Bureau of Internal Revenue Cumulative Bulletin 1939-1 Part 1

Treasury Department : weoa- of Interna Revenue
Interna Revenue uetn

Cumuatve uetn 1939-1
(P RT 1)
NU RY- UN , 1939
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S TLCI TT NTION drected to the cautonary notce on ths page that pub-
of Treasury Decse
shed rungs of the ureau do not ha ve the force and effect
that they are appcabe ony to facts presented n the pubshed case
ureau of Interna Revenue
Interna Revenue uetn
Cumuatve uetn 1939-1
(P RT 1)
NU RY- UN , 1939
IN T IS ISSU
Introductory INofes I
Contents - - - II
Rungs Nos. 9655-9 96-
oard of Ta ppeas 1_ 9
Ta
I (Interna Revenue Code and 193 ct) . 71-15
Part n (1937 and 1936 cts) . 159- 16
Part III (1935 and 1934 or Pror cts) . . . . 211-2 2
mpoyment Ta es 2 3-324
Msceaneous Ta es-
state and Gft Ta es 325-342
CaP ta Stock Ta 343-350
Saes Ta es 351-390
Msceaneous Rungs 391-431
Inde 433-445
re report, en the Revenue rts (1913 to 193 . ncusve) . ae
puu.t.c u P.t 2 o tbu Cumuatve uetn)
- 1 nterna Revenue uetn art for the nformaton of upTtrt ana ther connse as
_ opnon n the admnstraton o the ureau o Interna Revenue the rungs other than
s T aone of the force or efect o Treasury Decsons and do not commt the Department to
aw whch has not been formay approred and promugated b|r the Secretary o the.
T bodes the admnstratve appcaton o the aw and Treasury Decsons to the entre
rath r teas partcuar case rests. It s especay to be noted that the same resut w not neces-
af (acts tspo ncr esse uness a the matera acts are dentca wth those o the reported case. a t s
be re-asctaed Ms -.Usb compete suteraent o the facts underyng each rung, there can be no assurance
ra|s feasbe: 10 .P tt a. wh the reported case. s bearng out ths dstncton, t may be obserTcd that the
are new/ cas 1 tras e tme may appear to reverae rungs prevousy pubshed.
bsbed rom | OIC,M Revenue are especay cautoned aganst reachng a concuson n any case
of tt.e PurC -L|arty to e pubshed rung, and shoud base ther |udgment on the appcaton of a per-
the bass | Mnd Treasury Decsons to a the acts n each case. These rungs shoud be used as
asset ts forma constructon as made n the reguatons and Treasury Decsons prevousy
. _ . - a a IaterneRerenue Treasury Decsons, t s the pocy o the ureau of Interna Revenue
-a mod decsons, ncudng opnons o the Chef Connse or the ureau o Interna
ras 1 tbey announce a rung or decson opon a nose queston or upon a queston n regard
because eT 0sy pubshed rung or decson, or or other reasons, are of such mportance aa
there _ r t U aso ttt pocy o the ureau to p
. - . -- 3 pubsh a rungs or decsons whch revoke, modfy,
r feet aa ssasy manner whatever any pubshed rung or decson. In many nstances opnons of the
- , , , for the ureau p Interna Revenue are not ot genera nterest because the announce
._7: no new constructon of the revenue aws but smpy appy rungs aready made pubc n certan
sew rung o ,re wthoo speca sgnfcance. It s not the pocy of the ureau to pubsh such opnons.
atuatoM o tact e ,, assgned to the pubshed opnons o the Chef Connse or the ureau of
1 teretore, are not cansecnove. Ps0 unpubshed rung or decson w be cted or reed upon by any offcer
T , ,he ureau of Interna Reven.e as a precedent n the dsposton of other cases. Uness otherwsa
.od.catrd. aU pubshed rungs and decsons have receved the consderaton and approva of the
S nse for the Ia nu
a e of tesvera n r rst
nr . or e
Chef Counse
s|wOT D ST T S GO RNM NT PRINTING O IC : W S INGTON : 1939
of Documents, Washngton. D. C - - See hack o tte for prce.
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The Interna Revenue uetn servce for 1939 w consst of weeky
buetns and semannua cumuatve buetns.
The weeky buetns w contan the rungs and decsons to be
made pubc and a Treasury Department decsons (known as Treasury
decsons) pertanng to Interna Revenue matters. The semannua
cumuatve buetns w contan a rungs and decsons (ncudng
Treasury decsons) pubshed durng the prevous s months.
The compete uetn servce may be obtaned, on a subscrpton
bass, from the Superntendent of Documents, Government Prntng
Offce, Washngton, D. C, for 3 per year foregn, 4.25. 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. 4, 30 cents No. 5, 25 cents.
Persons desrng to obtan the Saes Ta Cumuatve uetns for
anuary- une and uy-December, 1921, may procure them from the
Superntendent of Documents at 5 cents per copy.
Persons desrng to obtan the Interna Revenue uetn servce for
the years 1922 to 193 , ncusve, may do so at prces as foows:
Cumuath
e uetn.
Year.
Prce
(cents).
rst 6
months.
Second 6
months.
1922
1-1
1-2
40, 30
1923
II-
II-2
30, 40
1924
III-
III-2
50, 50
1925
I -1
I -2
40, 35
1926
-
-2
40, 30
1927
I-1
I-2
40, 40
192
II-1
II-2
35,50
1929-
III-1
I11-2
50, 55
1930
I -1
I -2
50, 50
1931
-
-2
65, 30
1932
I-1
I-2
30, 30
1933
I I-1
I1-2
30, 50
1934
III-1
III-2
50, 50
1935 -
I -1
I -2
50,50
1936
-1
-2
55, 46
1937.
1937-1
1937-2
60,50
193
193 -1
193 -2
60,50
1939
1939-1
50,-
Persons desrng to obtan the servce n dgest form may do so at
prces as foows: Dgest No. 13 (1922-1924), 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 ony, 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.
(II)
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uvrrr- -
D C 9
INTRODUCTORY NOT S.
The Interna Revenue Cumuatve uetn 1939-1, Part 1, n add-
ton to a decsons of the Treasury Department (caed Treasury
decsons) pertanng to Interna Revenue matters, contans opnons
of the Chef Counse, and rungs and decsons pertanng to ncome,
estate, gft, saes, capta stock, e cess profts, soca securty, and
msceaneous ta es, as ndcated on the tte page of ths uetn,
pubshed n the weeky uetns ( oume 1939-1, Nos. 1 to 26, n-
cusve) for the perod anuary 1 to une 30, 1939. It aso contans a
cumuatve st of announcements reatng to decsons of the Unted
States oard of Ta ppeas pubshed n the Interna Revenue uetn
servce from anuary 1, 1932, to une 30, 1939.
Income Ta rungs w be prnted n three parts. The rungs
n Part I w be prnted as Part I, (Interna Revenue Code) and
(Revenue ct of 193 ), the secton headngs correspondng wth
the sectons of the Code and the 193 ct, respectvey, and the
artce headngs correspondng wth the artce headngs of Regua-
tons 101. Rungs under the Revenue cts of 1937 an 1936 w be
prnted as Part II, the secton headngs correspondng wth the secton
headngs of those cts and the artce headngs correspondng wth
the artce headngs of Reguatons 94. Rungs under the Revenue
cts of 1935 and 1934 or pror cts w be prnted as Part III, the
secton headngs correspondng wth the secton headngs of the varous
cts and the artce headngs correspondng wth the artce headngs
of Reguatons 6.
Rungs under Tte III of the Soca Securty ct are pubshed
under artce headngs of Reguatons 91, rungs under Tte I of
the Soca Securty ct are pubshed under artce headngs of Regu-
atons 90 rungs under the Carrers Ta ng ct of 1937 are pubshed
under 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
Reguatons 95.
R I TIONS
The foowng abbrevatons are used throughout the uetn:
, , C, etc. The names of ndvduas.
. R. M. Commttee on ppeas and Revew memorandum.
. R. R. Commttee on ppeas and Revew recommendaton.
. T. coho Ta Unt.
. T. . oard of Ta ppeas.
C. . Cumuatve uetn.
Ct. D. -Court decson.
C. S. T. Capta Stock Ta Dvson.
C. T. Ta es on mpoyment by Carrers.
D. C. Treasury Department crcuar.
. T. state Ta Dvson.
G. C. M. Genera Counse s, ssstant Genera Counse s, or Chef Counse s
memorandum.
I. R. . Interna Revenue uetn.
(n)
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I
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. Msceaneous Dvson.
O. or L. O. Soctor s aw opnon.
0. D. Offce decson.
Op. . G. Opnon of the ttorney Genera.
P. T. Processng Ta Dvson.
S. T. Saes Ta Dvson.
S. Sver Ta Dvson.
. M. Soctor s memorandum.
So. Op. Soctor s opnon.
S. R. Soctor s recommendaton.
S. S. T. Ta es on mpoyment by Other 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.
The practce of promugatng Treasury decsons that embody
court decsons reatng to the nterna revenue has been dscontnued.
ereafter opnons of the courts, wth approprate headnotes for the
nformaton and gudance of ta payers and offcers and empoyees of
the ureau of Interna Revenue, w be pubshed n the Interna
Revenue uetn wthout forma approva and promugaton by the
Secretary of the Treasury.
NNOUNC M NT R L TING TO O RD O T PP LS D CISIONS.
Under the provsons of the recent Revenue cts, reatng to ap-
peas to the oard of Ta ppeas, the Commssoner may acquesce
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 deter-
mned by the Commssoner to be due but dsaowed by the oard,
provded that such proceedng s commenced wthn one year after
fna decson of the oard. s to appeas heard by the oard after
the passage of the 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
decsons rendered on and after une 7, 1932, pettons for revew
must be fed wthn three months after the decson s rendered.
In order that ta payers and the genera pubc may be nformed as
to whether or not the Commssoner has acquesced n a decson of
the oard of Ta ppeas dsaowng a ta determned by the Com-
mssoner to be due, announcement w be made n the weeky ue-
tn at the earest practcabe date. notce that the Commssoner
has acquesced or has nonacquesced n a oard decson reates, how-
ever, ony to the ssue or ssues decded n favor of the ta payer.
Decsons so acquesced n shoud be reed upon by offcers and
empoyees of the ureau of Interna Revenue as precedents n the
dsposton of other cases before the ureau.
or addtona nformaton whch w be of assstance n the use
of the Interna Revenue uetn servce read the Introductory Notes
to the atest Dgest.
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CONT NTS.
Rung No.
1 .., ,..
Rung.
Rung No.
Page.
n
Chef Counse s memoranda-
4S77
1939-1-9556
190
Contnued.
1939-15-97 2
134
|g ::::
1939-3-9673
115
21000
101
1939-3-9674
169
21013
1939-23-9 62
1939-3-9572
6
211)40
1939-10-9744
242
I I
1939-3-9(1 2
423
1939-15-97
20
5
1939-4-9691
154
1939-26-9 90
164
1939-4-9 0
147
1939-17 9 06
351
1939- -9725
395
1939-14-9771
1 7
4vo
1939- -972
396
1939-22-9 50
169
1939- -9727
396
1939-1 9 13
141
1939- -972
397
1939-21 9 45
343
,
1939 11-9755
357
1939-25-9 3
201
1939-11-975
395
1939-20-0 33
191
M
1939-14-9774
377
oard of Ta ppeas:
20,51
MM
1939-14-97SO
324
1939-13-9763
30
1939-15-9791
203
1939-6-9700
t
1939-16-9794
3 0
1939-6-9700
23
1939-16-97U
79
1939-6-9700
11
1939-17-9 10
225
1939-19-9 21
2
19:19-17-0 11
394
1939-3-9671
- -
1939-1 -9 14
404
64165-6416
1939-3-9 71
3
s :::::
1939-19-9 29
364
1939-3-9671
2
1939-20-9 39
7
1939-1-9655
3
1939-21-9 41
119
74241
1939-14-9769
23
4 01
1939-22-9 53
341
1939-3-9671
66
4902
1939-22-9 52
325
1939-16-4(792
11
1939-25-9 0
75
1939-9-9729
41
1.,(
1939-25-9 7
399
1939-9-9729
41
1939-26-9 93
394
1939-3-9671
10
Court decsons:
1939-17-9 00
35
1373
1939-1-9657
221
7 424 .... ....
1939-17 9 00
1
1374
1939-1-965
3 9
7 425 I II
1939-17-9 10
35
1375
1939-2-9666
262
7R576... .................
1939-5-9692
51,5
1376 ....
1939-2-966
321
1939-6-9700
55
nr
1939-3-967
411
7913
1939-11-9749
54
1939-3-96 0
234
1939 1 9 12
6
1379 -
1939-3-96 1
239
1939- -971
69
1T 0
1939-4-96 6
267
1939- -971
69
13 1
1939 5-9696
327
1939- -971
5
13 2 ...
1939-6-9706
332
1939-5-9692
27
1939-7-9712
225
1939-19-9 21
10
13 4
1939-7-9713
22
1939-19-9 21
10,30
13 5
1939 -9721
243
1939-1-9655
31
1S
1939-9-9734
211
1939-1-9655
31
13 7 -
1939-11-9752
271
1939-1-9655
33
19:19-11-9753
336
79973
1939-1-9655
33
13 9
1939-13-9766
215
1939-5 9692
23
r.-
1909-15-97 3
129
1939-21-9 10
23
1391
1939-15-97 6
260
1939-7-970
31.62
1392
1939-16-9795
229
0961
1939-19-9 21
63
13 3
1939-16-9796
233
1939-23 9 60
3
1394
1939-17-9 04
263
1939-6-9700
29
1395 r,
1939-1 -9 15
277
1939-12-9757
69
139
1939-1 9 17
330
1939-9-9729
4
1397
1939-19-9 24
253
1939-16-9792
13
139
1939-20-9 34
24
1939-23-9 60
5
1399
1939-21-9 43
257
1939-7-970
62
1400
1939-22-9 55
3T3
1939-10-9740
3
1401
1939-23-9 63
160
. 2160
1939-7-170
40
1402
1939-23-9 65
3 1
31
/ 1939- -971
1939-24-9 73
274
1939-16-9792
1404
1939-25-9 3
219
2461
1939-2-9663
23
1405
1939-26-OS92
235
2462
1939-2-9663
23,55
Chef Counse s memoranda:
2552
1939-5-9692
2
30547
1939-5-9093
125
19.19-17-fr 00
4
1939-9-9731
102
1939-14-9769
19
1939-2-9665
174
2 61_
1939-14-9769
19
32
1939-5-9694
1
2 63_
1939-1 -9 12
20965
1939-14-4)772
194
3I0 _
1939-16-9792
29
1939- -9720
243
1939-2-9063
35,6
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oard of Ta ppeas Con
3169-
3171.._
3173_
3175.
3177_
3249
3632-
3705
3745_
4020
4133__.
4276- 4279
4291- 4294-
4319 _
4529 _
463
4777 _
477
4779
47 0
47 1
4 12-
4934.
5242-
5679
5694_
6046
6047_
6469..-
6517_
53
661 _
6 19
6 29_
6 61
77_
6 7 - 0-
6940
6941_
696 .
7103_
7203
7240_
7275.
7276_ ,
7277
727 _
7339.
7399-
7400
7401_
7404
7423-
7441
753 -
7564..-
75 -
75 ..-
7651-
7 75..-
77 3-
7919
7997
000
072
167
1 0
212
213
261
274
453
561
565
569
605
730
731
93
944
949
951
9 1
9144
Rung No.
1939-2-9663
1939-2-9663
1939-2-9663
1939-2-9663
1939-2-9663
1939-14-9769
1039- -971
1939-1-9655
1939-5-9692
1939-23-9 60
1939-17-9 00
1939-2-9663
1939-2-9663
1939-12-9757
1939-1-9655
1939-9-9729
1939-17-9 00
1939-17-9 00
1939-17-9 00
1939-17-9 00
1939-17-9 00
1939-4-96 3
1939-9-9729
1939-6-9700
1939-24-9 6
1939-1-9655
1939-21-9 40
1939-21-9 40
1939- -971
1939-1 -9 12
1939-16-9792
1939-14-9769
1939-14-9769
1939-25-9 79
1939-14-9769
1939-22-9 47
1939-1-9655
1939-10-9740
1939-10-9740
1939-12-9757
1939-20-4 30
1939- -971
1939-11-9749
1939-12-9767
1939-12-9757
1939-12-9757
1939-12-9757
1939-11-9749
1939-9-9729
1939-9-9729
1939-9-9729
1939-1 -9 12
1939-13-9763
1939-14-9769
1939-23-9 60
1939-21-9 40
1939-4-96 3
1939-3-9671
1939-10-9740
1939- -9700
1939-10-9740
1939-24-9 6
1939-23-9 60
1939-23-9 60
1939-1 -9 12
1939-26-9
1939-20-9 30
1039-14-9769
1939-14-9769
1039-14-9769
1939-16-9792
1939-25-9 79
1939-13-9763
1939-1 -0 12
1939-6-9700
1939-21-9 40
1939-1-9655
1939-1-9655
1939-6-9700
1939-21-9 40
1939-19-9 21
1939-3-9671
1939-16-9792
Page.
35,66
35.66
35,66
35,
35,6
62
30
64
17
2
22,55
35,66
35,6
26
39
2 ,59
15
19
19
22
35
40
63
15
47
n
41
41
29
57
43
9
69
20
66
6
33
49
49
20
45,66
62
62
63
S3
59
S3
64
17
21
21
66
U
41
IS
111
40
12
6
5
62
4
19
11
11
11
1
40
43,66
6
39
69
20
22
4
66
67
22
4
21
ung.
oard of Ta ppeas Con
9170
9171
9253
9267
926
9276
9363.
9442
95 4
9595
9671
9719
9759
9 0
9 76
9 77
9 7
9903
9917
9925
9944
9950
9002
90217
90260
90310
90414
90591
90661
90703 r _.
90710
90711
90. 33
91141
9119
91259
91260
91261
91371
91445
91572
91697
91705
92022
920 4
92177
92160
93304
93571
93572
Offce decsons (I. T.):
3241.
3242
3243.
3244
3245
3246
3247
324
3249
3250
3251 ,
3253.
3254.
3255.
3256.
3257.
325 .
3259.
3260.
3261.
3264.
3265.
32 6.
3267.
26
3269.
3270.
3271.
3272.
Rung No.
Page.
1939-3-9671
67
1939-10-9740
62
1939-21-9 40
11
1939-1-9655
67
1939-13-9763
12
1939-16-9792
2
1939-2 -9
120,34
53,65
1939-6-9700
13
1939-6-9700
4
1939-1 -9 12
69
1939-6-9700
37
1939-21-9 40
54
1939-16-9792
4
1933-10-9740
42
1939-14-9769
19
1939-14-9769
19
1939-14-0769
19
1939-23-9 60
22. 27
1939-19-U 21
4 ,50
1939-7-970
34
1939-24-9 6
11
1939-9-9729
34
1939-13-97 3
69
1939-9-9729
63
1939-14-9769
23,26
1939-3-9671
IS
1939-21-9 40
69
1939-14-9769
SO
1939-17-9 00
4
1939-3-9671
63
1939-20-9 30
23
1939-20-9 30
23
1939-23-9 60
64
1939-6-9700
1
1939-1 -9 12
13,22
1939-21-9 40
4
1939-21-9 40
23
1939-21-9 40
4
1939-10-9740
69
1939-24-9 6
7
1939-7-970
4
1939-14-9769
27
1939-1 -9 12
7
1939-26-9
62
1939-15-97 1
2
1939-19-9 21
60,63
1939-25-9 79
7
1939-16-9792
2
1939-24-9 6
17
1939-24-9 6
17, 1
1939-1-9661
16
1939-2-9654
172
1939-3-9675
162
1939-3-9676
1 1
1939-4-96 4
112
1939-4-96 5
137
1939-6-9702
113
1939-6-9703
140
1939-6-9704
143
1939-7-9709
111
1939-7-9710
113
1939-7-9711
1 2
1939- -9719
17
1939-9-9730
9
1939-9-9732
171
1939-9-9733
172
1939-9-9736
402
1939-10-9741
123
1939-10-9742
127
1939-10-9743
199
1939-11-9750
122
1939-12-975
96
1939-12-9759
193
1939-12-9760
121
1939-13-9764
97
1039-13-9765
144
1039-14-9770
17
1939-14-9773
196
1939-16-97 4
163
1939-15-97 5
179
1939-16-9793
105
1939-17-9 01
3
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Ofttdeeons (I. T.) Coo.
an.
3M..
Rung No. Page
Rung.
7..
sr ..
(3. . T.):
3 1.
decsons (C. T.):
csons (S. T):
Offce dcds ns fC.
9. T.):
1939-17-9 02
1939-17-9 03
1939-17-9 07
1939-19-9 22
1939-19-9 23
1939-20-6 31
1939-20-9 32
1939-21-9 12
1939-22-9 49
1939-22-( S6
1939-23-9 1
1939-23-9 66
1939-24-9 69
1939-24-9 70
1939-24-9 71
1939-24-rS72
1939-24-9 75
1939-25-9 0
1939-25-0 1
1939-26-9 9
1939-26-9 91
1939-1-96 2
1939-2-9667
1939-4-96 7
1939-5-9595
1939-6-970
1939- -9724
1939-10-9746
1939-11-9754
1939-12-9762
1939-13-9767
1939-14-9775
1939-14-9776
1939-16-9797
1939-17-9 05
1939-1 -9 16
1939-19-9 25
1939-20-6 35
1U39-21-P 44
1939-22-9 51
1939-23-9 64
1939-24-9 74
1939-3-9677
1939-7-9717
1939-9-9735
1939-4-96
1939-14-9777
1939-1 - 1
1939-21-9 46
1939-22-9 54
1939-7-9716
1939-20-9 36
99
177
403
M
100
76
142
197
97
406
1
407
2
126
13
139
409
110
140
4
1 3
304
309
2 6
2 4
310
294
315
2
294
295
306
290
299
302
291
297
307
300
293
29
320
31
317
372
354
356
359
362
347
346
Offce dersons (MS.):
209.
210.
211.
212.
213.
214.
Offce decsons (T.):
54
5
56
7
6
9
Department crcuar:
230 (revsed)
Mmeographs:
4 0
4 2
4906
4916
Rung No.
Msceaneous
1939-1-9660
1939-5-9699
1939-9-973
1939-9-9739
1939-14- 779
1939-1 -9 20
1939-22- 5
1939-2-9670
1939-6 9707
1 39-10-9747
1939-15-97 9
1 39-19- 27
1939-22-U 59
1 D9-24-C 76
1939- -9722
1939-10-9745
1939-19-9 26
1 39-22-9 4
1939-1-9659
1939-2- 669
193 - 3-9679
1939- 4-9 9
1939- -9697
1 19-5-969
1939-6-9701
1939-7-9714
1939-7- 715
1939- -9723
1 39-9-9737
1939-10-974
1939-11-9751
1939-12- 761
1939-13-976
1939-14-977
1939-15-97 7
1939-16-97 0
1939-16-9799
1939-17-9 0
1939-17-9 09
193 IS 9 19
1 39-19-9 2
1939-20-9 37
1939-20-9 3
1939-22-9 57
1939-23-9 67
1939-24 9 77
1939-24-9 7
1939-25-9 4
1939-25- 5
1939-26-9 94
1939-26-9 95
1939-26- 96
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CONT NTS O CUMUL TI ULL TINS (I. T.) 1 TO 5 S. T. OR 1920 ND 1921: INT RN L
R NU M. 1-2. II-. II-2, n , III-2, I -1. 1 -2. -. -2, I-1, I-2, T1-1, II-2. I-1. III-2,
I -1, I -2, -L -2. I I. I-2, II I. II-2. TII-1. I-2. I -1, I -2. I. -2. 1937-1. 1937-2.
193 -1. 193 -2. ND 1939-1 (P RT 1 ND P RT 2).
Cumuatve uetn.
Income Ta :
December, 1919 (No. 1)
anuary- une, 1920 (No. 2) -.-
uy-December, 1920 (No. 3). ---
anuary- une, 1921 (No. 4)...
uy-December, 1921 (No. 5)
Saes Ta :
1920 (S. T. 1-20) -
anuary- une, 1921
uy-December, 1921 -
Interna Revenue uetn:
anuary- une, 1922 (No. 1-1) - -
uy-December, 1922 (No. 1-2)
anuary- une, 1923 (No. II-)-
uy-December, 1923 (No. II-2)
anuary- une, 1924 (No. III-)-
uy-December, 1924 (No. III-2) -
anuary- une, 1925 (No. I -1)_
uv-December, 1925 (No. I -2) -
anuary- une, 1926 (No. -1).. -
uy-December, 1926 (No. -2) -
anuary- une, 1927 (No. I-1)
uy-December, 1927 (No. I-2)
anuary- une, 192 (No. II-1). -
uy-December, 192 (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)
anuarv- ne, 1933 (No. II-1)-
uv-December, 1933 (No. II-2) -.
anuary- une, 1934 (No. I1I-1)--
uy-December, 1934 (No. III-2)
anuary- une, 1935 (No. I -1)..
uv-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, 193 (193 -1)...
uy-December, 193 (193 -2) .
anuary- une, 1939 (1939-1 Part 1 and Part 2)
Rung Nos.
1-655
656-1033
1034-136
1369-1710
1711-1996
1-112
113-265
266-356
1-3 3
3 4-665
666-956
957-1276
1277-1641
1642-1949
1950-2251
2252-2523
2524-2 13
2 14-3026
3027-3291
3292-3557
355 -37 4
37 5-4052
4053-424
4249-44 7
44 -46 3
46 4-4 7
4 -5124
5125-533
5339-5531
6532-5961
5902-6262
6263-6.5 1
65 2-0 71
6 72-7224
7225-7563
7564-7 4
7 5- 149
150- 459
460- 792
793-911
9119-9424
9425-9654
9655-9 96
(vm)
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O RD O T PP LS.
CUMUL TI LIST O NNOUNC M NTS R L TING TO
D CISIONS O T UNIT D ST T S O RD O T
PP LS PU LIS D IN T INT RN L R NU UL-
L TIN S R IC ROM NU RY 1, 1932, TO UN 30, 1939,
INCLUSI .
nnouncements reatng to the acquescence or nonacquescence of the Commssoner n
decsons of the Unted States oard of Ta ppeas, as pubshed n the weeky Interna
Revenue uetns from December 22, 1924, to December 31, 1 31, ncusve, are prnted n
Cumuatve uetn -2, pages 1-106. The st beow, therefore, contans ony such announce-
ments pubshed n the weeky uetns from anuary 1, 1932, to une 30, 1939, ncusve.
1939-26-9
The Commssoner acquesces n the foowng decsons of the
Unted States oard of Ta ppeas:
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
40546
24
435
37095
24
435
37693
24
435
37694
24
435
37696
24
435
41034
24
435
91141
3
1290
25194
3 6 7

429
274
39
3S7
399 0
25
211
39593
25
1246
39593
25
1246
4125
36
1233
4126
36
1233
56960
6 (107
2
5 6
74759
S3
373
20765
24
376
41295
27
1091
60700
2
1291
39019
27
1210
7 995
36
929
736 7
35
323
44 60
30
636
25414
25
34
31704
25
1276
76130
35
4 2
40039
2
6
.
bees, Chares T
bees, Cfford
bees, rancs, estate of.
bees, ohn T
bees, arherne
bees, WLemene
bbott, ob n
cme Manfodng Co., Inc.
dams, Chares
deade Park Land et a., trustees.
fremow, Davd, estate of
fremow, Sarah, e ecutr
kron Coca-Coa Mottng Co
kron Standard Mod Co
abama Mnera Land Co.
bers, Wam . _
bert Lea Packng Co., Inc
brecht et a., athertc ., e ecutrces -
coma Corporaton
e ander, . ., estate of
e ander, Nee S
e andra Grave Co., Inc
egheny Garbage Co...
en, Irene C
ed mercan Corporaton
verson, L. T
mbassador Petroeum Co
cquescence reates to deducton for contrbutons.
state ta decson acquescence reates to deducton of 133,000.
ncudes a acquescence and nonacquescence. notces pubshed n
from anuary 1, 1932, to une 30, 1939.
the Interna
(1)
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cqc sc NC s Contnued.
Docket
No.
oard of Ta ppeas.
oume.
Page.
mercan Centra Lfe Insurance Co.1.
mercan Centra Uttes Co
mercan Cgar Co
mercan Crcus ont enture
mercan Ctes Power Lght Corporaton, man-
ager, the North mercan Co. Common Stock
Tradng ccount No. 5
mercan eature m Co
mercan Gas ectrc Co. and subsdary com-
panes.
mercan Prntng Co
mercan Securty Trust Co. et a., e ecutors
mercan South frcan Lne, Inc
mercan Utzaton Co
mes, Mure Oakes 3
nco Investment Co
nderson, C.
nderson, Gustave
nderson, .
nderson, Staney S
nderson-Cayton Securtes Corporaton.
nn rbor R. R. Co
rcher et a., arbara
rdengh, nna
rgumbau, rank M
rmstrong, C. George
rmstrong, Susan
rmstrong, Wam
rnod Wnsor Co
rtman, Carone oerderer, estate of .
shforth, bert ., estate of
shforth et a., Mabc ., e ecutors 4.
smussen, .
tkns, . ., estate of
tkns, Mrs. .
tanta Charotte Ry. Co
tantc Coast Lne R. R. Co
30133
3199
50024
63436
3642
16229
4020
25 2
27623
6736
67369
69 00
39721
39167
62955
6 30
70701
90527
71 11
5 647
33242
36224
63 27
42053
7 340
25 69
64163
64165-
6416
64171-
64173
6 201
73614
5 400
2552
5 603
61553
920 4
47190
4 009
49354
47190
4 009
49354
7 5 9
3 520
3 519
7 077
5 95
65310
65311
30
36
21
9
3
24
33
27
24
30
3
30
30
27
26
30
33
35
29
37
37
31
31
3
32
20
3
26
26
36
2
2
36
31
cquescence reates to Issue whether pettoner receved nterest on mortgages when It bd n propery
upon forecosure.
1 state ta decson.
Nouacqueseence (rcntng to communty property agreement) pubshed n Cumuatve uetn
-2 (1936), pages 27 (Docket 71 11), 29 (Dockets 9447, 102(12, 107.15). 31 (Dockets 10299, 32960), 34 (Dockets
4017, 53 9. 62029, 65577. 6 324), 35 (Docket 109 0), 36 (Docket 37369), 3 (Docket 169 5), 39 (Docket 7435),
41 (Docket 9290), 45 (Dockets 45065, 3726,12231), 46 (Dockets 61669, 6 335), and 60 (Docket 7369), wthdrawn.
4 Nonacquescenee pubshed n uetn II-1 (1933), wthdrawn.
G
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3
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
twatcr, Davd .1
t water, ohn .
twater, r., Wam C. .
ton, dwn D
rton, Robert L
ton, Wood
D.
abbtt, Inc., . T. (Deaware)
abbtt, Inc., . T. (New York)...
aey, ertha M -
aey, Water C, estate of
aker, L
aker, R.
adwn, orence G
adwn, Ga .
afour, Sr Robert
a, Php D. C
atmore Oho R. R. Co.
atmore 4 Oho R. R. Co.
ankers Dary Credt Corporaton.
arber, rthur
arber, Php C
arber, St. George
Trusts, Sarah P
arbour, Robert
arcay, W. L.
arker, red
arnes, rthur S
arnes, enry
D. Newton, estate of.
amey,
asch, N. ..
Ice Coa Co.
easey, W.
eaumont, Lous D
ebb, Rchard ., estate of .
eers, Cara O...
eers, rank T
eggs, ohn L (Trusts)
ehotcguy et u ., Ws C...
ehr, Chares
e, Ivor .
eows as Power Co
enedum, M. L.
ent Co., R. G
erde, r., Chares P.
ernsten, Isaac M
49066
34
45
49067
34
45
49065
34
45
56160
32
613
56162
32
613
56441
32
613
74047
74047
75994
75993
5634
61120
323 7
3665
40230
36737
53702
37239
4 329
26747
26755
26757
26747-
26757
1059
743
51102
1 73
56440
71720
4592
67637
60061
31931
46569
49422
41295
67 73
67 74
65675
S3S20
39534
22335
1 592
29104
30990
57312
59796
7029
36729
32
32
37
37
32
37
23
36
25
27
20
30
M
25
25
25
25
39
20
2
36
32
6
30
27
31
23
27
34
34
30
36
30
27
25
2
26
32
2
wth respect to hodng that pettoner was not a transferee.
cquescence reates to ssue In vo vne contrbutons by shppers for constructon of sde and spur I racks
and deducton for nterna-revenue stamps aff ed to bonds.
1 state ta decson acquescence reates to deducton of 1.13.000.
doescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
reates to rght of overrdng royaty owners to beneft of secton 211(b), Revenue ct of
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4
Ta payer.
Docket
oard of Ta ppeas.
No.
oume.
Page.
36746
26
1070
163
35
1147
64917
29
04
61051
27
1 6
723 9
33
466
46079
25
10 4
27616
1
3509
23
731
40147
1625
7102
36
1173
6961
6
346
696 2
31
212
26
90661
3
1457
26750
25
513
91572
3
1136
39242
1
40939
45741
119
51507
64975
30
591
7 692
35
1106
49 91
29
167
37
17
39200
25
651
24223
34964

