payments In queston dd consttute dues or
membershp fees. Snce the decson of ths case, the Commssoner has aowed
no cams for refunds on the bass of the Wed case, as he had done In some
prevous nstances.
Secton 5 3(b) of the Revenue ct of 19 1 (Pubc, No. 250, Seventy-seventh
Congress, frst sesson), the frst statutory treatment of the sub|ect snce the
Revenue ct of 1928, e pcty defned dues, and thereby ceary ncuded
the types of payments here n queston.10 The egsatve hstory of ths redef-
nton s nconcusve n respect of the earer ntenton of Congress. The acton
of Congress n thus e pcty defnng the e stng statutory term s at east as
consstent wth dssatsfacton on ts part wth the course of |udca decson
Treasury Reguatons 3 (Part 2), artce 9, under the Revenue ct of 1926.
Secton 13 of the Revenue ct of 1028 ( 5 Stat., 791, 86 ), provded:
(d) s used In ths secton, the (erm dues ncudes any assessment rrespectve of the
purpose for whch made; and the term Intaton fees ncudes any payment, contrbu-
ton, or oan requred as a condton precedent to membershp, whether or not any such
payment, contrbuton, or oan Is evdenced by a certfcate of Interest or Indebtedness or
share of stock, and rrespectve of the person or organzaton to whom pad, contrbuted,
or oaned.
Treasury Reguatons 3 (Tart 2), artce 9, under the Revenue ct of 1926, as revsed
Mav 27. 1927.
Treasury Reguatons 3, artce 0 (1928 and 1932 Rev.) ; Treasury Reguatons 3,
secton 101. 1 (19 0 d.).
O. C. M. 7505 (C. . I -2. 1 (1030)).
Foran v. McLaughn (59 Fed. (2d). 158, certorar dened, 287 U. S. 637); Meron
Crcket Cub . Unted States, supra ; ardt . McLauyhn (25 Fed. Supp., 68 ).
atmore Country Cub v. Unted States (7 Fed. Supp.. 607) ; Wamson v. Unted
States (12 Fed. Supp., 20) ; Phadepha Crcket Cub v. Unted states (30 Fed. Supp.. 1 11.
19 The term dues ncudes any assessment, rrespectve of the purpose for whch made,
and any charges for soca prveges or factes, or for gof, tenns, poo, swmmng, or
other athetc or sportng prveges or factes, for any perod of more than s
days .
See S. Rept. 673, Seventy-seventh Congress, frst sesson, page 8; . R. Rept. 10 0.
Seventy-seventh Congress, frst sesson, pages 31-32, 6 ; statement by the charman of the
ouse Ways and Means Commttee, 87 Congressona Record, 761 .
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275 Regs. 3 (1832), rt. 0.
as to Its meanng as wth the e stence of an ntenton to change the aw. If
any nference s to be drawn from ths speng out of the meanng of dues,
t s one supportng the vadty of the constructon set forth and adhered to
by the Treasury before the Wed case, whch was substantay adopted by the
newy enacted defnton. (Compare Mason v. Routzahn, 2f5 U. S., 175, 178
T. D. 131, C. . II-1, 19 (1028) .)
Nor do we fnd the reenactments of the words fees or membershp dues
whe the Wed case was on the books to be controng, or even sgnfcant, as
e pressons of Congressona ntent. Passage of the Revenue ct of 1926 so
soon after the decson of the Wed case, and whe the Treasury reguaton
deang n terms wth the same probem was st n force on the books, of
course avas the respondent nothng.
So far as we have been abe to ascertan the Treasury s revson of the regu-
aton was made n the beef that It was bound to foow the Wed ease; we
can not assume that the Treasury dd more than bow to the dstrct court.
The revson of the reguaton s of ambguous Import, but n any event t
sgnfes no vountary change n the opnon of the Treasury as to the meanng
of the statute. ven f we coud assume that the Treasury made a compete
and vountary about face after the decson of the Wed case and before the
enactment of the 1928 ct, and that the new doctrne came wthn the scope
of the cases appyng the reenactment rue, u ths woud be bootess to the
pettoner, whose cam covers a perod commencng after the 1930 decson of
the Genera Counse of the ureau of Interna Revenue, supra, whch favors
the mposton of the ta here If ths decson marked a departure from doc-
trne espoused by the Treasury after the Wed case, t was a departure whch
was wthn the power of the Treasury to make for the erod In queston.
Nor was the Wed case tsef n any sense adopted by the enactment of the
1928 ct. It stood aone when that ct was passed, and one decson constru-
ng an act does not approach the dgnty of a we setted nterpretaton.
It was patenty ncompete as an e poston of doctrne, and as a dstrct court
decson It had qute restrcted drect appcabty.
avng tested respondent s proffered constructona crutches and found them
unsound, we must decde the meanng of the statute wthout ther ad. We
re|ect the doctrne of the Wed case as beng ntrnscay unsound, and as
havng been demonstrated by subsequent cases to be unworkabe n practce.
We aso re|ect as an ad to decson the nqury made In severa cases as to
whether the payment n queston was n consequence of a recurrng con-
tractua obgaton, 11 snce whether such s the case depends merey upon the
mechancs of the partcuar cub s fnances a propery mmatera factor.
Consderaton of the nature of cub actvty s a necessary premnary to
the formuaton of a test of what consttutes a due or membershp fee. So
far as fnances go, the fundamenta noton of cub actvty s that operatng e -
penses are shared wthout nsstence upon equvaence between the proporton
of an ndvdua s contrbutons and the proporton of the benefts he receves.
Thus, on the one hand, payment of the prce of an ndvdua dnner at the cub
dnng room or of a snge round of gof acks the eement of makng common
cause nherent n the Idea of cub actvty. ut, on the other hand, payment
for the rght to repeated and genera use of a common cub facty for an
apprecabe perod of tme has that eement and amounts to a due or member-
shp fee f the payment s not f ed by each occason of actua use. Such was
the case here, and we therefore hod that the payments n queston were sub|ect
to the ta .
These are In substance the vews e pressed by the Treasury shorty after
dues or membershp fees was empoyed n the Revenue cts, and
consstenty pressed by the Treasury, e cept as t thought udca authorty
dctated otherwse. Its substantay contemporaneous e pressons of opnon
are hghy reevant and matera evdence of the probabe genera understandng
ut compare Unted States v. Mo. Pnc. R. Co. f278 . S.. 209. 280) ; urnet v. Chcago
Portrat Co. (285 U. 8., 1, 16 Ct. D. 63, C. . I-1, 288 (1032)1.)
Morrssy v. Commssoner (2 )t . S., 3 Ct. D. 100 . C. . -1. 26 (1036) );
everng v .W hre O Co. (308 U. S., 00 Ct. D. 1 2 , C. . 1939-2, 213 ) ; everng v.
Reynods (313 U. 8., 28).
M Unted States v. Raynor (302 T7. 8.. 5 0, 552) ; cf. Federa Communcatons Comms-
son v. roadcastng System (311 . S., 132) ; everng v. Reynods, supra.
a Foran v. McLaughn, supra ; urdt t. McLaughn, supra; Phadepha Crcket Cua
v. Unted States, supra.
See Meron Crcket Cub T. Unted States (119 Fed. (2d), 578-580).
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Regs. 3 (1932), rt. 0. 276
of the tmes and of the opnons of men who probaby were actve n the draft-
ng of the statute. s such they are entted to serous consderaton, ndepend-
enty ake of reenactments of the statute whe t was n force on the books
and of any temporary abandonment n consequence of dsregard by |udca
decson.
Reversed.
Mr. ustce Robebts took no part n the decson of ths case.
Reguatons 3 (1932), rtce 0: Dues or 19 2- -10970
membershp fees. Ct. D. 1539
ta on admssons and dues revenue acts op 1920 and 1928 decson
of supreme court.
1. Dues or Membershp Fees Payments for Gof Prveges.
Payments made by members of a cub for certan annua gof
prveges are sub|ect to the ta on dues or membershp fees
mposed by secton 501 of the Revenue ct of 1920, as amended by
secton 13 of the Revenue ct of 1928, snce they were for rghts
to the repeated and genera use of a common cub facty for an
apprecabe perod of tme, and were not f ed by each occason
of actua use.
2. Decson Foowed.
Whte et at, former Coectors, etc.. v. Wnchester Country Cub,
decded ths day Ct. D. 1538, page 272, ths uetn , foowed.
3. Decson ffrmed.
Decson of the Unted States Crcut Court of ppeas, Thrd
Crcut (19 1) (119 Fed. (2d), 578), affrmng decson of the
Unted States Dstrct Court for the astern Dstrct of Pennsy-
vana (unreported), affrmed.
Supreme Court of the Unted States.
eron Crcket Cub, pettoner, v. The Unted States of merca.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut
anuary 12, 19 2.
OPINION.
Mr. ustce ackson devered the opnon of the Court.
The queston n ths case whether amounts pad by members of the Meron
Crcket Cub durng the perod from uy 1, 1931, to une 30, 1935, for gof
prveges, consttuted payments as dues or membershp fees sub|ect to the
ta mposed by secton 501 of the Revenue ct of 1926 ( Stat, 9, 92), as
amended by secton 13 of the Revenue ct of 1928 ( 5 Stat., 791, 86 )
does not dffer n substance from that decded ths day n Whte v. Wnchester
Country Cub Ct. D. 1538, page 272, ths uetn .
Wth certan e ceptons, a member of the Meron Crcket Cub coud obtan
annua gof prveges ony by payment of a fee, whch vared n amount ac-
cordng to hs age and status. The fee was payabe n two equa nstaments,
one on the 1st of anuary, and the other on the 1st of uy. member ad-
mtted to gof prveges after the atter date was entted to remsson of
one-haf of the annua fees, but f one stopped usng the gof factes durng
the year there was no proportonate refund. If a member eected to pay gof
he contnued to be abe for the succeedng year uness he gave notce of
wthdrawa before the end of the year. Members who pad the annua gof
fees were entted to use the gof factes as often as they desred wthout
further charge, and coud on occason obtan gof prveges for ther wves and
guests.
Compare Grswod, Summary of the Reguatons Probem, 6 arvard Law Revew,
398.
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277 Regs. 3 (1932), rt. 0.
fter a cam for refund of the amounts aeged to have been pad as ta es
on the annua gof fees had been duy fed and re|ected, the cub on ts own
behaf and on behaf of ts members sued the Unted States n the Unted
States Dstrct Court for the astern Dstrct of Pennsyvana to recover them.
The dstrct court entered a |udgment for the Unted States whch was affrmed
on appea to the Crcut Court of ppeas for the Thrd Crcut. (119 Fed.
(2d , 578.) Certorar was granted n ths cnse and n Whte v. Wnchester
Country Cub (ante), because of an asserted confct between the decsons
beow. (313 U. S., 555; 31 U. S., .)
In ths case as n Whte v. Wnchester Country Cub, supra, we hod that
amounts pad were pad as dues or membershp fees, snce they were for
rghts to the repeated and genera use of a common cub facty for an ap-
precabe perod of tme, and were not f ed by each occason of actua use.
The decson beow s therefore affrmed.
Mr. ustce Roberts took no part In the decson of ths case.
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Regs. 71 (19 1), 113.3 . 278
ST MP T S.
INT RN L R NU COD .
S CTION 1801, S M ND D. CORPOR T S CURITI S.
Reguatons 71 (19 1), Secton 113.55: Issues 19 2-11-11030
sub|ect to ta . T. D. 5128
TITL 26 INT RN L R NU . C PT R I, SU C PT R C. P RT 113.
DOCUM NT RY ST MP T .
Reguatons 71 amended. Recevers certfcates of Indebtedness.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
To conform Reguatons 71 (19 1 dton) Part 113, Code of Fed-
era Reguatons, 19 1 Sup. to the cases of Unted States v. Powe
(C. C. . , 1938) (95 Fed. (2d), 752, certorar dened (1938), 305
U. S., 619), Unted States v. Poard (C. C. . 5,19 0) (115 Fed. (2d),
13 ), and Moore v. Stewart, r. (C. C. . 6, decded February 5,19 2),
such reguatons are amended by strkng from secton 113.55 para-
graph (/) thereof, and by redesgnatng paragraph (g) of such secton
as paragraph (/).
(Ths Treasury decson s ssued under the authorty contaned n
secton 3791 of the Interna Revenue Code (53 Stat,, 67, 26 U. S. C,
19 0 ed.,3791).)
Norman D. Cann,
ctng Commssoner of Interna Revenue.
pproved March 11,19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 12, 19 2, .20 p. m.)
S CTION 1802(b), S M ND D Y S CTIONS 1 ND 02 OF T R -
NU CT OF 1939, S CTIONS 209 ND 210 OF T R NU CT OF
19 0, ND S CTION 521(a) 5 OF T R NU CT OF 19 1. C PIT L
STOC ( ND SIMIL R INT R STS) S L S ND TR NSF RS.
Reguatons 71 (19 1), Secton 113.3 : Saes 19 2-15-11058
and transfers not sub|ect to ta . M. T. 2
The transfer of corporate stock from the name of a guardan to
the name of hs ward n the State of Msssspp s not sub|ect to
stamp ta .
dvce s requested whether the transfer of corporate stock from
the name of a guardan to the name of hs ward n the State of Msss-
spp s sub|ect to stamp ta under secton 1802(b) of the Interna
Revenue Code, as amended by sectons 1 and 02 of the Revenue ct of
1939, sectons 209 and 210 of the Revenue ct of 19 0, and secton
521 (a) 5 of the Revenue ct of 19 1.
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279
Regs. 59 (19 1), 323.21.
The aw mposes a stamp ta on a saes and transfers of ega
tte to any snares or certfcates of corporate stock, wth certan
e ceptons not here appcabe. Where corporate stock s transferred
from a guardan to a ward, the transfer s sub|ect to stamp ta f under
the oca aw the guardan, and not the ward, hed ega tte to the
stock. (S. T. 918, C. . 19 1-1, 6 .)
Under the aws of Msssspp tte to the persona property of the
ward remans n the ward. (Sectons 187 , 1875, and 188 , as
amended, of the code of 1930.)
In Grst v. Forehand (36 Mss., 69) the court sad:
ut as between guardan and ward, the ega tte to the property
does not vest In the guardan, but remans n the ward. The guardan s smpy
the agent or trustee for ts management, wth certan powers over t, the ega
tte beng n the ward.
Snce n Msssspp ega tte to the persona property of a ward
remans n the ward, t s hed that the transfer of stock from the
name of a guardan to the name of hs ward n that State s not
sub|ect to stamp ta under secton 1802(b) of the Interna Revenue
Code, as amended.
S CTION 3267, S DD D Y S CTION 555 OF T R NU CT OF
19 1. T ON COIN-OP R T D MUS M NT ND G MING D -
IC S.
Reguatons 59 (19 1), Secton 323.21: Persons 19 2-11-11029
abe for ta . M. T. 1
Where a gum ba sot machne enttes a person nsertng a penny
to a sma prze f the gum ba receved s of a certan coor, the
machne s a con-operated gamng devce wthn the meanng of
secton 3267 of the Interna Revenue Code.
dvce s requested whether the con-operated machne herenafter
descrbed s a gamng devce wthn the meanng of secton 3267 of the
Interna Revenue Code, as added by secton 555 of the Revenue ct
of 19 1.
Secton 3267 mposes a speca ta of 50 per year, effectve October 1,
19 1, upon every person who mantans for use or permts the use of,
on any pace or premses occuped by hm, a con-operated gamng
devce. n operator of such pace or premses s consdered engaged
n a trade or busness n respect of each such devce as of the day the
devce s paced on hs premses for use thereon, on or after October 1,
19 1.
Secton 3267(b) provdes:
(b) DmNnoN. s used n ths part the term con-operated gamng
devces means (2) so-caed sot machnes whch operate by means
of nserton of a con, token, or smar ob|ect and whch, by appcaton of the
eement of chance, may dever, or entte the person payng or operatng the
machne to receve, cash, premums, merchandse, or tokens. The term does not
ncude bona tde vendng machnes n whch are not ncorporated gamng
features.
The devce n queston s a con-operated sot machne havng a
gass bow contanng bas of chewng gum. number of the bas
are of a certan coor. y nsertng a penny n the sot, the machne
devers a ba of chewng gum to the customer. If the ba s of a
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Regs. 59 U9 1), I 323.21.
280
certan coor, the customer s entted to receve a sma prze from the
shopkeeper. There s no message or egend of any knd on the machne
to ndcate to the customer that he w be entted to receve a prze
f the machne dspenses one of the prze bas.
Snce the customer who nserts the con may receve a ba of gum
of a certan coor enttng hm to a sma prze, t s cear that the
eement of chance s nvoved n the operaton of the machne. The
fact that there s no message or egend of any knd on the machne
to ndcate to the customer that he w receve a prze f the machne
dspenses a prze ba s mmatera. It s aso mmatera that ony
a penny s requred to operate the machne and that the prze s sma.
The statute makes no dstncton based upon the amount payed or
the vaue of the prze.
It s accordngy hed that a machne of the type ndcated whch
s used n the manner set forth above s a con-operated gamng devce
wthn the meanng of secton 3267 of the Interna Revenue Code, as
added by secton 555 of the Revenue ct of 19 1.
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281
Regs. 72 (19 2), 322.21.
US OF MOTOR ICL S ND O TS.
INT RN L R NU COD .
C PT R 33 , DD D Y S CTION 557 OF T R NU CT OF
19 1.
Reguatons 72 (19 2), Secton 322.21: Pur- 19 2-2 -11127
chase of stamps. T. D. 515
TITL 28 INT RN L R NU . C PT R I, SU C PT R C, P RT 322. T
UPON T US OF MOTOR ICL S ND O TS.
Secton 322.21(a) of Reguatons 72 (19 2 dton).
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 72 (19 2 edton) Part 322, Tte 26, Code of Federa
Reguatons, 19 2 Sup. , approved February 17, 19 2, reatng to the
ta upon the use of motor vehces and boats under Chapter 33 of
the Interna Revenue Code, as added by secton 557 of the Revenue
ct of 19 1, are hereby amended as foows:
Subdvson (a) of secton 322.21 s amended to read as foows:
(o) Motor vehce stamps. Stnmps evdencng the payment of te ta on the
use of motor vehces may be purchased at the offce of any coector of nterna
revenue or at any post offce n the L nted States, e cept that stamps for ess
than a fu fsca year are not avaabe at post offces of the thrd and fourth
casses uness such post offces are ocated at county seats. Stamps may be
purchased by ma but ony from coectors of nterna revenue. In such case a
etter shoud be addressed to the coector, accompaned by money order, certfed
check, or cash for the vaue of the stamp. No order form or appcaton bank
s necessary and detaed Informaton concernng the motor vehce for whch
the stamp Is desred s not requred.
(Ths Treasury decson s ssued pursuant to the authorty con-
taned n secton 3791 of the Interna Revenue Code (53 Stat., 67;
26 U.S.C., 19 0 ed., 3791).)
Gut T. everno,
Commssoner of Interna Revenue.
pproved une 9, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster une 10, 19 2, 8.1 p. m.)
7 918 2 10
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Regs. 96, rt. 202.
282
PROC SSING T S.
TITL II. R FUNDS OF MOUNTS COLL CT D UND R T
GRICULTUR L D USTM NT CT. (1936)
Reguatons 96, rtce 202: Facts and evdence 19 2-13-110 0
n support of cam. Ct. D. 15 8
PROC SSING T R NU CT OP 1936 GRICULTUR L D USTM NT CT-
D CISION OF COURT.
Petton fob Revew ursdcton of oard of Revew Moton
to Dsmss Suffcency of Cam for Refund.
Te Unted States Processng Ta oard of Revew was wthout
|ursdcton to grant a refund to the pettoner and dd not err n
dsmssng a petton to revew the acton of the Commssoner n
dsaowng a cam for refund on the ground that the cam dd not
compy wth the provsons of Tte II of the Revenue ct of 1936
and the reguatons promugated thereunder, where pettoner dd
not furnsh n such cam any nformaton as to ts average margn
for the ta perod or for the perods before and after the ta
perod, but stated that It was not n busness before and after the
ta perod and that the average margns of other representatve
concerns were not avaabe to It. The pettoner s n no poston
to compan of the faure of the Commssoner to procure and use
nformaton as to the average margns of smar processors when t
had not furnshed the data requred n order to make the necessary
comparsons.
Unted States Crcut Court of ppeas fob the ghth Crcut.
Lee Wson Co., a usness Trust, pettoner, v. Commssoner of Interna
Revenue, respondent.
123 Fed. (2d), 232.
On petton to revew order of Unted States Processng Ta oard of Revew.
efore Gardner, Sanborn, and Thomas, Crcut udges.
November 17, 19 1.
OPINION.
Sanborn. Crcut udge, devered the opnon of the court.
fter ths court had decded, n Lee Wson d Co. v. Commssoner (111 Fed.
(2d), 313), that a cam of pettoner for refund of an amount pad by t as
processng ta es under the grcutura d|ustment ct (ch. 25, 8 Stat., 31; 7
U. S. C. ., secton 601, et seq.) was nsufcent, the pettoner fed another cam
for refund of the amount. The respondent dsaowed the second cam on the
ground that t was a dupcate of the frst. On petton to revew, the Unted
States Processng Ta oard of Revew, on moton of the respondent, entered an
order dsmssng the petton on the ground that thp second cam for refund dd
not compy wth Tte II of the Revenue ct of 1936 ( 9 Stat., 17 7. sectons 902
and 903; 7 U. S. C. ., sectons 6 1 and 6 5) and the Treasury reguatons promu-
gated thereunder (artces 201. 202, and 605 of Reguatons 96). The pettoner
seeks a reversa of the order of the oard.
The pettoner contends that ts second cam comped wth the appcabe
statute and reguatons. The respondent asserts that the pettoner was wthout
rght to fe a second cam and that t s nsuffcent. We sha concern ourseves
wth the queston of the suffcency of the cam.
In vew of our decsons n Lee Wson d Co. v. Commssoner (111 Fed. (2d),
331) and Landrum v. Commssoner (122 Fed. (2d), 857 (opnon fed October
22. 19 1)), there s no need of any detaed dscusson of the appcabe statute
and reguatons or to agan descrbe the form of cam whch the pettoner
was requred to fe under artce 201 of Treasury Reguatons 96. Secton
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283
Regs 96, rt. 202.
902 of the Revenue ct of 1936 prohbted a refund of any amount pad as
processng ta uness the camant estabshed to the satsfacton of the Com-
mssoner of Interna Revenue that the camant had pad the amount and had
not shfted t or been rembursed for t. Secton 903 of the ct requred
that a cam for refund shoud compy wth the reguatons prescrbed by the
Commssoner and that a evdence reed upon n support of such cam shoud
be ceary set forth under oath. rtce 202 of Treasury Reguatons 96
requred that the cam set forth n deta and under oath each ground for
refund, that the cam be true and compete, and that a of the facts necessary
to estabsh the cam to the satsfacton of the Commssoner be substantated
by cear and convncng evdence. rtce 605 of Treasury Reguatons 96
requred the camant to furnsh wth hs cam compete margn data showng
the average margn for the ta perod and for the perod before and after the
ta perod, together wth a detaed showng of the manner n whch margns
for each month and average margns were ascertaned.1 Margn data was
requred because secton 907(a) of the Revenue ct provded:
Where the refund camed s for an amount pad or coected as processng
ta , as defned heren, t sha be prma-face evdence that the burden of such
amount was borne by the camant to the e tent (not to e ceed the amount of
the ta ) that the average margn per unt of the commodty processed was
ower durng the ta perod than the average margn was durng the perod
before and after the ta . If the average margn durng the ta perod was
not ower, t sha be prma-face evdence that none of the burden of such
amount was borne by the camant but that t was shfted to others.
Secton 907(c) of the Revenue ct provded that f the camant was not
n busness durng the entre perod before and after the ta , the average
margn, durng such perod, of representatve concerns engaged n a smar
busness and smary crcumstanced, as determned by the Commssoner,
sha be used as hs average margn for such perod.
The pettoner fed ts second cam for refund on the proper form and
e ecuted the sworn statement caed for by the form. It dd not furnsh any of
the margn data caed for by Schedue D of the form. part of ths schedue
caed for the verage margn for the ta perod and for the fgures showng
for each month of the perod the gross saes vaue of artces processed, cost of
the commodty processed, amount of processng ta , the margn, and the tota
unts of the commodty processed. None of ths nformaton was furnshed by
the pettoner. Nether dd t furnsh any margn nformaton for the perods
before and after the ta perod. The pettoner, however, attached to Its cam
the foowng statement:
On une 25, 1937, camant fed wth the coector for the dstrct of
rkansas a cam for refund of the hog processng ta es pad by It under the
provsons of the grcutura d|ustment ct In the amount of 2,218.61.
Sad cam was prepared on Treasury Department P. T. Form 79. No average
margn data was furnshed, as caed for n Schedues D- (a), (b), and (c),
and D-2, because camant dd not process hogs n the pre-ta perod and such
nformaton was not avaabe to camant.
Camant pad the hog processng ta es as set out above and dd not pass
on any part thereof to ts vendees. It dd not ncude the ta n the prce of
any artce on whch the ta was mposed, nor b the ta as a separate Item,
nor change ts contract of sae or the sae prce by the amount of the ta , nor
contract to refund any part of the sae prce n the event of recovery of the
ta . It bore the fu burden of the ta and has not been rembursed for any
part thereof In any manner whatsoever. Sad so-caed ta es are refundabe
because the aw mposng them has been hed unconsttutona, nu, and vod.
In vew of the above statement. Schedues , C, and of ths cam form are
not fed n. The Informaton caed for n Schedue D- (a), (b), and (c)
1 rtce 605 of Treasury Reguatons 96 provded :
The average margn for the ta perod sha be computed as foows : Determne for each
month durng the perod (1) the gross saes vaue of artces derved from the commodty
processed durng such month ; (2) the cost of the commodty processed durng such month ;
(3) the amount of processng ta pad wth respect to the quantty of the commodty proc-
essed durng the month: and ( ) the number of unts of the commodty processed durng
the month. The sum of the monthy gross saes vaues for a months durng the perod
mnus the sum of the monthy costs of the commodty processed for a months durng the
perod, mnus the sum of the processng ta es pad for a months durng the perod, and
dvded by the sum of the number of unts of the commodty processed durng a the months
comprsng the perod Is the average margn for such perod. (For defnton of cost of
commodty and gross saes vaue, see secton 807(b), paragraphs (5) and (6), respec-
tvey, of the ct.)
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Regs. 96, rt. 202.
28
Is not avaabe to camant, because camant was not engaged In processng
bogs, durng any part of the pre-ta perod. Furthermore, the average margns
of other representatve concerns engaged In smar busnesses and smary
crcumstanced are not avaabe to camant. Camant asserts that t bore,
and dd not shft, the burden of the ta , as the e ecuton of ths cam w
attest. Shoud t be hed that the nformaton caed for In Schedue D- of
ths cam form Is essenta to the aowance of ths cam, then Tte II of
the Revenue ct of 1936 s to that e tent unconsttutona, nu, and vod.
ny attempt to condton the refund of the so-caed ta , whch was egay
coected, when camant s unabe to meet such condtons through no faut
of ts own, s ega and nvad.
Ths cam sha aso consttute a demand for the so-caed ta on the
ground of money Iegay taken, had, and receved by the Commssoner of
Interna Revenue and, therefore hed n trust for camant sub|ect to ts
demand.
Ths cam Is fed as amendatory of sad former cam fed une 25, 1937.
and aso as a new cam under the aw.
The pettoner contends that t was not requred to furnsh any of the nfor-
maton caed for n Schedue D because t was not n busness before and after
the ta perod and the average margn data of representatve concerns engaged
In smar busness was not avaabe to t. The pettoner asserts that secton
907(c) of the ct requres the Commssoner to procure and use such data.
ssumng, wthout decdng, that the respondent had or was requred to obtan
the nformaton as to the average margns of smar concerns for perods
before and after the ta perod n queston, such nformaton woud have been
useess n the absence of data as to pettoner s average margn durng the .
ta perod. Under the pettoner s theory as to the duty of the Commssoner,
the pettoner shoud have gven hm the nformaton to make the necessary
comparsons, and, havng faed to do so, s n no poston to compan of the
faure of the Commssoner to procure and use the nformaton as to the
average margns of smar processors.
We thnk that, under the appcabe statute and Treasury reguatons, the
pettoner was, at east, requred to furnsh wth hs cam a of the nforma-
ton caed for by Schedue D as to pettoner s own margns durng the ta
perod.
If the suffcency of the pettoner s cam for refund was to be tested by the
Federa Rues of Cv Procedure, the order of the oard dsmssng the petton
for revew woud, no doubt, be erroneous. (Compare, Lemer v. State Mutua
Lfe ssurance Co., 8 Cr., 108 Fed. (2d), 302.) So far as assertons are con-
cerned, the cam for refund s adequate, but the statute and reguatons whch
prescrbe the standard for measurng ts suffcency requre not ony assertons
that the camant s entted to the refund whch he seeks, but evdence to
substantate the assertons. In the former Lee Wson Co. case (111
Fed. (2d), 313, at pages 317-318), ths court rued that the evdentary showng
made wth the cam must be suffcent to estabsh to the satsfacton of the
Commssoner, of the tra court, or the oard of Revew
that the ta payer bore the burden of the amount pad as processng ta . (See
aso, Tennessee Consodated Coa Co. v. Commssoner. 6 Cr., 117 Fed. (2d),
52. 53- 5 , and Landrum v. Commssoner, 8 Cr., 122 Fed. (2d), 857 (opnon
fed October 22, 19 1).)
Snce the cam for refund faed to furnsh to the respondent a suffcent
evdentary bass for determnng the probabe merts of the pettoner s asserted
cam, we thnk the oard was wthout ursdcton to grant pettoner a refund
and dd not err n dsmssng the petton for revew. (Lee WUon f Co. v.
Commssoner, 8 Cr., I Fed. (2d), 813, 818; Landrum v. Commssoner, 8 Cr.,
122 Fed. (2d), 857.)
The onder of the oard Is affrmed.
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285 R gs. 3 ( coho), rt. 86.
LCO OL T .
INT RN L R NU COD .
INDUSTRI L LCO OL.
Reguatons 3 (19 2), Sectons 182.2, 182.800, 19 2-26-11138
and 182.8 7. T. D. 5155
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 182.
INDUSTRI L LCO OL.
mendng Reguatons 3, revsed, effectve une , 19 2.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
y vrtue of and pursuant to sectons 3105, 312 (a) (6), and 3176
of the Interna Revenue Code, Reguatons 3, revsed, effectve une
, 19 2; s hereby amended as foows:
Secton 182.2 s amended by addng at the end thereof a new para-
graph, readng as foows:
(a) cepton Treasury Decsons Nos. 5065 C. . 19 1-2, 356 (uncodfed),
5075 C. . 19 1-2, 357 (uncodfed), 5108 page 286, ths uetn (uncodfed),
5111 page 32 , ths uetn (uncodfed), 5121 page 338, ths uetn (26
CF , Part 171, Subpart ), and 5132 page 333, ths uetn (26 CFR, Part 171,
Subpart I), sha contnue n fu force and effect, accordng to the terms thereof,
on and after the effectve date of these reguatons. (Sees. 3105, 312 (a)(6),
3176, I. R. C.)
Secton 182.800 s amended by addng at the end thereof a new para-
graph, readng as foows:
(a) cepton. The provsons of Treasury Decsons Nos. 5065 and 5075 are
hereby e tended to contaners of propretary ant-freeze preparatons made wth
competey denatured acoho. (Sees. 3070, 3105, 312 (a) (6), 3176, I. R. C.)
Secton 182.8 7(a) s amended by addng at the end thereof a new
paragraph, readng as foows:
(1) cepton. The provsons of Treasury Decsons Nos. 5065 and 5075 are
hereby e tended to contaners of acquer thnners.
Guy T. everng,
Commssoner of Interna Revenue.
pproved une 20,19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster une 22, 19 2, 3.33 p. m.)
Reguatons 3 ( coho), rtce 86. 19 2-10-11020
T. D. 5123
mendment of Reguatons No. 3.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
y vrtue of and pursuant to sectons 3105(a), 3108(c), 311 (a),
312 (a)(6), and 3176 of the Interna Revenue Code, artce 86 of
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Regs. 3 ( coho), rt. 1 - .
286
Reguatons No. 3, as amended, s hereby further amended so as to
read:
rt. 86. Ta -free acoho wthdrawn under the foregong provsons of aw
and reguatons for use of the Unted States must be used soey for nonbeverage
purposes. Such acoho, when wthdrawn by States and Terrtores, or any
muncpa subdvson thereof, or the Dstrct of Coumba, must be used soey
for mechanca and scentfc purposes, or for hosptas or cncs as hereafter
specfed, and such use, or the use of any resutng product, must be confned
to premses under the contro of the State or Terrtory, or muncpa subdvson
thereof, or the Dstrct of Coumba, e cept that bona fde medcnes compounded
wth such acoho wthdrawn for the use of cncs operated for charty and
not for proft, may be used outsde of such cncs for treatment of the patents
thereof, but such medcnes may not be sod.
Ta -free acoho wthdrawn by hosptas or sanatorums, or by cncs operated
for charty and not for proft, may be used ony for medcna, mechanca, and
scentfc purposes and n the treatment of patents. Scentfc unverstes
or coeges of earnng sha use such acoho ony for scentfc, mechanca, and
medcna purposes, and any aboratory wthdrawng acoho free of ta must
use the same e cusvey n scentfc research. The use of the acoho and
resutng products sha be confned strcty to the premses of the nsttuton
wthdrawng the acoho, e cept that where any such resutng product does not
contan acoho and s to be used n further research, t may be removed, wthout
sae, for that purpose ony, such research to be conducted at any scentfc
unversty or coege of earnng, aboratory engaged In scentfc research, or
hospta or cnc, and e cept that bona fde medcnes compounded wth acoho
wthdrawn by cncs operated for charty and not for proft may be used
outsde of such cncs for treatment of the patents thereof, but such medcnes
may not be sod.
In no case sha acoho wthdrawn ta -free be used n the preparaton of food
products for use n any manner, and under no crcumstances sha such acoho
be used for beverage purposes or n any product whch may be so used.
Norman D. Cann,
ctng Commssoner of Interna Revenue.
pproved March 2, 19 2,
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 3, 19 2, 3.09 p. m.)
Reguatons 3 ( coho), rtce 1 - . 19 2- -10971
T. D. 5108
mendment of Reguatons No. 3.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
y vrtue of and pursuant to sectons 3070, 3105, 3108(a), 3109,
311 (a), 312 (a) (6), and 3176. Interna Revenue Code, Reguatons
No. 3 s amended by nsertng a new artce, readng as foows:
Optona Usk of Wthdrawa Permts on Form 1 85, n Led or Form 1 77,
by Users of Specay Denatured coho.
bt. 1 - . In vew of the present shortage of acoho and certan de-
naturants, and the consequent dffcuty of denaturers In fng orders for
specay denatured acoho, any person hodng permt, Form 1 81, to use spe-
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287 Regs. 3 ( coho), rt. 1 - .
oay denatured acoho, may, upon the surrender of hs outstandng wthdrawa
permts on Form 1 77 to the dstrct supervsor, be ssued a new wthdrawa
permt on Form 1 85, n accordance wth the foowng procedure:
ppcaton and rthdraoa permt. Form 85. (a) ppcaton. Where
t s desred to use the new wthdrawa permt, Form 1 85, appcaton w be
made on Part I thereof, n dupcate, wth the dstrct supervsor. The per-
mttee sha state on hs appcaton the names, regstry numbers (n the case
of denaturng pants) or basc permt numbers (n the case of deaers n
specay denatured acoho) and addresses of the denaturng pants or bonded
deaers from whch he proposes to purchase specay denatured acoho. The
proof and formuas of specay denatured acoho to be wthdrawn, and, n
the case of optona or substtute denaturants, the knd and quantty of the
denaturants approved on Form 1 7 - , must be stated n the appcaton.
The appcant sha aso specfy the tota quantty, n wne gaons, of each
formua of specay denatured acoho to be wthdrawn durng the term of
the wthdrawa permt, and the quantty of each formua to be wthdrawn
durng a caendar month, whch amount sha not be n e cess of one-twefth
(or smar proportonate quantty where the wthdrawa permt s for a perod
of other than one year) of the tota quantty of the specfed formua to be
wthdrawn durng the term of the wthdrawa permt. Such quanttes sha
n no case e ceed those specfed n the appcant s basc permt, Form 1 81.
If wthdrawas are to be made n drums or barre ots, the appcaton sha
be n mutpes of 55 wne gaons. The dstrct supervsor may approve or
dsapprove the appcaton n whoe or n part, accordng to hs fndngs as to
the egtmate needs of the appcant.
(6) Wthdrawa permt. If the appcaton s approved by the dstrct
supervsor, he sha ssue wthdrawa permt on Part II of Form 1 85. The
permt sha specfy the quantty that may be procured durng any caendar
month and the tota quantty that may be procured durng the perod for whch
the wthdrawa permt s ssued. The quantty of each formua authorzed by
the wthdrawa permt sha not e ceed the quantty of such formua f ed In the
basc permt. Form 1 81. If wthdrawas are to be made n drums or bar-
res, the permt sha be n mutpes of 55 wne gaons. The wthdrawa
permt sha specfy the date when the same sha be avaabe for wthdrawa
purposes. The dstrct supervsor w forward the orgna copy of the wth-
drawa permt to the permttee and w retan the dupcate copy for hs
fes. If any denaturer or bonded deaer named as vendor In the wthdrawa
permt s ocated n another supervsory dstrct, a copy of the wthdrawa permt
and any renewas or amendments thereof, w be prepared on the prescrbed
form and transmtted by the dstrct supervsor ssung the same to the dstrct
supervsor of the dstrct from whch shpments are to be made.
(1) Wthdracas under permt. When the permttee desres to procure
specay denatured acoho, he w forward the orgna of the wthdrawa
permt to the denaturer or bonded deaer named theren from whom he
desres to procure the specay denatured acoho. Upon shpment, the denaturer
or bonded deaer w enter the shpment on the wthdrawa permt and return
t to the permttee, uness he has been authorzed by the permttee to retan
the permt for the purpose of mnkng future shpments. No specay denatured
acoho may be shpped by a vendor named In the wthdrawa permt unt such
permt s n hs possesson. cept as provded In paragraph (e), further
ke shpments may be made under such permt durng the term for whch t s
ssued.
(2) cepton. Wthdrawas must be so reguated by the permttee that he
w not have on hand. In transt, and unaccounted for durng any caendar
month more than the quantty of specay denatured acoho, pus the quantty
of recovered or restored denatured acoho, and recovered or restored artces
(whch are n the form of denatured acoho) so authorzed by hs basc
permt, Form 1 81: Provded. That the dstrct supervsor may, n hs ds-
creton, pursuant to appcaton on Part I of Form 1 85, and upon proper show-
ng of necessty therefor, (1) n the case of a seasona busness, amend the
appcant s wthdrawa permt to authorze wthdrawa durng any caendar
month of not to e ceed a two months aowance, or (2) ssue to the permttee.
In eu of an annua permt, Form 1 85, one or more wthdrawa permts for a
specfed quantty or perod sub|ect to the above restrctons as to the ma mum
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Regs. 3 ( coho), rt. 1 - .) 288
quantty that may be wthdrawn durng any one month, but the tota quantty
authorzed under (1) and (2) sha not e ceed the quantty specfed n the
wthdrawa permt, Form 1 S5, to be wthdrawn durng the perod for whch
It s ssued: Provded further, That such addtona wthdrawas sha not be
authorzed uness the bond of the permttee s In a suffcent pena sum to cover
the ncreased quantty n addton to the reguar wthdrawa aowance.
(c) Speca permt. Where new permttees quafy wthn a caendar month
a speca wthdrawa permt, Form 1 85, shoud be ssued for the proportonate
quantty of specay denatured acoho to whch the permttee may be
entted for the baance of the month, whch permt sha be vod at the end
of such month and must be at once returned by the permttee to the dstrct
supervsor.
(d) Carrer to be furnshed copy of Form 85. Where the specay de-
natured acoho s to be devered to the manufacturer by a person other than
the vendor, the manufacturer sha procure from the dstrct supervsor a
certfed copy (or copes, f devery s to be made by more than one carrer),
on the prescrbed form, of the wthdrawa permt, Form 1 85, ssued to hm,
and fe the same wth the deverng carrer s agent at destnaton. ppca-
ton for such certfed copy or copes sha be made by the permttee to the
dstrct supervsor by etter, specfyng the name of the deverng carrer.
Where such deverng carrer s known at the tme Form 1 85 s fed, the
appcaton shoud accompany such form.
(e) praton or termnaton of vermt. Upon e praton of a wthdrawa
permt, t sha be returned to the dstrct supervsor for canceaton. Where
the wthdrawa permt s n the possesson of a vendor on the date of e pra-
ton, such vendor sha return t to the permttee for surrender to the dstrct
supervsor. Shoud a basc permt. Form 1 81, hed by a person to whom wth-
drawa permt, Form 1 85, was ssued, be termnated, surrendered, or revoked,
each denaturer or deaer named as vendor n such wthdrawa permt, sha,
upon notce from the dstrct supervsor, make no further shpments thereunder,
and f such wthdrawa permt s n hs possesson, he sha return t to the
dstrct supervsor for canceaton.
uantty procurabe under wthdrawa permts. Form 85. In procurng
specay denatured acoho the permttee sha deduct the quantty of specay
denatured acoho, pus the quantty of recovered or restored denatured acoho,
and recovered or restored artces (whch are n the form of denatured acoho)
on hand, n transt, and unaccounted for from the quantty procurabe under
the wthdrawa permt durng the caendar month, and gve hs order for an
amount not e ceedng the avaabe baance. For ths purpose, specay de-
natured acoho, recovered or restored denatured acoho, and recovered or
restored artces (whch are n the form of denatured acoho) sha be deemed
to be unaccounted for when used or dsposed of otherwse than as provded
n these reguatons. Faure on the part of permttees to observe the foregong
requrements concernng wthdrawas w be regarded as suffcent ground
for ctaton for revocaton of ther basc permts.
Wthdrawa permts on Form 1 77 sha contnue n effect, e cept where
superseded by wthdrawa permts on Form 1 85, or where otherwse termnated
n accordance wth present reguatons.
suppy of the new Forms 1 85 w be furnshed to dstrct supervsors.
ppcatons by the Unted States or governmenta agency for permt to
procure specay denatured acoho w hereafter be made on Part I of Form
1 86, revsed December, 19 1, n eu of Form 1 85.
Guy T. everng,
Commssoner of Interna Revenue.
pproved anuary 15, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster anuary 16, 19 2, 3. 0 p. m.)
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289 Regs. 3 ( ppend ).
Reguatons 3 ( ppend ). 19 2-1 -11051
T. D.5133
TITL I - INT RN L R NU . C PT R I. P RT 182. INDUSTRI L LCO OL.
mendment of ppend to Reguatons No. 3, revsed 1938.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Pursuant to authorty n sectons 3070(a), 3105(a), 312 (a) (6), and
3176(a), Interna Revenue Code, competey denatured acoho for-
mua Nos. 12, 13, and 1 , as set forth n the ppend to Reguatons
No. 3, approved December 29, 1938 ( ppend to Part 182, Code of
Federa Reguatons), as amended by Treasury Decson 5095, ap-
proved October 30, 19 1 C. . 19 1-2, 355 , are amended to read as
foows:
Formua No. 12.
To every 100 gaons of ethy acoho of not ess than 160 proof add:
.0 gaons of ST-115 or a compound smar thereto.
1.0 gaon of Dehydro-0 or a compound smar thereto.
0.5 gaon of acetndo (hydro y-butyradehyde) or 1.5 gaons of methy
sobuty ketone.
1.0 gaon of kerosene.
Formua No. 13.
To every 100 gaons of ethy acoho of not ess than 160 proof add:
.0 gaons of T-115 or a compound smar thereto.
1.5 gaons of methy Isobuty ketone.
0.25 gaon of acetado (hydro y-butyradehyde).
1.0 gaon of kerosene.
Formua No. 1 .
To every 100 gaons of ethy acoho of not ess than 100 proof add:
3.0 gaons of Dehydro-0 or a compound smar thereto.
1.75 gaons of methy sobuty ketone.
1.5 gaons of kerosene.
Guy T. everno,
Commssoner of Interna Revenue.
pproved pr 1,19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster pr 2, 19 2. 11. 7 a. m.)
Reguatons 3 ( ppend ). 19 2-9-11007
T. D.5118
TITL 26 INT RN L R NU . C PT R I. P RT 182. INDUSTRI L LCO OL
mendment of ppend to Reguatons No. 3, revsed 1938.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Dstrct Supervsors and Others Concerned:
Pursuant to authorty n sectons 3070(a), 3105(a), 312 (a)(6),
and 3176(a), Interna Revenue Code, the ppend to Reguatons
No. 3, approved December 29, 1938 ( ppend to Part 182, Code of
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Regs. . 290
Federa Reguatons), s hereby amended by modfyng specay de-
natured acoho formua No. 27- and by authorzng a new specay
denatured acoho formua No. 0- , as foows:
Formua No. 27- .
To every 100 gaons of ethy acoho of not ess than 190 proof add
1 gaon o of avender fowers U. S. P. or
1 gaon o of cedar eaf U. S. P. and
100 pounds soft soap U. S. P.
Formua No. 0- .
To every 100 gaons of ethy acoho of not ess than 190 proof add
5 pounds sucrose octa acetate and
gaon denaturng grade tertary buty acoho.
NoRM N D. C NN,
ctng Commssoner of Interna Revenue.
pproved February 23, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster February 2 , 19 2, 11.35 a. m.)
INT RN L R NU COD .
DISTILL D SPIRITS.
Reguatons . 19 2-19-11085
T. D.51
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 183.
PRODUCTION OF DISTILL D SPIRITS.
mendng Reguatons .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
1. The ct of pr 8, 19 2 (Pubc aw 519, Seventy-seventh Con-
gress), provdes n part as foows:
That secton 2901 of the Interna Revenue Code, as amended, Is
amended to read as foows:
S C. 2901. LOSS LLOW NC S,
(a) Leakage or vaporaton.

(b) Loss. The Commssoner of Interna Revenue may, under regu-
atons to be prescrbed by hm and approved by the Secretary of the
Treasury, abate any nterna-revenue ta es accrung on dsted sprts
f he sha fnd that-
) The dsted sprts were not stoen or ntentonay destroyed
but were ost, otherwse than by eakage or evaporaton, whe on the
premses of a regstered dstery, durng or after producton and
pror to depost In an nterna revenue bonded warehouse.

(5) The dsted sprts were ost by theft from the premses
of a regstered dstery, or whe beng transferred between bud-
ngs, consttutng the same nterna revenue bonded warehouse, or
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291
Regs. .
whe beng transferred by common carrer to an Interna revenue
bonded warehouse off such regstered dstery premses, or whe
beng transferred by a common carrer between nterna revenue
bonded warehouses, and that such oss dd not occur as the resut
of connvance, couson, fraud, or neggence on the part of the ds-
ter, owner, consgnor, consgnee, baee, or carrer, or the empoyees
of any of them.

(8) The dsted sprts were unft for use for beverage purposes
and were vountary destroyed by the dster, the warehouseman,
or the propretor of the bonded wnery premses, pursuant to the
wrtten permsson of the Commssoner In each case and under
reguatons whch the Commssoner, wth the approva of the Sec-
retary, Is hereby authorzed to promugate.
(c) Refund of Ta . When, In any case to whch subsecton (a)
or (b) appes, the ta Is pad subsequent to the oss or destructon, as
the case may be, of the sprts, the Commssoner may, under regua-
tons prescrbed by hm wth the approva of the Secretary, refund such
ta .
(d) Insurance Coverage. The abatement or refund of ta es pro-
vded for by subsectons (b) and (c) sha ony be aowed to the e tent
that the camant s not ndemnfed aganst or recompensed for such
oss.
(e) Transfer of Dutes. For transfer of powers and dutes of Com-
mssoner and hs agents, see secton 3170.
Sec. 2. Secton 2801 (a), (b), (c), and (d), as amended by ths ct
sha appy to any cam for ta es whch may accrue after the date of
enactment of ths ct. Cams for ta es or ta penates that accrued
on or before the date of enactment of ths ct sha be sub|ect to secton
2901 of the Interna Revenue Code as t e sted pror to ts amendment
by ths ct. Nothng n secton 2901, as hereby amended, sha be con-
strued as n any manner mtng or restrctng the provsons of part
II, subchapter C, chapter 26, of the Interna Revenue Code.
2. Pursuant to the above provsons of aw and sectons 3170 and
3176, Interna Revenue Code, Reguatons (26 CFR, Part 183) are
amended n these respects:
3. Secton 183.3 (d) s revoked.
. Sectons 183.2 3, 183.32 , 183.325, 183.3 1, 183.3 2, 183.3 3.
183.3 , 183.3 6, 183.350, 183.352, and 183.359 are amended to read as
foows:
Sec. 153.2 3. Losses of dstates. Ta w be coected on a osses of such
dstates, whe on the premses of a regstered dstery durng or after pro-
ducton and pror to destructon or remova for denaturaton, uness the same are
shown to have occurred otherwse than by eakage or evaporaton, or by theft
wthout connvance, couson, fraud, or neggence on the part of the dster
or owner, or the empoyees of ether of them. No aowance can be made for
osses of such dstates occurrng durng transportaton to the denaturng pant.
The abty of the dster to ta on such dstates removed for denaturaton
sha contnue unt they have been deposted n the denaturng pant. (Sees.
2901, 2916, 3176,1. R. C.)
Sec. 183.32 . amnaton of packages at warehouse. The storekeeper-gauger
at the warehouse w e amne the shpment upon Its arrva. Where packages of
sprts are receved bearng evdence of havng sustaned osses n transt, the
storekeeper-gauger w observe the foowng procedure n e amnng the
packages:
(1) Wegh and proof each barre whch appears to have sustaned a oss by
theft, accdent, or otherwse than by eakage or evaporaton whe n transt;
(2) amne the condton of the cooperage of each such package;
(3) Note on the Form 1520 the sera number, weght, and ta -gaon contents
of each barre so regauged, the condton of the cooperage and whether, n the
opnon of the offcer, the oss of the sprts occurred whe the package was n
transt, and whether such oss was occasoned by theft, accdent, eakage, evap-
oraton, or any other cause. (Sees. 2878. 2883, 2901, 3176, I. R. C.)
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Regs. .
292
Sec. 183.325. amnaton of tank car at warehouse. Where the e amnaton
of a raroad tank car of sprts upon arrva at the warehouse reveas evdence
of oss by theft, accdent, or otherwse than by eakage or evaporaton, the store-
keeper-gauger w ascertan the quantty by regaugng the contents, and w
make a report of hs e amnaton and regauge on Form 1520 smar to that
requred n the case of packages regauged. The sprts may be removed from the
tank car for regaugng, but upon competon of such regauge, the sprts w be
mmedatey run back nto the tank car, and such tank car sea-ocked pendng
ta -payment or transfer to another bonded warehouse. The transfer of sprts
from a tank ear for regaugng, and the return thereof, sha be under the
mmedate supervson of the storekeeper-gauger. (Sees. 2883, 2901, 3176, L R. C.)
rtce . Losses of Dsted Sprts Whe on Premses of a Regstered
Dstery.
Sec. 183.3 1. Loss by theft The ta on dsted sprts ost by theft from the
premses of a regstered dstery, not occurrng as the resut of connvance,
couson, fraud, or neggence on the part of the dster or owner, or the
empoyees of ether of them, may be remtted to the e tent the camant s not
ndemnfed aganst or recompensed for such ta . (Sees. 2901, 3176, I. R. C.)
Sec. 183.3 2. Losses e cept by theft. The ta on dsted sprts whch are
not stoen or ntentonay destroyed, but are ost otherwse than by eakage or
evaporaton, whe on the premses of a regstered dstery, durng or after
producton and pror to depost n an nterna revenue bonded warehouse, may
be remtted to the e tent the camant s not ndemnfed aganst or recompensed
for such ta . (Sees. 2901, 3176, I. R. C.)
Sec. 183.3 3. Cams for osses. Forms have not been prescrbed for use n
presentng cams for remsson of ta . Such cams may be made on etter or
ega sze paper, n dupcate, and sha set forth, under oath, the foowng
nformaton:
(1) The name of the dster and the regstry number and ocaton of the
dstery;
(2) The sera numbers of the recevng csterns or other contaners from
whch the sprts were ost;
(3) The quantty of sprts ost from each cstern or other contaner, and
the tota quantty of sprts covered by the cam ;
( ) The tota amount of ta for whch the cam s fed;
(5) The date of the oss or If such date s not known, the date on whch
the oss was dscovered, and the cause and nature thereof, together wth a
the facts surroundng the oss;
(6) Whether the oss was due to theft, accdent, or otherwse than by eakage
or evaporaton;
(7) If ost by theft, the facts showng that the oss dd not occur as the
resut of connvance, couson, fraud, or neggence on the part of the dster
nr owner, or the empoyees of ether of them;
(8) Whether the camant Is ndemnfed or recompensed for the ta , and f
so, the amount and nature of such ndemnty or recompense. The actua vaue
of the sprts, ess the ta , must be stated e pcty, and certfed copes of a
poces of Insurance or other documents of ndemnty coverng the sprts must
be furnshed. (Sees. 2901, 3176. I. R. C.)
Sec. 183.3 . Supportng statements. Cams for remsson of ta on sprts
ost by theft, accdent, or otherwse than by eakage or evaporaton, whe on
the premses of a regstered dstery, must be supported by affdavts of per-
sons havng persona knowedge of the oss. (Sees. 2901, 3176, I. R. C.)
Sec. 183.3 6. Report of osses. Losses of dsted sprts by theft, accdent,
or otherwse than by eakage or evaporaton must be reported to the dstrct
supervsor by the dster mmedatey after the osses are dscovered. Where
osses of sprts occur or are dscovered whe a Government offcer s on duty,
the offcer w mmedatey make a fu report of the oss to the dstrct super-
vsor. The offcer s report shoud set out the nature, cause, and e tent of the
oss n suffcent deta to brng out a the known matera facts and crcum-
stances surroundng the oss. The condton of each cstern or other contaner
from whch oss has been sustaned, and the quantty ost therefrom, shoud
be reported by the offcer. (Sec. 3176, I. R. C.)
Sec. 183.350. Supervsor s account. The dstrct supervsor w make appro-
prate entry n hs account. Form 151 Suppementa, of osses occurrng n the
dstery cstern room. Where a cam for remsson of ta on dsted sprts
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293
Regs. .
ost after depost n the cstern room s aowed, the dstrct supervsor w
take credt for the aowance n hs bonded sprts account, Form 151 Suppe-
menta, upon recept of notce from the Commssoner of the aowance. (Sec.
3176, I. R. C.)
Sec. 183.352. Storekeeper-gaugcr to report defcences. The storekeeper-gauger,
upon competon of hs monthy report, Form 1592, w compare the cacuated
yed for that month wth the actua producton. e w gve a compete state-
ment on such form under Speca Operatons or Condtons n respect to any
matera defcency n the cacuated producton or any oss of beer or sprts.
(Sec. 3176, I. R. C.)
Sec. 183.359. Cam for remsson. Where the dster cams, pursuant to
notce of proposed assessment, that the sprts produced and not accounted for
were actuay ost by theft, accdent, or otherwse than by eakage or evaporaton
n the process of manufacture or dstaton, he w appy for remsson of the
ta on such sprts n accordance wth the provsons of rtce . (Sees.
28 7, 2901, 3176, I. R. C.)
5. The foowng new artce and sectons are added:
rtce LII. ountary Destructon of Sprts.
Sec. 183. 8. Genera. Dsted sprts n a regstered dstery, whch are
found by the Commssoner to be unft for use for beverage purposes, may be
vountary destroyed wthout payment of ta by the dster n accordance wth
the procedure herenafter set forth. (Sees. 2901, 3176, I. R. C.)
Sec. 183. 9. ppcaton. The dster w make wrtten appcaton to the
dstrct supervsor of the dstrct n whch the dstery s ocated for permsson
to destroy such sprts. The appcaton sha specfy the knd and appro mate
quantty n wne gaons and proof gaons of such dsted sprts; the name,
address, and regstered dstery number of the dster; the date of dstaton ;
the sera numbers of the vesses or other receptaces n whch such sprts are
contaned; and a statement showng the condton of the sprts whch renders
them unft for beverage purposes. (Sees. 2901, 3176, I. R. C.)
Sec. 183. 50. cton by supervsor. Upon recept of such appcaton, the ds-
trct supervsor w requre an nspecton to be made of the sprts by the
storekeeper-gauger to determne the correctness of the appcaton and to procure
a 1-pnt sampe, or f deemed advsabe, a 1-quart sampe, from each tank or
other receptace for submsson to the dstrct chemst for anayss to determne
whether the sprts are unft for beverage purposes. The sprts w be retaned
under Government ock, pendng anayss of the sampe and acton on the app-
caton. The botte contanng the sampe w be abeed n such manner as w
ready dentfy the sprts. The sampes w be forwarded to the dstrct
chemst at the e pense of the dster. The dstrct chemst w anayze the
sampes and furnsh a report of such anayss to the dstrct supervsor. The
unused porton of the sampes w be retaned by the dstrct chemst for further
e amnaton, f necessary. The dstrct supervsor w forward the appcaton
of the dster, a copy of the storekeeper-gauger s report, and a copy of the
dstrct chemst s report of anayss to the Commssoner wth hs recom-
mendaton. (Sees. 2901, 3170, 3170, I. R. C.)
Sec. 183. 51. cton by Commssoner. (a) Unft for beverage purpose .
If the Commssoner fnds that the sprts are unft for beverage purposes, he w
authorze the dstrct supervsor to permt such sprts to be destroyed by the
dster under the supervson of the storekeeper-gauger.
(6) Ft for beverage purposes. If the Commssoner fnds that the sprts
are ft for beverage purposes, he w dsapprove the appcaton and notfy the
dstrct supervsor of such dsapprova. The dstrct supervsor w thereupon
nform the dster that the sprts have been determned to be ft for beverage
purposes and that they may not be destroyed wthout payment of ta . (Sees.
2901. 3170. 3176, I. R. C.)
Sec. 183. 52. Destructon. Sprts authorzed to be destroyed w be gauged
by the storekeeper-gauger and reported for that purpose on Form 1520, n trp-
cate. Foowng such gauge, the sprts may be destroyed under the mmedate
supervson of the storekeeper-gauger by runnng the same nto the sewer or
by other sutabe means. The storekeeper-gauger w then certfy to such
destructon on the Form 1520, return one copy of the form to the dster, retan
one copy for hs fes, and forward one copy to the dstrct supervsor. e w
take approprate credt for the sprts so destroyed at a speca ne n Part C,
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Regs. ( coho), rt. I.
29
Form 1592, If the sprts are unfnshed, or n Part 7, Form 1592, and In Part 2,
Form 1513 Suppementa, If the sprts have been deposted n the cstern room.
The dstrct supervsor w take approprate credt for the sprts, If deposted
n the cstern room, at a speca ne on Form 151 Suppementa. (Sees. 2901,
3170, 3176, I. R. C.)
Sec. 183. 53. Pror osses. ny cams for remsson or refund of the ta on
sprts ost pror to pr 9, 19 2. sha be sub|ect to the provsons of secton
2901 of the Interna Revenue Code and of these reguatons as they e sted pror
to that date.
Gut T. everng,
Commssoner of Interna Revenue.
pproved pr 30, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 1, 10 2, 5.0 p. m.)
Reguatons ( coho), rtce I. 19 2-20-11100
T. D.5150
TITL 27 INTO IC TING LI UORS C PT R I, P RT . L LING ND
D RTISING OF WIN .
dvertsement of acohoc content of wne.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. ., May 13,19 .
To Dstrct Supervsors and Others Concerned:
1. y vrtue of and pursuant to the provsons of secton 5(f) of
the Federa coho dmnstraton ct, as amended by the ct of
pr 20, 19 2, Pubc aw 526; secton 3170 of the Interna Revenue
Code (53 Stat., part 1), and secton 161 of the Revsed Statutes
(U. S. C, Tte 5, secton 22), Reguatons No. , Reatng to the
Labeng and dvertsng of Wne (27 C. F. R., part ), are amended,
effectve on the date of fng hereof wth the Dvson of the Federa
Regster, as foows:
2. Subsecton (c), secton 62, rtce I (secton .62(c), Tte 27,
C. F. R.), s hereby revoked.
3. Subparagraph (8) of subsecton (e), secton 6 , rtce I (sec-
ton .6 (a) (8), Tte 27, C. F. R. 1938 Supp.), s amended to read as
foows:
(8) ny statement, desgn, devce, or representaton whch reates to acohoc
content, or whch tends to create the mpresson that the wne has been fortfed,
or contans dsted sprts, or has nto catng quates, e cept that a statement
of composton, f requred to appear as a desgnaton of a product not denned
In rtce II of these reguatons, may ncude a reference to the type of dsted
sprts empoyed theren.
Stewart erkshre,
Deputy Commssoner of Interna Revenue.
pproved May 13, 19 2.
Gut T. everno,
Commssoner of Interna Revenue.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 15, 19 2, 10.50 a. m.)
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295
Regs. 5.
Reguatons 5. 19 2-19-11086
T. D.51 2
TITL 26 INT RN L R NU . C TT R I. SU C PT R C, P RT 18 .
. PRODUCTION O R NDY.
mendng Reguatons 5.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
1. The ct of pr 8, 19 2 (Pubc aw 519, Seventy-seventh Con-
gress), provdes n part as foows:
That secton 2C01 of the Interna Revenue Code, as amended, s
amended to rea-d as foows:
S C. 2901. LOSS LLOW NC S,
(a) Leakage ob vaporaton.