995
6 3 2
31
25
91259
39
444
91261
39
444
1 11
37
970
64923
26
1410
629 5
33
20
93
95 4
3
1139
7 211
5 96
3
4
64556
29
1161
2695
36
4
63715
2
472
2 1
34
10 9
9759
3
1421
24667
66 7 ,
25
14
63637
36
141
24036
19
111
24037
19
111
723 3
36
669
est, rank
ngs et a., May, e ecutors
ups, George W
ngham, Robert W
rckhead, Over W
rdneck Reaty Corporaton
scayne ay Isands Co.
shop Trust Co., Ltd.
ack, R.
ar, r., Mrs. Wey..
ake, Israe O
oodgood, dth
ossom et u ., arod M.
um, uus, trustee..
umertha, Lucy
oehn, Lous
oehrnger, Rudoph
oeng, Wam .
oos ros. Cafetera Co.
org eck Co
ostck, r., ohn, trustee.
ostonan Natona Shoe Stores, Inc.
ostonan Shoe Saes Corporaton...
oswe, Wam D., estate of
owden, Pau kers
owen, dwn L.
ranch, W. .
ranson, red P
I 16
t 71
raun, rthur ., trustee
rawner, r., enry N., estate of
rnton, Lan McDonad
roadway- rompton udngs Lqudaton Trust .
roderck, me C, estate of
rown, erence
rowne, Sopha Geason Perce.
ryan et u ., C.
ryan et u ., L.
rvant, Wado C, estate of 1
1 state ta decson.
cquescence reates to Issue Invovng secton 119(g) of the Revenue ct of 192 .
cquescence reates ony to the trust ssue. Pror nonacquescence pubshed In Cumuatve uetn
193 -1. pafre 36, n so far as It pertans to the trust Issue, wthdrawn.
4 state ta decson. cquescence reate to e cuson of Insurance proceeds payabe to specfc bene-
fcares.
cquescence reates to ssue as to basc vaues of stock.
Nonacquescence pubshed n Cumuatve uetn 1937-1, page 0, wthdrawn.
G
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5
Docket
No.
oard ot Ta ppeas.
oume.
25
7 0
25
7 0
13
95
23
439
31
212
31
212
32
501
23
710
29
731
29
731
39
334
29
005
29
190
3
236
2
1241
10
1345
24
506
31
25
39
594
36
1
25
902
34
1155
25
537
35
6 7
29
355
31
724
31
724
29
99
31
273
25
162
24
679
30
413
31
730
uck, ohn ., estate of 1
uck et a., Mary M., e ecutors
uena sta Land Deveopment Co.
uffao Unon Iron urnace Co.
ungton, Orve
ungton, Mrs. Sade
us, een -
uock, George --
un ck, a P., trustee
urdck, oe W., estate of
urke Gran Co
umham, Sas
urroughs, mbrose ., estate of
urrows, Waters .4
urton, en|amn T
usche, . C. - ---
uter, U.
yers Trust, . T..
yrnes, Carence P.
Cahoka Trust ---
Caforna Coast O Co._ -
Cambra Deveopment Co.
Camp Manufacturng Co. ---
Campau Reaty Co., . M -
Canaday, Inc., Ward M
Canfed ct a., rances Marsha, e ecutors.
Canfed, George ., estate of
Cannng, ohn
Capta Compress Co
Carman, .
Carne, Goude Manufacturng Co.
Caro, Sue (Mrs. Nck Stuart)
Carona, Cnchfed Oho Ry
325 4
44153
446 4
325 4
44153
446 4
2025
16075
16076
696 4
69679
6 164
73954
31209
46322
46322
61009
1799
53795
59797
77 7
61055
9447
10202
10755
46055
6 3 2
7919
1746
2501
75411
35955
70340
5 632
6 415
6 415
414 2
49303
44321
44939
5017
20074
27095
63963
71025
71649
state tar decson acquescence reates to vaue of certan rea estate n San rancsco and vaue of
stock of Langendorf akng Co. for estate ta purposes and reasonabeness of Commssoner s aowance
or support of the wdow.
1 cquescence reates to ssue regardng deductons for obsoescence of bast furances.
1 cquescence reates to ssue 2 of decson.
cquescence reates to ssue as to deductons for e penses In connecton wth the practce of medcne.
N onacquescer|oe (reatng to communty property agreement) pubshed n Cumuatve uetn -2
(1936). pages 27 (Docket 71 11), 29 (Dockets 9117, 10202. 10755), 31 (Dockots 10299, 32950), 34 (Dockets 4017,
5 . 62029,65577,6 324), 35 (Docket 109 0). 36 (Docket 37369), 3 (Docket 169S5), 39 (Dockot 7435), 41 (Docket
9290), 45 (Dockets 45065, 3725,12231), 46 (Dockets 61669,6 335), and 50 (Docket 7359), wthdrawn.
9 reates to determnaton of far market vaue of obgatons receved from purchasers of rea
G
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1
3
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6
cqt|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
Carona Contractng Co..
Carter Pubcatons, Inc..
Carter, r., W. T
Casey, arret M., estate of 1
Caspar Lumber Co
Cathey, George -
Cathev, Luke
Catn, Dane
Catn, Theron
Centra Market Street Co.
Centra Natona ank
Centra Natona ank, trustee
Centra Renderng Corporaton
Centra Trust Savngs ank
Century Crcut, Inc., of Deaware.
Champon, Davd .
Champon, T. Perre
Chapman Dewey Land Co.
Chapman Dewey Lumber Co.
Chemca ank Trust Co. et a., e ecutors of the
estate of rank . Sa e 14
Chcago Northwestern Ry. Co.5---
Chds, Mary S
Chshom, rchbad M., estate of
Chrstopher, Rache S.1
Church rghton Corporaton
Cty ank armers Trust Co., e ecutor.
Cty ank armers Trust Co.
Cark et u ., orace S
Cark et a., ames, e ecutors.
Caude Neon Lghts, Inc.7
et a., e ecutors _
Ceand state Co., Inc., enry . _
Cements, W. L
Ceveand Raway Co..
Ceveand Trndad Pavng Co.
Cnchfed Securtes Co
Cnton Cotton Ms, Inc
7763
44 3
66 91
655
565
57729
46056
46057
25421
25413
24 37
425 7
2 701
20776
425
69345
55569
63 1
5556
37403
51059
33466
37402
47130
50196
5105
79276
36343
4497
5255
47704
60970
59797
31 69
6 77
34499
59391
335 5
40 90
51197
4605
4943
41962
46297
40554
54 0
32
2
36
39
30
24
24
25
25
25
29
25
24
29
31
27
27
25
25
37
22
35
37
26
36
29
23
39
24
35
29
24
36
20
25
2
I state ta decson.
cquescence reates to Issue regardng apportonment of ta es among affated corporatons.
1 cquescence reates to bass upon whch gan or oss upon redempton of stock shoud be computed.
Nonaoquescence as to one ssue, pubshed n Interna Revenue uetn 103 -31, page 1, wthdrawn.
cquescence reates to foowng ssues: Matera and suppes ad|ustment amortzaton of bond pre-
mum assessment of ssocaton of Raway ecutves raroad Y. M. C. .
state ta decson acquescence reates to the foowng ssue: penses ncurred by the estate for ofuoo
rent, saary of secretary, and accountant s fees.
T cquescence reates to ssues (1) e change by pettoner of property soey for stock n the Caude Neon
Dspays, Inc., ott Caude Neon Lghts, Inc., pha Caude Neon Corporaton, New ersey Caude
Neon Corporaton, and Caude Neon of Connectcut. Inc.. (2) grants o e cusve rghts to use of patents
to certan corporatons n e change for stock (3) In respect to prevous ssue the bass for gan or oss.
1 cquescence does not reate to bass of property devsed sub|ect to a fe estate.
1 Nonaoquescence notce pubshed n Cumuatve uetn -2 (1 31), revoked.
G
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1
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1
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2

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3
9
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5
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7
6
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2
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7
Ta payer.
Cother et a.. Morrs L.
Coast Countes Gas fe ectrc Co
Coats, Inc. (R. L), . 4 P.1 ---
Cogate, Mary
Coatera qutes Trust
Coyer, Langey
Conon, atharene run
Coorado Southern Ry. Co.1
Coorado Utah Coa Co -.
Coumban Carbon Co.
Coumbus rck Te Co.4.-
Commerca Investment Trust Corporaton .
Commerca Natona ank
Communty Mausoeum Co.7
Cone, mma ., e ecutr
Cone, Irvng ., estate of
Connay, Mary W. T
Connectcut ectrc Servce Co
Rver Power Co
Conney, ames . .
Conney, L. . -
Conney, Mary .
Conner, rche R., admnstrator of the estate of
Lucy Raduovch
Conservatve Gas Co
Consodated odngs Corporaton, manager, the
North mercan Co. Common Stock Tradng
ccount No. 6 -.
Consodated odngs Corporaton, manager, the
ccount No. 3/3-2
Consodated odngs Corporaton, manager,
ccount No. 3 2
Docket
No.
75740
76 41
69 43
3S904
61 2
92360
1239
76491
21974
53799
42743
42707
43495
50051
66959
703S1
6 034
6S03
60434
7 279
1 591
29106
I 10 1
45S33
46267
51967
60566
6694
I Ids.
45 34
440 2
064
72391
25 3
25 5
5027
oard of Ta ppeas.
oume.
34
33
0
2
27
39
3
36
36
26
25
26
2
36
33
31
31
32
35
25
30
30
30
37
30
3
3
3
1 cquescence reates to contrbutons Issue and Issue respectng deducton at amount pad to treasurer
of Rhode Isand on account of Increasng capta stock.
cquescence reates to foowng ssues: Whether amount receved In fna settement wth Drector
Genera) of Raroads n 1921. representng renta nterest on competed addtons am betterments and
addtona compensaton for use of propertes, consttutes ta abe ncome for 1921 or durng the perod of
edera contro whether pettoner s entted to a deducton n 1920 and 1921 for amortzaton of comms-
sons pad n connecton wth the sae of ts bonds pror to March 1, 1913 whether amounts of back ma
pay receved by pettoner and affated companes durng 1920, In consequence of an order made by the
Interstate Commerce Commsson, consttute ta abe ncome for that year.
Nonaequescence pubshed In Interna Revenue uetn I-14 (1932), revoked.
cquescence reates to ncuson In consodated nvested capta of capta stock Issued for a te and
brck manufacturng pant, etc.
cquescence reates to the foowng ssues: Deducton of e penses n connecton wth ssuance of pre-
ferred stock deducton for dvdends credted to accounts of empoyees for purchase of stock.
state ta decson.
I cquescence reates to ssue whether a sae of a cemetery crypt s a sae of reaty enttng the ta payer
to the nstament bass when tota amounts receved n basc year do not e ceed 40 per cent of gross prce.
to queston whether the vaue of rghts to subscrbe to certan bonus consttutes
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Tan payer.
Docket
No.
oard of Ta ppeas.
oume.
Consodated odngs Corporaton, manager, Pre-
ferred Stock Tradng ccount
Contnenta Lega and Protectve ssocaton
Contnenta O Co.1
Contractors Constructon Suppy Co.2
Cook Drng Co.3
Cook, zabeth .4
Cook, M. M., estate of
Cook, P. W
Cooke, eatrce
Coombs, zabeth M
Coombs, . oward
3
30
34
20

25
27
32
25
25
25
24
27
26
24
35
30
27
25
30
33
31
31
3
30
30
39
39
30
31
33
37
33
37
30
31
33
o 37
30
31
33
10 37
1 cquescence n oard s decson wth respect to computaton of ncome for perod anuary 1 to March
15, 1920.
Nonacquescence notce pubshed n Cumuatve uetn -2 (19.11), revoked.
Nonacquescence pubshed In Interna Revenue uetn 1939- , page 1, wthdrawn.
1 cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to ssue nvovng method of accountng used by ta payer.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to mtaton ssue.
cquescence reates to the foowng ssue: Incuson In pettoner s ta abe net Income for 1930, the tota
proft receved from sae of rea estate by the trust.
1 ft ta decson.
Nonacquescence pubshed n Cumuatve uetn III-1 (1930, wthdrawn.
19 cquescence reates to queston whether deducton for depeton n connecton wth deveopment
e penses was propery before the oard under mandates of the court.
Cooper, ohn I
Corbett, ott R
Cornng Trust Co., trustee
Cornwe, . L --- -
Corrgan, ames W., estate of
Cosmopotan ond Mortgage Co.
Costeo, oseph
Cotton, G. --
Couchman, Wam ennng
Coursey, Sarah . W.7
Co , tta
Co , Carre G
Co , dwn .
Crane, e ander ., estate of
Crane et a., e ander M., e ecutor
Crawford et a., nne Laure, e ecutors of the
estate of George W. Crawford
Crawford, George W., estate of
Crews, Chares.
Crews, Chares W. _
Crews, verett
Crews, verett, .10..
Crews, Raph W.
Crews, Robert .
25 4
44 59
2 427
41963
2231
3 579
53044
54740
6022
26751
4476
44769
32610
40115
40926
29252
30303
0345
44617
22640
59655
67729
70957
71755
6969
6969
9292
7171
7171
072
072
66766
66766
66767
66767
66701
66702
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9
Ta payer.
Docket
No.
oard of Ta ppeas
oume.
Croker, ua
Cromwe et a., Wam Neson, e ecutors
Cronan, Mr. and Mrs. rancs M
Crouse, George N
Crowey, oseph ., estate of1
Crownshed Shpbudng Co
Cuver, Wmer T
Cnard Coa Co. .
Curts, Laura M_.
D.
Dah, ndrew ., estate of...
Dah ct a., ua, e ecutors...
Daey, ugene S., e ecutor
Day, Margaret P
Dana, dwn L
Dana, ra M
Dana, Myer
Dancer, dth M., estate of
Daro Tradng ccount
Davdson, dth L
Davdson, ames
Davs, C. R.
Davs, ohn
Davs Reguator Co
Day, Chares, estate of .
Deeds, Chares W.
De orest, ate R.
Deaware fc udson Co. _
Deone, Chares
de Me, Cec . .
/ 4344
5141
41121
42619
7 1 5
43446
9
35472
1 9 7
37574
26 74
26 75
2 792
56314
44 45
44 45
26645
65213
67669
67670
5024
70456
1519
72905
61741
72904
10299
32950
20703
72667
75103
4663
73 3
372 4
50553
50629
77 65
52995
61291
65122
71951
71 5
72023
50263
50263
27
21
33
26
25
24
24
26
2
24
1167
24
1167
25
949
32
965
3(1
231
36
231
30
3
30
1277
34
37
34
555
34
565
1 10
1233
1 20
931
24
36
36
437
34
11
37
293
27
373
26
520
34
1139
1161
30
49
30
49
26
1120
26
1120
Dennett, Car P.
Dennett, Mare G.
Denns, rank ., estate of
Denns, Merry M., e ecutr
state ta derson nonacquescence pubshed In Cumuatve uetn -2 (1931), revoked.
1 state ta decson.
1 cquescence reates to deductons for addtona royates and offcers saares and drectors fees.
Nonacquesrence (reatng to communty property agreement) pubshed n Cumunve uetn
-2 (1936). pages 27 (Docket 71 11), 29 (Dockets9447,10202, 10755). 31 (Dockets 10299, 32950), 34 (Pockets
4017, 53 9, 62029, 5577, 6 324), 36 (Docket 109 0). 36 (Docket 37369), 3 (Docket 169 5), 39 (Docket 7435),
41 (Docket 9290), 45 (Dockets45065,3725,12231), 40 (Dockets 016C9, CS335) and 50 (Docket 7359) wthdrawn.
1 state ta decson acquescence reates to deducton of attorneys fees n connecton wth the admn
straton of the estate whch has been estmated and contracted for but not yet pad.
Oft ta derson.
N onacquescence pubshed n Cumuatve uetn I-2 (1932), wthdrawn.
- onacquescence pubshed n Cumuatve uetn -2 (1936), page 31, wthdrawn acquescence
reate to communty property agreement.
tcquescenre reates to deductbty of osses sustaned by pettoners upon aeged saes of stock to
each other durng the ta year.
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10
cgu sc NC S Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Denny, Regnad 1
Derby Reaty Corporaton 2
Detrot Trust Co. et a., e ecutors .
Dckey, Water S., estate of
Dcknson, bert G
Descher et u ., Samue .4 ---
Deschcr et u ., ugust P.4
Don, erbert L
Drksen, nna L., e ecutr
Drksen, Theodore ., estate of
Dttmar, mmy -
Dockweer et a., Isdore ., e ecutors and trustees .
Doernbecher Manufacturng Co.
Dome, fred R. L
Doese Shepherd Co., Syndcate No.
Dombrowsk, Leesa
Dome Co
Domestc Management ureau, Inc.-.
Domnon Natona ank
Donney, Catherne, estate of
Donney et a., Garrett ., e ecutors..
Dorc partment Co
Dougas Co., ohn.
Downs, Phebe Warren Mc ean
Drake, rancs
Dre c Packng Co
Drogc, Chrstan -
Duff, Robert C.
Duke, nger
Duke, nthonv N
Duncan, T. P
Duncan, Mrs. T. P
Dunham, Water
Dunne, ney Peter
du Pont, ammot
du Pont, Perre S.
Durkhemer Investment Co
.
age Pass Pedras Negras rdge Co.
agcton, Mark D
asterwood, r., W.
49516
1213
35472
51643
35015
43176
5715
5716
5 025
592 0
17717
17717
63931
50 2
34 53
43527
46421
50607
6362
71534
6 159
41136
7 617
41 7
77693
75 6
52165
56443
56413
44655
3 726
679
46 04
20775
79632
37552
79942
79943
65921
65924
6630
54444
7974S
26996
3290
42460
79553
401 1
63416
33
73
35
335
25
340
32
12 3
23
1211
36
732
36
732
32
1254
24
1152
24
1152
32
349
30
1136
SO
973
31
671
30
1171
35
102
26
967
3
640
26
421
31
577
31
577
32
11 7
23
1307
36
1129
30
475
24
376
35
29
23
1342
3
1264
3
1264
31
212
31
212
27
106
29
1109
36
223
1
102
36
423
23
1337
35
551
2
12 3
1 cquescence reates to ssue nvovng: deducton of operatng e penses of aeropane and deprecaton
therew and whether amounts e pendod for costumes, make-up, and wgs are deductbe as ordnary and
necessary e penses.
1 onacquescence pubshed n Cumuatve uetn 1937-1, page 33, wthdrawn.
state ta decson.
cquescence reates to ssue Invovng (ran from Inventons and patents e changed for cash and stoc .
1 cquescence reates In ssue 1 of decson.
onacquesccnce pubshed n Cumuatve uetn I -2 (1930), revoked.
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11
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
asterwood, r., Mrs. W.
aton, Cvrus S. -
dwards, .
dwards Drng Co.1--
ggerman Investment Co
nsten, Robert -
scndrath, dwn W
sendrath et a., dwn W., e ecutors.
nendrath, Maron
scndrath et a., Rose L., trustees
scndrath, Wam
sendrath, Wam N., estate of
drdge, ce . --
drdge, . S. ...
ectrc Storage attery Co
even ssocates, Inc.-
gn Compress Co
ott-Grante Lnen Corporaton
Mng Co -
.ons, Isabe ey, estate of Thornton mmons,
admnstrator
mmons, Thornton
Metas Co..
Ice Co.
psten, acob
rb et a., Ray L., e ecutors
vans, . T
vans et a.. nson, trustees
vans, Gordon M
vans Products Co
Cemetery ssocaton.
acker, ohn D .
ason, . M.
atoute, Moses W
ack, e ander D
as Cty Ice everage Co.
ame Cannng Co
anners ducatona and Cooperatve State Unon
of Nebraska
401 2
63417
6042
9944
75931
79013
754 9
36726
36724
36727
3672
36725
36724
64779
6477
63010
60971
49302
4 212
4676
52972
212
213
212
213
19011
22021
22022
26259
421 4
70099
29260
64397
62664
261
43044
30726
9253
1324
23 7
20452
67636
20774
10596
1 105
27194
3174
2
37
39
35
36
36
2
2
2
2
2
2
30
0
39
36
31
26
27
39
39
25
24
36
29
30
29
3
29
25
39
34
3
26
27
24
0
_ f pettoner by sad corporaton. CO
Centra oy Stoo Corporaton consttuteda abo
1 cquescence reates to te foowng Issues: fa) Deductbty of oss on transfer of securtes and cash to
Industra Shares. Inc., for capta stock and assumpton of notes of
T ther the market vaue of 12,500 shares of stock of the Ce
t ncome when receved durng 19 .
1 Nonaoqu Scence pubshed n Cumuatve uetn 1937- , page 34, wthdrawn.
1 cqnescenoe reates to ssue whether dvdends decared n 1929 consttuted Income to the pettoners
s I S or 1930.
cquescence reates to market vaue of o and pas eases on March 1,1913.
. onacquescence pubshed n Cumuatve uetn -2 (1936), page 33, wthdrawn.
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12
Ta payer.
armers Lfe Insurance Co.1
armers Loan Trust Co., trustee
armers Unon State change
awsett, Chares
awsctt, Chares .
edera Street Peasant aey Passenger Ry. Co.
ehrman, Wam ., estate of
erguson, arod G
dety Natona ank Trust Co. et a.
dety Savngs and Loan ssocaton.
dety Unon Trust Co., e ecutor
fth venue ank of New York, e ecutor 4_
rst Ctzens ank Trust Co
rst Natona ank of oston, admnstrator.
rst Natona ank of raddock
rst Natona ank of ey West
rst Natona ank n Mobe
rst Natona ank of Skowhegan, Mane
sher, Chares D., estate of
sher, Mram, estate of 4
tch, orence
emng, Lamar L.5
emng, Margaret . . --
un et a., Cara Louse 7
orence Manufacturng Co
ower et a., enry C, trustees.
ok, .
ord, yn
ord, Lna
ord, Robert .. - -
ord, Sara C
ordvce et a., Wam C, trustee-
orest Products Chemca Co
orres. Lord
orrester, W.
oster, L. .
oster, N. C, estate of4
oster et a., Ward, e ecutor4
Docket
No.
43317
29465
1 105
64474
72057
2975
77 3
70463
5644
S504S
14 62
31 01
39406
45215
69193
69166
71599
3643
465 3
926
451 6
63732
77165
6 33
74 26
51670
7 362
7 416
/ 44 3-
4491
153 3
26079
5649
2 396
3101
6 707
7073
6 707
70739
6 704
77740
6 705
5 647
46621
40229
43973
73591
430 6
329 4
3211 4
oard ot Ta ppeas.
oume.
27
26
30
31
,30
2-1
3
34
37
23
33
.32
.32
25
3
26
30
35
32
36
29
34
36
37
25
37
25
33
33
33
33
30
27
25
32
26
25
25
1 cquescence reates to ssue n connecton wth opton payment receved for purchase of and.
Nonacquescence pubshed n Cumuatve uetn III-2 (1934) wthdrawn.
1 Nonacquesconco notce pubshed n Interna Revenue uetn 193 -36, 1, wthdrawn.
4 state ta decson.
cquescence reates to ssue nvovng ncuson n ncome nterest on the decedent s share of partner-
shp capta and ncuson n Income the decedent s share of certan commssons earned by the partnershp.
cquescence reates to vauaton date for cost purposes of securtes acqured by pettoner under w
of her father.
cquescence reates to a Issues e cept whether pettoner-benefcares are ta abe on dstrbutons
made on anuary 4, 1933.
1 cquescence reates to Issue reaardn fnc of separate return for 1925.
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13
Docket
No.
oard of Tu ppeas.
oume.
o , ontane 1
rancke, Chares
rank, m
rankn, erbert
rankn Teegraph Co
rankn Tte Trust Co.1.
rfcttkorn Deveopment Co.
rcrt, oseph
uhage, fred .
Gaffner, ames ., estate of4
Gaerv et a., Dane ., admnstrators of the estate
of ohn . McCarthy --
Gamb, . .. --
Gambe, Cec ., e ecutor
Gambe, ames N., estate of..
Gambe, Marv ., estate of4
Gambe k Stockton Co.1
Gardner, Chares . - -
Garron et a., Isabe . ., e ecutors4
Gassner, Lous 7
Gaston, Wam .
Gay, D.
Gay, . C
Geeseman, Debert
Genera Industres Corporaton
Genera Outdoor dvertsng Co., Inc.1.
George, erome R
George Machnery Co., R.
Gessner, erman
Gbbs, G. Wdy.
Gbbs 4 udson, Inc.
Gespe, . .
Gette Rubber Co
Gmbe, Dane
710 4
5643
50224
7 673
29695
51947
60167
67 05
30496
35170
42452
73712
61754
3151
91196
47902
60 40
55595
60 40
42707
3 575
47705
4017
52163
62309
5 7 7
5 7
1736
79069
66511
45240
6121
77506
31329
746 3
9442
43052
50073
4542
5476
2762
27629
:n
32
27
37
26
32
30
37
32
36
3
26
33
32
33
26
25
26
1
34
31
31
3
35
32
27
26
32
2
6
3
31
36
24
24
cquescence reates to deducton for deprecaton on premses and Incuson In year 10.10 In pettoner
tm s ncome, 7,400 representng renta vaue of premses occuped by hm.
1 doescence reates to ssue nvovng deducton of commssons pad on sae of mortpape notes.
1 cquescence reates to ssue whether ta payer Is entted to the statutory persona e empton as the
aw of a famy.
sUte ta decson.
1 cquescence reates to Incuson n consodated Invested capta of capta stock ssued for a te and
trck man u fact urne pant, etc
1 cquescence reates to Issues regardng aocaton of tota cost between common and preferred stocks
T Nonaonuk-scence (reatng to communty property agreement) pubshed In Cumuatve uetn
- ( m), pases 27 (Docket 71 11), 29 (Dockets 9447, 10202, 10755), 1 (Dockets 10299, 32950), 34 (Dockets
Man, 62029, 65577, 6 324). 5 (Docket 109 0). 3 (Docket 37369), (Docket 109 5), 39 (Docket 7410).
41 (Docket 9290), 45 (Dockets 45065, 725,12231), 46 (Dockets 61669,6 335), and 50 (Docket 7359), wthdrawn.
1 cquescence reates to Issue whether pettoner reazed gan on transfer of certan of ts assets to Ontra
Outdoor dvertsng Co. for stock of that company.
pubshed n Cumuatve uetn I -2 (1935), page 31, wthdrawn.
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14
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
75740
76 41
(
1066
54556
29
1161
79155
35
764
62062
31
236
4343
51694
25
146
53310
6156
70407
4 5
29470
26
914
53 9
4
1073
27625
24
1
30302
24
915
749
36
779
59722
29
04
574 3
29
275
22332
27
377
22333
27
377
10 0
36
202
3953
30
1290
4252
2
41
46619
27
632
7570
37
623
7571
37
623
230 5
22
1124
2574
36
1233
51794
30
102
62029
1
65577
29
700
6 324
2177
35
239
672
37
44
56540
1
64064
33
512
71114
I
132
36
2
7639
37
25
343
37
734
53647
24
719
437 6
1
46373
26
1017
634 7
14 5
34
1209
14 4
34
1209
47376
27
53
3 577
25
1351
63354
30
52
Grard Trust Co., trustee.
Gven, T. ., estate of
Gadstone Co., Ltd
Gancy, Inc., . R
Gobe Constructon Co.
Godwn, rthur M
God Stock Teegraph Co.
Godberg, arry S.1
Goden, dward
Godman, Ma we
Godrng, ohn rnest
Godsmth, Ma
Gordon, fred W...
Gordon, zze 7
Gordon, Ma L.
Gordon, Wam S.
Gore ros., Inc
Gotteb Reaty Co
Graeper, W.
Graham, George D
Graham, Neva
Grand Rver Grave Co
Grant, C. T., estate of
Grant, arry ohnston
Grant, een .1.
Grant, osephne C, Trust
Grauman s Greater oywood Theatre, Inc.
Great Southern Lfe Insurance Co.
Green, Cavn C
Green, rank O., estate of .
Green, Robert D.
Green, W. S.
Greenwood, dna M...
Greenwood, . P
Grey u Corporaton.
Grfts, Stanton
Grffths, va Lavno..
Nonaequescenee (reatng to communty property arreemer|t pubshed n Cumuatve uetn
-2 (1936), pages 27 (Docket 71R11), 29 (Dockets 9447, 10202,10755). 31 (Dockets 10299, 32950), 34 (Dockets
4017, S3 9, 6202 , 65577, 6 324). 35 (Docket 109 0), 36 (Docket 37369), 3 (Docket 169 5), 39 (Docket 7435),
41 (Docket 9290), 45 (Dockets 45065, 3725,12231), 46 (Dockets 61669.6 335). and 50 (Docket 7359), wthdrawn.
1 cquescence reates to that part of decson hodng that Water . nettman Is not abe as a transferee
and to mtaton ssue.
cquescence In ssue Invovng oss on account of bad debt owng aw frm.
cquescence n Issue Invovng deductbty of Interest pad on matured coupons surrendered.
state ta decson.
cquescence reates to transactons 1, 2, 3, and 4.
cquescence reates to Issues regardng aocaton of tota cost between common and preferred stocks
purchased.
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15
Grffths, George
Grffths, ohn
Grppn, Mnne T
Grswod Co
Groves, George S
Groves, Waace
Guaranty udng Loan Co
Gadeon, Water T.
Guf Coast Irrgaton Co.
Guett, C.
Guett, W.
Gummey, rank .
ugustus Coe, estate of
, Dane N
.
aberand, Pau...
afner, fred.-
ahn, arrv W., estate of 1
aev-Oa Coa Co
a, esse G
a, dward T.
aadav, Sarah P
aUowe 2d, Rchard P....
amburg, r., Sam.-
ammonds, Mame S
andv, rankn Mer.
anna, R. ., estate of
anna, rgna W., e ecutr
anscom, dward ., estate of
anscom et a., Meve, e ecutors .
arbeson Lumber Co., W.
arkness, dward
arness, Mary S
arnschfeger, enry, estate of
arnschfeger et a., Mare ., e ecutors 5.
arper, . T
arrah, Mare .
arrah, Wam
arrs, en
Inc., . M
292 9
4 3 9
57132
90310
30962
66 25
111
26754
4777
30304
7 210
66 10
67671
74406
6271
6271
44992
44992
33076
MOIL
65169
71310
71311
69636
69636
627 4
25269
21643
109 0
50594
/ 52795
60115 /
25
31
3
24
36
36
25
39
24
3
30
31
31
24
24
24
31
31
31
31
31
27
17
10
30
27
1 cquescence reates to fraud Issue.
1 cquescence reates to a Issues ecept affaton ssue.
1 Nonacquescence pubshed In Cumuatve uetn II-1 (19331, wthdrawn.
state ta decson nonacquescence pubshed n Cumuatve uetn -2 (1931), revoked.
state ta decson.
Nonacquescence (reatng to communty property agreement) pubshed n Cumuatve uetn -2
S ), page, 37 (Docket 71 11), 29 (Dockets 9447, 10202, 10755), 31 (Dockets 10299, 32950), 34 (Dockets
, 53S9, 02029, 65577, 6 324), 35 (Docket 109 0), 36 (Docket 373ISU), 3 (Docket 169 5), 39 (Docket 7435), 41
(Doert 9293), 45 (Dockets 45066, 3725), 12231), 46 (Dockets 61669. 6 335, and 50 (Docket 7359), wthdrawn.
Nonacquescenoe pubshed n Cumuatve uetn II-1 (1933), page 17, wthdrawn.
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16
Ta payer.
oard of Ta ppeas.
No.
oume.
Page
2995
1
41736
26
134
53600
637 9
29
163
63790
29
163
3 64
27
1305
727
32
1
40304
42570
34
7 2
47339
32 41
25
1161
60690
29
1061
60690
29
1061
76507
7650
35
7 4
1323
34
91
1325
34
91
37499
25
96
7665
35
230
16552
25
736
7 71
1
7942
I
34
0
0 59
61334
29
595
174
37
73
69916
74 13
35
454
1179
1997
36
33
56161
32
613
3S573
25
1351
63321
33
73
63321
33
73
5666
62 45
30
301
4051
36
934
4052
36
934
60729
6SS21
32
349
46 06
25
12 2
7 424
39
516
33279
24
475
22341
27
377
632
3
26
632
3
26
57032
63141
30
962
2569
35
292
256
35
292
16253
24
43
37369
27
07
artford- mpre Co.
astngs, Cve, estate of.
astngs, .
astngs, rederck
atfed, . T
avana ectrc Raway, Lght Power Co.
avard, Chares
awk, enry C, estate of.
awk, Ida W., e ecutr ...
awke, . R
awkns, . C
awkns, Mavmc 1
ay, W.
ayes, ohn ., estate of.
ayman Co.,
ays et a., ugene ., estate of 1
azewood, N.
eadey, a Prce and Geneveve M_
eca Mnng Co
ess, Chares
eck, dwn
emph, Cfford
enke Trust, Mrs. Catherne.
enke, enry, estate of
ennngsen, Water
erder, George, estate of 4
erder, Mary
erff Dttmar Land Co
ervey, W. R
esbacher, da L
ess, Nathane .
ettman, Water .
euser, Mare da
euser, Php I., estate of.
ewtt, rskne
att, nna ee
att, P.
ckman, anne Snyder-
ckman, oward C.1
Nonacquesconce pubshed In Cumuatve uetn -2 (193(5), page 35, wthdrawn.
state ta decson.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchasod.
cquescence reates to Issue Invovng accrua of nterest.
and to mtaton ssue.
Nonaequesconce (reatng to communty property agreement) pubshed n Cumuatve uetn -
(193 ), pa es 27 (Docket 71 11), 29 (Dockets 9447, 10202, 10755), 31 (Dockets 10299, 32950), 34 (Dockets 4017,
53 9,62029.05577,6 324).35 (Docket 109 0), 36 (Docket 37369), 3 (Docket 169 5), 39 (Docket 743 ), 41 (Docke
0290), 45 (Dockets 45065,3725,12231), 40 (Dockets 61669, 6 335), and 50 (Docket 7359), wthdrawn.
G
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17
Ta payer.
man, . D., estate of
Uman et a., udson McCntock, admnstrators.
mehoch ros. Co
ndes, oseph ., estate of..
nes, Wam
res Co., Chares --
obbs, enry
obbs, Teck
foffer, nta Owens.. --
offer, T.
offman, acob S., estate of._
oander, doph, estate of
oday, ohn
ongsworth, .
oster, George ue
oy Deveopment Co --
omby Corporaton
omes, George W
oover, Dane P., estate of 1
orme, George .1
orme, ay C. - --
oughton, anson
oughton, r., mory, estate of
oughton, rthur
oughton, Chares ., estate of
ouston ros.
ouston, George T.
ouston, orace .
ouston Land Trust Co., trustee.
ouston. Php D.
oward et a., ohn
ubbard, dward, estate of
ubbard, Mdred M
ubbard, Mdred M., formery e ecutr .
ubbard, Mdred M., transferee
udson-Duncan Co.. --
ughes, .
unt, orence W...
unter, C. W., e ecutor..
unter, George ., estate of
unter, r., Thomas .4
untngton, enry ., estate of
untngton-Redondo Co
untngton, Samue L
unttng, enry R
Docket
No.
oard of Ta ppeas.
oume.
P e.
62676
31
1126
62676
31
1126
f 4172
42769
26
541
45663
633
3
26
7399
3
10(11
477 1
26
1351
27352
26
241
27351
26
241
33374
24
22
33375
24
22
73092
36
972
79 62
35
1 3
64127
29
1272
542 2
27
621
29461
26
1359
/ 42771
52661
33
774
51303
2
1091
53797
29
605
3745
3
3 7
93571
39
244
93572
39
244
29445
26
1359
29444
26
1359
29446
26
1359
29465
26
1359
12052
22
51
/ 13104
2200
22
51
22009
22
51
63321
33
73
22007
22
51
/ 52163
62309

57
/ 63 7
67569
30
619
t:.s:7
30
619
63 7
30
619
67569
30
619
5220
36
551
67335
32
124
56325
35
10 12
45417
26
417
45417
26
417
5 490
33
941
fs 45429
2
2 9
I1 47552
36
69
2366
36
116
7 916
35
35
75304
32
495
1 state ta decson.
1 cquescence reates ony to the ssue nvovng the ta abty of the ncome of severa trusts whch s
payabe to the grantor s wfe for fe.
1 cquescence reates ony to deducton for busness e penses n 1920 and to number of feet of tmber cut
darng 1919.
cquescence n ssue as to whether pettoner receved a ta abe dstrbuton from Marsha ed Co.
en anuary 5,1927, In the amount of 1,11 .61.
1 cquescence reates to ssue regardng oss from operaton of a farm n 1925 and 192 and ssue regardng
ncreasng defcency for 192 by amount of Interest accrued on bonds e changed for art ob|ects.
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1
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
urbut, . M
urt et a., Mrs. . ., e ecutors.
urt, oe, estate of
utchns, Chares P.1
utchns, Lena C.1
uyer s, Inc
yman, rthur . _
Inos Centra R. R. Co.
Inos Power Lght Corporaton.
Inos Rura Credt ssocaton . .
Income Syndcate, Inc
Independent Ice Coa Co
Indana Lamp Corporaton
Industra Loan Investment Co. .
Ingas, Chares C, estate of 5
Ink, Mary
Inand nance Co.
Insu, Margaret .
Insu, Samue
Insu, r., Samue..
Internatona Cgar Machnery Co
Internatona Mortgage Investment Corporaton
Internatona Ocean Teegraph Co
Internatona Shoe Co.
Interstate Reaty Co
Irvng Trust Co
Irwn, Roya W
Isenberg Trust, een L..
Isenberg Trust, Pau Otto.
Iten scut Co
Iverson, I. C
Iverson, Ruphane
.
717
2 099
2 099
49070
49069
2 369
29154
39 41
79557
62023
62991
56299
596 7
505
321
67639
52761
20664
57 35
75731
29916
396 6
6 002
6 504
6 003
6 503
6 001
6 505
71331
762 5
7 741
295 5
2264
2265
3607
7162
46272
509 1
7 4 9
79044
71373
71374
16429
20 99
4 3
4 37
ames, rthur Curtss 1 395
ames, Wam L 7027
33
30
30
34
34
24
36
30
34
33
3
37
27
2
17
25
35
23
32
32
32
36
36
26
3
25
36
37
35
35
25
29
29
31
30
1 cquescence wth respect to hodng that pettoner was not a transferee.
1 cquescence reates to ssue whether pettoner s entted to deduct osses from sae of securtes whch
were purchased by pettoner s wfe and oss from bad debt owng to aw frm of whch pettoner was a
member.
Nonacqueseencc pubshed n Cumuatve uetn II-1 (192 ), wthdrawn.
1 Nonacquesccnce pubshed n Cumuatve uetn I -2 (1930), wthdrawn.
1 state ta decson.
Nonacauescence pubshed n Cumuatve uetn -2 (1931), wthdrawn.
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19
cqt|escences Contnued.
| ssocates, Inc.
ens, Laura
D., estate of
, orence Lndsay, estate of.
ohnson, Wam Perce, estate of
ones, Chester ddson 1
ones, Durham
ones, R. D
ones, Inc., T. R
ones et u ., Wam
ordah Co., Inc
ahn, arry
ahn, oseph
ammerdner,
ansas Cty Leasehod Improvement Co.1
ansas Cty Memphs arms Co
ansas Cty Southern Raway Co. and affated
companes 1
, Marks, estate of_.
arger et u ., Manasse.
asch, d
asch, Theodora
aua Termna, Ltd
e, rank
e, Mrs. rank
e, oe
e, We May
ecy, . orence...
eey, erbert W
eey, ohn P.
eev, oshua C
ey, One R. and Grace ...
ennedy, zabeth arnart..
ent, verett .
75717
75492
75493
75969
57 90
53034
540 3
50206
477
69S5S
77 71
4779
695 1
2 61
2 60
41643
46555
3571
51060
2266
35527
3552S
35529
5530
35531
70659
6633
70661
7175
6632
6634
4 293
4 293
7664
69677
6967
696 1
cons:,
9 7
9 77
3 233
9S76
79959
1 0
39576
425 9
46064
52640
37
36
6
33
35
35
31
39
29
35
9
35
3