(b) Loss. The Commssoner of Interna Revenue may, under reg-
uatons to be prescrbed by hm and approved by the Secretary of the
Treasury, abate any Interna-revenue ta es accrung on dsted sprts
f he sha fnd that
(1) The dsted sprts were not stoen or ntentonay de-
stroyed but were ost, otherwse than by eakage or evaporaton,
whe on the premses of a regstered dstery, durng or after
producton and pror to depost n an nterna revenue bonded
warehouse.

(5) The dsted sprts were ost by theft from the premses
of a regstered dstery, or whe beng transferred between bud-
ngs, consttutng the same nterna revenue bonded warehouse, or
whe beng transferred by common carrer to an nterna revenue
bonded warehouse off such regstered dstery premses, or whe
beng transferred by a common carrer between nterna revenue
bonded warehouses, and that such oss dd not occur as the resut
of connvance, couson, fraud, or neggence on the part of the
dster, owner, consgnor, consgnee, baee, or carrer, or the
empoyees of any of them.

(8) The dsted sprts were unft for use for beverage pur-
poses and were vountary destroyed by the dster, the ware-
houseman, or the propretor of the bonded wnery premses, pursuant
to the wrtten permsson of the Commssoner n each case and
under reguatons whch the Commssoner, wth the approva of
the Secretary, s hereby authorzed to promugate.
(c) Refund of Ta . When, n any case to whch subsecton (a)
or (b) appes, the ta s pad subsequent to the oss or destructon, as
the case may be, of the sprts, the Commssoner may, under regu-
atons prescrbed by hm wth the approva of the Secretary, refund
such ta .
(d) Insurance Coverage. The abatement or refund of ta es pro-
vded for by subsectons (b) and (c) sha ony be aowed to the e tent
that the camant s not ndemnfed aganst or recompensed for such
oss.
(e Transfer of Dutes. For transfer of powers and dutes of
Comm.ssoner and hs agents, see secton 3170.
Sec. 2. Secton 2901 (a), (b), (c), and (d), as amended by ths ct,
sha appy to any cam for ta es whch may accrue after the date of
enactment of ths ct. Cams for ta es or ta penates that accrued
on or before the date of enactment of ths ct sha be sub|ect to secton
2901 of the Interna Revenue Code as t e sted pror to Us amendment
by ths ct. Nothng n secton 2901, as hereby amended, sha be con-
strued as n any manner mtng or restrctng the provsons of part
II, subchapter C, chapter 26, of the Interna Revenue Code,
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Regs. 5.
296
2. Pursuant to the above provsons of aw and sectons 3170 and
3176, Interna Revenue Code, Reguatons 5 (26 CFR, Part 18 ) are
amended n these respects:
3. Secton 18 .3( ) s revoked.
. Secton 18 .229,18 .325,18 .326,18 .357,18 .358 18 . 59,18 .3C0,
18 .361,18 .363, and 18 .375 are amended to read as foows:
Sec. 18 .229. Losses of dstates. Ta w be coected on a osses of such
dstates, whe on the premses of a regstered dstery durng or after pro-
ducton and pror to destructon or remova for denaturaton, uness the same are
shown to have occurred otherwse than by eakage or evaporaton, or by theft
wthout connvance, couson, fraud, or neggence on the part of the dster or
owner, or the empoyees of ether of them. No aowance can be made for osses
of such dstates occurrng durng transportaton to the denaturng pant. The
abty of the dster to ta on such dstates removed for denaturaton sha
contnue unt they have been deposted n the denaturng pant. (Sees. 2901,
2916, 3176, I. R. C.)
Sec. 18 .325. amnaton of packages at warehouse. The storekeeper-gauger
at the warehouse w e amne the shpment upon ts arrva. Where packages
of brandy are receved bearng evdence of havng sustaned osses n transt,
the storekeeper-gauger w observe the foowng procedure n e amnng the
packages:
(1) Wegh and proof each barre whch appears to have sustaned a oss by
theft, accdent, or otherwse than by eakage or evaporaton whe n transt;
(2) amne the condton of the cooperage of each such package;
(3) Note on the Form r 20 the sera number, weght, and ta -gaon contents
of each barre so regauged, the condton of the cooperage and whether, n the
opnon of the offcer, the oss of sprts occurred whe the package was n
transt, and whether such oss was occasoned by theft, accdent, eakage, evap-
oraton, or any other cause. (Sees. 2873, 2883, 2901, 3176, I. R. C.)
Sec. 18 .320. amnaton of tank car at warehouse. Where the e amnaton
of a raroad tank car of brandy upon ts arrva at the warehouse reveas ev-
dence of oss by theft, accdent, or otherwse than by eakage or evaporaton,
the storekeeper-gauger w ascertan the quantty by regaugng the contents,
and w make a report of hs e amnaton and regauge on Form 1520 smar to
that requred n the case of packages regauged. The brandy may be removed
from the tank car for regaugng, but upon competon of such regauge, the
brandy w be mmedatey run back nto the tank car, and such tank car sea-
ocked pendng ta -payment or transfer to another bonded warehouse. The
transfer of brandy from a tank car for regaugng, and the return thereof, sha
be under the mmedate supervson of the storekeeper-gauger. (Sees. 2878, 2883,
2901, 3176, I. R. C.)
Sec. 18 .357. No aowance provded. No aowance can be made under secton
2901, Interna Revenue Code, as amended, or any other provson of aw, for osses
of brandy by eakage or evaporaton from recevng tanks n the dstery or from
storage tanks n the brandy depost room, and the ta must be pad on a such
osses: Provded, however, That where there s a defcency of not over one-haf
of 1 per cent on such tanks, the same w be ascrbed to varaton In gauge, n
the absence of evdence to the contrary, and no ta w be coected thereon.
(Sec. 3176, I. R. C.)
LOSS S T T FT O OT RWIS T N Y L G OR POR TION.
Sec. 18 .358. Losses by theft. The ta on brandy ost by theft from the prem-
ses of a frut dstery, not occurrng as the resut of connvance, couson, fraud,
or neggence on the part of the dster or owner, or the empoyees of ether of
them, may be remtted to the e tent the camant s not ndemnfed aganst or
recompensed for such ta . (Sees. 2901, 3176, I. R. C.)
Sec. 18 .359. Losses e cept by theft. The ta on brandy whch Is not stoen or
ntentonay destroyed, but whch s ost otherwse than by eakage or evapora-
ton, whe on the premses of a frut dstery, durng or af er producton and
pror to depost n an nterna revenue bonded warehouse, may be remtted to the
e tent that the camant s not Indemnfed aganst or recompensed for such ta .
(Sees. 2901, 3176, I. R. C.)
Sec. 18 .360. Cam for osses. Forms have not been prescrbed for use In pre-
sentng cams for remsson of ta . Such cams may be made on etter or ega
sze paper, In dupcate, and sha set forth, under oath, the foowng nformaton:.
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297
Regs. 5.
(1) The name of the dster and the regstry number and ocaton of the
dstery;
(2) The sera numbers of the recevng csterns or other contaners from
whch the sprts were ost;
(3) The quantty of sprts ost from each cstern or other contaner and the
tota quantty of sprts covered by the cam;
( ) The tota amount of ta for whch the cam s fed;
(5) The date of oss or f such date s not known, the date on whch the oss
was dscovered, and the cause and nature thereof, together wth a the facts
surroundng the oss;
(6) Whether the oss was due to theft, accdent, or otherwse than by eakage
or evaporaton;
(7) If ost by theft, the facts showng that the oss-dd not occur as the resut
of connvance, couson, fraud, or neggence on the part of the dster or owner,
or the empoyees of ether of them ;
(8) Whether the camant s ndemnfed aganst or recompensed for the ta ,
and f so, the amount and nature of such ndemnty or recompense. The actua
vaue of the sprts, ess the ta , must be stated e pcty, and certfed copes of
a poces of nsurance or the documents of ndemnty coverng the sprts must
be furnshed. (Sees. 2901, 3170, I. It. C.)
Sec. 18 .361. Supportng statements. Cams for osses of brandy by theft,
accdent, or otherwse than by eakage or evaporaton, whe on the premses
of the dstery, must be supported by affdavts of persons havng persona
knowedge of the oss. (Sees. 2901, 3176, I. R. C.)
Sec. 18 .363. Report of osses. Losses of brandy by theft, accdent, or other-
wse than by eakage or evaporaton must be reported to the dstrct supervsor
by the dster mmedatey after the osses are dscovered. Where osses of
brandy occur or are dscovered whe a Government offcer s on duty, the offcer
w mmedatey make a fu report of the oss to the dstrct supervsor. The
offcer s report shoud set out the nature, cause, and e tent of the oss n suff-
cent deta to brng out a the known matera facts and crcumstances
surroundng the oss. The condton of each cstern or other contaner from whch
oss has been sustaned, and the quantty ost therefrom, shoud be reported
by the offcer. (Sec. 3176, I. R. C.)
Sec. 18 .375. Cam for remsson. Where the dster cams, pursuant to
notce of proposed assessment, that the sprts produced and not accounted for
were actuay ost by theft, accdent, or otherwse than by eakage or evapora-
ton n the process of manufacture or dstaton, he w appy for remsson
of the ta on such sprts n accordance wth the provsons of rtce I.
(Sees. 28 7, 2901, 3176, I. R C.)
5. The foowng new artce and sectons are added:
rtce LI . ountary Destructon or randt.
Sec. 18 . 62. Genera. randy n a frut dstery, whch s found by the
Commssoner to be unft for use for beverage purposes, may be vountary
destroyed wthout payment of ta by the dster n accordance wth the
procedure herenafter set forth. (Sees. 2901, 3176, L R. C.)
Sec. 18 . 63. ppcaton. The dster w make wrtten appcaton to the
dstrct supervsor of the dstrct n whch the dstery s ocated for permsson
to destroy such brandy. The appcaton sha specfy the knd and appro mate
quantty n wne gaons and proof gaons of such sprts; the name, address,
and regstered dstery number of the dster: the date of dstaton; the
sera numbers of the vesses or other receptaces n whch such sprts are
contaned; and a statement showng the condton of the sprts whch renders
them unft for beverage purposes. (Sees. 2901, 3176, I. R. C.)
Sec. 18 . 6 . cton by supervsor. Upon recept of such appcaton, the ds-
trct supervsor w requre an nspecton to be made of the sprts by the store-
keeper-ganger to determne the correctness of the appcaton and to procure a
1-pnt sampe, or f deemed advsabe, a 1-quart sampe, from ench tank or other
rece.cace for submsson to the dstrct chemst for anayss to determne
whether the sprts are unft for beverage purposes. The brandy sha be re-
taned under Government ock, pendng anayss of the sampe and acton on the
appcaton. The botte contanng the sampe w be abeed n such manner
as w ready dentfy the sprts. The sampes w be forwarded to the dstrct
chemst at the e pense of the dster. The dstrct chemst w anayze the
sampes and furnsh a report of such anayss to the dstrct supervsor. The
unused porton of the sampes w be retaned by the dstrct chemst for further
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Regs. 5.
298
e amnaton, If necessary. The dstrct supervsor w forward the appcaton
of the dster, a copy of the storekeeper-gauger s report, and a copy of the ds-
trct chemst s report of anayss to the Commssoner wth hs recommendaton.
(Sees. 2901. 3170, 3176, I. R. C.)
Sec. 18 . 63. cton by Commssoner. (a) Unft for beverage purposes. If
the Commssoner fnds that the brandy Is unft for beverage purposes, he w
authorze the dstrct supervsor to permt such sprts to be destroyed by the
dster under the supervson of the storekeeper-ganger.
(6) Ft for beverage purposes. If the Commssoner fnds that the brandy s
ft for beverage purposes, he w dsapprove the appcaton and notfy the ds-
trct supervsor of such dsapprova. The dstrct supervsor w thereupon n-
form the dster that the brandy has been determned to be ft for beverage pur-
poses and that t may not be destroyed wthout payment of ta . (Sees. 2901,
3170. 3176, I. R. C.)
Sec. 18 . 66. Destructon. randy authorzed to be destroyed w be gauged
by the storekeeper-gauger and reported for that purpose on Form 1520, n
quadrupcate. Foowng such gauge, the sprts may be destroyed under the
mmedate supervson of the storekeeper-ganger by runnng the same Into the
sewer or by other sutabe means. The storekeeper-gauger w then certfy to
such destructon on the Form 1520, return one copy of the form to the dster,
retan one copy for hs fe, and forward one copy to the dstrct supervsor. The
dster w take approprate credt for the sprts so destroyed at a speca ne
on Form 15. The dstrct supervsor w take approprate credt for such sprts
at a speca ne on Form 12. (Sees. 2901, 3170, 3176, I. R. C.)
Sec. 18 . 67. Pror osses. ny cams for remsson or refund of the ta on
brandy ost pror to pr 9, 19 2, sha be sub|ect to the provsons of secton
2901 of the Interna Revenue Code and of these reguatons as they e sted pror
to that date.
Gut T. evefno,
Commssoner of Interna Revenue.
pproved pr 30,19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 1, 19 2, 5.03 p. m.)
Reguatons 5. 19 2-19-11091
T. D.51 5
TITL 20 INT RN L R NU . C PT R I. SU C PT R C. P RT 18 .
PRODUCTION OF R NDT.
mendng Reguatons 5.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
1. The ct of pr 20.19 2 (Pubc aw 526, Severty-seventh Con-
gress), provdes n part as foows:
(f) That secton 2825 of the Interna Revenue Code s amended by
Insertng after the word pawpaws , and before the word persm-
mons , where they frst appear n such secton, a comma and the
words papayas, cantaoups ; and by nsertng after the words pear
wne , wherever they appear, a comma and the foowng: pawpaw
wne, papaya wne, pneappe wne, cantaoup wne ; and by nsertng
after the words pear brandy a comma and the foowng pawpaw
brandy, papaya brandy, pneappe brandy, cantaoup brandy.
2. Pursuant to the above provsons of aw and secton 3176, Interna
Revenue Code, sectons 18 .1G5, 18 .166, and 18 .335 of Reguatons 5
(26 CFR. Part 18 ) are amended to read as foows:
Sec. 18 .165. nds of materas. Dsters operatng under these reguatons
must mmufacture brandy e cusvey from appes, peaches, grapes, oranges,.
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299
(Regs. 7, Par. 291, etc.
pears, pneappes, aprcots, berres, pums, pawpaws, papayas, cantaoups, per-
smmons, prunes, fgs, cherres, dates, or ctrus fruts (e cept emons and mes),
or from resdues or products of such fruts and berres, or from grape wne,
ctrus-frut wne, peach wne, cherry wne, berry wne, aprcot wne, pum wne,
prune wne, pear wne, pawpaw wne, papaya wne, pneappe wne, cantaoup
wne, or appe wne, In the manufacture of whch artfca sweetenng may have
been used, or from the frut ponnce resduum of such grape wne, or from grape
cheese where not more than 500 gaons of a sugar souton ra;de from cnne,
beet, starch, or corn sugar, 05 per cent pure, and havng a saccharne strengh of
not to e ceed 10 per cent, s added to not ess than 000 gaons (10 barres) of
such cheese. (Sfcs. 2S25, 3176, I. R. C.)
Se ;. 18 .1G6. nds of brandes or fortfcaton of wne. The knds of brandes
that may be produced for the fottcaton of wne are those made e cusvey
from grapes, ctrus fruts (e cept emons nnd mes), peaches, cherres, berres,
aprcots, pawpaws, papayas, cantaoups, pneappes, prunes, pums, pears, or
appes, or from the products or the resdues of such fruts and berres, or from
grape wne, cantaoup wne, ctrus-frut wne, peach wne, pawpaw wne, papaya
wne, pneappe wne, cherry wne, berry wne, aprcot wne, prune wne, pum
wne, pear wne, or appe wne. In the m nufactute of whch artfca sweetenng
may have been used under the mtatons prescrbed n rtce I of Regua-
tons No. 7, Reatve to the Producton, Fortfcaton, Ta -Payment, tc., of
Wne, as amended (20 C R, Part 178), or the frut pomace resduum of such
grape wne. randy may not be produced from grape cheese nnd a sugar souton
for the fortfcaton of wne. (S cs. 282r , 3032, 3170, I. R. C.)
Sec. 18 .335. nds. The knds of brandes tha may be removed for the fort-
fcaton of wne are grape brandy, ctrus-frut brandy, peach brandy, cherry
brandy, berry brandy, aprcot brandy, prune brandy, pum brandy, penr brandy,
pawpaw brandy, papaya brandy, pneappe brnnd|. cantaoup brandv, nnd appe
brandy, produced n accordance wth the provsons of secton 18 .1 GO. No
brandy produced oherwse than as specfed n such secton may be removed for
fortfcaton. randy produced from grape cheese and a sugar souton may not
be removed for the fortfcaton of wne. (Sees. 3031(a), 3033, 3176, I. U. C.)
Gut T. evertno,
Commssoner of Interna Revenue.
pproved May 6, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Ped wth the Dvson of the Federa Regster May 7, 19 2, 3. 1 p. m.)
Reguatons 7, Paraoraphs 291,293,295 296,296 (a), 19 2-18-11079
296(6), 297,298,299, 300, 301, 373-378. T. D. 5139
TITL 26 INT RN L R NU . CP rT R I. SU C PT R C. T RT 178.
PRODUCTION, FORTIFIC TION. T P YM NT, TC.. OF WIN .
mendng Reguatons No. 7.
Treasurt Department,
Offce of Commssoner of Intern a Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue and Others
Concerned:
1. The ct of pr 8, 19 2 (Pubc aw 519, Seventy-seventh Con-
gress), provdes n part as foows:
That secton 2901 of the Interna Revenue Code, as amended, s
amended to read as foows:
Sec. 2901. Loss owances.

(b) Loss. The Commssoner of Interna Revenue may, under regu-
atons to be prescrbed by hm and approved by the Secretary of the
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Regs. 7, Pars. 291, etc.
300
Treasury, abate any nterna-revenue ta es accrung on dsted sprts
f he sha fnd that

( ) The dsted sprts were wthdrawn for use n the fortf-
caton of sweet wnes and were not stoen or ntentonay destroyed
but were ost, otherwse than by eakage or evaporaton, pror to
such use whe beng transferred to, or whe stored In, the fortfyng
room on the bonded wnery premses.

(7) The dsted sprts were wthdrawn for use n the fort-
fcaton of sweet wnes and were ost by theft pror to such use
whe beng transferred to, or whe stored n, the fortfyng room
on the bonded wnery premses, and that such oss dd not occur
as the resut of connvance, couson, fraud, or neggence on the
part of the dster, owner, consgnor, consgnee, baee, or car-
rer, or the empoyees of any of them.
(8) The dsted sprts were unft for use for beverage pur-
poses and were vountary destroyed by the dster, the ware-
houseman, or the propretor of the bonded wnery premses, pur-
suant to the wrtten permsson of the Commssoner n each
case and under reguatons whch the Commssoner, wth the
approva of the Secretary, s hereby authorzed to promugate.
(c) Refund of Ta . When, n any case to whch subsecton (a)
or (b) appes, the ta s pad subsequent to the oss or destructon,
as the case may be, of the sprts, the Commssoner may, under regu-
atons prescrbed by hm wth the approva of the Secretary, refund
such ta .
(d) Insurance Coverage. The abatement or refund of ta es pro-
vded for by subsectons (b) and (c) sha ony be aowed to the e -
tent that the camant s not ndemnfed aganst or recompensed for
such oss.
(e) Transfer of Dutes. For transfer of powers and dutes of
Commssoner and hs agents, see secton 3170.
Sec. 2. Secton 2901 (a), (b), (c), and (d), as amended by ths
ct, shn appy to any cam for ta es whch may accrue after the
date of enactment of ths ct. Cams for ta es or ta penates that
accrued on or before the date of enactment of ths ct sha be sub-
|ect to secton 2901 of the Interna Revenue Code as t e sted pror
to ts amendment by ths ct. Nothng n secton 2901, as hereby
amended, sha be construed as n any manner mtng or restrctng
the provsons of part II, subchapter C, chapter 26, of the Interna
Revenue Code.
2. Pursuant to the above provsons of aw and sectons 3031(b),
3170, and 3176, Interna Revenue Code, Reguatons No. 7 (26 CFR,
Part 178) are amended n these respects:
3. Paragraphs 296a, 2966. 298, and 299 (sectons 178.296a, 178.296b,
178.298, and 178.299, 26 CFR) are revoked.
. Paragraphs 291, 293, 295, 296, 297, 300, and 301 (sectons 178.291,
178.293, 178.295, 178.296. 178.297, 178.300, and 178.301, 26 CFR) are
amended to read as foows:
Par. 291. Louses. ach day wnos are fortfed the offcer w aso enter on
Form 276 the nformaton caed for on that form as Indcated by the headngs of
the varous coumns and nes and the nstructons prnted on the form. Where
osses have been sustaned, the offcer w show the sera numbers of the pack-
ages nvoved, the quantty ost from each package, and the apparent reason for
the oss. Losses from storage tanks w be determned at the end of the month
durng whch wnes are fortfed or upon competon of fortfcaton for the month
as provded n paragraph 296. t the cose of the month or upon competon of
fortfcaton for the month, the offcer w compete the form, retan one copy at
the wnery as a permanent record, and forward the other two copes to the
dstrct supervsor, who w transmt one copy to the Commssoner wth the
brandy account, Form 290.
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301
Regs. 7, Pars. 291, etc.
Par 293. Lomes ndcatng tamperng. Where the offcer s gauge ndcates that
a package may have been tampered wth, as where a matera defcency s found
and there s no evdence of oss by eakage or accdent or where deteroraton n
proof not accountabe for by varaton n gauge s dscosed, the offcer w mme-
datey notfy the dstrct supervsor of a the facts n the case and w not
permt the package to be used unt he s Instructed to do so by the dstrct
supervsor.
Par. 295. Losses n transt. (a) y theft. The ta on brandy and frut sprts
wthdrawn for use n the fortfcaton of sweet wnes and ost by theft pror to
such use, whe beng transferred to the fortfyng room on bonded wnery prem-
ses, wthout connvance, couson, fraud, or neggence on the part of the
dster, owner, consgnor, consgnee, baee or carrer, or the empoyees of any
of them, may be remtted to the e tent that the camant s not ndemnfed
aganst or recompensed for such oss.
(6) cept by theft. The ta on brandy and frut sprts wthdrawn for use
In the fortfcaton of sweet wnes and not stoen or Intentonay destroyed but
are ost, otherwse than by eakage or evaporaton, pror to such use, whe beng
transferred to the fortfyng room on bonded wnery premses, may be remtted
to the e tent that the camant Is not ndemnfed aganst or recompensed for
such oss.
Pab. 296. Losses n fortfyng room. (a) y theft. The ta on brandy and
frut sprts whch were wthdrawn for use n the fortfcaton of sweet wnes
and were ost by theft pror to such use whe n the fortfyng room on bonded
wnery premses, and such oss dd not occur as the resut of connvance, couson,
fraud or neggence on the part of the dster or the owner, or the empoyees of
ether of them, may be remtted to the e tent that the camant s not ndemnfed
aganst or recompensed for the ta on such oss.
(6) cept by theft, or eakage or evaporaton. The ta on brandy and frut
sprts wthdrawn for the fortfcaton of sweet wnes and not stoen or nten-
tonay destroyed but are ost by.accdent or otherwse than by eakage or evap-
oraton, whe stored In the fortfyng room on bonded wnery premses, may be
remtted to the e tent that the camant s not ndemnfed aganst or recompensed
for such oss.
(c) y eakage and evaporaton. The ta on brandy and frut sprts wth-
drawn for use n the fortfcaton of sweet wne and ost by eakage or evaporaton
whe In the fortfyng room on bonded wnery premses wthout neggence, con-
nvance, couson or fraud on the part of the wnemaker or hs agents, may
be remtted to the e tent that the wnemaker s not ndemnfed aganst or
recompensed for such oss.
d) Determnaton of osses by eakage or evaporaton from storage tanks.
The quantty of brandy or frut sprts ost by eakage or evaporaton from stor-
age tanks n the fortfyng room of a bonded wnery sha be determned and re-
ported at the end of the month durng whch wnes are fortfed or upon compe-
ton of fortfcaton for the month. The e tent of the oss sha be estabshed
by comparson of the quantty shown by actua Inventory wth the quantty shown
by the records of the wnery as remanng n storage at the end of the month or
upon competon of fortfcaton for the month, as. the case may be. Losses
occurrng at any tme when an offcer s not present sha be reported mmedatey
upon dscovery to the dstrct supervsor.
(e) Losses aowabe wthout cam. Where the oss of brandy or frut sprts
by eakage or evaporaton n the fortfyng room of a bonded wnery snce the date
of the ast prevous determnaton of such oss does not e ceed 1 percent of the
quantty used for the fortfcaton of wne durng the subsequent month In whch
wnes are fortfed or up to the tme of competon of fortfcaton for such month,
cam for the aowance of the oss w not be requred provded there are no
crcumstances ndcatng that such oss occurred as a resut of any neggence,
connvance, couson or fraud on the part of the wnemaker or hs agents. The
aowance of hot to e ceed 1 per cent of the quantty used as above provded
sha not be cumuatve. Such aowance of 1 per cent sha appy to the osses
ascertaned at the end of the month or upon competon of the fortfcaton for
the month, as the case may be.
Par. 297. Cams for osses. (a) Form of cams. Forms have not been pre-
scrbed for use In presentng cams for remsson of ta . Such cams sha be
made on ega or etter sze paper, n dupcate, and sha set forth, under oath,
the foowng Informaton:
1. The name of the frut dster who produced the brandy or frut sprts and
the regstry number and ocaton of the dstery.
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Regs. 7, Pars. 291, etc. 302
2. The sera numbers of the packages or other contaners from whch the
sprts were ost. In the case of tank cars, the car numbers w be stated.
3. The quanttes of brandy or frut sprts ost from each package or other
contaner and the tota quantty of such sprts covered by the cam.
. The tota amount of ta for whch the cam s fed.
5. The date of the oss or f such date s not known, the date on whch the
oss was dscovered and the cause and nature thereof, together wth a the facts
surroundng the oss.
6. The name of the carrer, f any.
7. Whether the oss was due to theft, accdent, eakage, evaporaton, or other-
wse.
8. If ost by theft, whether the oss occurred as the resut of any neggence,
connvance, couson or fraud on the part of the dster, owner, consgnor,
consgnee, baee or carrer, or the empoyees of any of them.
9. If ost by eakage or evaporaton whe In the fortfyng room, whether the
oss occurred wthout neggence, connvance, couson or fraud on the part of
the wnemaker or hs agents.
10. Whether the camant Is ndemnfed or recompensed for the oss, and f so,
the amount and nature of such Indemnty or recompense. The actua vaue of the
sprts, ess the ta , must be stated e pcty and certfed copes of a po Ices of
nsurance or other documents of ndemnty coverng the sprts, must be furnshed.
(6) Supportng documents. Cams for remsson of ta on brandy and frut
sprts ost whe beng transferred to the fortfyng room on the bonded wnery
premses sha, f the transfer was made by carrer, be supported whenever possbe
by a copy of the b of adng and statements of the agents of the carrer havng
persona knowedge of the oss. Cams coverng osses n the fortfyng room of
the bonded wnery must be supported by affdavts of persons havng persona
knowedge of the oss.
(c) Fng of cams. Cams for the remsson of ta on sprts w be re-
qured, e cept as provded In paragraph 296(e), and w be fed wth the super-
vsor of the dstrct n whch the bonded wnery s ocated. Cams coverng
osses n transt to a bonded wnery w be fed wth the supervsor of the
dstrct n whch the recevng wnery s ocated. Such cams shoud be fed
wthn 30 days after the oss s dscovered, e cept that cams for the aowance
of oss by eakage or evaporaton n the fortfyng room must be fed wthn 10
days after the end of the month durng whch the oss s dscovered.
Par. 300. Report of osses. Losses of brandy and frut sprts by theft, accdent
or otherwse than by eakage or evaporaton, must be reported to the dstrct
supervsor by the wnemaker or other persons concerned mmedatey after the
osses are dscovered. Where osses of brandy and frut sprts occur whe n
transt and are ascertaned by an offcer at the tme of recept at the bonded
wnery, or where osses occur whe In the fortfyng room of the bonded wnery
and are ascertaned whe an offcer s on duty, he w mmedatey gauge the
contents of the package or other approved contaner, and prepare Form 1520 n
quadrupcate. The offcer w prepare a etter report n trpcate to the dstrct
supervsor settng forth the nature, cause, and e tent of the oss to suffcent
deta to brng out a the known matera facts and crcumstances. The con-
dton of each package or other contaner from whch the oss has been sustaned,
and the quantty ost therefrom, shoud be stated n such report. The offcer w
forward two copes of Form 1520 and two copes of the etter report to the
dstrct supervsor, dever one copy of Form 1520 to the wnemaker, and retan
one copy of Form 1520 and the etter report for hs fes.
Par. 301. Investgaton by dstrct supervsor. Where arge osses by theft,
accdent, or other causes are reported, the dstrct supervsor w make such
Investgaton and requre such evdence to be submtted as he may deem necessary
and w advse the Commssoner of hs fndngs and recommendatons reatve
to remsson of the ta on the brandy or frut sprts.
5. The foowng new artce and paragraphs (sectons 178.373,
178.37 , 178.375, 178.376, 178.377, and 178.378, 26 CFR) are added:
rtce L I . ountary Destructon of ranot and Frut Sprts.
Par. 373. Genera. randy and frut sprts In the fortfyng room of a bonded
wnery whch are found by the Commssoner to be unft for use for beverage
purposes may be vountary destroyed wthout payment of ta by the wne-
maker n accordance wth the procedure herenafter set forth.
Par. 37 . ppcaton. The wnemaker w make wrtten appcaton to the
dstrct supervsor of the dstrct n whch the bonded wnery s ocated for per-
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303
Regs. 7, Pare. 291, etc
msson to destroy such brandy or frut sprts. The appcaton sha specfy
the knd and appro mate quantty n wne gaons and proof gaons of the
brandy or frut sprts; the name, address, and regstered dstery number of
the dster who produced such sprts; the date of producton or transfer
of such sprts to the wnery premses; the sera numbers of the barres or tanks
n whch such sprts are stored; and a statement showng the condton of the
sprts whch render them unft for beverage purposes.
Par. 375. cton hy supervsor. Upon recept of such appcaton, the dstrct
supervsor w requre an Inspecton to be made of the brandy or frut sprts
by the storekeeper-gauger to determne the correctness of the appcaton and
to procure a sampe from each barre or tank for submsson to the dstrct
chemst for anayss to determne whether such sprts are unft for beverage
purposes. ach sampe sha consst of one pnt, or f deemed advsabe, one
quart. The botte contanng the sampe w be abeed n such a manner as
w ready Identfy the sprts. The snmpes w be forwarded to the dstrct
chemst at the e pense of the wnemaker. The dstrct chemst w anayze
the sampes and furnsh a report of such anayss to the dstrct supervsor.
The unused porton of the sampe w be retaned by the dstrct chemst for
further e amnaton. If necessary. The dstrct supervsor w forward the
appcaton of the wnemaker, a copy of the storekeeper-gauger s report, and
a copy of the dstrct chemst s report of anayss to the Commssoner wth
hs recommendat on.
Pas. 376. cton by Commssoner. (a) Unft for beverage purposes. If the
Commssoner fnds that the brandy or frut sprts are unft for beverage pur-
poses, he w authorze the dstrct supervsor to permt such sprts to be
destroyed by the wnemaker under the supervson of the storekeeper-gauger.
(6) Ft for beverage purposes. If the Commssoner fnds that the sprts
are ft for bevernge purposes, he w dsapprove the appcaton and notfy the
dstrct supervsor of such dsapprova. The dstrct supervsor w thereupon
nform the wnemaker that the sprts have been determned to be ft for bever-
age purposes and that they may not be destroyed wthout payment of ta .
Par. 377. Destructon. (a) Regauge. randy or frut sprts authorzed to
be destroyed w e regauged by the storekeeper-gauger and reported for that
purpose on Form 1520, In quadrupcate. Foowng such regauge and payment
of ta on any defcences as herenafter set forth, the sprts may be de-
stroyed under the mmedate supervson of the storekeeper-gauger by runnng
the same nto the sewer or by other sutabe means. The storekeeper-gauger
w then certfy to such destructon on Form 1520, furnsh one copy of the
form to the wnemnker, retan one copy for hs fes, and forward one copy
to the dstrct supervsor. e w take approprate credt for the sprts so
destroyed at a speca ne n part 5 of Form 276. The dstrct supervsor w
take approprate credt for the sprts so destroyed at speca nes In parts
and 5 of Form 290.
(6) Ta -payment of osses. If the regauge dscoses osses other than those
aowabe by these reguatons, such osses must be ta -pad pror to destructon
of the sprts. If the osses dscosed by the regauge are such as to requre the
fng of a cam for remsson of ta thereon, such cam must be fed wth the
dstrct supervsor pror to destructon of the sprts. Where the osses must be
ta -pad, the Form 1520, n quadrupcate, w be submtted to the coector,
accompaned by the wnemaker s remttance of the ta . Upon coecton of the
ta , the coector w certfy the ta -payment on the four copes of Form 1520,
retan one copy of the form, and forward three copes of the form to the wne-
maker. The coector w st the Item on hs current dsted sprts ta st
The wnemaker w return to the storekeeper-gauger the three copes of Form
1520 receved from the coector for dsposton In accordance wth paragraph
377(a).
Par. 378. Pror osses. ny cams for remsson or refund of the ta on
sprts ost pror to pr 9, 19 2, sha, where appcabe, be sub|ect to the
provsons of secton 2901 of the Interna Revenue Code and of these reguatons
as they e sted pror to that date.
Guy T. f verng,
Commssoner of Interna Revenue.
pproved pr 27,19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster pr 28, 19 2, 3.17 p. m.)
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Regs. 7.
30
Reguatons 7. 19 2-19-1109
T. D.51 8
TITL 28 INT RN L R ND . C PT R I, SU C PT R C, P RT 178.
PRODUCTION, FORTIFIC TION. T P YM NT, TC., OF WIN .
mendng Reguatons No. 7.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
1. The ct of pr 20,19 2 (Pubc aw 526, Seventy-seventh Con-
gress), provdes n part as foows:
That (a) secton 30 5 of the Interna Revenue Code s amended as
foows: Insert after the words pear wnes a comma and the fo-
owng: pawpaw wnes, papaya wnes, pneappe wnes, cantaoup
wnes ; and by strkng out (9) and nsertng (9) pawpaws, (10)
papayas, (11) pneappes, (12) cantaoups, (13) .
(b) That secton 3031(a) of the Interna Revenue Code s amended
by nsertng after the words pear wnes , wherever they appear, a
comma and the foowng: pawpaw wnes, papaya wnes, pneappe
wnes, cantaoup wnes ; and by nsertng after the words pear
brandy , wherever they appear, a comma and the foowng words:
pawpaw brandy, papaya brandy, pneappe brandy, cantaoup brandy ;
and by nsertng at the end of the frst paragraph the foowng new
sentence: The ma mum pena sum of any bond requred by ths
subchapter for any bonded wnery or bonded storeroom sha be
50,000 .
(c) That secton 3030(a) (2) s amended by nsertng after the words
pear wnes , wherever they appear, a comma and the foowng:
pawpaw wnes, papaya wnes, pneappe wnes, cantaoup wnes , and
by Insertng after the words pear brandy , wherever they appear, a
comma and the foowng: pawpaw brandy, papaya brandy, pne-
appe brandy, cantaoup brandy .
(d) That secton 3032(c) of the Interna Revenue Code s amended
by Insertng after the words pear brandy , where they frst appear
n such secton, a comma and the foowng: pawpaw brandy, papaya
brandy, pneappe brandy, cantaoup brandy , and by nsertng after
the words pear wnes , where they frst appear n such secton, a
comma and the foowng: pawpaw wnes, papaya wnes, pneappe
wnes, cantaoup wnes , and by strkng out and (8) and by nsert-
ng (8) no brandy other than pawpaw brandy may be used n the fortf-
caton of pawpaw wnes and pawpaw brandy may not be used for the
fortfcaton of any wne other than pawpaw wnes; (9) no brandy other
than papaya brandy may be used n the fortfcaton of papaya wne
and papaya brandy may not be used for the fortfcaton of any wne other
than papaya wne; (10) no brandy other than pneappe brandy may be
used n the fortfcaton of pneappe wne and pneappe brandy may not
be used for the fortfcaton of any wne other than pneappe wne;
(11) no brandy other than cantaoup brandy may be used n the fortf-
caton of cantaoup wne and cantaoup brandy may not be used for the
fortfcaton of any wne other than cantaoup wne; and (12) .
(e) That secton 3036(c) of the Interna Revenue Code s amended
by Insertng after the words pear brandy . where they frst appear In
such secton, a comma and the foowng: pawpaw brandy, papaya
brandy, pneappe brandy, cantaoup brandy , and by nsertng after
the words pear wnes , where they frst appear n such secton, a comma
and the foowng: pawpaw wnes, papaya wnes, pneappe wnes,
cantaoup wnes ; and by strkng out and (8) and Insertng (8)
no brandy other than pawpaw brandy may be used In the fortfcaton
of pawpaw wne, and pawpaw brandy may not be used for the fortfca-
ton of any wne other than pawpaw wne; (9) no brandy other than
papaya brandy may be used n the fortfcaton of papaya wne and
papaya brandy may not be used for the fortfcaton of any wne other
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305
Regs. 7.
than papaya wne; (10) no brandy other than pneappe brandy may be
used In the fortfcaton of pneappe wne, and pneappe brandy may
not be used for the fortfcaton of any wne other than pneappe
wne; (11) no brandy other than cantaoup brandy may be used n the
fortfcaton of cantaoup wne, and cantaoup brandy may not be used
for the fortfcaton of any wne other than cantaoup wne; and (12) .

(g) That secton 3038(a) of the Interna Revenue Code Is amended
by nsertng after the words pear wnes a comma and the foowng:
pawpaw wnes, papaya wnes, pneappe wnes, cantaoup wnes.

2. Pursuant to the above provsons of aw and secton 3176, Inter-
na Revenue Code, paragraphs 8, 76, 80, 81, 93. 100, 227, 2 0, 2 2,
2 5. and 310 (sectons 178. 8, 178.76, 178.80, 178.81, 178.93, 178.100,
178.227, 178.2 0, 178.2 2 178.2 5, and 178.310) of Reguatons No. 7
(26 CFR, Part 178) are amended to read as foows:
Par. 8. ond Form 700- . cept as otherwse provded n these regua-
tons, propretors of bonded wneres and bonded storerooms sha furnsh a
separate bond on Form 700- , n trpcate, wth surety or securty to cover each
wnery or storeroom. No wne may be produced or receved, and no brandy
may be wthdrawn for fortfcaton unt proper bond s fed and the notce and
bond are approved by the dstrct supervsor. onds on Form 700- w be n a
pena sum suffcent:
(1) To cover the amount of the ta on a wne to be produced, receved, and
stored at the bonded wnery, or receved and stored at the bonded storeroom,
and n transt from ether such premses to other bonded premses, at any one
tme; and
(2) To cover the amount of the ta at the rate mposed by aw on n brandy
or wne sprts to be wthdrawn for use n the fortfcaton of wne and n
transt to, or stored at. the bonded wnery at any one tme.
The pena sum of the bond sha be cacuated on the bass of the wne and
brandy ta rates, and sha not be ess than 500 nor more than .10,000. The
fng of banket bonds to cover two or more wneres or storerooms s not
permssbe.
Par. 76. Producton. Ctrus-frut wnes, penc wnes, cherry wnes, berry
wnes, aprcot wnes, prune wnes, pum wnes, pear wnes, pawpaw wnes, papaya
wnes, pneappe wnes, cantaoup wnes, and appe wnes w be produced by
the norma acohoc fermentaton of the |uce of sound rpe ctrus frut (e cept
emons and mes), peaches, cherres, berres, aprcots, prunes, pums, pears,
pawpaws, papayas, pneappes, cantaoups, and appes, respectvey, wth or
wthout the addton of dry cane, beet, or de trose sugar (contanng, respectvey,
not ess than 95 per cent of actua sugar cacuated on a dry bass), for the
purpose of perfectng the product accordng to standards, but wthout the
addton or abstracton of other substances, other than such as may occur n
the usua cear treatment of carfyng and agng, e cept that n the event the
must or wne has natura defcences, It may be ameorated wth a souton
of water and pure cane, beet, or de trose sugar, contanng, respectvey, not
ess than 95 per cent of actua sugar, cacuated on a dry bass, for the purpose
of correctng natura defcences n the must or wne. If so ameorated, the
resutng product (1) must contan not ess than 5 parts per thousand of acd
before fermentaton, (2) may not contan more than 13 per cent of aeoho after
compete fermentaton, and (3) may not be ncreased more than 35 per cent
n voume.
Par. 80. Form 5 f. Where grapes, ctrus frut (e cept emons and mes),
peaches, cherres, berres, aprcots, prunes, pums, pears, pawpaws, papayas,
pneappes, cantaoups, or appes are crushed for probabe fortfcaton there w
be attached to the fermentng tanks nto whch the matera s run a abe,
Form 5 6, as provded n paragraph 2 2.
Par. 81. Wne from other materas. Where It s desred to produce wne other
than natura wne, ctrus-frut wne, peach wne, cherry wne, berry wne, aprcot
wne, prune wne, pum wne, pear wne, pawpaw wne, papaya wne, pneappe
wne, cantaoup wne, and appe wne, as defned n sectons 30 and 30 5,
Interna Revenue Code, or pure sweet wne as defned n secton 3036(a), Interna
Revenue Code, the wnemaker w prepare a notce In trpcate showng the
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Regs. 7.
306
materas and methods to be used. One copy of such notce w be attached
to the appcaton, Form 698, retaned at the premses and the other two copes
forwarded to the dstrct supervsor, who w transmt one copy to the
Commssoner.
Par. 93. Lmtatons. In the manufacture of wne for use as dstng matera,
water may be used n such quantty as necessary for the purposes of factatng
fermentaton and economca dstaton. Such wne may be made by fermenta-
ton of the grape |uce, ctrus-frut |uce, peach |uce, cherry |uce, berry uce,
aprcot |uce, prune |uce, pum uce, pear |uce, pawpaw |uce, papaya |uce,
pneappe |uce, cantaoup |uce, or appe |uce, or by further fermentaton of
the pomace or cheese after the wne has been drawn off. Sprts dsted from
grape cheese to whch sugar souton has been added may not be used for
fortfcaton. Wne produced for use as dstng matera w be accounted
for on Form 701 n the manner ndcated theren. (See rtce I.)
Par. 100. Lmtatons. Wnes may be m ed or bended wth each other at a
bonded wnery or bonded storeroom ony, and for the soe purpose of perfectng
such wnes accordng to commerca standards. Natura wne and pure sweet
wne may not be m ed or bended wth ctrus-frut wne, peach wne, cherry
wne, berry wne, aprcot wne, prune wne, pum wne, pear wne, pawpaw wne,
papaya wne, pneappe wne, cantaoup wne, or appe wne, or wth wne pro-
duced from other materas, nor may wne produced from one knd of frut or
berry be m ed or bended wth wne produced from another knd of frut or
berry. ermouths may be m ed or bended wth each other for the soe purpose
of perfectng them accordng to commerca standards, but may not be m ed
or bended together wth any other wnes. ended wnes w be ta -pad
accordng to ther acohoc strength after bendng, but the bendng must be
done n fact for the purpose of manufacturng a fnshed product conformng
to commerca standards. Wne purchased by one wnemaker from another
may be used for bendng purposes wthout ncurrng speca ta for the sae
of such bended wne.
Pab. 227. Lmtatons. Natura wne and pure sweet wne (defned n rtce
I) may be fortfed wth grape brandy (defned n paragraph 2 5), and
ctrus-frut wne, peach wne, cherry wne, berry wne, aprcot wne, prune
wne, pum wne, pear wne, pawpaw wne, papaya wne, pneappe wne, canta-
oup wne, and appe wne (defned n rtce I) may be fortfed wth
ctrus-frut brandy, peach brandy, cherry brandy, berry brandy, aprcot brandy,
prune brandy, pum brandy, pear brandy, pawpaw brandy, papaya brandy, pne-
appe brandy, cantaoup brandy, and appe brand; (defned In paragraph 2 5),
respectvey, by the producer of such wne on the premses where made:
Provded, That a ctrus-frut brandy prepared from one knd of ctrus frut
may not be used for the fortfcaton of a ctrus-frut wne prepared from
another knd of ctrus frut and a berry brandy prepared from one knd of
berry may not be used for the fortfcaton of a berry wne prepared from
another knd of berry. No wne other than the wnes named may be fortfed,
and no sprts other than the knd of brandy specfed n the case of each,
e cept ta -pad gran or other ethy acoho, may be used to fortfy such
wnes. Wne may not be fortfed by any person other than the producer
thereof, or on premses other than those where made.
Par. 2 0. Wnes egbe for fortfcaton. Ony natura wne, ctrus-frut
wne, peach wne, cherry wne, berry wne, aprcot wne, prune wne, pum
wne, pear wne, pawpaw wne, papaya wne, pneappe wne, cantaoup wne,
appe wne, and pure sweet wne produced n accordance wth rtce I
of these reguatons may be fortfed.
Par. 2 2. Form 5 6. Where grapes, ctrus frut (e cept emons and mes),
peaches, cherres, berres, aprcots, prunes, pums, pears, pawpaws, papayas,
pneappes, cantaoups, or appes are crushed for probabe fortfcaton, there
sha be attached to the fermentng tanks nto whch the matera Is run a
abe. Form 5-16, fed out n accordance wth the Instructons contaned theren.
Par. 2 5. randes egbe for use n fortfcaton. The brandes authorzed
to be used for fortfcaton, as enumerated n paragraph 227, are those made
e cusvey from grapes, ctrus fruts (e cept emons and mes), peaches, cher-
res, berres, aprcots, prunes, pums, pears, pawpaws, papayas, pneappes,
cantaoups, or appes, or from the products or the resdues of such fruts and
berres, or from grape wne, ctrus frut wne, peach wne, cherry wne, berry
wne, aprcot wne, prune wne, pum wne, pear wne, pawpaw wne, papaya
wne, pneappe wne, cantaoup wne, or appe wne, n the manufacture of
whch artfca sweetenng may have been used under the mtatons prescrbed
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307
Regs. 10.
by rtce I of these reguatons, or from the frut pomace resduum of such
wne. No brandy or wne sprts produced otherwse than as speced heren
may be used for fortfcaton. randy produced from grape cheese and a sugar
souton may not be used for the fortfcaton of wne.
Par, 310. Record. Where a wnemaker s bond s n a pena sum ess than
the ma mum of 50,000, the dstrct supervsor sha mantan a record whch
w enabe a ready determnaton regardng the amount of brandy or wne
sprts representng a potenta ta abty under the wnemaker s bond. The
amount of fortfyng brandy or wne sprts on hand at or deposted n the
fortfcaton room of the wnery; the amount of brandy or wne sprts ost
n transt to or n the fortfcaton room of the wnery; and the amount of
brandy specfed n approved appcatons on Form 257, but not reported depos-
ted n the fortfcaton room, sha be consdered charges aganst the wne-
maker. The amounts of brandy or wne sprts shown on Form 275 (Store-
keeper-gauger s Report of Fortfcaton of Wne) sha be consdered credts
for brandy or wne sprts used. Such credts sha be entered n the record
by the dstrct supervsor mmedatey upon recept of Form 275. The wne-
maker sha aso be gven credt n the record where the ta has been remt ed
or pad on osses of brandy or wne sprts. The dstrct supervsor sha not
dsapprove a wnemaker s appcaton on Form 257 for the wthdrawa of
brandy or wne sprts uness he has reason to beeve that the pena sum of
the wnemaker s bond s not suffcent, under the provsons of paragraph
8 of these reguatons, to cover the ta abty on the nmount of brandy or
wne sprts covered by the appcaton.
Gut T. everng,
Commssoner of Interna Revenue.
pproved May 6, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 7, 19 2, 3. 2 p. m.)
Reguatons 10. 19 2-19-11087
T. D.51 3
TITL 26 INT RN L R NU . C PT R I, SU C PT R C. P RT 185.
W R OUSING OY DISTILL D SPIRITS.
mendng Reguatons 10.
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
1. The ct of pr 8,19 2 (Pubc aw 519, Seventy-seventh Con-
gress), provdes n part as foows:
That secton 2901 of the Interna Revenue Code, as amended, s
amended to read as foows:
S C. 2001. LOSS LLOW NC S.
(a) Leakage or vaporaton. (1) ny dsted sprts on depost In
any nterna revenue bonded warehouse on the date ths amendatory sub-
secton takes effect, or thereafter deposted n any nterna revenue
bonded warehouse, may, at the tme of wthdrawa of the sprts from
such warehouse, upon the fng of an appcaton for the regauge of such
sprts, gvng a descrpton of the package contanng the sprts, be
regauged by a storekeeper-gauger who sha pace upon such package such
marks and brands as the Commssoner, wth the approva of the Secre-
tary, sha by reguatons prescrbe. If upon such regaugng t sha
appear there has been a oss by eakage or evaporaton of dsted sprts
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Regs. 10. 308
from any cask or package, wthout the faut or neggence of the dster
or warehouseman, ta es sha be coected ony on the quantty of dsted
sprts contaned n such cask or package at the tme of such wthdrawa.
The aowance whch sha be made for such oss of sprts sha not
e ceed
1 proof gaons for 2 months or part thereof;
2 gaons for more than 2 months and not more than
months;
3 gaons for more than months and not more than 6 months;
3 gaons for more than 6 months and not more than 8
months;
gaons for more than 8 months and not more than 10
months;
gaons for more than 10 months and not more than 12
months;
5 gaons for more than 12 months and not more than 1
months;
5 gaons for more than 1 months and not more than 16
months;
6 gaons for more than 16 months and not more than 18
months;
6 gaons for more than 18 months and not more than 21
months;
7 gaons for more than 21 months and not more than 2
months;
7 gaons for more than 2 months and not more than 27
months;
8 gaons for more thnn 27 mouths and not more than 30
months;
8 gaons for more than 30 months and not more than 33
months;
9 gaons for more than 33 mouths and not more than 36
months;
9 gaons for more than 36 months and not more than 3
months;
10 gaons for more than 39 months and not more than 2
months;
10 gaons for more than 2 mouths and not more than 5
months;
11 gaons for more than 5 mouths and not more than 8
months;
11 gaons for more than 8 months an not more than 51
months;
12 gnons for more than 51 months and not more than 5
months;
12 gaons for more than 5 months and not more than 57
months;
13 gaons for more than 57 months and not more than 60
months;
13 gaons for more than CO months and not more than 63
months;
1 gaons for more than 63 months aud not more than 66
months;
1 gaons for more than 66 months and not more than 69
months;
15 gaons for more than 69 months and not more than 72
mouths;
15 gaons for more than 72 months and not more than 75
months;
16 gaons for more than 75 months and not more than 78
months;
16 gaons for more than 78 months and not more than 81
months;
17 gaons for more than 81 months and not more than 8
months;
17 gaons for more than 8 months and not more than 90
months;
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309
Regs. 10.
18 gaons for more than 90 months from the date of orgna
gauge as to frut brandy, or orgna entry as to a other sprts;
and no further aowance sha be made for oss by eakage or
evaporaton.
The foregong aowance sha not appy to dsted sprts whch
on uy 26. 1 )36, were eght years of age, or oder, and whch on
that date were n bonded warehouses.
The foregong aowance for oss sha appy ony to casks or
packages of a capacty of forty or more wne-gaons, and the
aowance for oss on casks or packages of ess capacty than forty
gaons sha not e ceed one-haf the amount aowed on sad forty-
gaons casks or packages; but no aowance sha be made on
casks or packages of ess capacty than twenty gaons. The
proof of such dsted sprts sha not n any case be computed
at the tme of wthdrawa at ess than 100 per centum.
(b) Loss. The Commssoner of Interna Revenue may, under
reguatons to be prescrbed by hm and approved by the Secretary of
the Treasury, abate any nterna-revenue ta es accrung on dsted
sprts f he sha fnd that

(2) The dsted sprts were not stoen or ntentonay de-
stroyed but were ost, otherwse than by eakage or evaporaton,
whe beng transferred between budngs consttutng the same
nterna revenue bonded warehouse or whe beng transferred
by a common carrer from the premses of a regstered dstery
to an nterna revenue bonded warehouse off such regstered ds-
tery premses, or whe beng transferred by a common carrer
between nterna revenue bonded warehouses.
(3) The dsted sprts were not stoen or ntentonay de-
stroyed but were ost, otherwse than by eakage or evaporaton,
whe the same remaned n an nterna revenue bonded ware-
house and such oss s not aowabe under subsecton (a) hereof.

(5) The dsted sprts were ost by theft from the premses
of a regstered dstery, or whe beng transferred between bud-
ngs, consttutng the same nterna revenue bonded warehouse, or
whe beng transferred by common carrer to an nterna revenue
bonded warehouse off such regstered dstery premses, or whe
beng transferred by a common carrer between nterna revenue
bonded warehouses, and that such oss dd not occur as the
resut of connvance, couson, fraud, or neggence on the part of
the dster, owner, consgnor, consgnee, baee, or carrer, or the
empoyees of any of them.
(6) The dsted sprts were ost by theft from an nterna
revenue bonded warehouse, and that such oss dd not occur as
the resut of connvance, couson, fraud, or neggence on the part
of the dster, owner, or warehouseman, or the empoyees of any
of them.