25
17
25
22
3
3s
25
25
36
31
31
31
31

3
26
3
36
3
26
31
easer, . M
1 cquescence as to Issue whether pettoner shoud be aowed to fe hs return on communty property
bads.
1 cquescence reates to March 1, 1913, vaue for purposes of cacuatng gan or oss upon sae of and
t ersaes, Mo. whether the Invested capta of the Smcoe Reaty Co. shoud be Increased for 191 and
the March 1, 1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
cquescence reates to the foowng Issues: Deducton of contrbutons to Y. M. C. ., Prests of Paace,
v.4 ssocaton of Raway ecutves and amortzaton of commssons and e penses Incurred In sae
of bonds.
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20
bce, 0. . ..
ng County Insurance ssocaton..
ng, enretta M., estate of
ngsbury, . R
n near, Roy
nney Co., Inc., G. R
rby, Lca S.
rchner, uus C -
rk et a., zabeth S., e ocutrces and e ecutor
of the estate of C. enderson Suppce
eberg et a., Robert ., e ecutors..
eeden, Mark
eeman, rthur S
nght. . D -
no , Seymour .
oher, G. . ., estate of ---
oher, ohn
oher, Mary
oppe, Morrs D -
raemer, Samue
ru, rancs 5
uhn, Ida L
unau et a., Oscar . C, trustees.
Lard, Roy
Lard, Wam Wnder, estate of1 ..
Lake Chares Nava Stores ._
Lambeth, Chares
Landers, Douras ., estate of
Lang et a., orence O. R., e ecutors
Lang, enry, estate of .-.
Lang, uus C, estate of
Langworthy, Mar|ore C -
Lansk, Samue
Lawrence, Gadys G
Lawson, ohn
Lea, een Sperry
Leamngton ote Co -----
Lehman et a., an S., e ecutors, estate of arod
M. Lehman
Lehman, arod M., estate of
Ledesdorf, Samue D
24 2
016
52632
563 2
0103
31397
329 0
73753
2542
9363
52632
730
6 41
66 65
2450
7620
79607
79606
69323
37 22
169 5
32609
40267
64 15
79760
51654
34630
36940
779 9
35443
71117
71117
6 316
71901
49347
75494
40232
742 7
4 413
6 29
S6S29
4 305
27
37
31
31
36
26
35
27
39
31
3
35
2
36
37
37
37
35
25
10
24
27
3
25
3
21
32
32
34
30
34
33
25
35
26
39
39
26
377
2
95
1126
153
1091
57
1305
902
95
21
17
1
630
1019
1019
1019
1056
6 6
1096
216
509
75
926
173
351
1347
527
527
337
1216
1019
6
154
243
1004
17
17
1
and to mtaton ssue.
cquescence does not reate to ssue Invovng bass for computng ta abe gan In 1927, 192 , and 1929
from the sae of bonds of the rby Lumber Co.
(ft ta decson.
1 cquescence reates ony to the Issue. Dd the Commssoner err In ncudng, for gft ta purposes,
the entre vaue of coran snge premum poces nstead of one-haf vaue thereof
Nonacquescenee (reatng to communty pronertv agreement) pubshed n Cumuatve uetn -3
(1936), paces 27 (Docket 71 11). 29 (Dockets 9147,10202, 10755), 31 (Dockets 10299, 32950), 34 (Dockets 4017,
53 9, 02029. 65577,0 324), 35 (Docket 109 0), 36 (Docket 37309), 3 (Docket 169 5),39 (Docket 7435). 41 (Docket
0290). 45 (Dockets 45065, 3725, 12231), 46 (Dockets 61669, 6 335), and 50 (Docket 7359), wthdrawn.
state ta decson.
r cquescence reates ony to the Issue, Is the estate entted to addtona deducton for attorneys fees
state ta decson acquescence reates to deductbty of fu amount of 1,041. 9 addtona ncome
ta es accrued on decedent s separate ncome ta return for 1927.
cquescence reates to reorganzaton ssue.
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21
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Leonard odng Corporaton, George ., estate of
Letts, r., rthur
Levn, bert
Levne, yman 1 -
Lews, Sr., . S
Lev, George W.1
Ley, Mary C. - --
ty arms Co
osery Ms - -
r, ohn -
udng Co., Inc
Lenfed, uus
Lncon, Robert Todd, estate of
Lppncott et a., . ertram, e ecutors
Lppncott, Water, estate of
Lttauer, ugene, estate of
Lttauer et a., Lucus N., e ecutors 4
Ltte, C.
Lvng unded Trust of arry . Lyman
Lovd, S. Rose
Lovd, Water
Loeb, r., et a., Wam, trustees --
Loge, oseph
Longyear, r., ohn M
Longyear, Mary ., estate of.
Loughborough Deveopment Corporaton
Loure, Davd
Lowe, erbert G , estate of
Luhrg Coeres Co.. -
M.
MacCaum Gauge Co..
Mackubn, George
Mackubn, Maude P
Magee Trust, dth Grant -- -.
Mata Tempe ssocaton
Manhattan Lfe Insurance Co
Manhattan Mutua Lfe Insurance Co
Manstquc Lake Superor R. R. Co
Marbara Corporaton
Markham Irrgaton Co.
Maruw et u ., rnest W
4 71
62106
60969
7435
56163
22336
22337
26717
29 99
66546
75490
533 5
7929
39167
49233
49233
51 5
51 5
61S21
7 200
75765
440 9
34161
37762
40071
47117
56027
62110
3643
10.-.N3
51064
27630
9144
4004
70437
3671
3671
217
29476
32940
1 21
35337
67 70
41344
7400
7401
26
30
36
32
27
27
22
31
36
31
6
21
27
27
25
25
27
36
32
30
26
24
2
2. )
20
21
3
26
32
36
36
5
16
32
37
29
36
24
3
Nonacauescence (reatng to communty property agreement) pubshed In Cumuatve uetn -2
(1936), pages 27 (Docket 71 11), 29 (Dockets 9447, 10202, 10755), 31 (Dockets 10299. 32950), 34 (Dockets 4017,
. 62029. CS577,6 324). 35 (Docket 109 0). 36 (Docket 37369), 3 (Docket 169 5), 39(Docket 7435), 41 (Docket
S2 ). 45 (Dockets 46065, 3725, 12231), 46 (Dockets 61669, 6 335), and 50 (Docket 7359), wthdrawn.
1 cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
ad to mtaton ssue.
1 state ta decson.
1 state ta decson acquescence reates to ssues 4, 5, and 7 of decson.
1 cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
ncome.
Nonacqnescence pubshed In Cumuatve uetn III-2 (1929), wthdrawn.
cquescence reates to a Issues e cept affaton ssue.
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2

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0
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22
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Marsh et u ., ohn
Marston, dgar L
Martn, C.
Martn ote Co. and affated corporatons.
Martn et a., . are, trustees
Martn, T. S., estate of -
Martns, ndy 1
Marvn, Water S.2
Mason, rank
Mason, Mary S., estate of 1 --
Mason, Pau
Matagarda Cana Co.5
Matchette, rankn
Matthews, . P
Mauch, Russe C. and esse
Maudn, I. M
Mayer, Mark
Mc rthur, R.
Mc uffe, gnes
McCahan, Rena S
McCa, orence1.-
McCartcr, Uza - -
McCarthy et a., ohn ., estate of
McCung, Louse Pepper, admnstratr of Georga
nna Pepper
McConne, Stea
McCoo, ess
McCormack, rederck C
McCormck, L. amton, estate of
McDonad, L. G.
Mc wan, nna
Mc wan et a., nna ., e ecutors
Mc wan, .
Mc wan, Lan G
Mc wan, W. ., estate of..
McGrew, zabeth W - --
Mcuerney, ohn ., estate of
Mc ee, rthur G
McLaughn, Thomas
McLennan, . R
McMan, Wam Northrop, estate of
McRae, Louse C, e ecutr
McRae, Php, estate of -
Mead Coa Co., C. .
1527
61961
61735
16275
445 3
445 3
22334
3 57
47 0
4133
5 413
/ 400 2
41345
40710
2G250
72269
26239
7 9 0
731
49071
79039
47702
69193
91196
9903
4347
46059
630
951
25427
25996
25997
25995
25994
25997
26753
3276
61121
597
26730
45966
32303
32303
4271
42719
54660
1035
000
3
29
34
24
24
24
27
25
39
3
33
24
26
22
35
22
36
3
29
35
26
33
3
39
29
24
3
3
27
26
26
20
26
26
25
35
37
29
25
27
30
30
2
35
3
Mehern, P. W.7
Mebank Corporaton
1 cquescence reates to that part of decson hodng that Water . ettman Is not abe as a trans-
feree and to mtaton ssue.
1 cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
state ta decson.
1 cquescence reates to a Issues e cept the Issue, Dd tho decedent have more than a fe Interest n the
estate of her mot her
cquescence reates to a Issues e cept affaton ssue.
- state ta decson acquescence, e cept n so far as concerns the queston of stus.
7 cquescence reates to dvdend ssue.
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1
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2
2

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23
cquescekces Contnued.
Docket
No.
oard of Ta ppeas.
oume.
Meon, . W. .- -
MtUon, R. ., estate of, Unon Trout Co. of Ptts-
burgh et a., e ecutors -.
Memphs Memora Park
Mente, ugene W
Mente, . G
Mente k Co., Inc..
Merau , L. ..
Mem , Mrs. L. .
Mercante-Commerce Natona ank n St. Lous
et a., e ecutors and trustees -.
Mercante Trust Co. of atmore et a
Merkra odng Co., Inc
Merr, Isaac L
Messer, Rchard ., estate of
Metropotan dson Co
Metropotan Propertes Corporaton
Meyer Shoe Co., .
Mchgan Centra R. R. Co. -
Mchgan Trust Co. et a., e ecutors
Mhy . Dow Coa Mnng Co.
Reaty Co.
Mgrm 4 ros., Inc., .
Mer aver C, estate of
Mken, SaUe Gbbs
Mton, osephne ohnson
Mnneapos, St. Pau Saut Ste. Mare Ry.
Msssspp Packng Co., Inc
Mssour State Lfe Insurance Co.
Co.
Mtche et u ., .
Mtche, ohn T. ., estate of .
Mtche, L. C
Mtche, Oscar
1
76499
74241
49259
5345
54701
5470
61305
2461
2462
35443
6 33
05 3
61722
42513
57 69
45032
91260
19930
42513
22021
22022
26259
421 4
51394
33177
4444
31330
54092
7411
20772
5 241
Mobe ar Pots ssocaton.
36
977
3
1259
2
1037
29
04
29
04
29
04
3
200
3
200
21
1347
32
2
39
117
31
530
27
556
35
1110
24
220
39
444
2
437
27
556
24
40
31
443
24
.53
3
4 7
2
1
35
141
34
177
24
376
29
401
3
1336
37
1
2
767
27
101
35
12
90710
90711
74 05
41610
416 0
41 74
54673
77016
1295
1 cquescence In oard s acton wth respect to the foowng: (a) That )ont account of . W. Meon
and . . Meon was not a partnershp (6) deductons of osses resutng from saes to scaot company
fe) that ta payer s return was not fase and frauduent (d) that ta payer was not durng 1931 the owner
of bank stocks ( ) that ta payer s share of payments made n settement of Corhett cam shoud he sub-
tracted from fna step n Unon qudaton n computng ta abe gan therefrom (f) that March 1, 1913,
ttr market vaue of common stock of McCntc-MarshaU Constructon Co. was 300 per share ( ) that
ta|paye made deductbe contrbutons to . W. Meon ducatona and Chartabe Trust.
cquescence reates to a ssues e cept the ssue wth respect to the dsaowance of 1, 00 as an aeged
oss from the wreckng of an automobe In 1931.
state ta decson.
cquescence reates to the foowng ssues: Whether amount pad by New York Centra R. R. Co. to
Stat of Inos n connecton wtth Issuance of bonds was a ta or fee savago recovered from ore docks
credt representng deprecaton on property retred In 191 .
Nonacquescence pubshed n Cumuatve uetn I -1 (1935), wthdrawn.
cquescence reates to ssue 1 of decson.
T cquescence does not reate to foowng ssues: Deducton for reserve set up to meet abty upon
matured coupons ad|ustment of ncome for renta of space occuped n home offce budng and deprecaton
npon such budng.
cquescence reates to ssues regardng assgnment of earnngs of ron mnes n payment of ega servces
ad deducton of amount pad to son for aeged servces rendered.
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24
cqotescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Mobe Lght Raroad Co.
Monroe Sand Grave Co., Inc.
Montgomery, Robert . and Los C
Moore, dward W., estate of 2
Moore, rank
Moore, Louse C, e ecutr 1
Moorehead, Wam
Moorshead, O
Morgan, r., dwn D
Morgan, atherne untngton, estate of.
Morrs, So
Morton, Mary, estate of
Mossman, . Pau1
Mossman, Wam ., estate of
Mountan ew Cemetery ssocaton
Mount ope Cemetery ssocaton
Moyer, Water W
Muchnc, . ., admnstrator
Munroe, Grace ohnson
Murchson, Mrs. .
Murphy, Mae . eey
Murray, dward
Murray, . dward
Murray, Rebecca
Murtha Schmoh Co --.
Musgrove, oyd L
Mutua ssurance Socety of rgna
Mygatt, enry D
Mygatt, Roand
N.
Na ct a., R. ., e ecutors.. -- --
Natona Capta Insurance Co. of the Dstrct of
Coumba
Natona Casket Co., Inc.4
Natona Contractng Co.. - -
Natona M Suppy Co.
Natona Packng Corporaton
Natona Te Co
41026
42062
757 2
5542
5 720
774 5
5 720
25 53
57045
76660
79652
5277
2242
59747
59747
3757
76039
76640
25
7119
637 9
76942
62 3
3 222
40176
5 5
629
40174
5 57
17911
42591
43911
76657
67564
53044
5674
50320
524520
7 2
37001
3166
33971
64013
23
36
37
33
37
33
22
2
35
34

37
33
32
35
37
35
2n
32
2
26
2
3
2
17
27
24
35
27
2
20
25
37
23
24
30
1 cquescence reates to foowng ssues: 1. Whether payments receved by a trustee on behaf of pet-
toner In the ta abe years n accordance wth a wrtten agreement entered nto by and between pettoner
and another n 1900 consttute ta abe payments of rent or nonta abe payments on the seng prce o
assets. 2. Whether pettoner sustaned statutory net osses for 1924 and 1926 whch can bo deducted from
Its ncome for 1925 and 1920, respectvey.
state ta decson acquescence n hodng that the commuted vaues of the Instament poces In
the frst two groups shoud be ncuded n the gross estate.
state ta decson.
cquescence reates to deducton of corporaton e cse ta es.
1 cquescence n oard s decson that pettoner had tho rght to aocate overhead e penses to each
contract on competed bass and that formua used by pettoner was permssbe and ssuo reatve tc
neggence.
G
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25
cgu sc NC s Contnued.
Docket
No.
oard of Ta p eah).
oume.
Nt , ames 1
Neon ectrca Products Corporaton, Ltd., Caude
Neracher, George
etcher, Chares, estate of.
Netther, Gadys Over, e ecutr -
Netcher, Irvng
Netcher, Townsend
Newgo Portand Cement Co
Ntsrtock OU Co. of Te as .
.Newbury, Moe Netcher -
erbury, Moe Netcher, trustee. --
Newe et a.. Sterng, e ecutors ...
New ngand Power Co
Newman, eage I
Newman Carey Subway Constructon Co
Newman et a., Rose, e ecutors -
Newman, Samue, estate of 1
New Market Investment Co.
Newton, zabeth .
Newton, oseph R., estate of
New York Centra R. R. Co. .
New York, Chcago 4 St. Lous R. R. Co..
Nagara Share Corporaton of Maryand..
Nbey-Mmnaugh Lumber Co
et u ., T. G
Ncodemus, r., . C
Nppert et a., fred ., e ecutors and trustees..
Noonan state Trust, . R
North Sde Lumber tfc Tmber Co
Northern Coa Co.7
Noyes, ansen
9290
756 5
74411
3 053
3 053
3 052
3 050
36319
2 045
3 049
3 052
57 35
1 593
29105
7 5 0
775
5959
5959
35719
47703
47705
19932
34437
62040
21047
70 13
17527
.s .y
52326
62569
55595
62664
34924
34945
3 574
Oak
Oake
O.
Woods Cemetery ssocaton .
y, Rchard .
77321
0932
4577
743 3
696 6
696 0
35
32
26
26
26
26
27
26
26
26
25
25
37
31
31
17
26
26
2
23
31
32
3
26
32
29
27
24
25
3
24
35
31
31
O Connor, Martn P
O Donohoe, ohn
CDonohoe, Mrs. ohn
ooaouescence (reatng to communty property agreement) pubshed n Cumuatve uetn -2
I3S5 pases 27 (Docket 71 11), 29 (Dockets 9447, 10202, 10755), 31 (Dockets 10299, 32950), 34 (Dockets 4017,
3 ,63029.65577.6 324), 35 (Docket 109 0), 36 (Docket 373 9), 3 (Docket 169 5), 39 (Docket 7435), 41 (Docket
SO ). (Dockets 45065. 3725, 12231), 4 (Dockets 61669, 6 335), and 50 (Docket 7359), wthdrawn.
onacquesoence pubshed In Cumuatve uetn I-2 (1932), revoked.
state ta decson.
cquescence reates to March 1. 1913, vaue for purposes of cacuatng gan or oss upon sae of and at
ersaes. Mo. whether the nvested capta of the Sracoe Reaty Co. shoud he Increased for 191 and the
March 1.1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty easehod S Improve-
ment Co.
1 eqnesopnce reates to the foowng Issues: Whether amount pad by New York Centra R. R. Co.
to Stat of Inos n connecton wth ssuance of bonds was a ta or fee savage recovered rora ore docks
credt representng deprecaton onproperty retred n 191 .
1 Nonaec|uesceDce pubshed n Cumuatve uetn I-2 (1932), wthdrawn.
cquescence reates to nventory Issue.
1 cquescence reates to Issues regardng aocaton of tota cost between common and preferred stocks
172176
-2
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26
Tar payer.
Docket
No.
oard of Ta ppeas.
oume.
Okahoma Contractng Corporaton.
O Laughn, . C, estate of
Ods, Margaret .
Omsted, George W. _
Omsted, Iva C.
Oympa arbor Lumber Co_.
Ontaro Reaty Co.
O Rear, . C.
Oregon Casuaty ssocaton..
O Co.
, estate of
P.
77 71
4319
6966
4906
44090
45745
4 121
54714
60746
( 440 9
45746
4 143
54713
60745
64272
35721
32335
6401
6112
59957
Pacfc tanto Teegraph Co. of the Unted
States
Pacfo Coast scut Co. et a.
Pacfc mpoyers Insurance Co
Package Machnery Co
Page, De Wtt
Pane et a., rancs Ward, e ecutors
Pane, Wam ., estate of
Paadum musement Co
Pam each Mather Co
Pamer, radey W.
Pan mercan Lfe Insurance Co.
Parke, Davs Co
Parker, Cara ., e ecutr 10
Parker, George D., estate of 10
Parker et u ., arod G
Parker, Wm. ., estate of
Parkand Ice Coa Storage Co
Parrott, . .
cquescence wth respect to hodng that pettoner was not a transferee.
cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
Income.
cquescence reates to March 1,1913, vaue for purposes of cacuatng gan or oss upon sae of and at
ersaes, Mo. whether the Invested capta of the Strncoo Reaty Co. shoud be Increased for 191 and the
March 1,1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod Improve-
ment Co. -
cquescence reates to ssue as to aowabe deducton of cost of operatng automobe party used n
ta payer s busness n 1924.
cquescence reates to foowng Issue: Whether respondent erred n Incudng n pettoner s gross
Income certan sums receved by arrc and Moncref and by the trustees of the gore Independent
Schoo Dstrct from o produced from propertes operated by pettoner.
Nonacquescence pubshed n Cumuatve uetn M (1934), wthdrawn.
1 cquescence wth respect to deducton of e pense nodent to amendment of pettoner s charter.
I cquescence reates to ssue whether stock rghts were capta assets where the stock n respect of whch
they were ssued had been hed for more than two yoars pror to sae of the rghts.
cquescence reates ony to tho Issue nvovng tho deductbty of 9,232.31 and 257. as Interest n
connecton wth certan fe poces and trust agreements, respectvey.
cquescence reates to a questons wheren decson was not whoy In favor of Commssoner e cept
decson regardng e stence of partnershp of George D. Parker Co.
II cquescence reates to rght of overrdng royaty owners to beneft of secton 211(b), ReTenue ct o
191 .
295 6
715
7 000
54334
7 907
34113
34113
79746
43 50
62652
463
62717
5 604
5 604
90260
631
67640
309 9
35
3
4
30
30
30
17
2
37
37
29
26
32
36
2
34
25
25
37
24
32
3
31
31
31
39
3
27
2
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27
cquescence. Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
Patterson, zabeth P..
Patterson, rank ., estate of
Peabody, Mary S
Peavy- yrnes Lumber Co.
Peavy-Moore Lumber Co.
Peavy-Wson Lumber Co.
Peck, Cara S., estate of
Peck ct a., remont C, e ecutors.
Pegg, bert 0.
Penn Mutua Lfe Insurance Co...
Pennsyvana Indemnty Co
Pennsyvana Investors Co
Pennsyvana Water Power Co..
Peopes Lfe Insurance Co.
Peopes State ank
Pepper, Georga nna, estate of
Perata, ohn M.
Perkns, bert T
Perkns et a., acob
Perkns et a., Thomas N. _
Pmy, oward
Perry, Raymond ., estate of-
Pershouse, ce
Pershouse, Mabe
Peters, ndrew .
Phps, C.
Phoen Insurance Co
Pctora Revew Co
7605
765 0
79907
15 24
16354
259 4
15 23
6355
259 6
15 22
16356
259 5
61520
61521
61520
61521
2233
52577
59670
71992
20766
56720
66969
71744
91697
9903
57923
754
2 701
57 4
5 305
5 306
5 443
5 475
5 770
5 772
5 904
5 905
5 906
5 907
5 917
5 91
5 925
69 55
63645
26749
2674
54050
47901
4 67
43995
33
30
3
25
25
25
31
1
27
3
30
24
3G
1
3
39
33
30
25
33
33
32
25
25
2
20
29
26
state ta decson acquescence reates to Issue whether transfer was made In contempaton of death.
1 cquescence reates to that part of decson hodng that Water . Iettman Is not abe as a trans-
bee, and to mtaton Issue.
1 cquescence reates ony to treatment of renta vaue.
sute ta decson.
cquescence reates to the foowng Issues: Is any part of the defcency as to astern Carbon ack
C .. Thompson O Co., . II. M. Co., and Davs ros. Co. due to fraud wth Intent to evade ta t Dd
tfce shares of Interstate Oas Co. stock roceved by O. n. M. Co. as a dvdend from astern Carbon ack
Co consttute n part a qudatng dvdend
. onaoquescence pubshed n Cumuatve uetn II-2 (1933), revoked.
G
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1
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1
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2

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2

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2
cquescencbs Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Pggy Wggy Corporaton.
Ptkn, George P
Pttsburgh thetc Co.1
Pttsburgh rewng Co
Pttsburgh Metng Co
Pttsburgh West rgna Ry. Co.
Ptzman Methudy Trust
Pztz Dry Goods Co., Lous
Pant, enry radey
Prophyactc rush Co.
Prosperty Co., Inc.
Prosser, Constance
Provdent Trust Co. of Phadepha, e ecutor 7
Prudenta Loan Co
Putnam Trust Co
Putty, Mrs. Macom..
unn, van
unn, orence M.
unn, Martn M__
unn, Pau
.
P-M- Petroeum Co.3 -- -
Poar Ice Coa Co
Ponvert, Lusa Terry, estate of 4
Pope, Ove R
Porter, . Staney
Portand Co-Operatve Labor Tempe ssocaton..
Powe, T. I. are 5
Powe, en|amn I
Powe, oseph W_. -
Prare O Gas Co
Preston, ohn W
Preston, Sara R
Prce, Laura M
Prce, W. .
25126
43 60
65173
60569
66964
67422
33 6
626
44 5
72157
7215
1750
465 5
43 9
4 9 4
52094
55659
60923
50576
54779
6763
156
29274
2425
9276
93304
64464
503 0
73763
57117
74560
74559
40059
41072
32996
47 45
47 46
45 96
5496
26752
59957
7 69
34743
696 3
544
0005
59
574
2
1
27
37
30
32
36
22
30
24
27
35
25
30
39
27
26
34
29
35
35
21
24
25
27
25
29
37
20
31
20
35
20
20
1 No)frr oseence pubshed In Comu.tve uetn II-2 (1933), revoked.
cquescence reates to queston whether certan dvdends receved by the pettoner from tho Ors-
wod Company are sub|ect to ta nonacqueseence as to ths ssue pubshed n Cumuatve uetn
III-2 ( 9:M), pace 33, wthdrawn.
cquescence reates to thrd ssue of decson.
4 state ta decson nonacqueseence pubshed n Cumuatve uetn 1037-1, page 46, w.thdrawn.
1 Nonacqueseence pubshed n Cumuatve uetn I1-1 (1933), wthdrawn.
cquescence reates to deducton of oss resutng from qudaton of one of ts subsdares,
Nonacqueseence pubshed n Cumuatve uetn ILI-1 (1934), wthdrawn.
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29
R.
Rans, Ruth .
Ramsh, doph
Ramsh, Inc., doph
Rand, esse ., estate of 1
Randa, George W., estate of ...
Unda, Mar|ore G.
Rands, Inc
Rtods, Wam C--
Rapp, ohn W., estate of
Rathbome, George W
Rathborne, . Corneus
Raugh Reaty Co.
Ray O Co.4
Raymond, Raph Lese
Rea, enry Over
Reardon Sons Co., ohn
Record Petroeum Co
Reese, ugusta ss
Remco Steamshp Co
Rew, George Campbe, estate of.
Reynard Corporaton
Reynods Catte Co
Reynods, Mare ., estate of 1
Rhea, Isaac T
Rhea, Mrs. Isaac T
Rhodes, erman M
Rato Mnng Corporaton
Rchards 4 rschfed, Inc
Rchardson, my S., e ecutr 1
Rchardson, Chares W., estate of1
Rchmond, redercksburg Potomac R R Co. .
R|dgway, Robert-
ay,
Rgp. a
atona ank _
Stter Lumber Co. et a., W. M
satttu .
fot cquescenoe pubshed In Cumuatve uetn -2 (1931),
Docket
No.
oard of Ta ppeas.
oume.
04G9
3956
39569
19 4
5 50
6765
3 971
74942
62066
6 46
2 61
3106
3105
4655
32 22
34332
79130
0265
20773
50962
62424
5772
41404
673 6
70795
6S145
71463
1060
54960
54959
54 99
4 692
56 77
21715
64023
64023
6 76
77666
30903
42 33
42 34
42 35
4 36
43604
43605
43606
4 749
57319
57320
57321
57322
go 99, wthdrawn.
ss sustaned n 1924 from sae of rest-
3
11 9
30
1290
30
1290
36
1160
4
679
27
475
34
1094
34
1107
24
1061
37
936
37
607
26
4
2
1201
34
1171
35
1132
24
376
32
1207
29
665
30
579
34
451
30
451
31
206
3
59
29
04
29
04
34
212
25
9 0
24
12 0
31
245
31
245
33
95
35
122
17
615
30
231
33
117
teW nce In that part of decson reatng to deductbty of
eeence reates to ssue whether pettoner was ta abe n 1923 as a trust or as an assocaton
onaauescence pubshed n Cumuatve uetn -2 (1936), page 44, wthdrawn
Wtcence reate to deducton for deprecaton on premses and ncuson n year 1930 n pettoner
tame, 7,400, representng renta vaue of premses occuped by hm.
uescence reates to ncreased deducton for oss on retrements of roadway property.
Mcqutoscenoe pubshed n Cumuatve uetn -2 (1 31), wthdrawn.
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30
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Roach Studos, Inc., a
Roberts et u ., .
Robertson, Cae -- -
Robertson, Cordea dde, genera guardan of
the property of nthony N. Duke
Robertson, R. R
Robson, Lester L
Robson, Cara P., estate of
Rocky Mountan O Co.1
Rodeo- ae|o erry Co.2
Rodewad, . ngsey
Roerch, Nchoas
Rogers, rown Crocker ros., Inc.
Rogers et u ., Chares
Roande, Guano
Rosenberg, Lous
Rosenboom nance Corporaton _
Ross. Ove
Rossnem, Irvng D.
Roth, Gorton
Roth, enry, estate of
Roth, W. .7-
Roy 4 Ttcomb, Inc
Roya Insurance Co., Ltd
Rudman, I.
Rudman, Rose
Ru, M ---
Rushmore, Chares ., estate of
Russe, bert W
Russe, C. C
Russe, Mrs. C. C
Rutedge, T. W.
S.
61750
0697
42496
79943
42497
53 7
26645
79421
36411
4 52
76659
3065
675 1
61 1
57479
672 6
27626
3577
40903
319
57503
2256
776
45065
2913
3632
5 6
5 7
67097
77164
73423
46060
46061
5 152
31
6
2
3
2
33
25
36
24
35
3
32
3
33
24
24
37
31
26
37
22
24
3
36
36
30
36
35
24
24
37
St. ohns Investment Co 50613 30
St. Lous Unon Trust Co. et aL, cotrustees 65675 30
St. Lous Unon Trust Co., e ecutor 10 45966 27
1 cquescence reates to Incuson n ncome of o payments reserved by and pad to pettoner s assgn-
ors, for purposes of computng ta abe Income and aowabe depeton.
cquescence reates to deducton of contrbuton to ctory chway ssocaton.
1 cquescence reates ony to the ssue nvovng saary and per dem aowance receved by pettoner
from the Unted States Government n 1934.
cquescence roates to reducton of proft of members of syndcate by the 2M per cent commsson due
syndcato manager and whether porton of the syndcate Income consstng of dvdends shoud be ta ed to
the Indvduas ony at surta rates.
cquescence reates to hodng of oard that dstrbutons receved from oseph . nch It Co. were
not parta qudatng dvdends.
cquescence reates to ssue whether pettoner reazed addtona compensaton on sae of stock of
Warner ros. Pctures, Inc., n 192 . r .
Nonacquosccnco (reatng to communty property agreement) pubshed n Cumuatve uetn -2,
(1930), pases 27 (Docket 71 11) 29 (Dockets 9447, 10202, 10755), 31 (Dockets 10299, 32950), 34 (Dockets 4017,
63 9, 62029, 05577, 6S324), 35 (Docket 109S0), 36 (Docket 373f.9), 3 (Docket 169 5), 39 (Docket 7435),
(Docket 9290), 45 (Dockets 45065, 3725, 12231), 4 (Dockets 61669, 6 335), and 60 (Docket 7359), wthdrawn.
cquescence reates to foowng ssues: Incuson n ncome of o payments made to assgnors drecty
by ppe ne companes deducton of cost for cement used In drng ofwe deducton of drng cost as an
e pense.
state ta decson.
state ta decson acquescence, e cept n so far as concerns the queston of stus.
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31
cqtr SC NC S Contnued.
Docket
No.
oard of Ta ppeas.
oume.
Page.
Saomon, Leon 1
Sanders, W. C -
Sanford, Lsa W., estate of -
San Marcos Compress Co
San Martnez O Co
Sanson, arod R., estate of
Sappngton, G. Rdgey
Savngs eature of the Reef Department of the
atmore Oho R. R. Co.
Sa e, rank ., estate of -
Scatena, vra -
Schepp Co., L
Schermerhorn, arret Puman
Schumacker, . P
Scofed, Maron, estate of 1
ScovU Manufacturng Co
Scruggs, Gro6s R
Scruggs, Maran P
Scruggs Investment Co
Scun, ohn, estate of.
Seaboard Securty Co.
Seaboard Sma Loan Corporaton.
Seaconnet Coa Co. .
Seares Rea .state Trust
Seasde Improvement Co
econd Natona ank of Phadepha.--
Securtes Co -
Securty rst Natona ank of Los ngees et a.,
e ecutors
Securty- rst Natona ank of Los ngees, trus-
tee .
Sebert, Ltd
Ses Sportng Goods Co.
Shaffer, C. .
Shand, Gadsden
Shapro, Samue
Sharp et u ., . Rodney .
Shaw, Davd, estate of
3725
12231
26651
346G
49304
37447
43121
5192
51944
594 6
61156
79276
63920
4290
43145
59612
062
29 54
3023
33610
3 711
46270
75524
79970
79971
1 0 9
244 9
7701
76 25
40553
45429
6064
57059
20771
29259
2623
6515
4259
N 12110
6704
6705
34499
4
25
3
31
25
36
25
32
37
32
25
26
32
3
25
24
24
24
36
3
3
21
25
37
a:)
25
2
36
29
24
29
22
2 )
3
24
1109
979
949
273
273
21
651
13 5
295
535
675
419
1031
1242
51
265
1174
1174
1174
791
660
560
307
1115
92
750
446
2 9
72
319
376
1350
5
1012
166
1235
1 Nonacquescence (reatng to communty propertv agreement) pubshed n Cumuatve uetn -2,
(1S36). pages 27 (Docket 71 11), 29 (Dockets 9447, :202, 107.W. 31 (Dockets 1029 , 32950), 3) (Dockets 4017,
am, 2029. 65577, 6 324). 35 (Docket 109 0), 36 (Docket 37369), 3 (Docket 169 5). 39 (Docket 74 5), 41
(Docket 0290), 45 Dockets 45065, 3725,12231), 46 (Dockets 61669,6 335), and 50 (Docket 7359), wthdrawn.
state ta decson.
1 state ta decson acquescence reates to the foowng ssue: Shoud there be ncuded In the gross
estate the vaue at the date of decedent s death of certan property whch he had transferred n 192 to a
trustee In trust to pay the ncome to hm for fe, wth remander over of the corpus to certan named
benefcares
onacquescence as to one ssue, pubshed n Interna Revenue uetn 193 -31, page 1, wthdrawn.
cquescence reates to ssue nvovng ncuson of far market vaueof rghts to buy bonds n pettoner s
Income.
cquescence reates to the ssue Invovng the aowance of a deducton from gross estate of 1,000 pad
to the onta Schoo pursuant to promse made by decedent.
cquescence reates to nventory ssue.
1 cquescence reates to ssue regardng oss from operaton of a farm In 1925 and 1920 and Issue regardng
r defcency for 1925 by amount of nterest accrued on bonds e changed for art ob|ects.
reates to market vauo of o and gas eases on March 1,1913.
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32
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
37 35

40034
/So
75223
35
220
69166
32
20
4442
37
454
2 63
39
60
46335
2
73
64737
35
15
35720
17
213
47210
32
320
47211
32
320
47212
32
320
47212
32
320
47210
32
320
19175
19791
2
9
61497
2
1100
61496
2
1106
37703
26
1359
29252
26
1359
37520
26
1359
37520
26
1359
37 64
26
1359
37703
26
1359
41070
26
1324
72605
31
709
7 36
36
149
61669
6 335
29
167
72404
7 525