(8) The dsted sprts were unft for use for beverage pur-
poses and were vountary destroyed by the dster, the ware-
houseman, or the propretor of the bonded wnery premses, pur-
suant to the wrtten permsson of the Commssoner n each case
and under reguatons whch the Commssoner, wth the approva
of the Secretary, s hereby authorzed to promugate.
(c) Refund or Ta . When, n any case to whch subsecton (a)
or (b) appes, the ta s pad subsequent to the oss or destructon, as
the case may be, of the sprts, the Commssoner may, under regua-
tons prescrbed by hm wth the approva of the Secretary, refund
such ta .
(d) Insurance Coverage. The abatement or refund of ta es pro-
vded for by subsectons (b) and (c) sha ony be aowed to the
e tent that the camant s not ndemnfed aganst or recompensed
for such oss.
(e) Transfer of Dutes. For transfer of powers and dutes of
Commssoner and hs agents, see secton 3170.
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Regs. 10.
310
Sec. 2. Secton 2901 (n), (b), (c), and (d), as amended by ths
ct, sha appy to any cam for ta es whch may accrue after the
date of enactment of ths ct. Cams for ta es or ta penates that
accrued on or before the date of enactment of ths ct sha be sub|ect
to secton 2901 of the Interna Revenue Code as t e sted pror to
ts amendment of ths ct. Nothng n secton 2901, as hereby
amended, sha be construed as n any manner mtng or restrctng
the provsons of part II, subchapter C, chapter 26, of the Interna
Revenue Code.
2. Pursuant to the above provsons of aw, and sectons 3170 and
3176, Interna Revenue Code, Reguatons 10 (26 CFR, Part 185)
are hereby amended n these respects:
3. Sectons 185.3 (d), 185.192, 185.193, 185.226, 185.227, 185.228,
185.229, 185.230, 185.395(a), 185.395(c), 185.398, 185.399, 185. 00.
185. 0 , 185. 05, and 185. 20 are revoked.
. Sectons 185.150, 185.151, 185.152, 185.153, 185.19 , 185.200,
185.206, 185.207, 185.208, 185.209, 185.210, 185.211, 185.212, 185.213,
185.21 , 185.216, 185 217, 185.218, 185.219, 185.225, 185.289, 185.299,
185.301, 185.32 , 185.329(5), 185.329 (d), 185.333, 185.33 , 185.335,
1S5.336, 185.3 , 185.397, 185. 32, and 185. 33 are amended to read as
foows:
Sec. 185.150. From- dstery not on same or contguous premses or from
another warehouse. When sprts are receved from a dstery not on the same
or contguous premses or from another Interna revenue bonded warehouse for
depost, the storekeeper-gauger w e amne the shpment upon ts arrva at
the warehouse, and, where the contaners bear evdence of havng sustaned
osses n transt, the osses and the causes thereof w be determned and
reported to the dstrct supervsor, as provded n sectons 185.151, 185.152, and
185.153. The propretor of the warehouse may wegh and proof, at the tme
of recept, each package n shpments from other bonded warehouses, f he so
desres, provded such s done e pedtousy and addtona storekeeper-gaugers
w not be requred to supervse the operaton. The takng of average or
actua tare w not be permtted. If the warehouseman prepares a record of
such commerca gauge, one copy w be devered to the storekeeper-gauger,
who w retan the same n hs offce for reference f cam s fed for rems-
son of the ta on the sprts ost. (Sees. 2901, 3178, I. R. C.)
Sec. 185.151. amnaton of packages. Where packages of sprts are
receved bearng evdence of havng sustaned osses n transt, the storekeeper-
gauger w observe the foowng procedure n e amnng the packages:
(1) Wegh and proof each barre whch appears to have sustaned a oss
by theft, accdent, or otherwse than by eakage or evaporaton whe In transt;
(2) amne the condton of the cooperage of each such package;
(3) Note on Form 1520 or 1619, as the case may be, coverng the transfer
of the sprts, the sera number, weght, and ta -gaon contents of each barre
so regauged, the condton of the cooperage and whether, n the opnon of the
offcer, the oss of the sprts occurred whe the puckge was n transt, and
whether such oss was occasoned by theft, accdent, eakage, evaporaton, or
any other cause. (Sees. 2901, 3176, I. R. C.)
Sec. 185.152. amnaton of tank car. Where the e amnaton of a raroad
tank car of sprts upon Its arrva at the warehouse reveas evdence of oss
by theft, accdent, or otherwse than by eakage or evaporaton, the storekeeper-
gauger w ascertan the quantty by regaugng the contents, and w make
report of hs e amnaton and regauge on Form 1520 smar to that requred
In the case of packages regauged. The sprts may be removed from the tank
car for regaugng where the warehouse Is equpped wth sutabe factes
therefor, but upon competon of such regauge, the sprts w be mmedatey
run back Into the tank car, and such tank car sea-ocked pendng ta -payment
or transfer to another bonded warehouse. The transfer of sprts from a tank
car for regaugng, and the return thereof, sha be under the mmedate super-
vson of the storekeeper-gauger. (Sees. 2P01, 3176, I. R. C.)
Sec. 185.153. amnaton and depost of cases. Where sprts botted n bond
before ta -payment are receved In bond from another bonded warehouse for
depost, the storekeeper-gauger w e amne the shpment upon ts arrva, and.
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311
Regs. 10.
where the cases bear evdence of havng sustaned osses by theft, accdent, or
otherwse than by eakage or evaporaton, the storekeeper-gauger w make
report of hs e amnaton, attach the report to Form 230, and note the oss
on Form 1620. When sprts botted In bond before ta -payment at the ware-
house are returned to the storage porton thereof, the storekeeper-gauger w
prepare Form 1620 to cover the depost of such cases. (Sees. 2901, 3176, I. . C.)
Sec. 185.19 . Ta -payment and remova may be requred. If It sha appear
at any tme that there has been a oss of dsted sprts from any cask or other
package on depost In an nterna revenue bonded warehouse, other than the
oss provded for n sectons 2901(b), as amended, nnd 3031(b), Interna Revenue
Code, whch, n the opnon of the Commssoner, s e cessve, he may nstruct
the supervsor of the dstrct In whch the warehouse Is ocated to requre the
wthdrawa of such dsted sprts, and drect the coector to coect the ta
accrued upon the orgna quantty entered nto the warehouse n such cask or
package, notwthstandng that the tme specfed In any bond gven for the
wthdrawa of the sprts entered nto warehouse n such cask or package has
not e pred. If the sad ta s not pad on demand, the coector sha report
the amount due on hs ne t monthy st and t sha be assessed and coected
as other ta es are assessed and coected. (Sees. 2880, 3176, I. R. C.)
Sec. 185.200. Schedue of aowances. Whenever sprts contaned In dster s
orgna packages, or packages fed therefrom, are regauged for wthdrawa
from hn nterna revenue bonded warehouse, and It sha appear that there has
been a oss of sprts by eakage or evaporaton from any package, wthout the
faut or neggence of the dster or propretor of the warehouse, aowance for
the oss actuay sustaned w be made to the e tent authorzed by aw, as set
forth n the foowng schedue. Losses In e cess of such quantty must be
ta -pad. The perod for whch aowance of osses w be made begns to run
from the date of orgna gauge as to frut brandy, nnd the date of orgna entry
for depost as to a other sprts.
Sohedue of aowance for oss by eakage and evaporaton.
Perod of storage In warehouse.
Ma mum aow-
ance casks of 0
Perod of storage In warehouse.
Ma mum aow-
ance casks of 0
More than
Not more
than
wne gaons
capacty or more.
More than
Not more
than
wne gaons
capacty or more.
Month).
Month,.
Proof gaon,.
Month,.
2
5
8
51
5
57
60
63
66
69
72
75
78
81
8
90
Month,.
5
8
51
5
57
60
63
66
69
72
75
78
81
8
90
2
1. 5
2

2. 5
11. 0

6
3. 0
11. 5
6
8
10
12
1
16
18
21
2
27
30
33
36
39
2
3. 5
12. 0
8
10
12
1
16
18
21
2
27
30
33
36
39
. 0
12. 5
. 5
13. 0
5. 0
13. 5
6. 5
6. 0
1 . 0
1 . 5
6. 5
15. 0
7. 0
15. 5
7. 5
16. 0
8. 0
16. 5
8. 5
17. 0
17. 5
9. 0
9. 5
ao
10. 0
(Sees. 2901(a), 3176, I. R. C.)
Sec. 185.206. Nonaorabc ouses to be ta -pad. (a) Storage tanks. When
a storage tank Is empted the oss, If any, w be ascertaned by the storekeeper-
ganger and reported to the dstrct supervsor. Where the oss e ceeds the
quantty whch may be attrbuted to varaton n gauge, as provded n secton
185.205, the dstrct supervsor w report the ta due thereon to the Comms-
soner for assessment, uness (1) the oss s due to causes otherwse than by
eakage or evaporaton, and cam Is fed for remsson of the ta under secton
2901(b), as amended, Interna Revenue Code, or (2) the contents of the tank
were brandy or frut sprts Intended for fortfcaton of wne.
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Regs. 10
312
(6) Packages fed from storage tanks. When packages fed from warehouse
storage tanks are wthdrawn, ta w be coected on the orgna contents of
each such package, uness wthdrawn ta -free, e cept (1) stee drums fed
from such tanks wth brandy or frut sprts ntended for fortfcaton of
wne and (2) packages of brandy or frut sprts fed from such tanks pror
to une 26, 1936, and whch were n warehouse on ugust , 1939. When
packages not entted to any oss aowance are wthdrawn ta -free, ta w
be coected on the dfference (defcency), If any, between the orgna gauge
and the wthdrawa gauge. (Sees. 2800(a)(1), 2800(c), 2879(b), 2901, 3176,
I. R. C.)
rtce II. Losses of Dsted Sprts by Theft, ccdent, or Otherwse
Than by Leakage or vaporaton, n Warehouse or n Transt Thermo,
cept Lossks from Storage Tanks or Stee Drums Ftf|) Therefrom of
randy or Frut Sprts Intended for Fortfcaton of Wnk.
Sec. 185.207. Losses 6// theft. (a) From warehouse. The ta on dsted
sprts whch are ost by theft from an nterna revenue bonded warehouse, not
occurrng as the resut of connvance, couson, fraud, or neggence on the part
of the dster, owner, or warehouseman, or the empoyees of any of them,
may be remtted to the e tent that the camant s not ndemnfed aganst or
recompensed for such ta .
(6) In transt. The ta on dsted sprts whch are ost by theft whe beng
transferred between budngs consttutng the same nterna revenue bonded
warehouse, or whe beng transferred by common carrer from the premses
of a regstered dstery to an nterna revenue bonded warehouse off such
regstered dstery premses, or whe beng transferred by a common carrer
between nterna revenue bonded warehouses, and such oss dd not occur as a
resut of connvance, couson, fraud, or neggence on the part of the dster,
owner, consgnor, consgnee, baee, or carrer, or the empoyees of any of them,
may be remtted to the e tent that the camant s not ndemnfed aganst or
recompensed for such a . (Sees. 2901 (b), (c), 3176, I. R. C.)
Sec. 185.208. Losses e cept y theft. The ta on dsted sprts not stoen
or ntentonay destroyed, but ost otherwse than by eakage or evaporaton
may be remtted to the e tent that the camant s not ndemnfed aganst or
recompensed for such ta (a) whe stored n an nterna revenue bonded ware-
house, (6) whe beng transferred between budngs consttutng the same
nterna revenue bonded warehouse, (c) whe beng transferred by common
carrer from the premses of a regstered dstery to an nterna revenue bonded
warehouse off such regstered dstery premses, or (d) whe beng trans-
ferred by common carrer between nterna revenue bonded warehouses. (Sees.
2901 (b), (c), 3176, I. R. C)
Sc. 185.209. Cams requred. owance for osses of dsted sprts as
descrbed n sectons 185.207 and 185.208 w be made pursuant to cam fed
by the warehouseman for remsson of the ta as herenafter provded. (Sees.
2901 (b), (c), 3170, I. R. C.)
Sec. 185.210. Form of cams. Forms have not been prescrbed for use In
presentng cams for remsson of ta . Such cams sha be made on etter or
ega sze paper, n dupcate, and sha set forth, under oath, the foowng
nformaton:
(1) The name of the dster who produced the sprts, and the regstered
number and ocaton of the dstery;
(2) The sera numbers of the packages, cases, or storage tanks from whch
the sprts were ost. In the case of tank cars, the car numbers w be stated;
(3) The quantty of sprts ost from ench package or other contaner, and
the tota quantty of sprts covered by the cam;
( ) The tota amount of ta for whch the cam s fed;
(5) The date of the oss, or, If such date s not known, the date on whch the
oss was dscovered and the cause and nature thereof, together wth a the
facts surroundng the oss;
(6) The name of the common carrer, f any;
(7) Whether the oss was due to theft, accdent, or otherwse than to eakage
or evaporaton;
(8) If ost by theft, the facts showng that the oss dd not occur as the
resut of any neggence, connvance, couson, or fraud on the part of the
dster, owner, warehouseman, consgnor, consgnee, baee, or carrer, or the
empoyees of any of them;
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313
Regs. 10.
(9) Whether the camant Is Indemnfed or recompensed for the oss, and, If
so, the amount and nature of such ndemnty or recompense. The actua vaue of
the sprts, ess the ta , must be stated e pcty, and certfed copes of a
poces of nsurance or other documents of ndemnty coverng the sprts must
be furnshed.
(Sees. 2901 (b), (c), 3176, I. R. C.)
Sec. 185.211. Supportng documents. Cams for remsson of ta on sprts
ost whe beng transferred by common carrer sha be supported, whenever
possbe, by a copy of the b of adng and statements of the agents of the
common carrer havng persona knowedge of the oss. Cams coverng osses
n the bonded warehouse, or whe beng transferred between budngs consttut-
ng the same bonded warehouse, must be supported by affdavts of persons havng
persona knowedge of the oss. (Sees. 2901, 3176, I. R. C.)
Sec. 185.212. Fng of cams. Cams for the remsson of ta on sprts w
be fed wth the supervsor of the dstrct n whch Is ocated the bonded ware-
bouse to whch the sprts are beng transferred, or at whch the oss occurred.
Such cams shoud be fed wthn 30 days after the oss s dscovered. (Sec.
3176, I. R. C.)
Sec. 185.213. Report of osses. Losses of dsted sprts by theft, accdent,
or otherwse than by eakage or evaporaton, must be reported to the dstrct
supervsor by the warehouseman or other persons concerned mmedatey after
the osses are dscovered. Where osses of sprts occur whe beng transferred
by common carrer and are ascertaned at the tme of recept at a bonded ware-
house, or where osses occur whe In a bonded warehouse, or whe beng trans-
ferred between budngs consttutng the same warehouse, and are ascertaned
whe an offcer s on duty, such offcer mmedatey w gauge the contents of the
package, or other approved contaner, and prepare Form 1520, n quadrupcate.
The offcer w prepare a etter report, n trpcate, to the dstrct supervsor
settng forth the nature, cause, and e tent of the oss n suffcent deta to
brng out a the known matera facts and crcumstances. The condton of each
package or other contaner from whch the oss has been sustaned and the
quantty ost therefrom shoud be stated n the report. The offcer w forward
two copes of Form 1520 and two copes of the report to the dstrct supervsor,
dever one copy of Form 1520 to the warehouseman, and retan one copy of
Form 1520 and the report for hs fes. (Sec. 3176, I. R. C.)
Sec. 185.21 . Investgaton by dstrct supervsor. Where arge osses of
sprts are reported, the dstrct supervsor w mmedatey make such nves-
tgaton and requre such evdence to be submtted as he may deem necessary,
and w advse the Commssoner of hs fndngs and recommendatons reatve
to remsson of the ta on the sprts. (Sec. 3176, I. R. C.)
Sec. 185.216. Records. The storekeeper-ganger w report a osses of ds-
ted sprts by theft, accdent, or otherwse than by eakage or evaporaton
In hs monthy return, Form 1513. The dstrct supervsor w kewse enter
such osses n the approprate bonded sprts account, Form 151 , n the manner
ndcated by the form. (Sees. 2915, 3953(a), 3170, 3176, I. R C.)
Sec. 185.217. Remsson of ta . If the entre contents of a contaner are
ost by theft, accdent, or otherwse than by eakage or evaporaton, and a
cam for remssson of the ta s aowed, the dstrct supervsor w take
credt for the aowance In the approprate bonded sprts account, Form
151 , upon recept of notce from the Commssoner of the aowance. If the
ta s remtted on a porton of the contents of a contaner st n bond, the
dstrct supervsor w nstruct the storekeeper-gauger to aff to the contaner
a abe showng the number of proof gaons on whch the ta has been remtted,
the date of aowance, and bearng the sgnature and tte of the storekeeper-
gauger. The storekeeper-gauger w, upon abeng the contaner, note such
data on the Form 1520, 1619, or 1620 coverng the depost of the sprts In the
warehouse. (Sees. 3953(a), 3170, 3176, I. R. C.)
Sec. 185.218. Oredt upon wthdrawa. Upon wthdrawa of the contaner,
the storekeeper-gauger w gve credt for the quantty of sprts on whch the
ta has been remtted, by deductng such quantty from the orgna contents,
and, n the case of packages and tank cars, w note such aowance on the
report of the wthdrawa gauge. Form 1520. (Sees. 2901, 3170, 3176, I. R. C.)
Sec. 185.219. Faure to fe cam. Where dsted sprts are reported to
have been ost by theft, accdent, or otherwse than by eakage or evaporaton
(a) whe n a bonded warehouse, (6) whe n transt thereto by a common
7 918 2 11
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Regs. 10.
31
carrer, or (c) whe beng transferred between budngs consttutng the same
bonded warehouse, and cam for remsson of the ta on such sprts Is not
fed as herenbefore provded, the dstrct supervsor w report the matter to
the Commssoner for assessment n accordance wth prescrbed procedure,
e cept that assessment w not be recommended In the case of any package
where the oss does not e ceed the ma mum statutory aowance by 50 per
cent or more, or such oss s ess than 5 proof gaons. If the oss from a
package e ceeds such mtaton and s wthout faut or neggence of the
warehouseman, he may fe appcaton to retan the package n bond In accord-
ance wth secton 185.195. (Sec. 3176, I. R. C.)
Sec. 185.225. Losses requrng cam. owance for osses of brandy or frut
sprts ntended for the fortfcaton of wne by eakage or evaporaton from
warehouse storage tanks n e cess of 1 per cent of the quantty deposted n the
tank w be made pursuant to cam fed by the dster or warehouseman.
The cam must conform to the requrements set forth n secton 185.210 dea-
ng wth osses by theft, accdent, or otherwse than by eakage or evaporaton.
(Sees. 3031(b), 3176, I. R. C.)
Sec. 185.289. Procedure. Where sprts are receved In bond n tank cars
at an nterna revenue bonded warehouse and are ta -pad thereat, the pro-
cedure herenbefore prescrbed for the ta -payment of tank cars of sprts
fed from warehouse storage tanks w be foowed, e cept that the sprts
n the tank car w not be regauged but w be ta -pad on the fng gauge,
uness a oss was sustaned by theft, accdent, or otherwse than by eakage
or evaporaton, ether n transt or subsequent to recept at the warehouse,
and a cam for remsson of the ta on the sprts so ost Is fed. In the
atter event, the sprts w be ta -pad accordng to the regauge made at the
tme of recept or subsequent oss. (Sees. 2883, 2901, 3176, L R. C.)
Sec. 185.299. Transfers n packages. If the sprts to be transferred are n
orgna packages or In packages fed from warehouse storage tanks, the
storekeeper-gauger w Inspect the packages and supervse the weghng thereof
as provded In the Gaugng Manua, and w prepare Form 1619, n quntup-
cate, n accordance wth the nstructons on the form. Immedatey after the
packages are weghed for transfer n bond, the propretor may, f he so de-
sres, take the proof of the sprts, provded such s done e pedtousy and
addtona storekeeper-gangers w not be requred to supervse the operaton.
The takng of average or actua tare w not be permtted. If the warehouse-
man prepares a record of such commerca gauge, two copes thereof w
be gven to the storekeeper-gauger, who w retan one copy and forward the
other to the storekeeper-gauger at the recevng warehouse, as herenafter
provded, for reference f cam s fed for oss by theft, accdent, or otherwse
than by eakage or evaporaton. Upon wthdrawa for transfer the packages
w be marked as provded n the Gaugng Manua. (Sees. 2875, 3176. I. R. C.)
Sec. 185.301. Transfer n tank cars. If the sprts to be transferred are n a
prevousy fed tank car, the storekeeper-gauger w nspect the car and prepare
Form 1520, n quntupcate, copyng the detas from the entry Form 1520,
e cept that f the contents of the tank car were prevousy regauged owng to
evdence of oss of sprts therefrom by theft, accdent, or otherwse than by
eakage or evaporaton, the transfer Form 1520 w show both the orgna
contents and the contents dscosed by the regauge. When the tank car s re-
eased, the key of each sea ock thereon w be forwarded on the day of shp-
ment by the storekeeper-gauger at the transferrng warehouse to the storekeeper-
gauger at the recevng warehouse. (Sees. 2875, 3176, I. R. C.)
Sec. 185.32 . Defcences to be taw-pad. If the regauge after reducton shows
that the packages contan ess sprts than at the tme of the wthdrawa
regauge, such defcency sha be ta -pad n accordance wth secton 185.326,
uness such defcency s attrbutabe to theft, accdent, or otherwse than by
eakage or evaporaton, and cam for the remsson of the ta thereon s fed.
(Sees. 2885. 2886, 3176, I. R. C.)
Sec. 185.329. (6) Contnung bond, drect e port, Form 657. If dsted
sprts are to be wthdrawn for drect e portaton from tme to tme on one
bond, a contnung bond. Form 657, n trpcate, sha be fed. The pena sum of
such bond sha be suffcent to cover the ta at the dsted sprts rate on the
ma mum quantty of dsted sprts that may reman unaccounted for at any
one tme, but n no case sha the pena sum be ess than 1,000. Dsted sprts
wthdrawn for e portaton under drect e port bonds sha reman unaccounted
for unt satsfactory proof of andng abroud s fed wth the dstrct supervsor
In accordance wth secton 185.387 or 185.391, or unt satsfactory proof of oss
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315
Regs. 10.
at sea wthout faut or negect of the owner or shpper has been submtted n
accordance wth secton 185. 02, and cam for remsson of the ta on the sprts
so ost has been aowed by the Commssoner. (Sees. 2885, 2886, 3170, 3176,
L R. C.)
Sec. 185.329. (d) Contnung bond, transportaton for e port, Form 658. If
sprts are to be wthdrawn for transportaton for e port from tme to tme on
one transportaton for e port bond, a contnung bond, Form 658, n trpcate,
sha be e ecuted. The bond w be n a pena sum suffcent to cover the ta
at the dsted sprts rate on the ma mum quantty of dsted sprts that
may reman unaccounted for at any tme, but n no case sha the pena sum
be ess than 1,000. Dsted sprts wthdrawn for transportaton for e port
sha reman unaccounted for unt satsfactory proof of cearance of the sprts
from the port of e port s fed wth the dstrct supervsor n accordance wth
secton 185.38 or 185.385. (Sees. 2885, 2886, 3170, 3176, I. R O.)
Sec. 185.333. Devery to carrer. If the sprts are wthdrawn from a bonded
warehouse ocated esewhere than at the port of e portaton, the e porter w
dever the shpment to a carrer for transportaton to the port of e portaton.
e sha procure a copy of the b of adng coverng such transportaton and
dever t to the storekeeper-gauger at the bonded warehouse. The sprts must
be consgned to the coector of customt of the port of e port, and must be
propery descrbed n the b of adng by sera numbers, knd, and quantty.
(Sees. 2885, 2886, 3176, I. R. C.)
Sec. 185.33 . Dever)/ drecty for customs n prrton. Where the sprts are
wthdrawn from a bonded warehouse ocated at the port of e portaton, the
e porter w dever the shpment drecty for customs nspecton and supervson
of adng. copy of the e port b of adng sha be procured and fed wth the
dstrct supervsor for attachment to the copy of Form 206 retaned by hm.
(Sees. 2885, 2S86, 3176, I. R. 0.)
Sec. 185.335. portaton through border port, etc. In case of e portaton
through a border port to contguous foregn terrtory, the b of adng w
cover the transportaton of the sprts to ther destnaton, and must show the
routng, partcuary as to the carrer whch w dever the shpment for customs
nspecton at the border. The shpment must be consgned n care of the coector
of customs or deputy coector of customs at the border port. The e porter sha
dever one copy of the b of adng to the storekeeper-gauger at the bonded
warehouse. In case of transportaton of the sprts from a bonded warehouse,
ocated esewhere than at the port of e portaton, for shpment by vesse, the
e porter sha furnsh a copy of the transportaton b of adng and a copy of
the e port b of adng to the dstrct supervsor for attachment to the copy of
Form 206 retaned by hm. (Sees. 2885, 2886, 3176, I. R. C.)
Sec. 185.336. Dsposton of forms. When the packages have been devered
and the e porter has furnshed copes of the b of adng, the storekeeper-
gauger w forward mmedatey a compete set of the forms (206, 1520, and b
of adng) to the dstrct supervsor, and one copy each of Forms 206 and 1520 to
the coector of customs at the port of e portaton. (Sees. 2885, 2886, 3170, 3176,
L R. C.)
Sec. 185.3 . Defcences to be ta -pad. osses n e cess of the statutory
aowance on account of eakage and evaporaton, as dscosed by the regauge of
the dsters orgna packages, and any addtona oss n transferrng the
sprts to the new packages, as shown by the gauge of such packages, must be
ta -pad n accordance wth secton 185.3 8, uness such oss s attrbutabe to
theft, accdent, or otherwse than by eakage or evaporaton, and cam for the
remsson of the ta thereon s fed. (Sees. 2885, 2886, 2901, 3176, I. R. C.)
Sec. 185.397. Ta to be reported for assessment. If, upon e amnaton of
Forms 691 and 696 receved from the coector of customs, It sha appear that
there has been a oss of dsted sprts from packages whe In transt from the
Interna revenue bonded warehouse from whch wthdrawn to the port of e -
portaton, the dstrct supervsor w report for assessment the ta on the de-
fcency In accordance wth prescrbed procedure. Where the defcency from
any package does not e ceed 1 proof gaon, and there Is no evdence ndcatve
of tamperng, the defcency may be dsregarded. Where cases show evdence of
oss whe In transt, the dstrct supervsor w report for assessment the ta on
the defcency of each such case. (Sees. 2S85, 2886, 3176,1. R. C.)
Sec. 185. 32. Certfcate, Form 5 5. Recepts of shpments of sprts wth-
drawn for use of the Unted States under these reguatons sha be prompty
certfed to on Form 5 5, n dupcate, by the offca representatve of the Unted
States or governmenta agency thereof to whom deveres of such shpments are
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Regs. 10.
316
made. Where, on nspecton at destnaton, a oss n transt as to any package s
found to e ceed 1 proof gaon, such oss w be noted on each copy of Form 5 5
by the recevng offcer, who w aso specfy the sera number of each such
package, the oss ascertaned as to each, and whether the condton of the package
when receved ndcated that the oss was due to eakage or other cause. Smar
notatons w be made by the recevng offcer on Form 5 5 where nspecton of
shpments of sprts wthdrawn n cases reveas any oss n transt. (Sees. 3176,
3331, L R. C.)
Sec. 185. 33. Dsposton of Form 5//5. The certfcate on Form 5 5, n dup-
cate, duy e ecuted by the recevng offcer to whom the sprts are devered and
countersgned by the head of the department or ndependent bureau or estabsh-
ment n nterest, sha be forwarded wthn 30 days from the date of the wth-
drawa of the sprts to the dstrct supervsor from whose dstrct the wthdrawa
was made. The dstrct supervsor w note on Form 5 5 the quantty of sprts
shown by the wthdrawa papers to have been wthdrawn for shpment. If Form
5 5 shows a oss n e cess of 1 proof gaon from any package or any oss from a
case of sprts n transt, the dstrct supervsor w forward a copy of the Form
5 5 to the Commssoner wth hs recommendaton for assessment of the ta due
on the tota defcency. Where Form 5 5 ndcates that no oss of sprts occurred
n transt, the dstrct supervsor w forward one copy of the form to the Com-
mssoner. The dstrct supervsor w retan one copy of Form 5 5. (Sees.
3176, 3331, I. R. C.)
5. The foowng new artces and sectons are added :
Sec. 185.3. ( ) Common carrer sha mean one whose occupaton Is trans-
portaton of persons or thngs from pace to pace for hre, and who hods hmsef
out to the pubc as ready and wng to serve the pubc ndscrmnatey n the
partcuar ne n whch he s engaged. (Sees. 2901, 3176, I. R. C.)
rtce L III. Losses of Sprts Whe eng Transferred etween
udngs Consttutng Same Warehouse.
Sec. 185.506. Genera. In order to cam remsson of ta on sprts ost by
theft, accdent, or otherwse than by eakage or evaporaton whe beng trans-
ferred between budngs consttutng the same warehouse, the warehouseman
must provde factes for weghng packages n each of such budngs. Where
sprts are to be transferred from one such budng to another, the warehouse-
man sha notfy the storekeeper-gauger n charge of such ntenton. The sprts
w be transferred under the mmedate supervson of the storekeeper-gauger.
(Sees. 2901, 3176, I. R. C.)
Sec. 185.507. Procedure. If the sprts to be transferred are n orgna
packages or n packages prevousy fed from warehouse storage tanks, the
storekeeper-gauger w nspect and supervse the weghng of the packages
pror to the transfer. If the storekeeper-gauger or the warehouseman has reason
to beeve the packages have sustaned a oss by theft, accdent, or otherwse
than by eakage or evaporaton durng the transfer, the packages sha be
weghed mmedatey upon recept n the budng to whch transferred ; other-
wse the packages sha not be weghed. If the sprts are contaned n cases,
the storekeeper-gauger w nspect the cases before and after transfer. If
t s ascertaned that the packages or cases have sustaned a oss of sprts by
theft, accdent, or otherwse than by eakage or evaporaton a report w
he made to the dstrct supervsor n accordance wth secton 185 213. and a
cam may be fed n accordance wth secton 185.210. (Sees. 2901, 3176, I. R. C.)
rtce LI . ountary Destructon of Sprts.
Sec. 185.508. Genera. Dsted sprts stored n an nterna revenue bonded
warehouse, whch are found by the Commssoner to be unft for use for beverage
purposes, may be vountary destroyed wthout payment of ta by the ware-
houseman n accordance wth the procedure heren set forth (Sees. 2901.
3176, I. R. C.)
Sec. 185.509. ppcaton. The warehouseman w make wrtten appcaton
to the dstrct supervsor of the dstrct n whch the warehouse s ocated for
permsson to destroy such sprts. The appcaton sha specfy the knd and
appro mate quantty n wne gaons and proof gaons of such dsted sprts;
the name, address, and regstered dstery number of the dster who produced
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317
Regs. 10.
such sprts; the date of producton; the sera numbers of the barres, tanks,
or cases In whch such sprts are stored, and a statement showng the cond-
ton of the sprts whch renders them unft for beverage purposes. (Sees. 2901,
3176, I. R. C.)
Sec. 185.510. cton by supervsor. Upon recept of such appcaton, the
dstrct supervsor w requre an nspecton to be made of the sprts by the
storekeeper-gauger to determne the correctness of the appcaton and to procure
u sampe from each barre, tank, or case for submsson to the dstrct chemst
for anayss to determne whether the sprts are unft for beverage purposes.
ach sampe w consst of 1 pnt, or f deemed advsabe, 1 quart, n the
case of barres and tanks, and a botte from each bottng ot. The botte con-
tanng the sampe w be abeed n such manner as w ready dentfy the
sprts. The sampes w be forwarded to the dstrct chemst at the e pense
of the warehouseman. The dstrct chemst w anayze the sampes and
furnsh a report of such anayss to the dstrct supervsor. The unused por-
ton of the sampes w be retaned by the dstrct chemst for further e amna-
ton. If necessary. The dstrct supervsor w forward the appcaton of the
warehouseman, a copy of the storekeeper-gauger s report, and a copy of the
dstrct chemst s report of anayss to the Commssoner wth hs recommenda-
ton. (Sees. 2901, 3176, I. R. C.)
Sec. 185.511. cton by Commssoner. (a) Unft -for beverage purposes.
If the Commssoner fnds that the sprts are unft for beverage purposes, he
w authorze the dstrct supervsor to permt such sprts to be destroyed
by the warehouseman under the supervson of the storekeeper-gauger.
(6) Ft for beverage purposes. If the Commssoner fnds that the sprts
are ft for beverage purposes, he w dsapprove the appcaton and notfy the
dstrct supervsor of such dsapprova. The dstrct supervsor w thereupon
nform the warehouseman that the sprts have been determned to be ft for
beverage purposes and that they may not be destroyed wthout payment of ta .
(Sees. 2901, 3176, I. R. C.)
Sec. 185.512. Destructon. (a) Regauge. Sprts authorzed to be destroyed
w be regauged by the storekeeper-gauger and reported for that purpose on
Form 1520, n quadrupcate. Foowng such regauge and payment of ta
on any defcency as herenafter set forth, the sprts may be destroyed under
the mmedate supervson of the storekeeper-gauger by runnne the same nto
the sewer or by other sutabe means. The storekeeper-ganger w then certfy
to such destructon on the Form 1520, return one copy of the form to the ware-
houseman, retan one copy for hs fe, and forward one copy to the dstrct
supervsor. e w take approprate credt for the sprts so destroyed at a
speca ne on Form 1513. The dstrct supervsor w take approprate credt
for the sprts so destroyed at a speca ne on Form 151 .
(6) Tafe-payment of osses. If the regauge dscoses osses n e cess of the
statutory aowance, such osses must be ta -pad pror to destructon of the sprts.
The Form 1520, n quadrupcate, w be submtted to the coector accompaned
by the warehouseman s remttance for the ta . Upon coecton of the ta ,
the coector w certfy the ta -payment on the four copes of the Form 1520,
retan one copy of the form, and forward three copes of the form to the ware-
houseman. The coector w st the tem on hs current dsted sprts ta
st. The warehouseman w return the three copes of Form 1520 receved
from the coector to the storekeeper-gauger. (Sees. 2901, 3176, I. R. C.)
Sec. 185.513. Pror osses. ny cams for remsson or refund of the ta on
sprts ost pror to pr 9, 19 2, sha be sub|ect to the provsons of secton
2901 of the Interna Revenue Code and of these reguatons as they e sted
pror to that date.
Gut T. evertng,
Commssoner of Inferna Revenue.
pproved pr 30, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 1, 19 2, 5.03 p. m.)
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Regs. 18.
318
Reguatons 18. 19 2-19-11088
T. D.51 1
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 192.
F RM NT D M LT LI UORS.
mendng Reguatons 18.
Treasury Department.
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
Pursuant to the provsons of sectons 3153(b) and 3176 of the
Interna Revenue Code, sectons 192.212, 192.21 , 192.217, 192.218, and
192.222 of Reguatons 18 (Tte 26, Part 192, Code of Federa Regu-
atons) , are hereby amended to read as foows:
Sbc. 192.212. Devery to carrer. The brewer, upon reease of a shpment
for e port, w dever such fermented quor ether to the carrer or drecty
for customs nspecton. If the pace of manufacture Is ocated at the port of
e portaton, he w dever the shpment drecty for customs nspecton and
supervson of adng, and w fe a copy of the e port b of adng wth the
dstrct supervsor. If the pace of manufacture s ocated esewhere than at
the port of e portaton, he w dever the shpment to the common carrer for
transportaton to the port of e portaton, and procure one copy of the b of
adng coverng such transportaton, whch he w forward to the dstrct
supervsor of the dstrct from whch the shpment was made. (Sees. 3153(b),
3176, I. R. C.)
Sec. 192.21 . portaton through border port. In case of e portaton through
a border port to contguous foregn terrtory, the b of adng w cover trans-
portaton to the foregn destnaton, and must show the routng, partcuary the
carrer whch w dever the shpment for customs nspecton at the border;
aso that shpment was sent n care of the coector of customs or deputy co-
ector of customs at the border port: Provded, That where a through b of
adng s not obtanabe, separate bs of adng coverng the shpment from the
pace of manufacture to the border port and from the border port to the foregn
destnaton w be procured. copy of the through b of adng, or copes of the
separate bs of adng, as the case may be, w be transmtted by the brewer
or hs agent mmedatey by etter to the supervsor of the dstrct from whch
the shpment was made, for attachment to the copy of appcaton and entry,
Form 550. (Sees. 3153 (b), 3176, I. R. C.)
Sec. 192.217. Shpment by vesse. If the pace of manufacture s ocated ese-
where than at the port of e portaton, and the shpment Is to be e ported by
vesse mmedatey, the brewer sha forward a copy of the transportaton b
of adng as provded by secton 192.212, and a copy of the e port b of adng
to the supervsor of the dstrct from whch the shpment was made, for attach-
ment to the copy of Form 550 retaned by hm. e w aso forward two copes
of the Form 550 to hs agent at the port of e portaton. The two copes of the
Form 550 must reach the agent In suffcent tme for hm to fe them wth the
coector of customs of the port at east s hours pror to adng. The agent
sha see that the name of the e portng vesse s propery entered In the Form
550, gvng the ocaton of the per where t w be aden, and sha subscrbe
hs name as agent for the e porter. (Sees. 3153(b), 3170, I. R. C.)
Sec. 192.218. Shpment to contguous foregn terrtory. In case of e portaton
to contguous foregn terrtory by ra through a border port, the brewer sha
retan one copy of the Form 550 and forward two copes thereof mmedatey
to the coector of customs of the border port through whch the shpment w
be routed for e portaton. copy of the b of adng w be forwarded to the
dstrct supervsor as provded by secton 192.21 . (Sees. 3153(b), 3176, I. R. C.)
Sec. 192.222. Certfcate of e portaton. fter nspecton, adng, and cear-
ance for a foregn port of the vesse or vehce on whch the fermented mat
quor descrbed n the entry Is aden, the coector of customs sha e ecute hs
certfcate of e portaton on the back of each copy of the Form 550. e sha
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319 Regs. 21 (19 0), f 191.3 (fc), etc.
retan one copy of the Form 550 for hs entry record, and transmt the other,
fuy e ecuted, to the supervsor of the dstrct from whch the fermented mat
quor was shpped. (Sees. 3153(b), 3176, I. R. C.)
Got T. everng,
Commssoner of Interna Revenue.
pproved pr 30, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 1, 19 2, 5.03 p. m.)
Reguatons 21 (19 0), Sectons 191.3(k), 191.5, 19 2-2-10958
191.6,191.7,191.8,191.9,191.10,191.28,191.35(6),
191.55. T. D. 5106
TITL 26 INT RN L R NU C PT R I. SU C PT R C, P RT 191.
IMPORT TION OF DISTILL D SPIRITS ND WIN S.
mendng Reguatons 21.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, Coectors
of Customs, and Others Concerned:
1. Sectons 533 and 53 of the Revenue ct of 19 1 (Pubc aw
250, Seventy-seventh Congress), approved September 20, 19 1, pro-
vde n part as foows:
Sec. 533. Dsted Sprts.
(a) Rate on Dsted Sprts. Secton 2800(a) (1) of the Interna Revenue
Code s amended by strkng out at the rate of 2.25 (and on brandy at the
rate of 2) and by nsertng In eu thereof at the rate of , and by strkng
out (e cept brandy) .
(b) Rate on Imported Perfumes Contanng coho. Secton 2800(a)(3)
of the Interna Revenue Code Is amended by strkng out 2.25 and nsertng
n eu thereof .
Sec. 53 . Wnes.
(a) Rate on St Wnes. Secton 3030(a)(1) ( ) of the Interna Revenue
Code s amended by strkng out 5 cents and nsertng n eu thereof 8
cents ; by strkng out 15 cents and nsertng n eu thereof 30 cents ;
and by strkng out 25 cents and Insertng n eu thereof 65 cents .
(b) Rate on Sparkng Wnes, Lqueurs, Cordas, tc. Secton 3030(a) (2)
of the Interna Revenue Code s amended by strkng out y cents and n-
sertng n eu thereof 7 cents ; and by strkng out 1 cents and nsertng
n eu thereof 3 cents .
2. Pursuant to the foregong provsons of aw and sectons 2803,
2871, and 3176 of the Interna Revenue Code, secton 191.10 of Regu-
atons 21 (Tte 26, Part 191, Code of Federa Reguatons, 19 0
Sup.) s hereby revoked, and sectons 191.3( ), 191.5, 191.6, 191.7,
191.8, 191.9, 191.28, 191.35(6), and 191.55 of such reguatons are
hereby amended to read as foows:
Sec. 191.3. (fc) Wne sha mean (1) st wne, ncudng vermouth, art-
fca or mtaton wnes or compounds sod as st wne, champagne or sparkng
wne, and artfcay carbonated wne, and (2) favored or sweetened fortfed
or unfortfed wnes, by whatever name sod or offered for sae, contanng not
over 2 per centum of acoho by voume.
Sec. 191.5. Dsted sprts. Dsted sprts n customs bonded warehouse or
mported rvto the Unted States are sub|ect to an nterna revenue ta , when
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Regs. 21 (19 0), 191.3(fc), etc. 320
wthdrawn, at the rate of per 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. (Sees. 2800 as amended, 3176, I. R. C.)
Sec. 191.6. Perfumes contanng dsted sprts. Imported perfumes con-
tanng dsted sprts are sub|ect to an nterna revenue ta , when wth-
drawn, at the rate of per wne gaon and a proportonate ta at a ke
rate on a fractona parts of such wne gaon. (Sees. 2800 as amended, 3176,
I. R. C.)
Sec. 191.7. Wnes. (a) St wnes. st wnes, ncudng vermouth,
and a artfca or mtaton wnes or compounds sod as st wne, n cus-
toms bonded warehouse or mported nto the Unted States are sub|ect to an
nterna revenue ta , when wthdrawn from customs custody, as foows:
On wnes contanng not more than 1 per centum of absoute acoho, 8 cents
per wne gaon, the per centum of acoho under ths secton to be reckoned by
voume and not by weght;
On wnes contanng more than 1 per centum and not e ceedng 21 per
centum of absoute acoho, 30 cents per wne gaon;
On wnes contanng more than 21 per centum and not e ceedng 2 per centum
of absoute acoho, 65 cents per wne gaon;
such wnes contanng more than 2 per centum of absoute acoho by
voume sha be cassed as dsted sprts and sha be ta ed accordngy.
(6) Sparkng wnes. sparkng wnes and artfcay carbonated wnes
n customs bonded warehouse or mported nto the Unted States are sub|ect
to an nterna revenue ta , when wthdrawn from customs custody, as foows:
On each botte or other contaner of champagne or sparkng wne, 7 cents
on each one-haf pnt or fracton thereof;
On each botte or other contaner of artfcay carbonated wne, 3 cents on
each one-haf pnt or fracton thereof.
(c) Wnes contanng over 2- per centum of acoho. Champagne and other
sparkng wnes, st wnes, artfcay carbonated wnes, and vermouth, f
contanng over 2 per centum of acoho by voume, n customs bonded ware-
house or mported nto the Unted States are sub|ect to an nterna revenue
ta , when wthdrawn, at the rate of per 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. (Sees. 2800 as amended, 3030 as amended, 3176,
I. R. C.)
191.8. Lqueurs, cordas, and smar compounds. Lqueurs, cordas, and
smar compounds n customs bonded warehouse or mported nto the Unted
States are sub|ect to an nterna revenue ta . when wthdrawn, at the rate of
per 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: Provded.
That such products contanng not over 2 per centum of acoho by voume
made wth dsted sprts of any knd and wne fortfed wth brandy made
from the same frut as the wne are sub|ect to an Interna revenue ta , on
each botte or other contaner, at the rate of 3 cents on each one-haf pnt
or fracton thereof. Fortfed or unfortfed wnes contanng not over 2 per
centum of acoho by voume to whch sweetenng or favorng materas have
been added are not cassfed as queurs, cordas, or smar compounds, but
are consdered to be favored wnes ony and are sub|ect to Interna revenue
ta at the rates appcabe to wnes. (Sees. 2800 as amended, 3030 as amended,
3176, I. R. C.)
Sec. 191.9. Rate of ta on compounds and preparatons. Compounds and
preparatons contanng dsted sprts, whch are ft for beverage purposes,
n customs bonded warehouse or mported nto the Unted States are sub|ect
to nterna revenue ta at the rate of per 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. (Sees. 2800 as amended, 3030 as amended,
3176, I. R. C.)
. Seo. 191.28. empton from stampng, markng, bottng, and abeng re-
qurements. The provsons of these reguatons reatng to the aff ng of red
strp stamps, the ndca requrements of contaners prescrbed by Reguatons
13 (26 CFR, Part 175). and the abeng of contaners as prescrbed by regua-
tons promugated under the Federa coho dmnstraton ct (27 CFR,
Part 5) are not appcabe to mported dsted sprts (a) not for sae or for
any other commerca purpose whatever; (6) for use as shp stores; or (e)
for persona use. Sampes of dsted sprts mported for any purpose are
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321
(Regs. 23.
not e empt from the stampng, markng, bottng, and abeng requrements.
emptons from the requrement that mported dsted sprts and wnes be
marked to ndcate the country of orgn are set forth n customs reguatons
(19 CFR, Part 9.10). (Sees. 2803, 2871, 3176, I. R. C.)
Sec. 191.35. (6) Dverson of sprts to other than specfed port. In the
event of dverson of a or part of the sprts to a port or ports other than the
port specfed n Form 1627 fed wth the Form 28, the mporter sha submt
a suppementa statement n dupcate on Form 1627 , ppcaton for Dver-
son of Red Strp Stamps for Imported Dsted Sprts, for each such port.
e sha submt them to the coector of customs who approved the Form 28,
who w retan the copy and transmt the orgna to the coector of customs
at the desgnated port. Where a warehouse or consumpton entry s fed at a
specfed port other than the port where the requston was approved, the
coector of customs of the port at whch the warehouse or consumpton entry
s fed w prompty notfy, on Form 1627 , the coector of customs who
approved the Form 28 of the number and denomnaton of stamps shown by
the usua customs e amnaton to have been attached to the contaners. The
coector of customs who approved the requston w credt the Form 28
accordngy. e w stamp on the copy of Form 1C27 Strp stamps credted,
and send the copy to the mporter who fed the appcaton. Such mporter
may then take credt for the stamps on Form 96. Such dverted sprts may
not be reeased from customs custody unt Form 1627 has been receved at
the port of dverson or the coector of customs who approved Form 28 has
authorzed such reease. (Sees. 2803, 3176, I. R. C.)
Sec. 191.55. Monthy report, Parts II and III, Form 96. t the cose of the
month, mporters sha prepare Parts II and III of Form 96, n trpcate, report-
ng on Part II the red strp stamps purchased and used durng the month, and
on Part III the stamps shpped abroad to mporters agents. Two copes sha
be forwarded, on or before the 10th day of the succeedng month, to the dstrct
supervsor, coho Ta Unt, n charge of the dstrct n whch the busness of
the mporter s conducted. One copy sha be retaned n bound form wth the
mporter s copes of Part I, Form 96, for the same month, avaabe for nspec-
ton by Government offcers. (Sees. 2803, 3176,1. R. O.)
Guy T. everng,
Commssoner of Interned Revenue.
W. R. ohnson,
Commssoner of Customs.
pproved anuary 7, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster anuary 7, 19 2, 3. 8 p. m.)
Reguatons 23. 19 2-19-11092
T. D.51 6
TITL 26 INT RN L R NU C PT R I, SU C PT R C, P RT 181.
STILLS ND DISTILLING PP R TUS.
mendng Reguatons 23.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
Pursuant to the provsons of secton 3250(|) (3), Interna Revenue
Code, sectons 181.23 and 181.25 of Reguatons 23 (20 CFR, Part 181)
are hereby amended to read as foows:
Sec. 181.23 Devery of shpment; h of adng. The manufacturer, upon
reease of a shpment of sts for e port w dever such shpment as foows:
(a) If the pace of manufacture s ocated at the port of e portaton he sha
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Regs. 28.
322
dever the shpment drecty for customs nspecton and supervson of adng.
The drawback entry, Form 1610, must be fed wth the coector of customs
at east s hours pror to the adng of the sts n order to aow opportunty
for customs nspecton. The e porter must fe a copy of the e port b of
adng wth the coector of nterna revenue of the dstrct n whc the pace
of manufacture s ocated, for attachment to the copy of Form 1610 retaned
by hm. The b of adng must show the e porter as the shpper, the manu-
facturer s sera numbers of the sts, and the number of sts contaned n
the shpment
(6) If the pace of manufacture s ocated esewhere than at the port of
e portaton he sha dever the shpment ether drecty for customs nspecton
and supervson of adng or to a common carrer for transportaton to the
port of e port. The e porter sha transmt a copy of the b of adng cover-
ng such transportaton and a copy of the e port b of adng to the coector
of nterna revenue, for attachment to the copy of Form 1610 retaned by hm.
In case of e portaton through a border port to contguous foregn terrtory
the b of adng w show the routng, partcuary the carrer whch w
dever the shpment for customs nspecton at the border port, and w cover
transportaton to the foregn destnaton: Provded, That where a through
b of adng s not obtanabe, separate bs of adng coverng the shpment
from the pace of manufacture to the border port and from the border port to
the foregn destnaton w be procured. The b of adng w aso show
hat the shpment was sent n care of the coector of customs or the deputy
coector of customs at the border port. One copy of the through b of adng
or of each of the separate bs of adng, as the case may be, w be trans-
mtted by the e porter or hs agent mmedatey by etter to the coector of
Interna revenue, for attachment to the copy of Form 1610 retaned by hm.
(Sec. 3250( ) (3), I. R. C.)
Sec. 181.25. Certfcate of e portaton. fter nspecton and adng and cear-
ance for a foregn port of the vesse or car on whch the sts descrbed n the
entry are aden, the coector of customs w e ecute the certfcate of e porta-
ton on each copy of the cam and entry, Form 1610. e w retan one copy
of the form for hs entry record and w transmt the remanng two copes
to the coector of nterna revenue for the dstrct from whch the sts were
shpped. (Sec. 3250(|) (3), I. R. C.)
Guy T. everno,
Commssoner of Interna Revenue.
pproved May 6,19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 7, 19 2, 3. 1 p. m.)
Reguatons 28. 19 2-19-11093
T. D. 51 7
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 178.
DR W C ON DISTILL D SPIRITS ND WIN S.
mendng Reguatons 28.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
Pursuant to the provsons of sectons 3176, 3179(b), Interna Rev-
enue Code; and sectons 309 (a), (b), (c), (d) and313() of the Tarff
ct of 1930 (19 U. S. C., Sup. , 1309 (a), (b), (c), (d) and 1313()),
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323
Regs. 28.
sectons 176. 9 and 176.50 of Reguatons 28 (26 CFR, Part 176) are
hereby amended to read as foows:
Se . 176. 9. Drect devery (or customs nspecton. (a) of adng. If
the e port storage room where the botted sprts or wnes are stored Is ocated
at the port of e portaton, the e porter sha dever the shpment drecty for
customs nspecton and supervson of adng. The drawback entry must be fed
wth the coector of customs at east s hours pror to the adng of the sprts
or wnes n order to aow opportunty for customs nspecton. The e porter must
fe a copy of the e port b of adng wth the dstrct supervsor. The b of
adng must show the e porter as the shpper, the sera numbers of the cases,
and the quantty shpped n wne gaons.
(6) Recept coverng suppes on vesses or arcraft. If the sprts or wnes
on whch drawback Is camed are for use as suppes on vesses or arcraft, a
recept coverng the sprts or wnes showng the marks, numbers, and quantty,
sgned by the master or an authorzed offcer of the vesse or steamshp company,
n the case of shp s suppes, or by an authorzed offcer of the arcraft or ar
ne company, n the case of suppes for arcraft, w be fed wth the dstrct
supervsor, n eu of an e port b of adng. (Sees. 3176, 3179(b), I. R. C.;
and Sees. 309 (a), (b), (c), (d) and 313(), Tarff ct of 1930 (19 U. S. C, Sup.
, 1309 (a), (b), (c), (d) and 1313(1)).)
Sec. 176.50. Shpment to port of e port. (a) portaton by vesse. In the
event the e port storage room where the sprts or wnes are stored Is ocated
esewhere than at the port of e portaton, the e porter sha dever the shpment
ether drecty fo- customs nspecton and supervson of adng, as n the case
where sprts or wnes are stored at the port of e portaton, or to a common
carrer for transportaton to the port of e portaton. e sha forward a copy of
the transportaton b of adng and a copy of the e port b of adng to the
supervsor of the dstrct from whch the shpment was made, for attachment to
the copy of the cam and entry, Form 1582 or 1582- returned by the Government
offcer at the e port storage room.
(6) portaton through border port. In cast.1 of e portaton to contguous
foregn terrtory by ra through a border port, the b of adng w show the
routng, partcuary the carrer whch w dever the shpment for customs n-
specton at the border port, and w cover transportaton to the foregn destna-
ton : Provded, That where a through b of adng s not obtanabe, separate bs
of adng coverng the shpment from the e port storage room to the border port
and from the border port to the foregn destnaton w be procured. The b
of adng w aso show that the shpment was sent n care of the coector of
customs or the deputy coector of customs at the border port. copy of the
through b of adng, or copes of the separate bs of adng, as the case may
be, w be transmtted by the e porter or hs agent mmedatey by etter to the
supervsor of the dstrct from whch the sprts or wnes were reeased for e -
portaton. The dstrct supervsor w attach the copy of the b, or bs, of
adng to the copy of the cam and entry, Form 1582 or 1582- returned by the
Government offcer at the e port storage room. (Sees. 3176, 3179(b), I. R. C.; and
Sees. 309 (a), (b), (c), (d) and 313(1), Tarff ct of 1930 (19 T . S. C, Sup.
, 1309 (a), (b), (c), (d) and 1313(1)).)
Gut T. everng,
Commssoner of Interna Revenue.
pproved May 6, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 7, 19 2, 3. 1 p. m.)
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Msc.
32
19 2-5-10979
T. D. 5111
Producton, wthdrawa, etc., of dsted sprts of 160 degrees
or more of proof at regstered dsteres, frut dsteres, and
nterna revenue bonded warehouses.
Treasuht Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
The ct of anuary 2 , 19 2 (Pubc aw 12, Seventy-seventh
Congress), provdes as foows:
That secton 2883 of the Interna Revenue Code (reatng to transfer of
sprts at regstered dsteres) Is amended by addng at the end thereof the
foowng:
(c) Transfer of Sprts for Industra Uses. Dsted sprts of one
hundred and s ty degree of proof or greater may be wthdrawn from regs-
tered dsteres (ncudng regstered frut dsteres), and stored n and
wthdrawn from nterna-revenue bonded warehouses, pursuant to the appcabe
provsons of subsecton (a) : Provded, That such dsted sprts may aso
e wthdrawn wthout payment of ta from regstered dsteres (Incudng
regstered frut dsteres) and nterna-revenue bonded warehouses for a
the ta -free purposes authorzed by part II of subchapter C of ths chapter,
and when so wthdrawn sha be sub|ect to a appcabe provsons of such
part. Under such reguatons as the Commssoner may prescrbe, the manu-
facture, warehousng, wthdrawa, and shpment of dsted sprts of one
hundred and s ty degrees of proof or greater may be e empted from the pro-
vsons of secton 2836 and secton 2870. Ths subsecton sha cease to be n
effect upon the termnaton of the unmted natona emergency procamed
by the Presdent on May 27, 19 1.
Pursuant to the above provsons of aw and sectons 2883(a), 3102,
3105, 311 (a), and 3176, Interna Revenue Code, the foowng regua-
tons are hereby prescrbed:
1. Dsted sprts of 160 degrees or more of proof may be wth-
drawn from regstered dsteres and frut dsteres, and may be
stored n and wthdrawn from nterna revenue bonded warehouses,
n accordance wth the provsons of Reguatons , 5, and 10, reatve
to the wthdrawa of sprts produced at a proof n e cess of 159
degrees and reduced n the recevng csterns to not more than 159
and not ess than 100 degrees of proof, pursuant to secton 2883(a),
I. R. C. Such sprts, when ta -pad, may be used for beverage pur-
poses ony.
2. Dsted sprts of 160 degrees or more of proof may aso be
wthdrawn wthout payment of ta from regstered dsteres, frut
dsteres, and nterna revenue bonded warehouses for the ta -free
purposes specfed n secton 3108, I. R. C, pursuant to wthdrawa
permts ssued to permttees whose basc permts authorze the pro-
curement of acoho free of ta . Wthdrawas sha be n accordance
wth the provsons of Reguatons , 5, and 10, reatve to the wth-
drawa of sprts produced at a proof n e cess of 159 degrees and
reduced n the recevng csterns to not more than 159 and not ess
than 100 degrees of proof, pursuant to secton 2883(a), I. R. C, and
wth the provsons of Reguatons 3 reatve to the wthdrawa of
acoho for such purposes.
3. Permttees whose basc permts (Forms 1 33, 1 , and 1 7)
authorze the procurement of acoho free of ta and who desre
to procure dsted sprts of 160 degrees or more of proof from
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325
regstered dsteres, frut dsteres, and nterna revenue bonded
warehouses, shoud fe appcaton on Form 1 31, 1 , or 1 7 wth
the dstrct supervsor for amendment of ther basc permts to au-
thorze the procurement of such dsted sprts. The permttee
must aso fe consent of surety, Form 1533, on hs bond, Form 1 32- ,
1 62, or 1 8 (f any), e tendng the terms thereof to cover such
dsted sprts. The consent of surety sha be n substantay the
foowng form:
To e tend the terms of sad bond to be abe for dsted sprts of 160
degrees or more of proof wthdrawn free of ta by the prncpa from regstered
dsteres, frut dsteres, and nterna revenue bonded warehouses, pursuant
to secton 2883(c), I. R. C., and reguatons, to the same e tent as acoho
wthdrawn free of ta from ndustra acoho pants and bonded warehouses.
. Such permttees, when fng appcatons on Form 1 , 1 9,
or 1 63, for wthdrawa permts to procure such dsted sprts,
sha modfy such forms to specfy dsted sprts, n addton to
acoho, and wthdrawa from a regstered dstery, frut dstery,
or nterna revenue bonded warehouse, as the case may be, n addton
to an ndustra acoho pant, bonded warehouse, or denaturng pant.
Dstrct supervsors w modfy Forms 1 , 1 50, 1 6 , and 1 65
kewse when ssung wthdrawa permts on such forms to procure
such dsted sprts. Such appcatons sha be fed, and wth-
drawa permts w be ssued, n accordance wth the provsons of
Reguatons 3 reatve thereto.
5. Carrers desrng to transport dsted sprts of 160 degrees
or more of proof wthdrawn free of ta under these reguatons, must
procure permt so to do, n accordance wth secton 311 , I. R. C.,
and Reguatons 3. Where bond, Form 9, s requred to support
such permt, the bond sha be modfed to cover such ta -free ds-
ted sprts, n addton to ta -free acoho. Carrers, who hod
permt to transport ta -free acoho and who desre to transport
such ta -free dsted sprts, must fe appcaton on Form 1 for
amendment of ther permts, Form 1 5, to authorze the transporta-
ton of such ta -free dsted sprts, and where such permts are
supported by bond, Form 9, the carrer must fe consent of surety,
Form 1533, on hs bond, e tendng the terms thereof to cover such
ta -free dsted sprts. The consent of surety sha be n sub-
stantay the foowng form:
To e tend the terms of sad bond to be abe for ta -free dsted sprts
of 1G0 degrees or more of proof transported by hm, to the same e tent as
ta -free acoho transported by hm.
6. Such dsted sprts of 160 degrees or more of proof sha be
marked Dsted Sprts as to knd, foowed by the name of the
matera from whch produced, as Dsted Sprts Gran,
Dsted Sprts Frut, or Dsted Sprts Cane. Sprts of
160 degrees or more of proof produced at frut dsteres and marked
as to knd n accordance wth the Gaugng Manua at the tme of pro-
ducton, may be wthdrawn free of ta as specfed heren, provded the
sprts have not been coored wth carame, by storage n wooden con-
taners, use of oak chps, or otherwse, and the knd of sprts marked
on the contaners s effaced and the contaners re-marked Dsted
Sprts Frut pror to remova. The contaners of such dsted
sprts sha otherwse be marked n accordance wth the Gaugng
Manua and Reguatons , 5, and 10. When wthdrawn free of ta ,
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326
the purpose of wthdrawa sha be marked on the contaners n
accordance wth Reguatons 3.
7. The producton, wthdrawa, accountng, etc., of such dsted
sprts at regstered dsteres, frut dsteres, and nterna revenue
bonded warehouses sha be n accordance wth Reguatons ,5, and 10,
and the transportaton, use, denaturaton, accountng, etc., of such
dsted sprts after wthdrawa for ta -free purposes sha be n
accordance wth Reguatons 3. Upon denaturaton such sprts w
be desgnated as Competey Denatured coho or Specay
Denatured coho, as the case may be, and wthdrawn as such from
the denaturng pant. When wthdrawn ta -pad, the sprts sha
be accounted for by the consgnee the same as other ta -pad sprts.
8. The aw provdes that the manufacture, warehousng, wth-
drawa, and shpment of such dsted sprts of 160 degrees or more
of proof may, for any of the authorzed purposes, be e empted from
the provsons of sectons 2836 and 2870, I. R. C. When t s desred
to mash or dst such sprts between 11 p. m. Saturday and 1 a. m.
Monday, or to warehouse, wthdraw, or shp (n packages contanng
more than 10 wne gaons) such sprts between sundown and sunrse,
or on Sunday, the propretor sha make appcaton, n dupcate, to
the dstrct supervsor for permsson so to do. The appcaton sha
specfy the dates and hours on whch t s desred to conduct such
operatons, the nature of the operatons, and the necessty for such
producton, warehousng, wthdrawa, or shpment. The appcaton
sha be fed n suffcent tme n advance of the tme of operaton
specfed n the appcaton to enabe the dstrct supervsor to de-
termne the necessty for such operatons, and, f he approves the
appcaton, to assgn an offcer to supervse the operatons where
deemed necessary. Dstrct supervsors w approve such appcatons
where necessty therefor s shown and Government offcers are ava-
abe for necessary supervson. Where t s desred to conduct such
operatons durng such hours reguary, the appcaton may be made,
and the permsson granted, accordngy.
9. No dsted sprts of ess than 160 degrees of proof may be
mashed or dsted between 11 p. m. Saturday and 1 a. m. Monday,
or warehoused, wthdrawn, or shpped (n packages contanng more
than 10 wne gaons) at a regstered dstery, frut dstery, or
nterna revenue bonded warehouse, between sundown and sunrose, or
on Sunday, pursuant to such permsson.
10. Propretors of regstered dsteres, frut dsteres, or nterna
revenue bonded warehouses, from whch dsted sprts of 160 degrees
or more of proof are wthdrawn under secton 2883(c), I. R. C, and
these reguatons, may estabsh denaturng pants n accordance wth
Reguatons 3.
11. These reguatons sha cease to be effectve upon the termnaton
of the unmted natona emergency procamed by the Presdent on
May 27, 19 1.
Norman D. Cann,
ctng Commssoner of Interna Revenue.
pproved anuary 2 , 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster anuary 27, 19 2, 11. a. m.)
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Msc.
19 2-1 -11053
T. D.5130
TITL 26 INT RN L R NU . C PT R I, P RT 186 G UGING M NU L.
mendng the Gaugng Manua.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Purusant to the provsons of sectons 2808 and 3176, Interna
Revenue Code, subparagraph (b) of paragraph 60 of the Gaugng
Manua, approved November 21,1938 (secton 186.60, Tte 26, CFR),
as amended by Treasury Decson 511Y, approved February 17, 19 2
page 328, ths uetn , s hereby further amended to read as foows:
Par. 60. (6) (1) Sprts hereafter dsted at or above 160 degrees and ess
than 190 degrees of proof, If not to be branded In accordance wth subpara-
graphs (6) ( ), (c), (d), (e), (f), and (g) hereof, and sprts hereafter dsted
at or above 190 degrees of proof sha be branded Sprts Gran, Sprts
Cane, or Sprts Frut : Provded, however. That
( ) If such sprts are to be used for the purposes authorzed by the
ct of anuary 2 , 19 2 (secton 2883(c), Interna Revenue Code) (ta -
pad for beverage purposes, or removed for ta -free purposes), they must
have been wthdrawn from csterns at 160 degrees or more of proof.
( ) If such sprts are dsted from frut and are ntended for the
fortfcaton of wnes, the words Sprts Frut sha be foowed by the
name of the frut from whch produced.
(2) If sprts are branded n accordance wth subparagraphs (6) (1) ( ) and
(f), they may be used for beverage and ta -pad nonbeverage purposes ony;
and f branded n accordance wth subparagraphs (c), (d), (e), and (g), they
may be used for beverage purposes ony, e cept that If they are dsted beow
160 degrees of proof, they may be used for beverage and ta -pad nonbeverage
purposes: Provded, That sprts branded n accordance wth subparagraphs
(6)(1)( ) and f), f not ess than 160 degrees of proof, may aso be wth-
drawn for the ta -free purposes authorzed by the ct of anuary 2 , 19 2
(secton 2883(c), Interna Revenue Code), f rebranded Sprts Frut.
(3) If sprts of any proof ess than 190 degrees are so dsted or so
treated n the process of dstaton as to ack the taste, aroma, and other
characterstcs of whsky, brandy, rum, or other potabe beverage sprts, they
sha be branded Sprts Gran, Sprts Cane, or Sprts Frut, as
the case may be, foowed by the word Processed : Provded, however, That
( ) If such sprts are reduced to 159 degrees or ess of proof, they
may be wthdrawn from csterns for beverage purposes, e cept that
Sprts Frut Processed may be wthdrawn at any proof for beverage
and ta -pad nonbeverage purposes.
( ) If such sprts are dsted at 160 degrees or ess of proof, they
may be wthdrawn for beverage and ta -pad nonbeverage purposes.
(C) If such sprts are wthdrawn from csterns at 160 degrees or more
of proof, they may be wthdrawn for the purposes authorzed by the ct
of anuary 2 . 19 2 (secton 2883(c), Interna Revenue Code), e cept that
Sprts Frut Processed may aso be wthdrawn for ta -pad non-
beverage purposes.
(D) Snoh sprts of any proof may be removed under the ct of March
27, 19 2 (secton 2883(d), Interna Revenue Code), for redstaton.
( ) sprts hereafter removed from csterns at any proof, under the ct
of March 27, 19 2 (secton 2883(d), Interna Revenue Code), for redstaton
sha be branded Unfnshed sprts Gran, Unfnshed sprts Cane, or
Unfnshed sprts Frut.
(5) When sprts whch were removed to dsteres or nterna revenue
bonded warehouses for redstaton are wthdrawn for beverage or ta -free
purposes, pursuant to the ct of March 27, 19 2 (secton 2883(d), Interna
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328
Revenue Code), they sha be branded Sprts Gran, Sprts Cane, or
Sprts Frut : Provded, however, That
( ) Such sprts sha be redsted to or be wthdrawn from an nterna
revenue bonded warehouse wthout redstaton at not ess than 160 degrees
of proof.
( ) Sprts dsted from frut f wthdrawn for beverage or ta -pad
nonbeverage purposes, sha be branded In accordance wth subparagraphs
(6)(1)( ) and (/).
(C) When gran, cane, or frut sprts are m ed wth each other pror
to wthdrawa or redstaton, the produce sha be branded Sprts.
(6) When sprts whch were transfered to acoho pants or bonded ware-
houses for redstaton are redsted to 160 degrees or more of proof, or are
wthdrawn from an acoho bonded warehouse wthout redstaton by vrtue
of beng 160 degrees or more of proof, such sprts sha be branded coho.
Ths reguaton sha cease to be effectve upon termnaton of the
unmted natona emergency procamed by the Presdent on May
27, 19 1.
Gut T. everng,
Commssoner of Interna Revenue.
pproved pr 1, 19 2,
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster pr 2, 19 2, 11. 6 a. m.)
19 2-8-11000
T. D. 5117
TITL 2ft INT RN L R NU . C PT R I, P RT 186. G UGING M NU L.
mendng the Gaugng Manua.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Dstrct Supervsors and Others Concerned:
y vrtue of and pursuant to the provsons of sectons 2208 and
3176, Interna Revenue Code, subparagraph (6), paragraph 60 of the
Gaugng Manua, approved November 21, 1938 (secton 186.60( ),
Tte 26, C. F. R.), s hereby amended to read as foows:
Far. 60. (6) sprts dsted at or above 190 degrees of proof sha be
branded neutra sprts, foowed by a word or phrase descrptve of the
matera from whch dsted. sprts dsted durng the perod of the
unmted natona emergency procamed by the Presdent on May 27, 19 1, at
ess than 190 degrees of proof and not ess than 160 degrees of proof, from gran,
and whch are so treated n the process of dstaton as to ack the taste, aroma,
and other characterstcs of whsky, sha aso be branded neutra sprts,
foowed by a word or phrase descrptve of the matera from whch dsted.
Such brandng sha be n the foowng form: Neutra Sprts Gran, Neutra
Sprts Cane, or Neutra Sprts Frut, etc. In the case of frut neutra
sprts produced for fortfcaton, the words Neutra Sprts Frut branded
on the package w be foowed by the the name of the frut from whch produced.
Norman D. Cann,
ctng Commssoner of Interna Revenue.
pproved February 17, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster February 18, 19 2, 11.5 a. m.)
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Msc.
Gaugng Manua. 19 2-19-11089
T. D.51 0
TITL 26 INT RN L R NU . C PT R I. P RT 186. G UGING M NU L
mendng the Gaugng Manua.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
y vrtue of and pursuant to the provsons of secton 2901 (a), Inter-
na Revenue Code, as amended by the ct approved pr 8, 19 2
(Pubc aw 519. Seventy-seventh Congress), paragraph 107 of the
Gaugng Manua, approved November 21, 1938, s hereby amended to
read as foows:
Pab. 107. On and after pr 9, 19 2, f, upon regauge of packages of sprts for
wthdrawa from nterna revenue bonded warehouse, t sha appear that there
has been a oss of sprts by eakage or evaporaton from any package, wthout
the faut or neggence of the dster or propretor of the warehouse, aowance
for the oss actuay sustaned w be made to the e tent authorzed by secton
2901(a), Interna Revenue Code, as amended, and as set forth n the foowng
schedue, for the perod.the sprts have been n warehouse. Losses n e cess of
such quantty must be ta -pad. The perod for whch aowance of osses w
be made begns to run from the date of orgna gauge as to frut brandy, and the
date of orgna entry nto warehouse as to other sprts.
Schedue of aowances for oss by eakage and evaporaton.
Perod of stora
e n warehouse.
Ma mum aow-
ance casks of 0
Perod ot storage n warehouse.
Ma mum aow-
ance casks of 0
More than
Not more
than
wne gaons
capacty or more.
More than
Not more
than
wne gaons
capacty or more.
Mantht.
Month .
Proof gaon .
Month .
Month .
Proof gaon .
2
1. 5
2
5
10. 5
2

2. 5
5
8
11.0

6
3. 0
8
51
11. 5
6
8
3. 5
51
5
12. 0
8
10
. 0
5
57
12. 5
10
12
. 5
57
60
13. 0
12
1
5. 0
60
63
13. 5
1
16
5. 5
63
66
1 . 0
16
18
6. 0
66
69
1 . 5
18
21
6. 5
69
72
15. 0
21
2
7. 0
72
75
15. 5
2
27
7. 5
75
78
16. 0
27
30
8. 0
78
81
16. 5
30
33
8. 5
81
8
17. 0
33
36
9. 0
8
90
17. 5
36
39
9. 5
90
a 0
39
2
10. 0
(a) The foregong aowance sha not appy to dsted sprts whch on uy
26. 1936, were 8 years of age, or oder, and whch on that date were n bonded
warehouses.
Guy T. evernq,
Commssoner of Interna Revenue.
pproved pr 30, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 1, 19 2, 5.03 p. m.)
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330
19 2-10-11018
T. D. 5121
TITL 2ft INT RN L R NU . C PT R I, SU C PT R C. P RT 171,
SU P RT .
Transportaton of dst d sprts, acoho, and specay denatured
acoho by tank trucks.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. ,
To Dstrct Supervsors and Others Concerned:
y vrtue of secton 3108(a), 312 (a) (6), and 3176, Interna Reve-
nue Code, and the ct of anuary 2 , 19 2 (Pubc aw 12, Seventy-
seventh Congress), the foowng reguatons are prescrbed:
Sec. 171. 0. Genera. Sub|ect to the condtons prescrbed here-
nafter, dsted sprts, acoho, and specay denatured acoho de-
scrbed beow may be transported n tank trucks owned and operated
by the consgnor or the consgnee, or by a motor carrer. The term
motor carrer sha mean a motor carrer censed under the Motor
Carrer ct of 1935, or an appcabe State aw.
(1) Dsted sprts of 160 degrees or more of proof:
(a) Wthdrawn from a regstered dstery, frut dstery, or an
nterna revenue bonded warehouse, pursuant to wthdrawa permts
on Form 1 (Dsted Sprts) ssued to the Unted States or any
governmenta agency thereof, for use at arsenas, muntons pants,
ordnance depots, and smar paces; or
(6) Transferred n bond from a regstered dstery, frut ds-
tery, or an nterna revenue bonded warehouse to a denaturng
pant.
(2) coho produced under the provsons of Part II, Subchapter
C, Chapter 26, Interna Revenue Code:
(a) Wthdrawn from an ndustra acoho pant, or an acoho
bonded warehouse, pursuant to wthdrawa permts on Form 1
ssued to the Unted States or any governmenta agency thereof, for
use at arsenas, muntons pants, ordnance depots, and smar paces;
or
(b) Transferred n bond between ndustra acoho pants, acoho
bonded warehouses, and denaturng pants pursuant to wthdrawa
permts, Forms 1 36, 1 38, 1 6 , or 1 65.
(3) Specay denatured acoho wthdrawn from denaturng pants
pursuant to wthdrawa permts, Forms 1 77, 1 85, or 1 86, for use at
powder pants, arsenas, muntons pants, and smar paces. (Sees.
3108(a), 312 (a)(6), 3176, I. R. C, ct of anuary 2 , 19 2.)
Sec. 171. 1. Permts and bonds. (a) New carrers. Motor car-
rers, n order to transport specay denatured acoho, ta -free aco-
ho, and ta -free dsted sprts, or any one of such products, by tank
trucks, must procure permts so to do, n accordance wth secton 311 ,
Interna Revenue Code, and Reguatons 3 (26 CFR, Part 182), and fe
bond, Form 9. The terms of the bond sha be modfed to cover ds-
ted sprts of 160 degrees or more of proof wthdrawn for ta -free
urposes, n addton to ta -free and denatured acoho, and sha
e n the pena sum of 50,000 for each tank truck used, and not more
than 200,000 for the tota of a tank trucks used- Where such permt
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331
Msc.
s obtaned and bond s fed, the permt w aso authorze transpor-
taton of such products n barres or drums wthout addtona bond
requrement.
(b) Transportaton by consgnors or consgnees. consgnor or
consgnee, n order to transport n tank trucks dsted sprts, acoho,
and specay denatured acoho descrbed n secton 171. 0, must fe
appcaton on Form 1 and procure permt, Form 1 5, authorzng
such transportaton, and fe consent of surety, Form 1533, on hs
bond, Form 30,30y2, 1571,1 32- , or 1 80, as the case may be, e tend-
ng the terms thereof to be abe for such dsted sprts, acoho, or
specay denatured acoho transported by hm, as foows:
(1) In the case of ta -free acoho and dsted sprts, the bond,
Form 30, 30 2, 1571, or 1 32- , sha be e tended to be abe for
an amount equa to the ta , together wth nterest, f such acoho
or dsted sprts are transported, used, or sod contrary to aw or
reguatons now or hereafter n force.
(2) In the case of specay denatured acoho, bond, Form 1 32-
or 1 80, sha be e tended to be abe for the ta , together wth
penates and nterest, on a specay denatured acoho wthdrawn,
transported, used, or sod n voaton of aws or reguatons now
or hereafter n force.
If the ma mum of the present bond s not suffcent when computed
as set forth n subsecton (a), the consent of surety (or a new bond
n eu thereof) must assume the addtona abty.
These requrements sha not appy where specay denatured a-
coho, ta -free acoho, or ta -free dsted sprts are wthdrawn
by the Unted States or any governmenta agency thereof and are
transported n tank trucks operated by empoyees of the Unted
States.
(c) Present permts and bonds. asc permts and bonds now
hed by motor carrers, and by consgnors and consgnees, whch
authorze the transportaton of ta -free acoho and specay de-
natured acoho, may, on appcaton and the fng of consents of
surety, be modfed to authorze tank truck shpments of specay
denatured acoho, ta -free acoho, and ta -free dsted sprts, and
to contan an undertakng to be abe for the ta , or an amount
equa to the ta , as provded n subdvson 1 or 2 of subsecton ( ),
as the case may be. The consent of surety (or, f preferred, a new
bond) must be modfed so that the prncpa and surety w be
responsbe to the e tent of 50,000 on each tank truck used, and
not more than 200,000 for the tota of a tank trucks used. (Sees.
3108(a), 312 (a) (6), 3176,1. . C, ct of anuary 2 ,19 2.)
Sec. 171. 2. Procedure. (a) Gaugng, fng, and abeng. Ds-
ted sprts, acoho, and specay denatured acoho transferred
by tank trucks w be shpped pursuant to the appcabe prov-
sons of Reguatons 3, , 5, and 10 (26 CFR, Parts 182, 183, 18 ,
and 185), concernng transfers n bond by tank cars, ncudng the
provsons reatng to gaugng, fng, and abeng.
(b) Data respectng carrer. The name of the carrer (censed
carrer, consgnor or consgnee), the State cense tag number of
the tank truck, the drver s name, the drver s permt number, and
the name of the State ssung such permt w be recorded by the
storekeeper-gauger or the propretor of the pant, as the case may
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332
be, on the appcabe Form 1520 or 1 0, and on Form 1 39, 1 53,
or 1 73, as the case may be. n e tra copy of Form 1 73 w be
prepared for use as provded n secton 7. 3. (Sees. 3108(a),
312 (a) (6), 3176.1. R. C, ct of anuary 2 , 19 2.)
Sec. 171. 3. Shpment. Tank trucks used for transportng the ds-
ted sprts, acoho, and specay denatured acoho, after fng,
sha be seaed by the storekeeper-gauger at the consgnor s premses
n such manner as w secure a openngs affordng access to the
tank. Seray-numbered cap seas furnshed by the Government w
be used for ths purpose. The number of the cap sea w be re-
corded on Form 1520, 1 0, or 1 68D, and on Form 1 39, 1 53, or
1 73, as the case may be. The storekeeper-gauger w pace the
Form 1 39, 1 53, or 1 73, as the case may be, n a seaed enveope
addressed to the consgnee, and gve the same to the drver of the
tank truck for devery to the consgnee. On recept at the con-
sgnee s premses, the consgnee w recept for the shpment, verfy
the nformaton shown on Form 1 39, 1 53, or 1 73, and note on
such form any dscrepances reatve to the shpment. The Form
1 39, 1 53, or 1 73 w be forwarded by the consgnee mmedatey
to the dstrct supervsor of the dstrct n whch the consgnor s
ocated. (Sees. 3108(a), 312 (a)(6), 3176, I. R. C, ct of anuary
2 ,19 2.)
Sec. 171. . cton oy dstrct supervsor. The dstrct supervsor
w check the forms day aganst the Form 1520 or 1 0, and, n the
case of specay denatured acoho, Form 1 73, and make any nqury
whch he deems necessary wth respect to any dscrepancy. In the
event of faure to receve Form 1 39,1 53, or 1 73 from the consgnee
wthn the tme normay requred for the truck to make the shpment
and the form to be sent by ma, the dstrct supervsor w aso make
an approprate nvestgaton. (Sees. 3108(a), 312 (a)(6), 3176,
I. R. C, ct of anuary 2 ,19 2.)
Sec. 171. 5. ccountng. The dsted sprts, acoho, and specay
denatured acoho shpped, transported, and receved under these reg-
uatons w be accounted for n accordance wth the appcabe pro-
vsons of Reguatons 3, , 5, and 10, and Treasury Decson 5111
page 32 , ths uetn . reatng to shpments by tank cars. (Sees.
3108(a), 312 (a) (6), 3176,1. R. C., ct of anuary 2 , 19 2.)
Sec. 171. 6. Termnaton of reguatons. These reguatons sha
cease to be effectve upon the termnaton of the unmted natona
emergency procamed by the Presdent on May 27, 19 1. (Sees.
3108(a), 312 (a) (6), 3176.1. R. C, ct of anuary 2 ,19 2.)
Norman D. Cann,
ctng Commssoner of Interna Revenue.
pproved February 26,19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 2, 19 2, 3. 1 p. m.)
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19 2-1 -11050
T. D. 5132
TITL 20 INT RN L R NU . C PT R I, SU C PT R C, P RT 171,
SU P RT I.
Producton, remova, etc., of unfnshed sprts for redstaton.
Treasury Department,
Offce op Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
The ct of March 27,19 2 provdes as foows:
That secton 2883 of the Interna Revenue Code (reatng to transfer
of sprts at regstered dsteres) e amended by addng at the end
thereof the foowng:
( /) Under reguatons to be prescrbed by the Commssoner and
approved by the Secretary, dsted sprts of any proof may be removed
n approved contaners, ncudng ppe nes, from any regstered dstery
(ncudng regstered frut dsteres) or nterna revenue bonded ware-
house to any other regstered dstery (ncudng regstered frut ds-
teres) or nterna revenue bonded warehouse for redstaton and
remova as provded n (c) : Provded, That n ease of removas of ds-
ted sprts to any regstered dstery (ncudng regstered frut ds-
teres) for redstaton, the recevng dster sha undertake to
assume abty for the payment of the ta on the sprts from the tme
tey eave the warehouse or dstery, as the case may be: Provded
further, That any such sprts of one hundred and s ty degrees of
proof or greater may be removed wthout redstaton from any nterna
revenue bonded warehouse as provded n (c) : Provded further. That
such sprts may be stored n tanks n any nterna revenue bonded ware-
house: Provded further. That ta es on dsted sprts removed under
the provsons of ths paragraph, ether before or after redstaton,
f such dsted sprts or any porton thereof are ost, sha be remtted
or refunded n the same manner and under the same condtons as the
ta on acoho woud be remtted or refunded under the provsons of
secton 3113 of the Interna Revenue Code: nd provded further, That
sectons 2836 and 2870 sha not appy to the producton and remova,
and such sectons and sectons 2800(a)(5) and 3250(f)(1) sha not
appy to the redstaton and remova, of such sprts.
(e) Transfeb of Spbts for Redstaton. Under reguatons to
be prescrbed by the Commssoner and approved by the Secretary, and
sub|ect to the provsons of part II of subchapter C of ths chapter,
sprts of any proof may, wthout payment of ta and n bond, be re-
moved n approved contaners, ncudng ppe nes, from regstered
dsteres (ncudng regstered frut dsteres) and nterna revenue
bonded warehouses to ndustra acoho bonded warehouses and ndus-
tra acoho pants for redstaton and remova for any ta -free pur-
pose, or upon payment of ta for any purpose, authorzed by sad part
II of subchapter C of ths chapter: Provded, That when the sprts are
so wthdrawn, the ta abty on the producng dster and the nterna
revenue bonded warehouseman, and the ens on the premses of the
producng dster sha cease, and the ta sha be the abty of, and
the ens sha be transferred to the warehouse or pant of, the acoho
bonded warehouseman or propretor of ndustra acoho pant to whom
the sprts are transferred: Provded, That any such sprts of one
hundred and s ty degrees of proof or greater, so removed and stored n
any acoho bonded warehouse, may be removed from such warehouse
wthout redstaton for any ta -free purpose, or upon payment of ta
for any purpose, so authorzed: nd provded further, That sectons
2S36 and 2870 sha not appy to the producton or remova of sprts of
any proof for such redstaton. Ths subsecton and subsecton (d)
sha cease to be n effect upon the termnaton of the unmted natona
emergency procamed by the Presdent on May 27, 1 1.
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33
Pursuant to the foregong and other provsons of aw reatng to
dsted sprts (ncudng acoho), the foowng reguatons are
hereby prescrbed:
Remova of Unfnshed Sprts to Otheh Dsteres and to Interna
Revenue onded Warehouses fob Redstaton.
Sec. 171.50. Genera. Dsted sprts of any proof may be removed n ap-
proved contaners, ncudng ppe nes, as herenafter provded, from any regs-
tered dstery, frut dstery, or nterna revenue bonded warehouse to any
other regstered dstery, frut dstery, or nterna revenue bonded warehouse
for redstaton and remova (1) upon ta -payment for beverage purposes ony,
or (2) for the ta -free purposes specfed n secton 3108,1. R. C. When removed
for such purposes after redstaton, the sprts sha be of a proof of not ess
than 160 degrees. Where the sprts are removed to an nterna revenue bonded
warehouse for redstaton and are of a proof of 160 degrees or more, the sprts
may be removed from the warehouse wthout redstaton (1) upon ta -payment
for beverage purposes ony, or (2) for the ta -free purposes specfed n secton
3108, I. R. C. (Sees. 2883(d), 3176, I. R. C.)
Sec. 171.51. Consent of surety. Form 1533. Propretors of regstered dst-
eres and frut dsteres In order to wthdraw unfnshed sprts for redsta-
ton from other regstered dsteres or frut dsteres, or from nterna
revenue bonded warehouses, sha fe consent of surety, Form 1533, on ther
dstery bond, Form 30 or 30 , as the case may be, e tendng the terms
thereof to assume abty for payment of the ta on the unfnshed sprts
from the tme they eave the premses of the dstery or warehouse from whch
they are removed. Where the dstery bond, Form 30 or 30 , s fed wthout
surety, supported by consent of surety on the dster s warehouse bond. Form
1571, the requred consent sha e tend the terms of both bonds to assume
such abty. Where the dstery bond, Form 30 or 30 , as the case
may be, s n ess than the ma mum pena sum and s nsuffcent to cover the
ta on the unfnshed sprts to be receved for redstaton, pus the quantty
of sprts that w be produced at the dstery durng a perod of 15 days,
a new or addtona bond n a suffcent pena sum sha be fed by the ds-
ter. The consent of surety sha be In substantay the foowng form:
To e tend the terms of sad bond to assume abty for the payment
of any ta that may become due on sprts removed for redstaton by
the prncpa from regstered dsteres, frut dsteres, and nterna
revenue bonded warehouses, pursuant to secton 2883(d), I. R. C, and
reguatons, from the tme the sprts eave the premses of the ds-
tery or warehouse from whch removed, ncudng the transportaton,
redstaton, storage, and dsposton, of the sprts as provded by aw
and reguatons.
(Sees. 2883(d), 3176, I. R. C.)
Sec. 171.52. pproved, contaners and tanks. Contaners used for the remova
for redstaton, storage, or wthdrawa for the purposes authorzed heren,
weghng tanks used for gaugng, tanks used for storage and ppe nes used
for remova for redstaton or wthdrawa as authorzed heren, of sprts
under ths reguaton, sha be those authorzed by, and sha conform as to
constructon, securty, markng, etc., to the provsons of, ths reguaton and
Reguatons , 5, and 10. (Sees. 2883 (a), (c), (d) 3176, I. R. C.)
Sec. 171.53. Remova by tank trucks. Sprts transferred between dsteres
and warehouses, ether before or after redstaton, as heren provded, may
be transported n tank trucks In accordance wth the rues and procedure
prescrbed n Treasury Decson 5121 page 330, ths uetn , whch are hereby
made appcabe to such transportaton. s provded n Treasury Decson 5121,
such sprts may be transported n tank trucks when wthdrawn after reds-
taton, or wthout redstaton from an nterna revenue bonded warehouse
by vrtue of beng 160 degrees or more of proof, pursuant to wthdrawa per-
mts on Form 1 (Dsted Sprts) ssued to the Unted States or any govern-
menta agency thereof for use at arsenas, muntons pants, ordnance depots,
and smar paces, or for transfer n bond to a denaturng uant. (Sees. 2883
(a), (c), (d), 3176, I. R C.)
Sec. 171.5 . Remova by ppe ne. Remova by ppene for redstaton or
for an authorzed ta pad or ta -free purpose may be made where the dst-
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335
ary, warehouse, or other premses to whch the sprts are transferred Is ocated
n the mmedate vcnty of the dstery or warehouse from whch the sprts
are removed, and such remova by ppe ne has been approved by the Comms-
fconer. Wthdrawa upon ta -payment for beverage purposes ony may be made
by ppe ne to rectfy pants and ta -pad bottng houses, n accordance wth
the rues and procedure prescrbed n Treasury Decson 5077 C. . 19 1-2, 33 1
for the transfer of sprts of not over 159 degrees of proof from regstered ds-
teres to rectfyng pants by ppe ne upon ta -pcyment. The Commssoner
w determne from a the crcumstances n each case whether the premses to
whch the sprts are to be transferred by ppe ne are In the mmedate vcnty
of the dstery or warehouse from whch the sprts are to be removed. The
rues and procedure proscrbed n Reguatons 3, , 5, and 10, reatve to the con-
structon, approva, and use of ppe nes for the transfer of sprts and acoho
between premses, sha be foowed, In so f r as appcabe, n the constructon,
approva, and use of ppe nes under ths reguaton. (Sees. 2883 (a), (c), (d),
3105, 3176, I. R. C.)
Sec. 171.55. Gaugng. When sprts are transferred by ppe nes between ds-
teres and warehouses, ether before or after redstaton, as heren provded,
the sprts sha be gauged In a weghng tank at the tme of transfer, ether n
the premses from whch the sprts are removed or n the premses to whch the
sprts are transferred, but the sprts need not be gauged In both premses:
Provded, That where nether of the premses Is equpped wth a weghng tank,
the sprts may be gauged by voume In accuratey cabrated tanks n ether of
the premses. When so transferred by tank cars or tank trucks, the sprts
must be gauged In a weghng tank In the shppng premses at the tme of
shpment and n the recevng premses at the tme of recept: Provded further,
That where the shppng or recevng promses, or both, are not equpped wth a
weghng tank, the sprts may be weghed on raroad car or tank truck scaes,
ocated on the bonded promses, by weghng the raroad car or tank truck, as
the case may be, both before and after fng or emptyng, or both, as the case
may be: nd provded further, That where the shppng or recevng premses,
or both, are not equpped wth a weghng tank, raroad car, or tank truck
scaes, the sprts may be gauged by voume n accuratey cabrated tanks be-
fore remova or after recept, or both, as the case may be. When sprts are
wthdrawn from dsteres or warehouses by ppe ne or by tank car for an
authorzed ta -pad or ta -free purpose, or by tank truck for an authorzed ta
free purpose, other than for use of the Unted States or for denaturaton, the
sprts must be gauged by weght n a weghng tank n each nstance. (Sees.
2808, 2883 (a), (c), (d), 3176 I. R. C.)
Sec. 171.56. arkng contaners. Unfnshed sprts removed from dsteres
for redstaton sha, regardess of proof, be desgnated and marked Unfn-
shed sprts as to knd, foowed by the name of the matera from whch pro-
duced as Unfnshed sprts Gran, Unfnshed sprts Frut, or Unfn-
shed sprts Cane. When such unfnshed sprts are removed to a warehouse
storage tank, pendng redstaton, the tank sha be smary marked. When
such sprts are wthdrawn from the warehouse wthout redstaton, by vrtue of
beng 100 degrees or more of proof, the desgnaton and markng of the sprts as
to knd sha be changed to conform to Treasury Decson 5130 (page 327, ths
uetn . Sprts marked and warehoused under other desgnatons as to knd
and whch are removed from the warehouse for redstaton under ths regua-
ton, sha be so removed under the orgna markngs. The term Unfnshed
sprts as used heren sha embrace such sprts. When redsted to 0 de-
grees or more of proof, a such sprts sha kewse be marked as to knd n
conformty wth Treasury Decson 5130. When sprts produced from gran,
frut, and cane are m ed as heren authorzed, such sprts sha, upon remova
for redstaton or wthdrawa for an authorzed purpose, be marked n con-
formty wth Treasury Decson 5130. When redsted, the name of the reds-
ter sha be shown as the dster of the sprts. When the sprts are wth-
drawn from warehouse wthout redstaton, by vrtue of beng 160 degrees or
more of proof, the name of the producng dster sha be shown as the dster
of the sprts: Provded, That where the sprts so wthdrawn wthout reds-
taton have been commnged n the warehouse wth sprts produced by other
dsters, the name of the warehouseman sha be substtuted for the name of the
producng dster. The contaners of such sprts, both before and after reds-
taton, sha otherwse be marked In accordance wth the Gaugng Manua and
Reguatons , 5, and 10.
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(a) Transfer marks. ach package, tank car, or tank truck of sprts shpped
for redstaton sha have attached to the Government head of the package, or
route board of the tank car, or some pace on the tank truck where t may ready
be e amned by Government offcers, a tag or abe showng that the sprts are
shpped for redstaton, and gvng the names, regstry numbers, and ocatons
of the shppng and recevng premses. Ths tag or abe sha be u substan-
tay the foowng form:
Unfnshed Sprts Gran
Shpped by
ohn Doe Co.
D. 100, Frankfort, y.
to
Rchard Roe Co.
D. 200, Lousve, y.
For Redstaton
(6) Ta -free wthdrawa marks. ach package of sprts wthdrawn for an
authorzed ta -free purpose sha have marked upon the Government head thereof
the purpose for whch wthdrawn and the number of the permt under whch the
sprts are wthdrawn, as For denaturaton, DP-302 or For use of US, US-
TF-71. When sprts are wthdrawn n tank curs or tank trucks for an author-
zed ta -free purpose as provded heren, there sha be attached to the route
board of the tank car or some pace on the tank truck where t may ready be
e amned by Government offcers, a tag or abe gvng the name, regstry number,
and ocaton of the shppng dstery or warehouse, and the name, ocaton, and
permt number of the consgnee. Ths tag or abe sha be n substantay the
foowng form:
Sprts Gran
Shpped by
ohn Doe Co.
D. 100, Frankfort, y.
to
U. S. Navy Yard
Washngton, D. C.
US-TF-71
(Sees. 2808, 2883 (a), (c), (d), 3105, 3108, 3176, I. R. C.; Sec. 5, 9 Stat., 981 (27
U. 8. C, Supp., 205(e)).)
Sec. 171.57. Storage n tanks. When unfnshed sprts are removed to another
dstery for redstaton, the sprts shoud be deposted n cosed, ocked tanks
n the recevng dstery. When so removed to another dstery n packages,
the contents of the packages shoud be dumped nto cosed, ocked tanks, pendng
redstaton. When such sprts are removed to an nterna revenue bonded
warehouse, ether before or after redstaton, they may be stored n the ware-
house n storage tanks or n the contaners n whch they are transferred to the
warehouse. Sprts transferred to dsteres or warehouses n packages, tank
cars, or tank trucks, or by ppe ne, ether before or after redstaton, may be
deposted n the same tanks. Sprts of dfferent proof, or produced from dfferent
materas, or produced by dfferent dsters, transferred to dsteres or ware-
houses, ether before or after redstaton, may be deposted n the same tanks
n the dstery or warehouse: Provded, That sprts produced from gran, cane,
and frut, so deposted n the same tank or otherwse m ed, together, ether be-
fore or after redstaton, may be wthdrawn ony for an authorzed ta -free pur-
pose or upon ta -payment for use n the manufacture of cordas, queurs, and
specates. Sprts may be wthdrawn from the same warehouse storage tank
for redstaton, or, f 160 degrees or more of proof, for the authorzed ta -pad
or ta -free purposes specfed heren. ddtona deposts may be made n a
storage tank, after removas have been made therefrom, wthout the necessty of
frst emptyng the tank. (Sees. 2883 (d), 3176, I. R. C.; Sec. 5, 9 Stat., 981 (27
U. S. C, Supp., 205 (e)).)
Sf.c 171.58. Redstaton. Unfnshed sprts removed for redstaton as
heren provded may be redsted separatey or wth other unfnshed sprts,
ncudng sprts of dfferent proof or produced from dfferent materas or pro-
duced by dfferent dsters: Provded. That where sprts produced from gran,
cane, and frut are redsted together, the redsted sprts may be wthdrawn
ony for an authorzed ta -free purpose, or upon ta -payment for use n the
manufacture of cordas, queurs, and specates. Unfnshed sprts so re-
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ta.
moved for redstaton may not be redsted wth sprts to be wthdrawn for
purposes other than those specfed heren. (Sees. 2883(d), 3176, I. R C.;
Sec. 5. 9 Stat., 981 (27 U. S. C, Supp. 205 (e)).)
Sec. 171.59. Defcences n redstaton. Defcences occurrng In the reds-
taton of unfnshed sprts under ths reguaton, w be treated as defcences
n the process of manufacture, the same as defcences occurrng durng the
process of manufacture or dstaton at the dstery at whch orgnay pro-
duced, and cams for remsson of ta on such defcences w not be requred.
Where the defcency s more than that usuay ascrbabe to redstaton,
proper nqury n respect thereto w be made by the storekeeper-gauger, and
e panatory statements reatve to the defcency w be made by both the ds-
ter and the storekeeper-gauger n the proper records. (Sees. 28.S3(d), 3176,
I. R. C.)
Sec. 171.60. uthorzed wthdrawas. Unfnshed sprts removed to another
dstery or to an nterna revenue bonded warehouse for redstaton, pursuant
to ths reguaton, may be wthdrawn after redstaton, or before redstaton
from a bonded warehouse f of 160 degrees or more of proof, ony for (1)
beverage purposes upon ta -payment, and (2) the ta -free purposes specfed
n secton 3108. I. R. C. (Sees. 2883 (a), (c), (d), 3105, 3108, 3176, I. R C.)
Sec. 171.61. Ta -free wthdrawas. The rues and procedure prescrbed n
Treasury Decson 5111 page 32 , ths uetn , reatve to the wthdrawa of
.sprts of 1(50 degrees or more of proof for the ta -free purposes specfed n sec-
ton 3108,1. R. C, pursuant to proper wthdrawa permts, and the amendment of
basc permts and wthdrawa permts to authorze such removas, ncudng
transportaton and use, are hereby made appcabe to sprts wthdrawn after
redstaton, or before redstaton from an nterna revenue bonded warehouse
by vtrtue of beng 160 degrees or more of proof, pursuant to secton 2883(d),
I. R. C, and ths reguaton. (Sees. 2883 (a), (c), (d), 3105, 3108, 311 (a),
3176, I. R. C.)
Sec. 171.62. Losses. (o) efore remova for redstaton Losses of sprts
produced or removed under ths reguaton, whch occur pror to remova for
redstaton, w be sub|ect to the provsons of Reguatons , 5, and 10, and
the Gaugng Manua. Therefore, when sprts, whch were not produced under
ths reguaton and were therefore not marked Unfnshed sprts at the tme
of producton and were not removed from the producng dstery for reds-
taton under ths reguaton, are removed from an nterna revenue bonded
warehouse for redstaton as authorzed heren, the sprts w be regauged In
accordance wth the Gaugng Manua and any osses dscosed by such regauge
w be aowed or ta -pad n accordance wth the provsons of the Gaugng
Manua and Reguatons 10 reatve to osses of sprts whe on storage n
nterna revenue bonded warehouses. Lkewse, when unfnshed sprts, pro-
duced under ths reguaton, are ost n the producng dstery before remova
therefrom for redstaton, the oss w be aowed or ta -pad n accordance
wth Reguatons and 5. Cams for remsson of ta on such osses w be
fed by the dster or warehouseman responsbe under hs bond for the sprts
at the tme of the oss.
(6) fter remova for redstaton. Losses of sprts removed for redst-
aton under ths reguaton, whch occur after remova for redstaton, ether
before or after such redstaton, or both, w be sub|ect to the provsons of
Reguatons 3 reatve to osses of acoho, whch reguatons are hereby made
appcabe to such osses. Therefore, osses of sprts, whch have been re-
moved from the producng dstery or from an nterna revenue bonded ware-
house for redstaton under ths reguaton, whch occur n an nterna revenue
bonded warehouse after such remova, ether before or after redstaton, or
both, w be ad|usted n accordance wth the provsons of Reguatons 3,
rather than Reguatons 10. Lkewse, osses of such sprts, whch occur after
remova for redstaton, durng transportaton to or from a dstery or
warehouse, ether before or after such redstaton, or both, w be ad|usted
n accordance wth the provsons of Reguatons 3. Cams for remsson
of ta on such osses w be fed by the dster or warehouseman responsbe
under hs bond for the sprts at the tme of the oss.
Sec. 171.63. Records. Sprts produced, removed for redstaton, redsted,
and wthdrawn for an authorzed purpose under ths reguaton, sha be re-
ported and accounted for n accordance wth the provsons of Reguatons ,
5, and 10. Remova of unfnshed sprts, for redstaton, to another dst-
ery, or to an Interna revenue bonded warehouse not operated by the dster
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338
on the same or contguous premses, or from an nterna revenue bonded ware-
house to a dstery not operated by the warehouseman on the same or con-
tguous premses, sha be made pursuant to approved Form 236, n accordance
wth the procedure prescrbed In Reguatons , 5, and 10: Provded, That the
dstrct supervsor sha not approve Form 236 authorzng such remova to a
dstery unt the propretor of such dstery has fed wth hm the consent
of surety requred by secton 171.51: Provded further, That such remova
from an Interna revenue bonded warehouse to a dstery operated by the
warehouseman on the same or contguous premses, for whch remova Form
236 s not requred, sha not be made unt the dstrct supervsor has advsed
the storekeeper-gauger n charge at the warehouse that the requred consent
of surety on the dstery bond has been fed wth hm. (Sees. 2883 (d), 3176,
I. R. C.)
Sec. 171.6 . Sunday and nghttme operatons. The aw provdes that, under
reguatons, sectons 2836 and 2870, I. R. C, sha not appy to the producton
and remova, and redstaton and remova, of sprts under secton 2883(d),
I. R. C. The rues and procedure prescrbed by Treasury Decson 5111 rea-
tve to the mashng and dstng of sprts of 160 degrees or more of proof
between 11 p. m. Saturday and 1 a. m. Monday, and the wthdrawa of such
sprts between sundown and sunrse or on Sunday, pursuant to secton 2883(c),
I. R. C., are hereby made appcabe to the producton, remova for redsta-
ton, redstaton, and wthdrawa of sprts pursuant to secton 2883(d),
1. R. C, and ths reguaton. (Sees. 2883(d), 3176, I. R. C.)
Sec. 171.65. empton from rectfcaton ta es. The aw provdes that sec-
tons 2800(a)(5) and 3250(f)(1), I. R. C, evyng commodty and occupatona
rectfcaton ta es, sha not appy to the redstaton of sprts under secton
2883 (d), I. R. C, and ths reguaton. (Sees. 2883 (d), 3176, I. R. C.)
Sec. 171.66. stabshment of denaturng pants. Propretors of regstered
dsteres, frut dsteres, or nterna revenue bonded warehouses, from
whch dsted sprts of 160 degrees or more of proof are wthdrawn under
secton 2883(d), I. R. 0., and ths reguaton, may estabsh denaturng pants
n accordance wth Reguatons 3. (Sees. 3102, 3105, 3176, I. R. C.)
Remova of Unfnshed Sprts to Industra coho Pants and Industra
coho onded Warehouses for Redstaton.
Sec. 171.67. Genera. Dsted sprts of any proof may aso be removed n
approved contaners or by ppe ne, as herenafter provded, from any regstered
dstery, frut dstery, or nterna revenue bonded warehouse to any In-
dustra acoho pant or ndustra acoho bonded warehouse for redstaton
and remova (1) for the ta -free purposes specfed n secton 3108, I. R. C,
or (2) upon ta -payment for any authorzed purpose. When removed for such
purposes after redstaton, the sprts must be of a proof of not ess than
160 degrees. Where the sprts are removed to an ndustra acoho bonded
warehouse for redstaton and are of a proof of 160 degrees or more, the
sprts may be removed from the warehouse wthout redstaton for any
awfu ta -free or ta -pad purpose for whch acoho may be wthdrawn.
(Sees. 2883(e), 3105, 3108, 3176, I. R C.)
Sec. 171.68. Ta es and ens. Secton 2883(e), I. R. C, provdes that when
sprts are removed from regstered dsteres, frut dsteres, and nterna
revenue bonded warehouses, for transfer to ndustra acoho pants and
ndustra acoho bonded warehouses for redstaton, the ta abty on
the producng dster and the Interna revenue bonded warehouseman, and
the ens on the premses of the producng dster, sha cease, and the ta
sha be the abty of, and the ens sha be transferred to the warehouse
or pant of, the acoho bonded warehouseman or propretor of the Industra
acoho pant to whch the sprts are transferred. (Sec. 3176. I. R. C.)
Sec. 171.69. Consent of surety, Form 15SS. Propretors of acoho pants and
acoho warehouses n order to wthdraw unfnshed sprts for redstaton
from regstered dsteres, frut dsteres, or nterna revenue bonded ware-
houses, sha fe consent of surety, Form 1533, on ther bonds. Form 1 32-
or 1 35, e tendng the terms thereof to assume abty for payment of the
ta on the unfnshed sprts from the tme they eave the premses of the
dstery or warehouse from whch they are removed. The consent of surety
sha be n substantay the foowng form:
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To e tend the terms of sad bond to assume abty for the payment of
any ta that may become due on sprts removed for redstaton by the
prncpa from regstered dsteres, frut dsteres, nnd nterna revenue
bonded warehouses, pursuant to secton 2883(e), I. R. C, and reguatons,
from the tme the sprts eave the premses of the dstery or warehouse
from whch removed, ncudng the transportaton, redstaton, storage,
and dsposton, of the sprts as provded by aw and reguatons.
(Sees. 2883(e), 3105,3176,1. R. C.)
Sec. 171.70. Permts. Propretors of acoho pants and acoho warehouses n
order to wthdraw unfnshed sprts for redstaton from regstered ds-
teres, frut dsteres, and nterna revenue bonded warehouses, must fe
appcaton on Form 1 31 wth the dstrct supervsor of ther dstrct for
amendment of ther basc permts, Form 1 33, to authorze the procurement
of such unfnshed sprts. ppcaton for wthdrawa permt shoud be made
on Form 1 37, propery modfed, for remova ether to the acoho pant or
the acoho warehouse. Dstrct supervsors n ssung wthdrawa permts on
Forms 1 36 and 1 38 w modfy such forms to specfy Unfnshed sprts
and wthdrawa from a regstered dstery, frut dstery, or nterna revenue
bonded warehouse. When removas are to be made to acoho pants, the wth-
drawa permt w be modfed accordngy. Unfnshed sprts may be shpped
from regstered dsteres, frut dsteres, and nterna revenue bonded ware-
houses to acoho pants and acoho warehouses, ony pursuant to and upon
recept of proper wthdrawa permt on Form 1 36 or 1 38 authorzng such
shpment, n accordance wth the procedure prescrbed In Reguatons 3. (Sees.
2883 (e), 3105,311 (a), 3176,1. R. C.)
Sec. 171.71. pproved contaners and tanks. Contaners used for the remova
for redstaton, storage, or wthdrawa for the purposes authorzed heren,
weghng tanks used for gaugng, tanks used for storage, and ppe nes used
for remova tor redstaton or wthdrawa as authorzed heren, of sprts
under ths reguaton, sha be those authorzed by and sha conform as to
constructon, securty, markng, etc., to the provsons of, ths reguaton and
Reguatons3, ,5, and 10. (Sees. 2883(e), 3176,1. R. C.)
Sec. 171.72. Remova by tank trucks. Sprts transferred between dsteres,
acoho pants, and warehouses, ether before or after redstaton, as heren
provded, may be transported n tank trucks n accordance wth the rues and
procedure prescrbed n Treasury Decson 5121, whch are hereby made app-
cabe to such transportaton. s provded n Treasury Decson 5121, such
sprts may be transported n tank trucks when wthdrawn after redstaton,
or wthout redstaton from an ndustra acoho bonded warehouse by vrtue
of beng 160 degrees or more of proof, pursuant to wthdrawa permts on
Form 1 ssued to the Unted States or any governmenta agency thereof for
use at arsenas, munton pants, ordnance depots, and smar paces, or for
transfer n bond to a bonded warehouse or denaturng pant. (Sees. 2883(e),
3105, 3108, 312 (a) (2), 3176,1. R. O.)
Sec. 171.73. Remova by ppe ne. Remova by ppe ne for redstaton or
for an authorzed ta -pad or ta -free purpose may be made where the acoho
pant, warehouse, or other premses to whch the sprts are transferred Is
ocated n the mmedate vcnty of the dstery, acoho pant, or warehouse
from whch the sprts are removed, and such remova by ppe ne has been
approved by the Commssoner. Wthdrawa upon ta -payment may be made
by ppe ne to rectfyng pants and ta -pad bottng houses, n accordance
wth the rues and procedure prescrbed In Treasury Decson 5076 C. . 19 1-2,
358 for the transfer of acoho to rectfyng pants by ppe ne upon
ta -payment. The Commssoner w determne from a the crcumstances
n each case whether the premses to whch the sprts are to be transferred
by ppe ne are In the mmedate vcnty of the dstery or warehouse from
whch the sprts are to be removed. The rues and procedure prescrbed n
Reguatons 3, , 5, and 10, reatve to the constructon, approva, and use
of ppe nes for the transfer of sprts and acoho between premses, sha be
foowed, n so far as appcabe, n the constructon, approva, and use of
ppe nes under ths reguaton. (Sees. 2883(e), 3105, 3108, 312 (a)(2), 3176,
I. R. C.)
Seo. 171.7 . Gaugng. When sprts are transferred by ppe ne between
dsteres, acoho pants, and warehouses, ether before or after redstaton,
as heren provded, the sprts must be gauged at the tme of transfer n a
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weghng ank, ether n the premses from whch the sprts are removed or
n the premses to whch the sprts are transferred, but the sprts need not
be gauged n both premses: Provded, That were nether of the premses s
equpped wth a weghng tank, the sprts may be gauged by voume n accu-
ratey cabrated tanks n ether of the premses. When so transferred by tank
cars or tank trucks, the sprts must be gauged n a weghng tank n the
shppng premses at the tme of shpment and n the recevng premses at
the tme of recept: Provded further, That where the shppng or recevng
premses, or both, are not equpped wth a weghng tank, the sprts may be
weghed on raroad car or tank truck scaes, ocated on the bonded premses,
by weghng the raroad car or tank truck, as the case may be, both before
and after fng or emptyng, or both, as the case may be: nd provded further.
That where the shppng or recevng premses, or both, are not equpped wth
a weghng tank, raroad car or tank truck scaes, the sprts may be gauged
by voume n accuratey cabrated tanks before remova or after recept, or
both, as the case may be. When sprts are wthdrawn from acoho pants
and acoho warehouses by ppe ne or by tank car for an authorzed ta -pad
or ta -free purpose, or by tank truck for an authorzed ta -free purpose, other
than for use of the Unted States or for denaturaton, the sprts must be
gauged by weght n a weghng tank n each nstance. (Sees. 2808, 2883(e),
3105, 3108. 3176. I .R. C.)
Sec. 171.75. Markng contaners. Unfnshed sprts removed from dsteres
for redstaton sha, regardess of proof, be desgnated and marked Unfnshed
sprts as to knd, foowed by the name of the matera from whch produced,
as Unfnshed sprts Gran. Unfnshed sprts Frut, or Unfnshed
sprts Cane. When such unfnshed sprts are removed to an acoho ware-
house storage tank, pendng redstaton, the tank sha be smary marked.
When such sprts are wthdrawn from an acoho warehouse wthout redsta-
ton, by vrtue of beng 160 degrees or more of proof, the desgnaton and markng
of the sprts as to knd sha be changed to coho. Whea redsted at
acoho pants to 160 degrees or more of proof, such sprts sha kewse be
marked coho. Contaners of such sprts when removed from dsteres and
nterna revenue bonded warehouses for transfer to acoho pants and acoho
bonded warehouses, for redstaton, n addton to beng marked Unfnshed
sprts, foowed by the name of the matera from whch produced, sha other-
wse be marked n accordance wth the Gaugng Manua and Reguatons , 5,
and 10. Upon redstaton at an acoho pant to 160 degrees or more of proof,
or wthdrawa from an acoho bonded warehouse wthout redstaton, by vrtue
of beng 160 degrees, or more of proof, the contaners of the sprts, n addton
to beng marked coho, sha otherwse be marked n accordance wth Regu-
atons 3 and the Gaugng Manua.
(o) Transfer marks. ach package, tank car, or tank truck of sprts shpped
for redstaton sha have attached to the Government head of the package, or
route board of the tank car, or some pace on the tank truck where t may ready
be e amned by Government offcers, a tag or abe showng that the sprts are
shpped for redstaton, and gvng the name, regstry numbers and ocatons
of the shppng and recevng premses. Ths tag or abe sha be n substantay
the foowng form:
Unfnshed Sprts Gran
Shpped by
ohn Doe Co.
D. 100, Frankfort, y.
to
Roe coho Co.
I. . P. 300, New Oreans, La.
For Redstaton.
(Sees. 2808, 28S3(e), 3105, 3176, I. R C; Sec. 5, 9 Stat, 981 (27 U. S. C. Supp.,
205(e)).)
Snc. 171.76. Storage n tanks. When unfnshed sprts are removed to an
acoho pant for redstaton, the sprts shoud be deposted n cosed, ocked
tanks n the acoho pant. When so removed to an acoho pant n packages,
the contents of the packages must be dumped nto cosed, ocked tanks, pendng
redstaton. When such sprts are removed to an acoho warehouse, pendng
redstaton, they may be stored n the warehouse n storage tanks or n the
contaners n whch they are transferred to the warehouse. Sprts transferred
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to acoho pants or acoho warehouses n packages, tank cars, tank trucks, or
by ppe ne, may be deposted n the same tanks. Sprts of dfferent proof,
or produced from dfferent materas, or produced by dfferent dsters, trans-
ferred to acoho pants or acoho warehouses, may be deposted n the same tanks
n the acoho pant or warehouse: Provded, That sprts produced from gran,
cane, and frut, so deposted n the same tank or otherwse m ed together, ether
before or after redstaton, may not be wthdrawn for ta -pad beverage pur-
poses other than for use n the manufacture of cordas, queurs, and specates.
Sprts may be wthdrawn from the same warehouse storage tank for redsta-
ton, or, f 160 degrees or more of proof, for the authorzed ta -pnd or ta -free
purposes specfed heren. ddtona deposts may be made n a storage tank,
after removas have been made therefrom, wthout the necessty of frst emptyng
the tank. (Sees. 2883(e), 3105, 3176, I. R. C.; Sec. 5, 9 Stat., 981 (27 U. S. G,
Supp., 205(e) ).)
Seo. 171.77. Redstaton. Unfnshed sprts removed for redstaton as
heren provded may be redsted separatey or wth acoho or other unfnshed
sprts, ncudng sprts of dfferent proof or produced from dfferent materas or
produced by dfferent dsters: Provded, That where sprts produced from
gran, cane, and frut are redsted together, the redsted sprts may not be
wthdrawn for ta -pad beverage purposes other than for use n the manufacture
of cordas, queurs, and specates. (Sees. 2883(e), 3105, 3176, I. R. C.; Sec. 5,
9 Stat., 981 (27 U. S. C, Supp., 205(e) ).)
Sec. 171.78. uthorzed wthdrawas. Unfnshed sprts removed to an acoho
pant or acoho warehouse for redstaton, pursuant to ths reguaton, may be
wthdrawn after redstaton, or before redstaton from the warehouse f of
160 degrees or more of proof, for any ta -pad or ta -free purpose for whch
acoho may be wthdrawn. Such wthdrawas sha be made n accordance wth
the provsons of Reguatons 3, reatve to wthdrawa permts, etc. (Sees.
2883(e), 3176, I. R. C.)
Sec. 171.79. I sses or defcences of unfnshed sprts. Losses of sprts
produced or removed under ths reguaton, whch occur pror to remova for
redstaton, w be sub|ect to the provsons of Reguatons , 5, and 10, and
the Gaugng Manua, and w be ad|usted n accordance wth secton 171.62(a).
Losses of such sprts, whch occur after remova for redstaton, ether before
or after such redstaton, or both, w be sub|ect to the provsons of Regua-
tons 3 reatve to osses of acoho. Defcences n redstaton w be treated
as defcences n the process of orgna manufacture, and cams for remsson of
ta on such defcences w not be requred. Where the defcency s more than
that usuay ascrbabe to redstaton, proper nqury n respect thereto w be
made by the storekeeper-gauger, and e panatory statements reatve to the
defcency w be made by both the propretor of the acoho pant and the store,
keeper-gauger n the proper records. Cams for remsson of ta on osses of
unfnshed sprts, whch occur after remova for transfer to an acoho pant or
acoho warehouse, w be fed by the propretor of the acoho pant or acoho
warehouse n accordance wth Reguatons 3. (Sees. 2883(e), 3176, I. R. C.)
Sec. 171.80. Records. Unfnshed sprts produced and removed to acoho
pants or acoho warehouses for redstaton sha be reported and accounted
for n accordance wth the provsons of Reguatons , 5, and 10. t the tme of
remova the storekeeper-gauger at the dstery or nterna revenue bonded ware-
house from whch the sprts are shpped w prepare Form 1 39, propery mod-
fed, reportng the shpment, and forward one copy to the supervsor-consgnor, one
copy to the supervsor-consgnee, and one copy to the storekeeper-gauger at the
recevng acoho pant or acoho warehouse. Upon recept of the sprts the
storekeeper-gauger at the recevng acoho pant or acoho warehouse w e e-
cute the certfcate of recept on the copy of Form 1 39 receved by hm and for-
ward t to the supervsor-consgnor at the address specfed n Part III of the
form. The recept of the sprts at the acoho pant or acoho warehouse, and
the redstaton, storage, and wthdrawa of the sprts as acoho sha be re-
ported and accounted for n accordance wth Reguatons 3. (Sees. 2883 (e),
3176,1. R.C.)
Sec. 171.81. Sunday and nght-tme operatons. The aw provdes that, under
reguatons, sectons 2836 and 2870, I. R. C, sha not appy to the producton
and remova to an acoho pant or acoho warehouse of sprts produced and
removed under secton 2883 (e). I. R. C, for redstaton. The rues and pro-
cedure prescrbed by Treasury Decson 5111 reatve to the mashng and ds-
tng of sprts of 160 degrees or more of proof between 11 p. m. Saturday
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3 2
and 1 a. m. Monday, and the wthdrawa of such sprts between sundown and
sunrse or on Sunday, pursuant to secton 2883 (c), L R. C, are hereby made
appcabe to the producton and remova of sprts for redstaton pursuant
to secton 2883(e), I. . C, and ths reguaton. (Sees. 2883(e), 3176, I. R. C.)
Genera.
Sec. 171.82. ddtona procedure. In addton to the procedure prescrbed
heren, the procedure prescrbed n Reguatons 3, , 5, and 10, the Gaugng
Manua, and Treasury Decson 5111, sha appy In so far as appcabe to sprts
produced, removed for redstaton, redsted, and wthdrawn pursuant to
ths reguaton. (Sees. 2883(a), (c), (d), (e), 3105, 3176, I. R. C.)
Sec. 171.83. Secton 2883(c), I. R. C. (T. D. 5111), Sprts. Treasury Dec-
son 5111, as amended by Treasury Decson 5130, sha contnue to appy to
sprts wthdrawn pursuant to secton 2883(c), I. R. C.: Provded, That when
such sprts are wthdrawn for an authorzed ta -free purpose, the contaners
sha bear the wthdrawa marks prescrbed n secton 171.56(6) of ths regua-
ton, n addton to the marks requred by Treasury Decson 5111, as amended
by Treasury Decson 5130: Provded further, That when such sprts are trans-
ferred from dsteres to nterna revenue bonded warehouses, or from one
such warehouse to another, pror to wthdrawa for an authorzed ta -pad or
ta -free purpose, the sprts may be transported n tank trucks n accordance
wth the rues and procedure prescrbed In Treasury Decson 5121, whch
are hereby made appcabe to such transportaton. (Sees. 2808, 2883 (a), (c),
3176, I. R. C.)
Sec. 171.8 . Termnaton of reguatons. These reguatons sha cease to be
effectve upon the termnaton of the unmted natona emergency procamed
by the Presdent on May 27,19 1. (Sees. 2883 (d), (e), 3176, I. R. C.)
Gut T. evekng,
Com nssoner of Interna Revenue.
pproved pr 1, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster pr 12, 19 2, 11. 7 a. m.)
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LCO OL DMINISTR TION CT.
19 2-1 -11052
T.D. 513
TITL 27 INTO IC TING LI UORS C PT R I, P RT 5.
Modfcaton of standard of dentty for neutra sprts under the
Federa coho dmnstraton ct.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
1. y vrtue of and pursuant to secton 5(e) of the Federa coho
dmnstraton ct, as amended (U. S. C, Sup., Tte 27), secton
3170 of the Interna Revenue Code (53 Stat., part 1), and secton
161 of the Revsed Statutes (U. S. C, Tte 5. secton 22), secton 21,
cass 1 of Reguatons No. 5, Reatng to abeng and advertsng
of dsted sprts (27 CFR. 5.21(a)), as amended by Treasury
Decson 5116, approved February 17, 19 2 beow , s amended to
read as foows:
(a) Gass I. Neutra tprtt or acoho. Neutra sprts or acoho
are dsted sprts dsted from any matera at or above 190 proof, whether
or not such proof s subsequenty reduced. Durng the perod of the
unmted natona emergency procamed by the Presdent on May 27, 19 1,
the term neutra sprts sha aso Incude any sprts dsted at ess than
190 proof, whch are so dsted, or so treated In the process of dstaton,
or so refned by other processes after dstaton, as to ack the taste, aroma,
and other characterstcs of whsky, brandy, rum, or other potabe beverage
sprts, but the contaners of such product sha not be abeed as coho.
Stewart erkshre,
Deputy Commssoner of Interna Revenue.
pproved March 31, 19 2.
Gut T. everno,
Commssoner of Interna Revenue.
pproved pr 1, 19 2.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa egster pr 2, 19 2, 11. 8 a. m.)
19 2-8-11001
T. D. 5116
TITL 27 INTO IC TING LI UORS. C PT R I, P RT 5. L LING ND
D RTISING OF DISTILL D SPIRITS.
Modfcaton of standard of dentty for neutra sprts under the
Federa coho dmnstraton ct.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
1. y vrtue of and pursuant to secton 5(e) of the Federa coho
dmnstraton ct, as amended (U. S. C. Sup., Tte 27), secton
3170 of the Interna Revenue Code (53 Stat., part 1), and secton 161
of the Revsed Statutes (U. S. O, Tte 5, sec. 22), secton 21, cass 1
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3
of eguatons No. 5, Reatng to Labeng and dvertsng of Dsted
Sprts (27 C. F. R. 5.21(a)), s amended to read as foows:
(a) Cass 1. Neutra sprts or acoho. Neutra sprts or acoho are
dsted sprts dsted from auy matera at or above 15)0 proof, whether or
not such proof s subsequenty reduced. The term neutra sprts sha aso
ncude a dsted sprts dsted durng the perod of the unmted natona
emergency procamed by the Presdent on May 27, 19 1, whch are dsted at
1(50 proof, or more, from a fermented mash of gran, are unaged, and are so
teated n the process of orgna and contnuous dstaton as to ack the taste,
uroma, and other characterstcs generay attrbuted to whsky.
Stewart erkshre,
Deputy Commssoner of Interna Revenue.
pproved February 17, 19 2.
Norman D. Cann,
ctng Commssoner of Interna Revenue.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster February IS, 19 2, 11.55 a. m.)
19 2-23-11118
T. D. 5152
asc permt procedure under Federa coho dmnstraton ct
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Secton 1. y vrtue of and pursuant to the provsons of the Fed-
era coho dmnstraton ct, as amended (U. S. C, Sup., Tte
27), secton 3170 of the Interna Revenue Code (53 Stat., part 1), and
secton 161 of the Revsed Statutes (U. S. C, Tte 5, secton 22), the
frst paragraph of secton I71. d of Tte 26 of the Code of Federa
Reguatons s hereby amended to read as foows:
Sec. 171. d. Procedure. cept as otherwse provded heren, the procedure
prescrbed by Reguatons No. 3, Industra coho, effectve une , 19 2 (Part
182, Tte 26, Code of Federa Reguatons), for the ssuance, amendment, and
dena of permts, ssuance of ctatons, hodng of hearngs, revocaton of per-
mts, and appeas to the Commssoner under Part II of Subchapter C of Chap-
ter 26 of the Interna Revenue Code s hereby e tended to the ssuance, amend-
ment, dena, revocaton, suspenson, and annument of basc permts under the
Federa coho dmnstraton ct, n so far as appcabe and n so far as
such procedure s not n confct wth the provsons of such ct. ppeas to
the Deputy Commssoner n charge of the coho Ta Unt from orders deny-
ng permts sha be taken In conformty wth the procedure appcabe to
appeas from orders revokng permts.
Seo. 2. These reguatons sha take effect une , 19 2.
Stewart erkshre,
Deputy Commssoner of Interna Revenue.
pproved une 3, 19 2.
Gut T. everng,
Commssoner of Interna Revenue.
ohn L. Suvan,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster une 3, 19 2, 3.18 p, m.)
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MISC LL N OUS RULINGS.
S CTION 3 66 OF T R IS D ST TUT S.
19 2-1-10951
Ct. D. 153
F D R L T S R IS D ST TUT S D CISION OF SUPR M COURT.
State and Federa Gasone Ta es Prorty of Cam of Unted
States.
In a State court recevershp proceedng, the cam of the Unted
States for Federa gasone ta es s entted to prorty, under sec-
ton 3 66 of the Revsed Statutes, over a cam of the State for
State gasone ta es under a Te as statute whch prescrbes that a
such ta es due to the State sha be a preferred en frst and pror
to any and a other e stng ens.
Supreme Court of the Unted States.
The Unted States of merca, pettoner, v. The State of Te as et a.,
respondents.
On wrt of certorar to the Court of Cv ppeas, Second udca Dstrct, State of Te as.
December 22, 19 1.
opnon.
Mr. ustce yrnes devered the opnon of the Court.
W. L. N was a manufacturer and dstrbutor of motor fue, dong busness
n Te as under the name of Te as Refnery. On November 20, 1933, M. R.
Ingraham, who hed a demand note secured by a chatte mortgage on certan
tanks beongng to N , brought an acton n the Dstrct Court of Gregg
County, Te . e aeged that demand had been made on the note, that t had
not been pad, that N owned no property n Te as other than that of Te as
Refnery, that the vaue of the mortgaged tanks was nsuffcent to dscharge
the note, that the tanks were not used for a separate purpose but n the
operaton of the sad refnery as a unt, and that N was nsovent e
asked that |udgment be entered n hs favor for the amount of the note, that
the mortgage be forecosed, and that n the meantme a recever be paced n
charge of the whoe of the property of Te as Refnery. On the same day
a recever was apponted, and he was subsequenty authorzed to se a of
the refnery property.
On November 21, R. P. sh ntervened n the proceedngs as the hoder of
an overdue note secured by a mortgage on the physca pant of the refnery
not sub|ect to the Ingraham mortgage. oth the State of Te as and the Unted
States then ntervened wth the cams for State and Federa gasone ta es
whch are the sub|ect of the present dspute. Later both the Ingraham and
sh mortgage notes were assgned to oward Daey.
The dstrct court found that N was nsovent on November 20, 1933, and
contnued to be nsovent thereafter. The sum avaabe for dstrbuton after
sae of the refnery property by the recever was 7, 66.92. The court found
that of these proceeds 1,29 .80 was aocabe to those assets whch were sub-
|ect to the mortgages hed by Daey, and It ordered that hs cam to that
amount be frst satsfed. It determned that N was abe to the Unted
States for 19,3 3.91 n Federa gasone ta es, and to Te as for 0,312.51 n
7 918 2 12
(3 5)
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3 6
State gasone ta es. s between the State and Federa cams. It decded
that the Unted States was entted to prorty and concuded that nothng
woud be eft to appy to the Te as cam.
From ths order Te as appeaed to the Court of Cv ppeas for the Second
Dstrct. That court certfed the controng questons to the Supreme Court
of Te as. The supreme court, on the authorty of State v. Wynne (13 Te .,
55), a companon case decded the same day, answered the questons n such
a way as to requre that the cam of Te as be frst satsfed, that of Daey
second, and that of the Unted States thrd. The court of cv appeas there-
upon so rued, notng that the assets avaabe woud not competey satsfy
even the cam of Te as and that Daey and the Unted States woud receve
nothng. moton by the Unted States for a rehearng was dened, and the
Supreme Court of Te as refused to revew the decson of the court of cv
appeas. We granted the petton of the Unted States for certorar because
of the mportant queston of the fsca reatonshp between State and Federa
Governments whch Is nvoved.
No queston as to the rghts of Daey, the mortgagee, s rased by ths appea.
We confne ourseves, therefore, to the ony queston presenty open to decson:
the reatve prorty of the cams of the Unted States and Te as.
The Unted States rests ts asserton of prorty upon secton 3 68 of the
Revsed Statutes.1 Despte the contenton of Te as to the contrary, that secton
ceary appes to ths proceedng. s we recenty remarked n Unted States
v. mory, secton 3 66 covers n terms the case of an Insovent debtor who has
commtted an act of bankruptcy, and there are few more famar e ampes
of an act of bankruptcy than the appontment of a recever because of the
debtor s nsovency. (Cf. secton 3(a) ( ) of the ankruptcy ct, U. S. C,
Tte 11, secton 21(2) ( ).) ere the dstrct court e pressy found that N
was Insovent, and t apponted a recever. It s true that the orgna petton
was fed by a mortgagee rather than by a genera credtor. ut If any mta-
tons upon the operaton of secton 3 66 mght otherwse have fowed from ths
crcumstance they were removed by the subsequent character of the proceedng.
The recever was paced In contro of a of N s assets, rather than ony those
sub|ect to the mortgage, and a of the assets were eventuay qudated.
Partes other than the mortgagee, Incudng Te as Itsef, ntervened and were
heard. We thnk that reates requre us to treat the proceedng as a genera
equty recevershp wthn the scope of secton 3 66.
We are thus brought to the Important ssue n the case. rtce 7065a-7
of the Te as Cv Statutes decared that a gasone ta es due by any dstrbu-
tor to the State sha be a preferred en, frst and pror to any and a other
e stng ens, upon a the property of any dstrbutor, devoted to or used In
hs busness as a dstrbutor . It s the State s poston that
under ths secton t hed a specfc and perfected en upon the refnery prop-
erty whch entted It to prorty despte secton 3 66 of the Revsed Statutes.
Secton 3 66 mentons no e cepton to ts requrement that the debts due to
the Unted States sha be frst satsfed. It Is nevertheess true that In severa
eary decsons ths Court read an e cepton nto the secton n the case of prev-
ousy e ecuted mortgages. (Thcusson v. Smth, 2 Wheat., 396, 26; Conard v.
tantc Insurance Co., 1 Pet., 386; rent v. ank of Washngton, 10 Pet., 586,
611. 612.) Ths doctrne seems to have been based on the theory that mortgaged
property passes to the mortgagee and Is no onger a part of the estate of the
mortgagor. (See Conard v. tantc Insurance Co., supra, at 1- 2.) The ques-
ton of whether the prorty of the Unted States under secton 3 66 woud aso
Unted States Revsed Statutes, secton 3 66 (D. S. C, Tte 31, secton 191) provdes:
Whenever any person ndebted to the Unted States Is nsovent, or whenever the estate
of any deceased debtor. In the hands of the e ecutors or admnstrators, Is nsuffcent
to pay a the debts due from the deceased, the debts due to the Unted States sha be frst
satsfed; and the prorty estabshed sha e tend as we to cases n whch a debtor, not
havng suffcent property to pay a hs debts, makes a vountary assgnment thereof, or
n whch the estate and effects of an abscondng;, conceaed, or absent debtor are attached
by process of aw, as to cases In whch an act of bankruptcy Is commtted.
No. 33, October term, 19 1.
The fu te t of the paragraph, as of November 20, 1933, when the recever was
apponted read: ta es, fnes, penates and nterest due by any dstrbutor to the
State sha be a preferred en, frst and pror to any and a other e stng ens, upon aU
the property of any dstrbutor, devoted to or used In Ms busness as a dstrbutor, whch
property sha Incude refnery, bendng pants, storage tanks, warehouses, offce budngs
and equpment, tank trucks or other motor vehces, or any other property devoted to such
use, and each tract of and on whch such refnery, bendng pant, tanks or other property
Is ocated, or whch s used n carryng on such busness. Ths secton was repeaed on
May 1, 19 1, by rtce II, secton 28 of the cts of the Forty-seventh Legsature, and
smutaneousy repaced wthout sgnfcant change by a new artce 7065b-8.
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be defeated by a specfc and perfected en upon property whose tte remaned In
the debtor was reserved In those cases. (Ibd; rent v. ank of Washngton,
supra, at 611-612.) owever, t was determned trfat a genera udgment en
upon the ands of an nsovent debtor does not take precedence over cams of the
Unted States uness e ecuton of the udgment has proceeded far enough to take
the and out of the possesson of the debtor. (Theusson v. Smth, supra, at
25- 26.)
In more recent years the Court has had occason to consder the argument
that ens created n favor of States or countes by State statutes entted them
to prorty over the Unted States under secton 3 66. In Spokane County v.
Unted States (279 U. S., 80), the prorty of the Unted States was uphed. The
State statutes nvoved provded that f a certan persona property ta was not
pad, and f the persona property aganst whch t had been assessed was no
onger In the hands of the denquent ta payer, the amount of the unpad ta
shoud become a en upon a the rea and persona property of the ta payer.
They went on to prescrbe the procedure by whch the en was to be enforced.
The Court determned that the statutory en dd not become specfc unt ths
procedure had been foowed. Snce these procedura condtons had not been
satsfed In the case before t, the Court refused prorty to the ta cams of the
county. It specfcay decned to consder what the effect of more competed
procedure In the perfectng of the ens under the aw of the State woud have
been. (279 U. S., at 95.)
The New York statute In New York v. Macay (288 U. S., 290) decared that
the corporate franchse ta there Invoved shoud be a en and bndng upon
the rea and persona property of the corporaton unt the same Is
pad n fu. (288 U. S., at 292.) though the franchse ta es n queston were
overdue, the State had taken no steps to perfect and qudate ts en at the
tme the recever was apponted for the nsovent corporaton. Under such cr-
cumstances, the Court was of the opnon that the ta cam of the State dd not
deprve the cam of the Unted States of Its prorty under secton 3 66. It was
at pans to make cear, however, that t ntended by ts decson to end no support
to the assumpton that the doctrne of the mortgage cases, whatever ts current
vtaty, woud requre the subordnaton of unsecured cams of the Unted States
to a specfc and perfected en. (288 U. S., at 293-29 .)
We thnk that t s equay unnecessary to test that assumpton here. Pror to
the appontment of the recever on November 20, 1933, the State of Te as had
made no move to assert the en procamed n artce 7065a-7. nd the prorty
whch attached to the cam of the Unted States on that day (Unted States v.
Okahoma, 261 U. S., 253. 260) coud not be dvested by any subsequent proceed-
ngs n connecton wth the State s en. (New York v. Macay, supra, at 293.)
It s urged, however, that artce 7065a-7 by ts own force creates a specfc
and perfected en. Support for ths contenton Is sad to e In the fact that the
statutory en purports to affect ony the property of the dstrbutor whch Is
devoted to or used In hs busness as a dstrbutor rather than hs property In
genera. Ths s thought to make the en suffcenty specfc. Moreover, the
State argues, and the Supreme Court of Te as has decared, that the provsons
of the Te as Cv Statutes whch govern the evy, sezure and sae of the prop-
erty of denquent ta payers generay are nappcabe to the gasone ta . We
are of course bound by ths authortatve constructon of the statute.
Wth respect to ths contenton t may frst be sad that the property de-
voted to or used n hs busness as a dstrbutor Is nether specfc nor con-
stant. ut a more Important consderaton Is that the amount of the cam
secured by the en Is unqudated and uncertan. s we sad In New York v.
Macay: If the State were to omt to ascertan the debt. It woud
never be abe to se anythng, for t woud not know how much to se. (288
U. S., at 293.) That the Legsature of Te as recognzed ths s reveaed by
another secton of the statute. rtce 7065a-8(d) decared that In the event
of defaut, when It mght become necessary for the State to brng sut or to
In Unted States t. Okahoma (261 U. S., 2S3), the queston wa not reached because
t was found that the Insovency upon whch the operaton of secton 3 C6 Is condtoned
was absent. The Court sustaned the prorty of the Unted States under secton 8 66 In
Unted 8tates v. nott (208 D. S.. 5 ). The Forda statutes there nvoved requred
foregn surety corporatons to depost certan bonds wth the State treasurer for the pro-
tecton of Forda resdents. Ths arrangement was hed to create no more than an
Inchoate genera en for the beneft of unknown persons who mght become entted to
tbe fund, and not to mt the effect of secton 3 66.
Stote v. Wynne (13 Te .. 55, at ).
See, esp., artces 7266. 7272, and 7275 of the Te as Cv Statute .
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3 8
ntervene for the estabshment or coecton of ts cams n ud-
ca proceedngs, the ta reports requred of the dstrbutor by other provsons
of the statute shoud be prma face evdence of the contents thereof, but
the ncorrectness of sad report or audt may be shown. Thus t was ceary
envsaged that the amount of the ta es due, for whch the en was securty,
shoud be eft to determnaton by the courts.
s to the nature of the proper procedure for evy, sezure, and sae, t s
enough to say that some procedure s essenta. s we have ndcated, the
statutory scheme reveas that rhe egsature contempated resort to the courts.
In addton to the statutory provsons referred to above, artce 7065a-8(e)
reguates the peadngs n suts by the attorney genera to coect the ta , and
artce 7065a-9 determnes the venue of such suts. Consequenty, whe t
was ceary ntended by artce 7065a-7 to create a en n favor of the State,
we must concude that of necessty t was nothng more than an nchoate and
genera en. Certany t dd not of ts own force dvest the ta payer of ether
tte or possesson. It coud not become specfc unt the e act amount of the
ta es due had been determned, and t coud not be enforced wthout the assst-
ance of the courts. Lke the ta en n New York v. Macay. supra, t served
merey as a caveat of a more perfect en to come. (288 U. S., at 29 .)
We are not now caed upon to decde whether the chatte mortgages hed by
Daey are entted to prorty over the cam of the Unted States. We hod
ony that the ta cam of the Unted States s entted to prorty over the
ta cam of Te as. The case Is remanded to the court of cv appeas for
proceedngs not nconsstent wth ths opnon.
Reversed.
Mr. ustce ackson took no part In the consderaton or decson of ths
case.
rtce 7065a. sectons 2(b), 2(d), 8(a), and 8(b).
The te ts of the mortgages are not contaned In the record; and Daey dd not appear
n ths Court.
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O RD OF T PP LS.
Rues of practce amended.
19 2-2 -11126
Washngton, D. C, May 29,19 2.
The Unted States oard of Ta ppeas announces the foowng
amendments to ts rues of practce:
Rue 1 s amended to read as foows:
Rue 1. usness ours.
The offce of the cerk of the oard at Washngton, D. C, sha be open durng
busness hours on a days, e cept Sundays and ega hodays, for the purpose of
recevng pettons, peadngs, motons, and the ke. Ordnary busness
hours are from 9 o cock a. m. to .30 o cock p. n., e cept on Saturdays, when
busness hours are from 9 o cock a. m. to 1 o cock p. n. Durng a perod of
natona emergency busness hours are sub|ect to e tenson, as Indcated by order
on fe In the cerk s offce.
The ffth paragraph of rue 2 s amended to read as foows:
n appcant for admsson must fe hs appcaton wth the oard on the
appcaton bank provded. ppcaton banks w be furnshed upon request to
the secretary of the oard, and ony appcatons on the oard s banks w be
consdered. Ony an orgna sha be fed. The appcaton sha be supported
by a current certfcate of the cerk of the court (see subsecton (a) of ths rue),
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 certfcate 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 In
such State or Terrtory or the Dstrct of Coumba.
The thrd paragraph of rue s amended to read as foows:
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 capton
wthout any pref or tte, such as Mr., Mrs., Mss, Dr., etc. 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 6(a), and ppend I, Form No. 2.)
Paragraph ( ) of rue 6 s amended as foows:
(fc) 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 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 grounds of
hs knowedge of the facts aeged n the petton. s used heren the term
Unted States ncudes ony the States and the Dstrct of Coumba. notary
pubc s not authorzed to admnster oaths, etc., n matters n whch he s
empoyed as counse. (See tte , ch. 2, D. C. Code, and 26 Op. . G., 236.)
thrd paragraph of rue 7 s added to read as foows:
No teegram, cabe, rado, or smar message w be recognzed as a petton
on and after uy 1, 19 2.
Rue 9 s amended as foows:
Rue 9. Fng.
ny document to be fed wth the oard, must be fed n the offce of the
cerk of the oard n Washngton, D. C., durng busness hours (see rue 1) ;
provded, that a dvson hearng a proceedng may permt documents pertanng
thereto to be fed at the bearng.
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350
The second paragraph of rue 19 s amended to read as foows:
No moton for rehearng, further hearng, or reconsderaton may, e cept by
speca eave, be fed more than 30 days after the opnon has been served; and
no moton to vacate or revse a decson may, e cept by speca eave, be fed
more than 30 days after the decson has been entered. No moton covered by
ths paragraph sha be |oned to or made a part of any other moton.
Paragraph 1 of rue 2 s amended to read as foows:
Rue 2 . Substtuton or Wthdrawa of Counse Notce of ppearance.
Counse of record n any proceedng desrng to wthdraw must fe a moton
wth the oard requestng eave therefor and must show n sad moton that
notce of hs desre to wthdraw has been gven to hs cent. The oard may,
n ts dscreton, wthhod permsson to counse of record to wthdraw.
Paragraph 2, ne 9, of rue 61 s amended as foows:
Thanksgvng Day, fourth Thursday of November, ont Resouton approved
December 26, 19 1 (Pubc aw 379, Seventy-seventh Congress).
y the oard.
. . Murdoch, Charman.
May 29,19 2.
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#
p
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351 Msc.
OL OM RG RIN .
19 2-6-10985
MS. 2 7
Schedue of oeomargarne produced and materas used durng the month of
December, 19 1, at compared wth December, 19 0.