271
77004
36
105
64 35
33
30
29260
29
1350
4396
2
327
39291
4966

291
39291
4966
25
291
1 76
24
07
22313
24
07
1 76
24
07
3257
25
103
Shea, R. P - ---
Sheets, Leveret T., estate of
Shepherd, Cette G., estate of 1
Shverck, ane
Sege, e ander
Sberbatt, Soomon
Ss, Mton, estate of 1
Smcoc Reaty Co.
Smmons, II, et a., dward C, e ecutors
Smmons, dward
Smmons, George W., estate of
Smmons et a., Rchard W., e ecutors
Smmons, Waace D., estate of
Smms, . . ..
Smms O Co.
Smms Petroeum Co.5
Sncare et a., een ., e ecutors...
Rncare, enry P., estate of
Sncare, r., enry P., estate of
Sncare et a., Murray, e ecutors
Sncare, Regnad
Sncare, Wam, estate of
Sou as Meta Cuvert Co
Spes, asper
1620 roadway Corporaton
Skewes-Co , dth Page .
Sack, . ., estate of --
Sack, r., Wam --
Soss, atte echt --
Smathers, . ., estate of -
Smathers Power Typewrter Co
Smth et a., zabeth D., e ecutors.
Smth, I. N., estate of
Smth, esse, e ecutr
Smth, Mrs. esse
Smth, Lous, estate of
Smoot, Lews
1 state ta decson.
Nonacquesccnce pubshed In Cumuatve uetn II-2 (1933), page 25, wthdrawn.
1 cquescence reates to March 1, 1913, vaue for purposes of cacuatng Ran or oss upon sae of Innd
at ersaes, Mo. whether the nvested capta of the Smcoe Reaty Co. shoud be ncreased for 191 and
the March 1, 1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
cquescence reates to ssues 3, 6, and 7 set forth n syabus of pubshed decson.
cquescence reates to bass for computng deprecaton on assets acqured by Smms O Co. In 1925
from Cayton O Refnng Co.
Nonacquesccnce (reatng to communty property agreement) pubshed In Cumuatve uetn -2
(1930), pa es 27 (Docket 71 11), 29 (Dockets 9447. 10202, 10755). 31 (Dockets 10299, 32950). 34 (Dockets 4017
63 9, 62029, 05577,5 221), 35 (Docket 109 0), 36 (Docket 37309). 3 (Docket 109 51,39 (Docket 7435), 41
(Docket 9290), 45 (Dockets 45005. 3725, 12231), 46 (Dockets 61609, 6 335), and 50 (Docket 7359), wthdrawn.
7 cquescence n ssue nvovng deducton of attorney s fees pad by decedent.
cquescence reates to the foowng queston: Dd pettoner receve a dvdend from echt roadway
Corporaton n 1929 n the amount of 1,503
cquescence reates to market vaue of o and gas eases on March 1, 1913.
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33
c t7I SC NC 9 1
Contnued.
Doeket
No.
oard of Ta ppeas.
oume.
Paw.
45694
30
/ 33
1121
47
44500
27
97
42592
27
554
29694
26
914
214 1
29951
37 7-
27
673
37 9
1
79972
79973
3
560
56320
29
263
56321
29
263
74297
35
243
74296
35
243
7429
35
243
74299
35
243
42006
42434
30
1165
34946
24
307
3 40
24
699
7 477
37
7 6
20770
24
376
33159
36393
25
2 1
40 73
35260
35617
2
690
51636
30
1 4
62100
36
112
69259
31
671
26756
25
513
37573
24
1013
6709
30
746
5694
6 7
3
5 9
SSO
26643
25
949
26650
25
949
26644
25
949
26647
25
949
26646
25
949
26649
25
049
2664
25
949
62 25
33
252
5575
32
1039
296 5
24
52
43416
23
610
r., . T.
South Memphs Land Co
Southard, enne
Southern tantc Teegraph Co.
Southern Raway Co. et a. _
Southern
Securty Co.
er, Georga II
er, . W...
y, dward G
mer ., estate of
Sperry, r., mer
Sperry, Zua ., estate of
Sprague-Ses Corporaton
Sprague 4 Son Co., C. .
Sprunt Son, Inc., e ander.
Stacv, Mar|ore Lpe
Standard eef Co
Standard Conveyor Co.
Standard Isand Creek Coa Co
Standfer Constructon Corporaton, G. M.
Stanton, George
Starr, rank C
Stauffen, Theodora
Stearns, Robert L
Steege, W.
Steee, Chares .
Stegeman, .
Stegeman, r., bert
Stegeman, anne L
Stegeman, . M
Stegeman, . R
Stegeman, Mabe
Stegeman, Wam L
Stephenson, Ida
Sternberg, erman
Stevens, ohn .
O Co. .
Stevenson
1 cquescence reates to oard s hodng that bonuses shoud be ta ed as separate or communty property,
r. accordance wth the cassfcaton of the propertes under the ease and ssue n connecton wth assess-
ment of defcency for 1925.
1 cquescence reates to ssue Invovng deducton for depeton from advanced royates or bonuses.
1 cquescence reates to foowng ssues: 1. Dd pettoner reaze ta abe Income from unrefunded por-
tons of amounts deposted by shppers for constructon of factes for use of such shppers 2. Where
sod at a premum pror to March 1, 1913. s tho amortzed porton of such premum ta aba
ount
1920
3. Dd Commssoner erroneousy e cude from ad|ustment for matera and suppes an amount
t to nfaton contaned n book vaue of such materas and suppes as v.ere not used du ng
Gft ta
cquescence reates to ssues regardng reducton of ncome for fsca year endng November 30, 1924,
by oss sustaned for 11 months endng November 30. 1922, and ncuson n ncome for a years of 11 par
aue of capta stock of Sunburst O Oas Co. receved by pettoner as a premum.
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1
3
-
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1
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2
2

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34
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Stewart, ames R.
Stewart, Maco, e ecutor
Stewart, Nee sperson
Stewart, Theodore -
Stfe, rthur C.L
Stefe, dward W.1 -
Stefe, enry G.1
Stock Yards ank of Cncnnat..
Stockhan, |ah
Stone et a, Irvng ., e ecutors and trustees
Stone, Irvng Lee, estate of
Stoneman, Davd
Storey, . M - --
Story, atherne .
Story, r., Neson, estate of
Story, Thomas .
Story, Water P. -- --
Strabc, . L. G - ---
Street, Raph W - --
Stromeyer, Irene -
Stromeyer, Wam
Strong, arod C.
Stryker, Ma --
Stuart, Chares
Stuart, r., Woughby
Sugar Creek Coa Mnng Co -
Suvan, ugene C...
Summerfed Co
Summer Tubng Co --
Sunburst O Refnng Co --
Suppee, C. enderson, estate of
Swenhart, ames
Symngton, zabeth L
Symngton, se
Symngton, my
Symngton 4 Son, Inc., et a., T. .
Tabot, . .
Tarafa v rmas, ose M., estate of .
Tayor Co., Inc., W.
Tcague, .
Terry, nna Davs, estate of
Te as Irrgaton Co.
9950
63645
6 7 1
70297
6073
60739
60740
410 5
22569
43 30
43 30
27627
62 13
66961
66963
66962
66960
56 67
72609
55341
55342
3 576
2516
53796
73 69
7375
5 711
74070
45979
9363
547 4
62234
6222
62161
4 7 6
4 7 7
4 7
4 7 9
4 9
4 90
36191
2656
9597
73034
9925
400 3
41346
39
7
32
442
35
406
32
600
29
1145
29
1145
29
1145
25
964
26
631
26
1
26
1
24
1
31
1126
36
239
36
239
36
239
36
239
29
516
36
391
2
472
2
472
25
1351
36
326
29
605
32
573
31
344
26
1359
29
77
36
347
23
29
39
902
29
1179
35
711
35
711
35
711
35
23
37
3
32
3S
24
I Nonacquesccnce pubshed In Cumuatve uetn III-1 (1934), pace 30, wthdrawn.
state ta decson acquescence reates to ssue nvovng deductons from gross estate.
state ta decson.
cquescence reates to Issues regardng aocaton of tota cost between common and preferred stocks
purchased.
ft ta decson.
cquescence reates ony to the Issue, Dd the Commssoner err n ncudng, for gft ta purposes, toe
entre vaue of certan snge premum poces nstead of one-haf vaue thereof
T cquescence reates to oss ncurred n sae of a boat.
1 cquescence reates to a ssues e cept affaton ssue.
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35
Ta payer.
oard of Ta ppeas.
No.
oume.
ace.
47 1
39
50
7974
3
336
07506
32
134
51103
2
657
51104
2
657
44 57
44 0
30
636
50653
29
545
7 425
39
516
7 423
39
516
3167
3169
3171
3173
3175
3177
37
104
4276
4279
4291-
4294
31029
33464
42340
25
9 6
45957
31030
33465
25
yoo
42341
4595
6505
3
545
4 92
49539
27
277
27624
24
1
45320
23
92
5377
31
7 7
54 2
629 2
30
1156
54 2
C29S2
30
1156
45513
25
1055
73111
37
119
f 30
615
66703
31
33
1 7
441
37
3 7
2 093
4025
25
713
6149
2
1106
61215
33
59
76256
77204
35
6 1
Thacher et u ., Thomas C, r
Thatcher state Co., the M. D.1...
Thee, Water
Thompson, dward W
Thompson, W. L
Three Rvers Secuty Corporaton.
Thrft Reaty Co.-
Tchenor, rthur L
Tchenor, Chares O
Ternan, Martn ., trustee, Martn . Ternan
trust for Martn T., Chares W., ohn W., nn
C., and Mary . Ternan et a.
TfTt, Chares.
Tfft, Lews .
Cap ndrew
Tmes-Pcayune Pubshng Co.
Tobev, Maurce
Toerton Warfed Co.
Torrens, ames .
Tracy, Davd ., estate of
Tracy et a., Gertrude emer, trustee-
Tracy, Wam R.
Transcaforna O Co., Ltd
Tresner, my.
Trcou, Sae S
Trnty Drng Co. .
Tro, nne
Trosk, George
4 Grt ta decson.
cquescence reates to the ssue. Is the ncome of a trust ta abe to the donor where the trust nstrument
provdes that the trust ncome may be used for support and educaton of the donor s chdren, but was
never so used
cquescence reates to ssue regardng deducton of oss sustaned by pettoner durng nonaffated
perk L
1 cquescence n oard s decson n so far as It hods that pettoner was not ta abe on any part of the
proceeds f the 100 shares preferred stock gven by hm to hs four sons n 1923.
1 cquescence reates to queston whether deducton for depoton n connecton wth deveopment
cquescence reates to bass for computng deprecaton on assets acqured by Smms O Co. In 1925
torn Cayton O Refnng Co.
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36
cqu sc NC a Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Trost, dward .
Trout, . W
True, dward C.
Turbeve. c I-
Turner, atheen M.1...
Turrsh, enry
Twn e O Syndcate-
Twnng, dmund S
U.
Uster Deaware R. R. Co.
Unon Lard Corporaton
Unon Pacfc R. R. Co. .
Unon Pacfc R. R. Co. et a. .
aant, the Netcher
aey Waste Dsposa Co.
an ken, nne Louse..
an Scken, rederck W., estate of
ermont ydro- ectrc Corporaton.
rgna Iron, Coa Coke Co
oge, R. red, estate of
on Gunten, Chrstan W.
w.
Wagegro Corporaton
Waker Products Corporaton.
Waker, R. D
Unon Peopes Natona ank of ackson et a.,
admnstrators 4
Unon Trust Co. of Pttsburgh, trustee
Unted utographc Regster Co
Unted States Trust Co. of New York, trustee
73 4
39020
6 501
43733
47900
55553
64334
64560 )
22340
44742
2951
70296
2 927
20769
51530
701 3
70219
35639
35649
356 4
356 5
40060
40061
40062
70456
61009
303 4
26747
26757
3 051
6371
76 94
79334
2545
5963
51576
561 2
6137
2077
44 56
76762
31
27
31
31
27
21
26
32
25
24
32
26
30
29
27
25
26
3
35
35
29
29
34
2
3
30
34
1 cquescence reates to that part of decson hodng that Water . ettman Is not abe as a trans-
feree am to mtaton ssue.
1 cquescence reates to ssues wth respect to oss sustaned by O. W. R. R. Co. on e change of and
In Sent te n 1925 amount of oss sustaned by O. . W. Raroad Navgaton Co. In 192f on sae of and
In Mutnomah County, Oreg. contrbutons to hospta departments In 1924, 1025, and 1926 amortzaton
of dscount on bonds ssued pror to March 1, 1913, and commssons unrefundabe porton of depost made
wth pettoner n connecton wth constructon of branch ne.
cquescence reates to donatons Issue amortzaton of dscount on bonds ssued pror to 1913 computa-
ton of ta for 1920.
4 state ta decson.
1 Nonacquescence pubshed In Cumuatve uetn II-3 (1933), page 27, wthdrawn.
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37
cqoesoenoes Contnued.
Ta payer.
Docket
No.
oard of Ta ppea .
oume.
Wa, rank .
Ward ros. Co
Warner Co.
Warner, Raph C
Washngton, Sr., George. -
Washngton Market Co.
Waterbury, Charotte M.
Waterbury, Donad N.
Waterbury, ugene W.1
Waterbury, Whtford N.
Watson, r., ohn
Wayne County ome Savngs ank 4
Weddng, G. G
Weeks, anson
Wes, Samue W
We , Thomas . -
Wheeock, R. L
Wheeock, Mrs. R. L
Whtcomb, nna S.s
Whtcomb, . .
Whte Oak Transportaton Co.7
Whtman, Ward 4 Lee Co
Whtnev, Rchard...
Whtney, Ward M
Whtson, Thomas
Wco , C.
Wams, r.. ford
Wams, ma
Wams, a
Wams, L.
Wams, R. L. - -
Wams, W. W -
Wamson, e ander
Wamson, rchbad (Lord orres)
Wamson, esse C
Ws, Mary
7359
30992
53039
53040
59190
62510
3712
43912
733 1
733 0
733 3
733 2
53414
9671
49144
56442
63916
62126
7NS29
37 06
37 05
0017
5219
7196
521
1 0
61552
76661
37927
40233
46371
66915
4001
29273
5 7 9
4000
46062
40231
43972
40229
43973
0545
6671
4
24
26
31
36
25
33
33
33
33
27
3
26
32
31
30
34
2
2
37
37
24
29
35
26
25
27
29
36
25
31
36
24
25
25
34
30
31
33
o 37
1 Nonacquescence (reatng to communty property agreement) pubshed In Cumuatve uetn -
093 ), pages 27 (Docket 71 11), (Dockets 9 47, 10202,10755). 31 (Dockets 10299. 32950), 34 (Dockets 4017,
S3 . 62029.55577,6 324), 35 (Docket 109 0), 36 (Docket 37369), 3 (Docket 169S5), 39 (Docket 7435), 41 (Docket
90), 45 (Dockets 45065, 3725, 122 1), 46 (Dockets 01669, 6 335), and 50 (Docket 7359), wthdrawn.
1 Nonacquescence pubshed n Cumuatve uetn 11-1 (1933), wthdrawn.
1 cquescence reates to ssue as to baso vaues of stock.
Nonacquescence pubshed n Cumuatve uetn I-2 (1932). revoked.
Gft ta decson nonacquescence pubshed n Cumuatve uetn -1 (1936), page 4 , wthdrawn.
cquescence reates to the foowng Issue: Where husband and wfe, resdents of the State of Mchgan,
own reaty as tenants by the entrety, may tbey dvde equay and deduct n ther separate Income ta
returns osses resutng from the renta of such reaty
1 cquescence reates to Issue nvovng accrua of Interest.
1 cquescence reates to capta net gan Issue as to stock sod In 1933,
cquescence reates to queston whether deducton for depeton n connecton wth deveopment
G
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3
cqubscences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Wson, enton
Wson Co., Inc., of Caforna.
Wson Co., Lee..
Wson Commsson Co
Wson urs, Inc
Wson, George S., estate of 1
Wson Shpbudng Co.1---
Wnsow, Mary N
Wof, . C-
Wood, red T...
Wood Lumber Co., . ...
Woodard, ohn S.3
Woodward rthur P
Work, orace ., estate of.
Wray, za
Wrght, George M
Wrght, Leonard Marsha..
Y.
Yazoo Msssspp aey Ry. Co.
Young, the P
Yukon aska Trust
Z.
erman, ohn .
Zmmerman, Sarah . .
Co
52 94
2076
33 26
20767
5705
50 2
34337
76059
56439
3 0
23605
24156
71962
54741
60227
1027
25 1
25 54
4550
62023
62991
3 6
34161
2491
24
5242
33
24
25
24
29
30
25
33
32
27
25
30
32
34
24
22
26
30
34
24
26
36
36
21
1 state ta decson.
1 cquescence does not reate to ssue 5 of decson.
cquescence reLates to reorganzaton ssue.
G
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r
a
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e
d

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U
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
4
2

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2
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7
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3
9
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5
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7
6
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3
1
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#
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39
The Commssoner has wthdrawn hs acquescence n the foowng
decsons of the Unted States oard of Ta ppeas:
oard of T
oume.
a ppeas.
Page.
Ta payer.
Docket
No.
4500
4500
43164
43164
22
22
21
21
1093
1093
339
339
1 Y . ta decson acquescence pubshed n Cumuatve uetn -2 (1931).
The Commssoner does NOT acquesce n the foowng decsons
of the Unted States oard of Ta ppeas:
Docket
No.
oard of Ta p eas.
oume.
Tago.
.
beson Reaty Co., Inc.
beson s, Inc
ckerman, Irvng C.
ameda Park Co
bers, Wam .
brecht et a., atherne ., e ecutrces .
ker, era M. oher
en, Dorothy . D.5
en, Nathan R
ed urrers Corporaton
mercan rck Te Corporaton
mercan Centra Lfe Insurance Co.4.
mercan Gas ectrc Securtes Corporaton
mercan Idea Ceanng Co
mercan Raways Co
mercan Refrgerator Transt Co
mercan Seatng Co.
mes, r., Ward
ngo- mercan Drect Tea Tradng Co., Ltd..
partment Corporaton
ppeby, rancs S
rabo Manufacturng Co
53792
53793
30311
31634
4094
40949
355
74759
41295
36116
569
1654
50059
29994
30133
3199
56024
63436
62604
49205
67662
647S2
67602
72 61
14676
49 17
4529
42024
730 9
504 9
61660
65064
24
6 6
24
6 6
)
512
25
50
33
373
27
1091
25
243
3
71
3
160
24
457
22
1121
30
11 2
33
245
30
529
30
939
3,
465
14
32
27
624
3
711
26
49
31
533
26
106
27
37
1 N onacquescence reates to Issue concernng oss on sae of stock of . Nash b Co.
state ta decson nonacquescenco reates to State nhertance ta ssue.
Gft ta decson.
4 Nonacquescencereates to ssue whether certan funds denomnated Insured s persona beneft fund
ere reserve funds requred by aw and Issue whether the pettoner s abty on outstandng unsurren-
dered unpad coupons consttutes a reserve fund requred by aw.
cquescence pubshed n Cumuatve uetn III-2 (192)0. wthdrawn.
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40
Nonacquescences -Contnued.
Ta payer.
rchbad, oseph .
rchbad, r., oseph .
rke, Wam Cark...
rmstrong, Wam M__
shton. Wurd
tas Lfe Insurance Co.
uto Strop Safety Razor Co., Inc.
ver, enry S., estate of 1
.
abson, red
abson, Oustavus
abson, enry
anger, esse M., e ecutr
anger, Water ., estate of
atmore Oho R. R. Co. ...
ank of Caforna, Natona ssocaton.
ankers Trust Co., trustee
arradae, . Morgan
artett, . emp --
ashford, Raymond I
ass, rancs M
ateman, . L
ay, Robert P
ebb, Rchard ., estate of
ebbe, unus, trustee..
ebbe, Marcus, estate of
echte, enneth
echte, Stephen D.
ehan, Thomas W
ekns, atherne, estate of
efast Investment Co.
e, rederc D., estate of
e Sons, Samue.
enaga, rthur and se
cresford, ven een de a Poer, estate of 5
erkeey a Schoo, Inc
ndey, Mary M., estate of
ngham et u ., arry Payne
smarck Trbune Co
acksher et a., D. W., e ecutors, estate of ames
Urah acksher 1
acksher, ames Urah, estate of 1
Docket
No.
61661
66062
61673
65063
4 12
40419
3914
40544
40751
67199
57374
7 77
79152
79153
52224
52223
52222
32177
32177
37239
55537
60699
32459
77376
63632
71565
73626
47772
66014
41295
52707
52707
754 5
754 6
7542
7675
1912
69534
3 056
41647
45616
763
67259
17115
5 71
2160
59660
453
453
oard of Ta ppeas.
oume.
7
3
25
2
29
2
36
27
27
27
23
23
30
30
24
34
2
33
30
34
2
27
26
26
34
:
32
3
17
31
32
22
36
31
31
2
3
33
3
3
1 state ta decson.
1 Nonacqucsccnce reates to deductbty as e pense for year 1920 of amount for mantenance of ways
and structures.
state ta decson nonacquescence reates to State nhertance ta ssue.
4 Nonaoqucsconoo n ssue as to whether pettoner s entted to deducton for amortzaton of the e
tract warehouse for 191 .
Nonacquescence reates to ssue nvovng reorganzaton.
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41
Nonacquesobncbs Contnued.
ar, Cec Chares.
ar, dward T
ss, Sydney R.
ss, aentne.
ock, Meer S -
um, esse
um, Davd
umentha arry S
oard of re Underwrters of the Cty of Duuth.
ora Ccga Deveopment Co.
oehrnger, Rudoph 1 -
oeng, Wam .
oekman, Smon
on wt, Pad
oo, S. - - ---
ooth, en S --
oston evated Ry.
et
No.
Co. .
oston Safe Depost Trust Co. et a., e ecutors
oswe, Wam D., estate of
owen, dwn L.

owman-Dtmore otes Corporaton.
owman ote Corporaton.
rackman, .1. W.
radburv, I. C...
rsnade, enry N., estate of
rnsmade, Pau S., e ecutor, estate of enry N.
rnsmade
rskev Co -
rtsh- mercan Tobacco Co., Ltd
rookyn Cty R. R. Co
rookyn 4 ueens Transt Corporaton
rookyn Rado Servce Corporaton
rooks, Regnad
rown, rank ., estate of
rown, . C
rown, arry
rown, Pear ., e ecutr
rownng, ohn N
rownng, S. P
uchsbaum, Wam -
69 03
42313
03741
55902
53422
4 73
52221
52220
75143
43150
40446
49 91
167
2 I No
53661
64691
70951
1961
76751
244
49272
1 11
629 5
41472
43629
, , I
24912
2 971
3 006
45714
457 0 ,
1 6046
6047
6046
6047
60 99
41224
20353
20353
61229
6 560
47677
33343
4 136
47677
72713
72714
74S 6
oard of Ta ppeas.
oume.
20
31
26
26
37
29
29
34
26
25
. .
::
3
33
34
36
37
I)
37
33
21
24
2 1
23
39
39
211
27
27
27
31
31
26
2.-,
26
26
31
31
36
1 state ta decson.
N onacquescence pubshed n Cumuatve uetn 193S-1, page 36, n so far as It pertans to tho trust
Issue, wthdrawn.
Ths notce, whch was orgnay pubshed n Interna Revenuo uetn 1D3S-25, page 1, h beng
repubshed for the reason that It was erroneousy Incuded n the st of cases acquesced n pubshed n
Cumuatve uetn 193 -1, page 4.
. onacquescence reates to ssue Invovng reorganzaton.
. onacquescence reates to ta abty of a transfer under subsectons (a) and (c) of secton 302, Revenue
ct of 1926.
1 N onacquescence reates to ssue whether gans on sae of stock of tho Waterbury Chemca Co. were
ta abe to pettoners or to trusts created by them.
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42
Nonacquescences Contnued.
Ta payer.
oard of Ta ppeas.
oume.
uck, ohn ., estate of
uck et a., Marv M., e ecutors
uckhardt, ugust
uffao Unon Iron urnace Co.
ung ton et u ., Robert McCarthy -.
uock, George r---
unge North mercan Gran Corporaton.
urdette, Cara
urey, anche ., e ecutr
urr, dward L
urrows, Waters .4
usness Rea state Trust of oston-
uter- etch Co
Cadwaader, Mary een
Cadwaader, r., Rchard M.
Cambra Deveopment Co.5-.
Carey, Robert
Carey bre Products Co., merson.
Carey-Reed Co
Carey Sat Co
Carson, Chares T
Carro, .
Carro, Lena Carter
Carson state Co
Carson, ohn
Carson, Rose L
Carter, . L
Carter, . L., admnstrator
Carter, Mrs. . L
Carter, .
Carter, Le N
Carter, Maude ., estate of
Carter, r., W. T
Case, Montgomery
Casses, Robert
Centra Market Street Co.
Centra Unon Trust Co. of New York, e ecutor
state ta decson: nonacquescence reates to deducton of amount of a cam fed aganst the estate
and aowed by probate court.
Nonacquescence reates to ssue regardng deducton from gross ncome of fsca year ended pr 30,
1919, of reserve for renng bast furnaces.
Nonacquescence reates to ssue 1 of docson.
Nonacquescence reates to the ssue, deductbty of the amount pad for a second mortgago as a bad
debt.
Nonacquescence reates to ncuson n cost of rea estate ots the estmated cost of future e pendtures
for contractua mprovements.
Nonacquescence reates to ssue regardng oard s ursdcton of subsdares.
325 4
44153
446 4
325 4
44153
446 4
76255
16075
16076
9 06
31209
47 00
37321
44909
5S795
77 7
33469
426 4
50305
45169
45170
46327
71 00
75411
54033
60432
67415
363 1
3936
363 2
7564
51 0
51 1
47444
534 9
45393
45392
51 2
47669
51 3
51 4
51 5
47669
51 6
75 16
5 793
24 37
31736
25
25
32
23
3
23
27
25
26
26
3
25
23
27
32
34
31
26
36
26
39
27
27
31
2
2
27
27
27
27
27
27
27
34
26
25
25
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43
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
Centra Unted Natona ank
Cerea Products Refnng Corporaton.
Champon, Davd .1
Champon, T. Perre ..
Chander, Constance
Chander, arrson Gray
Chander, een
Chander, Maran Ots
Chander, Norman
Chander, Php
Chapman, C.
Charavay, Marus
Chemca Natona ank of New York..
Chenowth, . C
Chcago Dock Cana Co
Chcago North Western Ry. Co.
Chdaw, arry .
Chshom, rchbad M., estate of
Chrstensen, Nes
Cark, Percy
Cark Thread Co.4
Caude Neon Lghts, Inc.
Ceand state Co., Inc., enry .
Ceveand Trust Co., trustee of dth . Tmken
et a. Trust
Covs, C. ...
Coastwse Transportaton Corporaton
Cobegh, Margaret dwards, estate of
Cochrane, Davd .1
Coorado Southern Ry. Co.
Coumba Pacfc Shppng Co
Coumbus rck 4 Te Co.
Commerca Garage Co
Commerca Investment Trust Corporaton 11
69212
71063
653
55569
63 1
5556
67471
67470
67475
6746
67473
67476
52496
70005
71592
45604
3 349
4 26
36343
697 2
5255
72424
65177
3 903
47974
59391
335 5
40 90
51197
561
6 433
39916
40765
6042
21974
5096
42707
41646
43495
50051
3
39
27
27
32
32
32
3
32
32
2
29
30
26
32
22
29
37
33
31
2
35
29
39
32
2
24
26
36
29
26
22
2
5
1312
1312
720
720
720
720
720
720
53
1255
17
301
231
1407
1096
167
79
10 2
1127
424
436
113
646
725
176
1167
124
964
794
793
143
Nonacquescence reates to Issue whether redempton of stock was equvaent to taabe dvdend.
Nottacqueeeence reates to foowng ssues: Undermantenance proft and oss on bonds retred
amortzaton of bond dscount.
Nonacquescence reates to the foowng ssue: aue at whch fe Insurance poces. In whch the
decedent had eected durng bs fetme to have the proceeds pad to benefcares n nstaments, shoud
be Incuded In the gross estate.
Nonacquescence reates to Issue respectng deprecaton.
Nonacguescence reates to Issues (1) the acquston by pettoner of stock of the eows Corporaton
and the Caude Neon edera Co. (2) the Caude Neon Lghts of Maryand, Inc., transacton Invovng
the e change of property for stock.
Nonacquescence reates to bass for determnaton of gan or oss on the sae of property devsed sub|ect
to a fe estate.
1 state tat decson.
cquescence pubshed n Cumuatve uetn II-1 (19 3), revoked.
No taoqnescenoe reates to the foowng Issues: Dd pettoner and affated corporatons make e - _ In 1920 to rehabtate Us propertes fur undermantenance durng edera contro, for whch
were aowed 75C004 In fna settement wth the Drector Genera of Raroads, and f so are such
oats deductbe In determnng ta abe Income for 1920 and the computaton of net ta abe Income for
te months of anuary and ebruary, 1920, sub|ect to the rate of ta appcabe to corporatons whch were
under edera contro.
. onacquesoence reates to ncuson n consodated nvested capta of capta stock ssued for promssory
cef.
onacquescence reatw to deducton In 1926 of e cess of market vaue over sae prce of stock sod to
G
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44
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Commonweath, Inc
Communty ond Mortgage Corporaton.
Communty Mausoeum Co.1
Communty Teephone Co
Communty Water Servce Co
Cone, dward
Conney, ames .2.
Conney, L. .
Conney, Mary .
Cont, Lucana
Cook, zabeth .5- - --
Cook, Sam
Cooper, . T.4 -----
Cosmopotan ond Mortgage Co.5.
Coughn, R. Lawrence and veyn .
Coursev, Sarah . . -
Crews, Chares W.
Crews, verett .7
Crews, Raph W.
Crews, Robert .r
Cre, Grace Mc rde
Crspn, Mrs. gerton
Cronn, rnest .
Crosby, Oscar T
Cross, Maurce
Cunard Coa Co. .
Cuppa, erome C
Curee, Sheby ., trustee.
Curren, ector McGowau.
Curts, Cyrus .
Cza|ke, L T., transferee.--
264
437 4
703 4
7756
77560
5 777
440 1
45 33
46267
51967
60566
6694
440 3
45 34
4 I0S2
79793
3 579
35014
3144
44617
76106
71755
66766
66767
6670
66702
43136
45267
279
51317
32735
26 74
26 75
2S792
5 545
4 33
1 26
6613
64639
1962
64711
70953
76699
79254
36
27
33
32
32
26
30
30
30
35
25
25
7
30
32
33
37
37
37
37
26
2
37
27
24
26
26
2
34
36
33
35
34
36
34
D.
Dah, Chester T., estate of 10
Daton, . G
Dana, Chares
Darng, rank W. and Mrs. rank W
I Nonncqueseonce reates to Issue whether the fna nstament on the sae prce of mausoeum crypts
to be retaned by a trustee as a perpetua care fund shoud be e cuded from the fu contract prce In com-
putng, proft, the ta payer reportng on the accrua nstament bass.
1 Nonacquescence reates to ssue nvovng the amounts pad to stockhoders by . . Curts Leather
Co. u on canceaton of certan stock.
Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of ao-
caton of cost between sad commoo stock and preferred stock of sad company acqured at the same tune
and under the same agreement.
cquescence pubshed In Cumuatve uetn II-1 (192 ), wthdrawn.
I Nonacquescence reates to ssue nvovng commssons charged on rea estate oans.
Nonacquescence reates to the foowng ssue: Computaton of ta abe proft to pettoner from sae of
and by the trust durng 1930 on the bass of the vaue of sad and as of March 1, 1913.
7 Nonacquescence reates to ssue In respect of aowabe deducton for depeton.
Gft ta decson.
Nonacquescence reates to e pendtures for mne equpment.
II state ta decson.
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45
oard of Ta ppeas.
o.
oume.
Page.
75056
36
313
464 6
27
15
37324
24
405
37395
24
405
75102
34
11
61205
C.1IS32
35
39
4195
36
43
4194
36
43
4193
36
43
4196
36
43
4192
36
43
4197
36
43
3S. I
26
1 5
3 500
26
1 5
2459
2
102
52996
61290
31
1161
65123
5310
61321
30
26
72023
30
49
9172
37
34
49516
33
73
50 60
27
515
70 92
34
540
70 9
34
540
573
7
279
5716
36
732
5715
36
732
2065
19
507
23969
19
466
60661
2
1270
7103
3
1234
60237
32
364
60236
32
364
60235
32
364
60236
32
304
60235
32
364
44735
26
1321
7 11 9
37
1122
7420
37
1122
40031
30
1143
45014
2
666
70574
36
246
Dashe, C. R
Davdson, Watson P
Davs, rederck
Davs, Thomas L
Day, Chares, estate of
Dean, Mason L
Dearng, Roy ., estate of 11
Deang, R. ., estate of3 _
Dearng Trust state, R. . 1
Dearng, Mrs. R. .
Dearng, Ws R.
Dearng, Mrs. Ws R.
Degener, ohn ., estate of
Degener, r., et a., ohn ., e ecutors .
De Lsser, orace, estate of
de Me Productons, Inc., Cec . _
de Me Productons, Inc., Wam C.
Dennett, Mare G. .. --
Pennston et u ., arod
Denny, Regnad
Depew, Ganson
des Cognets, stee
des Cognets, Lous, estate of
Des Mones Improvement Co. .
Descheretu ., ugust P.
Descher et u ., Samue .
Dohrmann, ndrew . C
Doomte, Inc
Donney, Pau ., estate of 4
Donner, Carro
Donner et a., Carro ., e ecutors.
Donner et a., Carro ., guardans.
Donner, oseph W
Donner, r., oseph W
Dort, . Daas, estate of4
Dougas, D. W
Dougas, Wam
Dougass, oward W., estate of
,te of.
1 state ta decson nonacquescence reates to deducton of baance due on pedges made by decedent
durng hs fetme to certan chartabe nd educatona nsttutons.
I Nonacquescence reates to Issue whether far market vaue of o payment contracts taken as compen-
saton for drng o and gas wes for others by a partnershp s ta abe as ncome.
Parta acquescence pubshed In Interna Revenue uetn 193 -10, page 1, wthdrawn.
state ta decson.
1 state ta decson acquescence pubshed In Cumuatve uetn -2 (1 31), recaed.
Nonacquescence does not reate to the case of Constance . de Me, Docket 71952, whch was dsposed
of by stpuaton.
Nonacquescence reates to deductbty of 10,000 because of the fact that a bond n whch pettoner
had nvested became worthess n 1930, athough that fact was not ascertaned unt 1931.
Nonacquescence reates to deducton of amount e pended for denta brdge work and amount e pended
to keepng pettoner n frst-cass physca condton.
cquescence pubshed n Cumuatve uetn II-1 (192 ), wthdrawn.
II Nonacquescence reates to Issue whether wves of pettoners are onty abe for defcences when
| f|t returns are fed.
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46
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Drunheer, George
Duff, Robert C
Dunnng, enry .
Dunham et a., Lucy ee, e ecutors a
Dunham, Mary rgna, estate of 1
Dye, Carke .
.
ast Coast O Co., S.
aton, Cvrus S.
ekhart, ernard ., estate of
dson Securtes Corporaton.
dward Securtes Corporaton..
fert, ar C
nhorn, Ma
drdge, ce .4
drdge, . S.4...
khorn Coa Co.
kns, ae D.4
kns, Wam L., estate of
.s, R. R-, estate of
y, zabeth Tayor.
merson, Sgurd
mery, Mary M., estate of4
qutabe Lfe ssurance Socety of the Unted
States
qutabe Trust Co., of New York, ancary admn-
strator 1
rb et a., Ray L., e ecutors
the D. Co
ustn, ugustus .
venng Star Newspaper Co
verhart, ames Wam -
armount Cemetery ssocaton.
arsh, Lbbe Rce
arsh, W. S
arsh Co., W. S
armers Cotton O Co
41515
45752
37552
3459
46603
74911
5 1 0
G942
76443
52662
7120
457 1
73 93
64779
6477
49064
39255
56449
67967
76546
77307
77309
40 99
31110
33241
57 67
67259
29260
32032
71637
61 70
66 55
26675
30925
42 11
1145
1146
7 40
42679
27
23
36
26
33
31
37
33
29
30
23
36
0
30
34
24
2
34
33
35
25
33
31
29
27
30
2
20
25
36
36
3
27
1 Nonacquescence reates to ssue 2 of decson.
1 state ta decson.
1 Nonacquescence reates to the foowng Issue: Whether the Commssoner erred n usng as a bass for
securtes sod by the partnershp of Ots Co., of whch the pettoner was a member, the cost of sad
securtes to the contrbutng partner.
Nonacquescence roates to deducton of oss In transfer of securtes to a corporaton n whch pettoner
owned a the stock e cept quafyng shares.
Nonacquescence wth respect to the hodng that there was a reorganzaton.
cquescence pubshed n Cumuatve uetn I-2 (1932), revoked.
7 Nonacquescence reates to the foowng ssues: Reducton of cost bass (March 1, 1913, vaue) of assets
sod by a partnershp In 1919 by deprecaton aowed n computng Income for perod March 1, 1913, to
December 1, 1915 computaton of 1919 partnershp proft on sae of assets by consderng as part of the sae
prce ta es of the partners pad n 1920 by the vendee.
1 cquescence pubshed n Cumuatve uetn UI-2 (1934), wthdrawn.
G
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47
Nonacqcescences Contnued.
Docket
No.
oard of Ta ppeas.
oume.
armers Lfe Insurance Co.1
edman, enry O
erree, C.
dety- ankers Trust Co
dety Coumba Trust Co., trustee
dety Unon Trust Co. et a., e ecutors .
ed, Marsha
venue ank of New York, e ecutor.
fth Street udng.
ncke, Regnad
nt Natona ank n St. Lous
rst Natona ank of oston, admnstrator .
rst Peopes Trust
_t 1 T
sher sher, Inc.
sher, Irvng
tzgerad, Thomas
aherty, Wam, estate of, and a
etmann, Wam M., estate of
etmann, r., et a., Wam M., e ecutors .
emng, Lamar L.
g, Margaret . .
emng, Wam
emng, Mrs. Wam
etcher, Saathe R
nn et a., Cara Louse .
ntermann, Car .
oey, Thomas .,
oger Co., . .
estate of .
of
oger state Co
orest Gen Creamery Co
oster, Carone ., estate of
oster et a., Chares . W., e ecutors .
oster, L. .
ounders ssocates
o , ontane
o Rver Paper Co
43317
45359
61542
3421
65041
65042
72236
3690
69534
16627
29264
45537
5679
4427
4 07
44746
45403
60929
61622
62075
79397
2 449
2 449
7 362
7 416
61042
65676
61043
65677
33041
44 3
4491
75516
67217
22212
30721
31200
35147
51 33
46672
46672
430 6
626 4
710 4
20 7
27
2
32
37
30
,
26
31
32
24
39
23
25
26
32
:o
29
35
22
22
: 1
36
1
31
24
37
32
34
27
27
33
26
26
26
29
30
2S
Nonacqaescence does not reate to ssue n connecton wth opton payment receved for purchase of
bud.
state ta decson.
1 cquescence notce pubshed n Cumuatve uetn -2 (1931), recaed.
4 Nonacquescence reates to Issue Invovng ncuson n ncome the decedent s share of profts of a part-
nershp of whch he was a member up to the date of hs death.
1 Nonacquescence reates to vauaton date for cost purposes of securtes acqured by pettoner from a
trust under her grandfather s w.
1 Nonacquescence reates to ssue whether pettoner-benofcares are ta abe on dstrbutons made on
noary 4. 1933.
Nonacquescence reates to deductons In 1924 and 1925 on account of osses resutng from aeged saes
of securtes.
. onscque nce reates to ncuson n ncome of corporaton for yenrs ended March 31, 1930, and
March 31 1931 amounts representng renta of premses occuped by ts presdent.
G
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4
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
rankn Tte Trust Co.
ranks, ack M
rost, Mary Ryerson
uhage, fred .
uer, van T
urnture Corporaton of merca, Ltd.
G.
Gae, my
Gambe Stockton Co.
Gambr, Rchard an Nest
Garcn, dward
Gardner, Chares .
Garre, Dane T., estate of
Garvan, .ohn oseph, estate of
Gary, rgna ., e ecutr
Genera Machnery Corporaton
Genera Motors Corporaton
Genera Outdoor dvertsng Co., Inc.
Genera Securtes Co
Genera Uttes Operatng Co
Geneva Water Co
Gerard, re
Gerhardt, Php L
Gerach, Theodore R -
Gerste et a., Mark L.7
Gbbs-Prever Trust, No. 1- --
Grard Trust Co. et a., admnstrators
Gaddng, Mary D., estate of 1
G. M. S. Co - --
Goet|en Metson Co
Goforth, Mary
Goforth, R. S - ---
Godberg, arry S.
Godschmdt, enry P., estate of10
Godschmdt et a., Georgette, e ecutors10.
Goodae, Water S
Goodan, Mav Chander
Gordon, ertha M. ---
Graham, M.
51947
60167
67 05
536 5
9 1
61754
73759
72 00
72 01
61672
42707
1544
21657
3 575
31736
44746
40031
70449
52 24
66511
21
52770
9249
45221
77375
3 042
I U
1 02 54
9917
75624
31435
163 3
17 75
52316
52316
53 9
1613
1613
7 456
67472
10 1
3 335
32
32
3
32
31
30
27
26
3
22
25
25
25
30
33
35
22
3
29
37
2
34
27
33
39
32
27
26
26
32
32
4
14
14
34
32
36
26
Nonacquescence reates to the queston whether rankn ond Mortgage Co. was entted to deduct
commssons pad on the sae of ts honds Instead of proratn cost over tho fe of the bonds.
1 Nonacquescence reates to ssue whether redempton of shares of stock represents payment n parta
qudaton of a corporaton or a ta abe dvdend.
I Nonacquescence reates to ncuson n consodated nvested capta of capta stock ssued for proms-
sory notes.
Nonacquescence reates to vaue of common stock of mercan Chan Co., Ino., and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under tho same agreement.
state ta decson.
Nonacquescence n ssue Invovng counse fees pad n connecton wth tgaton.
T Nonacquescence reates to tho foowng queston: re pettoners entted to deduct on ther ndvduw
returns the operatng and capta osses sustaned by rea estate syndcates of whch they were members
nd 19 reated dockets.
cquescence pubshed n Cumuatve uetn - (1931), wthdrawn.
state ta decson acquescence pubshed n Cumuatve uetn -2 (1931), recaed.
II Nonacquescence n hodng that pettoner s not ndvduay abe for any part of c
G
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49
Nonacquescencks Contnued.
Ta payer.
Gray, Raph L.
Great Southern Lfe Insurance Co.1.
Great Western Power Co. of Ca .forna.
Green, .
Green, Robert D.
Greeneaf Te te Corporaton
Gregory, veyn
Grcser, ernard
Greser et u ., So
Greve, Wam M
Grffs, Stanton
Grffths, George W.4
Grosvcnor, Theodore P
Gutar Trust state --
Guf Coast Irrgaton Co. .
Guf, Mobe Northern R. R. Co.
Gund, arone ., estate of
ackfed, ohann redrch, estate of.
agerman, Staney
anes, Mary .
ae, rnest
ae, R. W
ae, W. T._
a, arry . R., estate of
a, Martha M
aock, enry, estate of _
ancock, G. an.
anson, Chares C.
6940
6941
56540
64064
71114
4 617
74910
53647
46746
55299
9404
9403
756 6
3 577
2624
603 1
35102
33694
400 1
41343
24 7
42150
70 91
77997
7 023
7725
67105
67750
67751
70004
7159
64501
76 02
76 03
76927
36 67
1539
3
33
30
33
21
26
27
37
37
37
25
37
31
25
24
22
31
33
31
37
33
32
32
29
31
34
25
23
5 4
512
503
S2 4
719
737
223
512
542
150
1351
317
574
1213
95
2 3
540
1020
115
1013
504
356
356
1255
1013
575
607
590
1 Nonacquescecce n foowng Issues: Dd the ta payer reaze nterest accrued upon a oan whore t
forecosed ens on certan bonds pedged as coatera Dd ta payer reaze nterest as ta abe net ncome
where notes were e changed for new notes whch ncuded nterest and the new notes were not pad dur-
ng the ta abe year Where ta payer acqured the assets and busness of three other nsurance companes
durng the ta abe year, was ncome reazed upon the coecton of Interest that was accrued but nut pad as
of date o. purchase
Nonaoquescence reates to transacton 5.
Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc.. and the bass of ao-
1 Nonacquescence reates to ssue whether sae of S.000 shares of stock of Oakrdge Cemetery Corporaton
s a persona or corporate transacton.
. onaM|uescence reates to affaton Issue.
. onacqucscence reates to Issues Invovng award of Interstate Commerce Commsson n 1920 for
transportaton of Unted States mas n 1916 and 1917 and deducton n 192 for deprecaton on ways and
structures.
Nonacquescence appes to the entre decson of the oard n so far as t a adverse to the Comms-
oner. Parta acquescence pubshed In Interna Revenue uetn I-2 (1932), revoked.
state ta decson.
Oft ta decson-
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1
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-
0
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2