December,
December,
19 0.
no.
Pound:
13 ,225,997
Poundt.
32,221,051
Ingredent schedue of uncoored oeomargarne:
33,693,600
31,083. 97
88
13,660
3,971,913
70,367
1 ,101,32
75,5 5
151
829
22,017
6, 156, 95
17,238
Sf. 330
1, 62, 23
Corn o
33.763
13,087.959
73,61
Cottonseed o
Dervatve of gycerne
Dacety
Lecthn
12,791
6,966,821
18, 33
768,978
2 0
1, 60,385
300,7 3
163,608
Mk
Monostearne
Neutra ard
Lard stearne ,
Oeo o
2,092,308
23 ,560
351, 81
19, 817
515.8 8
136,685
20 .7 3
1,170, 707
1 ,876
8,183, 626
8,271
Oeo stearn
Oeo stock
Pam fakes
Pam o
Pam kerne o
Peanut o
181,318
1,232, 6
11,89
8, 90, 715
1, 75
Sat
Soda (benzoate of)
Soya bean o
tamn oonoentrate
Tota
38,338,210
33, 250. 973
Tota producton of coored oeomargarne
11.778
239.990
Tota wthdrawn ta -pad
69,937
38,080
Ingredent schedue of coored oeomargarne:

1
Coconut o
181, 211
26

27,919
75,328
182
23
18,989
1,320
29
Coor..
Corn on
Cottonseed o
Cottonseed stearne
Dervatve of gycerne
S 3
1
72
72,7 2
750
5,603
3 ,713
653
,180
8,330
11,927
63
15, 33
126
58,566
36
DIacety
Lecthn
28
Mk
66,597
387
7, 13
26,268
296
2,350
Monostearne
Neutra ard
Oeo o
Oeo stearne
Oeo stock
Pam fakes..
Pam o
Peanut o
392
8,152
Sat
oda (ben oate of)
73
Soya bean o
68,000
tamn concentrate
Tota
23,0 2
266,981
1 Of the amount produced, 2,089 pounds were reworked.
1 Of the amount produced, 2 ,273 pounds were reworked.
1 Of the amount produced, 6 0 pounds were reworked.
Note. The fgure for December, 19 1. are sub|ect to revson unt pubshed In the Commssoner s
annua report.
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Msc.
352
19 2-9-11008
MS. 2 8
Schedue of oeomargarne produced and materas used durng the month of
anuary, 19 2, as compared wth anuary, 19 /1.
anuary,
19 2.
Tota producton of uncoored oeomargarne
Tota wthdrawn ta-pad
Ingredent schedue of uncoored oeomargarne:
abassu o
utter favor
Coconut o -
Corn o..-
Cottonseed o - -
Dervatve of gycerne -
Dacety
muso
Lecthn
Mk -
Monostearne-
Neutra ard
Oeoo --- -
Oeo stearne
Oeo stock
Pam o --
Peanut o
Sat
Soda (benoate of)
Soya bean o
Sunfower o - ---
egetabe gum... _
tamn concentrate --
Tota.
Tota producton of coored oeomargarne.
Tota wthdrawn ta-pad
Ingredent schedue of coored oeomargarne:
utter favor
Coconut o
Coor..
Corn o -- - -
Cottonseed o - -
Cottonseed stearne
Dervatve of gycerno
Dacety
Lecthn
Mk
Monostearne
Neutra ard... -
Oeo o
Oeo stearns -
Oeo stock -
Pam o
Peanut o
Sat
Soda Cbenzoate of)
Soya bean o--. -
Soya bean stearne-
tamn concentrate
Tota.
Pounds.
3 ,6 7,177
35, 788, 257
5,175
3
1, 969, 561
118.031
1 ,396, 529
72,218
151
WM
23, 21
6,038,360
16,063
1, 209.562
2,198,051
29 ,313
365,0 6
709,935
195,223
1,192,31
15,778
6,8 .8 6
1 ,852
7,600
35,675, 978
23, 839
62.071
1
176,078
377
62
30, 62
6,9 0
690
1
117
7 .911
837
7,7 5
37, 615
,757
18, 0
5
16,318
1 2
60,7 8
St
35. 030
Of the amount produced, 17,5 2 pounds were reworked.
Of the amount produced, 18,792 pounds were reworked
1 Of the amount produced, 676 pounds were reworked.
Of the amount produced. 22 pounds were reworked.
Note. The fgures for anuary, 19 2, are sub|ect to revson unt pubshed n the Commssoner s
annua report.
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353
Msc.
19 2-13-110 3
MS. 2 9
Schedue of oeomargarne produced and materas used durng the month of
February, 19 /2, as compared utth February, 19 1.
February,
19 2.
February,
19 1.
Tota producton of uncoored oeomargarne.
Tota wthdrawn ta-pad
Pound .
32, 257, 713
31,711,835
Ingredent schedue of uncoored oeomargarne:
utter favor-
Corn o.
Cottonseed o
Dervatve of gycerne
DacetyL
Lecthn.
Mk
Monostearne
Neutra ard..
Oeo o
Oeo stearne
Oeo stock
Pam fakes
Pam o
Peanut o
Sat
Soda (benzoate of)
Soya bean o
Soya fakes
Sunfower o
tamn concentrate..
21,580
93
678, 219
130, 01
1 , 712,981
79,2 6
195
1, 32
22,315
6,8 8, 282
12,0 3
693, 869
1,873.366
232, 16
33 , 11
6, 28
88, M
1 5, 818
1,087,029
15, 6
7,031,639
198, 536
8,51
Tota..
33, 615, 607
Tota producton of coored oeomargarne.
Tota wthdrawn ta-pad
Ingredent schedue of coored oeomargarne:
utter favor
Coconut o
Coor
Corn o
Cottonseed o
Cottonseed stearne
Dervatve of gycerne
Dacety
Lecthn
Mk
Monostearne
Neutra ard
Oeo o
Oeo stearne
Oeo stook
Pam fakes...
Pam o
Peanut o
Sat
oda (benzoate of)
Soya bean o
Soya bean stearne
Sunfower o
tamn concentrate
2
51.730
295
37
2 ,673
36
1
68
50,527
297
,555
9, 550
8, 81
5,20
23
52
10,07
353
70,692
1 ,338
26
Pounds.
I 27, 770.007
Tota.
291. 1
27, 831. 809
62,000
1, 178,909
39, 1 8
11,583.677
63,16
1 ,028
8, 285.9 9
10,961
97,116
1,137. 272
252,601
117. 5
162,858
986. 022
10, 21
7, 818, 59
15
1.295
28, 721, 7
338,0 8
39.1M
116.988
388
39
1,823
2,3 0
392
6
62,226
399
6,322
23, 7 2
355
2, 550
177
12, 2
150
7 ,926
2 0
3 5,5 8
Of the amount produced, 25,3 8 pounds were reworked.
Of the amount produced, 23,016 pounds were reworked.
Of the amount produced, 379 pounds were reworked.
Note. The fgures for February, 19 2, are sub|ect to revson unt pubshed In the Commssoner s
annua report.
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#
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Msc.
35
19 2-18-11080
MS. 250
Schedue of oeomargarne produced and materas used durng the month of
March, 19. 2, as compared wth March, 19)1.
March, 18 2.
March, 19 1.
Pound).
30,158.62
Pound).
33. 605. 686
Ingredent schedue of uncoored oeomargarne:
29,665,087
3 ,291,371
utter favor
250,59
187
2 3
3 6,969
122.255
13,806, 508
75,729
1
1, 55
20, 38
6, 361,632
9,778
718,305
1,855, 7 0
177,833
25 ,265
1,685
158,703
87.205
1,005,65
1 .69
, 717, 768
116, 729
8, 13
66,280
utter cuture _
Coconut o
1,308,270
39.352
13, 120, 097
85,088
Corn o
15.655
6.359,036
15.081
893,661
1,533,3 1
281,31
130,010
Mk
Oeostearne
Pam fakes
16 ,876
1,175, 750
1 ,710
9,396, 3
Sat
Sunfower o
tamn concentrate
1, 586
Tota
31, 111,5
609.381
3 , 601, 530
291,887
Tota wthdrawn ta -pad
55, 9
0,397
Ingredent schedue ot coored oeomargarne:
1, 9
3
1
Corn o
13 .209
330
79
30.533
115, 98
2 7
3
21, 20
1,230
215
Dacety _
691
1
Mk
180
111, 955
553
10, 35
79, 730
57
6 .602
273
6.16
27,26
655
3,200
Pam fakes
69, 815
12, 135
I .
32
21,226
38
106, 72
150
55,35
28
Pam o
750
2 3
Sat
10,887
81
Soya bean stearne
69,667
Sunfower o
tamn concentrate
a
Tota
626,683
301,580
Of the amount produced, 3,090 pounds were reworked.
1 Of the amount produced, 32,317 pounds were reworked.
Of the amount produced, 96 pounds were reworked.
Note. The fgures for March, 19 2, are sub|ect to revson unt pubshed n the Commssoner s annua
report.
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355
Msc.
19 2-22-11115
MS. 251
Schedue of oeomargarne produced and materas used durng the month of
pr, 191/2, as compared wth pr, 19 1.
pr, 19 2.
Tota producton of unooored oeomargarne
Tota wthdrawn ta -pad
Ingredent schedue of uncoored oeomargarne:
abassu o
utter favor
utter cuture
Ctrc acd
Coconut o
Corn o
Cottonseed o.
Dervatve of gycerne
Daoety
muso
Lecthn
Mk
Monostearne
Neutra ard
Oeoo
Oeo steartne
Oeo stock
Pam fakes
Pam o
Peanut o
of)
Soda (
Soya bean o
Sunfower o
tamn concentrate.
Tota
Tota producton of coored oeomargarne.
Tota wthdrawn ta-pad
Ingredent schedue of coored oeomargarne:
utter favor
Coconut o
Coor
Corn of
Cottonseed o
Cottonseed stearne
Dervatve of gycerne
Dacety .
Lecthn..
Lect
Mk.
Mono8tearne..
Neutra rd...
Oeo o
Oeo stearne..
Oeo stock
Pam fakes....
Pam o
Peanut o
Sat.
Soda (benwate of)
Soya bean o
Soya bean stearne
Soya fakes
Sunfower o
tamn concentrate
Tota.
28, 70 . 222
53,1 5
188
87
139
138, 275
15 .508
11,858,5 5
62,180
33
7 1
18,593
,893, 870
9,190
628,600
2,0 ,810
139, 369
320,722
758
87,392
8 1,760
13,599
6,60 , 129
91,533
6,175
27, 863. 317
1, 6 8, 05
M.27S
1,926
90
28,533
1,315
2
999
272,679
1,061
7,860
137, 310
6,805
133, 182
8,750
18
56,191
1
990,985
2,000
19,069
153
1, 688, 375
1 Of the amount produced, 58,833 pounds were reworked.
1 Of the amount produced, 2,587 pounds were reworked.
Of the amount produced, 3 8 pounds were reworked.
Not. The fgures for pr, 19 2, are sub|ect to revson unt pubshed n the Commssoner s annua
report.
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Msc. 356
TO CCO.
19 2-1-10950
T. 90
Statement of manufactured tobacco produced, by casses, durng the month of
October, 19-, as compared wth October, 191/0.
October,
19 1.
October,
19 0.
Pug
Pound).
, 709, 721
513.783
66. 71
, 015, 557
19,3 1, 38
Pound .
,19 ,890
536,2 6
3.166
,009,057
21,9 9.933
Twst
Tota
29, 0 7, 213
31,133. 292
19 2- -10973
T. 91
Statement of manufactured tobacco produced, by casses, durng the month of
November, 191)1, as compared wth November, 191/0.