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#
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50
Nonacquescences Coftnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
26
96
26
96
33
249
30
04
24
512
30
966
2
236
37
360
36
1207
39
492
27
952
27
952
26
117
35
173
23
953
arbson, Raph W.1
arbson, Wam bert 1
ardwck, Mar|ory Tayor.
aran, George ..
arrs, Smon
arrson, ames M
arrson, .
art, uan
art, Wam . ------
arter ank, The George D., trustee of Gbbs-
Preyer Trust No. 1
artey, Cavour, e ecutor..
artey, G. G., estate of...
auser, W.
awaan-Phppne Co
awey Investment Co
azetne Corporaton.
azeton Corporaton
eath, arret
ebert, Pau Octave, estate of .
eckscher, ugust
edrck, . T
effefnger, rank T.
enz, oward - --
eer, . G
emph, Cfford
endrckson, oseph G., estate of
enn, . W
enrtze, .
enrtze, Ne ---
enrtze, T. It
enrtze, T. W
erder, George, estate of
erder, Mary 6
ermann, ohn C - -
ertensten, reda M
ertensten, rederck
eronymus, Car Rchard, estate of
ghands, vanston-Lnconwood Subdvson rst
ddton, Trust No. 1546, et a
54346
54347
76545
60500
31632
66193
45361
f 75030
I 7 77
2652
9917
42343
42343
43301
. 43302
69619
45169
. 45170
42277
47011
51931
. 60313
61954
90599
323
2000
33533
41145
4 1 52
53 1
63407
69694
73479
79059
79450
40634
3 573
73029
37102
60609
60607
6060
60606
4051
4052
51959
5593
55936
4 930
74464
32
36
3S
36
491
36
11 1
24
444
32
1232
34
5
25
259
25
1351
32
449
20
1133
2
1172
2
1172
2
1172
2
1172
36
934
36
934
27
409
29
216
29
216
24
269
32
760
1 cquescence pubshed In Cumuatve uetn II-1 (1933), wthdrawn.
Gft ta decson.
1 state ta decson.
4 Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme and
under the same agreement.
Nonacqucsceucc n ssue reatng to nvountary converson.
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51
Nonacqfescences Contnued.
Docket
No.
oard of Ta ppeas.
oume.
Subdvson,
ghands, vanston-Lnconwood
Trust No. 1521, et a
ghway Traer Co
ghev 4 Co., . .
gey Trusts, Merchants Natona ank of Cedar
Rapds, transferee and fducary 1
, D. ., estate of
, Louse G
net a., Pau ., e ecutors 1 - --
ads, Water DeWtt, estate of 1
tte, ohn
ochstetter, Raph
odges, mes Wey, e ecutr
odges, W. L., estate of
odges, W. L., trustee --
oge, rthur ., estate of
oge, anche C, e ecutr
oge, ames D., estate of...
oge et a., the ., e ecutors
odng Corporaton, O. P. P
omes akery Confectonery
omes, Car
omes, . ., trustee
omes, Margaret .
ome Tte Insurance Co.
onnod, W. L.
orme, ay C.3
ousehod Products, Inc..
ons man, Carence
Rous man, rederck
ouston aseba ssocaton.
ouston ros.
ouston, George T.
ouston, orace .
ouston, Php D. .
oyt, 2d, ton
uburd, Chares ., estate of
uburd, De orest, ndvduay and as e ecutor
and trustee
umme-Ross bre Corporaton
umphrey, Dudey T
unter, G. W., estate of
unter, r., Thomas .
74465
44563
51003
7 576
29399
04 3
29399
49 60
70 20
76160
3 336
3 336
3 337
6 435
6 435
6 11
5 119
5 11
6 119
60674
44943
52 61
51473
53395
44943
62 61
4 631
61570
53394
63737
55211
93572
44 09
5 79
5 774
439 5
45430
12052
13104
2200
22009
22007
64710
70954
2202
2202
59 65
64376
33564
5 490
32
2
25
3
24
: ,7
24
32
33
34
26
26
20
32
32
33
33
30
27
27
27
27
I
0
39
24
2
26
21
22
22
22
22
34
27
27
31
32
25
33
1 state ta decson.
Nonaoquesoence reates ony to the Issue nvovng the ta abty of the ncome of severa trusts whch
were created for the use and beneft of the grantor s mnor chdren.
Nonacqucscence reates to March 1, 191 , vaue, and to the bass for the deducton for depeton and
for the computaton of gan or oss upon subsequent sae of tho tmber.
Nonacquescenco n ssue Invovng queston of reaaton of ta abe proft on e change of cass
common stock for cass stock.
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52
Nonacqt|escetces Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
untngton, enry ., estate of
utchson Coa Co
yde, ames
Inos Lfe Insurance Co
Inos Ppe Lne Co
Impera evator Co
Impera Investment Co
Independent O Co
Indanapos, Crawfordsve Danve ectrc
Iy. Co --
Indanapos Northwestern Tracton Co
Ingram, Thomas -
Irvng Trust Co., trustee
Irvngton Investments Co
enberg, Otto rnst, estate of
Iten scut Co. -
Ives, Chares
Ives Dary ,Inc
Iwck, . W., transferee.
ackson astern Ry. Co.
ackson, Pau Wde, trust-
ackson et a., Stonewa .
ackson, Wermch Trust
amson Coa Coke Co
ane odng Corporaton
anotta, Stea S
efferson Standard Lfe Insurance Co
effres, ames ., estate of
ohnson, . M
ohnson, ames Lee
ohnston, . arod, e ecutor
ohnston, . M., estate of
ohnston, ugh Mc rney, ndvduay and as e -
ecutor and trustee
ones, esse R
ones, Chester ddson
ones, red ., estate of 1
unge, Caus, transferee
45429
34939
65495
69952
67201
74525
356 S
29291
67700
33 59
33 61
56943
4371
77557
74249
43667
45164
51527
39 73
64653

3 295
42149
7492
72002
72119
72127
72244
73625
75762
7644 -1
76455
769 0
32306
31690
340
7240
51172
43149
196
61345
2263
79029
79029
2202
5 2 5
50206
7203
64637
2
24
31
30
37
25
23
35
21
24
32
35
32
37
2. .
29
23
33
22
33
37
21
24
3
2
25
37
32
7
33
33
27
27
31
3
1 Nonacquescence reates to ssue whether ta payer sustaned a net oss In any busness reguary carred
n In 1924 whch coud be carred forward and deducted from ta abe Income n 1925.
1 stato ta decson.
1 Nonacquescence reates to ssue nvovng deducton for deprecaton on ways and structures.
Oft ta decson.
Nonacquescence as to ssue regardng deducton for depeton.
1 cquescence pubshed n Interna Revenue uotn 193 -37, page 1, wthdrawn.
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7
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53
Docket
No.
oard of Ta ppeas.
oume.
ahn, ea
n, Isdor
n, Lcnora..
Cty Southern Ry. Co. and affated com
pancs 1
eener O Gass Co.
ecys, dward L-.
ehoc, ohn
ehoe, Sarah
ey, rancs ., e ecutor
ey, Rose ., estate of
ensco Cemetery
erbaugh, enry S
errgan, rthur L
ng, ohn M
rby. Lea S.
rk et a., zabeth S., e ecutrces and e ecutor of
the estat of C. enderson Suppee 4
rkpatrck, ohn L
tseman, C. M., estate of
napp, t-te .
neeand, Yae, estate of
noboch, Davd C
noboch, erman
noboch, Wesey
no , Seymour
och, arry
onnk|ke , N. ., oandsche Loyd 7
ountze, Chares T
ountze, Luther L., estate of
ountze et a., Chares T., e ecutors
rause et a., rances ., e ecutors
rug, George
L.
La rcada ondhoders Commttee
La rum et a., Catherne, e ecutors
Lafayette Lfe Insurance Co
Lard, Wam Wnder, estate of1
1 onacqaescence reates to the foowng ssues: Deducton of amounts e pended to restore pettoner s
perty notwthstandng the fact that the Drector Genera of Raroads made payment to pettoner for
faure to mantan the property e cuson from gross ncome of ntercompany freght charges on matera
wrf suppes uvd n makng addtons and betterments to pettoner s property.
1 state ta decson.
1 Nonacquesoence reates to ssue Invovng tho bass for computng ta abe gan In 1977, 192 , and 1929
from the sae of bonds of the rby Lumber Co.
Oft ta decson.
1 Nonacqnesoence reates ony to the ssue, Dd the Commssoner err In vaung, for gft ta purposes,
eertsn snge prer.um poces upon the bass of the premums actuay pad rather than the cash surrender
vaue
acquescence pubshed n Cumuatve uetn II-1 (192 ), wthdrawn.
acquescence pubshed n Cumuatve uetn -2 (1036), page 13, wthdrawn.
1 Nonacqueseence reates to the ssue nvovng tho vauaton of certan shares of stock as of tho date of
tb decedent s
73 05
73 91
73 94
2266
35527
3552
35529
35530
35531
607 9
45360
64609
64609
70 99
70 99
76703
6 976
5 794
41549
73753
9363
67474
77 12
2775
7974
727
7275
7276
65203
5531
7 662
37323
37535
37535
49 60
46713
756 4
67217
/ 41721
I 42663
51654
36
36
36
22
32
2
34
34
1
31
as
29
26
26
35
39
2
33
7
34
3
3
3
33
26
34
24
24
24
2
3D
5
34
26
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1
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-
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1
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2
2

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#
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54
Nonacqt|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Lang, uus C, estate of 1
Langford Investment Co., trustee.
Langford, r., et a., Perce P
Langworthy, Mar|ore C.a
Lansburgh, Lester, estate of
Lashar, Water ..
Laube, ustus
Laun, fred
Laun, .
Lazarus Co., . R_
Leary, Sr., . -
Leary, Myra L
Leeper, rank ., estate of.
Leeper, Pear --
Leetona urnace Co
Lembcke, George
Leon Son, Inc., bert -
Leonard, Stephen
Lews, Wadsworth R
Lberty Marne Insurance Co
Lcht, Rose
Lebes Co.,
Lnderman, Wam S., e ecutor
Lqudatng Co
Lttauer, ugene, estate of4
Lttauer et a., Lucus N., e ecutors 4
Lvngood, Chares ., e ecutor
Loyd, . Darse
Loyd, Water
Loffand, . M. .
Loffand, T. S. -
Lous, Cora
Lousve Trust Co. et a., trustees
Lucas, Mabee T
Luqure ura ssocaton Co., Inc., W.
Luqure unera omes Insurance Co., Inc..
Lustg, Davd L., estate of
6 316
57203
57203
71961
14 0
37 3
70007
71595
45347
4534
694 1
69750
76 45
76 46
45266
45265
32272
75365
53440
65 05
75957
67263
6716
2 544
3503
5 71
60 50
51 5
51 5
40 99
71445
4 120
13425
13426
49179
65040
72933
7909
79097
705 2
M.
6 56
9719
5121
63553
/ 7913
I 7339
II
34
2
2
30
35
34
29
26
2
32
34
2
2
23
33
29
36
34
32
37
23
2
33
25
25
25
33
30
10
10
29
30
34
36
36
33
37
39
36
31
3
Mack, eanor L__,
Mack, ohn S.
Madson Raways Co
Maernee, D.
Manckrodt, r. et a., dward, trustees.
Maory, L. W., estate of
1 state ta decson: nonacquescence reates to deducton for funera e penses Incudng cost of crypt.
1 Nonacquescence reates to queston whether dstrbuton of stock had the effect of dstrbuton of a
ta abe dvdend.
state ta decson.
state ta decson nonacquescence In respect to that part of decson whch hods that accrued nterest
pad on edera ncome ta es for 1927 and 192 from date of decedent death to November 5,1930, Is a proper
aowabe admnstratve e pense
1 cquescence pubshed n Cumuatve uetn I-2 fI032). revoked.
Nonacquescence reates to Issue nvovng the amounts pad to stockhoders by . O. Curts Leather
Co. upon canceaton of certan stock.
Nonacquescence reates to deprecaton aowabe under the Revenue ct of 1913 acquescence pub-
shed n Cumuatve uetn III-1 (1929). wthdrawn n so far as t appes to ths Issue.
Gft ta decson.
G
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a
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e
d

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n

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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
4
3

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2
0
2
7
/
m
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p
.
3
9
0
1
5
0
7
6
0
3
1
6
9
2
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s
s
_
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#
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55
Nonacqdescencbs Contnued.
Ta payer.
Maoy Co
Manchester Coa Co
Manhattan Lfe Insurance Co.
Mann, George D
Mannng, Chares N
Manus, Muer Co., Inc
Margay O Corporaton
Markham Irrgaton Co.1
Martnek, ee C. erehman, estate of.
Marvn, Water S.
Marvn, Wam Genn, estate of
Mason, Mary S., estate of 3
Matagarda Cana Co.
Mather, Samue, estate of
Matheson, ugh M .
Mathews, Susan ., e ecutr
Mathews, W. ., estate of
McCabe, en C
McCabe, George ., estate of
McCabe, ames
McCabe, sames Roscoe
McCabe, Mton Mathew...
McCabe, Wam ohn
McCabe, r., Wam ohn.
McCarter, Uza ., estate of
McCormck et a., Cyrus ., trustees
McCrory, Luke W., trustee
McCurdy, Wam ., estate of
McGrath, ames W., and ntonette
McGrath, Mare Louse
McGrath, Robert
Mcvane et a., Wam ., trustees
Mc nney, Ida I
McLauchan, Wam, estate of
McLster, rank
McMan, Wam Northrup, estate of
Mc ekar, Lansng
Mehern, Dora M.e
Mehern, P. W. . -
Meon, . W.
Menzes, Chares M
Menzes, Inc., C. M
Merau , Mrs. L. .
57906
33392
60 27
54223
63370
70 90
5977
44 91
41344
79112
3 57
77017
4133
400 2
41345
64712
71353
4320
4320
697 3
69779
6977
697 1
69777
697 0
697 4
69193
44139
32444
G7C.N1
65040
65042
65039
52931
57226
45 23
62905
70952
4 562
45966
77993
0422
1035
76499
7614
76147
2462
33
24
2
33
34
O
26
24
3
25
34
3
24
34
31
33
33
29
29
29
29
29
29
29
34
26
25
31
30
30
30
29
32
34
27
27
37
35
35
36
34
34
3
1130
577
129
2 1
540
1015
199
95
11
1351
305
425
95
1011
493
6 2
6 2
1096
1096
1096
1096
1096
1096
1096
535
1172
994
379
562
562
562
304
450
1011
155
31
75
472
472
977
163
163
200
1 Nonacquescence reates to affaton Issue.
1 Nonacquescenoe reates to vaue of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme and
under the same agreement.
1 state ta decson.
Nonacquescence reates ony to the Issue, Dd the decedent have more than a fe nterest n the estate
of ber mother
1 state ta decson nonacquescence as to queston of stus.
Nonacquescence n Issue wth respect to Immunty from edera ncome ta of compensaton of offcers
snd empoyees of toe oard of State arbor Commssoners of Caforna.
Nonacquescence n oard s acton wth respect to the foowng: (a) Refusa of oard to sustan respond-
ent s affrmatve ssue wth respect to appcaton of secton 112 (c) to McCntc-Marsha Corporaton and
Unon Constructon Co. qudatons (6) addton of (29,101.33 to ta payer s bass of McCntc-Marsha
nock afttr rather than before makng any aocaton of bass to Unon stock.
Nonacquescence reates ony to the Issue wth respect to the dsaowance of 1, 00 as an aeged oss
from the wreckng of an automobe n 1931.
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d

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-
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56
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
et a.,
Mercante-Commerce ank Trust Co.
admnstrators of Pau . Donney 1
Merchants Natona ank of Cedar Rapds, trans-
feree and fducary of gey Trusts 1
Merner, Deght Ward
Merre, Irvng S
Metropotan Ice Co.1
Meyer, George L., transferee.
Meyer, Robert R
Mchgan Centra R. R. Co.1..
Mgetta, Oga
Mer, bert
Mer, dward
Mer M Co., T. R
Ms, . . Goadby
Mnnesota Tea Co
Mssour State Lfe Insurance Co.4.
Mtche, Chares ..
Mtche, . . .
Mtche, Oscar 5
Mtche, Wam
Mtten Management, Inc.
Mod|esk, Raph
Monarch Lfe Insurance Co.
Montague, Mes Co., Ino.
Moore, da Sma
Moore, ma
Moore, dward W., estate of
Moore, G.
Moore, ohn R
Moore, Louse C, e ecutr ..
Moore read Co
Morgante rush Co., Ino
Moro Reaty odng Corporaton.
Morrs, rthur
7103
7 576
73406
70103
53936
69525
64654
44032
19930
36379
4536
50 3
2625
2 79
5 797
54227
5 241
623 6
74720
65 34
416 0
41 74
54673
5 799
42494
53990
61 61
49517
6 61
7441
7651
944
64790
6 219
6 720
3 351
64791
6 21
5 720
41615
26369
37406
44759
60490
64246
3
1234
3
32
33
1343
65
1151
32
5 7
33
27
2
25
2
37
564
44
437
243
236
30
37
43
26
34
1401
145
29
401
32
33
1093
06
27
101
26
1401
29
576
2
1051
3
716
3
39
144
147
30
1197
33
26
10
301
30
1197
33
22
24
10
793
776
25
1135
241
33
1 state ta decson.
1 cquescence pubshed n Cumuatve uetn I -2 (1935), wthdrawn.
4 Nonacquescence reates to foowng ssues: Whether ma pay receved n 1921 consttuted Income n
1920 renta nterest receved on competed addton and betterments n fna settement wth the Drector
Genera.
Nonacquescence reates to deducton for reserve set up to meet abty upon matured coupons ad|ust-
ment of ncome for renta of space occuped n home ottfee budng and deprecaton upon such budng.
1 Nonacquescence reates to ssue regardng deducton from ncome of sprnkng ta .
Gft ta decson.
1 state ta decson nonacquescence n the concusons on the thrd group of poces that the proceeds
thereof shoud be e cuded from the gross estate.
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57
Nonacqthescences Contnued.
Docket
No.
oard uf Ta ppeas.
oume.
Morrss et a., ua L.
Morrss Reaty Co. Trust No. 1.
Morrss Reaty Co. Trust No. 2.
More, mma R., estate of 1
Morse Syndcate Nos. 1 and 2, Le
Morton, Sopha P. O
Morton, Sterng
Moser, Carovn L
Moeser, Chares
Mott, Chares Stewart
Mou, Dee urey
Mueer, ar W
Mucahy, ohn
Munson, Robert ,_
Murphy et a., red T., trustees
Murphy Persona Pro( erty Trust
Mutua Lfe Insurance Co. of New York.
Myrck, uan
N.
Chattanooga 4 St. Lous Ry
Casket Co., Inc.1
Contractng Co.
Grange Mutua Labty Co
ome Owners Servce Corporaton,
Natona Land Constructon Co
Natona Outdoor dvertsng ureau, Inc.
aona Ppe oundry Co.4
Nea et a., . enry, trustees -
Nems, rank aywood
Nems, Mrs. rank aywood- --
Netcher, Chares, estate of
Seuberger, arry
ewberrv Lumber Chemca Co
Newbury, Moe Netcher, trustee.
Newport Co
New York Centra R. R. Co.s.
t
41023
41024
45 63
45 64
41023
45 63
41024
4 64
44652
9531
9532
9257
6517
91705
55937
55399
51S 5
57506
71903
4,R362
0769
949
43795
43795
9764
51526
63376
33799
50320
24520
73099
91445
40126
65252
701(99
32997
45403
51 7
51
42435
7 919
6 511
42435
35431
19932
34437
62040
23
23
23
27
3
3
3
3
29
27
30
35
2
34
39
25
25
23
29
24
29
25
SI
39
2S
32
IS
26
27
27
31
37
33
31
24
2
1076
1076
1076
1070
269
419
1270
12 3
216
513
1040
195
230
1229
72
724
724
749
22
56
139
407
666
753
562
1025
242
551
65
65
41
223
150
41
1246
437
state ta decson.
1 Nonacan|pscence reates to the appcaton of a net amount of operatng osses after appyng the profts
ff a subsdary darng tbe perod of affaton to reduce the oss sustaned by a parent company on the
qndaton of a subsdary company.
Nonacqucscencc reates to Issue 1 of decson and ssue regardng deductbty of overhead costs In 1925.
errofesrcnce pubshed n Cumuatve uetn I -2 (1930). revoked. Revocaton of pror acquescence
and present nonacqucscence are dup to the faure of the oard s decson to mt the word dstrbuted
to the cash dstrbutons made to the stockhoders.
1 ooacquescence reates to foowng ssues: Whether ma pay receved n 1921 consttuted ncome n
t receved on competed addton and betterments In fna settement wth the Drector
172176
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5
Ta payer.
oard of Ta ppea .
oume.
Page.
Co.
New York Lfe Insurance Co
New York, Ontaro Western Ry.
Nbey-Mnnaugh Lumber Co
Nchos Co Lumber Co
Nchoson, ames
Ncoa, .
Nesen Co., . ... - -
North mercan Investment Co
North mercan Utty Securtes Corporaton
Northern Coa Co.1
Northport Shores, Inc
Noyes, ansen
Nudeman, Chares W
3 0
24
1217
52693
30
40
17527
26
97
23601
24
54
66966
32
977
57417
33
111
99
26
223
301 3
24
419
75039
36
320
34945
24
307
64500
31
1013
3 574
25
1351
79126
35
2
Oakman et a., Mame R._
O Donne, dth M.
O Donne, Thomas .
Ogden, ugh W
Od Coony Trust Co., trustee
Od Msson Portand Cement Co
Od Natona ank n vansve, e ecutor
dnger Mortuary ssocaton
Over, Ove ume
Omsted, George W.
Omsted, Iva C. .
Ostad, Oscar
Omaha Coca-Coa ottng Co.
O Rear, . C.
Oregon Termnas Co
Ortz O Co. .
Oswego as Corporaton.
Owen, III, ohn..
Owens, . T
Owens, Mrs. . T.
Owens, O. O
42917
799 0
529 7
62979
23943
7492
3 53
676 1
36502
65640
44090
45745
4 121
54714
60746
440 9
45746
4 143
54713
60745
766 3
52641
32335
6 93
6112
2 301
32673
34352
797 6
63149
63150
319 6
2-1
35
32
24
33
25
31
23
30
30
30
32
26
2
29
37
26
3
27
27
2G
4
251
1277
1239
311
305
379
12 1
13 0
331
331
670
1123
69
1332
656
60
739
469
469
1147
1 Nonacquescence reates to statute of mtatons ssue.
Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of ao-
1 state ta decson.
Nonacquescence reates to ssuo Invovng the amounts pad to stockhoders by . O. Curts Leather
Co. upon canceaton of certan stock.
Nonacquescence reates to ssue regardng amount of oss sustaned by pettoner by reason of destruct-
on by fre of hs resdence and furnture.
Nonacquescence reates to the foowng ssue: Whether respondent erred In computng the depeton
aowabe to pettoner by treatng as an e pense of operatng a certan property the oost of a dry boe dred
thereon.
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1
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-
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59
NoN C tru C NC Contnued.
Ta payor.
P.
Pacfc Coast scut Co. et a.1
Pacfc Nash Motor Co
Rock Grave Co
radey W.
r, Stacy-Merr, Inc
Pn mercan Lfe Insurance Co. .
Park, Wam
Parker, Cara ., e ecutr --
Parker, George D., estate of .
Parker, erbert L., estate of 5
Parker et a., my ng, trustees
Panott, . . -
Patrck Cudahy amy Co
Patterson, rank ., estate of
Peabody, Cornea aven, estate of
Peabod v et a., Stephen, e ecutors
Peace, arvey W --
Pennsyvana Co. for Insurances on Lves
Grantng nnutes, e ecutor and trustee...
Perkns, my S.s
Perkns, Yoande ...
and
Perkns et a., Thomas N.
715
45169
45170
2 776
62652
7997
463
7423
90026
5 604
5 604
53320
53320
309 9
3436
765 0
39647
39647
7277
73029
7 532
9905
57 4
5 305
23
26
32
0
3
3
31
31
30
30
2
36
36
24
24
3
32
35
3
33
953
296
550
636
1430
111
644
644
342
342
917
1147
407
7 7
7 7
30
449
100
1 9
606
5 443
5 475
5 770
5 772
5 904
5 905
f s |nr,
5 907
5 917
5 91
5 925
Nor crruescence wth respect to deducton of amounts e pended n connecton wth dssouton and
qudaton of a corporaton.
Non cquesccnce n oard s decson hodng that the Superpower rghts were not dvdends.
1 Nonacqucscencc reates to the ssue nv ovng the deductbty of an amount equa to 3 per cent of the
san of ts reserve for Incurred but not yet accrued dsabty benefts at the begnnng and end of the ta abe
|tar.
4 Nonacqucscenee reates to ssue regardng e stence of George D. Parker Co. partnershp.
1 state ta decson.
1 Nonacqucscenee reates to nterpretaton of artce 1567, Reguatons 4.1), as apped to e change of stock
of Pttsburgh Te as O Gas Co.
1 state ta decson: nonacquescence reates to foowng ssues: Whether transfer s ta abe as effectve at
aeath, whether transfer s ta abe as one concernng whch decedent aone, or n con|uncton wth other per-
sons, had power at death to ater, amend, or revoke the trust,
Nonacquescence reates to the foowng Issues:
Dd the statute of mtatons, at the tme of the mang of the defcency notces, bar assessment and
wecton of the defcences as to Thompson O Co., astern Carbon ack Co., W. . Davs, Lan .
Davs, Matda M. Davs, ton N. Davs, mma Luctte Davs, e ecutr , u/w O. L. Davs, Lue Davs,
fc Davs ros. Co.. where the Income ta returns were fed wth a deputy coector
Dd the statute of mtatons, at the tme of the mang of the defcency notces, bar assessment, and
cton of the defcency as to Thompson O Co., where a consodated return was orgnay ed and the
Commssoner ater rued aganst consodaton
b 0. . M. Co. entted to a deducton greater than 14,179.73 as an addtona bonus to Its genera
G
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1
3
-
0
1
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2
2

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3

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60
Nonacqtte cences Contnued
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Petauma Santa Rosa R. R. Co.1...
Pheps et a., Lus ames, e ecutors 1
Phps, ben ., estate of
Phps, Pampha ., estate of
Phps, Wam S -
Perce, dward
Person Corporaton, L. D
Pttsburgh Lake re R. R. Co.4...
Pans Reaty Co
Pant, enry radey.
Pat, amma 5
Pestcheeff, Guendoen C.
Pestcheeff, Theodore
Pettner, Maude rown.-
P-M- Petroeum Co.4...
Pontare, Mchae --
Porter. e ander ., estate of
Portand urnture Manufacturng Co.
Post Shedon Corporaton
Pressngcr, Mabe L., estate of
Prce, arry
Prester, . C
Proctor Shop, Inc.7
Prosperty Co., Inc.
Prouty. Ove .
Prudenta Insurance Co. of merca.
Pryor Lockhart Deveopment Co...
Pupn, Mchae L, estate of
Purdy, Chares Wesey
Purse, ames N
13 30
50336
1 02
7519
24446
31769
5 706
74317
42764
4 977
65492
67197
43 9
4 9 4
52094
55659
60923
7 930
0026
0025
33345
50576
54779
3199
79322
01 09
70367
56695
0550
7000
71596
55195
5 909
6626
45 96
5946
57 29
56641
60 4
6723
3 72
4566
51326
63523
92177
2421
54124
11
27
30
3(3
24
26
35
2S
31
30
35
35
35
25
24
35
34
30
2
34
29
30
27
30
33
26
34
3
36
27
unn, Porte . I 67156 1 31
Nonacqtescence reates to that part of decson concernng purchase of ta payer s own bonds at ess
than par whch were hed as an nvestment. cquescence notce as to ths Issue pubshed In Cumuatve
uetn I1-2 (192 ). revoked.
state ta decson nonacquescence wth res ect to the trusts for the son and daughter.
state ta decson.
1 Nonacquesoence reates to renta nterest queston and oard s decson wth respect to porton of ma
pay receved n 1921.
Nonacquescence n ssue wth respect to Immunty from edera ncome ta of compensaton of ofSoers
and empoyees of the oard of State Irbor Commssoners of Caforna.
Nonacquescence reates to frst ssue of decson.
cquescence pubshed n Cumuatve uetn III-2 (1934), revoked.
Nonacquescence reates to overstatement of oss sustaned as a resut of qudaton of subsdary.
G
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d

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2
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1
3
-
0
1
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2
2

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:
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3

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#
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61
Nonacqt|tescences Contnued.
Ranbow Gasone Corporaton
Randoph, ranke Carter
Iph, R. D
rg P., trurt
Co.1.
oward W
tv ssocates, as syndcate manager
Reed, Latham R
Reese, ugusta sa
Rebtam, Inc
Reybne, pheus, estate of
ferbne, Martha ., e ecutr
Corporaton 4
Dn et a., orrest, e ecutors
O Co
Rchmond, redercksburg Potomac R. R Co. .
Reck, dward
Rffe, enry -. -
Rey, nna .
Rey Stoker Corporaton.
Rey, Thomas ., transferee..
Ro Grande Land Cana Co.
Ro Grande Reservor 4 Dtch Co.
Robbns, arwood.
Roberta, G. P....
Roberta, Water
Robertson, . G
Rock wood, George O
Rockwood, Wam M
Rocky Mountan O Co.7
Rodeo- ae|o erry Co. .
Roerch, Nchoas
Rogers, May
Roandc, Guano .
Rons, arry T
Docket
oard of Ta ppeas.
No.
oume.
Page.
/ 65152
72365
1050
5IS90
27
65
51 9
27
65
4 33
2
773
( 43123
45219
4 015
2
1204
61554
5 544
26
1401
27921
17
1173
5SS00
26
1401
70410
30
1
45016
2
666
60660
31
314
60660
31
314
/ 673 6
70795
30
451
44652
27
1070
42921
25
101
6 76
33
95
79157
35
117
3576
3
436
61066
29
160
3.-)S4
26
749
6463
33
564
71350
31
507
71351
31
507
67076
33
0
6 434
32
646
37534
24
405
f 49552
I 52370
2
53
72711
31
927
72712
31
927
79421
36
365
/ 36411

936
4 52
3065
3
567
45051
f 31
32
994
1176
/ 57479
672 6
33
43
63954
34
319
1 Nonacquescence reates to ssue whether pettoner was ta abe for years 192 to 1029, ncusve, as a
trust or as an assocaton.
cquescence pubshed n Cumuatve uetn -2 (1931), wthdrawn.
state ta decson.
1 Nonacquescence reates to ncuson n ncome of corporaton for years ended March 31,1930, and March
t, 1931, amounts representng renta of premses occuped by ts presdent.
1 Nonacquescence reates to ssue nvovng the queston. re payments made to hoders of guaranteed
ock desgnated n certfcates as dvdends deductbe as nterest
state ta decson acquescence pubshed n Cumuatve uetn -2 (1931), recaed.
Nonacqucscpncc reates to reducton of gross ncome by ntangbe drng costs and overhead e penses
n determnng the 50 per cent mtaton on depeton.
Nonacquescence reates to frst ssue of decson.
1 Nonacquescence reatesto a ssues e cept ssue Invovng saary and per dem aowance receved by
1929 of dvdends decared n stock In 192 . certfeatee
Nonacquescence reaes u tu ssues ecep ssue n
Pfttooer from the Unted States Government n 1934
.Nonacquescence as to ssue regardng ta abty n
to bch were not devered unt 1929.
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Nonacqutescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Rons, Raph
Roosevet 4 Son Investment und
Rormer, Lous
Rosenberg Investment Reaty Trust.
Rosenboom nance Corporaton 1
Ross, anche S.1
Ross, Water L
Rosser, . M., e ecutor
Rosshem, Irvng D.4
Rudman, I.5
Rudman, Rose
Rust et u ., . L
Ruth, rederck S., estate of3
Sabatna, Rafae
St. Lous Southwestern Ry. Co.
St. Lous Unon Trust Co., e ecutor4.
San Caros Mng Co.. Ltd.7
San acnto Lfe Insurance Co
Sand Sprngs Ry. Co
Sanford et a., ugh W
Sather Lease Thomas Sather Co..
Sauk Investment Co
Scatena, vra
Schffer, ack W_.
Schesnger, rmn
Schesnger, atheen M
Schesnger, Rosa
Schmo s ssocated, Ino
Schoen, Lous
Schoonmakcr, Rebekah C
Schumacher Wa oard Corporaton.
Schwartz- asser Improvement Co
Scofed, Maron, estate of3 9
Scott, Thomas ., estate of10
Scott, Thomas S
Scove, Cnton ., estate of3
Scrpps, Robert P
Scuy, nrqueta ngea
Seaconnet Coa Co.
6395
76196
5 50
SI 963
3577
40903
f 1171
732 2
40765
57503
5 6
5 7
9171
0 40
o

50134
3319
2776
3393
45966
39525
7534
3243
32439
3421
31979
74642
63920
3249
75960
75961
73 92
7536
000
56776
92022
61602
69719
36 76
062
50336
70SSS
49272
77116
0244
I SOS )
34
34
27
3
24
2
30
24
31
36
36
3
36
32
24
27
24
34
21
37
26
34
32
36
0
39
30
39
33
26
3
27
34
0
33
34
24
1 Nonacquescence does not reate to the oard s hodng that dstrbutons receved from oseph . nch
Co. were not parta qudatng dvdends.
Gft ta decson.
1 state ta decson.
Nonaoqurscencc reates to ssue whether Commssoner s entted to ncreased defcency aa rased
by hs amended answer fed wth the oard.
1 Nonacquescence reates to deducton of drng cost n computng aowabe percentage depeton.
1 state ta decson nonacquescence as to queston o stus.
cquescence as to ssue 2 and nonacquescence as to Issue 1 pubshed n Cumuatve uetn I I
(1U32). wthdrawn.
1 Nonacquescence reates to dvdend ssue.
Nonacquescence reates to the ssue Invovng the ncuson n gross estate of (
nterest n a trust created by decedent and her two ssters on November 12, 1927.
10 state ta decson: nonacquescence wth respect to the trusts for the son t
Nonacauescence reates to statute of mtatons ssue.
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63
Docket
No.
oard of Ta ppeas.
oume.
Page.
Seatree, Wam rnest
Securty rst Natona ank of Lob ngees et a.,
e ecutors 1
Securty Savngs Commerca ank
Seder, braham, estate of
Seder, Cea
Sep, ar .,
Sefwyn ddv Co.
Shaffer, C. . .
Shaffer, ohn C
Sharp et a., dth uggard, e ecutors
Sharp, Water P., estate of s.
Pen Co., W.
rederck R., estate of
Mar|ore e, e ecutr of rederck R.

Shepherd Syndcate
Shenker, Smon
Sbey et a., ohn R., e ecutors .
Sbey, Rufus ., estate of
. . .
L. L..
.
Sack, . ., estate of .
Sma s, Inc.
Smathers, . ., estate of _
Smey, bert ..
ey, rancs G
C.
Smth, Mrs. Grant-
Smth, Mton
Smth, Mton, estate of
Smth, r., Mton, e ecutor.
Smth, Sarah vs_
22094
33640
45429
59523
4934
4934
2397
21612
29259
500 6
69511
4 317
4 317
36604
0961
0961
4 332
51327
5 01
24921
24921
19175
19791
90217
51173
72404
7 525
53791
29260
74424
74425
77417
43300
43305
43306
77414
52132
52132
77416
77415
92177
90703
56465
20
2
29
3
3

25
29
2
30
33
30
33
27
39
39
26
26

16
3
2
35
24
29
33
33
34
26
34
2
2
4
4
3
3
34
396
2 9
176
74
74
43
1341
1315
1293
532
290
632
290
1056
3
1062
1401
915
915
9
921
39
271
6 6
1315
19
19
702
117
702
422
422
702
702
121
317
170
6mth Transportaton Co
Smth, arvara Pupn, admnstratr of Mchae L
Pupn
Smth, Wam
Smth, Wam den, estate of
Nonaeqnescence reates to ssuo whether ta payer sustaned a net oss In any busness reguary carred
Of In 1934 wbch coud be carred forward and deducted from ta abo Income In 1925.
1 Nonacquescence reates to the foowng Issues: Reducton of cost bass (March 1, 1913, vaue) of assets
1 1 by a partnershp In 1919 by deprecaton aowed n computng ncome for perod March 1, 1913, to
December 1,1915 computaton of 1919 partnershp proft on sae of assets by consderng as part of the sae
prce, ta es of the partners pad n 1920 by the vendee.
1 state ta decson.
1 cquescence pubshed In Cumuatve uetn III-2 (1929), wthdrawn.
1 Nonacquescence reates to Issues 1 and 4 set forth In syabus of pubshed decson.
0ft ta decson.
Nooacquescence n ssue nvovng queston of ta abe gan by reason of acquston of possesson of
I by hm. c.
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64
Nonacqotescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Sneed, r., . T
Snyder, Inc., . S. M. W
Southern e) Teephone Teegraph Co.
Southern Caforna Rock Grave Co
Southern Raway Co. et .
Spang, Chafant fe Co.
Spencer, George rnck, estate of 4.
Speyer, ames
Sptzner 4 Son, Inc., C.
Sprague, C. O. M
Sprague Son Co., C. .
Sprng Cty oundry Co
Sredes, Ino
Staney Co. of merca
Stante Petroeum Co., trustee, Le Morse Syn-
dcate Nos. 1 and 2
Stayton, r., Wam
Stearns, Marsha, admnstrator
Steee, Wam, estate of
Stern, Martha S
Stern et a., Samue . ., e ecutors
Stetson, Ioa Wse
Stevens, yam
Stevens, Wam D
Stevenson Consodated O Co.
Stewart, ohn
Stewart, Wam Rhneander, estate of --.
Stewart, r., et a., Wam Rhneander, e ecu-
tors
Stmson Corporaton, .
Stne, Doe M
St nc. M. osephne
Stockhom nskda ank
Stone, . C, estate of
Stone, Mrs. . C, e ecutr
Stone et a., Irvng ., e ecutors and trustees 10
Stone, Irvng Lee, estate of10
45694
366 6
70 7
30 9
214 1
29951
37 7-1
37 9
5 790
72236
56435
0744
65 33
34946
21169
45015
31516
33142
40023
9531
9532
71 67
4 930
73347
90 33
2459
41743
/ 70006
71593
70009
71594
43416
57531
67776
67776
3705
62694
62695
55755
3 336
3 336
43 30
43 30
30
26
34
26
27
31
31
30
37
33
24
25
2
26
3
32
24
34
9
2
26
27
29
29
23
29
31
31
3
32
32
25
26
26
26
26
1 Nonacquescence reates to ssue whether certan Interest In rea estate stuated n Te as was acqured
by pettoner pror or subsequent to hs marrage: and that part of decson whch hods that deay rentas
receved are communty ncome notwthstandng that the ands from whch they arse may be the separate
property of ether spouse.
Nonacquescence reates to ssues Invovng addtona compensaton, renta
betterments, and back ma pay for use of propertes durng edera contro.
cquescence pubshed In Cumuatve uetn I -2 (1036), wthdrawn.
4 state ta decson.
1 Nonacquesconco reates to statute of mtatons ssue.
,te ta dec
state t
ecson acquescence pubshed n Cumuatve uetn -2 (1931), recaed.
1 Nonacquescence reates to ssuo regardng ncuson n Income for 1026 of 1 0, 23. 6 receved upon
e change by pettoner of 250,000 shares of Sunburst O Oas Oo. stock wth that corporaton.
state ta decson nonacquesconco reates to far market vaue of an undvded or fractona Interest
In certan rea property.
state ta decson nonacquescence reates to far market vaue of 3,639 shares of stook of hncarner
Rea state Co. as of September 4, 1929. cquescence as to ths Issue pubshed n Interna Revenue u-
etn, I -- (1935), wthdrawn.
u state ta decson nonacquescence reates to ssue nvovng property transferred by trust agreement.
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1
3
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2

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65
Nonacqdescences Contnued.
, Tcca M
Straus, aron
Strayer, Water
Streefkerk, MrR. S
Strong, arod C
Sturgeon- ubbard Trust.
Sturgeon et at, Ron S., trustees..
Suffok Co., Ltd
Suvan, oseph
Suncrest Lumber Co
uppee, C. enderson, estate of1 1
Swartz, Inc., dward G
Swft, Marv Dodson, estate of
Swsky, Toby W
SnssO
Corporaton
T.
Taft, nna S., estate of4 -
Taft, Robert ., e ecutor
Taft, Robert ., trustee .--
Tabot, rederck C, estate of
Tabot, . . -
Tabot et a., Susan D., e ecutors
Tabot Wam ., estate of
Tant, Water ., transferee
Tanzer, Laurence rnod
Tavor, . SeWon, estate of
Tayor, r., et a., . Sedon, e ecutors
Tayor, esse Carter
Tayor, udson L
Ten yck, Peter G
Tennessee Consodated Coa Co.
Termna Raroad ssocaton of St. Lous
Termna Reaty Corporaton
Terrace Corporaton
Terre aute, Indanapos astern Tracton Co.
Terre aute Tracton Lght Co
Terrv, nna Davs
Terry, r., . T
Te as Irrgaton Co. .
Te as Ppe Lne Co..
Docket
No.
55935
65001
4 564
45363
3 576
37095
37095
1 17
56671
3321)
9363
36650
44909
42032
60177
61002
630
7099
77923
77923
76 13
20411
36191
20409
20409
2434
1355
64444
64444
51 91
51 92
6 197
333 3
49 32
53429
63699
43766
50762
60596
71157
05 4
33 5
33S60
45446
65 35
400 3
41346
59457
oard of Ta ppeas.
oume.
29
27
27
L S
25
25
25
37
33
25
25
26
25
32
33
33
34
27
23
27
27
3
37
27
27
27
27
29
24
33
32
37
24
24
33
24
32
and the
1 Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc.,
cttm of cost between s d common stock and preferred stock of sad company acqured at the
1 Gft ta decson.
1 Ncmaequescencc reates ony to the ssue, Dd the Commssoner err n vaung, for gft ta
eprUn snge premum poces upon the bass of the premums actuay pad rather than the cash
ufart
1 state ta decson.
Nonacquescence reates to deprecaton aowance n computng oss n sae of a boat.
Nonacqueacence reates to affaton ssue.
of ao-
same tme
purposes,
surrender
G
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1
3
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2

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#
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66
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Te te Ms Securtes Corporaton-
Thatcher Son, ohn
The ub, Inc
Theman, Mrs. Leo
Thra, dna May
353 Le ngton venue Corporaton..
Tde Water O Co
Ternan, Martn ., trustee, Martn . Ternan
trust for Martn T., Chares W., ohn W., nn
C., and Mary . Ternan et a.1
Totson Manufacturng Co
Tmken ct a. Trust, dth ., Ceveand Trust Co.,
trustee
Tte Trust Co -
Ttus, C. Dckson
Ttus, Inc., C. W --
Todd, Ws
Toerton Warfed Co. .
Torrens, ames .3
Towers Suvan Manufacturng Co
Townsend, .
Townsend, W. S -
Toy, arvey M
Transatantc Shppng Co., Inc
Traveers ank Trust Co
Traveers re Insurance Co.
Traveers Indemnty Co.
Tresner, my
Tro|an O Co
Trustees of Lumber Investment ssocaton.
Turney, W. W
Turney, Mrs. W. W
Tuth, r., orace S
Tutte, Car
Twn e O Syndcate
Tyer et a., Sdney ., trustees.
Tyng, Lucen
75423
56
65545
4629
65041
52449
55546
650 9
39936
3167
3169
3171
3173
3175
3177
4276-1
4279
4291-
4294
44167
561
737 5
20705
4226
37536
45320
5377
4050
731 6
74541
72932
61932
62 34
71349
62 33
7134
57916
62 32
71347
66703
33757
52274
6525
65257
5244
7055
45052
56449
74 5
3
30
26
30
31
32
27
29
37
27
39
33
24
3
24
23
31
25
32
32
34
31
31
31
: ,
37
26
35
31
31
31
32
31
26
2
36
1 Nonacquesccnec reates to the Issue, Dd the s trust Instruments n the assocated cases create a
snge trust or a mutfe of trusts
1 Nonacquescence reates to ssue regardng deducton of oss sustaned hy two affated companes
durng fsca year ended anuary 31, 1924, and the ta abe perod ebruary 1 to pr 25,1924, In computng
the consodated net ncome for ta abe perod pr 26 to December 31, 1924, and the year 192S.
1 Nonacquescence reates to the trust and dvdend Issues.
Nonacquescence reates to ssue n res| ect of aowabe deducton for depeton.
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67
Nonacqt|esce nces Con tnued.
Ta payer-
Docket
No.
oard of Ta ppeas.
oume.
Pare.
h en, oseph
IT mann, m nue Soomon
nmann, r., oseph
Cmann, Samue, estate of
nmann et a., Theresa, e ecutors
Unon Guardan Trust Co., admnstrator
Unon Guardan Trust Co., e ecutor 1
Co. .
Pacfc R. R. Co. et a. .
Unon Trust Co., trustee
Unted Natona Corporaton.
Unted O Co
an Camp Packng Co., Inc..
ancoh Reaty Co
m Schack, George S., Superntendent of Insur-
ance of New York, qudator
an oret Co., C.
aughan, Wam W -
oebe, acob, estate of4
oebe, Water W., e ecutor
ounteer State Lfe Insurance
onnegut ardware Co
Waggoner, a
Waggoner, W. T
Wat, . Russe.
Wat, atharvn
Wsker, Tabot C
Waters, enry, estate of .
Waters, ohn W.
Ward et a., Dasy M
Wardman, arry-
Warfed, C. Grffth.
51234
56470
56471
56472
56472
75516
44735
51530
701 3
70219
35639-
35649
356 4
356 5
40060
40061
. 40062
42917
67949
3 0 2
42922
51622
46131
52340
67263
70366
67 43
6009
6009
54176
6905
70 51
44940
33517
33516
75772
75773
20407
77074
/ 70010
I 71597
(62644-
62649
2234
9170
30
30
30
30
30
32
26
32
26
24
33
26
33
32
30
:
7
7
27
35
21
24
35
35
27
6
29
2(1
24
3
399
764
764
764
764
996
1321
3 3
1401
4
790
101
256
91
736
7
54
276
276
1149
491
7 4
657
657
359
359
29
259
1255
1251
102
907
1 state ta decson.
1 onaoquescence reates to the Issues regardng cost of ntercompany transportaton of matera used
wnstracton of capta assets sae n 1 2f of bock 394, Seatte Tde Lands sae of and to ansas Cty
Termna Raway Co. ad|ustment for deprecaton sustaned pror to anuary 1,1909, of equpment retred
1 Nonacquescer|ce reates to Issue regardng renta Interest and ssue concernng net oss of Los ngees
Sat Lake R. R. Co. for perod anuary 1 to pr 30,1921.
state ta decson: acquescence pubshed n Cumuatve uetn -2 (1931), recaed.
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6
Nonacqt|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Warner Coeres Co. of Deaware-
Watab Paper Co.
Waterbury, Charotte M.1
Waterbury, Donad N.1
Waterbury, ugene W.1
Waterbury, Whtford N.1 -
Watson-Moore Co
Way burn, Ned
Wes argo ank Unon Trust Co., admnstrator.
Wes, ames
West rgna-Pttsburgh Coa Co
Wester, Mar|ore ., estate of
Wester, W. L
Western Power Corporaton
Wether, Robert, estate of ...
Wheeer, Dwght C-
Wheeer, P. L
Wheeng Mod oundry Co. (De.)-
Whppe, rank ._
Whtcomb, nna S.
Whtcomb, N. ., Coca-Coa Syndcate.
Whte, uet C
Whte Oak Transportaton Co.4
Whte, Rta M. oher
Whte, Sdney ---
Whtng, Dwght
Whtng, George N. --
Whtte 4 Co., Inc., George.- --
Wco Sons, . -
We, dwn
Wams, ma
Wams et a., rank G., e ecutors
Wams, R. L. -
Wamson, esse C.7
Wamson, Ruth Chander
Ws, Mary
Wshre O Co., Inc
34679
24773
2 0 2
3 6 5
41733
46076
513 7
733 1
733 0
733 3
733 2
62179
7434
20411
6294
20337
25030
67037
67146
67036
67145
72943
6 62
7133
6902
23410
57532
5219
7196
76367
5 775
1 0
36112
5 776
7 532
72414
40619
54451
4001
33564
4000
0545
6746
6671
67179
73955
26
27
33
33
33
33
30
32
27
29
24
37
37
34
36
32
32
27
29
37
35
26
24
25
6
35
34
2
31
36
25
36
34
32
37
35
Nonacquesoenee reates to Issue whether gans on sae of stock of the Waterbury Chemca Co. were
ta abe to pettoner or to trust creatod by them.
state m decson.
Nonacqucscencc reates to the foowng Issue: Where the pettoner, who Is the wnefcary of a trust,
makes an assgnment, revocabe upon notce of a year and a day, of a porton of her dstrbutve share of the
future ncome from the trust, Is the pettoner ta abe on the ncomo pad to the assgnee under such
assgnment
1 Nonacquesccnce reates to statute of mtatons Issue.
Nonacuescenco reates to the trust and dvdend ssues.
6 Nonacquescence n ssue reatng to Invountary converson.
7 Nonaoquescence n ssue whether bass for gan or oss on subsequent sae wthn meanng of secton
113(a) S, Revenue ct of 1932, was tme of actua dstrbuton or date of court order of dstrbuton.
1 Nonacquescence reates to Issue n respect of aowabe deducton for depeton.
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69
Nonacquescenceb Contnued.
Docket
No.
oard of Ta ppeas.
oume.
Wson, ngs
Wson, ohn P -
Wson et u ., oseph
Wson, Luke ., estate of
Wson, Peter ., transferee
Wson Shpbudng Co.1
Wnne, Water G.1
Wnsow, Sdney W., r
Wnston ros. Co
Wnthrop, eekman - -
W. . odng Corporaton -
Wobber ros.
Wobbere, Inc
Wopert, Urban ... - - --
Rood, en yer
Wood urnture Co., .
Wood, r., . O - -
Wood, eremah --
Wood, Meredth
Wood, Stuart, estate of..
Wood, Ws D -
Woodruff, nne Stevens..
Woodruff, Stevens
Woodward, ohn S.1
Woodward, George 4 -
Wrghtngton, Sydney R
Y.
Young, Du os --
Young, dvthe C, e ecutr , estate of Wam .
Young, r.
Young Corporaton, .
Young, Wam ., r., estate of
Young, Wam 1st.
Youngstown Sheet Tube Co
Yount, Thema
Z.
Zegcr, bert W -
Zegcr, Cfford . -
Zmmerman and wfe, Cavn
Zobeen, George
Zobeen, Mrs. dward -
Zutor, doph
77377
62931
57226
661
6619
32444
64655
34337
60900
,NM.().-
59270
79 50
1216
36 75
773 7
30 74
4 563
G5211
40565
65 32
74090
740.SS
426
75624
69 44
797 4
797 5
71962
42279
91371
7 345
90414
74321
90414
1224
2 149
35511
7404
9595
46291
46292
71145
45352
45353
76120
34
29
304
3
1171
25
994
33
664
25
1 2
27
369
39
373
29
905
36
314
3
30
26
322
35
90
26
322
27
155
29
1050
21
564
33
06
31
1141
37
1065
32
926
33
06
3
739
3
739
30
1216
23
125
3
1230
34
64
39
230
35
60
39
230
36
633
24
1246
3S
1460
23
1091
23
1091
31
754
2
236
2.
236
33
324
1 Nonacquesc nce reates to Issue 5 of decson.
1 Pror acquescence pubshed n Cumuatve uetn II-1, paec 13 (1033), wthdrawn.
1 Nonacquescence reatt
Uab e dvdend.
1 cquescence pubshed In Cumuatve uetn -2 (1931), wthdrawn.
1 state ta decson.
ates to queston whether dstrbuton of stock had the effect of dstrbuton of a
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INCOM T RULINGS. P RT I.
. INT RN L R NU COD .
C PT R I. INCOM T .
SU C PT R . G N R L PRO ISIONS.
P RT II. COMPUT TION O N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D INITION.
rtce 22 ( a) -2: Compensaton for persona 1939-22-9 4
servces. Mm. 4916
( so Secton 116 Reguatons 101. rtce 116-2.)
Ta abty of compensaton receved by edera offcers and em-
poyees and offcers and empoyees of States or potca subdvsons
thereof.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, May 10,1939.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
On pr 12, 1939, the Presdent approved the Pubc Saary Ta
ct of 1939 (Pubc. No. 32, Seventy-s th Congress, frst sesson
age 47 , ths uetn). That ct, herenafter referred to as the ct,
eas wth the ncome ta aton of the compensaton of pubc offcers
and empoyees, State and edera. Tte I thereof, n so far as t
reates to edera ncome ta , deas wth ta aton of compensaton of
certan pubc offcers and empoyees for a ta abe years begnnng
after December 31,193 , whereas Tte II s concerned wth preventng
the ta aton of the compensaton of certan pubc offcers and em-
poyees for years begnnng pror to anuary 1, 1939. s w be e -
paned beow, the provsons of Ttes I and of the ct are operatve
wthout regard to the nature of the offce hed or servces rendered
by the offcers or empoyees affected. Rues provded bv the appcabe
revenue aw as to the perod for whch ncome must be reported are
unaffected by any provson of the ct.
e panaton of terms used.
or the purposes of ths mmeograph
(a) Uness otherwse specfed, secton numbers mentoned refer to
sectons of the ct.
(71)
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23(a), rt. 22(a)-2.1
72
(6) The term State empoyee means an offcer or empoyee of a
State, or a potca subdvson, or any agency or nstrumentaty of
one or more States or potca subdvsons, and ncudes a State or
oca |udge and a member of a State or oca egsatve body
(secton 210).
(c) The term edera empoyee means an offcer or empoyee
of the Unted States or any agency or nstrumentaty thereof.
(d) The term ta means edera ncome ta and ncudes nterest,
addtons to ta , and addtona amounts.
ST T MPLOY S.
cept as affected by secton 20 (more fuy e paned beow) the
foowng appes to the treatment of compensaton of State empo|-ees
for the purposes of the ta :
(1) Ta abe years begnnng after December 31, 193 . Secton
22(a) of the Interna Revenue Code, as amended by secton 1 of the
ct, requres that the compensaton for persona servce of a State
empoyees, wthout e cepton, be ncuded n gross ncome for ta abe
years begnnng after December 31, 193 , regardess of the nature of
the offce or empoyment.
(2) Ta abe years begnnng pror to anuary 1, 193 . Secton
201 prevents the ta aton of compensaton for persona servce as a
State empoyee for any ta abe year begnnng pror to anuary 1,
193 . The methods by whch that s accompshed are as foows:
(a) ssessments or such ta f not aready made sha not now be
made, and no court proceedng sha be begun or prosecuted to coect
such ta . Coecton of ta assessed before anuary 1, 1939 may,
however, be enforced by new or now pendng court proceedngs (sec-
ton 201(a)).
(b) ssessments of such ta made after December 31, 193 , sha
be abated and any amounts coected n pursuance of such assessments
sha be credted or refunded n the same manner as n the case of an
erroneous coecton of ta (secton 201 (b) .
(0) Coectons of such ta made on or before pr 12, 1939, sha
be credted or refunded n the same manner as n the case of an er-
roneous coecton of ta , under the foowng condtons:
(1) If a cam for refund therefor fed before anuary 19, 1939
(the date of the Presdent s message to Congress on recproca ncome
ta aton of offcers and empoyees of the edera and State and oca
governments), was not dsaowed pror to pr 13, 1939
(2) If a cam for refund therefor fed before anuary 19, 1939,
has been re|ected but the tme for begnnng sut wth respect thereto
had not e pred on pr 12,1939:
3) If a sut for recovery of such ta s pendng on pr 12,1939 or
4) If a petton to the oard of Ta ppeas has been fed wth
respect to such ta and on pr 12, 1939, the oard s decson had
not become fna (secton 201(c)).
If any one of the tests specfed n secton 201 s satsfed, the State
empoyee s entted to the reef provded n that secton regardess of
the nature of hs offce or empoyment. In genera, State empoyees
gven reef under that secton are those engaged n the e ercse of
what have for many years been consdered as essenta governmenta
functons and thus pror to Ie oerng v. Oerhardt (193 ) (304 U. S.,
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73
22(a), rt. 22(a)-2.
405) and Graves et a. v. O eefe (1939) (59 S. Ct., 595), were deemed
not to be sub|ect to edera ta on ther compensaton.
(3) Ta abe years begnnng after December 31, 1037, and before
anuary 1, 1939. Secton 202 pre vents the ta aton of compensaton
for persona servce as a State empoyee for any ta abe year begnnng
n 193 and endng n 193 or 1939. That s accompshed by pro-
rdng that such compensaton sha be e empt and not ncudbe
n gross ncome under Tte I of the Revenue ct of 193 f such
empoyee ether
(a) dd not ncude n hs return for hs ta abe year begnnng n
1937 and endng n 1937 or 193 compensaton as a State empoyee
(secton 202 (a)) or
(b) dd ncude such compensaton n hs return for such ta abe
year but s otherwse entted to the reef provded therefor n sec-
ton 201 (see secton 202(b)).
In genera the same groups of State empoyees entted to any of
the forms of reef provded for n secton 201 w be reeved, by
vrtue of secton 202, from ta for a ta abe year sub|ect to Tte I
of the Revenue ct of 193 . If, however, ether test specfed n
secton 202 s satsfed, the State empoyee s entted to the reef
provded n that secton regardess of the nature of hs offce or em-
poyment. Thus, for e ampe, an ndvdua becomng for the frst
tme a State empoyee n the caendar year 193 (hs ta abe year)
w not be ta abe on hs compensaton receved therefor n that year
even though he may have been engaged n the e ercse of a propretary
functon.
(4) Ta abe years begnnng pror to anuary 1, 1939 Refund
cams fed after anuary 1 , 1939. Secton 203 provdes that ta
coected at any tme for any ta abe year begnnng pror to anuary
1,1939, attrbutabe to compensaton for servce as a State empoyee
sha be credted or refunded as f t were erroneousy coected, f
a refund cam s fed after anuary 1 , 1939, and the Commssoner
(under reguatons prescrbed by hm and approved by the Secretary
of the Treasury) fnds that the dsaowance of such cam woud
resut n the appcaton of the doctrnes of eherng v. TherreU
(193 ) (303 U. S., 21 ), eherng v. Gerhardt (193 ) (304 U. S.,
405). and Graves et a v. O eefe (1939) (59 S. Ct., 595), e tendng
the casses of offcers and empoyees sub|ect to edera ta aton. Regu-
atons under secton 203 are now beng prepared.
D R L MPLOY S.
(1) Ta abe years begnnng after December 31, 193 . Secton
22(a) of the Interna Revenue Code, as amended by secton 3 of the
ct, requres that compensaton for persona servce as a |udge of any
court of the Unted States be ncuded n gross ncome for ta abe
years begnnng after December 31, 193 , regardess of when the ta -
payer took offce as |udge. urthermore, compensaton of schoo
teachers n aska and awa s not e empt from the ta for ta abe
years begnnng after December 31,193 (secton 2 of the ct repeaed
secton 116(b) of the Interna Revenue Code).
(2) Ta abe years begnnng pror to anuary 1, 1939. Secton
209 provdes that the compensaton of |udges of the Supreme Court
and of a the nferor courts of the Unted States created under
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22(a), rt. 22(a)-2.
74
rtce III of the Consttuton, takng offce on or before une 6,1932,
sha not be sub|ect to ncome ta under the Revenue ct of 193 or
any pror Revenue ct. The term nferor courts means crcut
and dstrct courts (ncudng the Unted States Court of ppeas
for the Dstrct of Coumba and the Dstrct Court of the Unted
States for the Dstrct of Coumba), but does not ncude so-caed
egsatve courts.
G N R L.
Tte II appes ony to State empoyees and not to other persons
havng deangs wth State and oca governments snce the ta abty
of the compensaton of such other persons was ong recognzed pror
to everng v. Gerhardt, supra. Such persons are generay hed
to be ndependent contractors for purposes of edera ncome ta and
ther abty for such ta has been ceary estabshed snce Metcatf
ddy v. Mtche (1926) (269 U. S., 514). They are not State
empoyees wthn the meanng of ths mmeograph, and, consequenty,
the reef provsons of the ct are not appcabe wth respect to
them.
ny amount of ta attrbutabe to compensaton of a State em-
poyee and assessed pror to anuary 1, 1939, sha be abated
(1) f coecton thereof has not yet been made, and
(2) f coecton were made and a refund cam fed, the amount
coected woud have to be refunded under secton 203.
The provsons of sectons 201, 202, and 203 are nappcabe to
compensaton receved by a State empoyee to the e tent t s pad
drecty or ndrecty by the Unted States or any agency or nstru-
mentaty thereof (secton 205). Thus, for e ampe, a State empoyee
whose compensaton s pad n whoe or n part from funds granted
by the Unted States under the Smth-Lever ct s not entted to
any reef under Tte II wth respect to hs compensaton to the
e tent t s pad from such funds. Such provsons are appcabe,
however, to a other compensaton receved by an ndvdua for
servce as a State empoyee regardess of the source (pubc or
prvate) of such other compensaton.
Cams for refund, nsttuton of sut, and pettons to the oard
of Ta ppeas referred to n sectons 201 and 203 mean ony such
cams and pettons fed and suts begun wthn the perod of
mtaton propery appcabe thereto. The provsons of those sec-
tons are, therefore, noperatve f the cam or petton s not tmey
fed or f the sut s not tmey begun (secton 204).
The operaton of the reef provsons of sectons 201, 202, and
203 wth respect to State empoyees of any State may, under certan
condtons, be termnated. Secton 20 provdes that after the Secre-
tary of the Treasury has determned and procamed that t s the
pocy of a State to coect ncome ta from edera empoyees on
compensaton receved pror to anuary 1, 1939, the reef provsons
of sectons 201, 202, and 203 sha not thereafter appy to empoyees
of that State. fter such determnaton has been procamed t sha
be the duty of the ureau to enforce assessment and coecton of
ta for years begnnng pror to anuary 1, 1939, on compensaton of
State empoyees of the state affected to the e tent permtted under
appcabe statutes of mtaton, regardess of the nature of the
offce or empoyment of such empoyees. In the absence, however, of
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75
22(a), rt. 22(a)-2.
such procamed determnaton by the Secretary the provsons of
sectons 201, 202, and 203 sha be gven fu force and effect.
In the e amnaton of returns n a cases nvovng the ta abty
of State empoyees, care shoud be taken to see that proper effect s
gven to the provsons of the ct. Cases n whch the soe ssue
nvoved s te ta abty of compensaton of a State empoyee and
whch have been hed n suspense n accordance wth prevous nstruc-
tons from ths offce may now be cosed n accordance wth the prov-
sons of Tte II of the ct.
Inqures regardng ths mmeograph shoud refer to the number
thereof and the symbos IT: R .
Gut T. everng,
Comm. ssoner.
btce 22(a)-2: Compensaton for persona 1939-25-9 6
servces. T. D. 4903
( so Secton 116 Reguatons 101, rtce 116-2.)
TITL 26 INT RN L R NU . C rT I, P RT 9, SU P RT P RT 46 ,
SU P RT INCOM T .
Pubc Saary Ta ct of 1939.
rtces 22(a)-2 and 116-2 of Reguatons 101, as made appca-
be to the Interna Revenue Code by Treasury Decson 4 5
page 396, ths uetn , amended.
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 101 (Part 9, Subpart , Tte 26,
Code of edera Reguatons), as made appcabe to the Interna
Revenue Code (53 Stat., Part 1) by Treasury Decson 4 5, approved
ebruary 11, 1939 (Part 465, Subpart , Tte 26, Code of edera
Reguatons page 396, ths uetn ), to the Pubc Saary Ta ct
of 1939 (Pubc, No. 32, Seventy-s th Congress, frst sesson), such
reguatons are amended, as foows:
1. The foowng s nserted mmedatey precedng artce 22(a)-
(secton 9.22(a)-, Tte 26, Code of edera Reguatons), as made
appcabe to the Interna Revenue Code:
Secton 1 of the Pubc Saary Ta ct of 1939 provdes:
Secton 1. Secton 22(a) of the Interna Revenue Code (reatng to the
defnton of gross ncome ) s amended by Insertng after the words com-
pensaton for persona servce the foowng: ( ncudng persona servce as
an offcer or empoyee of a State, or any potca subdvson thereof, or any
agency or nstrumentaty of any one or more of the foregong) .
Sec 3. Secton 22(a) of the Interna Revenue Code s amended by addng
at the end thereof a new sentence to read as foows: In the case of |udges
of courts of the Unted States who took offce on or before une 6, 1932, the
compensaton receved as such sha be ncuded n gross ncome.
S o. 210. or the purposes of ths ct, the term offcer or empoyee n-
eudes a member of a egsatve body and a udge or offcer of a court.
2. rtce 22(a)-2 (secton 9.22(a)-2, Tte 26, Code of edera
Reguatons), as made appcabe to the Interna Revenue Code, s
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23(c). rt. 23(c)- .
76
amended by nsertng before the ast sentence thereof the foowng
new sentence:
s used n ths artce the term edera offcers and empoyees ncudes a
|udges of courts of the Unted States rrespectve of when they took offce.
3. The foowng s nserted mmedatey precedng artce 116-1
(secton 9.116-1, Tte 26, Code of edera Reguatons), as made
appcabe to the Interna Revenue Code:
Sec. 2. Secton 110(b) of the Interna Revenue Code (e emptng com-
pensaton of teachers n aska and awa from ncome ta ) s repeaed.
4. rtce 116-2 (secton 9.116-2, Tte 26, Code of edera Regua-
tons), as made appcabe to the Interna Revenue Code, s amended
to read as foows:
rt. 116-2. Compensaton of State offcers and empoyees. Compensaton
receved for servces rendered as an offcer or empoyee of a State or any
potca subdvson thereof, or any agency or nstrumentaty of any one or
more of the foregong, s to be ncuded n gross ncome, regardess of the
nature of the offce or empoyment. s used n ths artce the term offcer
or empoyee ncudes a member of a egsatve body and a udge or offcer
of a court.
Ths Treasury decson s effectve ony for ta abe years begnnng
after December 31, 193 . or provsons of the Pubc Saary Ta
ct of 1939 whch reate to ta abe years begnnng pror to anuary
1, 1939, see Tte II of such ct.
(Ths Treasury decson s prescrbed pursuant to the foowng
sectons of aw: Sectons 22 and 116 of the Interna Revenue Code
(53 Stat., Part 1) sectons 1, 2, 3, and 210 of the Pubc Saary Ta
ct of 1939 (Pubc, No. 32, Seventy-s th Congress, frst sesson)
and secton 62 of the Interna Revenue Code (53 Stat., Part 1).)
Guy T. everng,
Commssoner of Interna Revenue.
pproved une 13, 1939.
ohn W. anes,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une 15, 1939, 10.07 a. m.)
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 23 (c)-: Ta es. 1939-20-9 31
( so Secton 42, rtce 42-1.) I. T. 327
INT RN L R NU COD ND R ND CT O 193 .
The amount equa to 3 per cent of the pay ro contrbuted by
an empoyer to the New York unempoyment nsurance fund const-
tutes a proper deducton for edera ncome ta purposes for the
ta abe year n whch pad or accrued.
Treatment as ta abe Income to the empoyer of the amount of
credt or refund of such contrbuton.
Mm. 395 (C. . I-2, 33 (1932)) and Mm. 4564 (C. .
1937-1, 93) modfed.
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77 23(c), rt. 23(o)-.
dvce Is requested as to the deductbty for edera ncome ta
fmposes of the amount equa to 3 per cent of the pay ro contrbuted
| an empoyer to the New York unempoyment nsurance fund, and
how a credt or refund receved under secton 516-a of the New York
unempoyment nsurance aw shoud be treated.
The pertnent provsons of the State aw read as foows:
Sec. 516. Contrbutons to the unempoyment nsurance fund. The contrbu-
ton reguary payabe by each empoyer sha be an amount equa to 3 per cen-
tum of the. pay ro of the empoyees .
Ssc, 516-a. Refund of or credt for contrbutons n certan cases. If for
any caendar year begnnng wth 193 the tota contrbuton under ths artce
of any empoyer who s abe for the e cse ta eved by Tte I of the
edera Soca Securty ct s n e cess of 2.7 per centum of the tota remuner-
aton pad by hm durng such caendar year to empoyees for empoyment, as
heren defned, such empoyer sha not be deemed abe under ths artce for
such e cess and the amount thereof sha be refunded or credted to hm n
accordance wth the provsons of subdvson 3 of secton 523 of ths chapter.
(Laws of 193 , ch. 10, effectve anuary 1, 193 .)