November,
19 1.
November,
19 0.
Pug - - -
Poundt.
3,810.139
29.89
395,918
3, 279, 21
16, 631. 12
Poundt.
3,9 1.8 1
2,3 0
21, 29
Twst
Fne-cat chewng
Scrap chewng
3,256,260
17,6 1.733
Tota
2 ,5 6,78
25,703.803
19 2-10-11017
T.92
Statement of manufactured tobacco produced, by casses, durng the month of
December, 191,1, as compared wth December, 19 0.
December,
19 1.
December,
19 0.
Pug
Pounds.
3, 768. 657
6,r . 197
1 .9 1
3, 10.075
1 ,070,11
Pounds.
3,681,357
56,316
38O.070
3,196,397
15,227,235
Twst .
Scrap chewng
Tota
22, 128.98
22,9 1,375
Non. These fgures are sub|ect to revson unt pubshed In the Commssoner s annua report.
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#
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357
Msc.
19 2-1 -110 8
T. 93
Statement of manufactured tobacco produced, by casses, durng the month of
anuary, 19 2, as compared wth anuary, 19 1.
Pug.
Twst
Fne-cut chewng
Scrap chewng
Smokng
Snuff
Tota
anuary,
anuary,
19 2.
19 1.
Pounds.
Pound:
,0 .869
8,881,717
78. 860
57, 002
15.097
28, 59
S, 673. 31
3. 635. 698
1 . 989,909
18,751.661
3, 762, 786
3, 8, 501
27, 36 . 835
28, 601. 038
19 2-19-11090
T. 9
Statement of manufactured tobacco produced, by casses, durng the month of
February, 19 2, as compared wth February, 19/, 1.
February,
19 2.
February,
19 1.
Pounds.
3, 096, 75
86, 158
358,080
3. 11, 1 S
13,85 , 217
3. 265, 159
Pounds.
Twst -
3.7 8.168
61. 27
355, 257
Fne-cut chewng
Scrap chewng
3, 3 7, 215
1 , 718. 571
Smokng
3, 073. 669
Tota
25. 071, 83
25, 70 , 15
19 2-22-1111
T. 95
Statement of manufactured tobacco produced, by casses, durng the month of
March, 19 2, as compared wth March, 19 1.
March, 19 2.
March, 19 1.
Pug - - -
Pounds.
, , 5 2
Pounds.
, 065, 325
67, rm
3S9.360
3. 385. 380
16, 58. 3(
3, 30 .388
Twst -
628, 1 5
11,27
.116.850
15. 239, 652
3.915,518
Fne-cut chewng
Scrapchewng
Snuff...
Tota
28,655,881
28,070, 60
Note. These fgures arc sub|ect to revson unt pubshed n the Commssoner s annua report.
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358
MISC LL N OUS.
19 2- -10965
I. T. 3528
INT RN L R NU COD .
The proceeds of War Rsk nsurance payabe to the estate of a
deceased veteran may not be sub|ected to the payment or coecton
of any Federa ta es due from the deceased veteran or hs estate.
dvce s requested whether the proceeds of War Rsk nsurance
payabe to the estate of a deceased veteran may be sub|ected to the
payment or coecton of any Federa ta es due from the deceased
veteran or hs estate.
Secton 3 of the ct of ugust 12, 1935 ( 9 Stat., 607), entted
n ct to safeguard the estates of veterans derved from payments
of penson, compensaton, emergency offcers retrement pay and n-
surance, and for other purposes, provdes n part as foows:
Sec. 3. Payments of benefts made to, or on account of, a benefcary
under any of the aws reatng to veterans sha be e empt from ta aton, sha be
e empt from the cams of credtors, and sha not be abe to attachment, evy,
or sezure by or under any ega or equtabe process whatever, ether before
or after recept by the benefcary. Itacs supped.
In tgaton n the State courts the queston has been rased whether
the estate of the nsured veteran s a benefcary under any of the
aws reatng to veterans wthn the meanng of the secton quoted
above wth respect to the proceeds of War Rsk nsurance. In In re
oow s state (223 Ws., 262, 270 N. W., 82), t was hed that the
estate s not such a benefcary, whereas n In re McCormck 1
state (8 N. Y. Supp. (2d), 179), t was hed n effect that the estate
s such a benefcary. ny doubts to whch the cted decsons
mght have gven rse appear to have been resoved, n so far as con-
cerns the coecton of Federa ta es, by secton 5 of the ct of Octo-
ber 17. 19 0 (5 Stat., 1195), whereby secton 3 of the ct of ugust
12, 1935, supra, was amended by the addton thereto of a provson
whch drects that t
sha be construed to prohbt the coecton by set-off or other-wse,
out of any benefts payabe pursuant to any aw admnstered by the eterans
dmnstraton and reatng to veterans, ther estates, or ther dependents, of
any cam of the Unted States or any agency thereof aganst (a) any person
other than the ndebted benefcary or hs estate; or (b) any benefcary or
hs estate e cept amounts due the Unted States by such benefcary or h
estate by reason of overpayments or ega payments made under such aws
reatng to veterans, to such benefcary or hs estate or to hs dependents
as such . Itacs supped.
The term benefcary as used n the amendment seems ceary
to ncude the estate of an nsured veteran, because there are ncuded
n the prohbton any benefts payabe pursuant to any aw re-
atng to veterans, ther estates, or ther dependents, whch s admns-
tered by the eterans dmnstraton. The proceeds of a War Rsk
nsurance pocy are ceary benefts pad under such aws.
ccordngy, t s hed that, pursuant to secton 3 of the ct of
ugust 12, 1935, supra, as amended by secton 5 of the ct of Octo-
ber 17, 19 0, supra, the proceeds of War Rsk nsurance payabe to
the estate of a deceased veteran may not be sub|ected to the payment
or coecton of any Federa ta es due from the deceased veteran or
hs estate.
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19 2- -10966
T. D.5109
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 71.
INCOM , ST T , ND GIFT T S.
Reguatons governng the acceptance of Treasury notes of Ta
Seres -19 3, -19 3, -19 , and -19 n payment of ncome,
estate, and gft ta es.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
Sec. 71.1. cceptance of Treasury notes of Ta Seres -19 3,
-19 3, -19 , and -19 n payment of ncome, estate, and gft
ta es. Notes of the Unted States desgnated as Treasury notes of
Ta Seres -19 3, Treasury notes of Ta Seres -19 3, Treasury
notes of Ta Seres -19 , and Treasury notes of Ta Seres -19
may be accepted n payment of ncome ta es (current and back per-
sona and corporaton ta es, and e cess-profts ta es) and estate and
gft ta es (current and back), at par and nterest accrued to the
month, ncusve, n whch presented (but no accrua beyond the
maturty date). Coectors of nterna revenue are authorzed and
drected to accept the notes f at east one fu caendar month n-
tervenes between the month of acceptance and the month of pur-
chase (as shown by the ssung agent s datng stamp on each note).
For e ampe, a note of Ta Seres -19 purchased n anuary,
19 2, may be accepted n March, 19 2, but such a note purchased n
February, 19 2, may not be accepted unt pr, 19 2. The notes
may be accepted ony n payment of ncome, estate, and gft ta es
(current and back) due from the orgna purchaser thereof or hs
estate. The notes sha be n the name of the ta payer (ndvdua,
corporaton, or other entty) and may be presented for ta payment
by the ta payer, hs agent, or hs estate. Not more than 1,200 n
prncpa amount of notes of Ta Seres -19 3, or of Ta Seres
-19 , or of the two n combnaton, pus the amount of the ac-
crued nterest thereon, may be accepted on account of any one ta -
payer s abty for ncome ta es (ncudng e cess-profts ta es),
or gft ta es, for any ta abe year or on account of any one ta payer s
abty for estate ta ; but n the case of the ncome ta ths mta-
ton sha appy separatey to husband and wfe on a |ont return
and aso to an owner before death and to hs estate for the baance
of the same year.
Coectors of nterna revenue sha not n any case aow credt
to a ta payer on account of notes, or accept notes, for an amount
greater than ther prncpa amount pus accrued nterest, nor sha
notes be accepted n an amount (ncudng accrued nterest) greater
than the unpad abty of the ta payer. The notes sha be for-
warded to the coector of nterna revenue wth whom the ta return
s fed, at the rsk and e pense of the ta payer, and, for the ta -
payer s protecton, shoud be forwarded by regstered ma, f not
presented n person. (Sees. 3657 and 3791 of the Interna Revenue
Code (53 Stat., 7, 67, 26 U. S. C, 19 0 ed., 3657, 3791) and sec. 18
of the Second Lberty ond ct of 1917, as amended ( 0 Stat., 1309,
81 U.S. C., 19 0 ed.,753).)
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360
Sec. 71.2. Procedure vnth respect to Treasury notes of Ta Seres
-19 3, -19 3, -19U, and -19 Deposts of Treasury notes
of Ta Seres -19 3, -19 3, -19 , and -19 receved n pay-
ment of ncome, estate, and gft ta es sha be made by the coector
of nterna revenue n a Federa reserve bank or a branch Federa
reserve bank. Pror to depost the coector of nterna revenue w
certfy on the reverse sde of the notes that they were receved n
payment of ncome, estate, or gft ta , as the case may be, and w
show n the ndorsement stamp the date of depost. (Sees. 3657 and
3791 of the Interna Revenue Code (53 Stat., 7, 67, 26 U. S. C.
19 0 ed., 3657, 3791) and sec. 18 of the Second Lberty ond ct of
1917, as amended ( 0 Stat., 1309, 31 U. S. C, 19 0 ed., 753).)
Sec. 71.3. Pror Treasury decson superseded. Treasury Decson
506 C. . 19 1-2, 110 s hereby superseded. (Sees. 3657 and
3791 of the Interna Revenue Code (53 Stat., 7, 67, 26 U. S. C,
19 0 ed., 3657, 3791) and sec. 18 of the Second Lberty ond ct
of 1917, as amended ( 0 Stat., 1309, 31 U. S. C, 19 0 ed., 753).)
Gut T. everng,
Commssoner of Interna Revenue.
pproved anuary 16, 19 2.
D. W. e,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster anuary 17, 19 2, 12. 8 p. m.)
19 2- -10967
D. C. 667 (3d amendt.)
19 1. Thrd amendment to Department Crcuar No. 667. Fsca Servce. ureau of
the Pubc Debt.
The Unted States of merca. Treasury notes. Ta Seres
-19 3; Ta Seres -19 3. Dated ugust 1, 19 1; due ugust 1,
19 3. Issued at par and accrued nterest. cceptabe at par and
accrued nterest n payment of Federa ncome ta es.
Treasury Department,
Offce of the Secretary,
Washngton, December S3, 19 1.
1. Secton I of the Department Crcuar No. 667, dated uy 22,
19 1, s hereby amended to read as foows:
I . Presentaton n Patment of Ta es.
1. Durng and after the thrd caendar month from month of purchase (as
shown by the date of ssue on each note), but not before anuary 1, 19 2,
durng such tme, and under such rues and reguatons as the Commssoner
of Interna Revenue, wth the approva of the Secretary of the Treasury,
sha prescrbe, notes ssued hereunder n the name of a ta payer (ndvdua,
corporaton, or other entty) may be presented and surrendered by such ta -
payer, hs agent, or hs estate, to the coector of Interna revenue, to whom
the ta return s made, and w be recevabe by the coector at par and
accrued nterest from ugust, 19 1, to the month, ncusve (but no accrua
beyond ugust, 19 3), n whch presented n payment of any Federa ncome
ta es (current and back persona and corporaton ta es, and e cess-profts
ta es), or any Federa estate or gft ta es (current and back), assessed aganst
the orgna purchaser or hs estate, but the coector w accept (a) not more
than 1,200 prncpa amount of notes of Ta Seres -19 3. and (6) the
amount of the accrued Interest thereon, on account of any one ta payer s abty
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361
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for each cass of ta es (ncome, estate, or gft) for each ta abe perod:
Provded, That ths mtaton sha appy separatey to husband and wfe on a
|ont return, and sha appy separatey to an owner before death and to hs
estate for the baance of the same year. The notes must be forwarded to the
coector at the rsk and e pense of the owner, and, for hs protecton, shoud
be forwarded by regstered ma, f not presented n person.
D. W. e,
ctng Secretary of the Treasury.
19 2- -10968
D. C.67
10 1. Department Crcuar No. 67 . Fsca Servce. ureau of the Pubc Debt.
Unted States of merca. Treasury ta savngs notes. Ta
Seres -19 ; Ta Seres -19 . Dated anuary 1, 19 2; due
anuary 1, 19 . Issued at par and accrued nterest. cceptabe
at par and accrued nterest n payment of Federa ncome, estate,
and gft ta es.
Treasury Department,
Offce of the Secretary,
Washngton, December 16,19 1.
I. OFF RING of notes.
1. The Secretary of the Treasury, pursuant to the authorty of the
Second Lberty ond ct, as amended, offers for sae, to the peope
of the Unted States, at par and accrued nterest, two ssues of non-
transferabe notes of the Unted States, desgnated Treasury notes
of Ta Seres -19 , and Treasury notes of Ta Seres -19 ,
whch notes, under authorty of secton 3657 of the Interna Revenue
Code, and sub|ect to the mtaton and condtons herenafter set
forth, w be recevabe, at par and accrued nterest, n payment of
Federa ncome, estate, and gft ta es.
2. The notes w be paced on sae anuary 1, 19 2, and the sae
w contnue unt December 31, 19 2, uness earer termnated, as
to ether or both seres, by the Secretary of the Treasury.
II. D SCRIPTION OF NOT S.
1. Genera. The notes of both seres w be dated anuary 1,
19 2; they w mature anuary 1, 19 , and may not be caed by
the Secretary of the Treasury for redempton before maturty. Sub-
|ect to the mtatons and condtons set forth n Secton I of
ths crcuar, the notes of both seres w be recevabe, at par and
accrued nterest, n payment of Federa ncome, estate, and gft
ta es. If the notes are not presented n payment of ta es, they w
be payabe at maturty, or, at the owner s opton and request, they
w be redeemabe before maturty, as provded n Secton of ths
crcuar, but n ether case payment w be made ony at the prce
pad for the notes.
2. Form, nscrpton, datng. The owner s name and address w
be entered on each note at the tme of ts ssue by an authorzed
ssung agent, and the date of ssue w be shown by an mprnt of
the agenrs datng stamp. The month n whch payment s receved
and credted by a Federa reserve bank or branch, or by the Treasurer
of the Unted States, w determne the purchase prce and ssue
date of each note. The notes may not be transferred, e cept, that f
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362
notes are hed by a corporaton ownng more than 50 per cent of the
stock, wth votng power, of another corporaton, such notes may be
transferred to the subsdary rpon request of the corporaton and
surrender of the notes to the agent that ssued them. No hypotheca-
ton of the notes on any account w be recognzed by the Treasury
Department, and they w not be accepted to secure deposts of
pubc money.
3. Denomnatons and nterest. The notes of Ta Seres -19
w be ssued n denomnatons of 25, 50, 100, 500, and 1,000, and
nterest thereon w accrue from anuary, 19 2, n the amount of
16 cents each month on each 100 prncpa amount, that s, cents
on each 25, 8 cents on each 50, 16 cents on each 100, 80 cents on
each 500, and 1.60 on each 1,000 denomnaton of note. The notes
of Ta Seres -19 w be ssued n denomnatons of 100, 500,
1,000, 10,000, 100,000, 500,000, and 1,000,000, and nterest thereon
w accrue from anuary, 19 2, n the amount of cents each month
on each 100 prncpa amount, that s, cents on each 100, 20 cents
on each 500, 0 cents on each 1,000, on each 10,000, 0 on each
100,000, 200 on each 500,000, and 00 on each 1,000,000 denomna-
ton of note. In no case, however, sha nterest accrue beyond the
month n whch the note s presented n payment of ta es, or beyond
ts maturty. changes of authorzed denomnatons of each seres
from hgher to ower, but not from ower to hgher, may be arranged
at the offce of the agent that ssued the note.
. Purchase prce and ta -payment vaue. Tabes are appended
to ths crcuar showng the prncpa amount wth accrued nterest
added, for notes of each denomnaton of each seres, for each month
from anuary, 19 2 to anuary, 19 , ncusve. The tota shown
for any denomnaton for any month anuary through December,
19 2 whe the notes reman on sae, s the purchase prce, or cost,
of the note durng that month. so, the tota shown for any de-
nomnaton for any month anuary, 19 2, through anuary, 19
s the ta -payment vaue of the note f recevabe durng that month
n payment of ta es, sub|ect to the provsons of Secton I of ths
crcuar.
5. Ta aton. Income derved from the notes sha be sub|ect to
a Federa ta es, now or hereafter mposed. The notes sha be
sub|ect to estate, nhertance, gft, or other e cse ta es, whether
Federa or State, but sha be e empt from a ta aton now or
hereafter mposed on the prncpa or nterest thereof by any State,
or any of the possessons of the Unted States, or by any oca ta -
ng authorty.
III. PURC S OF NOT S.
1. ppcatons and payment. ppcatons w be receved by the
Federa reserve banks and branches, and by the Treasurer of the
Unted States, Washngton, D. C. ankng nsttutons generay
may submt appcatons for account of customers, but ony the Fed-
era reserve banks and the Treasury Department are authorzed to
act as offca agences. very appcaton must be accompaned by
payment n fu, at par and accrued nterest from anuary, 19 2,
to the month n whch payment n mmedatey avaabe funds s
receved by a Federa reserve bank or branch, or the Treasurer of
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363
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the Unted States. ny form of e change, ncudng persona checks,
w be accepted sub|ect to coecton, and shoud De drawn to the
order of the Federa reserve bank or of the Treasurer of the Unted
States, as payee as the case may be; defense savngs stamps w be
accepted at ther face vaue n eu of cash. The date funds are
made avaabe on coecton of e change w govern the ssue prce
and ssue date of the notes. ny depostary, quafed pursuant to
the provsons of Treasury Department Crcuar No. 92 (revsed
February 23, 1932, as suppemented) w be permtted to make pay-
ment by credt for notes apped for on behaf of tsef or ts cus-
tomers up to any amount for whch t sha be quafed n e cess
of e stng deposts.
2. Reservatons. The Secretary of the Treasury reserves the rght
to re|ect any appcaton n whoe or n part, and to refuse to ssue
or permt to be ssued hereunder any notes of ether or both seres
n any case or n any cass or casses of cases f he deems such acton
to be n the pubc nterest, and hs acton n any such respect sha
be fna. If an appcaton s re|ected, n whoe or n part, any pay-
ment receved therefor w be refunded. The Secretary of the Treas-
ury, n hs dscreton, may desgnate agences other than those heren
provded for the sae of, or for the handng of appcatons for,
Treasury notes to be ssued hereunder.
3. Devery of notes. Upon acceptance of fu-pad appcatons,
notes w be duy ssued and, uness devered n person, w be
devered by regstered ma wthn the contnenta Unted States,
the Terrtores and nsuar possessons of the Unted States, the
Cana Zone and the Phppne Isands. No deveres esewhere
w be made.
. Form of appcaton. In appyng for notes under ths crcuar,
care shoud be e ercsed to specfy whether those of Ta Seres
-19 , or Ta Seres -19 are desred, and there must be furnshed
the name and address of the ndvdua, corporaton, or other entty
n whch the notes are to be ssued; and f address for the devery
of the notes s dfferent, approprate nstructons shoud be gven.
The name shoud be n the same form as that used n the Federa
ta return of the purchaser, e cept that n the case of |ont ta
returns of ndvduas, the notes shoud be nscrbed ndvduay
the notes w not be ssued n the names of two or more persons
|onty. The appcaton shoud be accompaned by remttance to
cover the purchase prce that s, par together wth accrued nterest
from anuary, 19 2, to the month n whch the appcaton w be
receved and the remttance coected by an authorzed ssung agent.
The use of an offca appcaton form s desrabe, but not necessary.
pproprate forms may be obtaned on appcaton to any Federa
reserve bank or branch, or the Treasurer of the Unted States, Wash-
ngton, D. C; bankng nsttutons generay have been supped
wth forms for the use of ther customers.
I . PR S NT TION IN P YM NT OF T S.
1. Durng and after the thrd caendar month from month of
Surchase (as shown by the ssung agent s datng stamp on each note),
urng such tme, and under such rues and reguatons as the Com-
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36
mssoner of Interna Revenue, wth the approva of the Secretary
of the Treasury sha prescrbe, notes ssued hereunder n the name
of a ta payer (ndvdua, corporaton, or other entty) may be pre-
sented and surrendered by such ta payer, hs agent, or hs estate,
to the coector of nterna revenue to whom the ta return s made,
and w be recevabe by the coector at par and accrued nterest
from anuary, 19 2, to the month, ncusve (but no accrua beyond
anuary, 19 ), n whch presented, n payment of any Federa
ncome ta es (current and back persona and corporaton ta es, and
e cess-profts ta es), or any Federa estate or gft ta es (current and
back), assessed aganst the orgna purchaser or hs estate, but the
coector w accept (a) not more than 1,200 prncpa amount of
notes of Ta Seres -19 , or of Ta Seres -19 3, or of the
two n combnaton, and (b) the amount of the accrued nterest
thereon, on account of any one ta payer s abty for each cass of
ta es (ncome, estate, or gft) for each ta abe perod: Provded.
That ths mtaton sha appy separatey to husband and wfe on
a |ont return, and sha appy separatey to an owner before death
and to hs estate for the baance of the same year. The notes must
be forwarded to the coector at the rsk and e pense of the owner,
and, for the owner s protecton, shoud be forwarded by regstered
ma, f not presented n person.
. C S R D MPTION T OR PRIOR TO M TURITY.
1. Genera. ny Treasury note of Ta Seres -19 or Ta
Seres -19 w be redeemed for cash at the purchase prce at or
before maturty. Notes of Ta Seres -19 may be redeemed be-
fore maturty wthout advance notce, but notes of Ta seres -19
may be redeemed before maturty ony after 60 days from date of
ssue (as shown by the datng stamp of the ssung agent) and on
30 days advance notce. The tmey surrender of a note of Ta
Seres -19 , bearng a propery e ecuted request for payment, w
be accepted as consttutng the advance notce requred hereunder.
2. ecuton of request for payment. The owner n whose name
the note s nscrbed must appear before one of the offcers author-
zed by the Secretary of the Treasury to wtness and certfy requests
for payment, estabsh hs dentty, and n the presence of such offcer
sgn the request for payment appearng on the back of the note, add-
ng the address to whch check s to be maed. fter the request
for payment has been so sgned, the wtnessng offcer shoud com-
pete and sgn the certfcate provded for hs use.
3. Offcers authorzed to wtness and certfy requests for payment.
offcers authorzed to wtness and certfy requests for payment of
Unted States savng bonds, as set forth n Treasury Department
Crcuar No. 530, fourth revson, as amended, are hereby authorzed
to wtness and certfy requests for cash redempton of Treasury notes
ssued under ths crcuar. Such offcers ncude Unted States post-
masters, certan other post offce offcas, and the e ecutve offcers of
a banks and trust companes ncorporated n the Unted States or ts
organzed Terrtores, ncudng offcers at branches thereof who are
certfed to the Treasury Department as e ecutve offcers.
. Presentaton and surrender. Notes bearng propery e ecuted
requests for payment must be presented and surrendered to the agent
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365
Msc.
that ssued the notes (as shown by the agent s datng stamp), at the
e pense and rsk of the owner. For the owner s protecton, notes
shoud be forwarded by regstered ma, f not presented n person.
5. Dsabty or death. In case of the dsabty or death of the
owner, and the notes are not to be presented n payment of Federa
ncome, estate, or gft ta es due from hm or from hs estate, nstruc-
tons shoud be obtaned from the ssung agent before the request for
payment s e ecuted, or the notes presented.
6. Parta redempton, Parta cash redempton of notes of ether
seres, correspondng to an authorzed denomnaton, may be made
n the same manner as for fu cash redempton, approprate changes
beng made n the request for payment. In case of parta redemp-
ton of a note, the remander w be ressued n the same name and
wth the same date of ssue as the note surrendered.
7. Payment. Payment of any note, ether at maturty or on re-
dempton before maturty, w be made ony by the Federa reserve
bank or the Treasury Department, as the case may be, that ssued
the note, and w be made by check drawn to the order of the owner,
and maed to the address gven n hs request for payment. In any
case, payment w be made at the purchase prce of the note, that s,
at par and accrued nterest (f any) pad at the tme of purchase.
I. G N R L PRO ISIONS.
1. cept as provded n ths crcuar, the notes ssued hereunder
w be sub|ect to the genera reguatons of the Treasury Department,
now or hereafter prescrbed, governng bonds and notes of the Unted
States.
2. Federa reserve banks and ther branches, as fsca agents of the
Unted States, are authorzed to perform such servces or acts as may
be approprate and necessary under the provsons of ths crcuar,
and under any nstructons gven by the Secretary of the Treasury.
3. The Secretary of the Treasury may at any tme or from tme to
tme suppement or amend the terms of ths crcuar, or of any
amendments or suppements thereto, and may at any tme or from
tme to tme prescrbe amendatory rues and reguatons governng
the offerng of the notes, nformaton as to whch w prompty be
furnshed to the Federa reserve banks.
enry Morgenthau, r.,
Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster December 23, 19 1.)
Treasury Notes Ta Seres -19 .
PURC S PRIC ND T -P YM NT LU DURING SUCC SSI MONT S.
The tabe beow shows the prncpa amount wth accrued nterest added, for
notes of each denomnaton, for each month from anuary, 19 2, to anuary, 19 ,
ncusve. The tota shown for any denomnaton for auy month anuary
through December, 19 2 whe the notes reman on sae, s the purchase prce,
or cost of the note durng that month. so the tota shown for any denomna-
ton for any month anuary, 19 2, through anuary, 19 s the ta -payment
vaue of the note f recevabe durng that month n payment of ta es.
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366
19 2
25
50
100
500
1,000
25.00
50.00
100.00
500.00
1,000. 00
25.0
60.08
100.16
500.80
1.001.60
March
25.08
50.16
100.32
501.60
1,003.20
25.12
60.2
100. 8
502. 0
1,00 .80
25.16
50. 32
100.6
503.20
1,006. 0
25.20
60. 0
100.80
50 .00
1,008.00
uy
25.2
60. 8
100.96
50 .80
1,009.60
25.28
50.56
101.12
505.60
1,011.20
25.32
60.6
101.28
606. 0
1,012.80
October
25.36
50.72
10L
607.20
1, 01 . 0
25. 0
50.80
101.60
608.00
1,016.00
IMS
25.
50.88
101.76
508.80
1,017.60
25. 8
50.96
101.92
509.60
1,019.20
February
25.52
61.0
102.08
610. 0
1,020.80
26. 56
51.12
102.2
611.20
1,022. 0
pr
25.60
61.20
102. 0
612.00
1,02 .00
May
25.6
51.28
102.66
612.80
1,025.60
une..
25.68
61.36
102. 72
613.60
1,027.20
uy
25.72
61.
102.88
51 . 0
1,028.80
ugust
25.76
51.52
103.0
616.20
1,030. 0
September.. ..
25.80
61.60
103.20
616.00
1,032.00
25.8
51.68
103.36
616.80
1,033.60
25.88
61.76
103.52
617.60
1,035.20
19
25.92
61.8
103.68
518. 0
1,036.80
25.96
51.92
103.8
519.20
1,038. 0
Treasury Notes Ta Seres -19 .
PURC S PRIC ND T -P YM NT LU DURING SUCC SSI MONT S.
The tabe beow shows the prncpa amount wth accrued nterest added, for
notes of each denomnaton, for each month from anuary, 19 2, to anuary, 10 ,
Incusve. The tota shown for any denomnaton for any month anuary
through December, 19 2 whe the notes reman on sae, s the purchase prce,
or cost of the note durng that month. so the tota shown for any denomna-
ton for any month anuary, 19 2, through anuary, 19 Is the ta -payment
vaue of the note f recevabe durng that month n payment of ta es.
19 2
100
500
1,000
10,000
100,000
500,000
1,000,000
anuary
100.00
500.00
1,000.00
10,000
100,000
600,000
1, ooo, ooo
February
100.0
500.20
1,000. 0
10,00
100,0 0
500,200
1,000, 00
March
100.08
500. 0
1,000.80
10,008
100,080
500, 00
1,000.800
pr
100.12
500.60
1,001.20
10,012
100,120
600.600
1,001,200
100.16
500.80
1,001.60
10,016
100,160
600,800
1,001,600
100.20
501.00
1,002.00
10,020
100,200
501,000
1,002,000
uy
100.2
601.20
1,002. 0
10,02
100,2 0
501,200
1,002, 00
ugust
100.28
601. 0
1,002.80
10.028
100,280
601, 00
1,002, 800
100.32
501.60
1,003.20
10,032
100,320
501,600
1.003,200
October
100.36
501.80
1,003.60
10,036
100, 360
501,800
1,003,600
November
100. 0
602.00
1.00 .00
10,0 0
100, 00
502,000
1,00 ,000
December
100.
502.20
1,00 . 0
10,0
100. 0
502,200
1,00 . 00
19 3
100. 8
502. 0
1,00 .80
10,0 8
100, 80
502, 00
1,00 ,800
February
100.52
602.60
1,006.20
10,062
100,620
602.600
1,005,200
100.66
602.80
1,005.60
10,056
100,560
502,800
1,006,600
pr
100.60
503.00
1,006.00
10,060
100,600
503.000
1,006,000
May
100.6
503.20
1,006. 0
10,06
100,6 0
603,200
1.006, 00
100.68
503. 0
1,006.80
10,068
100,680
603, 00
1,006,800
uy
100.72
603.60
1,007.20
10,072
100,720
603,000
1,007,200
ugust
100.76
503.80
1,007.60
10,078
100,760
603,800
1,007,600
September
100.80
50 .00
1,008.00
10,080
100,800
50 .000
1,008,000
100.8
60 .20
1,008. 0
10,08
100,8 0
50 ,200
1,008, 00
100.88
50 . 0
1,008.80
10,088
100,880
50 , 00
1,008,800
19
100.92
60 .60
1,009.20
10,092
100,920
60 ,600
1,009,200
100.96
50 .80
1,009.60
10,096
100,960
60 ,800
1,009,600
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19 2-16-11063
D. C.230 (Rev.)
Laws and Reguatons Governng the Recognton of gents, ttorneys, and
Other Persons Representng Camants efore the Treasury Department
and Offces Thereof.
department crcuar no. 230 1 (as revsed to october 23, 19 1).
Treasury Department,
Offce of the Secretary.
y vrtue of and pursuant to the authorty vested n me, ncudng
the authorty conferred by ct of uy 7, 188 ( 23 Stat., 258), the
foowng rues and reguatons governng the recognton of agents,
attorneys, and other persons representng camants before the
Treasury Department and offces thereof, are hereby prescrbed:
Secton 1. Commttee on Practce. Commttee on Practce Is hereby cre-
ated consstng of three members who sha be apponted by the Secretary of
the Treasury. The Secretary of the Treasury sha desgnate a charman and
vce-charman of the Commttee. The Secretary In hs dscreton may
appont a part-tme member or members of the Commttee, and, whenever n
hs |udgment such acton s necessary, the Secretary may appont some person
to serve temporary as a substtute for a reguar member of the Commttee.
The Commttee sha have such powers to prescrbe rues for ts own govern-
ment and procedure as are set forth esewhere n these reguatons. The Commt-
tee sha meet at such tmes as t may desgnate or at the ca of the charman.
Two members of the Commttee sha consttute a quorum. earngs for the
purpose of takng testmony n proceedngs for suspenson or dsbarment may
be hed by a snge member of the Commttee at such paces as the Commttee
may desgnate, but a fndngs of fact and recommendatons thereon sha be
made by the Commttee.
The Commttee sha receve and act upon appcatons to be recognzed as
attorneys or agents before the Treasury Department; receve and act upon
appcatons for reenroment from attorneys or agents who have been ds-
barred ; receve appcatons for vacaton or modfcaton of orders of suspen-
son or dsbarment; receve compants aganst persons enroed; conduct
hearngs; make nqures; perform other dutes as prescrbed heren: do a
thngs necessary In the matter of proceedngs for enroment, suspenson, ds-
barment, or renstatement of such attorneys or agents, pursuant to these regu-
atons and rues of procedure prescrbed thereunder; and submt ts fndngs
of fact and recommendatons n suspenson and dsbarment cases and n cases
for the vacaton or modfcaton of orders of suspenson and dsbarment to
the Secretary of the Treasury for approva or dsapprova.
The Secretary of the Treasury may appont a person to act as secretary of
the Commttee or desgnate a member of the Commttee to act as secretary.
The secretary of the Commttee sha keep and mantan ts records, sha
have custody of a ts papers, records, ros, and fes, and sha perform such
other dutes reasonaby Incdent to hs offce as the Commttee sha drect. If
no secretary Is apponted or desgnated, the dutes heren enumerated sha
devove upon the charman of the Commttee, or upon such person or persons
as he may desgnate.
The Secretary of the Treasury sha appont an attorney not a member of
the Commttee as attorney for the Government to prepare and present a forma
statements of charges aganst enroed attorneys or agents, to supervse the
gatherng of evdence n support of such charges, ncudng the takng of dep-
ostons, to represent the Government n a proceedngs before the Commt-
tee, and to perform such other dutes reasonaby ncdent to hs poston as the
Commttee sha drect.
Sec. 2. Rues and reguatons reatng to practce. (a) No attorney or agent
sha be egbe to practce before the Treasury Department uness such attorney
or agent s enroed In accordance wth these or pror reguatons, e cept that
ffectve October 1, 1936. Ths crcuar supersedes Treasury Department Crcuar No.
230. dated October 1, 193 , and the amendments thereof and suppements thereto.
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Msc.
368
any Indvdua may appear, wthout enroment, on hs own behaf or In behaf
of a member of hs mmedate famy f such appearance s wthout compensa-
ton ; and a member of a partnershp, an offcer of a corporaton, or an au-
thorzed reguar empoyee of an ndvdua, partnershp, corporaton, or estate,
may kewse appear, wthout enroment, n any matter reatng to such nd-
vdua, partnershp, corporaton, or estate pendng before the Treasury Depart-
ment f he presents adequate dentfcaton to the offcas of the Department.
nroment s not requred for appearances by trustees, recevers, guardans,
admnstrators, and e ecutors on behaf of trusts, recevershps, guardanshps,
or estates of whch such persons are the trustees, recevers, guardans, ad-
mnstrators, or e ecutors, f adequate dentfcaton s presented to the offcas
of the Department. Ths rue aso appes to an ndvdua, a partnershp, an
estate or trust, or a corporaton wth respect to the abty of the ndvdua,
partnershp, estate or trust, or corporaton as a transferee of property of a
ta payer and to a fducary wth respect to the abty of the fducary under
secton 3 C7 of the Revsed Stntutes. No enroed person or other person
authorzed to appear before the Treasury Department wthout enroment sha
represent a camant before the Treasury Department n any matter to whch
the enroee, as offcer or empoyee of the Unted States, gave persona consdera-
ton or as to the facts of whch he ganed knowedge whe n the Government
servce.
No former offcer, cerk, or empoyee of the Treasury Department sha act
as attorney or agent, or as the empoyee of an ttorney or agent wthn two
years after the termnaton of such Treasury empoyment, n any matter pendng
n such Department durng the perod of hs empoyment theren, uness he sha
frst obtan the wrtten consent thereto of the Secretary of the Treasury or hs
duy authorzed representatve. Ths consent w not be granted uness t ap-
pears (1) that the appcant was not, durng the perod of two years mmed-
atey precedng the date of appcaton, empoyed n the partcuar departmenta
or fed secton In whch was pendng the matter, to hande whch consent s
sought, provded that ths requrement sha not appy to persons empoyed n an
admnstratve capacty such as head of a unt, dvson, or secton, or empoyed
as a revewer or conferee or n an advsory capacty; and (2) that empoyment
as an agent or attorney s not prohbted by Tte f, secton 99, Unted States
Code, or other aw, or by the reguatons of the Treasury Department. Such
appcant sha be requred to fe an affdavt to the effect that he gave no per-
sona consderaton to such matter and had no knowedge of the facts nvoved
n such matter whe he was empoyed n the Department, and that he s not
now assocated wth, and w not be assocated wth, any former empoyee who
has ganed knowedge of the case whe empoyed by the Treasury Department,
and that hs empoyment Is not prohbted by Tte 5, secton 99, Unted States
Code, or other aw, or by the reguatons of the Treasury Department. The
statements contaned In such affdavt sha not be suffcent f dsproved by an
e amnaton of the fes and records pertanng to the case. ppcatons for
consent shoud be drected to the Commttee on Practce on Form 901 and shoud
state the former connecton wth the Department of the appcant and dentfy
the matter n whch the appcant desres to appear. The appcant sha be
prompty advsed as to hs prvege to appear n the partcuar matter, and
ths notce sha be fed by hm n the record of the case.
Nor sha any enroed person knowngy (1) assst a person who has been
empoyed by a cent to represent hm before the Treasury Department n
connecton wth any matter to whch such person gave persona consderaton
or as to the facts of whch such person ganed persona knowedge whe n
the Government servce, or (2) accept assstance from any such person n
connecton wth any such matter, or (3) share fees wth any such person n
connecton wth any such matter.
(6) Practce before the Treasury Department sha be deemed to compre-
hend a matters connected wth the presentaton of a cent s nterests to the
Treasury Department, ncudng the preparaton and fng of necessary wrtten
documents, and correspondence wth the Treasury Department reatve to such
Interests. Uness otherwse stated the term Trensury Department as used
n ths paragraph and esewhere In these reguatons ncudes any dvson.
It 1h unawfu for any former offcer, cerk, or empoyee In any of the e ecutve depart-
ments to act as counse, attorney, or acent for prosecutng, wthn two years ne t after he
sha have ceased to he such offcer, cerk, or empoyee, any cam Invovng a demand for
money from the Unted States whch was pendng n an e ecutve department whe he was
empoyed as an of er, cerk, or empoyee In such e ecutve department or In any other
e ecutve department. (See aso 20 Op. tty. Gen., 695.)
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369
Mtao.
branch, bureau, offce, or unt of the Treasury Department, whether n Wash-
ngton or In the fed, and any offcer or empoyee of any such dvson, branch,
bureau, offce, or unt.
(c) ach enroed attorney or agent who knows that a cent has not com-
ped wth the aw or has made an error n, or an omsson from, any return,
document, affdavt, or other paper, whch the aw requres such cent to
e ecute, sha advse hs cent prompty of the fact of such noncompance,
error, or omsson.
(d) It sha be the duty of an enroed attorney or agent, when requested
by the Commttee or the attorney for the Government, to gve the Commttee
or the sad attorney any nformaton whch he may have concernng voatons
of these reguatons or of the occurrence of any acts or omssons whch woud
be grounds for suspenson or dsbarment, uness sad nformaton s prveged.
(e) very enroed attorney or agent practcng as an ndvdua sha use
hs ega name n the conduct of hs ega, accountng, or other professona
practce. The term company, assocates, accountants, audtors,
engneers, or other pura forms suggestng a partnershp, or anguage of
smar mport, used n connecton wth a name or tte, or any fcttous tte,
or trade name, sha be used ony by a bona fde partnershp consstng of two
or more members, and a statonery, stngs, advertsements, and announce-
ments of enroed persons sha conform to the prncpes heren stated.
(/) n agent enroed before the Treasury Department sha have the same
rghts, powers, and prveges and he sub|ect to the same dutes as an enroed
attorney, provded that an enroed agent sha not have the prvege of
draftng or preparng any wrtten nstrument by whch tte to rea or persona
property may e conveyed or transferred for the purpose of affectng Federa
ta es, nor sha such enroed agent advse a cent as to the ega suffcency
of such an nstrument or ts ega effect upon the Federa ta es of such cent,
and provded further that nothng n these reguatons sha be construed as
authorzng persons not members of the bar to practce aw.
(|7) very cam, affdavt, wrtten argument, bref, or statement of fact,
prepared or fed by an enroed attorney or agent n any matter pendng
before the Treasury Department, sha have aff ed thereto a statement sgned
by such attorney or agent showng whether he prepared such document and
whether or not he knows of hs own knowedge that the statements of fact
contaned theren are true.
(h) It sha be the duty of any enroed attorney or agent who prepares a
return for a ta payer to sgn and e ecute before a notary pubc or other
offca authorzed to admnster an oath a statement showng that he prepared
the return, that the Informaton set out n the return and the accompanyng
schedues, f any, correcty and truy represents the nformaton furnshed to or
dscovered by hm durng the course of preparaton of the return, and that
such nformaton s true accordng to the best of hs nformaton and beef
(T. D. 16 C. . III-1, 68 (193 ) ), or such modfed form of statement of
pmar character as may hereafter be prescrbed by Treasury reguatons.
() No enroed attorney or agent as notary pubc sha take acknowedg-
ments, admnster oaths, certfy papers, or perform any offca act n connecton
wth matters n whch he Is empoyed as counse, attorney, or agent, or n
whch he may be n any way nterested before the Treasury Department. ( ct
of une 29, 1906, 3 Stat, 622.) Under the provsons of ths paragraph an
enroed person who s a notary pubc s prohbted from takng any acknowedg-
ment, oath, or certfcaton as a notary pubc In connecton wth any ta return,
protest, or other document whch he has prepared or n the preparaton of whch
he has asssted.
(/) It sha he Incumbent upon each enroed person (1) who s authorzed
to practce as a certfed pubc accountant or as a pubc accountant to man-
tan unmpared hs rght to practce as a certfed pubc accountant or pubc
accountant; (2) who s admtted to practce before any court to mantan
unmpared hs rght to practce before such court; and (3) who s enroed
or admtted to practce before another department or agency of the Govern-
ment to mantan unmpared hs standng before such department or agency.
(fc) No enroed person sha mantan a partnershp for the practce of aw,
accountancy, or other reated professona servce wth a person who s under
dsbarment from practcng before the Treasury Department or any other Gov-
ernment department or agency, or wth an unenroed person who s nether
an attorney egay practcng aw nor a certfed pubc accountant or a pubc
accountant egay practcng accountancy.
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370
(I) No enroed person sha be connected wth an accountng corporaton
ether as offcer, empoyee, or stockhoder; nor sha any enroed person, whe
empoyed as an offcer, empoyee, attorney, or agent of any corporaton, prac-
tce before the Treasury Department on behaf of such corporaton as the
representatve of the offcers, empoyees, drectors, stockhoders or members,
customers or cents, of such corporaton, e cept as permtted by secton 5 of
these reguatons. The term corporaton as used n ths paragraph and
esewhere n these reguatons sha be deemed to ncude assocatons, ont
stock companes, and Insurance companes. Nothng contaned heren sha
prevent an enroed person from beng empoyed by agrcutura cooperatve
assocatons, on a nonproft bass and not sub|ect to Federa ncome ta es, to
represent before the Treasury Department the groups or unts consttutng
membershp of such assocatons, provded that ndvduas may not be so
represented.
(m) No enroed person sha represent before the Treasury Department
cents of an unenroed person who s nether an attorney nor an accountant
reguary engaged n the practce of accountancy nor a customhouse broker, or
who to the knowedge of the enroed person socts busness, obtans cents,
or otherwse conducts bs practce n a manner forbdden under these regua-
tons to enroed persons.
(n) No enroed person sha n any Treasury Department matter knowngy
and drecty or Indrecty:
1. mpoy or accept assstance from any unenroed person whose appcaton
for enroment sha at any tme have been dened for a cause nvovng mora
turptude, or from a person who has been dsbarred from practce before any de-
partment or agency of the Government or before any court of record, or who s
under suspenson from practce before any such department, agency, or court,
or who has been deprved of hs certfcate as a certfed pubc accountant or
pubc accountant, or whose name after the effectve date hereof has been
strcken from the ro of attorneys and agents authorzed to represent cam-
ants before the Treasury Department n the course of dsbarment proceedngs
aganst hm, or
2. ccept empoyment as assocate, correspondent, or subagent, from, or share
fees wth, any such person, or any person who s not an attorney or a pubc
accountant reguary engaged n the practce of accountancy, or who s not a
censed customhouse broker.
(o) ach enroed person sha e ercse due dgence n preparng fnanca
statements for cents and In certfyng to the correctness of the same.
(p) ach enroed person sha e ercse due dgence to ascertan the correct-
ness of any nformaton whch he mparts to a cent wth reference to any
Treasury Department matter, and no enroed person sha wthhod nformaton
reatve to any such matter from a cent who Is entted to the nformaton.
(g) ach enroed person sha prompty pay over to the Government when
due a sums receved for the payment of any duty, ta , or other debt or obgaton
owng to the Government, and sha prompty account to cents for funds receved
for them from the Government, or receved from a cent n e cess of the charges
propery payabe n respect of the cent s busness.
(r) No enroed person sha wthout authorty of hs cent ndorse or accept
any Government draft, check, or warrant drawn to the order of such cent.
( ) No enroed person sha attempt to Infuence the acton of any offca or
empoyee of the Treasury Department n any Treasury Department matter by the
use of threats, fase accusatons, duress, or by the offer of any speca nducement
or promse of advantage, or by the bestowng of any gft or favor or other thng
of vaue.
(t) No enroed person sha negect or refuse to produce records or evdence
n any matter before the Treasury Department upon proper and awfu demand
by a duy authorzed agent of the Department, uness the attorney or agent has
reasonabe grounds to beeve and does beeve that the sad demand Is of doubtfu
egaty; or sha otherwse Interfere, or attempt to Interfere, wth any proper
and awfu efforts by such Department or agent to procure such nformaton.
( ) No enroed person sha procure, or attempt to procure, drecty or nd-
recty, from Government records or other Government sources Informaton of any
knd whch s not made avaabe by proper authorty.
( ) No enroed attorney or agent sha n any manner whatsoever soct,
drecty or ndrecty, or by mpcaton, empoyment from persona not cents or
frends n matters before the Treasury Department or n matters reated thereto.
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371
Msc.
mong other thngs the foowng sha be deemed to be prohbted by ths
paragraph:
1. The pubcaton of artces or the devery of addresses on Federa ta ques-
tons by an enroed person over the rado or esewhere n connecton wth whch
the name of the frm of whch he s a member, assocate, or empoyee, or the
address of the wrter or speaker s gven ether by the wrter, speaker, announcer,
or pubsher, provded that nothng heren sha be construed to prohbt the
pubcaton, by perodcas admtted to second-cass mang prveges, of such
nformaton concernng contrbutors of artces as s usuay pubshed n such
perodcas.
2. The mang of crcuars, etters, pamphets, or other prnted or wrtten
matter to persons not cents or frends of such enroed person whch contan no
drect soctaton of empoyment but whch do Incude the name and a descrpton
of the practce and address of such enroed person.
3. dvertsng In one or more of the foowng forms: (a) Sgns, prntng,
or other advertsng matter, ndcatng prevous connecton wth the Treasury
Department; (6) representaton, oray, In wrtng, or n any other manner,
of speca nfuence wth the offcas or empoyees of the Treasury Department
through acquantance or otherwse; (c) the use of any tte or other descrpton
of the attorney or agent or hs practce whch tends to suggest some connecton
wth the Treasury Department of the Unted States, and any tte or descrp-
ton contanng the words Unted States sha be presumed to carry such
suggeston, e cept that there s no ob|ecton to the use of the words nroed
to practce before the Unted States Treasury Department ; (d) dstrbuton of
buetns, crcuars, pamphets, or so-caed ta servces, to persons who
are not cents or frends of the attorney or agent contanng decsons or
rungs of the Treasury Department, Unted States oard of Ta ppeas,
or courts on Federa ta matters, or comment thereon by the attorney or agent;
(e) dstrbuton to persons not cents or frends of the practtoner of crcu-
ars or pamphets advertsng any busness, educatona, or soca Insttuton,
or organzaton, whch crcuar or pamphet contans a card or advertsement
of the practce of such attorney or agent.
The foowng knds of advertsng w not be deemed to consttute a voaton
of paragraph ( ) :
(1) Letterheads, professona cards, and the customary professona nser-
tons n professona, teephone, and cty drectores, or In newspapers, trade
or professona ournas, or other pubcatons admtted to second-cass mang
prveges, provded they set forth ony the name and address of the attorney
or agent or the name of the frm of whch he Is a member or wth whch he
s assocated, a bref descrpton of the nature of hs practce, to wt, whether
he practces as an attorney or accountant, and, f desred, any fed of practce
or servce n whch such attorney or agent may specaze;
(2) The dstrbuton by former offcers or empoyees of the Government of
cards brefy statng the fact of ther former offca status and announcng ther
new assocaton: Provded, The cards are addressed ony to persona or busness
acquantances: nd provded further, That such cards are dstrbuted ony once
and wthn a reasonabe tme after severance of offca connecton wth the
Government and wthn 30 days after the formaton of a new assocaton.
(w) ach enroed person sha e ercse due dgence n preparng or assst-
ng n the preparaton of, approvng, and fng returns, documents, affdavts,
and other papers reatng to Treasury Department matters, and n otherwse
representng cents before the Treasury Department; and no enroed person
sha unreasonaby deay the prompt dsposton of matters before the Treasury
Department by negectng to answer correspondence, by unreasonaby deayng
the fng of cosng agreements, by fng frvoous cams for refunds, or
otherwse.
) It sha be the duty of every enroed person who becomes an offcer or
empoyee of the Treasury Department to request that hs name be strcken
from the ro and to surrender to the Commttee hs enroment card for can-
ceaton ; and It sha be the duty of every other enroed person who becomes
a udge of any court of record or an offcer or empoyee (1) of the Unted
States, (2) of any corporaton owned whoy by the Unted States, (3) of the
Dstrct of Coumba, or ( ) of any State or subdvson thereof whose dutes
dscose facts or nformaton appcabe to Federa ta matters, to request
the Commttee on Practce to pace hs name on the nactve st of Treasury
Department practtoners durng the perod of such ncumbency.
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Msc.
372
(y) No enroed person sha e act from hs cent a manfesty unreasonabe
fee, whether contngent or otherwse, n any matter before the Treasury De-
partment. The reasonabeness of a fee In any case s wthn mts a matter
of |udgment and depends upon a the facts and crcumstances thereof, ncudng
the compe ty and dffcuty of the case, the amount of tme and abor requred
for ts proper preparaton and presentaton, the amount nvoved, and the
professona standng and e perence of the attorney or agent.
whoy contngent fee agreement sha not be entered Into wth a ceut
by an enroed person uness the fnanca status of the cent s such that be
woud otherwse be unabe to obtan the servces of an attorney or agent.
Partay contngent fee agreements are permssbe where provson s made for
the payment of a mnmum fee, substanta n reaton to the possbe ma mum
fee, whch mnmum fee s to be pad and retaned rrespectve of the outcome
of the proceedng. Such mnmum fee need not be pad n advance, f provson
for ts payment s made rrespectve of the outcome of the case. The payment
of or agreement to pay a nomna mnmum fee w not satsfy the requre-
ments of ths subsecton.
Whenever an enroed attorney or agent sha enter nto a contract to
represent a cent before the Treasury Department on a whoy or partay
contngent bass, he sha fe wth the Commttee a sgned statement to that
effect, contanng the terms of the contract as they reate to compensaton.
When a power of attorney s fed wth the Treasury Department t sha
be the duty of the attorney or agent fng the same to fe therewth a state-
ment as foows:
(Pace)
(Date)
have 1
have not I entere 1 mto a contngent or partay
contngent fee agreement for the representaton before the Department of
In the matter of
under the terms of a power of attorney fed wth the Treasury Department on , and (n case a contngent or partay contngent fee agree-
ment has been made) that a report of such fee agreement not | been made
to the Commttee on Practce.
Ths requrement sha not be appcabe to powers of attorney wheren the
authorty granted s mted to the fng o2 ta or nformaton returns.
(g) ach enroed person sha conduct hs practce n an ethca and pro-
fessona manner and t sha be the duty of each enroed attorney to observe the
canons of ethcs as adopted by the mercan ar ssocaton and of each
enroed agent to observe the ethca standards of the accountng professon.
mong other forms of unethca and unprofessona conduct the foowng
w be deemed to consttute such conduct: The use of ntemperate and abusve
anguage, the makng of fase accusatons or statements knowng them to be
fase, or the crcuaton of macous and beous matter n connecton wth
Treasury practce.
Skc. 3. uafcatons for enroment. (a) Persons of the foowng casses who
are found, upon consderaton of ther appcatons, to possess the quafcatons
requred by these reguatons may be admtted to practce before the Treasury
Department as attorneys or agents, respectvey:
1. ttorneys at aw who have been admtted to practce before the courts of
the States, Terrtores, or Dstrct of Coumba, In whch they mantan offces,
and who are awfuy engaged n the actve practce of ther professon.
2. Certfed pubc accountants who have duy quafed to practce as certfed
pubc accountants n ther own names, under the aws and reguatons of the
States, Terrtores, or Dstrct of Coumba, n whch they mantan offces,
and who are awfuy engaged n actve practce as certfed pubc accountants.
ppcants who are empoyed by corporatons on a fu-tme bass and who
do not mantan offces apart from such empoyment wth ther servces ava-
abe to the genera pubc w not be consdered to be n actve practce wthn
the meanng of the term as used above.
ppcants for enroment to practce before the Treasury Department are
requred by statute to show that they are of good character and In good
repute, possessed of the necessary quafcatons to enabe them to render such
camants vauabe servce, and otherwse competent to advse and assst such
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camants n the presentaton of ther cases. (Tte 5, secton 261, Unted
States Code.) The burden s upon appcants to estabsh ceary ther rght
to enroment by showng that thry possess (1) a good character and reputa-
ton, (2) an adequate educaton, and (3) a knowedge of the aws and regu-
atons reatng to ta matters and other sub|ects whch they e pect to hande
before the Department and of the rues and reguatons governng practce
before the Department.
Good character and good reputaton are not dentca requrements. The
former Is determned by the appcant s actua quates; the atter depends upon
the opnon entertaned of the appcant by those who have had the opportunty
of knowng hm In the communty n whch he resdes or n whch he practces
hs professon. It foows that evdence of any act or omsson whch tends
to estabsh ack of Integrty or untrustworthness or other quates repre-
hensbe n a professona man, s matera as bearng upon the character of
the appcant, notwthstandng there s cear proof that hs reputaton s good.
n appcant must furnsh as references the names and addresses of at east
s persons who are acquanted wth hs reputaton and wth whom the app-
cant has come n contact n hs professon or busness.
(6) mong the causes suffcent to ustfy dena of an appcaton for enro-
ment are: ny conduct, or practces, or proposed practces, whch woud con-
sttute a voaton of any of the provsons of these reguatons f the appcant
were enroed or any other conduct whch woud be a ground for suspenson
or dsbarment under the appcabe aw or aws; any conduct whch woud
be deemed grossy unfar In commerca transactons by accepted standards;
or a bad reputaton Imputng to an appcant conduct of a crmna, dshonest,
or unethca knd.
The Commttee on Practce w endeavor to ascertan a the facts deemed
necessary by It to pass upon any appcaton wthout e pense or undue ncon-
venence to the appcant. In the event, however, that the Commttee s not
satsfed wth the Informaton receved, t may requre the appcant to appear
n person before the Commttee or before some person or persons desgnated by
It for the purpose of undergong addtona wrtten or ora e amnaton as to
hs ftness for enroment. The Commttee may grant a hearng on an app-
caton at the appcant s request.
(c) ppcaton for enroment may be dened n any case n whch t appears
that the appcant has termnated hs empoyment wth the Treasury Depart-
ment In voaton of an obgaton assumed as a condton of suc empoyment
to reman In the servce of the Department for a specfed perod or for a
reasonabe tme.
(d) Ony ctzens of the Unted States over the age of 21 years are egbe
for enroment. person who Is unabe for any reason to tnke the oath of
aegance, and to support the Consttuton of the Unted States, as requred
of persons prosecutng cams aganst the Unted States by Tte 31, secton
20 , Unted States Code, can not be enroed.
(e) Corporatons and partnershps are negbe for enroment.
(f) Offcers and empoyees of any State, or subdvson thereof, whose dutes
requre them to pass upon, nvestgate, or dea wth ta matters of such State
or subdvson, sha be negbe for enroment, provded such empoyment may
dscose facts or nformaton appcabe to Federa ta matters.
(g) udges of courts of record sha be negbe for enroment.
(h) persons to whom secton 198 or secton 203 of Tte 18 of the Unted
States Code appes, a persons prohbted by other aw from representng
camants aganst the Unted States, a persons reguary empoyed by cor-
poratons owned whoy by the Unted States, and a persons reguary em-
poyed by the Dstrct of Coumba sha be Inegbe for enroment
(() The quafcatons for enroment stated n subsecton (a) 1 and 2
(begnnng wth the word Persons and endng wth the word accountants )
are prerequstes for genera enroment for practce before the Treasury
Department.
owever, speca enroment for the presentaton of matters before a par-
tcuar bureau or dvson may be effected n the foowng manner: n appcant
for such speca enroment sha present hs quafcatons to the Commttee.
The Commttee sha prescrbe an e amnaton for such appcant. If the
Commttee Is satsfed that the appcant s possessed of the quafcatons
necessary to enabe hm to render vauabe servces to camants and other
persons before the partcuar bureau or dvson before whch he s seekng
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37
authorzaton to practce, It sha Issue to the appcant an approprate speca
enroment card.
Moreover, authorty for the presentaton of a partcuar matter before the
Treasury Department may be effected In the foowng manner: n appcant
for such authorty sha present hs quafcatons to the Commttee. If the
Commttee s satsfed that the appcant Is possessed of the quafcatons
necessary to enabe hm to render vauabe servces to hs prncpa n the
presentaton of the partcuar matter before the Treasury Department, It sha
ssue to the appcant an approprate etter of authorty. Such a etter of
authorty sha not be necessary, e cept n the case of matters before the ureau
of Interna Revenue, f the offcer or empoyee of the bureau or dvson before
whom appearance s made Is satsfed that the person appearng s not under
orders of suspenson or dsbarment from the Treasury Department and s so
ceary quafed that appcaton to the Commttee woud be a useess formaty.
Nothng n ths subsecton sha authorze any procedure to permt a person
to act as a customhouse broker wthout compance wth the requrements of
Department Crcuar No. 559 (Rues and Reguatons Reatng to Customhouse
rokers), nor mt the rghts granted by such Crcuar No. 559 to customhouse
brokers to represent ther cents before the Treasury Department.
Sec. . ppcaton for enroment. ppcants for enroment sha submt
to the Commttee an appcaton n dupcate, propery e ecuted on Form 23,
whch forms a part of these reguatons. ppcatons In any other form may
not be consdered. Members of the bar of an mercan court of record w
appy for enroment as attorneys; a other appcants w appy for enro-
ment as agents. appcatons for enroment must be Indvdua. Whe
members of a partnershp shoud appy as Indvduas and not n the partnershp
name, an enroed attorney or agent may represent cents before the Treasury
Department n the name of the partnershp of whch he s a member or wth
whch he Is otherwse reguary connected. In case a of the members of
a partnershp are not enroed, then the enroed attorney or agent sha be
responsbe for any acts or omssons of the unenroed partner or partners
whch are n voaton of aw or of the provsons of these reguatons, to the
same e tent as though the offendng partner hmsef were enroed.
Sec. 5. Customhouse orokers. Secton 6 1 of the Tarff ct of 1930, as
amended, provdes n part that the Secretary of the Treasury may prescrbe
rues and reguatons governng the censng as customhouse brokers of ct-
zens of the Unted States of good mora character, and of corporatons,
assocatons, and partnershps. The Department s reguatons pursuant thereto
are pubshed In Department Crcuar 559. customhouse broker so censed
requres no further enroment under these reguatons for the transacton,
wthn the customs dstrcts n whch he s censed, of any busness reatng
specfcay to the mportaton or e portaton of merchandse under customs
or nterna-revenue aws. e s aso entted, wthout further cense or en-
roment, to represent camants or other persons before the Treasury Depart-
ment n Washngton n any matter n whch he acted as a customhouse broker
n any dstrct n whch he s censed. When servng In such capacty, a
censed customhouse broker sha, n addton to beng sub|ect to the pro-
vsons of secton 6 1 of the Tarff ct of 1930, as amended, and the rues
and reguatons thereunder, be sub|ect aso to a the provsons of the aws
and reguatons set forth n Treasury Department Crcuar No. 230, as revsed
from tme to tme, and sha be responsbe as specfed n secton 7(d) of
Department Crcuar 559 for voaton of any such aws or reguatons com-
mtted by hs or Its offcers, empoyees, or authorzed attorneys or agents.
In connecton wth the prosecuton on behaf of the prncpa of any busness
before the Treasury Department n Washngton.
Sec. 6. Roster of attorneys and agents, and enroment cards. (a) roster
of a attorneys and agents who make appcaton for enroment or who are
enroed, or whose appcatons have been dened, or who have been sus-
pended or dsbarred, w be kept In the offce of the Commttee on Practce.
bureaus, offces, and dvsons of the Treasury Department sub|ect to the
e ceptons In secton 5 In the case of the ureau of Customs, are prohbted
from recognzng or deang wth any unenroed attorney or agent as the
representatve of any person havng a cam pendng before the Department:
Provded, That the Commttee on Practce may grant, pendng acton upon
an appcaton, temporary recognton to an appcant not requred to take
an e amnaton n connecton wth hs appcaton : nd provded further. That
an unenroed person who has not been dsbarred or suspended from practce
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375
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before the Treasury Department may be permtted to make nta appearance
n a partcuar case. Such permsson sha n no case authors an un-
enroUed person to appear before the Treasury Department n Washngton,
D. C, or to represent a camant n any forma hearng. It sha be the
duty of the Government offca before whom such person appears to notfy hm
that f he wshes to appear further n the case, or n any forma hearng,
or before the Treasury Department n Washngton, t w be necessary to
fe an appcaton for enroment.
(6) The Commttee w furnsh upon request nformaton as to whether
any Indvdua s enroed. Other nformaton w be made avaabe to
the varous departments and agences of the Government and to any person
entted to receve the same n accordance wth the rues and reguatons of
the Treasury Department, nnd, e cept as prohbted by aw, access to the
fes and records of the Commttee w be granted to the Unted States oard
of Ta ppeas and ts representatves.
(c) The Commttee on Practce sha ssue an enroment card to every
attorney or agent upon hs enroment. Uness advsed to the contrary by
the Commttee on Practce, any offcer of the Treasury Department may con-
sder the hoder of such an enroment card as duy authorzed to practce
before the Department.
Sec. 7. Proceedngs for suspenson, dsbarment, and renstatement. (a) If
an offcer or empoyee of the Treasury Department has reason to beeve that
an enroed attorney or agent has voated any provson of the aws or regu-
atons governng practce before the Treasury Department, or If a compant
concernng any enroed attorney or agent s made to any such offcer or
empoyee, he sha prompty make a wrtten report thereof to the attorney
for the Government. If any other person has nformaton of such voatons,
he may aso make wrtten report thereof to the sad attorney. The attorney
and the Commttee w treat as strcty confdenta the dentty of the n-
formant n any case n whch the nformant s other than an offcer or
empoyee of the Treasury Department, uness the nformant n gvng hs
Informaton states that hs Identty and connecton therewth are not
confdenta.
(6) The attorney for the Government may, ether on the bass of such nfor-
maton or upon hs own moton where he has cause to beeve that any enroed
attorney or agent has voated any provson of the aws or reguatons govern-
ng practce before the Treasury Department, nsttute proceedngs before the
Commttee for suspenson or dsbarment aganst any enroed attorney or
agent. Notce thereof, sgned by the secretary or a member of the Commttee,
sha be served upon such attorney or agent, herenafter caed the respondent,
n the foowng manner:
(1) y devery to the respondent personay, or
(2) y regstered ma, wth demand for a return card sgned by the re-
spondent : Provded. That, f an enroed attorney or agent sha have sgned
and fed wth the Commttee on Practce hs wrtten consent to be served In
some other manner It sha be suffcent If servce s made n that manner.
Where the servce s by regstered ma, the recept of the return card duy
sgned sha be satsfactory evdence of servce.
The notce sha gve the pace and tme wthn whch the respondent sha
fe hs answer, whch tme sha be not ess than 20 days from the date of
servce of the notce, and sha contan or be accompaned by a statement of
charges, whch statement sha be sgned by the attorney for the Government,
gvng a pan and concse descrpton of the facts whch t s camed con-
sttute grounds for suspenson or dsbarment, wthout a detaed descrpton of
such facts. statement of charges whch fary nforms the respondent of the
charges aganst hm so that he s abe to prepare hs defense sha be deemed
suffcent. Dfferent means by whch a purpose may have been accompshed or
dfferent ntents wth whch acts may have been commtted may be aeged In
the statement of charges n a snge count In the aternatve. If, n order to
prepare hs defense, the respondent desres addtona Informaton as to the
tme and pace of the aeged msconduct, or the means by whch t was com-
mtted, or any other more specfc nformaton concernng the aeged mscon-
duct, he may present a moton n wrtng to the Commttee askng that the
statement of charges be made more specfc, settng forth n such moton n
specfc manner n what respect the statement of charges eaves hm n doubt
and descrbng the partcuar anguage of the statement of charges as to whch
addtona Informaton s needed. If n the onnon of the Commttee such
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376
Informaton s reasonaby necessary to enabe the respondent to prepare hs
defense, the Commttee sha drect the attorney for the Government to furnsh
the respondent wth an amended statement of charges gvng the needed
nformaton.
The procedure n suspenson and dsbarment proceedngs sha be governed
by the foowng rues:
1. Servce of papers other than the orgna notce and statement of charges.
Papers other than the orgna notce and statement of charges sha be served
on the respondent as foows:
(a) y deverng the same to the respondent personay, or by regstered
ma; or
(6) y eavng them at hs offce wth hs cerk or wth a person n charge
thereof; or
(c) y depostng them n a Unted States post offce or post offce bo ,
encosed n a seaed enveope, pany addressed to such respondent at the
address under whch he s enroed or at hs ast address known to the
Commttee.
(d) When the respondent s represented by attorney, by servce upon the
attorney n the same manner as provded n paragraphs (a), (6), and (c) for
servce on the respondent.
2. The respondent s answer.- The respondent s answer sha be fed wthn
the tme specfed n the orgna notce uness on appcaton the tme s
e tended by the Commttee.
The Commttee may n ts dscreton furnsh a companng wtness wth a
copy of the answer f n ts opnon such acton w ad n ascertanng the
truth or fasty of the charges. The term companng wtness for the pur-
poses of ths provson sha ncude any offcer or empoyee of the Treasury
Department or any enroed attorney or agent who may have reported the
aeged msconduct t the attorney for the Government, or any other person
upon whose nformaton the attorney for the Government has nsttuted the
proceedng.
In hs answer the respondent shoud specfcay admt or deny every matera
aegaton of fact n the statement of charges. very aegaton In the state-
ment of charges not dened sha be deemed admtted, uness the respondent
sha state n hs answer that he has no knowedge thereof suffcent to form
a beef, whch statement sha be consdered a dena. In answer to a state-
ment of charges, no enroed person sha deny a matera aegaton of fact
whch he knows to be true, or state n such answer that he s wthout suffcent
nformaton to form a beef when n fact he possesses such nformaton.
In hs answer the respondent may aso state affrmatvey speca matters of
defense, and sha not gve n evdence any matters n avodance or of defense,
consstent wth the truth of the aegatons of the statement of charges, uness
n hs answer he states such matters specfcay.
answers sha be sworn to before a notary pubc or other offcer authorzed
to admnster an oath and sha be fed n dupcate.
If t appears that a dena of a matera aegaton of fact In the statement
of charges, or a statement that the respondent has no knowedge suffcent
to form a beef, was made n bad fath n the answer; or that the respondent
has knowngy ntroduced fase testmony durng proceedngs aganst hm for
suspenson or dsbarment, the attorney for the Government may thereupon fe
suppementa charges, whch charges may be tred wth the other charges n
the case, provded the respondent sha be gven due notce thereof and afforded
an opportunty for preparng a defense thereto.
3. Repy to answer. If the answer contans affrmatve matter n avodance,
consstent wth the truth of the matera aegatons n the statement of charges,
a repy by the attorney for the Government admttng or denyng the new matter
set forth n the answer sha be fed wth the Commttee and served upon the
respondent In the manner provded for by the rues of the Commttee for the
servce of a papers other than the orgna notce and statement of charges.
. Faure of respondent to answer. If the respondent fas to fe hs answer
n the form requred by these rues and wthn the tme specfed n the notce,
or that specfed by the Commttee where the tme has been e tended, the Com-
mttee may, upon wrtten appcaton, accompaned by a copy of the answer
desred to be fed, aow the respondent to answer whenever In such appca-
ton the respondent sets forth facts whch n the opnon of the Commttee
consttute a suffcent e cuse for the faure to answer wthn the tme specfed.
such wntten appcatons sha he fed In dupcate and under oath.
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5. Notce of tme and pace of hearng. Wrtten notce of the tme and pace
of a hearngs sha be gven the respondent n the manner provded In these
rues for the servce of papers. No hearng sha be hed n ess than 10 days
from the date of servce on the respondent of the notce of such hearng, e cept
that the Commttee may postpone or ad|ourn hearngs when necessary or desr-
abe, on notce to the respondent.
6. Testmony. Testmony sha be taken as foows:
(a) Uness the Commttee sha otherwse drect, the testmony of wtnesses at
a hearngs w be taken under oath and stenographcay recorded and
transcrbed.
(6) Depostons for use at a hearng may, wth the wrtten approva of the
Commttee, be taken by ether the attorney for the Government or the respond-
ent, or ther duy authorzed representatves, upon ora or wrtten nterrogatores,
before a member of the Commttee, any offcer duy authorzed to admnster
an oath for genera purposes, or an offcer of the Interna Revenue ureau
authorzed to admnster an oath n nterna revenue matters, upon not ess
than 10 days wrtten notce to the other party. Such notce sha state the
names of the wtnesses, and the tme and pace where such depostons are to
be taken: Provded, That when depostons are taken as aforesad, f both partes
are present or represented at the tme and pace specfed for the takng of the
depostons, ether party may, after the e amnaton of the wtnesses produced
under the order of the Commttee, be entted to produce and e amne other
wtnesses; but n such case one day s notce must be gven to the other party
or hs duy authorzed representatve there present, uness such notce s
waved: nd provded further, That the partes or ther duy authorzed repre-
sentatves may agree n wrtng upon a tme when and pace at whch such
depostons are to be taken, wthout forma notce. When a deposton Is taken
upon wrtten nterrogatores, any cross-e amnaton sha be upon wrtten nter-
rogatores. Copes of such wrtten Interrogatores sha be served wth the
notce, and copes of any wrtten cross-nterrogatores sha be maed or dev-
ered to the opposng party or hs duy authorzed representatve at east 5 days
before the tme of takng the depostons.
Whenever any book, document, or paper beongng to any ndvdua, partner-
shp, or corporaton s ntroduced as an e hbt n a dsbarment or suspenson
proceedng, the Commttee may authorze, upon such condtons as t may deem
proper, the wthdrawa of such book, document, or paper upon the wrtten
request of the attorney for the Government, or of the respondent or hs attorney.
In the case of a varance between the aegatons n the statement of charges
and the evdence, the Commttee sha have power to base ts fndngs on any
facts estabshed by the evdence whch are grounds for suspenson or dsbar-
ment, and to order the amendment of the statement of charges to conform to the
evdence: Provded, That the respondent has had or s gven reasonabe oppor-
tunty to present hs defense to such amended charges, wth such postponements
of the hearng as may be reasonaby necessary to permt the respondent to
present such defense.
If the Commttee or a ma|orty thereof fnds that a part of the charges In
the statement of charges s not suffcenty proved but that the resdue thereof
Is so proved, t may base ts fndngs on any facts estabshed by the evdence
whch are grounds for suspenson or dsbarment and whch are substantay
charged by the sad resdue of the statement of charges.
The Commttee sha dsregard an mmatera msnomer of a thrd person,
an mmatera mstake n the descrpton of any person, thng, or pace or the
ownershp of any property, a faure to prove mmatera aegatons n the
descrpton of the respondent s conduct, or any other mmatera mstake n the
statement of charges.
Sub|ect to these reguatons, the Commttee may determne the tme, pace, and
manner n whch hearngs sha be conducted; the form n whch evdence sha
be receved; and may adopt rues of procedure and modfy the same from tme
to tme as occason requres for the ordery dsposton of suspenson, dsbarment,
and renstatement cases.
The Commttee sha pass upon the suffcency of the answer and a other
reevant papers fed by the respondent, and upon a ssues of fact that may be
rased. The respondent or hs attorney may be heard upon the suffcency of
the answer fed by hm whenever n the opnon of the Commttee such a
hearng s necessary or desrabe.
7 918 2 13
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378
bearngs sha be hed at tmes and paces f ed by the Commttee, of whch
due notce sha be gven the respondent In accordance wth these reguatons
and the rues adopted by the Commttee.
In makng Its fndngs of fact as to the truth of any charges whch are duy
put n ssue by the papers n any case and upon whch a hearng s had, the
Commttee sha be guded by a preponderance of the evdence. If at any hearng
upon ssues of fact rased by the papers n the case the respondent fas to put
n any evdence, the Commttee may base ts fndngs upon the evdence submtted
by the ttorney for the Government.
(c) In the event that depostons are ntroduced on behaf of the Government
at the hearng or n the event that ora testmony n support of the charges s
produced by the Government at the hearng, the attorney for the Government, as
soon as possbe after the hearng, sha prepare and fe wth the Commttee pro-
posed fndngs of fact based upon a the evdence n the, case. Upon recept of
such proposed fndngs of fact, the Commttee sha forward to the respondent
or hs attorney a copy thereof together wth a copy of the transcrpt of such ora
testmony and depostons as may have been ntroduced. The respondent sha
have not ess than 10 days after recept of such papers In whch to submt n
wrtng to the Commttee hs ob|ectons, f any, to such proposed fndngs of fact.
Nether the respondent nor hs attorney sha have the rght to receve any copes
of e hbts Introduced at the hearng or at the takng of the depostons. The
respondent or hs attorney, however, sha have the rght to e amne a e hbts.
Upon recept of such ob|ectons, or after the tme for fng such ob|ectons has
e pred f no such ob|ectons are fed, or after the hearng f no proposed fndngs
of fact are requred, the Commttee sha make ts fndngs of fact. The Com-
mttee sha have power to dsmss the charges when n ts opnon such charges
have not been proved. If, In the opnon of the Commttee, suspenson or dsbar-
ment shoud be recommended, t sha so report to the Secretary of the Treasury.
Such report sha be sgned by a members of the Commttee agreeng thereto,
and any member of the Commttee dssentng therefrom sha submt a statement
of hs reasons for such dssent.
(d) Upon the approva of such recommendaton by the Secretary of the Treasury
and the ssuance of hs order of suspenson or dsbarment of an attorney or agent,
notce thereof sha be gven by the Commttee to the heads of a nterested
bureaus, offces, and dvsons of the Treasury Department and to other Interested
departments and agences of the Government n such manner as the Commttee
may determne. Such person w not thereafter be recognzed durng the perod
cf suspenson or dsbarment as an attorney or agent n any matter before the
Treasury Department. Notce n such manner as the Commttee may determne
may be gven to the proper authortes n the State from whch an enroed attor-
ney, certfed pubc accountant, or pubc accountant derves hs cense to practce
In the event that such attorney, certfed pubc accountant, or pubc accountant
s suspended or dsbarred
(e) ny attorney or agent who has been suspended or dsbarred may make
wrtten appcaton to the Commttee to have the order of suspenson or dsbar-
ment vacated or modfed upon the ground (1) of newy dscovered evdence, or
(2) that Important evdence s now avaabe whch the appcant was unabe to
produce at the orgna hearng by the e ercse of due dgence. very appca-
ton for renstatement sha be fed wth the Commttee In trpcate. Such ap-
pcaton must set forth specfcay the precse character of the evdence to be
reed upon n ts support and sha state the reasons why the appcant was unabe
to produce t when the orgna charges were heard. If the Commttee after due
consderaton of the appcaton sha deem t suffcenty mertorous to warrant
a hearng, t sha set a tme and pace for such hearng and gve due notce thereof
to the appcant. Upon the concuson of the hearng the Commttee sha submt
ts recommendaton to the Secretary of the Treasury for hs approva or
dsapprova.
In the event that the Secretary sha ssue an order vacatng or modfyng the
pror order of suspenson or dsbarment, notce thereof sha be gven by the
Commttee to a those to whom notce of the orgna order of suspenson or
dsbarment was sent.
In a cases not covered by the foregong provsons, a dsbarred attorney or
agent who desres to be restored to the ro must fe a new appcaton for enro-
ment and otherwse compy wth the requrements of secton 3 of these reguatons.
Skc. 8. uthorty to prosecute cams. power of attorney from the prncpa
In proper form may be requred of enroed attorneys or agents In any case by
beads of bureaus, offces, and dvsons. In the prosecuton of cams before the
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ureau of Interna Revenue, nvovng the asserton of demands for payment
of money by the Unted States, proper powers of attorney sha aways be fed
before an attorney or agent s recognzed.
Seo. 9. Substtuton of attorneys or agents and revocaton of authorty. (a)
Where the power of attorney under whch an enroed attorney or agent s actng
e pressy confers the power of substtuton, such attorney or agent may, by a
duy e ecuted nstrument, substtute another enroed attorney or agent In hs
stead: Provded, That such other attorney or agent w be recognzed as such
ony after due notce n wrtng has been gven the head of the bureau, offce, unt,
or dvson before whch the matter s pendng: nd provded further, That where
the enroed attorney or agent desgnated n the power of attorney, wth power
of substtuton, has hmsef by reason of hs suspenson or dsbarment or hs
subsequent entry nto Government servce (Tte 18, sectons 193 and 203,
Unted States Code) become negbe further to represent before the Treasury
Department the cent who e ecuted the power, the Treasury Department sha
be under no obgaton to recognze any substtute power of attorney e ecuted
at any tme by such attorney or agent, authorzng some other enroed attorney
or agent to appear before the Department upon behaf of such cent, and t
w be necessary for such cent to retan a new attorney or agent.
(6) Where there s a contest between members of a dssoved frm or between
two or more attorneys or agents, actng under the same power of attorney,
as to whch one s entted to prosecute a matter pendng before the Treasury
Department or to receve a draft, warrant, or check, the cent ony sha there-
after be recognzed, uness the members or survvors of the dssoved frm, or
the contestng attorneys or agents, fe an agreement sgned by a desgnatng
whch of them sha be entted to prosecute such matter or to receve the sad
draft, warrant, or check. In no case sha the devery of a fna draft, warrant,
or check to the cent be deayed more than 60 days by reason of faure to fe
such agreement.
(c) The revocaton of an authorty to represent a camant before the Treas-
ury Department sha In no case become effectve, so far as the Department s
concerned, unt due notce n wrtng has been gven the head of the bureau,
offce, or dvson before whch such matter s pendng, and the fng of evdence
of notfcaton of the revocaton to the attorney whose power has been revoked.
Se ;. 10. Dsreputabe conduct. Under the provsons of the ct of uy 7, 188
(23 Stat, 258; Tte 5, secton 261, Unted States Code), the Secretary of the
Treasury may after due notce and opportunty for hearng suspend, and dsbar
from further practce before the Treasury Department any attorney or agent
shown to be ncompetent, dsreputabe, or who refuses to compy wth these
raes and reguatons, or who sha wth ntent to defraud, n any manner
wfuy and knowngy deceve, msead, or threaten any camant or prospectve
camant, by word, crcuar, etter, or by advertsement.
mong other forms of dsreputabe conduct the foowng are deemed to
consttute such conduct:
1. Convcton of a crme nvovng mora turptude.
2. Makng fase answers n the appcaton for enroment wth knowedge
that such answers are fase.
3. Preparng or fng for hmsef or another a fase Federa ncome ta
return or other statement on whch Federa ta es may be based, knowng the
same to be fase.
. Suggestng to a cent or a prospectve cent an ega pan for evadng
payment of Federa ta es, knowng the same to be ega.
5. Gvng fase testmony n any proceedng before the Commttee on Prac-
tce, or n any other proceedng before the Treasury Department, or before
any trbuna authorzed to pass upon Federa ta matters, knowng the same
to be fase.
6. Fng any fase or frauduenty atered document or affdavt n any case
or other proceedng before the Treasury Department, or procurng the fng
thereof, knowng the same to be fase or frauduenty atered.
7. Usng, wth Intent to deceve, fase or mseadng representatons to pro-
cure empoyment n any case or proceedng before the Treasury Department.
8. Gvng, wth ntent to deceve, fase or mseadng nformaton reatve
to a matter pendng before the Treasury Department to any offcer or agent
of the Department.
9. Preparng a fase fnanca statement for a corporaton, partnershp, assoc-
aton, or ndvdua, or certfyng the correctness of such fase statement, know-
ng the same to be fase.
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10. Impartng to a cent fase Informaton reatve to the progress of a ease
or other proceedng before the Treasury Department, knowng the same to he
fase.
11. Fase representatons by an enroed agent that he s an attorny or a
certfed pubc accountant.
12. Preparng or assstng n the preparaton of, or fng, a fase cam aganst
the Unted States, knowng the same to be fase.
13. pprovng, for fng, a fase ncome ta return prepared by some other
person, knowng the same to be fase.
1 . Msappropraton of sums receved from cents for the purpose of pay-
ment of ta es or other obgatons due the Government, or funds or other prop-
erty beongng to a cent.
15. Improper retenton of a fee for whch no servces have been rendered.
16. Obtanng or attemptng to obtan money or other thng of vaue from a
camant by fase representatons, knowng the same to be fase.
17. Obtanng or attemptng to obtan money or other thng of vaue from a
camant by duress or undue nfuence.
18. Conceang or attemptng to concea assets n order to evade the payment
of Federa ta es.
19. Representng to a cent or prospectve cent that the attorney or agent
can obtan e traordnary favors from the Treasury Department or an offcer
or empoyee thereof or has access to unusua sources of nformaton wthn the
Department.
20. Soctng or procurng the gvng of fase testmony n any proceedng
before the Commttee on Practce or n any other proceedng before the Treasury
Department.
Sec. 11. Strkng names from ro. On request of an attorney or agent, the
Commttee may strke hs name from the ro, but before grantng the request
the Commttee sha make nqures to ascertan whether the request has been
made n order to evade proceedngs for suspenson or dsbarment, n whch
event the request sha be dened uness the Commttee sha deem t to the
best nterest of a partes concerned to grant such request.
The Commttee may upon moton of the attorney for the Government or upon
ts own moton strke from the ro the name of any person who has faed to
suppy the nformaton requred by secton 15 of Department Crcuar 230, revsed
October 1, 193 , provded that any attorney or agent whose name has been so
strcken from the ro may have hs name restored thereto by fng wth the
Commttee such nformaton and a statement showng that hs faure to suppy
It wthn the tme specfed n such crcuar was not due to any faut on hs part.
Upon the recept of such nformaton and statement, the name of such attorney or
agent sha be restored to the ro uness t sha appear that he s negbe for
enroment, n whch event he sha be advsed of the fact and gven 60 days
wthn whch to present to the Commttee satsfactory evdence that he s egbe
for enroment.
Sec. 12. ppcaton and effectve date of crcuar. Ths crcuar supersedes
the reguatons promugated by Treasury Department Crcuar No. 230 of October
1, 193 , reatng to the recognton of attorneys, agents, and others, as heretofore
amended and suppemented. The reguatons contaned n ths crcuar sha
appy to attorneys, agents, and censed customhouse brokers representng cam-
ants before any offce of the Treasury Department, wth such e ceptons as to
customhouse brokers as are set forth n secton 5, and sha be effectve from and
after October 1, 1936. Ths crcuar sha appy to a unsetted matters then
pendng n ths Department or whch may hereafter be presented or referred to
the Department or offces thereof for ad|udcaton, and sha be appcabe to a
those now enroed to practce before the Treasury Department as attorney or
agent, and a proceedngs before the Commttee after October 1, 1936, sha In a
procedura matters be governed by the provsons of these reguatons and such
suppementary reguatons as may from tme to tme be adopted by the Commttee
n pursuance of the power granted t n secton 7 of these reguatons: Provded.
That voatons of the reguatons commtted pror to October 1, 1936. sha n a
substantve matters be deat wth accordng to the provsons of the reguatons n
force at the tme when the act or acts aeged to consttute such voatons
occurred.
Sec. 13. Wthdratca or amendment of crcuar. The Secretary of the Treasury
reserves the power to wthdraw or amend or suppement at any tme or from tme
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to tme a or any of the foregong reguatons, wth or wthout prevous notce,
and may make such speca orders as he may deem proper n any case.
. MoR NT f, r.,
Secretary of the Trea ury.
(Fed wth the Dvson of the Federa Regster September 19, 1936, 11.57 a. m.)
Further revsons:
(Fed wth the Dvson of the Federa Regster September 1 , 1937, 12.5 p. m.)
(Fed wth the Dvson of the Federa Regster May 15,1939, 12.39 p. m.)
(Fed wth the Dvson of the Federa Regster une 2 , 1939, 11.03 a. m.)
(Fed wth the Dvson of the Federa Regster October 23, 19 1, 3.15 p. m.)
8T TUT S.
The foowng statutes reate to the recognton of agents, attorneys,
and other persons representng camants and others before the
Treasury Department and offces thereof:
That the Secretary of the Treasury may prescrbe rues and reguatons gov-
ernng the recognton of agents, attorneys, or ether persons representng cam-
ants before hs Department, and may requre of such persons, agents, and
attorneys, before beng recognzed as representatves of camants, that they sha
show that they are of good character and n good repute, possessed of the
necessary quafcatons to enabe them to render such camants vauabe servce,
and otherwse competent to advse and assst such camants n the presentaton
of ther cases. nd such Secretary may after due notce and opportunty for
hearng suspend, and dsbar from further practce before hs Department any
such person, agent, or attorney shown to be ncompetent, dsreputabe, or who
refuses to compy wth the sad rues and reguatons, or who sha wth ntent
to defraud. In any manner wfuy and knowngy deceve, msead, or threaten
any camant or prospectve camant, by word, crcuar, etter, or by advertse-
ment. ( ct of uy 7, 188 , 23 Stat., 258; Tte 5, secton 261, Unted States
Code.)
Whoever, beng an offcer of the Unted States, or a person hodng any pace
of trust or proft, or dschargng any offca functon under, or n connecton wth,
any e ecutve department of the Government of the Unted States, or under the
Senate or ouse of Representatves of the Unted States, sha act as an agent
or attorney for prosecutng any cam aganst the Unted States, or n any
manner, or by any means, otherwse than n dscharge of hs proper offca dutes,
sha ad or assst n the prosecuton or support of any such cam, or receve
any gratuty, or any share of or nterest n any cam from any camant aganst
the Unted States, wth Intent to ad or assst, or n consderaton of havng
aded or asssted, n the prosecuton of such cam, sha be fned not more than
fve thousand doars, or Imprsoned not more than one vear, or both. ( ct of
March , 1909, secton 109, 35 Stat, 1107; Tte 18, secton 198, Unted States
Code.)
Whoever, beng eected or apponted a Senator, Member of or Deegate to
Congress, or a Resdent Commssoner, sha, after hs eecton or appontment
and ether before or after he has quafed, and durng hs contnuance In offce,
or beng the head of a department, or other offcer or cerk n the empoy of
the Unted States sha, drecty or ndrecty, receve, or agree to receve, any
compensaton whatever for any servces rendered or to be rendered to any
person, ether by hmsef, or another, n reaton to any proceedng, contract,
cam, controversy, charge, accusaton, arrest, or other matter or thng n whch
the Unted States Is a party or drecty or Indrecty nterested, before any de-
partment, court marta, bureau, offcer, or any cv, mtary, or nava comms-
son whatever, sha be fned not more than 10,000 and mprsoned not more
than two years; and sha moreover thereafter be ncapabe of hodng any
offce of honor, trust, or proft under the Government of the Unted States.
( ct of March , 1909, secton 113. 35 Stat., 1107; Tte 18, secton 203, Unted
States Code.)
It sha not be awfu for any person apponted after the frst day of une,
one thousand eght hundred and seventy-two, as an offcer, cerk, or empoyee
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382
In any of the departments, to art as counse, attorney, or agent for prosecutng
any cam aganst the Unted States whch was pendng In ether of sad de-
partments whe he was, such offcer, cerk, or empoyee, nor n any manner,
nor by any means, to ad n the prosecuton of any such cam wthn two years
ne t after he sha have ceased to be such offcer, cerk, or empoyee. (Secton
190, Revsed Statutes; Tte 5, secton 99, Unted States Code.)
ny person who wfuy ads or asssts n, or procures, counses, or advses
the preparaton or presentaton under, or n connecton wth any matter arsng
under, the nterna revenue aws, of a fase or frauduent return, affdavt, cam,
or document, sha (whether or not such fasty or fraud Is wth the knowedge
or consent of the person authorzed or requred to present such return, affdavt,
cam, or document) 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. ( Stat., 116; Tte 20, secton 1693(b),
Unted States Code.)
It sha be unawfu for any person, frm, or corporaton practcng before
any department or offce of the Government to use the name of any Member
of ether ouse of Congress or of any offcer of the Government n advertsng
the sad busness. ( ct of pr 27, 1916, secton 1, 39 Stat., 5 ; Tte 5, secton
101, Unted States Code.)
ny person prosecutng cams, ether as attorney or on hs own account,
before any of the departments or bureaus of the Unted States, sha be re-
qured to take the oath of aegance, and to support the Consttuton of the
Unted States, as requred of persons n the cv servce. ( ct of uy 17, 1862,
secton 1, 12 Stat, 610; Tte 31, secton 20 , Unted States Code.)
That secton fve hundred and ffty-eght of the Code of Law for the Dstrct
of Coumba, reatng to notares pubc, be amended by addng at the end of
sad secton the foowng: Provded, That the appontment of any person as
such notary pubc, or the acceptance of hs commsson as such, or the per-
formance of the dutes thereunder, sha not dsquafy or prevent such person
from representng cents before any of the departments of the Unted States
Government In the Dstrct of Coumba or esewhere, provded such person so ap-
ponted as a notary pubc who appears to practce or represent cents before any
such department s not otherwse engaged n Government empoy, and sha be
admtted by the heads of such departments to practce theren n accordance wth
the rues and reguatons prescrbed for other persons or attorneys who are
admtted to practce theren: nd provded further. That no notary pubc sha
be authorzed to take acknowedgments, admnster oaths, certfy papers, or
perforn any offca acts n connecton wth matters n whch he s empoyed as
counse, attorney, or agent or n whch he may be n any way nterested before
any of the departments aforesad. ( ct of une 29, 1906, 3 Stat, 622. ed
by 26 Opnons of ttorney Genera, 236, to appy to a notares who may
practce before the departments.)
The head of each department s authorzed to prescrbe reguatons, not n-
consstent wth aw, for the government of hs department, the conduct of ts
offcers and cerks, the dstrbuton and performance of ts busness, and the
custody, use, and preservaton of the records, papers, and property appertanng
to t (Secton 161, Revsed Statutes; Tte 5, secton 22, Unted States Code.)
(In Dupcate.1)
Treasury Department.
Commttee on Phactce.
Form 23. (Revsed October 1, 1 ). .)
PPLIC TION FOR DMISSION TO PR CTIC FOR T TR SURY
D P RTM NT.
, resdng at Street
address Cty
State , wth offce at Street address ,
Cty , State , hereby appy for adms-
son to practce as to represent others before the Treasury
( ttorney or agent. )
Department, and submt the foowng nformaton for consderaton n deter-
1 appcatons must be submtted n dnpcnte on these forms. Typewrter and carbon
paper shoud be used.
Members of the bar of an mercan court of record w appy as attorneys ; a others as
agents.
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383
Msc.
mnng my egbty and ftness for such practce, n compance wth Treasury
reguatons as set forth n Department Crcuar No. 230, revsed October 1, 1936:
1. (a) re you a ctzen of the Utted States (6) Natura
born (c) Naturazed (d) Where and when were
you naturazed (e) Date of brth
Pace of brth -
2. (a) re you a member of the bar (6) If so, of what court
(c) re you now In actve practce and n good standng
at sad bar
3. (a) Do you hod a certfcate as a certfed, pubc accountant
(6) If so, from what State (c) re you uow n actve
practce and n good standng under sad certfcate
. What s your present occupaton
5. re you censed or otherwse authorzed to practce aw or account-
ancy n the State or States (or Dstrct of Coumba) n whch you pan to
practce
6. re you engaged In your busness or professon on your ndvdua ac-
count ; or as a member of a partnershp ; or as an
empoyee
(a) Under what name or stye do you practce
(6)If a member of a partnershp, s any member of the partnershp an uueu-
roed person who s nether an attorney, a certfed pubc accountant, nor a
pubc accountant
(c) If an empoyee, gve name and address of your empoyer, and the nature
of your empoyment
7. If enroed, w t be your purpose, as an otcer or empoyee of a corpora-
ton or assocaton, to represent the offcers, empoyees, stockhoders or members,
cents, or customers of such corporaton or assocaton n un-
quafed, negatve answer s requred. See secton 2(1), Department Crcuar
230. Representaton of offcers, empoyees, etc., of corporatons as ndvduas f
retaned and pad by them, or the representaton of agrcutura cooperatve
assocatons as permtted under secton 2(f), Department Crcuar 230. Is not
Inconsstent wth a negatve answer to the above.
8. Do you own stock In, or are you an offcer or empoyee of, any account-
ng or audtng corporaton
9. re you farnnr wth the contents of Department Crcuar No. 230, re-
vsed October 1, 1030
10. If you are not a member of an mercan bar or a certfed pubc account-
ant, outne the e tent and nature of your educaton; your persona or busness
e perence, wth names of your empoyers; and the partcuar quafcatons you
possess whch you beeve render you competent to represent other persons
before the Treasury Department. Use paper the sze of ths form and submt
dupcate copes.
11. Submt names and nddresses of s busness or professona references
who are famar wth your professona work.
12. as any compant ever been fed or charge made aganst you before any
person or trbuna havng authorty to nsttute or try proceedngs for suspenson
or dsbarment from practce or for the revocaton of a cense or certfcate to
practce or for e puson from membershp In a professona socety
If so, state partcuars
13. ave you ever been defendant n a crmna prosecuton
If so, state the crcumstances and resut
1 . re you an offcer or empoyee of the Unted States, of any corporaton
whoy owned by the Unted States, or of the Dstrct of Coumba
Name of State court preferred.
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38
(a) If you have ever been so empoyed, state empoyment and date of separa-
ton therefrom
15. Do you agree, f you are admtted to practce before the Treasury De-
partment, to gve the Commttee on Practce wrtten notce of any change n
your mang address, and any change n your professona connecton, or the
name and stye under whch you practce, and agree further that, n the event
any proceedngs sha be nsttuted aganst you at any tme before the Com-
mttee on Practce, a wrtten notce thereof, together wth a statement of the
charges aganst you, sent to you by regstered ma to the ast address fed by
you wth the Commttee, sha consttute due and suffcent notce
I, , do soemny swear (or affrm)
that the statements contaned n the foregong appcaton are true and correct;
that I w support and defend the Consttuton of the Unted States aganst
a enemes, foregn and domestc; that I w bear true fath and aegance to
the same; that I take ths obgaton freey wthout any menta reservaton or
purpose of evason; that, f authorzed to represent others before the Treasury
Department, I w at a tmes conduct mysef strcty In compance wth the
aws, reguatons, and rues governng practce before the Treasury Department,
as now consttuted or as they may hereafter be awfuy atered or amended;
and that I w empoy, for the purpose of mantanng the causes confded to
me such means ony as are consstent wth truth and honor; so hep me God.
(Sgnature)
( ddress)
Subscrbed and sworn to before me ths day of ,
19
(Sgnature of offcer)
(Offca tte)
Impress sea here.
(Fed wth the Dvson of the Federa Regster September 19, 1936, 11.57 a. m.)
19 2-13-110 1
CONF R NC ND PR CTIC R UIR M NTS, UR U OF
INT RN L R NU . R IS D F RU RY, 19 2.
uafcatons fok Conference.
I. Conferences may be accorded ony to ta payers or ther duy authorzed
representatves. ny Indvdua ta payer may appear on hs own behaf or
n behaf of a member of hs mmedate famy f such appearance s wthout
compensaton; and a member of a partnershp, e ecutor or admnstrator of
an estate, trustee of a trust, offcer of a corporaton, recever, or guardan, or a
fuy authorzed reguar empoyee of an ndvdua, partnershp, estate, trust,
or corporaton may appear for hmsef or for such ndvdua, partnershp,
estate, trust, corporaton, recevershp, or guardanshp, soey upon adequate
Identfcaton. Ths rue aso appes to an ndvdua, a partnershp, an estate
or trust, or a corporaton wth respect to the abty of the ndvdua,
partnershp, estate or trust, or corporaton as a transferee of property of a
ta payer and to a fducary wth respect to the abty of the fducary under
secton 3 67 of the Revsed Statutes, as amended (U. S. C, Tte 31, secton
192). In cases where the appearance s on behaf of a member of the n-
dvdua s mmedate famy, as above authorzed, approprate requrements,
heren provded, respectng the fng of powers of attorney, w not be waved.
other persons appearng as attorneys or agents, ncudng attorneys or
agents of transferees or fducares, must e hbt evdence that the requre-
ments of Department Crcuar No. 230 (revsed), whch contans the statutes
and reguatons governng practce before the Treasury Department, have been
comped wth and must aso conform wth the foowng requrements:
n oath as Incuded heren 1h requred of persons prosecutng cams aganst the Unted
States (Tte 31, secton 20 , Unted States Code) and may be taken before any notary pubc,
|ustce of the peace, or other person egay authorzed to admnster an oath In the State.
Terrtory, or Dstrct where the appcaton s e ecuted.
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385
Msc.
Power of ttorney to e Fed and vdence of nroment to e Submtted
efore Recognton s ccorded.
II. No attorney or agent representng a camant or other person before any
of the offces of the ureau of Interna Revenue sha appear or be recognzed
n any case, matter, cam, or other proceedng or busness pendng In such offce
uness the attorney or agent representng the camant presents and fes a
power of attorney, or a certfed copy thereof, from hs prncpa n proper form
authorzng hm to prosecute the case, cam, or matter In queston. Such
power of attorney sha aways be fed and evdence of enroment submtted
before such attorney or agent s recognzed. In the event, however, that an
attorney or agent presents hmsef for conference who s not famar wth ths
requrement, or who can show that he has not had reasonabe opportunty to
obtan a power of attorney from hs cent, or who has not apped for enro-
ment, but s abe to produce such evdence as w reasonaby convnce the
ureau s representatve that he has authorty to represent the ta payer, such
attorney or agent may be heard wth the understandng that a power of attorney
In proper form and evdence of enroment w be prompty forwarded to the
ureau, and that unt such power of attorney and evdence of enroment sha
have been fed nformaton w not be dscosed to such attorney or agent rea-
tve to the ureau s atttude n respect of the Issues rased or to any other
matter reatng to the ta payer s case.
Power ok ttorney To e Fed Pror to Fna Determnaton of Ta
Labty.
III. No power of attorney w be accepted whch Is fed after fna determna-
ton of the ta abty, uness the power of attorney rectes that the prncpa
s cognzant of such settement and of the amount of defcency or overassess-
ment determned. (See aso tte Checks n payment of refunds, paragraph
I heren.)
Power of ttorney Not Requred n Certan Cases Pendng efore the
Unted States oard of Ta ppeas.
I . In a docketed petton before the oard, t s consdered that the pettoner
and the Commssoner stand n the poston of partes tgant before a quas
udca body. The oard of Ta ppeas has Its own rues of practce and
procedure, and Its own rues respectng admsson to practce before t.
Staff dvson In the decentrazed areas s authorzed to dea wth the counse
of record before the oard n a petton docketed by the oard. Therefore,
correspondence In connecton wth oard dockets w, ordnary, be addressed
to counse of record before the oard; and n any event the poston of the
ureau Is that such counse of record sha receve copes of any correspondence,
or be advsed as to the genera nature of any communcatons, whch for good
and suffcent reason may be addressed drect to the ta payer.
In a cases handed by the decentrazed offces of the Technca Staff, other
than cases docketed before the oard, the customary power of attorney w be
requred.
Power of ttorney Requrements.
. ny power of attorney offered In evdence n any case w be accepted
ony f t s In reguar form. Ony one power of attorney sha be n effect n
any case and there sha be Incuded n such power of attorney the names and
addresses of a attorneys or agents to whom the ta payer has deegated
authorty to represent hm.
a. technca anguage unnecessary.
It s consdered necessary n a cases that the power of attorney contan an-
guage to convey the prncpa s Intenton, though not necessary In strcty
ega form.
b. attestaton of e ecuton of nstrument or wtnesses thereto.
The power of attorney must be e ecuted before a notary pubc, or, n eu
thereof, wtnessed by two dsnterested ndvduas. The notara sea must
be aff ed uness such sea Is not requred under the aws of the State wheren
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Msc.| 386
the power of attorney s e ecuted. No attorney or agent as notary pubc sha
take acknowedgments, admnster oaths, certfy papers, or perform any offca
act n connecton wth matters pendng before the ureau n whch he s em-
poyed as counse, attorney, or agent, or n whch he may be n any way nter-
ested. (See ct of une 29, 1906, 3 Stat., 622.)
C. T NT OF UT ORITY DF G T D.
The authorty deegated to an attorney or agent n a power of attorney enumer-
atng certan specfc acts whch may be done w be consdered mted to
those acts.
( ) PR SS UT ORITY R UIR D FOR C RT IN CTS.
press authorty to do the foowng acts must be granted and shown n the
power of attorney or such acts w be consdered beyond the scope of the
agenfs authorty:
1. To receve but not to ndorse and coect checks n settement of any refund.
(See secton 3 77 of Revsed Statutes, whch prohbts assgnments of cams or
portons thereof, and tte Checks n payment of refunds, paragraph I
heren.)
2. To deegate authorty or to substtute another agent or attorney.
3. To e ecute consents agreeng to a ater determnaton and assessment of
ta es than s provded by statute of mtatons.
. To e ecute cosng agreements reatve to the ta abty.
D. 8IGN TUR OF GR NTOR.
The power of attorney shoud be sgned as foows:
a. In the case of an ndvdua ta payer, by such ndvdua.
b. In the case of any ta abe year for whch a |ont return was made by a
husband and wfe, by both husband and wfe, e cept that ether spouse may
sgn for the other f duy authorzed n wrtng so to act.
c. In the case of a partnershp, ether by a members or In the name of the
partnershp by one of the partners duy authorzed to act.
d. In the ease 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.
1. power of attorney granted by a corporaton shoud state whether or
not the corporaton has a sea, and the sea shoud be aff ed to the power n
a cases where one s used by the corporaton. If the power of attorney shows
that the corporaton has no sea, a certfed copy of a resouton duy passed
by the board of drectors of the corporaton gvng ts offcers authorty to sgn
the same shoud be submtted.
2. If the offcer who sgns the power of attorney Is aso secretary, another
offcer of the corporaton, preferaby the presdent, vce presdent, or treasurer,
must aso sgn the nstrument so that two dfferent ndvduas sgnatures w
appear thereon.
e. In the case of an assocaton, the same requrements sha appy as n
the case of a corporaton.
/. Speca cases:
If the ta payer Is
Dssoved,
Insovent,
Deceased,
or has a smar status, the addtona requrements begnnng wth paragraph
heren shoud be foowed.
. C RTIFIC TION OF COPI S OF POW RS OF TTORN Y ND ID NC FIL D IN CON-
N CTION T R WIT .
The certfcaton of copes of powers of attorney or papers or documents
fed n connecton therewth must be made by a notary pubc, or other proper
offca, who shoud state that he has personay compared the copy wth the
orgna and fnds t to be a true and correct copy. Ths certfcaton appes
to a copes of powers of attorney and reated papers, ncudng prnted and
photostatc copes.
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387
Msc.
T. C RT IN POW RS OF TTORN Y TO FIL D I FI LD OFFIC S.
Powers of attorney coverng ncome, profts, estate, and gft ta cases, aso
nson ct cases, sha be fed n the offce of the nterna revenue agent n
charge n whch the case s under consderaton, accompaned by suffcent
authentcated copes thereof for attachment to the return for each ta year
under consderaton.
Fee statements respectng contngent or partay contngent fee agreements
requred to be fed by attorneys and agents under the provsons of paragraph
( ), secton 2, Department Crcuar No. 230, revsed, effectve October 1, 1936,
us amended (see C. . 1937-2, page 6 5), shoud be sgned ony by the attorney
or agent and fed wth the nterna revenue agent havng the case under
consderaton.
Substtuton of ttorneys or gents.
I. Substtuton of attorneys or agents may be effected ony where the power
of attorney, under whch the attorney or agent s actng, e pressy confers
the rght of substtuton. Such attorney or agent, f In good standng before
the Department, may, by a duy e ecuted substtute power of attorney, sub-
sttute another or others In hs stead. The ureau reserves the rght to refuse
recognton to a substtuted attorney or agent where, n Its opnon, such subst-
tuton w ony deay the fna ad|ustment of the case. Furthermore, the
ureau w not accept a substtute power of attorney granted by an attorney
or agent, who Is actng under a substtute power of attorney from the attorney
or agent, uness specfc authorty s granted n the prncpa s power of attorney
to the attorney or agent to pass on to hs substtute the rght of substtuton.
(See aso tte Checks n payment of refunds, paragraph I heren.)
New Power of ttorney Requred When New or ddtona ttorneys or
gents Retaned.
II. In any case In whch a power of attorney has been fed and the ta payer
subsequenty desres to authorze other or addtona attorneys or agents to
represent hm before the ureau wth respect to the same case, a new power
of attorney must be fed, whch sha ncude the names of a attorneys or
agents who are authorzed to act for such ta payer. Such new power of attorney
sha contan a cause specfcay revokng any and a powers of attorney
prevousy fed wth respect to the same case. The revocaton of an authorty
to prosecute a matter before the ureau sha n no case be effectve, so far as
the ureau s concerned, before due notce n wrtng has been gven the ureau,
and the fng of evdence of notfcaton of the revocaton to the attorney or
agent whose power has been revoked. Where consderaton of a matter has
been hed n abeyance awatng the furnshng of evdence for whch a ca has
been made on an attorney or agent, faure on hs part to tnte acton thereon
wthn three months from the date on whch consderaton of the matter was
suspended may be deemed by the admnstratve offcer before whom the case s
pendng cause for refusa to further recognze the authorty of the attorney
or agent. Such admnstratve offcer sha, however, gve wrtten notce of
such refusa to the cent of such attorney or agent, and sha state brefy the
reason such acton has been taken.
vdence Requred To Substantate Facts eged n Conferences.
III. No reducton In ta es proposed nor ncrenses n aowance of cams
sha be made uness the evdence upon whch such acton s taken Is submtted
n wrtng and n verfed form. evdence e cept that of a suppementary
or ncdenta character sha be submtted over the sworn sgnature of the
ta payer.
The sworn statement of facts must be submtted at east fve days before
the conference date e cept as herenafter provded, and must meet a-the ssues
rased by the ureau whch the ta payer desres to contest. If the sworn
statement of facts s not submtted at east fve days before the conference,
then t must be accompaned by a sworn statement settng out specfcay the
reasons for not havng comped wth the 5-day rue. Nothng heren sha
precude the ta payer from submttng addtona or supportng evdence wthn
a reasonabe tme after the conference.
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Msc.
388
very affdavt, agreement, bref, or statement of facts prepared or fed by
an attorney or agent as argument or evdence In the matter of a cam or ta
matter pendng before the ureau sha have thereon a statement sgned by
such attorney or agent showng whether or not he prepared such document
and whether or not the attorney or agent knows of hs own knowedge that
the facts contaned theren are true.
Conference To e Prearranged.
I . Conferences wth ta payers or ther representatves w not ordnary
he hed wthout prevous arrangement. Cases n whch ta payers or ther
representatves can submt some unusua reason for requestng an mmedate
conference wthout prevous arrangement w be gven consderaton by ureau
offcas charged wth the arrangement of conferences, who may, f the crcum-
stances warrant, make an e cepton to the rue.
In order that the case under consderaton may be cosed at one conference,
f at a possbe, the requrements of paragraph III of ths crcuar to the
effect that the bref submtted In advance of conference must meet a Issues
rased w be strcty enforced, and another conference w not be granted on
the same case e cept to meet new Issues rased by the ureau n the course
of the frst conference whch coud not have been antcpated pror to such
conference.
Recognton or IInen-roed mpoyees or uafed ttorneys or gents.
. Unenroed empoyees of enroed attorneys or agents w not be recog-
nzed n any matter by offces of the ureau e cept for the purpose of fng
papers or securng nformaton as to the status of cases. Recognton for the
atter purpose w be gven ony when the empoyee presents In each case wrtten
authorty from hs empoyer to act as the atter s substtute n obtanng the nfor-
maton desred regardng status and when the power of attorney of hs empoyer
n each case provdes for the substtuton of such empoyee. To factate
recognton of such empoyees, t Is requested that the empoyee present at
the tme of makng nqury concernng any case the recept for the power of
attorney ssued to hs empoyer by the ta payer n that case and the recept
for the substtute power of attorney ssued to hm. (These recepts are fur-
nshed f requested when the powers of attorney are fed.)
Powers or ttorney and nroment Rewred of gents and ttorneys
andng Matters by Correspondence.
I. Where recognton s desred through correspondence wth the Depart-
ment, enroment and power of attorney requrements must be met by attorneys
or agents even though no actua appearance s made before the Department.
If a proper power of attorney s fed authorzng ony one of the foowng acts
by the attorney or agent, enroment w not be requred:
uthorty to sgn but not to prosecute any cam of the ta payer.
uthorty to nspect or receve copes of returns where ecutve order or
reguatons permt such acton by agent.
The Commssoner reserves the rght to wthhod makng the above e ceptons
n any specfc case.
If the power of attorney authorzes the attorney or agent to do one or both
of the above acts and some other act or acts, enroment w be consdered
necessary, notwthstandng that the agent or attorney does not e pect to use a
of the power conferred upon hm.
Specfc uthorty Requred n nson ct Cases.
power of attorney authorzng an attorney or agent to represent a ta payer
before the ureau of Interna Revenue n connecton wth ncome ta matter
w not be recognzed by the ureau s evdence of an attorney s or agent s au-
thorty to act as representatve for a contractor or subcontractor n connecton
wth e cess proft abty under secton 3 of the nson ct ( 8 Stat., 503), as
amended, as apped to Navy contracts and contracts for arcraft for the rray,
and to subcontracts made wth respect to such contracts. In such cases a separate
power of attorney must be secured specfcay authorzng the attorney or agent
to appear n behaf of hs cent.
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389
Msc.
Letters rrangng Conferences to dvse of Requrements.
II. Letters arrangng conferences w apprse the ta payer or hs repre-
sentatve of the requrements as to powers of attorney, the necessty of beng
enroed to practce before the Department, and to whom he shoud appy for
enroment, uness t s known that the addressee s aware of the requrements.
Owng to the e pense nvoved, t w not be the practce, e cept n rare cases,
to ncorporate the above requrements n teegrams. Where suffcent tme nter-
venes between the date of the teegram and the conference the teegram w
be confrmed by etter and conference requrements stated.
Practtoners Must Conduct Themseves n an thca Manner.
III. ttorneys or agents representng ta payers before the ureau are e -
pected at a tmes to conduct themseves n an ethca manner, and w be hed
strcty accountabe for the wthhodng of known matera nformaton or for
any deberatey fase or mseadng statement.
whoever sha knowngy and wfuy fasfy or concea or cover
up by any trck, scheme, or devce u matera fact, or make or cause to be made
any fase or frauduent statements or representatons, or make or use or cause
to be made or used any fase b, recept, voucher, ro, account, cam, certfcate,
affdavt, or deposton, knowng the same to contan any frauduent or fcttous
statement or entry, n any matter wthn the |ursdcton of any department or
agency of the Unted States or of any corporaton n whch the Unted States of
merca s a stockhoder sha be fned not more than 10,000 or mprsoned not
more than ten years, or both. (Secton 80, Tte 18, Unted States Code.)
ny person who wfuy ads or asssts n, or procures, counses, or advses
the preparaton or presentaton under, or n connecton wth any matter arsng
under, the nterna revenue aws, of a fase or frauduent return, affdavt,
cam, or document, sha (whether or not such fasty or fraud s wth the
knowedge or consent of the person authorzed or requred to present such return,
affdavt, cam, or document) 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. (Secton 3793(b) of the Interna
Revenue Code.
For gross msconduct the Commssoner may refuse to recognze any person
as an attorney or agent n any partcuar case.
ttemptng to nfuence the conduct of any offca or empoyee of the ureau
In any case or other proceedng pendng before the ureau by the use of threats,
fase accusatons, duress, or by the offer of any speca nducement or promse
of advantage, or by the bestowng of gfts or favors upon offcas or empoyees
before whom an attorney or agent s appearng, s consdered grounds for ds-
barment from practce before the Treasury Department.
Whoever sha promse, offer, or gve, or cause or procure to be promsed,
offered, or gven, any money or other thng of vaue, or sha make or tender any
contract, undertakng, obgaton, gratuty, or securty for the payment of money,
or for the devery or conveyance of anythng of vaue, to any offcer of the
Unted States, or to any person actng for or on behaf of the Unted States n
any offca functon, . wth ntent to nfuence hs decson or acton on
any queston, matter, cause, or proceedng whch may at any tme be pendng,
or whch may by aw be brought before hm n hs offca capacty, or n hs
pace of trust or proft, or wth ntent to nfuence hm to commt or ad n com-
mttng, or to coude In, or aow, any fraud, or make opportunty for the com-
msson of any fraud, on the Unted States, or to nduce hm to do or omt
to do any act n voaton of hs awfu duty, sha be fned not more than three
tmes the amount of money or vaue of the thng so offered, promsed, gven, made,
or tendered, or caused or procured to be so offered, promsed, gven, made, or
tendered, and mprsoned not more than three years. (Secton 01, Tte 18,
Unted States Code.)
ffect of Prevous Connecton Wth the Unted States Government.
I . No enroed person or other person authorzed to appear before the
Treasury Department wthout enroment sha represent a camant before
the Treasury Department n any matter to whch such person, as offcer or
empoyee of the Unted States, gave persona consderaton or as to the facts
of whch he ganed knowedge whe In the Government servce.
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390
No former offcer, cerk, or empoyee of the Treasury Department sha act
as attorney or agent, or as the empoyee of an attorney or agent, wthn two
years after the termnaton of such Treasury empoyment, n any matter pendng
n such Department durng the perod of hs empoyment theren, uness he sha
frst obtan the wrtten consent thereto of the Secretary of the Treasury or hs
duy authorzed representatve. Ths consent w not be granted uness t
appears (1) that the appcant was not, durng the perod of two years mme-
datey precedng the date of appcaton, empoyed n the partcuar depart-
menta or fed secton n whch was pendng the matter to hande whch
consent s sought, provded that ths requ-ement sha not appy to persons
empoyed n an admnstratve capacty such as head of a unt, dvson, or
secton, or empoyed as a revewer or conferee or n an advsory capacty, and
(2) that empoyment as an agent or attorney s not prohbted by tte 5, secton
99, Unted States Code, or other aw, or by the reguatons of the Treasury
Department. Such appcant sha be requred to fe an affdavt to the effect
that he gave no persona consderaton to such matter and had no knowedge
of the facts nvoved n such matter whe he was empoyed n the Department,
and that he s not now assocated wth, and w not be assocated wth, any
former empoyee who has ganed knowedge of the case whe empoyed by the
Treasury Department, and that, hs empoyment s not prohbted by tte 5,
secton 99, Unted States Code, or other aw, or by the reguatons of the
Treasury Department. The statements contaned n such affdavt sha not
be suffcent f dsproved by an e amnaton of the fes and records pertanng
to the case. ppcatons for consent shoud be drected to the Commttee on
Practce on Form 901 and shoud state the former connecton wth the Depart-
ment of the appcant and dentfy the matter n whch the appcant desres
to appear. The appcant sha be prompty advsed as to hs prvege to
appear n the partcuar matter, and ths notce sha be fed by hm n the
record of the case.
Nor sha any enroed person knowngy (1) assst a person who has been
empoyed by a cent to represent hm before the Treasury Department n con-
necton wth any matter to whch such person gave persona consderaton
or as to the facts of whch such person ganed persona knowedge whe n the
Government servce, or (2) accept assstance from any such person n con-
necton wth any such matter, or (3) share fees wth any such person n
connecton wth any such matter.
NST UCnONS FO CUTION OF POW R OF TTO N Y IN SP CI L C S S W IC
Must be Met n ddton to Gf.neba Requrements.
. Dssoved partnershp. power of attorney to act wth respect to mat-
ters nvovng the affars of a dssoved partnershp must be sgned by a of the
former partners. In case some of the partners are dead, ther ega represent-
atves must sgn n ther stead. (See paragraph III.) If, however, under
the aws of the partcuar State, the survvng partners at the tme of the e e-
cuton of the power of attorney have e cusve rght to the contro and pos-
sesson of the frm s assets for the purpose of wndng up ts affars, ther sgna-
tures aone w be suffcent. If ony the survvng partners sgn the power of
attorney, a copy of the pertnent provsons of the State aw under whch they
cam authorty, e cusve of the ega representatves of the deceased partners,
shoud be noted and ctaton gven thereto.
I. Dssoved corporaton. If a qudatng trustee, or trustee under ds-
souton, has been apponted, or f a trustee derves authorty under a statute
of the State n whch the corporaton was organzed, the power of attorney
shoud be e ecuted by such trustee. If there s more than one trustee, a
must on uness t s estabshed that ess than a have authorty to act n
the premses. The power of attorney must be accompaned by a copy of the
nstrument under whch the trustee derves hs authorty, propery authent-
cated, or f the authorty s derved under a Stte statute, the statute shoud
be cted and quoted, and an affdavt by a thrd party, settng forth the facts
requred by the statute as a precedent to the vestng of the authorty n sad
trustee must be furnshed. It must aso appear n the case of nny trustee that
hs authorty has not been termnated. If there s no trustee, then power
of attorney e ecuted before a notary pubc by a suffcent number of ndvd-
uas to make up a representaton of a ma|orty n the votng stock of the
corporaton at the date of dssouton w be accepted for purposes of conference
and correspondence reatng to the ta abty n the partcuar case. Such n-
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Msc.
strument must show the tota Dumber of outstandng shares of votng stock at
the date of dssouton and the number hed by each sgnatory to the power of
attorney. The Instrument must aso contan postve averments as to the
none stence of any trustee, and the date of dssouton must appear.
II. Insovent ta payer. certfcate from the court havng |ursdcton
over the nsovent shoud be furnshed showng the appontment and quafca-
ton of the trustee or recever, and t shoud appear that the authorty has not
termnated. In cases pendng before a dstrct court of the Unted States
an authentcated copy of the order approvng the bond of the trustee w meet
ths requrement. If an attorney has been apponted under authorty of court
for the trustee or recever, a copy of the court order appontng such attorney
(where he s to represent the trustee) shoud be furnshed. If no attorney has
been apponted, the trustee or recever shoud e ecute the power of attorney,
the acknowedgment or wtnessng thereof to be the same as n the case of an
ndvdua, and the above-descrbed evdence showng the appontment of the
trustee or recever furnshed therewth. If the trustee or recever does not
wsh to appont an attorney, he w be recognzed upon estabshng hs authorty
In the manner above descrbed.
III. Deceased ta payer. The e ecutor or admnstrator shoud e ecute
the power of attorney, whch must be accompaned by a short-form certfcate
(or authentcated copes of etters testamentary or etters of admnstraton)
showng that hs authorty s n fu force and effect at the tme such evdence
s submtted. The e ecutor or admnstrator w be recognzed n hs own
rght f he does not wsh to appont an attorney or agent, upon submsson of
the above-descrbed court certfcate, and such e ecutor or admnstrator s
not requred to be enroed to practce. In the event that the e ecutor has
been dscharged and a trustee under the w s actng, the power of attorney
must come from the trustee, and evdence of the dscharge of the e ecutor
and of the appontment of the trustee must be submtted wth the power of
attorney. In such cases, where the e ecutor s dscharged and the estate s
dstrbuted to the resduary egatees, the power of attorney must come from
the resduary egatee or egatees, and be accompaned by a statement from
the court certfyng to the dscharge of the e ecutor and namng the resduary
egatees and ndcatng the proper share to whch each s entted. In the
event that the decedent ded ntestate and the admnstrator had been dscharged
or none was ever apponted, the power of attorney must come from the ds-
trbutees and be accompaned by evdence of the dscharge of the admnstrator,
f one had been apponted, and affdavts and such other evdence as can be
adduced tendng to show the reatonshp to the deceased of the sgnatores
to the power of attorney and the rght of each of them to the respectve shares
camed under the aw of the domce of the deceased.
I . Guardans and other fducares apponted by a court of record. The
power of attorney shoud be e ecuted by the fducary and must be accom-
paned by a court certfcate or court order showng that such fducary has
been apponted and that hs appontment has not been termnated.
. Trustee under deed, decaraton, etc. Powers of attorney must be e e-
cuted by the trustee and be accompaned by documentary evdence of the
authorty of the trustee to act. Such evdence may be ether a copy of the
trust Instrument, propery certfed, or a certfed copy of e tracts from the
trust Instrument, showng
a. Date of nstrument.
6. That t s or s not of record In any court.
c. The benefcares.
d. The appontment of the trustee, the authorty granted, and such other
nformaton as may be necessary to show that such authorty e tends to
Federa ta matters.
e. That the trust has not been termnated, and that the trustee apponted
thereby s st actng.
Sef-servng affdavts by the trustee In ths connecton are not acceptabe.
In the event that the trustee apponted n the orgna trust Instrument s no
onger actng and has been repaced by another trustee, documentary evdence
of the appontment of the new trustee must be submtted. In cases where
there are more than one trustee apponted, a must |on, uness t s shown
that ess than a have authorty to act.
I. Checks n payment of refunds. The ureau s not bound to dever
any check n payment of refund of nterna-revenue ta es, penates, or nterest
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Msc.
392
to a representatve of any ta payer actng under authorty evdenced by a
power of attorney. owever, t w be the genera pocy of the ureau to ma
such checks n care of an enroed attorney or agent who has fed power of
attorney from the prncpa, specfcay authorzng hm to receve but not
to Indorse such check, provded that such power of attorney sha have been
fed n suffcent tme for the secton or dvson preparng the certfcate of
overassessment to show thereon the mang address as care of the attorney
or agent. Where an attorney or agent has more than one address, request
to ma the check to another address than Is shown n the power of attorney
w not be granted uness the address shown n the power of attorney s no
onger that of the attorney or agent. In the event that a power of attorney
s fed specfcay authorzng more than one attorney or agent to receve
checks on the ta payer s behaf, and such attorneys or agents have dfferent
addresses, the ureau w not ma the check n care of any of the attorneys
or agents named n the power of attorney but w ma the check drect to
the ta payer, uness a statement s furnshed, sgned by a of the attorneys
or agents named n the power of attorney, requestng that the check be maed
n care of one of ther number. Furthermore, t w be the pocy of the
ureau not to ma checks n payment of refunds to an attorney or agent
who hods authorty to receve such check by reason of a substtute power of
attorney obtaned from the attorney or agent desgnated by the ta payer.
Where there s a contest between members of a dssoved frm or between
two or more attorneys or agents actng under the same power of attorney as
to whch one s entted to prosecute a matter pendng before the ureau or
to receve a draft, warrant, or check, the cent ony sha thereafter be recog-
nzed, uness the members or survvors of the dssoved frm, or the contestng
attorneys or agents, fe an agreement sgned by a desgnatng whch of them
sha be entted to prosecute such matter or to receve the sad draft, warrant,
or check. In no case sha the devery of a fna draft, warrant, or check
to the cent be deayed more than 60 days by reason of faure to fe such
agreement. Deveres of a checks n payment of refunds w be made by
or through the offce of the coector to whom the ta was pad.
Requrements ppcabe to Fed Offces.
II. The foregong conference and practce requrements appy to a offces
In the Interna Revenue Servce.
Gut T. evebno, Commssoner.
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393
Msc.
L GISL TION.
19 2- -10999
. . 5095. PU LIC L W 10, S NTY-S NT CONGR SS C PT R
2 , S COND S SSION .
n ct to set asde certan ands n Okahoma for the Cheyenne-
rapnno Trbes of Indans; and to carry out certan obgatons to
certan enroed Indans under trba agreement.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed,
Sec. 2. That any person duy enroed as a member of an Indan
trbe who receved n pursuance of a trba treaty or agreement
wth the Unted States an aotment of and whch, by the terms of
sad treaty or agreement was e empted from ta aton, restrcted
aganst aenaton, or whch by the terms of any ct of Congress
was contnued under the supervson of the Unted States durng the
mnorty of such aottee, and from whch and the restrctons have
or have not been removed, and any such enroed member of an
Indan trbe havng restrcted money n the custody and contro of
the Unted States, pror to pr 26, 1931, and who was requred or
permtted to pay any Federa ncome ta on such ands or on the
rents, royates, or other gans arsng from such ands durng such
restrcted or ta -e empt perod or on ncome from such restrcted
funds whe n the custody or contro of the Unted States, or on
ncome from any aotment durng the mnorty of the aottee, or
any such person who has been erroneousy or egay ta ed by
reason of not havng camed or receved the beneft of any deductons
or e emptons permtted by aw, and who woud be entted under
ths or prevous cts or rungs of the Treasurv Department n
smar Indan cases to a refund of the ta es so egay or errone-
ousy coected, but for the fact that he faed to fe a cam for such
refund wthn the tme prescrbed by aw, sha be aowed two years
after the approva of ths ct wthn whch to fe such cam, and
f otherwse entted thereto he may recover such ta es n the same
manner and to the same e tent as f such cams for refund had been
theretofore duy fed as requred by aw, t not beng the pocy of
the Government to nvoke or pead a statute of mtatons to escape
the obgatons of agreement soemny entered nto wth ts Indan
wards, or pror to pr 26, 1931, to e act for ts own use and beneft
an ncome ta from them whe ther property contnued under the
supervson of the Unted States and or durng the mnorty of any
such aottee: Provded, however, That n the case of the death of a
member of an Indan trbe hs hers who succeeded to hs aotment
of ands be permtted to fe cams and recover refunds n the same
manner as duy enroed member of an Indan trbe: Provded
further, That n the case of the death of any enroed member of an
Indan trbe any such ega ta es pad by hm or on hs account
may n ke manner be camed and recovered by the person or persons
who woud have receved such money had t consttuted a part of
hs estate at the tme of hs death.
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39
That a cts and parts of cts n confct herewth are modfed
for the purpose, and ony for the purpose, of carryng nto effect
the provsons hereof.
pproved, anuary 29, 19 2.
19 2-10-11013
. . R S. 257. PU LIC L W 36, S NTY-S NT CONGR SS, S COND
S SSION C PT R 1 .
ont Resouton to amend secton 12 of the Interna Revenue
Code to smpfy the procedure n connecton wth amortzaton of
certan factes.
Resoved by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed, That, effectve as of October
8, 19 0, secton 12 (), as amended, of the Interna Revenue Code,
s hereby repeaed.
pproved, February 6, 19 2.
19 2-16-1106
. R. 6 6. PU LIC L W NO. 90, S NTY S NT CONGR SS
C PT R 166, S COND S SSION .
n ct To provde for contnung payment of pay and aowances
of personne of the rmy, Navy, Marne Corps, and Coast Guard,
ncudng the retred and Reserve components thereof; the Coast
and Geodetc Survey and the Pubc eath Servce, and cvan
empoyees of the e ecutve departments, ndependent estabshments,
and agences, durng perods of absence from post of duty, and for
other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed,

Sec. 13. Notwthstandng any other provson of aw, n the case
of any ta abe year begnnng after December 31, 19 0, no Federa
ncome-ta return of, or payment of any Federa ncome ta by
(a) any ndvdua n the mtary or nava forces of the
Unted States, or
(b) any cvan offcer or empoyee of any department
who, at the tme any such return or payment woud otherwse become
due, s a prsoner of war or s otherwse detaned by any foregn
government wth whch the Unted States s at war, or
(c) any ndvdua n the mtary or nava forces of the
Unted States servng on sea duty or outsde the contnenta
Unted States at the tme any such return or payment woud
otherwse become due,
sha become due unt one of the foowng dates, whchever s the
earest:
(1) the ffteenth day of the thrd month foowng the
month n whch he ceases (e cept by reason of death or
ncompetency) to be a prsoner of war, or to be detaned
by any foregn government wth whch the Unted States
s at war, or to be a member of the mtary or nava forces
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395
Msc.
of the Unted States servng on sen duty or outsde the con-
tnenta Unted States, as the case may be, uness pror to
the e praton of such ffteenth day he agan s a prsoner of
war, or s detaned by any foregn government wth whch
the Unted States s at war, or s a member of the mtary
or nava forces of the Unted States servng on sea duty
or outsde the contnenta Unted States;
(2) the ffteenth day of the thrd month foowng the
month n whch the present war wth Germany, Itay, and
apan s termnated, as procamed by the Presdent; or
(3) the ffteenth day of the thrd month foowng the
month n whch an e ecutor, admnstrator, or conservator
of the estate of the ta payer s apponted.
Such due date s prescrbed sub|ect to the power of the Comms-
soner of Interna Revenue to e tend the tme for fng such return
or payng such ta , as n other cases, and to assess and coect the
ta as provded n sectons 1 6, 273, and 27 of the Interna Revenue
Code n cases n whch such assessment or coecton s |eopardzed
and n cases of bankruptcy or recevershp. For the purpose of ths
secton, the term contnenta Unted States means the States and
the Dstrct of Coumba, and the terms ndvdua or member
of the mtary or nava forces of the Unted States means any person
n the rmy of the Unted States, the Unted States Navy, the
Marne Corps, the rmy or Navy Nurse Corps (femae), the Coast
Guard, the Coast and Geodetc Survey, or the Pubc eath Servce.
Sec. 1 . The provsons of ths ct, appcabe to persons n the
hands of an enemy, sha aso appy to any person beeaguered or
beseged by enemy forces.
pproved, March 7, 19 2.
19 2-16-11065
. R. 6531. PU LIC L W 97, S NTY-S NT CONGR SS C PT R
180, S COND S SSION .
n ct To suspend the effectveness durng the e stng natona
emergency of tarff dutes on scrap ron, scrap stee, and nonferrous-
meta scrap.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed. That no dutes or
mport ta es sha be eved, coected, or payabe under the Tarff
ct of 1930, as amended, or under secton 3 25 of the Interna Reve-
nue Code, wth respect to scrap ron, scrap stee, as defned n para-
graph 301 of the Tarff ct of 1930 (U. S. C, tte 19, sec. 1001, par.
301), reayng and rerong ras, or nonferrous-meta scrap entered
for consumpton or wthdrawn from warehouse for consumpton dur-
ng the purod begnnng wth the day foowng the date of enact-
ment of tns ct and endng wth the termnaton of the unmted
natona emergency procamed by the Presdent on May 27, 19 1.
pproved, March 13, 19 2.
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Mso.
396
19 2-16-11066
. R. 65 3. PU LIC L W 508, S NTY-S NT CONGR SS C PT R
200, S COND S SSION .
n ct To amend certan provsons of the Interna Revenue Code
reatng to the producton of acoho.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 2883 of
the Interna Revenue Code (reatng to transfer of sprts at regstered
dsteres) s amended by addng at the end thereof the foowng:
(d) Under reguatons to be prescrbed by the Commssoner and approved
by the Secretary, dsted sprts of any proof may be removed n approved
contaners, ncudng ppe nes, from any regstered dstery (ncudng reg-
stered frut dsteres) or nterna revenue bonded warehouse to any other
regstered dstery (Incudng regstered frut dsteres) or nterna revenue
bonded warehouse for redstaton and remova as provded n (c) : Provded,
That In case of removas of dsted sprts to any regstered dstery (ncud-
ng regstered frut dsteres) for redstaton, the recevng dster sha
undertake to assume abty for the payment of the ta on the sprts from
the tme they eave the warehouse or dstery, as the case may be: Provded
further, That any such sprts of one hundred and s ty degrees of proof or
greater may be removed wthout redstaton from any Interna revenue bonded
warehouse as provded n (c) : Provded further, That such sprts may be stored
n tanks n any nterna revenue bonded warehouse: Provded further. That
ta es on dsted sprts removed under the provsons of ths paragraph, ether
before or after redstaton, f such dsted sprts or any porton thereof
are ost sha be remtted or refunded n the same manner and under the same
condtons as the ta on acoho woud be remtted or refunded under the
provsons of secton 3113 of the Interna Revenue Code: nd provded further,
That sectons 2836 and 2870 sha not appy to the producton and remova,
and such sectons and sectons 2800(a)(5) and 3250(f)(1) sha not appy to
the redstaton and remova, of such sprts.
(e) Transfer of Sprts for Redstaton. Under reguatons to be pre-
scrbed by the Commssoner and approved by the Secretary, and sub|ect to the
provsons of part II of subchapter C of ths chapter, sprts of any proof may,
wthout payment of ta and n bond, be removed n approved contaners, ncud-
ng ppe nes, from regstered dsteres (ncudng regstered frut dster-
es) and nterna revenue bonded warehouses to ndustra acoho bonded ware-
houses and ndustra acoho pants for redstaton and remova for any ta -
free purpose, or upon payment of tn for any purpose, authorzed by sad part
II of subchapter C of ths chapter: Provded, That when the sprts are so
wthdrawn, the ta abty of the producng dster and the nterna revenue
bonded warehouseman, and the ens on the premses of the producng dster
tha cease, and the ta sha be the abty of, and the ens sha be trans-
ferred to the warehouse or pant of. the ndustra acoho bonded warehouse-
man or propretor of the ndustra acoho pant to whom the sprts are
transferred : nd provded further, That any such sprts of one hundred and
s ty degrees of proof or greater, so removed and stored n any acoho bonded
warehouse, may be removed from such warehouse wthout redstaton for any
ta -free purpose, or upon payment of ta for any purpose, so authorzed: nd
provded further, That sectons 2836 and 2870 sha not appy to the producton
or remova of sprts of any proof for such redstaton. Ths subsecton and
subsecton (d) sha cease to be n effect upon the termnaton of the unmted
natona emergency procamed by the Presdent on May 27, 19 1.
pproved, March 27, 19 2.
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397
Msc.
19 2-16-11067
. R. 6691. PU LIC L W 510, S NTY-S NT CONGR SS C PT R
205, S COND S SSION .
n ct To ncrease the debt mt of the Unted States, to further
amend the Second Lberty ond ct, and for other purposes.
e t enacted by the Senate and ome of Representatves of the
Unted States of merca n Congress assembed, That ths ct may
bp cted as the Pubc Debt ct of 19 2.
Sec. 2. Secton 21 of the Second Lberty ond ct, as amended, s
further amended to read as foows:
Sew. 21. The face amount of obgatons ssued under the authorty of ths
ct sha not e ceed n the aggregate 125,000,000,000 outstandng at any one tme.
Sec. 3. Secton 20 of the Second Lberty ond ct, as amended, s
further amended to read as foows:
Sf.o. 20. (a) ny obgatons authorzed by sectons 1, 5, and 18 of ths ct,
may be ssued on an nterest-bearng bass, on a dscount bass, or on a comb-
naton nterest-bearng and dscount bass, at such prce or prces and wth
nterest computed n such manner and payabe at such tme or tmes as the
Secretary of the Treasury may prescrbe: and any such obgatons may be
offered for sae on a compettve or other bass under such reguatons and upon
such terms and condtons as the Secretary of the Treasury may prescrbe;
and hs decson wth respect to any such ssue sha be fna.
(b) ny obgatons authorzed by ths ct and redeemabe upon demand of
the owner or hoder may, under such reguatons and upon such terms and
condtons as the Commssoner of Interna Revenue wth the approva of the
Secretary of the Treasury may prescrbe, be recevabe by the Unted States n
payment of any ta es mposed by the Unted States.
(c) ny obgatons authorzed by ths ct may, under such reguatons and
upon such terms as the Secretary of the Treasury may prescrbe, be ssued n
e change for any obgatons- of any agency or nstrumentaty of the Unted
States whch are uncondtonay guaranteed both as to prncpa and Interest by
the Unted States, at or before ther maturty.
Sec. . Secton 19 of the Second Lbert ond ct, as amended, s
further amended to read as foows:
Seo. 19. ny obgatons authorzed by ths ct may be ssued for the purchase,
tedempton, or refundng, at or before maturty, of any outstandng bonds, notes,
certfcates of ndebtedness, Treasury bs, or savngs certfcates of the Unted
States, and any money receved from the sae of such obgatons or any other
money n the genera fund of the Treasury may, under such rues, reguatons,
terms, and condtons as the Secretary of the Treasury may prescrbe, be used
for such purchase, redempton, or refundng.
Sec. 5. The authorty of the Postmaster Genera contaned n sec-
ton 6 of the ct of une 25,1910, as amended (U. S. C, 19 0 edton,
tte 39, sec. 756), and secton 22(c) of the Second Lberty ond ct,
us amended, to prepare and ssue posta-savngs cards and posta-
savngs stamps sha termnate on such date as stamps ssued by the
Secretary of the Treasury pursuant to the authorty contaned n
secton 22(c) of the Second Lberty ond ct, as amended, are made
avaabe for sae to the pubc; and, as soon as practcabe there-
after, the oard of Trustees of the Posta Savngs System sha pay
to the Secretary of the Treasury a sum equa to the redempton vaue
of a posta-savngs stamps outstandng, and after such payment has
been made the obgaton to redeem such stamps sha cease to be a
abty of the oard of Trustees of the Posta Savngs System but
sha consttute a pubc debt obgaton of the Unted States.
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398
Sec. 6. Secton of the Pubc Debt ct of 19 1 (Pubc, Num-
bered 7, Seventy-seventh Congress, frst sesson), s hereby amended
to read as foows:
Sec. . (a) Interest upon obgatons, and dvdends, earnngs, or other ncome
from shares, certfcates, stock, or other evdences of ownershp, and gan from
the sae or other dsposton of such obgatons and evdences of ownershp
ssued on or after the effectve date of the Pubc Debt ct of 19 2 by the Unted
States or any agency or nstrumentaty thereof sha not have any e empton, as
such, and oss from the sae or other dsposton of such obgatons or evdences
of ownershp sha not have any speca treatment, as such, tnder Federa ta
cts now or hereafter enacted; e cept that any such obgatons whch the
Unted States Martme Commsson or the Federa ousng dmnstraton
had, pror to March 1, 19 1, contracted to ssue at a future date, sha when
ssued bear such ta -e empton prveges as were, at the tme of such contract,
provded n the aw authorzng ther ssuance. For the purposes of ths sub-
|ecton a Terrtory, a possesson of the Unted States, and the Dstrct of
Coumba, and any potca subdvson thereof, and any agency or nstrumentaty
of any one or more of the foregong, sha not be consdered as an agency
or nstrumentaty of the Unted States.
(b) The provsons of ths secton sha, wth respect to such obgatons and
evdences of ownershp, be consdered as amendatory of and suppementary to
the respectve cts or parts of cts authorzng the ssuance of such obgatons
and evdences of ownershp, as amended and suppemented.
(c) Nothng contaned heren sha be construed to amend or repea sectons
11 and 115 of the Revenue ct of 19 1.
pproved, March 28, 19 2.
19 2-17-11072
. R. 6273. PU LIC L W 519, S NTY-S NT CONGR SS C PT R
226, S COND S SSION .
n ct To amend the provsons of the Interna Revenue Code by
settng new ma mum mts on aowances for osses of dsted
sprts by eakage or evaporaton whe n nterna revenue bonded
warehouses, and for other purposes.
e t enacted hy the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 2901
of the Interna Revenue Code, as amended, s amended to read as
foows:
S C. 2901. LOSS LLOW NC S.
(a) Leakage or vaporaton. (1) ny dsted sprts on depost n any
nterna revenue bonded warehouse on the date ths amendatory subsecton
takes effect, or thereafter deposted n any nterna revenue bonded warehouse,
may, at the tme of wthdrawa of the sprts from such warehouse, upon the
fng of an appcaton for the regauge of such sprts, gvng a descrpton of the
package contanng the sprts, be regauged by a storekeeper-ganger who sha
pace upon such package such marks and brands as the Commssoner, wth the
approva of the Secretary, sha by reguatons prescrbe. If upon such regaugng
t sha appear there has been a oss by eakage or evaporaton of dsted sprts
from any cask or package, wthout the faut or neggence of the dster or
warehouseman, ta es sha be coected ony on the quantty of dsted sprts
contaned n such cask or package at the tme of such wthdrawa. The aow-
ance whch sha be made for such oss of sprts sha not e ceed
proof gaons for 2 months or part thereof;
2 -_ gaons for more than 2 months and not more than months;
3 gaons for more than months and not more than 6 months;
3 | gaons for more than 6 months and not more than 8 months;
gaons for more than 8 months and not more than 10 months;
2 gaons for more than 10 months and not more than 12 months;
5 gaons for more than 12 months and not more than 1 months;
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5 gaons for more than 1 months and not more than 16 months;
6 gaons for more than 16 months and not more than 18 months;
6 gaons for more than 18 months and not more than 21 months;
7 gaons for more than 21 months and not more than 2 months;
7 gaons for more than 2 months and not more than 27 months;
8 gaons for more than 27 months and not more than 30 months;
8 gaons for more than 30 months and not more than 33 months;
9 gaons for more than 33 months and not more than 36 months;
9 gaons for more than 30 months and not more than 39 months;
10 gaons for more than 39 months and not more than 2 months;
10 gaons for more than 2 months and not more than 5 months;
11 gaons for more than 5 months and hot more than -18 months;
11 gaons for more than 8 months and not more than 01 months;
12 gaons for more than 51 months and not more than 5 months;
12 gaons for more than 5 months and not more than 57 months;
13 gaons for more than 07 months and not more than 60 months;
13 gaons for more than 60 months and not more than (3 months;
1 gaons for more than 63 months and not more than 66 months;
1 gaons for more than 60 months and not more than 69 months;
15 gaons for more than 69 months and not more than 72 months;
15 gaons for more than 72 months and not more than 75 months;
16 gaons for more than 75 months and not more than 78 months;
16 gaons for more than 78 months and not more than 81 months;
17 gaons for more than 81 months and not more than 8 months;
17 gaons for more than 8 months and not more than 90 months;
18 gaons for more than 90 months from the date of orgna gauge as to
frut brandy, or orgna entry as to a other sprts; and no further aow-
ance sha be made for oss by eakage or evaporaton.
The foregong aowance sha not appy to dsted sprts whch on uy
26, 1936, were eght years of age, or oder, and whch on that date were n
bonded warehouses.
The foregong aowance for oss sha appy ony to casks or packages
of a capacty of forty or more wne-gaons, and the aowance for oss on
casks or packages of ess capacty than forty gaons sha not e ceed
one-haf the amount aowed on sad forty-gaon casks or packages; but
no aowance sha be made on casks or packages of ess capacty than
twenty gaons. The proof of such dsted sprts sha not n any case
be computed at the tme of wthdrawa at ess than 100 per centum,
(b) Loss. The Commssoner of Interna Revenue may, under reguatons
to be prescrbed by hm and approved by the Secretary of the Treasury, abate
any nterna-revenue ta es accrung on dsted sprts f he sha hud that
(1) The dsted sprts were not stoen or ntentonay destroyed but
were ost, otherwse than by eakage or evaporaton, whe on the premses
of a regstered dstery, durng or after producton and pror to depost
n an nterna revenue bonded warehouse.
(2) The dsted sprts were not stoen or ntentonay destroyed but
were ost, otherwse than by eakage or evaporaton, whe beng trans-
ferred between budngs consttutng the same nterna revenue bonded
warehouse or whe beng transferred by a common carrer from the
premses of a regstered dstery to an nterna revenue bonded warehouse
off such regstered dstery premses, or whe beng transferred by a
common carrer between nterna revenue bonded warehouses.
(3) The dsted sprts were not stoen or ntentonay destroyed but
were ost, otherwse than by eakage or evaporaton, whe the same re-
maned n an nterna revenue bonded warehouse and such oss s not
aowabe under subsecton (a) hereof.
( ) The dsted sprts were wthdrawn for use n the fortfcaton of
sweet wnes and were not stoen or ntentonay destroyed but were ost,
otherwse than by eakage or evaporaton, pror to such use whe beng
transferred to, or whe stored n, the fortfyng room on the bonded wnery
premses.
(5) The dsted sprts were ost by theft from the premses of a
regstered dstery, or whe beng transferred between budngs, con-
sttutng the same nterna revenue bonded warehouse, or whe beng
transferred by common carrer to an nterna revenue bonded warehouse
off such regstered dstery premses, or whe beng transferred by a
common carrer between nterna revenue bonded warehouses, and that
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00
such oss dd not occur as the resut of connvance, couson, fraud, or
neggence on the part of the dster, owner, consgnor, consgnee, baee,
or carrer, or the empoyees of any of them.
(6) The dsted sprts were ost by theft from an nterna revenue
bonded warehouse, and that such oss dd not occur as the resut of con-
nvance, couson, fraud, or neggence on the part of the dster, owner,
or warehouseman, or the empoyees of any of them.
(7) The dsted sprts were wthdrawn for use n the fortfcaton of
sweet wnes and were ost by theft pror to such use whe beng trans-
ferred to, or whe stored n, the fortfyng room on the bonded wnery
premses, and that such oss dd not occur as the resut of connvance,
couson, fraud, or neggence on the part of the dster, owner, con-
sgnor, consgnee, baee, or carrer, or the empoyees of any of them.
(8) The dsted sprts were unft for use for beverage purposes and
were vountary destroyed by the dster, the warehouseman, or the
propretor of the bonded wnery premses, pursuant to the wrtten per-
msson of the Commssoner n each case and under reguatons whch the
Commssoner, wth the approva of the Secretary, s hereby authorzed to
promugate.
(c) Refund of Ta . When n any case to whch subsecton (a) or (b)
appes, the ta s pad subsequent to the oss or destructon, as the case may
be, of the sprts, the Commssoner may, under reguatons prescrbed by hm
wth the approva of the Secretary, refund such ta .
(d) Insurance Coverage. The abatement or refund of ta es provded for
by subsectons (b) and (c) sha ony be aowed to the e tent that the cam-
ant s not ndemnfed aganst or recompensed for such oss.
(e) Transfer of Dutes. For transfer of powers and dutes of Comms-
soner and hs agents, see secton 3170.
Sec. 2. Secton 2901 (a), (b), (c), and (d), as amended by ths
ct, sha appy to any cam for ta es whch may accrue after the
date of enactment of ths ct. Cams for ta es or ta penates that
accrued on or before the date of enactment of ths ct sha be
sub|ect to secton 2901 of the Interna Revenue Code as t e sted
pror to ts amendment by ths ct. Nothng n secton 2901, as
hereby amended, sha be construed as n any manner mtng or
restrctng the provsons of part II, subchapter C, chapter 26, of
the Interna Revenue Code.
pproved, pr 8, 19 2.
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Msc.
COMMITT R PORTS.
19 2-10-1101
M NDING S CTION 12 OF T INT RN L R NU COD .
ouse of Representatves Report No. 1685, Seventy-seventh Congress, Second Sesson.
anuary 1 , 19 2.
Mr. Doughton, from the Commttee on Ways and Means, submtted the foow-
ng report to accompany . . Res. 257 :
The Commttee on Ways and Means, to whom was referred the ont resouton
( . . Res. 257) to amend secton 12 of the Interna Revenue Code by repeang
subsecton (1) thereof as of October 6,19 0 (the date of the passage of the Second
Revenue ct of 19 0, n whch the secton was orgnay contaned) havng had
the same under consderaton, report favoraby thereon and recommend that the
ont resouton do pass.
Representatves of the Treasury Department, War Department, Navy Depart-
ment, Reconstructon Fnance Corporaton, and Offce of Producton Management
appeared before the commttee and urged the speedy enactment of ths egs-
aton. It was ponted out that a the varous agences concerned wth the ad-
mnstraton of the secton had agreed that the proposed egsaton shoud be
enacted.
The purposes of the proposed egsaton are to remove from the prescrbed pro-
cedure for effectng the amortzaton of war factes, the requrement as a con-
dton to amortzaton, the ssung of certan certfcates referred to n subsecton
() of secton 12 of the Interna Revenue Code. It s beeved that ths change n
the procedure w greaty ad n the prosecuton of the war by makng more
effectve the amortzaton pan of 19 0.
Secton 12 of the Interna Revenue Code was enacted n October, 19 0, to
encourage the use of prvate funds n the rearmament effort then gettng under
way. In genera t provdes that any manufacturer may, n computng ts net
ncome for ta purposes, take annua deducton of 20 per cent of the costs of
the factes erected or acqured after une 10, 19 0, n eu of the deprecaton
deducton otherwse aowed by aw, f the factes are certfed to the Com-
mssoner of Interna Revenue by the Secretary of War or the Secretary of the
Navy as necessary In the nterest of natona defense.1 Subsecton () as
amended provdes that n case the Government remburses the manufacturer In
whoe or n part for the factes, no amortzaton deducton sha be aowed
uness there s a certfcate ssued to the Commssoner of Interna Revenue to
the effect that the nterest of the Government In the future use and dsposton of
such factes s adequatey protected. In order to dspose of the queston as
to whether or not rembursement s made, subsecton () provdes for a con-
cusve certfcate to the Commssoner of Interna Revenue that the manufac-
turer has not been so rembursed by the Government.
In practce, subsecton () has caused consderabe confuson, and t Is the
beef of the representatves who appeared before the commttee that as a resut
of the confuson, manufacturers have refraned and w contnue to refran from
acqurng or constructng new factes wth ther own funds; that manufac-
turers have deayed and w contnue to deay such e pendture; and, that
consderabe vauabe tme s beng ost by manufacturers and by Government
personne n admnstraton of the secton wthout any correspondng beneft to
the Government.
The repea of subsecton (1) w not n any way enarge or curta the basc
pan for amortzaton of war factes. It w eave the queston of amortza-
ton to be determned upon proper showng of a need for addtona factes.
Upon such a showng a necessty certfcate w ssue to the manufacturer and
whether such manufacturer s a drect contractor wth the Government or s
merey a subcontractor, or materaman, s not Important. The soe queston
s whether the factes are necessary to produce the necessary war suppes.
1 Orgnay the secton requred |ont certfcate by ether of the Secretares and the
dvsory Commsson to the Counc of Natona Defense. Ths requrement was removed
by Pubc Law 285, Seventy-seventh Congress.
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02
When the secton was frst ntroduced n Congress, and as passed by the ouse,
t provded that any factes for whch amortzaton deductons were taken
coud not be destroyed, demoshed, or substantay atered wthout the wrtten
consent of the Secretary of War or the Secretary of the Navy under the penaty
of an amount equa to the ad|usted base for ta purposes of the factes. These
provsons were opposed n the Commttee on Fnance of the Senate and the
Senate passed the b after nsertng n eu of the provsons of the ouse b,
a secton whch utmatey became the present subsecton (). It has been
found, as was testfed by the wtnesses appearng before the commttee, that
compance wth ths subsecton has and of necessty w deay the determnaton
of the ta stuaton of the manufacturers so that the man purpose of the b,
namey, determnaton of the ta stuaton at the tme of e panson, can not
be accompshed. It has been shown that the rght to secure the ta amortzaton
s by ths secton made contngent upon the provsons of contracts whch may
be entered nto over the entre 5-year perod.
Subsecton () was desgned to nsure that the nterest of the Unted States
woud be protected n the factes whch are the sub|ect of amortzaton de-
ductons. It s the opnon of the offcas of the War and Navy Departments
charged wth the procurement that ths matter of protectng the Government s
nterest In factes whch are beng pad for by way of Government contracts,
can be handed much more advantageousy to the Government as a matter of
procurement pocy at the tme the contracts are beng negotated. The stuaton
wth regard to the varous Government contractors of necessty vares very
materay and any attempt to estabsh a f ed and Infe be standard for
contractng s more key to defeat the nterest of the Government than to
enhance t. Three drectors of the Offce of Producton Management, charged
by the Presdent wth cooperatng wth the War and Navy Departments n the
admnstraton of ths ct, concur In ths vew. These drectors are Mr. Foyd
Odum, of the Dvson of Contract Dstrbuton. Mr. Donad Neson, of the
Prortes Dvson; and Mr. Leon enderson, of Cvan ocatons and Prce
dmnstraton.
The commttee In recommendng the passage of ths ct fees satsfed that
there w be no rea aton of the efforts to protect the nterest of the Govern-
ment n ths matter, and that the man purpose of the amortzaton provsons s
beng defeated by the mpossbty, caused by subsecton (), of determnng now
the future ta stuaton of the varous manufacturers wth regard to the fa-
ctes whch they may acqure wth ther own funds. It s aso thought that
the stuaton wth regard to emergency factes shoud be the same whether the
factes are fnstaed by subcontractors, materamen, or prme contractors.
s has been shown, the subsecton has the effect of makng doubtfu the ta
amortzaton deductons n the case of manufacturers who become prme con-
tractors, whereas subcontractors and materamen can be assured of amortza-
ton at the tme of e panson, sub|ect ony to doubt upon ther ater becomng
prme contractors. Ths naturay tends to deter these manufacturers from
takng drect contracts wth the Government, thus nterferng wth a fu, a-out
war producton program.
19 2-10-11015
M NDING S CTION 12 OF T INT RN L R NU COD .
Senate Report No. 090, Seventh-seventh Congress, Second Sesson. Caendar No. 1025.
anuary 22, 19 2.
Mr. George, from the Commttee on Fnance, submtted the foowng report
to accompany . . Res. 257 :
The Commttee on Fnance, to whom was referred the |ont resouton
( . . Res. 257) to amend secton 12 of the Interna Revenue Code by re-
peang subsecton () thereof as of October 6, 19 0 (the date of passage of the
Second Revenue ct of 19 0, n whch the secton was orgnay contaned),
havng consdered the same, report favoraby thereon and recommend that the
|ont resouton do pass.
The Senate Commttee on Fnance durng consderaton of the proposed
egsaton receved the vews and statements of representatves of the War
Department, Navy Department, Reconstructon Fnance Corporaton, and the
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Treasury Department. The representatves of the agences concerned wth the
admnstraton of the subsecton () of secton 12 agreed that the proposed
egsaton shoud be enacted.
The purposes of the proposed egsaton, as outned by the report of the
ouse Commttee on Ways and Means, are to remove from the prescrbed pro-
cedure for effectng the amortzaton for war factes, the requrement as a
condton to amortzaton, the ssung of certan certfcates referred to n
subsecton () of secton 12 of the Interna Revenue Code. It s beeved that
ths change n the procedure w greaty ad n the prosecuton of the war by
makng more effectve the amortzaton pan of 19 0.
For the further Informaton of the Senate there s appended hereto and made
a part of ths report e cerpts from the report of the ouse Commttee on Ways
and Means, readng as foows:
(The matter referred to s ouse Report No. 1585. Seventy-seventh Congress,
and s prnted In fu on pages 01 and 02 of ths uetn.
19 2-26-11135
INCR SING T D T LIMIT OF T UNIT D ST T S ND FURT R
M NDING T S COND LI RTY OND CT.
ouse of Representatves Report No. 1876, Seventy-seventh Congress, Second Sesson.
March 6, 19 2.
Mr. Doughton, from the Commttee on Ways and Means, submtted the foow-
ng report to accompany . R. 0691 :
The Commttee on Ways and Means, to whom was referred the b ( . R.
6691) to ncrease the debt mt of the Unted States, to further amend the
Second Lberty ond ct, and for other purposes, havng consdered the same,
report favoraby thereon and recommend that the b do pass.
The b s desgned (1) to ncrease the pubc debt mt; (2) to gve the
Treasury greater and more fe be contro over Treasury bonds, bs, notes,
and certfcates of ndebtedness as meda of fnancng; (3) to gve the Treasury
the authorty to receve any obgatons of the Unted States, redeemabe upon
demand of the owner or hoder, n payment of any ta es mposed by the Unted
States; ( ) to authorze the e change of obgatons of the Unted States for
obgatons of any agency or nstrumentaty whch are uncondtonay guar-
anteed both as to prncpa and nterest by the Unted States; (5) to carfy
the authorty of the Treasury to purchase outstandng obgatons of the Unted
States; (6) to termnate the ssuance of posta savngs stamps when defense
stamps are ssued by the Trensury; and (7) to sub|ect a shares and other
evdences of ownershp ssued n the future by any agency or nstrumentaty of
the Unted States to Federa ta aton by removng a prveges of e empton
from such ta aton whch they now en|oy.
N D FOR T L GISL TION.
It Is urgent that the pubc debt mt be rased as soon as possbe. The
baance of the borrowng authorty at the end of February, 10 2, was appro -
matey 1, 00,000,000. It s antcpated that by the end of March the borrowng
authorty w be nsuffcent to cover the necessary debt ssues whch w be
requred durng the month of pr.
The 19 3 udget submtted to Congress n anuary ndcates that the defct
for the current fsca year w amount to 18,000,000,000 and, n addton,
that the Treasury w be requred to advance to Governmenta corporatons ap-
pro matey 3,000,000,000 to fnance ther actvtes. On the bass of these
estmates the pubc debt on une 30, 10 2, w amount to 70,000,000,000. The
estmated defct n the fsca year begnnng uy 1, 19 2, after takng nto
consderaton addtona contempated budgetary revenues of 7,000,000,000 from
new ta aton, w amount to . 55, 00,000,000. The Treasury w aso be requred
to rase , 00,000,000 for the governmenta corporatons. The estmated ncrease
n the pubc debt for the fsca year begnnng uy 1, 19 2, based on these
estmates, w thus be 39,SOO,000,000 and eave a pubc debt on une 30, 19 3, of
110, 00,000,000.
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The Secretary of the Treasury appeared before your commttee and testfed
that the technca changes whch woud be made n the Second Lberty ond
ct, as amended, woud be of great assstance to the Treasury n fnancng the
tremendous costs of the war program.
G N R L PL N TION OF T ILL.
The b amends the Second Lberty ond ct, as amended, so as to mt the
face amount of pubc debt obgatons ssued under the authorty of that ct
to an amount not to e ceed n the aggregate 125,000,000,000 outstandng at any
one tme. It s beeved that ths ncreased mtaton w ampy cover the
Treasury s antcpated fnancng requrements through the fsca year 19 3 and
through a part of the fsca year 19 .
In vew of the arge sums whch the Treasury must rase, t s desrabe that
t have greater fe bty wth respect to the types of securtes whch may be
offered to meet the requrements of varous casses of nvestors. Therefore,
the b woud further amend the Second Lberty ond ct so as to broaden the
authorty under whch Treasury bonds, bs, notes, and certfcates of ndebtedness
are Issued. The terms upon whch such obgatons coud be ssued woud be
broadened, so that such securtes coud be ssued on an nterest-bearng bass,
on a dscount bass, or on a combned nterest-bearng and dscount bass.
The Treasury woud be authorzed to accept obgatons of the Unted States,
whch are redeemabe upon the demand of the owner or hoder, n payment
of any ta es mposed by the Unted States. Ths provson s not mandatory, but
s sub|ect to such rues and reguatons as the Commssoner of Interna Revenue,
wth the approva of the Secretary of the Treasury, may prescrbe. It s beeved
that ths provson w be of assstance to the ta payer ownng such obgatons
by makng t easer for hm to pay hs ta es.
t the present tme, owners of obgatons guaranteed both as to prncpa
and Interest by the Unted States can e change such obgatons for obga-
tons of the Unted States ony by gong through the round-about method of
redempton and usng the money receved therefrom for the purchase of drect
obgatons of the Unted States. The b w obvate ths unwedy procedure
by authorzng the drect e change of guaranteed obgatons for obgatons of
the Unted States.
stng aw wth respect to the authorty of the Treasury to purchase obga-
tons of the Unted States on the open market at or before maturty s not
entrey cear, athough t appears that Congress ntended to gve that power to
the Treasury n the God Reserve ct of 193 . The b woud carfy ths pont
by authorzng the use of any money receved from the sae of obgatons of
the Unted States, or any other money n the genera fund of the Treasury, for
the purchase, redempton, or refundng, at or before maturty, of any outstandng
bonds, bs, notes, certfcates of ndebtedness, or savngs certfcates.
Under the aws reatng to the Posta Savngs System, the Postmaster Genera
s requred to ssue posta savngs stamps, whe the Secretary of the Treasury
s authorzed by the Second Lberty ond ct. as amended, to ssue stamps as
evdences of payment toward the purchase of savngs bonds. Ths authorty of
the Secretary of the Treasury has never been e ercsed as t has not been deemed
feasbe or practcabe to permt two types of savngs stamps to be on sae at
the same tme. t the present tme, posta savngs stamps are beng sod to
factate the accumuaton of funds for the purchase of savngs bonds. These
stamps are carred as obgatons of the board of trustees of the Posta Savngs
System and not as pubc debt obgatons. Snce these stamps are beng pur-
chased prmary to support the war program, t s beeved that they shoud be
carred on the books of the Treasury as any other drect obgaton of the Unted
States. Consequenty, the b woud termnate the authorty of the Postmaster
Genera to ssue posta savngs stamps at such tme as the Secretary of the
Treasury ssued stamps pursuant to the authorty contaned In secton 22(c)
of the Second Lberty ond ct, as amended. Such stamps as the Secretary
of the Treasury w ssue may be used for the accumuaton of funds for posta
savngs deposts.
Last year, when the Congress enacted the Pubc Debt ct of 19 1, t removed
the ta -e empton prvege from obgatons subsequenty ssued by the Unted
States and agences and nstrumentates of the Unted States, but t overooked
the ta -e empton prvege en|oyed by shares and other evdences of ownershp
Issued by the varous agences and nstrumentates of the Unted States. Ths
error of omsson woud be corrected by removng the ta -e empton prvege
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on shares of stock and other evdences of ownershp Issued hereafter by agences
and nstrumentates of the Unted States. Some of the agences and nstrumen-
tates the shares of whch woud be affected by thfs amendment are the Federa
savngs and oan assocatons, the Federa reserve banks, the natona mortgage
assocatons, the Federa and banks, the natona farm-oan assocatons, and the
Federa ntermedate credt banks.
Your commttee strongy recommends prompt consderaton and acton on
ths mportant egsaton. Two facts partcuary support ths egsaton:
(1) s the Treasury s rapdy approachng the mt of ts borrowng author-
ty, It s becomng more restrcted In the fe bty of ts fnancng operatons,
and It s mperatve for the contnuaton of the war program and the operaton
of the Government that the debt mt be rased before the 1st of pr, and (2)
as tremendous sums must be rased to fnance the war program, t s mpor-
tant that the Treasury be gven more fe be contro wth respect to the terms
and condtons upon whch obgatons may be Issued, purchased, and redeemed.
D T IL D N LYSIS OF T ILL.
Secton 1: Ths secton merey gves the b a short tte.
Secton 2: Ths secton amends secton 21 of the Second Lberty ond ct,
as amended, by ncreasng the mt on the pubc debt from 65,000,000,000 to
125,000,000,000.
Secton 3: Ths secton amends secton 20 of the Second Lberty ond ct,
as amended, and has three purposes. The frst s to gve the Secretary of the
Treasury greater fe bty In determnng the terms upon whch Treasury
bonds, bs, notes, and certfcates of ndebtedness may be ssued. Such obga-
tons, under the proposed amendment, coud be ssued on an nterest-bearng
bass, or a dscount bass, or a combned nterest-bearng and dscount bass,
rrespectve of ther date of maturty, and coud be sod on a compettve bass.
The second purpose s to gve the Treasury the authorty to receve obgatons
of the Unted States, whch are redeemabe upon the demand of the owner or
hoder, n payment of any ta es mposed by the Unted States. The thrd pur-
pose s to authorze the drect e change of obgatons of any agency or nstru-
mentaty of the Unted States whch are uncondtonay guaranteed both as to
prncpa and nterest by the Unted States for obgatons of the Unted States.
Secton : Ths secton amends secton 19 of the Second Lberty ond ct,
as amended, by carfyng that secton so that there w be no queston con-
cernng the authorty of the Treasury to use the proceeds from the sae of
obgatons of the Unted States, or any other money n the genera fund of
he Treasury for the purchase, redempton, or refundng of outstandng obga-
tons of the Unted States, at or before ther maturty.
Secton 5: Ths secton termnates the authorty of the Postmaster Genera
to ssue posta savngs stamps at such tme as the Secretary of the Treasury
Issues savngs stamps pursuant to the authorty contaned n secton 22(c) of the
Second Lberty ond ct, as amended. The board of trustees of the Posta
Savngs System s drected to pay to the Secretary of the Treasury a sum
equa to redempton vaue of a posta savngs stamps outstandng and, after
such payment has been made, the obgaton to redeem such stamps sha cease
to be a abty of the board of trustees of the Posta Savngs System but sha
consttute a pubc debt obgaton of the Unted States.
Secton 6: Ths secton amends secton of the Pubc Debt ct of 19 1 by
removng the ta e empton from shares of stock and other evdences of owner-
shp ssued hereafter by agences and nstrumentates of the Unted States.
19 2-26-11136
INCR SING T D T LIMIT OF T UNTT D ST T S ND FURT R
M NDING T S COND LI RTY OND CT.
Senate Report No. 1173, Seventy-seventh Congress, Second Sesson. Caendar No. 1210.
March 16 (egsatve day, March 5), 19 2.
Mr. George, from the Commttee on Fnance, submtted the foowng report
to accompany . R. 6691 :
The Commttee on Fnance, to whom was referred the b ( . R. 6691) to
ncrease the debt mt of the Unted States, to further amend the Second
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Lberty ond ct, and for other purposes, havng consdered the same, report
favoraby thereon wth an amendment and recommend that the b as amended
do pass.
The purposes of ths b are (a) to rase the mt on the pubc debt from
65,000,000,000 to 125,000,000,000; (6) to ncrease the fe bty of the author-
ty of the Secretary of the Treasury over the ssuance of Treasury bonds, bs,
notes, and certfcates of ndebtedness; (c) to permt obgatons of the Unted
States, redeemabe upon the demand of the hoder, to be recevabe n payment
of Federa ta es; (d) to authorze the e change of obgatons of any agency
or nstrumentaty whch are uncondtonay guaranteed both as to prncpa
and nterest for drect obgatons of the Unted States; (e) to carfy the
authorty of the Treasury to purchase, redeem, or refund outstandng obga-
tons of the Unted States; (f) to termnate the authorty of the Postmaster
Genera to Issue posta savngs stamps when other defense stamps are ssned
by the Treasury; and (g) to remove the ta -e empton prvege from the shares
and other evdences of ownershp ssued hereafter by any agency or nstru-
mentaty of the Unted States.
The amendment recommended by your commttee Is as foows:
On page 1, ne 6, strke out a of the ne foowng the perod mmedatey
after the numera 21, and nes 7 and 8, and substtute n eu thereof the
foowng:
The face amount of a obgatons ssued under the authorty of ths ct, and
the face amount of a obgatons ssued by any agency or nstrumentaty of
the Unted States whch are uncondtonay guaranteed as to prncpa and
Interest by the Unted States, e cept such guaranteed obgatons whch are
owned by the Treasury Department, sha not e ceed n the aggregate
130,000,000,000 outstandng at any one tme.
Ths amendment woud pace an over-a mt of 130,000,000,000 on the com-
bned amount of the Treasury obgatons and obgatons ssued by the agences
and nstrumentates of the Unted States whch are uncondtonay guar-
anteed both as to prncpa and nterest by the Unted States, e cept such
guaranteed obgatons as are owned by the Treasury, whch coud be
outstandng at any one tme.
G N R L ST T M NT.
y reason of the fact that the unused borrowng authorty of the Treasury
was ony 1, 05,887,776 at the end of February, 19 2, t s mperatve that the
pubc debt mt be rased as soon as possbe. Uness ths mt s rased
t Is probabe that by the end of March the borrowng authorty w not be
suffcent to cover the necessary ssues of securtes whch w be requred
durng the month of pr.
ccordng to the Presdent s udget message for the fsca year 19 3, the
defct for the fsca year of 19 2 w be 1 600.000,000 and the Treasury w
end to the governmenta corporatons appro matey 3,000,000,000. Under
these estmates the pubc debt at the end of the fsca year 19 2 w be
70,600,000,000. The estmated defct for the fsca year 19 3, after takng nto
consderaton addtona revenues of 7,000,000,000 from new ta aton, w be
35, 00,000,000 and the Treasury n that year w be requred to advance
, 00,000,000 to the governmenta corporatons. The estmated ncrease n
the pubc debt for the fsca year 19 3 w therefore be 39,800,000,000, and
on une 30, 19 3, the pubc debt w be 110, 00,000,000.
It s beeved that the proposed ncreased mt on the pubc debt to
130,000,000,000 w cover the fnancng requrements of the Government
through the fsca year 19 3 and part of the fsca year 19 .
The Treasury s responsbe for rasng the arge sums necessary to fnance
the war program. Therefore, t woud seem desrabe that t be gven greater
fe bty concernng the types of securtes whch t may Issue to meet the
demands of the severa casses of purchasers. ccordngy, the authorty con-
taned n the Second Lberty ond ct woud be broadened so that Treasury
bonds, bs, notes, and certfcates of ndebtedness coud be ssued by the
Treasury on an nterest-bearng bass, on a dscount bass, or on a combned
nterest-bearng and dscount bass.
The 1)111 woud authorze the Treasury to accept obgatons of the Unted
States whch are redeemabe upon the demand of the owner or hoder In pay-
ment of any ta es mposed by the Unted States. Ths provson shoud beneft
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Msc.
ta payers ownng such obgatons by makng t easer for them to pay ther
ta es.
Under e stng aw, obgatons of the Unted States can not be drecty
e changed for obgatons whch are guaranteed both as to prncpa and
nterest by the Unted States. The e change may now be made ony by re-
deemng the outstandng guaranteed obgatons and usng the proceeds for
the purchase of drect obgatons of the Unted States. The b woud
authorze the drect e change of guaranteed obgatons for obgatons of the
Unted States and thereby permt the Treasury to avod ths ndrect procedure.
When Congress enacted the God Reserve ct of 303 , It ntended to gve the
Treasury authorty to purchase obgatons of the Unted States on the open
market before maturty, but the aw wth respect to that pont s not entrey
free from ambguty. The b woud remove ths ambguty by authorzng the
Secretary of the Treasury to use any money n the genera fund of the Treasury
or any money receved from the sae of obgatons of the Unted States for the
purchase, redempton, or refundng, at or before maturty, of any securtes
outstandng.
The Postmaster Genera s requred to ssue posta savngs stamps under the
aws reatng to the Posta Savngs System, whe the Secretary of the Treasury,
pursuant to the terms of the Second Lberty ond ct, as amended, can ssue
stamps as evdences of payment toward the purchase of savngs bonds. The
Secretary of the Treasury has never ssued the atter stamps as t has not been
deemed feasbe to have two types of savngs stamps on sae n the post offces
at the same tme. It was decded by the Postmaster Genera and the Secretary
of the Treasury that posta savngs stamps woud be sod to provde a means for
accumuatng funds for the purchase of savngs bonds. Posta savngs stamps
are carred as obgatons of the board of trustees of the Posta Savngs System
and not as pubc debt obgatons, athough to-day these stamps are beng pur-
chased prmary to support the war program. Consequenty, t s beeved that
the obgaton to redeem the stamps shoud be carred on the books of the Treas-
ury as any other pubc debt obgaton of the Unted States. The b woud
termnate the authorty of the Postmaster Genera to ssue posta savngs stamps
at such tme as the Secretary of the Treasury ssues stamps pursuant to the
authorty contaned n secton 22(c) of the Second Lberty ond ct, as amended,
and the obgaton to redeem the outstandng posta savngs stamps woud become
a pubc debt obgaton nstead of a abty of the board of trustees of the Posta
Savngs System. The new stamps whch the Treasury w ssue w be redeem-
abe on demand at the post offces and any person who has accumuated a doar s
worth of stamps w be abe to turn them n for a doar depost n the Posta
Savngs System.
The Pubc Debt ct of 10 1 removed the ta -e empton prvege from ob-
gatons ssued by the Unted Stntes and agences and nstrumentates of the
Unted States after the effectve date of that ct but the ta -e empton prvege
en|oyed by shares and other evdences of ownershp ssued by the varous
agences and nstrumentates of the Unted States was overooked. The b
woud remove the ta -e empton prvege on the shares of stock and other
evdences of ownershp hereafter ssued by such agences and nstrumentates.
Some of the organzatons the shares of whch woud be affected by ths change
are the Federa savngs and oan assocatons, the Federa reserve banks, the
natona mortgage assocatons, the Federa and banks, the natona farm oan
assocatons, and the Federa ntermedate credt banks. Ths provson woud
not n any way affect the status for ta purposes of any agency or nstrumentaty
of the Unted States.
Your commttee stress the necessty for mmedate consderaton and acton
on ths vta egsaton. The Treasury Is rapdy approachng the pubc debt
mt and Is becomng restrcted n the fe bty of ts fnancng operatons.
It Is therefore mperatve for the successfu prosecuton of the war program
and the genera operaton of the Government that the debt mt be rased
before the 1st of pr.
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08
19 2-26-11137
INCR SING T D T LIMIT OF T UNIT D ST T S ND FURT R
M NDING T S COND LI RTY OND CT.
ouse of Representatves Report No. 19 5, Seventy-seventh Congress, Second Sesson.
March 25, 19 2.
Mr. Cooper, from the commttee of conference, submtted the foowng con-
ference report to accompany R. 6691 :
The commttee of conference on the dsagreeng votes of the two ouses on
the amendment of the Senate to the b ( . R. 6691) to ncrease the debt mt
of the Unted States, to further amend the Second Lberty ond ct, and for
other purposes, havng met, after fu and free conference, have agreed to
recommend and do recommend to ther respectve ouses as foows:
.
ST T M NT OF T M N G RS ON T P RT OF T OUS .
The managers on the part of the ouse at the conference on the dsagreeng
votes of the two ouses on the amendment of the Senate to the b ( . R.
6691) to ncrease the debt mt of the Unted States, to further amend the
Second Lberty ond ct, and for other purposes, submt the foowng state-
ment n e panaton of the effect of the acton agreed upon by the conferees
and recommended In the accompanyng conference report:
Secton 2 of the ouse b amended secton 21 of the Second Lberty ond ct
by ncreasng the face amount of obgatons ssued under such ct from
65,000,000,000 to 125,000,000,000 outstandng at any one tme. The Senate
amendment Increased such amount to 130,000,000,000 and ncuded n the
aggregate of obgatons outstandng at any one tme the face amount of a
obgatons ssued by any agency or nstrumentaty of the Unted Stntes whch
are uncondtonay guaranteed as to the prncpa and nterest by the Unted
States, e cept such guaranteed obgatons whch are owned by the Treasury
Department. The Senate recedes.
R. L. Douohton,
Thos. . Cuen,
ere Cooper,
Frank Crowther,
arot|) notson,
Managers on the part of the Rouse.
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IND .
Rung No.
ccountng methods:
Instament bass, reguatons amended
Lease contracts coverng machnes for Government use
wth opton to purchase
dmssons ta . (See Msceaneous ta es.)
grcutura d|ustment ct, cam for refund of processng ta ,
|ursdcton of oard of Revew
coho:
ppend (1938) to Reguatons 3, amended
Formuas No. 12, 13, 1
Formuas No. 27- , 0-
asc permt, procedure, amendments
Markng packages, symbos and sera numbers, ant-
freeze preparatons, acquer thnners, Reguatons 3
(19 2) revsed
Optona use of wthdrawa permts, Form 1 85, reguatons
amended
Ta -free acoho wthdrawn, reguatons amended
mbassadors, foregn governments, e empton
mendments:
Code of Federa Reguatons, Tte 26, secton 171. d
Gaugng Manua
Par. 60(b)
Par. 107
Interna Revenue Code
Secton 12 () as amended, repeaed
Secton 2883(d)
Secton 2901
Reguatons 3, ppend (1938)
Formuas Nos. 12, 13, and 1
Formua No. 27-
Formua No. 0- (added)
Reguatons 3 ( coho ta )
rtce 86
rtce 1 - (added)
Reguatons 3 (19 2), sectons 182.2. 182.800, 182.8 7
Reguatons ( coho Ta ), rtce I
Reguatons
Reguatons 5 ( coho Ta ), secton 21.
Reguatons 5
Reguatons 7
Reguatons 10
Reguatons 18
Reguatons 21 (19 0), sectons 191.3(r), 191.5, 191.6, 191.7
191.8, 191.9, 191.10 (revoked), 191.28, 191.35(6), 191.55.
Reguatons 23
Reguatons 28
Reguatons 3 (19 1), secton 101.5
Reguatons 6 (19 0), secton 316.150
Reguatons 69, artce 6
10981
10997
110 0
11051
11007
11118
11138
10971
11020
11021
11118
11000
11053
11089
11013
11050
11072
11051
11007
11007
11020
10071
11138
11100
11085
11001
11052
11086
11091
11079
1109
11087
11088
10958
11092
11093
110
10962
10981
7 918 2-
-1
( 09)
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mend ments Cont nued.
Reguatons 72 (19 2), secton 322.21(a)
Reguatons 7 , artce 6 --
Reguatons 77
rtce 113.55
rtce 35 .
Reguatons 86
rtce -
rtce 101-1-
rtces 113(a)(2)- and 113(a)(3) 1
Reguatons 9
rtce -
rtce 101-1
rtces 113(a) (2)- and 113(a) (3)-
rtce 11.5-7
Reguatons 101
rtce -
rtce 101-1
rtces 113(a)(2)- and 113(a) (3)-
rtce 115-7 -
Reguatons 103
Secton 19.22(a)-__
Secton 19.23(k)-()(6).
Secton 19. -
Sectons 19.53-1, 19.53- , 19.56-1, 19.217-1, 19.218-U
Secton 19.101-1
Sectons 19.113(a) (2)- and 19.113(a) (3)-
Secton 19.116-1
Secton 19.12 -2
Secton 19.12 -9 (repeaed)
Reguatons 10 , sectons 23.2, 23.13 to 23.16, 23.30, 23.31,
23.33 to 23. 3
Reguatons 109
Sectons 722-3 and 722-5
Secton 30.729-1
Sectons 30.73 -1 and 30.73 -2
Reguatons 110, sectons 33.16, 33.30, 33.31, 33.33 to 33.38.
33. 0, and 33. 1
mortzaton deducton, emergency factes:
Certfcate of necessty pror to eecton to begn amortza-
ton perod, reguatons amended
Procedure, smpfcaton
Interna Revenue Code amended
Reguatons amended
nnutes:
Contract purchased by husband for dvorced wfe, ncome
ta abe to wfe
Rcdeposts to retrement fund by renstated cv servce
empoyees, nterest on, deducton
rmy and Navy, authorty of offcers or offcas to admnster
oaths, returns of cvan empoyees at foregn bases
rmy personne, fng date of returns
Reguatons amended
ttorneys and agents, reguatons governng recognton by
Treasury Department (revsed to October 23, 19 1)
wards, Natona Labor Reatons oard, gross ncome
.
ad debts:
Charge off n prevous ta abe year, deducton, reguatons
amended
Rung No.
11127
10981
11030
10981
10981
11025
11068
10981
11025
11068
10972
10981
11025
11068
10972
11101
11060
10981
11099
11025
11068
11021
11006
11056
11006
11020
11120
110 9
10980
11027
11056
11013
11006
11033
110 6
110 7
11123
1106
11099
11063
10996
11060
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1 Runu No.
ad debts Contnued.
Credtor s acceptance of vountary conveyance of property,
ncudng securty for debt, n satsfacton of unpad n-
debtedness
Worthessness ascertaned n ater year, deducton
ankruptcy, prorty of Unted States cam for amount due
under Soca Securty ct .
anks, nsovent, prorty of Federa ta es, Te as
onds, retrement of Chcago ont Stock Land ank bonds,
capta gan
randy, producton of, reguatons amended
ureau of Interna Revenue, conference and practce requre-
ments, revsed February, 19 2
usness e penses:
utomobe owned and used by rura ma carrers for de-
veres
Lega e pense, State empoyee, charges of mproper po -
ca actvtes
Saes commssons pad n purchase and sae of securtes,
deducton
C.
Canada, resdents of, credt for dependents
Capta gans and osses:
Credtor s acceptance of vountary conveyance of property,
ncudng securty for debt, n satsfacton of unpad n-
debtedness
Retrement of Chcago ont Stock Land ank bonds-.
Capta stock ta :
ankrupt corporaton, bass for determnaton of ta
Dong busness, corporaton organzed for qudaton of
another corporaton
rror n frst return, amended return
Con-operated devces:
Gum ba sot machne :
Speca ta pad by owner, busness e pense deducton
Commssons pad n purchase and sae of securtes, busness
e pense deducton
Commttee reports:
Interna Revenue Code amendment
ouse of Representatves (Report No. 1585)
Senate (Report No. 990)
Pubc Debt ct of 19 2
Conference (Report No. 19 5)
ouse of Representatves (Report No. 1876)
Senate (Report No. 1173)
Compensaton:
Persona servces
Gross ncome, ncuson, reguatons amended
Incuson of trave aowance n optona ta return
(Form 10 0 )
Conference and practce requrements, ureau of Interna Rev-
enue, revsed February, 19 2
Consuar offcers, foregn- governments, e empton from Federa
e cse ta es
Contracts, machnes eased for Government use wth opton to
purchase
Contrbutons:
Chartabe
Fund for beneft of a specfc ndvdua--.
Navy Reef Socety
11076
11078
11036
11028
10955
1099
11086
11091
110 1
11035
11103
11039
1098
11076
11078
1099
11062
11071
10952
10953
11029
1102
11039
1101
11015
11137
11135
11136
11101
11055
110 1
10957
10997
11096
11097
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Corporatons:
cquston or dsposton of ts own stock
Chartabe contrbutons, Navy Reef Socety
Debenture stock, payment treated as dvdends
Dstrbutons, stock dvdends, reguatons amended
Court decsons:
abama sphatc Lmestone Co.; everng v
en v. Natona Manufacture fc Stores Corporaton
mercan Chce Co. v. Unted States ----
ondhoders Commttee, Marborough Investment Co., Frst
Mortgage onds, v. Commssoner
randegee; Commssoner v
Cement Investors, Inc.; everng v
Commssoner; ondhoders Commttee, Marborough Invest-
ment Co., Frst Mortgage onds, v
Commssoner v. randegee
Commssoner; Marborough ouse, Inc., v
Commssoner; Pam Sprngs odng Corporaton v
Commssoner; Pearce v
Commssoner; Scafe Company v
Commssoner; Sneed, r., v
Commssoner v. Spreckes
Commssoner; Wson Co. v
Credt ance Corporaton; everng v
Goggn; Unted States v
everng v. abama sphatc Lmestone Co
everng v. Cement Investors, Inc
everng v. Credt ance Corporaton
everng v. Lerner Stores Corporaton (Md.)
Newton, r
Newton Trust
Safe Depost Trust Co. of atmore
Southwest Consodated Corporaton
everng; Spreckes v
everng; Wmngton Trust Co. v
oet Chcago Raroad Co.; Unted States v
ruse; Unted States v
Lerner Stores Corporaton (Md.); everng v
Magruder v. Suppee et u
Magruder v. Washngton, atmore nnapos Reaty Cor-
poraton
Marborough ouse, Inc., v. Commssoner
Meron Crcket Cub v. Unted States
Natona Manufacture Stores Corporaton; en v .
Newton, r.; everng v
Newton Trust; everng v
Nuomone Co. v. Unted States
Nunnay Investment Co.; Unted States v
Pam Sprngs odng Corporaton v. Commssoner
Pearce v. Commssoner
Ragen; Unted Staes v
Safe Depost Trust Co. of atmore; everng v
Scafe Company v. Commssoner
Sneed, r., v. Commssoner
Southwest Consodated Corporaton; everny v
Spreckes; Commssoner v -
Spreckes v. everng -
State of New York; Unted States v
State of New York v. Unted States
State of Te as et a.; Unted States v
Suppee et u ; Magruder v
Unted Sates; mercan Chce Co. v
Unted States v. Goggn
everng v.
everng v.
everng v.
everng v.
Rung No.
11111
11097
11112
10972
10991
11111
1112
10990
109 9
11125
10990
109 9
10990
10992
11033
10952
11077
11078
110 0
11083
11062
10991
11125
11083
10953
11125
11125
11073
10993
1103 )
1 10S
10978
10961
10953
11119
11071
10990
10970
11111
11125
11125
11057
11106
10992
11033
10961
11073
10952
11077
10993
11078
11039
11028
11028
10951
11119
1112
11062
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13
Court decsons Contnued.
Unted States v. oet Chcago Raroad Co
Unted States v. ruse
Unted States; Meron Crcket Cub v
Unted States; Nuomone Co. v
Unted States v. Nunnay Investment Co
Unted States v. Ragen
Unted States v. Stae of New York
Unted Staes; State of New York v
Unted Staes v. State of Te as e a ---
Washngton, atmore dc nnapos Reaty Corporaton;
Magruder v
Whte et a. v. Wnchester Country Cub
Wmngton Trust Co. v. everng
Wson Co. v. Commssoner
Wnchester Country Cub; Whte et a. v
Credts:
Contrbutons to State unempoyment fund
Corporatons, dvdends pad, dstrbutons n qudaton _
Foregn ta es
rtsh bocked accounts as reated to credt or
deductons for rtsh ta es pad or accrued
Computaton of mtaton, e cess profts ta .
Smar credt requrement, State of ctora, Com-
monweath of ustraa
Credts aganst net ncome:
Dependents, credt for
Nonresdent aens, Canada, Me co
Rues governng aowance of__
Dvdends, Chna Trade ct corporatons, e tenson of
tme mt for decaraton of dstrbuton
Persona e empton, head of famy, rues governng aow-
ance of
Credts aganst ta , ta es of domestc corporaton pad by
foregn subsdary
D.
Debenture stock, payments treated as dvdends
Decared vaue e cess-profts ta , deductbty n computng
corporaton norma-ta net ncome, etc
Dependents, credt for. (See Credts aganst net ncome.)
Depeton:
O and gas wes
Drng costs, opton to charge to e pense
Surrender of unproductve eases, depeton aowance
restored to ncome
Deprecaton, automobe owned and used by rura ma carrers
for deveres
Dsted sprts:
Drawback on, wnes, reguatons amended
Losses n bonded warehouses, Interna Revenue Code
amended
Markng and brandng, Gaugng Manua amended
Modfcaton of standard of dentty for neutra sprts,
reguatons amended
Producton, reguatons amended
Reguatons amended
Schedue of aowances for oss by eakage, Gaugng Manua
amended
Rung No.
10978
10961
10970
11057
11106
10961
11028
11028
10951
11071
10969
1108
110 0
10969
11028
11083
109 8
11019
11012
1098
11003
11105
11133
11003
1112
11112
11032
109 7
11077
11035
11093
11072
11000
11053
11001
11052
10979
11085
10958
11089
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1
Dsted sprts Contnued.
Transfers at regstered dsteres
Interna Revenue Code amended
Reguatons prescrbed
Transportaton of acoho, etc., by tank trucks, reguatons.
Dvdends:
Checks remaed or ressued after change n wthhodng
rate
Chna Trade ct Corporatons, e tenson of tme mt for
decaraton and dstrbuton, credts
arnngs and profts, reducton by amortzaton of bass of
emergency factes
Pad, credt for, dstrbutons n qudaton
Dues or membershp fees. (See Msceaneous ta es.)
Dutes, tarff, scrap ron, etc
.
asement, fowage, gan or oss from sae
mpoyees, cv servce:
Deceased, saary deductons and nterest, e empton
Redeposts to retrement fund on renstatement, nterest on,
deducton
mpoyment ta es:
Interna Revenue Code-
mpoyees
ank, members of qudatng commttee
Supervsory personne
Wndow trmmers
cepted servces
grcutura abor
Seed peas and beans, ceanng, packng, and
storng of
Wanuts, handng of
Defense counc, servces performed for
Labty of banks, etc., after anuary 1, 19 0
Wages, what consttutes, payments to former empoy-
ees servng n the State guard
Soca securty ta es, bankruptcy, prorty of Unted States
cam
states and trusts, ncome, speca bond, determnaton of cose
of admnstraton perod
state ta , gross estate, nterest n trust property, une ercsed
power of appontment
cess profts ta :
d|ustment n case of poston nconsstent wth pror n-
come ta abty, reguatons amended
d|ustment of abnorma base perod net ncome, regua-
tons amended
Consodated returns, reguatons amended
Determnaton of average base perod net ncome
quty nvested capta, earnngs and profts reducton,
amortzaton bass of emergency factes
Inadmssbe assets, certfcate of membershp n chamber
of commerce
Returns, fna ta perod ess than 12 months, annua bass.
Tme and pace for fng returns, reguatons amended
cess-profts ta (decared vaue e cess-profts ta ), de-
ductbty n computng corporaton norma-ta net
ncome, etc
Rung No. |
11066
11050
11018
11005
11105
11037
11083
11065
11082
11122
110 6
11107
11098
11113
110 2
11070
11131
10998
1113
11028
11117
11073
10980
11120
11027
10977
11037
11130
10976
110 9
11032
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15
Rung No.
10983
103
1110
105
11097
10
11025
101
11129
132
109 5
37
11122
35
1100
100
10988
3
10956
260
11088
318
11021
112
10959
267
11068
110
11125
185
10997
87
11110
108
10990
212
10991
21
10992
217
10993
218
11082
106
109 9
251
1100
100
10999
393
11016
97
10981
88
10965
358
11010
7
11011
9
110 6
9
11023
39
109 5
37
empt corporatons:
Corporaton organzed for, and engaged n, busness ac-
tvty
Farmers mutua nsurance companes, ncome from Unted
States defense bonds
Navy Reef Socety
Proof of e empton, reguatons amended
empt ncome:
arnngs of shps documented under foregn aws, Panama
Interest, Unted States savngs bonds
Saary deductons and nterest, deceased cv servce em-
poyee
tenson of tme for fng returns. (See Returns.)
F.
Farmers:
Mutua nsurance companes, ncome from Unted States
defense bonds, e empt status
Penates under grcutura d|ustment ct, deducton
Federa Depost Insurance Corporaton, ta -free saes
Fermented mat quor, e portaton of, reguatons amended
Foregn government ambassadors, mnsters, etc., e empton..
G.
Gan or oss:
ass, property acqured by gft or transfer n trust after
December 31. 1920, reguatons amended
changes, bonds of bankrupt corporaton for stock n new
corporaton
Machnes used on Government contracts
Renvestment of proceeds upon State confscaton of dary
stock
Reorganzaton, transfer of propertes for cash and bonds.
Sae of fowage easement
Gasone ta es. See Ta es: State and Manufacturers e cse
ta es.)
Gft ta , present or future nterests n property
.
usband and wfe, separate returns. Treasury notes of one
spouse to satsfy ta abty of other
I.
Indans, Cheyenne- rapaho trbes, aotment of and n Oka-
homa
Inspecton of returns, corporaton statstca transcrpt cards,
reguatons
Instament bass, repossesson of rea property upon defaut
under deferred payment sae, reguatons amended
Insurance, War Rsk, coecton of ta es due from veteran or
estate
Interest:
Margn account wth broker, ta payer s books on cash
recepts bass, deduct on __
Redeposts to retrement fund by renstated cv servce
empoyees, deducton
Treasury notes, Ta Seres -19 3, -19 3, -19 , and
-19 , accrued before and after purchase, treatment-
Unted States savngs bonds, e empton
G
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16
Interna Revenue Code amendment
Commttee reports
Invountary converson of property, renvestment of proceeds,
gan or oss
L.
Leases, dvdend payments to essor s stockhoders, Federa ta es
pad on dvdends, ncome
Legsaton:
otment of certan ands to Cheyenne- rapaho trbes of
Okahoma
Fng returns and payment of ta , mtary and nava
forces, prsoners of war
Interna Revenue Code, secton 12 , amendment
Losses of dsted sprts n warehouses, Interna Revenue
Code amended
Pubc Debt ct of 19 2
Suspenson of dutes or mport ta es, scrap ron, scrap stee,
nonferrous-meta scrap
Transfer of sprts at regstered dsteres, Interna Reve-
nue Code amended
Losses, property acqured for proft, used as persona resdence
at tme of sae
Lousana, motor vehce fue ta
M.
Manufactured sugar. (See Sugar ct of 1937.)
Manufacturers e cse ta es:
Certan artces made of rubber
Consuar offcers, e empton
Prorty of Federa over State gasone ta es
Ta -free saes of artces for use of Unted States
Federa Depost Insurance Corporaton
Reguatons
To foregn governments for e port
Me co, resdents of, credt for dependents
Mnsters, foregn governments, e empton
Msceaneous ta es:
dmssons ta , reguatons amended
Consuar offcers, e empton
Dues or membershp fees, payments for certan prveges.
Stamp ta es
Con-operated devces, gum ba sot machne
Motor vehce stamps, reguatons amended
Recevers certfcates of ndebtedness, reguatons
amended
Stock transfers, guardan to ward, Msssspp
Msssspp, transfer of stock from guardan to ward
Motor vehce fue, Lousana
Motor vehce stamps. (See Msceaneous ta es.)
N.
Natona Labor Reatons oard, awards under, gross ncome
Navy:
Offcers, authorty to admnster oat s on ta returns, New-
foundand
Personne, fng date of returns
Reguatons amended
Navy Reef Socety, e empton
Newfoundand, authorty of Navy personne to admnster
oaths on ta returns
Rung No.
11013
r 1101
. 11015
11110
10978
10999
1106
11013
11072
11067
11065
11066
11038
109 6
10960
10962
10957
10951
10956
10982
10986
1098
11021
110
10957
10969
10970
11029
11127
11030
11058
11058
109 6
10960
10996
110 7
1106
11099
11097
110 7
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17
New York Cty property ta es, accrua date..
Nonresdent aens:
Canada, Me co, credt for dependents
Fng date of returns, mtary or nava forces, prsoners
of war, reguatons amended
0.
O and gas wes:
Drng costs, opton to charge to e pense
Surrender of unproductve eases, depeton aowance
restored to ncome
Oeomargarne:
Schedue of producton and materas used-
December, 19 1 and 19 0
anuarv, 19 2 and 19 1..
Februarv, 19 2 and 19 1
March, 19 2 and 19 1 -.
pr, 19 2 and 19 1
Panama, shps earnngs, e empton
Pan- mercan trade corporatons, consodated returns, regu-
atons amended
Payment of ta es. (See Ta es: Payment.)
Penates:
grcutura d|ustment ct, marketng of crops n e cess
of marketng quotas, deducton
Dstrbuton of corporate dvdends under guse of com-
mssons
Persona e empton, head of famy, rues governng aowance
of
Processng ta es, refund, suffcency of cam
Property ta es, New York Cty, accrua date
I ubc Debt ct of 19 2_.
Commttee reports
.
Raroad corporatons, consodated returns, reguatons
amended
Reguatons:
mendments. (See mendments: Reguatons.)
Corporaton statstca transcrpt cards, nspecton of
Dsted sprts of 160 degrees or more proof, producton,
wthdrawa, etc ..
Recognton of attorneys, agents, and others by Treasury
Department (revsed to October 23, 19 1)
Ta -free saes of artces
For use of Unted States, etc
To foregn governments for e port
Transportaton of dsted sprts, etc.. by tank trucks
Returns:
Consodated
cess profts ta . reguatons amended
Raroad corporatons, reguatons amended
cess profts ta , reguatons amended-
cse ta , nspecton of
tenson of tme for fng.
Rung No.
1096
1098
11099
109 7
11109
11077
1098.T
11008
110 3
11080
11115
11129
11026
10988
10961
11003
110 0
1096
11067
11135
11136
11137
11026
11016
10979
11063
10982
10986
11018
Chna Trade ct corporatons |
11027
11026
11027
110 9
1107
10975
11105
11133
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18
Returns Contnued.
Fng date, mtary or nava forces, prsoners of war
Reguatons amended
usband and wfe, Treasury notes of one spouse to satsfy
ta abty of other
Indvdua, optona ta (Form 10 0 ), compensaton for
persona servces, ncuson of trave aowances
Inspecton of corporaton statstca transcrpt cards,
reguatons
erfcaton, authorty of rmy and Navy offcers to admn-
ster oaths, returns of cvan empoyees at foregn
bases
Rues of practce, oard of Ta ppeas. (See Unted States
oard of Ta ppeas.)
Rura ma carrers, automobe owned and used for deveres,
busness e pense deducton, evdence
S.
Saes:
Stock, ong and short accounts, court revew of oard s
decson
Ta -free, artces
For use of Unted States, etc
To foregn governments for e port
Shps, Panama, earnngs of, e empton
Stamp ta es. ( See Msceaneous ta es.)
States:
Ta -free saes of artces for use of
Ta es. (See Ta es: State.)
Sts, dstng apparatus, reguatons amended
Stock, saes, ong and short accounts, court revew of oard s
decson
Sugar ct of 1937, refunds under, mtaton statute
Sut, recovery of ta es, sut aganst coector, |udgment not res
|udcata n sut aganst Unted States
T.
Ta es:
Con-operated devces, speca ta pad by owner, busness
e pense deducton
cess-profts ta (decared vaue e cess-profts ta ),
deductbty n computng corporaton norma-ta net
ncome, etc
Foregn, credt for. (See Credts.)
Indvdua ncome ta , optona ta return (Form 10 0 ),
ncuson n gross ncome of trave aowances
Interna Revenue Code, aowabe deductons for ncome
ta purposes
Payment
Indvduas n mtary or nava forces, prsoners of
war
Reguatons amended
Treasury notes, Ta Seres -19 3 and -19 3
mendment to Department Crcuar No. 667
Treasury notes, Ta Seres -19 3, -19 3, -19
and -19
Descrptons of, Ta Seres -19 and -19 _
usband and wfe, separate returns, notes n-
scrbed n name of one spouse
Reguatons governng acceptance, ncome, es-
tate, gft ta es
Rung No.
1106
11099
1100
11055
11016
110 7
11123
11035
1108
10956
10982
10986
11129
10982
11092
1108
11057
11106
1102
11032
11055
10989
1106
11099
10967
10968
1100
10966
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19
Ta es Contnued.
State
Gasone and motor fue
Lousana
Prorty of cam for Federa gasone ta es
Property ta es, accrua date
New York Cty -- -
State and cty, apportonment between vendor and ven-
dee, deducton
Ta -free saes for use of Unted States, etc. (See Manufac-
turers e cse ta es; see aso Saes.)
Te as, nsovent banks, Federa ta abty
Tobacco:
Statement of manufactured, produced, by casses
October, 19 1 and 19 0
November, 19 1 and 19 0
December, 19 1 and 19 0
anuarv, 19 2 and 19 1
February, 19 2 and 19 1
March, 19 2 and 19 1
Traveng e penses, aowances for, gross ncome ncuson,
optona ta return (Form 10 0 )
Treasury notes:
Payment of ta es. (See Ta es: Payment.)
Ta Seres -19 3, -19 3, -19 , and -19 , nterest,
accrued before and after purchase, treatment
Trusts, ncome, sub|ect to uncondtona demand of ta payer-
benefcary, to whom ta abe
U.
Unted States oard of Ta ppeas:
Decsons of, st of acquescences and nonacquescences
Rues of practce, amendments, May 29, 19 2
Unted States obgatons:
Treasury notes, Ta Seres -19 3, -19 3, -19 , and
-19 , nterest, accrued before and after purchase,
treatment
Unted States savngs bonds, nterest, e empton
.
erfcaton of returns, authorty of rmy and Navy offcers to
admnster oaths, returns of cvan empoyees at foregn
bases
ctora, State of, Commonweath of ustraa, ta es, smar
credt requrement
Y.
War Rsk nsurance proceeds, coecton of ta es due from
veteran or estate
Wne:
Labeng and advertsng, reguatons amended
Producton, fortfcaton, ta -payment, reguatons amended
Reguatons amended
Wthhodng ta at source, dvdend checks returned or ost after
change of ta rate
Rung No.
109 6
50
10960
52
10951
3 5
1096
53
11119
173
10955
15
10950
356
10973
356
11017
356
110 8
357
11090
357
1111
357
11055
138
11023
39
11061
168
11132
1-31
11126
3 9
11023
39
109 5
37
110 7
90
11123
92
11012
115
10965
358
11100
29
11079
299
1109
30
10958
319
11005
129
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