Sc 523. 3. Refunds and credts. If not ater than three years from the pay-
ment of any contrbuton, nterest or penaty an empoyer sha make appca-
nts for a refund thereof or for a credt and the commssoner sha determne
fat such contrbuton, nterest or penaty, or any porton thereof, was er-
roneousy coected, the commssoner sha refund sad amount, or aow a credt
therefor, wthout nterest, out of the fund uness the empoyer sha have aready
deducted sad amount by way of credt aganst contrbutons payabe by hm.
or ke cause and wthn the same perod a refund may be so made, or a credt
aowed, on the ntatve of the commssoner. (Laws of 1936, ch. 117 Laws
of 1933, ch 10, effectve anuary 1, 193 .)
It s hed that the amount equa to 3 per cent of the pay ro con-
trbuted by an empoyer to the New York unempoyment nsurance
fund consttutes a proper deducton for edera ncome ta purposes
for the ta abe year n whch pad or accrued. The amount of credt
or refund of such contrbuton to whch the ta payer s ater entted
shoud be treated as ncome n the return for the ta abe year n
whch the credt s apped or the refund s made, provded the pror
deducton of the amount ater refunded or credted had the effect of
offsettng ta abe ncome. owever, f the pror deducton of such
amount dd not have the effect of offsettng ta abe ncome, the
amount refunded or credted shoud not be treated as ta abe ncome.
If ony a porton of such amount prevousy deducted resuted n
offsettng ta abe ncome, the amount refunded or credted w bo
treated as ta abe ncome ony f and to the e tent that t s n e cess
of the amount of the pror deducton whch dd not have the effect of
offsettng ta abe ncome. The concusons here set forth are n ac-
cord wth G. C. M. 20 54 (page 102, ths uetn. That rung n-
voved recoveres of bad debts prevousy deducted, but the prncpes
there set forth are equay appcabe to refunds or credts of ta es
prevous v deducted.
I Mm. 395 (C. . I-2, 33 (1932)) and Mm. 4564 (C. . 1937-1,
93) are hereby modfed to accord wth the foregong concusons.
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44, rt. 44-5. 7
P RT I . CCOUNTING P RIODS ND M T ODS O CCOUNTING.
S CTION 42. P RIOD IN W IC IT MS O
GROSS INCOM INCLUD D.
rtce 42-1: When ncuded n gross ncome.
INT RN L R NU COD .
Credts or refunds under secton 516-a of the New York unempoy-
ment nsurance aw. (See I. T. 327 , page 76.)
S CTION 44. INST LLM NT SIS.
rtce 44-5: Gan or oss upon dsposton 1939-20-9 39
of nstament obgatons. T. D. 4 99
TITL 26 INT RN L R NU . C PT R I SU C PT R , P RT ND
P RT 9, SU P RT SU C PT R , P RT 465. SU P RT .
Income ta . mendng artce 44-5 of Reguatons 94, artce
44-5 of Reguatons 101, and such artce as made appcabe to
the Interna Revenue Code by Treasury Decson 4 5 page 396,
ths uetn , a reatng to gan or oss on dsposton of nsta-
ment obgatons.
Washngton, D. 0.
The ne t to the ast paragraph of artce 44-5 of Reguatons 94
(secton 3.44-5 of Tte 26, Code of edera Reguatons), the ne t
to the ast paragraph of artce 44-5 of Reguatons 101 (secton
9.44-5 of such Tte 26), and the ne t to the ast paragraph of that
artce as made appcabe to the Interna Revenue Code by Treasury
Decson 4 5, approved ebruary 11, 1939 (Part 465, Subpart .
of such Tte 26 page 396, ths uetn ), are each amended to read
as foows:
In the case of a decedent who des possessed of Instament obgatons, no
gan on account of the transmsson at death of such obgatons s requred
to be reported as Income n the return of the decedent for the year of hs death,
f the e ecutor or admnstrator of the estate of the decedent or any of the
ne t of kn or egatees fes wth the Commssoner a bond on orm 1132 con-
dtoned upon the return as ncome, by any person recevng any payment n
satsfacton of such obgatons, of the same proporton of such payment as
woud be returnabe as Income by the decedent f he had ved and receved
such payment. The bond sha be sub|ect to the approva of the Commssoner,
sha be In an amount suffcent n hs |udgment to nsure coecton of the ta
resutng from the fufment of the condtons stated n the bond, and sha
be fed at the tme of fng the return for the decedent for the year of hs
death or at such ater tme us may be specfed by the Commssoner. The bond
on orm 1132 may be (1) e ecuted by a surety company hodng a certfcate
of authorty from the Secretary of the Treasury as an acceptabe surety on
edera bonds, or (2) secured by depost of bonds or notes of the Unted States,
or the Instament obgatons, n such amounts as the Commssoner may deem
necessary to Insure coecton of the ta .
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79
3797, rt. 901-6.
sectons of aw: Sectons 44(d) and 62 of the Revenue ct of 1936
(49 Stat, 1667, 1673 26 U. S. C, Sup. I , 44(d), 62) sectons
U(d) and 62 of the Revenue ct of 193 (52 Stat., 473, 4 0 26
U. S. C, Sup. I , 44(d), 62) and sectons 44(d) and 62 of the
Interna Revenue Code (53 Stat., Part 1).)
Guy T. everno,
pproved May 9, 1939.
ohn W. anks,
( ed wth the Dvson of the edera Regster May 10, 1939, 3.34 p. m.)
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 116. CLUSIONS ROM GROSS INCOM .
mcL 116-2: Compensaton of State offcers and
empoyees.
INT RN L R NU COD .
thereof. (See Mm. 4916, page 71.)
101, rtce 116-2: Compensaton of State offcers and
empoyees,
INT RN L R NU COD .
rtce 116-2 of Reguatons 101, as made appcabe to the Interna
Revenue Code by Treasury Decson 4 5, amended to conform to the
Pubc Saary Ta ct of 1939. (See T. D. 4903, page 75.)
C PT R 3 . MISC LL N OUS PRO ISIONS.
S CTION 3797. D INITIONS.
rtce 901-5: Lmted partnershp as cor- 1939-16-979
poraton. T. D. 4 94
TITL 26 INT RN L R NU . C PT R I, P RTS 3. 9, ND 465.
Income ta . mendng artces 901-5 and 901-6 of Reguatons
101 and snch artces as made appcabe to the Interna Revenue
Code by Treasury Decson 4 5 page 396, ths uetn , artces
1001-5 and 10O1-6 of Reguatons 94, and artces 01-5 and 01-6
of Reguatons 6. a reatng to cassfcaton of mted partner-
shps.
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3797, rt. 601-5.
0
Washngton, D. C.
rtce 901-5 of Reguatons 101 (secton 9.901-5 of Tte 26, Code
of edera Reguatons), and that artce as made appcabe to the
Interna Revenue Code by Treasury Decson 4 5, approved ebru-
ary 11, 1939 (Part 465, Subpart , of such Tte 26 page 396, ths
uetn ), and artce 1001-5 of Reguatons 94 (secton 3.1001-5 of
such Tte 26), and artce 01-5 of Reguatons 6 are each amended
to read as foows:
Lmted partnershps. mted partnershp s cassfed for the purpose of
the ct as an ordnary partnershp, or, on the other hand, as an assocaton
ta abe as a corporaton, dependng upon ts character n certan matera re-
spects. If the organzaton s not nterrupted by the death of a genera partner
or by a change n the ownershp of hs partcpatng nterest, and f the man-
agement of ts affars s centrazed n one or more persons actng n a represent-
atve capacty, t s ta abe as a corporaton. or want of these essenta
characterstcs, a mted partnershp s to be consdered as an ordnary part-
nershp notwthstandng other characterstcs conferred upon t by oca aw.
The Unform Lmted Partnershp ct has been adopted n severa States.
mted partnershp organzed under the provsons of that ct may be ether
an assocaton or a partnershp dependng upon whether or not n the partcuar
case the essenta characterstcs of an assocaton e st.
rtce 901-6 of Reguatons 101 (secton 9 901-6 of Tte 26, Code
of edera Reguatons), and that artce as made appcabe to the
Interna Revenue Code by Treasury Decson 4 5, approved ebru-
ary 11, 1939 (Part 465, Subpart , of such Tte 26), and artce
1001-6 of Reguatons 94 (secton 3.1001-6 of such Tte 26), and
artce 01-6 of Reguatons 6 are each amended to read as foows:
Partnershp assocatons. partnershp assocaton of the type authorzed
by the statutes of severa States, such, for nstance, ns those of the State of
Pennsyvana (Purdon s Penna. Stat. nn. (Perm. d.), Tte 59, ch. 3), havng
by vrtue of the statutory provsons under whch t was organzed, the charac-
terstcs essenta to an assocaton wthn the meanng of the ct, s ta abe
as a corporaton.
(53 Stat., Part 1) sectons 901 and 62 of the Revenue ct of 193 (52
Stat., 5 3, 4 0 26 U. S. C, Sup. I , 1696, 62) sectons 1001 and 62
of the Revenue ct of 1936 (49 Stat., 1756, 1673 26 U. S. C, Sup. I ,
1696,62) and sectons 01 and 62 of the Revenue ct of 1934 (4 Stat.,
771, 700, 26 U. S. C, 1696, 62).)
Guy T. everng,
pproved pr 7, 1939.
ohn W. anes,
( ed wth the Dvson of the edera Regster pr 10, 1039, 12.45 p. m.)
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1 22(a), rt. 22(a)-.
. R NU CT O 193 .
D INITION.
rtce 22 (a)-: What ncuded n gross ncome. 1939-23-9 61
I. T. 32 3
R NU CT O 103 .
dvances to corn producers made under secton 02 of the gr-
cutura d|ustment ct of 193 ( 52 Stat., 31), known as corn oans,
shoud be treated as oans and not as proceeds from the sae of the
corn.
dvce s requested whether advances obtaned by corn producers
under the corn storage provsons of the grcutura d|ustment
ct of 193 shoud be treated as oans or as proceeds from the sae
of the corn n the year the oan s obtaned.
Secton 302 of the grcutura d|ustment ct of 193 (52 Stat.,
31) drects the Commodty Credt Corporaton to make avaabe oans
on corn durng any marketng year begnnng n the caendar year
n whch the November crop estmate for corn s n e cess of a norma
year s domestc consumpton and e port, or n any year when on
November 15 the farm prce of corn s beow 75 per cent of the party
prce as defned n the ct. Secton 302(h) of that ct provdes that
No producer sha be personay abe for any defcency arsng
from the sae of the coatera securng any oan under ths secton
uness such oan was obtaned through frauduent representatons by
theproducer.
When the oans are obtaned, the producer sgns a Corn pro-
ducer s note agreeng, for vaue receved, to pay at a tme certan
to the order of the Commodty Credt Corporaton, payee, the amount
advanced wth nterest at 4 per cent per annum. In consderaton of
the oan evdenced by the note the producer represents n sad oan
agreement (1) that the pedged corn was produced by or for the pro-
ducer on certan descrbed and, (2) that the producer s an egbe
producer as defned, and (3) that the corn Is free of undscosed
ens. The oan agreement further provdes that any hoder of the
note may decare the same due and payabe (1) when and so ong
as the farm prce of corn sha be above party, (2) upon dscovery
that the producer has made frauduent msrepresentaton n obtan-
ng the oan, ( ) upon dscovery that the coatera s damaged, and
(4) upon the fng of a petton n bankruptcy by the producer. Upon
maturty of the note, the hoder s authorzed, to se the corn at pubc,
or prvate sae, and n case the saes prce (after deductng e penses
ana a costs) s n e cess of the amount due on the note, the hoder s
bound to pay the e cess to the producer. owever, the producer s
not personay abe for any defcency uness he obtaned the oan
through frauduent msrepresentaton.
It s hed that such advances receved by the producers of corn under
the provsons of the grcutura d|ustment ct of 193 shoud be
treated as oans and not as proceeds from the sae of corn. (See I. T.
2931, C. . I -2, 56 (1935).)
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22(a), rt. 22(a)- .
2
rtce 22(a)-1: What ncuded n gross ncome. 1939-24-9 69
I. T. 32 5
R NU CT O 193 .
Where producers of gum turpentne and gum rosn (known as
nava stores) devered ther products to a cooperatve assocaton
under an agreement whereby absoute tte was to be transferred
to the assocaton on November 1, 193 , as to products prevousy
devered n that year, advances made n 193 by the assocaton to
the producers from funds procured by a oan from the Commodty
Credt Corporaton to the assocaton, there beng no abty on
the part of the producer to repay such advances, consttute parta
payments for such products by the assocaton to the producers
and shoud be ncuded n gross ncome for the year 193 .
dvce s requested as to the proper treatment for edera ncome
ta purposes of payments made to producers of gum turpentne and
gum rosn (known as nava stores) by the M Cooperatve ssocaton
wth funds borrowed by t from the Commodty Credt Corporaton
under a marketng agreement.
The Commodty Credt Corporaton was authorzed by aw to make
oans n 193 to the M Cooperatve ssocaton (herenafter referred
to as the assocaton) on gum turpentne and gum rosn devered to
the assocaton by the producer under the terms of the marketng
agreement whch was requred to be entered nto between the assoca-
ton and the producer. In order to obtan the oan, the assocaton
was requred to e ecute a promssory note n the amount of the oan
payabe to the Commodty Credt Corporaton, whch note was
secured by the gum turpentne and gum rosn devered by the pro-
ducer to the assocaton.
The marketng agreement between the producer and the assocaton
rovdes n substance that on November 1, 193 , absoute tte sha
e conveyed to the assocaton of a gum turpentne and gum rosn
revousy devered n that year by the producer to, and then hed
y, the assocaton under the terms of the agreement, and such con-
veyance sha consttute a sae by the producer and a purchase by the
assocaton of such gum turpentne and gum rosn. bsoute tte
to a gum rosn pedged subsequent to November 1, 193 , must be
conveyed to the assocaton, and such conveyance sha consttute a
sae by the producer and a purchase by the assocaton of such gum
rosn. fter pr 1, 193 , and on or before September 30, 193 , the
assocaton sha make advances to the producer on the gum turpentne
and gum rosn devered to the assocaton under the agreement on
the bass as set forth theren, whch advances represent the amounts
oaned by the Commodty Credt Corporaton to the assocaton on
such gum turpentne and gum rosn. The advances are made wthout
recourse or rght on the part of the assocaton to recover any part of
such advances from the producer e cept for fraud or msrepresenta-
ton. t any tme after une 1, 193 , and pror to November 1, 193 ,
the producer may wthdraw a of the gum turpentne and gum rosn
devered to the assocaton by payng to the Commodty Credt Cor-
poraton, for the account of the assocaton, the amounts advanced
thereon together wth nterest and certan other charges. The gum
turpentne and gum rosn devered under the agreement are com-
mnged wth the gum turpentne and gum rosn of other producers
and sod by the assocaton, commencng on November 1, 193 , for
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22(a). rt. 22(a)-2.
the best prces obtanabe. The proceeds from the sae of the gum
turpentne and gum rosn are to be apped by the assocaton to (1)
the payment of storage, handng, and/or seng e penses approved
by de Commodty Credt Corporaton, (2) the payment of the oan
obtaned by the assocaton from the Commodty Credt Corporaton
and secured by the gum turpentne and gum rosn, and (3) the pay-
ment of the admnstratve e penses of the assocaton ncurred n
connecton wth the handng and marketng of the gum turpentne
and gum rosn. Upon sae of the entre poo of gum turpentne and
gum rosn, the net amount remanng after payment of the afore-
mentoned tems must be dstrbuted Dy the assocaton to the pro-
ducers proportonatey.
Snce there s no abty on the part of the producer n any event
to pay the oan made by the Commodty Credt Corporaton to the
assocaton, or to repay n any event the advances made to hm by the
assocaton under the terms of the marketng agreement, the reaton-
shp of debtor and credtor does not e st between the producer and
the assocaton. Nor does such reatonshp e st between the pro-
ducer and the Commodty Credt Corporaton. It s hed, therefore,
that the advances made by the assocaton to the producer on the
gum turpentne and gum rosn, tte to whch passed to the assoca-
ton on or after November 1, 193 , do not consttute oans but, n
fact, consttute parta payments by the assocaton to the producers
for the gum turpentne and gum rosn, and as such shoud be ncuded
n the gross ncome of the producer for the year 193 . (See I. T.
2107, C. . III-2, 74 (1924).)
bttce 22(a)-2: Compensaton for persona servces. 1939-17-9 01
I. T. 3272
R NU CT O 193 .
I. T. 2219 (C. . I -2, 41 (1925)), hodng that money aowances
In eu of subsstence and quarters pad by the Unted States Gov-
ernment to ensted men and noncommssoned offcers n the Unted
States rmy are not sub|ect to edera ncome ta , s not appcabe
to those retred from the servce. The entre amount, ncudng
aowances n eu of ratons, cothng, quarters, etc., receved by a
retred ensted man s sub|ect to edera ncome ta .
dvce s requested as to the ta abty of cash aowances n eu
of subsstence, neat, ght, etc., receved by n addton to hs reguar
pay as a retred ensted man of the Unted States rmy.
receved compensaton of 157.50 per month for hs servces whe
on actve duty n the Unted States rmy. Upon retrement hs pay
was reduced to 75 per cent of that amount, or 11 .13. In addton he
receved 15.75 monthy as an aowance n eu of subsstence, heat,
ght, etc., makng the amount of hs monthy check 133. . It s
contended that under I. T. 2219 (C. . I -2, 41 (1925)) the aow-
ance s not ta abe.
I. T. 2219, supra, reads as foows:
oney aowances n eu of subsstence and quarters made by the Unted States
Government to ensted men and noncommssoned offcers n the Unted States
rmy are not Income sub|ect to edera ncome ta .
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22(a), rt. 22(a)-12.
4
It w be noted that the foregong appes to noncommssoned of-
fcers and ensted men n the Unted States rmy and s not, there-
fore, necessary appcabe to those retred from the servce.
The ct of March 2,1907 (34 Stat., 1217), entted n ct provd-
ng for the retrement of noncommssoned offcers, petty offcers, and
ensted men of the rmy. Navy, and Marne Corps of the Unted
States, reads n part as foows:
e t enacted That when an ensted man sha have served 30
years ether In the rmy, Navy, or Marne Corps, or In a, he sha, upon
makng appcaton to the Presdent, be paced upon the retred st, wth
75 per centum of the pay and aowances he may then be n recept of, and that
sad aowances sha be as foows: Nne doars and ffty cents per month n
eu of raton and cothng and s doars and twenty-fve cents per month
n eu of quarters, fue, and ght: Provded, That n computng the necessary
30 years tme a servce n the rmy, Navy, and Marne Corps sha be
credted.
The statute does not provde that the retred noncommssoned
offcer or ensted man sha receve as hs retred pay a certan amount
of cash and aowances n addton thereto. The amount he receves
s a certan sum, ths sum beng 75 per cent of the pay pus aowances
he may be n recept of at the tme of retrement. Such percentage
of hs pay and the specfc cash aowances, therefore, merey consttute
the measure of the retrement pay.
Retrement pay n genera has ong been regarded as addtona com-
pensaton for servces prevousy rendered and, as such, s ta abe
ncome to the recpent. Consequenty, t s hed that the entre amount
receved bv s sub|ect to edera ncome ta . (See aso G. C. M.
41, C. . -2,23 (192G).)
rtce 22(a)-2: Compensaton for persona servces.
R NU CT O 193 .
rtce 22(a)-12: nnutes and nsurance 1939-26-9 9
poces. I. T. 3292
R NU CT O 103 .
shoud Incude n hs gross ncome the entre amount of the
annuty receved by hm as a retred natona bank e amner snce
he dd not make any contrbutons to the retrement fund from
whch the annuty s pad.
dvce s requested as to the ta abty of a retrement annuty
receved bv from the retrement fund estabshed for retred na-
tona bank e amners and admnstered by trustees n the offce of
the Comptroer of the Currency. , who was retred on December
31, 1937, dd not make any contrbutons to the retrement fund n-
asmuch as he was over 65 years of age when the system provdng for
the retrement of the empoyees of the offce of the Comptroer 01 the
Currency was paced n effect on une 1, 1936.
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5
1122(b).
Secton 5240 of the Revsed Statutes, as amended (U. S. C, Supp.
I , Tte 12, secton 4 1), reatng to the appontment of natona
bank e amners, reads n part as foows:
The e amners and assstant e amners makng the e amnatons
of natona bankng assocatons and affates thereof heren provded for and
the chef e amners, revewng e amners and other persons whose servces
may be requred n connecton wth such e amnatons or the reports thereof,
sha be empoyed by the Comptroer of the Currency wth the approva of the
Secretary of the Treasury the empoyment and compensaton of e amners,
chef e amners, revewng e amners, assstant e amners, and of the other
empoyees of the offce of the Comptroer of the Currency whose compensaton,
ncudng retrement annutes to be f ed by the Comptroer of the Currency,
s and sha be pad from assessments on banks or affates thereof sha be
wthout regard to the provsons of other aws appcabe to offcers or empoyees
of the Unted States.
Under the foregong provsons of aw, the e penses of the e amna-
ton of the varous banks are to be assessed by the Comptroer of
the Currency upon banks e amned n proporton to assets or re-
sources hed by the banks on the dates of e amnaton of the varous
banks. The funds derved from such assessments are deposted by
tk Comptroer of the Currency n accordance wth the provsons of
te aw and are not Government funds or approprated moneys. The
retrement fund from whch the annuty s pad s derved from such
assessments and speca funds hed n the Comptroer s offce.
It s hed that nasmuch as made no contrbutons whatever to
the retrement fund, wth the resut that he pad no consderaton
for hs annuty, he shoud ncude n hs gross ncome the tota
amount of the annuty receved by hm n each year as a retred
natona bank e amner.
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
1939-3-9672
T. D. 4 0
INCOM T
Reguatons wth respect to the ta aton of rench ctzens and
rench corporatons as affected by the conventon and protoco
on doube ta aton between the Unted States and the Repubc
of rance, procamed by the Presdent of the Unted States
pr 16, 1935, effectve anuary 1, 1936 C. . I -2, 535 .
Treasubt Department,
Offce or Commssoner of Interna Revenue,
Washngton, D. 0.
P RT I.
Paragraph . The conventon and protoco, procamed by the
Presdent of the Unted States on pr 16, 1935, provdes n part
as foows:
rtc|c I.
nterprses of one of the contractng States are not sub|ect to ta aton by
the other contractng State n respect of ther ndustra and commerca profts
e cept In respect of such profts aocabe to ther permanent estabshments
to the atter State.
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522(b).
6
No account sha be taken, In determnng the ta n one of the contractng
States, of the purchase of merchandse effected theren by an enterprse of the
other State for the purpose of suppyng estabshments mantaned by such
enterprse n the atter State.
rtce II.
mercan enterprses havng permanent estabshments n rance are requred
to submt to the rench fsca admnstraton the same decaratons and the
same |ustfcatons, wth respect to such estabshments, as rench enterprses.
The rench fsca admnstraton has the rght, wthn the provsons of Its
natona egsaton and sub|ect to the measures of appea provded In such
egsaton, to make such correctons n the decaraton of profts reazed In
rance as may be necessary to show the e act amount of such profts.
The tame prncpe appes mutats mutands to rench enterprses havng
permanent estabshments n the Unted States.
btce III.
Income whch an enterprse of one of the contractng States derves from the
operaton of arcraft regstered n such State and engaged n transportaton
between the two States s ta abe ony n the former State.
btce I .
When an mercan enterprse, by reason of ts partcpaton In the manage-
ment or capta of a rench enterprse, makes or mposes on the atter. In ther
commerca or fnanca reatons, condtons dfferent from those whch woud
be made wth a thrd enterprse, any profts whch shoud normay have ap-
peared n the baance sheet of the rench enterprse, but whch have been, In
ths manner, dverted to the mercan enterprse, are, sub|ect to the measures
of appea appcabe n the case of the ta on Industra and commerca profts,
ncorporated In the ta abe profts of the rench enterprse.
The same prncpe appes mutats mutands, n the event that profts are
dverted from an mercan enterprse to a rench enterprse.

g btce II.
Compensaton pad by one of the contractng States to Its ctzens for abor
or persona servces performed n the other State s e empt from ta In the
atter State.
btce III.
War pensons pad by one of the contractng States to persons resdng In the
terrtory of the other State are e empt from ta n the atter State.
btce I .
The foowng casses of ncome pad n one of the contractng States to a
corporaton of the other State, or to a ctzen of the atter State resdng there,
are e empt from ta n the former State:
(a) amounts pad as consderaton for the rght to use patents, secret processes
and formuas, trade marks and other anaogous rghts
(6) Income receved as copyrght royates
(c) prvate pensons and fe annutes.
btce .

The agreement sha become effectve on the 1st day of anuary foowng
the e change of ratfcatons and sha reman effectve for a perod of 5 years,
and thereafter unt 12 months from the date on whch ether contractng party
gves notce of ts termnaton.
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7
22(b).
PROTOCOL.
t the moment of sgnng the conventon on doube ta aton between the
Unted States of merca and the Repubc of rance, the undersgned pen-
potentares, duy authorzed by ther respectve Governments, have agreed, aa
foows:
(1) The ta es referred to n ths agreement are:
(a) or the Unted States:
the edera Income ta but t s understood that rtce I does not e empt
from ta (1) compensaton for abor or persona servces performed In the
Unted States (2) Income derved from rea property ocated In the Unted
States, or from any nterest In such property, ncudng rentas and royates
therefrom, and gans from the sae or the dsposton thereof (3) dvdends
(1) nterest.
(1) for rance:
In rtces I, II, III and I , the ta on ndustra and commerca profts
(mpot sur es benefces ndustres et commercau )
In rtces III, and I, the ta on Income from securtes (mpot sur es
revenus des vaeurs moberes)
n rtces II, III and I , the ta on wages and saares, pensons and
fe annutes (mpot sur es tratements et saares, pensons et rentes vageres),
ud other schedu ar ta es (mpots ceduares) approprate to the type of ncome
specfed n sad artces
(2) The provsons of ths agreement sha not be construed to affect In any
manner any e empton, deducton, credt or other aowance accorded by the aws
of one of the contractng States n the determnaton of the ta Imposed by
men State.
(3) s used n ths agreement:
( ) The term permanent estabshment ncudes branches, mnes and o
wes, factores, workshops, warehouses, offces, agences, and other f ed paces
of busness, but does not ncude a subsdary corporaton.
When an enterprse of one of the States carres on busness n the other
State through an agent estabshed there who s authorzed to contract for Its
account, It s consdered as havng a permanent estabshment n the atter
State.
ut the fact that an enterprse of one of the contractng States has busness
deangs n the other State through a bona fde commsson agent or broker
sha not be hed to mean that such enterprse has a permanent estabshment n
the atter State.
(6) The term enterprse ncudes every form of undertakng whether car-
red on by an ndvdua, partnershp (socete en nom coectf), corporaton,
(aocete anonyme), or any other entty.
(c) The term enterprse of one of the contractng States means, as the case
may be, mercan enterprse or rench enterprse.
d) The term mercan enterprse means an enterprse carred on n the
Unted States by a ctzen of the Unted States or by an mercan corporaton
or other entty the term mercan corporaton or other entty means a
partnershp, corporaton or other entty created or organzed n the Unted
States or under the aw of the Unted States or of any State or Terrtory of the
tnted States.
(e) The term rench enterprse s defned n the same manner, mutats
mutands, as the term mercan enterprse.
(f) The mercan corporatons mentoned n rtces and I are those
whch, owng to ther form of organzaton, are sub|ect to artce 3 of the decree
of December 6, 1 72. The present agreement does not modfy the regme of
abonnement for securtes.
(0) The term Unted States, when used n a geographca sense, ncudes
ony the States and the Terrtores of aska and awa, and the Dstrct of
Coumba.
( ) The term rance, when used n a geographca sense, ndcates the
country of rance, e cusve of gera and the Coones.
Par. . The procamaton of the conventon by the Presdent of
the Unted States on pr 16, 1935, reads n part as foows:
nd whereas, the sad conventon and protoco have been ratfed on both
Pats, and the ratfcatons of the two Governments were e changed at Pars
on the 9th day of pr, 1935
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22(b).

nd whereas, t Is stpuated n rtce of the sad conventon that the
conventon sha become effectve on the 1st day of anuary foowng the
e change of ratfcatons, that s to say on the 1st day of anuary, 1936
Now, therefore, be t known that I, rankn D. Roosevet, Presdent of
the Unted States of merca, have caused the sad conventon and the sad
protoco to be made pubc, to the end that the same and every artce and
cause thereof may be observed and fufed wth good fath by the Unted
States of merca and the ctzens thereof on and from the 1st day of anuary .
1030.
In testmony whereof, I have hereunto set my hand and caused the Sea of
the Unted States of merca to be aff ed.
Done at the cty of Washngton ths 16th day of pr n the year of our
Lord one thousand nne hundred and thrty-fve, and of the Inde-
sea pendence of the Unted States of merca the one hundred and
ffty-nnth.
bankn D. Roosevet.
y the Presdent:
Corde. u,
Secretary of State.
Par. C. Secton 22(b)7, evenue ct of 193 , provdes n part as
foows:
Sec. 22. Gross Income.
.
(b) cusons from gross ncome. The foowng tems sha not be Incuded
In gross ncome and sha be e empt from ta aton under ths tte:

(7) Income e empt under treaty. Income of any knd, to the e tent requred
by any treaty obgaton of the Unted States:
Pursuant to the provsons of secton 62 of the Revenue ct of
193 , the foowng reguatons are hereby prescrbed to carry nto
effect the quoted provsons of the conventon and protoco, or treaty,
between the Unted States of merca and the Repubc of rance,
herenafter referred to as the conventon, for ta abe years begnnng
after December 31, 1937:
P RT II.
ffect of the Conventon Upon the Determnaton of Unted States Ta abe
Income of rench Ctzens and rench Corporatons.
rtce 1. Genera. The prmary purposes of the conventon are to reguate
the method of ta aton of corporatons of ether of the contractng States car-
ryng on ndustra or commerca actvtes through a permanent estabshment
or a subsdary corporaton n the other State and to avod doube ta aton upon
certan speca casses of ncome.
The specfc casses of ncome reeved from Unted States ncome ta are:
(a) Industra and commerca profts of a rench enterprse havng no per-
manent estabshment n the Unted States.
(6) Income derved by a rench enterprse from the operaton of arcraft
regstered n rance and engaged n transportaton between the Unted States
and rance.
(c) Compensaton pad by rance to ts ctzens for abor or persona servces
performed n the Unted States.
(d) War pensons pad by rance to persons resdng n the Unted States.
(e) Income pad to a rench corporaton, or to a ctzen of rance resdng
n rance
(1) as consderaton for the rght to use patents, secret processes and for-
muas, trade marks and other anaogous rghts
(2) as copyrght royates
(3) as prvate pensons and fe annutes.
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9
22(b).
cept as to those Items of ncome e pressy e empted by the conventon,
the ta abty of rench ctzens, not resdents of the Unted States, and
rench corporatons, s determned In accordance wth the provsons of the
revenue aws of the Unted States and the reguatons thereunder appcabe
generay to nonresdent aen ndvduas and to foregn corporatons.
The conventon does not affect the abty to ta of rench ctzens resdent
In the Unted States uness and to the e tent such ctzens are entted to the
benefts of rtce II or III of the conventon. See artces 5 and 6 of these
reguatons. The ta abty of a Unted States ctzen or Unted States res-
dent, a member of a rench partnershp carryng on a rench enterprse, s not
affected by rtce I of the conventon. Such ctzen or resdent s sub|ect to
Unted States ncome ta upon hs dstrbutve share of ts net ncome even
though the other members of such partnershp are not sub|ect to ta upon ther
share of the partnershp s Industra and commerca profts from sources wthn
the Unted States.
The conventon has no reference to the rates of ta aton mposed by the
respectve countres and concerns ony the determnaton of ncome arsng In
raw of the contractng States to ctzens or corporatons of the other contractng
State and sub|ect to ta aton n the former State.
These reguatons are mted to a consderaton of the factors Invoved n the
appcaton of: (a) the provsons of the conventon aone and (b) the prov-
sons of the conventon as e tended by the Revenue ct of 193 . These regu-
atons are not concerned wth rtce or I of the conventon as such
artces affect ony the appcaton of certan rench ta aws and decrees.
n. 2. Defnton . ny word or term used n these reguatons whch a
defned h the conventon sha be gven the defnton assgned to such word or
term to such conventon. ny word or term used n these reguatons whch
Is not defned n the conventon but s defned n the Revenue ct of 193 sha
be gven the defnton contaned n the Revenue ct.
The term permanent estabshment ncudes branches, mnes and o wes,
factores, work shops, warehouses, offces, agences and other f ed paces of
busness. rench enterprse, as defned n the conventon, carryng on bus-
ness to the Unted States through an agent estabshed there who s authorzed
to contract tor ts account, s consdered to have a permanent estabshment
In the Unted States. owever, the carryng on of busness deangs n the
Unted States by a rench enterprse through a bona fde commsson agent
or broker does not consttute a permanent estabshment n the Unted States.
rench corporaton dong busness n the Unted States through a domestc
subsdary corporaton has not, merey by reason of such fact, a permanent
estabshment n the Unted States.
The term enterprse means any commerca or ndustra undertakng
whether conducted by an ndvdua, partnershp, corporaton or any other
entty. It ncudes such actvtes as manufacturng, merchandsng, mnng,
bankng and nsurance. It does not ncude the operaton of, or the tradng n,
rea property ocated n the Unted States. It does not ncude the rendton
of persona servces. ence, a rench ctzen renderng persona servces
wthn the Unted States s not, merey by reason of such servce, engnged n
an enterprse wthn the meanng of the conventon and hs abty to edera
Income ta s unaffected by rtce I of the conventon.
The term rench enterprse means an enterprse carred on n rance by a
ctzen cf rance or by a rench corporaton or other entty. The term rench
corporaton or other entty of the conventon means a partnershp, corpora-
ton or other entty created or organzed n rance or under the aw of
rance. If, for e ampe, a rench ctzen or rench corporaton does not
carry on an enterprse In rance It s not a rench enterprse wthn the mean-
ng of the conventon even though t carres on an enterprse n some other
foregn country and hence such enterprse s not reeved by the conventon
from Unted States ncome ta upon ts ndustra and commerca profts from
sources wthn the Unted States even though t has no permanent estabshment
theren.
The term ndustra and commerca profts means the profts arsng from
the Industra, mercante, or manufacturng or ke undertakngs of a rench
enterprse, as denned n ths artce. or the purpose of the e empton under
rtce I of the conventon such term does not ncude gans from the sae
or e change wthn the Unted States of capta assets as defned n secton
172176 39 pt 1
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522(b).
90
117 of the Revenue ct of 193 uness t can be shown by cear and convncng
evdence that such sae or e change was ncdent, and had a necessary reaton,
to the commerca nnd ndustra actvtes of the rench enterprse. or
treatment of such gans under the Revenue ct of 193 , see artces (6) and
9(b). Such term does not ncude dvdends, nterest, compensaton for abor
or persona servces, or ncome derved from rea property or from any nterest
n such property ncudng rentas and royates therefrom and gans from
the sae or dsposton thereof.
rt. 3. Scope of conventon wth respect to determnaton of ta abe ncome
of rench ctzen or a rench corporaton carryng on a rench enterprse n
the Unted States. (a) Genera. rtce I of the conventon adopts the
prncpe that an enterprse of one of the contractng States sha not be
ta abe n the other contractng State n respect of ts ndustra and com-
merca profts uness It has a permanent estabshment n the atter State.
ence, n rench enterprse Is sub|ect to ta upon ts ndustra and commer-
ca profts from sources wthn the Dnted States ony f t has a permanent
estabshment wthn the Unted States. rom the standpont of edera
ncome ta aton the artce has appcaton ony to a rench enterprse and
to the ndustra and the commerca ncome thereof from sources wthn the
Unted States. It has no appcaton to compensaton for abor or persona
servces performed n the Unted States, nor to ncome derved from rea prop-
erty ocated n the Unted States, or from any nterest n such property, ncud-
ng rentas and royates therefrom, and gans from the sae or the dsposton
thereof, nor to dvdends or nterest. Such atter tems of ncome are, e cept as
otherwse provded n the conventon and n these reguatons, sub|ect to ta as
ncome of rench ctzens or rench corporatons, n the same manner and sub-
|ect to the same provsons as are appcabe to other nonresdent aens and
foregn corporatons. s to what s a rench enterprse, a permanent estab-
shment, and ndustra and commerca profts, see artce 2.
(6) No Unted States permanent estabshment. rench ctzen or a rench
corporaton carryng on a rench enterprse but havng no permanent estab-
shment n the Unted States s not sub|ect to Unted States Income ta upon
Its ndustra and commerca profts from sources wthn the Unted States.
s to what consttutes a rench enterprse see artce 2. s to what con-
sttutes ndustra and commerca profts see artce 2. or e ampe, f
such rench corporaton ses stock n trade, such as wne or cosmetcs, through
a bona fde commsson agent or broker n the Unted States, the resutng
proft s, under the terms of the conventon, reeved from Unted States ncome
ta . Such rench corporaton, however, remans sub|ect to ta upon a other
tems of ncome from sources wthn the Unted States and not e pressy e -
empted from such ta under the conventon. owever, under the provsons of
rtce I of the conventon the foowng tems, otherwse ta abe, pad to
ctzens of rance resdng n rance, or to rench corporatons, are e pressy
e empt from the ta :
(1) mounts pad as consderaton for the rght to use patents, secret proc-
esses, and formuas, trade marks and other anaogous rghts
(3) Prvate pensons and fe annutes.
The e empton as to such tems does not e tend to rench ctzens resdng
esewhere than n rance nor to ndvduas resdng n rance who are not
ctzens of rance.
(c) Unted States permanent estabshment. rench ctzen or a rench
corporaton carryng on a rench enterprse whch has a permanent estabsh-
ment n the Unted States s sub|ect to ta upon hs or ts entre net ncome
(ncudng ndustra and commerca profts) from sources wthn the Unted
States, sub|ect to the e emptons e pressy provded for n rtce I of the
conventon. See artce 7. In the determnaton of the ncome of such rench
ctzen or corporaton from sources wthn the Unted States a ndustra and
commerca profts from sources wthn the Unted States sha be deemed to
be aocabe to the permanent estabshment wthn the Unted States. The net
ncome from sources wthn the Unted States of such enterprse w be deter-
mned n accordance wth the provsons of secton 119, Revenue ct of 193 . In
determnng such ncome no account sha be taken of the purchase of goods,
wares, or merchandse wthn the Unted States for the purpose of suppyng
estabshments of the enterprse mantaned by such ctzen or corporaton n
rance.
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91
522(b).
rench ctzen or corporaton carryng on a rench enterprse havng
busness deangs n the Unted States through a bona fde commsson agent
or broker theren has not, merey by reason of such transactons, a permanent
estabshment n the Unted States and hence s reeved by the conventon
from Unted States ncome ta upon hs ndustra and commerca profts ars-
ng from such transactons. owever, a rench ctzen or rench corporaton
not carryng on a rench enterprse, havng busness deangs n the Unted
States through a bona fde commsson agent or broker, s not by the conventon
reeved from Unted States Income ta on the resutng proft. Such rench
ctzen or rench corporaton s sub|ect to ta upon the ncome resutng from
such transactons n the same manner and sub|ect to the same provsons and
e ceptons, under the Revenue ct of 193 , as are appcabe to other non-
resdent aens and foregn corporatons. See artces (a) and 9. or defnton
of the terms rench enterprse, permanent estabshment, and commerca
and ndustra profts, see artce 2.
rr. 4. Contro of a domestc enterprse by a rench enterprse. rtce I
of the conventon provdes that f a rench enterprse by reason of ts contro
of a domestc busness mposes condtons dfferent from those whch woud re-
mt from norma barganng between ndependent enterprses, the accounts
between the enterprses w be ad|usted so as to ascertan the true net ncome
of the domestc enterprse. The purpose s to pace the controed domestc
enterprse on a ta party wth an uncontroed domestc enterprse
b| determnng, accordng to the standard of an uncontroed enterprse,
the true net ncome from the property and busness of the controed
enterprse. The conventon contempates that f the accountng records do not
truy refect the net ncome from the property and busness of such domestc
enterprse the Commssoner sha ntervene and, by makng such dstrbutons,
apportonments, or aocatons as he may deem necessary of gross ncome or
deductons or of any tem or eement affectng net ncome as between such
domestc enterprse and the rench enterprse by whch t s controed or
drected, determne the true net Income of the domestc enterprse.
rt. 5. Compensaton pad by the Repubc of rance to ts ctzens for serv-
ce rendered n the Unted States. Under rtce II of the conventon,
rench ctzens are reeved from Unted States ncome ta upon wages, fees,
saary, remuneratons or other amounts pad by the Repubc of rance to ts
ctzens as compensaton for Inbor or persona servces performed n the Unted
States. Sucb e empton s effectve on and after anuary 1, 1930. The character
of the servces has no bearng upon the e empton from the ta and hence
the test set forth n secton 116(h)( ), Revenue ct of 193 , has no appca-
ton n so far as the year 193 and subsequent years are concerned.
rt. 6. War pensons. Under rtce III of the conventon, war pensons
pad by the Repubc of rance to persons resdng n the Unted States are
e empt from Unted States ncome ta . The term war pensons, for the
purposes of these reguatons, Incudes pensons receved under the provsons
of the rench Mtary Pensons ct of March 1, 1919, or for the servces of
the benefcary or another n the mtary or nava forces of the Repubc of
rance n tme of war. It s not necessary that the recpent of such penson
be a ctzen of rance. Such penson n the bands of a Unted States ctzen
recpent, f resdng n the Unted States, s e empt from ta .
bt. 7. Patents, formuas and copyrght royates, pensons and annutes.
The foowng tems of ncome pad to a corporaton organzed under the aws
of rance or to a ctzen of rance resdng In rance are e empt from edera
ncome ta under the provsons of rtce I of the conventon:
(0) mounts pad as consderaton for the rght to use patents, secret
processes and formuas, trade marks and other anaogous rghts
(c) Prvate pensons and fe annutes.
Such tems are, therefore, not sub|ect to the wthhodng provsons of the
Revenue ct of 193 . To avod wthhodng of the ta at the source the rench
ctzen or corporaton, as the case may be, shoud notfy by etter the payor
thereof that such ncome s e empt from ta aton under the provsons of the
conventon. Such etter from a ctzen of rance sha contan hs address and
a statement that he s a ctzen of rance resdng In rance. The etter from
such corporaton sha contan the address of ts offce or pace of busness and
a statement that t s a corporaton organzed under the aws of the Repubc
of rance, and sha be sgned by an offcer of the corporaton, gvng hs
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22(b).
92
offca tte. The etter of notfcaton, or a copy thereof, shoud be Immedatey
forwarded by the recpent to the Commssoner of Interna Revenue, Sortng
Secton, Washngton, D. O.
P RT I.
Ta Labty of rench Ctzens and bench Cobpobatons Undeb the
Revenue ct of 193 , as Modfed by the Conventon.
rt. . Ta aton of a rench ctzen (not a resdent of the Unted State))
under the Revenue ct of 193 , as modfed by the conventon. Genera.
rench ctzen, not a resdent of the Unted States, s sub|ect to the provsons
of the Revenue ct of 193 appcabe to nonresdent aen ndvduas generay,
but such ctzen s entted to the e emptons provded n the conventon to whch
other nonresdent aens are not entted. Secton 211 of the Revenue ct of 193
cassfes nonresdent aen ndvduas Into three casses: (1) nonresdent
aen ndvduas not engaged n trade or busness wthn the Unted States
and not havng an offce or pace of busness theren at any tme durng the
ta abe year, and dervng n the ta abe year not more than 21,600 gross
amount of f ed or determnabe annua or perodca ncome from sources wthn
the Unted States (2) nonresdent aen ndvduas not engaged In trade or
busness wthn the Unted States and not havng an offce or pace of busness
theren at any tme durng the ta abe year and dervng n the ta abe year
more than 21,600 gross amount of f ed or determnabe annua or perodca
ncome from sources wthn the Unted States and (3) nonresdent aen
ndvduas who at any tme durng the ta abe year are engaged In trade or
busness n the Unted States or have an offce or pace of busness theren.
Whether a nonresdent aen has an offce or pace of busness wthn the
Unted States depends upon the facts of the partcuar case. The term offce
or pace of busness, however, Impes a pace for the reguar transacton of
busness and does not ncude a pace where casua or ncdenta transactons
mght be, or are, effected.
Whe rtce I of the conventon (n so far as concerns ndvduas) appes
ony to rench ctzens carryng on a rench enterprse and has no appcaton
to those not carryng on such enterprse, secton 211 makes no dstncton between
the two casses, and appes ake to both groups.
Ths artce treats of the ta aton of rench ctzens, not resdent n the
Unted States, under secton 211, Revenue ct of 193 , as modfed by the conven-
ton, foowng the cassfcaton prescrbed n that secton.
(a) No Unted States busness or offce. Genera rue. rench ctzen, not
a resdent of the Unted States, comng wthn cass (a) of the cassfcaton
prescrbed n secton 211 (whether or not he carres on a rench enterprse),
s abe to the ta at the rate of 10 per cent, mposed by secton 211(a),
Revenue ct of 193 , upon the gross amount of hs f ed or determnabe annua
or perodca gans, profts, and ncome from sources wthn the Unted States.
Such gans, profts, and ncome are to be determned under the provsons of
secton 119, Revenue ct of 193 . Specfc tems of f ed or determnabe annua
or perodca ncome are enumerated n the ct as nterest (e cept nterest on
deposts wth persons carryng on the bankng busness whch s nonta abe
under the ct), dvdends, rents, saares, wages, premums, annutes, com-
pensaton, remuneratons, and emouments, but other f ed or determnabe
annua or perodca gans, profts, and Income are aso sub|ect to the ta , as,
for nstance, royates. owever, a rench ctzen who s a resdent of rance
s not ta abe upon those tems of ncome enumerated n rtce I of the
conventon and n artce 3(6) of these reguatons. See artce 7.
The term f ed or determnabe annua or perodca ncome wthn the
meanng of secton 211(a) does not ncude ndustra and commerca profts
as that term s used n the conventon. Under the Revenue ct of 193 , as
modfed by the conventon, a rench ctzen comng wthn secton 211(a) or
secton 211(c) of that ct s e empt from Unted States ncome ta on ndus-
tra and commerca profts. or e ampe, the conventon e empts from ta
profts reazed by such rench ctzen who carres on a rench enterprse from
transactons n the Unted States n goods, wares, or merchandse through a
resdent broker or commsson agent If, however, such ctzen does not carry
on such enterprse such transactons are not e empt under the conventon and
consttute engagng n trade or busness wthn the Unted States and he s
accordngy ta abe upon the proft resutng from such transactons under
secton 211(b), Revenue ct of 193 . On the other hand, a rench ctzen, not
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93
15122(b).
a resdent of the Unted States, but ta abe under secton 211(a) of the ct,
whether or not he carres on a rench enterprse, s not abe to Unted States
ncome ta npon profts reazed from transactons n stocks, securtes, or com-
modtes In the Unted States through a resdent broker, commsson agent, or
custodan. owever, a rench ctzen who performs persona servces n the
Unted States at any tme wthn the ta abe year s abe to the ta upon
profts arsng from transactons n stocks, securtes, or commodtes, e cept
where t can be shown that such ctzen s ony temporary present n the
Unted States and meets the other condtons wth respect to persona servce
ad down n secton 211(b), Revenue ct of 103 . s to when such profts
consttute ndustra and commerca profts, see artce 2. s to wthhodng
of the ta at the source, see secton 143, Revenue ct of 193 .
(6) o Unted States busness or offce. ggregate more than 21,600.
rench ctzen, not a resdent of the Unted States, comng wthn cass (c) of
the cassfcaton prescrbed n secton 211 (whether or not he carres on a
rench enterprse) s, under the provsons of secton 211(c), sub|ect to ta ony
upon hs f ed or determnabe annua or perodca ncome specfed n secton
211(a) determned under the provsons of secton 119, mnus (1) the deductons
propery aocabe to such ncome and (2) the so-caed chartabe contrbu-
tons deducton provded n secton 213(c). Such nonresdent aen s en-
tted to the credts aganst net ncome aowabe to an ndvdua by secton
S. sub|ect to the mtatons provded n secton 214. owever, the ta thus
o|mpnted under sectons 11 and 12 sha n no such case be ess than 10 per
ant of the gross amount of such f ed or determnabe annua or perodca
wme from sources wthn the Unted States.
(c) Unted States busness or offce. . Tench ctzen not a resdent of the
Unted States and not carryng on a rench enterprse, comng wthn cass (b)
of the cassfcaton prescrbed n secton 211, or a rench ctzen carryng on
a rench enterprse and who has a permanent estabshment In the Unted
States s, ke other nonresdent aens, abe to the norma ta of 4 per cent m-
posed by secton 11 of the ct and to the graduated surta mposed by secton
12(b) of the ct, upon hs net ncome from sources wthn the Unted States
(gross ncome from sources wthn the Unted States mnus the statutory deduc-
tons provded n sectons 23 and 213) ess the credts aganst net ncome aowed
an Indvdua by secton 25. Such net ncome Incudes a ndustra and com-
merca profts from sources wthn the Unted States. Such net ncome s to
be determned under the provsons of secton 119, Revenue ct of 193 , but
n determnng such ncome no account sha be taken of the purchase of mer-
chandse wthn the Unted States for the purpose of suppyng estabshments
of the enterprse, f any, mantaned by such ctzen n rance. In the deter-
mnaton of the ncome of such rench ctzen from sources wthn the Unted
States a ndustra and commerca profts from sources wthn the Unted
tates sha be deemed to be aocabe to hs permanent estabshment wthn
the Unted States. If, however, such rench ctzen s a resdent of rance,
be s not ta abe upon those tems of Income enumerated n rtce I of the
conventon and referred to n paragraph (a) of ths artce wth respect to
rench ctzens sub|ect to ta under secton 211(a). See artce 7.
rench ctzen havng an offce or pace of busness wthn the Unted
States wthn the meanng of secton 211 of the Revenue ct of 193 , sha
be presumed (f he carres on a rench enterprse) to have a permanent estab-
shment n the Unted States wthn the meanng of the conventon.
rench ctzen carryng on a rench enterprse who carres on busness
transactons through a bona fde commsson agent or broker n the Unted
States and who has no permanent estabshment n the Unted States s not
abe to ncome ta on the ndustra and commerca profts arsng to hm
from such transactons. owever, a rench ctzen not carryng on a rench
enterprse s hed to be engaged n trade or busness In the Unted States f
he ses theren through a commsson agent or broker goods, wares, or mer-
chandse (not ncudng stocks, securtes, or commodtes) and, hence, s abe
to Income ta on the resutng proft. Such rench ctzen, whether or not he
carres on a rench enterprse, comng wthn cass (a) or cass (c) of the
cassfcaton prescrbed n secton 211 of the Revenue ct of 193 s, however,
not abe to te ta upon profts arsng from transactons n stocks, securtes,
or commodtes through a resdent broker, commsson agent, or custodan. s
to what consttutes a rench enterprse, see artce 2. s to what const-
pates a permanent estabshment, see artce 2.
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22(b).
94
s to the computaton of gross Income, the aowance of deductons and
credts, the requrements as to fng of returns and payment of the ta n the
case of nonresdent aens generay, ncudng rench ctzens, see sectons 211
to 219, ncusve, Revenue ct of 193 .
(d) Member of rench partnershp. Whether the abty to the ta of a
rench ctzen who s a member of a partnershp s affected by rtce I of the
conventon depends upon the status of the partnershp. rtce I does not appy
uness such partnershp: (1) s created or organzed n rance and (2) carres
on a rench enterprse. Thus, a partnershp created or organzed n the
Unted States, even though composed In whoe or In part of rench ctzens,
s not a rench enterprse and hence s not affected by the conventon.
rench ctzen, not resdent n the Unted States, a member of such partnershp,
s ta abe under the provsons of secton 211 as are other nonresdent aens.
If, however, such rench ctzen s a member of a partnershp meetng the
tests set forth n ths paragraph, the Unted States ta abty of such rench
ctzen sha be determned as provded n paragraph (a) or (6) or (c) of ths
artce, whchever s appcabe, dependent upon whether or not the partnershp
has a permanent estabshment n the Unted States.
rt. 9. Ta aton of a rench corporaton under the Revenue ct of 19S
as modfed by the conventon. Genera. corporaton organzed under the
aws of rance s sub|ect to those provsons of the Revenue ct of 193 app-
cabe to foregn corporatons generay but such corporaton s entted to the
e emptons provded n the conventon to whch other foregn corporatons are
not entted.
Secton 231 of the Revenue ct of 193 cassfes foregn corporatons nto
two groups: (1) those not engaged n trade or busness wthn the Unted
States and not havng an offce or pace of busness theren (herenafter re-
ferred to as nonresdent foregn corporatons) and (2) those whch at any
tme wthn the ta abe year are engaged n trade or busness wthn the Unted
States or have an offce or pace of busness theren (herenafter referred to
as resdent foregn corporatons).
Whether a foregn corporaton has an offce or pace of busness wthn
the Unted States depends upon the facts of the partcuar case. The term
offce or pace of busness, however, Impes a pace for the reguar trans-
acton of busness and does not Incude a pace where casua or Incdenta trans-
actons mght be, or are, effected.
Whe rtce I of the conventon, n so far as corporatons are concerned,
appes ony to rench corporatons carryng on a rench enterprse and has
no appcaton to those not carryng on such enterprse, secton 231 makes no
dstncton between the two casses, such secton appyng ake to both groups.
Ths artce treats of the ta aton of rench corporatons under that secton,
as modfed by the conventon, foowng the cassfcaton prescrbed n that
secton.
(a) Nonresdent rench corporatons. rench corporaton (whether or
not t carres on a rench enterprse) not engaged In trade or busness wthn
the Unted States and not havng an offce or pace of busness theren at any
tme wthn the ta abe year s abe to the ta at the rate of 15 per cent
(10 per cent In the case of dvdends) Imposed by secton 231(a), Revenue ct
of 193 , upon the gross amount of ts f ed or determnabe annua or perod-
ca gans, profts, and ncome from sources wthn the Unted States. Such
gans, profts, and ncome are to be determned under the provsons of secton
119, Revenue ct of 193 . Specfc tems of f ed or determnabe annua or
perodca ncome are enumerated n the ct as Interest (e cept Interest on
deposts wth persons carryng on the bankng busness whch Is nonta abe
under the ct), dvdends, rents, saares, wages, premums, annutes, com-
pensatons, remuneratons, emouments, but other f ed or determnabe annua
or perodca gans, profts, and Income are aso sub|ect to ta , as, for nstance,
royates. owever, a rench corporaton Is not ta abe upon those tems of
Income enumerated n rtce I of the conventon and referred to n artce
(a) wth respect to rench ctzens sub|ect to ta under secton 211(a).
Revenue ct of 193 . See artce 7.
The term f ed or determnabe annua or perodca ncome wthn the
meanng of secton 231(a), Revenue ct of 193 , does not ncude Industra
and commerca profts as that term s used n the conventon. Under the Rev-
enue ct of 193 as modfed by the conventon a rench corporaton ta abe
under secton 231(a) of that ct Is e empt from Unted States Income ta on
Industra and commerca profts. or e ampe, under the conventon profts
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95
22(b).
reazed by such rench corporaton, whch carres on a rench enterprse,
from transactons n the Unted States n goods, wares, or merchandse through
resdent broker or commsson agent are not sub|ect to ta . If, however, such
corporaton does not carry on such enterprse such transactons are not e empt
under the conventon and consttute engagng n trade or busness wthn the
Unted States and t s accordngy ta abe upon the resutng proft under
secton 231(b), Revenue ct of 193 . On the other hand, a rench corporaton
ta abe under secton 231(a), whether or not t carres on a rench enterprse,
a not abe to Unted States Income ta upon profts reazed from transactons
In stocks, securtes, or commodtes n the Unted States through a resdent
broker, commsson agent, or custodan.
(6) Resdent rench corporatons. rench corporaton, not carryng on
a rench enterprse, whch at any tme wthn the ta abe year s engaged n
trade or busness wthn the Unted States or has an offce or pace of busness
theren, or a rench corporaton, carryng on a rench enterprse, whch has
a permanent estabshment In the Unted States, s, ke other foregn cor-
poratons, abe to the ta of 19 per cent mposed by secton 14(e), Revenue
ct of 193 , npon ts speca cass net ncome from sources wthn the Unted
States (gross ncome from sources wthn the Unted States mnus the statu-
tory deductons provded n sectons 23 and 232 and the credts provded n
secton 26 (a) and (b) of the Revenue ct of 193 ). Such net ncome ncudes
U ndustra and commerca profts from sources wthn the Unted States. See
anke 3(c). Such net ncome s to be determned under the provsons of
secton 119, Revenue ct of 193 , but n determnng such ncome no account
scan be taken of the purchase of goods, wares, or merchandse wthn the
Unted States for the purpose of suppyng estabshments mantaned by such
corporaton In rance. In the determnaton of the ncome of such rench
corporaton from sources wthn the Unted States a ndustra and com-
merca profts from sources wthn the Unted States sha be deemed to be
aocabe to ts permanent estabshment wthn the Unted States. Such cor-
poraton s not ta abe upon those tems of Income enumerated n rtce I
of the conventon and referred to n paragraph (a) of ths artce wth respect
to nonresdent rench corporatons. See artce 7.
rench corporaton havng an offce or pace of busness wthn the Unted
States wthn the meanng of secton 231 of the Revenue ct of 193 , sha be
presumed (f t carres on a rench enterprse) to have a permanent estabsh-
ment In the Unted States wthn the meanng of the conventon.
rench corporaton carryng on a rench enterprse whch carres on
busness transactons through a bona fde commsson agent or broker n the
Unted States and whch has no permanent estabshment In the Unted States
Is not abe to ncome ta on the Industra and commerca profts arsng to
It from such transactons. owever, a rench corporaton not carryng on a
rench enterprse s hed to be engaged n trade or busness n the Unted
States f t sea theren, through a commsson agent or broker, goods, wares, or
merchandse (not ncudng stocks, securtes, or commodtes) and, hence, s
abe to ncome ta on the resutng proft. Such rench corporaton, whether
or not t carres on a rench enterprse, otherwse abe to the ta mposed
by subsecton (a) of secton 231 of the Revenue ct of 193 s, however, not
abe to the ta upon profts arsng from transactons n stocks, securtes,
or commodtes through a resdent broker, commsson agent, or custodan. s
to what consttutes a rench enterprse, see artce 2. s to what consttutes
a permanent estabshment, see artce 2. s to the computaton of gross
Income, the aowance of deductons and credts, the requrements as to fng
of returns and payment of the ta , n the case of foregn corporatons gen-
eray, ncudng rench corporatons, see sectons 231 to 236, ncusve, Revenue
ct of 193 .
Mton . Carter,
ctng Commssoner of Interna Revenue.
pproved anuary 5, 1939.
ohn W. anes,
( ed wth the Dvson of the edera Regster anuary 7, 1939, 11.16 a. m.)
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22(b), rt. 22(b)(4M. 96
rtce 22(b) (3)-: Gfts and bequests.
R NU CT O 193S.
Potca contrbutons. (See L T. 3276, page 10 .)
rtce 22(b)(4)- : Interest upon Unted 1939-12-975
States obgatons. I. T. 32G2
R NU CTS O 1934, 1935, 1936, 1937, ND 193 .
empton of nterest (ncrement n vaue) on Unted States
savngs bonds.
Interest (ncrement n vaue) on Unted States savngs bonds s
entrey e empt from ta es now or hereafter mposed by the Unted
States, any State, or any of the possessons of the Unted States,
or by any oca ta ng authorty thereof, upon ncome or profts
e cept graduated addtona ncome ta es (commony known as sur-
ta es) and e cess-profts and war-profts ta es now or hereafter m-
posed by the Unted States. The nterest (ncrement n vaue) on
Unted States savngs bonds s e empt from such e cepted ta es to
the e tent of nterest on an amount of the bonds the prncpa of
whch does not e ceed n the aggregate 5,000 (ncudng other Donds
and certfcates owned by the ta payer whch were ssued under the
authorty of the Secona Lberty ond ct, as amended). In de-
termnng whether the prncpa amount of such bonds and certf-
cates 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.
The above-mentoned e cepton to e empton from ta es upon
nterest on such bonds s not appcabe whe they are benefcay
owned by a nonresdent aen ndvdua, or a foregn corporaton,
artnershp, or assocaton, not engaged n busness n the Unted
tates.
The rates of surta es now mposed by the Unted States on ncome
of ndvduas, estates, and trusts, to whch nterest (ncrement n
vaue) on Unted States savngs bonds may be sub|ect, are dependent
upon the amount of the ta payer s net ncome after aowance of
credts for persona e empton and/or dependents. Under the Rev-
enue cts of 1934, 1936, and 193 , there s no surta due on such
surta net ncome of 4,000 or ess, and f the surta net ncome
e ceeds 4,000, the surta rates appy ony to the e cess.
Surta es, to whch nterest (ncrement n vaue) on Unted States
savngs bonds may be sub|ect, are now mposed by the Unted States
on corporatons ony n certan speca cases. See Tte I of the
Revenue ct of 193 , and correspondng provsons of the Revenue
cts of 1934, 1935, 1936, and 1937, reatve to surta on persona
hodng companes and secton 102 of the Revenue ct of 193 , and
correspondng provsons of the Revenue cts of 1934, 1936, and
1937, reatve to surta on corporatons mpropery accumuatng
surpus.
The e cess-profts ta now mposed by the Unted States, to whch
nterest (ncrement n vaue) on Unted States savngs bonds may be
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07
23(a). rt. 23(a)-.
sub|ect, s appcabe ony to corporatons (ncudng assocatons
and |ont stock companes).
There s no war-profts ta now mposed by the Unted States to
whch nterest (ncrement n vaue) on Unted States savngs bonds
s sub|ect.
Secton- 22(b) 5: Compensaton for n|ures 1939-22-9 49
or sckness. L T. 32 1
R NU CT O 103 .
Com e::saton pad by the Unted States under te provsons of
the edera Compensaton ct of September 7, 191 ( (39 Stnt., 742),
on account of the dsabty or death of an empoyee of the edera
Government resutng from a persona n|ury sustaned by the em-
poyee whe n the performance of hs duty s not sub|ect to
edera ncome ta .
dvce s requested whether compensaton pad under the edera
Compensaton ct of September 7,1916 (39 Stat., 742), s ta abe for
Yedera ncome ta purposes.
The ct provdes, among other thngs, that the Unted States sha
pay compensaton on account of the death or dsabty of an em-
poyee of the edera Government resutng from a persona n|ury
sustaned whe n the performance of hs duty.
Secton 22(b) of the Revenue ct of 193 provdes that the foow-
ng tems sha not be ncuded n gross ncome and sha be e empt
from ncome ta aton:

(5) Compensaton for n|ures or sckness. mounts receved, through ac-
cdent or heath nsurance or under workmen s compensaton acts, as com-
pensaton for persona n|ures or sckness, pus the amount of nny damages
receved whether by sut or agreement on account of such n|ures or sckness

The provsons of the ct of September 7, 1916, are smar n
many respects to those of the so-caed workmen s compensaton acts
of the varous States. Whe there s no provson n the ct of
September 7, 1916, supra, desgnatng or defnng t as a workmen s
compensaton act, t s hed that by reason of ts stated purposes
and the provsons for the payment of the compensaton n queston,
such amounts receved under the provsons of the ct are not sub-
|ect to edera ncome ta .
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 23(a)-: usness e penses. 1939-13-9764
I. T. 3265
R NU CT O 10.1 .
n empoyer who keeps hs accounts on ether the ensh recepts
and dsbursements bass or the accrua bass, and who makes voun-
tary contrbutons to the Mchgan unempoyment compensaton
fund under the provsons of secton 14 of the Mchgan Unempoy-
ment Compensaton ct, as amended, s entted to deduct such
contrbutons as ordnary and necessary busness e penses n hs
edera Income ta return for the year of payment.
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5 23(b), rt. 23(b)- .
9
dvce s requested as to the deductbty, for edera ncome ta
purposes, of vountary contrbutons pad nto the Mchgan unem-
poyment compensaton fund under secton 14 of the Mchgan Unem-
poyment Compensaton ct, as amended.
Pertnent provsons of the Mchgan Unempoyment Compensa-
ton ct, as amended, read as foows:
Sec. 14. Contrbutons vountary contrbutons. ny empoyer sub|ect to ths
act may make vountary contrbutons In addton to the contrbutons requred
heren, and any such vountary contrbutons sha be credted to such em-
poyer s reserve account for the purposes of secton 19 of ths act, and sha
become a part of the unempoyment compensaton fund.

Sec. 17. uture rates based on beneft e perence reserve account. The com-
msson sha mantan a separate reserve account for each empoyer, credtng
hs reserve account wth 0 per cent of the contrbutons whch he has pad
durng each caendar year, and chargng hs reserve account wth a amounts
pad wthn such year as benefts whch, under secton 20 of ths act, were
charged aganst wages earned n empoyment n hs servce: Provded, That
100 per cent of n vountary contrbutons pad by an empoyer n pursuance
of the provsons of secton 14 of ths act sha be credted to such empoyer s
reserve account. ut nothng n ths act sha be construed to grant any em-
poyer or ndvduas In hs servce pror cams or rghts to the amount pad
by hm to the unempoyment compensaton fund ether on hs own behaf or on
behaf of such ndvduas. contrbutons to the sad fund sha be pooed
and avaabe to pay benefts to any ndvdua entted thereto under ths act,
rrespectve of the source of such contrbutons.
It s to the empoyer s advantage to make vountary contrbutons
to ncrease hs reserve account, snce by thus ncreasng hs reserve
rato he materay reduces the rate of hs contrbutons.
It s hed that an empoyer, keepng hs books of account ether
on the accrua or cash recepts and dsbursements bass, who makes
vountary contrbutons to the Mchgan unempoyment compensa-
ton fund under the provsons of secton 14 of the Mchgan Unem-
poyment Compensaton ct, as amended, s entted to deduct such
contrbutons as ordnary and necessary busness e penses n hs
edera ncome ta return for the year of payment.
S CTION 23(b). D DUCTIONS ROM GROSS
INCOM : INT R ST.
rtce 23(b)-: Interest. 1939-9-9730
L T. 3254
R NU CT O 103 .
nance charges pad n connecton wth the purchase of an
nutomobe, athough denomnated as nterest, are not deductbe
as nterest where such amounts are n fact a part of the purchase
prce.
dvce s requested whether any part of the fnance charges pad
n connecton wth the purchase of an automobe may be deducted
as nterest under the provsons of secton 23(b) of the Revenue ct
of 193 .
Whether any part of the fnance charges pad n connecton wth
the purchase of an automobe shoud be treated as nterest and,
therefore, deductbe to the e tent aowed by secton 23(b) of the
Revenue ct of 193 , or shoud be treated as a part of the cost of
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23(c), rt. 23(c)-.
the automobe and therefore, a capta e pendture, s to be deter-
mned by the provsons of the contract or sae. enretta Ms,
Inc., v. Commssoner, 52 ed. (2d), 931 and Dane ros. Co. v.
Commssoner, 2 ed. (2d), 761.) owever, amounts, even though
specfcay denomnated as nterest, are not deductbe under the
provsons of secton 23(b), supra, n stuatons where t s cear
from an e amnaton of the entre contract that such amounts were
ntended as a part of the purchase prce and were not actuay pad
as nterest. (Pratt-Maory Co., Inc., v. Unted States, 12 ed. Supp.,
1020 ppea of nderson fc Co., 6 . T. ., 713 and ppea of
Marsh Se Marsh, Inc., 5 . T. ., 902.)
stce 23(c) -1: Ta es. 1939-17-9 02
so Secton 43, rtce 43-1.) L T. 3273
R NU CT O 193 .
or edera Income ta purposes, persona property ta es In the
State of Pennsyvana and the cty (county) of Phadepha, Pa.,
accrue on anuary 1 of the ta (caendar) year for whch the ta es
are assessed.
dvce s requested as to the accrua date, for edera ncome ta
purposes, of persona property ta es n the State of Pennsyvana
and n the cty (county) of Phadepha, Pa.
Wth reference to the State of Pennsyvana persona property
ta es, the provsons of the State persona property ta act (approved
May 1 , 1937) whch contro are found n Tte 72 of Purdon s
Pennsyvana Statutes, nnotated, and are as foows:
Sec. 3244.
persona property of the casses herenafter enumerated, owned, hed or
possessed by any resdent s hereby made ta abe, annuay, for
tate purposes, at the rate of 4 ms on each doar of the vaue thereof, as of
t date to be f ed annuay, In the manner provded n secton 3240,
nfra .
s to the cty (county) of Phadepha persona property ta es,
the provsons of the Pennsyvana aws whch contro are found n
Tte 72 of Purdon s Pennsyvana Statutes, nnotated, and are as
foows:
Sec. 4 21.
persona property of the casses herenafter enumerated, owned, hed, or
possessed by any person, persons, copartnershp, or unncorporated assocaton
or company, resdent, ocated, or abe to ta aton wthn ths Commonweath,
or by any ont-stock company or assocaton, mted partnershp, bank or
corporaton whatsoever, formed, erected, or ncorporated by, under, or n pur-
suance of any aw of ths Commonweath or of the Unted States, or of any other
State or government, and abe to ta aton wthn ths Commonweath
1 hereby made ta abe, annuay, for county purposes, and, n ctes coe tensve
wth countes, for cty and county purposes, at the rate of 4 ms on each
doar of the vaue thereof .
There s no State statute whch specfes the date on whch such
ta es accrue. owever, reatve to the queston as to abty for
fte ta es, the Supreme Court of Pennsyvana sad n the ppea of
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23(o), rt. 23(c)- .
100
Caery (272 Pa., 255, 116 t., 222) that persona property ta
s a persona evy aganst resdent hoders, computed on the vaue
of the property owned by them.
No cases have been found n whch the courts of Pennsyvana have
determned the date on whch abty for the State and county
ta es attaches. owever, wth reference to Phadepha rea prop-
erty ta , as to whch there s no statutory provson specfyng the
date on whch such ta accrues, the courts of Pennsyvana have
determned the date on whch abty for the ta attaches.
In Wood v. Unted States Natona udng and Loan ssocaton
(105 Pa. Super. Ct., 1 4, 160 t., 244), the Superor Court of Penn-
syvana sad n part:
No matter what pantff may have done n the way of seng the
premses, upon advantageous terms, defendant faed to pay the cty of
Phadepha ta es for whch t was abe on anuary 1, 1930, and has done
absoutey nothng to reeve tsef of that abty.
In Provdent Trust Co. of Phadepha v. udca udng and
Loan ssocaton et a. (112 Pa. Super. Ct., 352, 171 t., 2 7), the
Superor Court of Pennsyvana sad n part:
Ta es In Phadepha are assessed pror to the begnnng of the ta year,
and the whoe ta s due at the begnnng of the year. I ng. v. t. ernon
dg. ss n., 100 Pa.. 165 Cty of Phadepha v. Pcnna. Insttuton, 2 Pa.
Super. Ct., 421, 424 Theobad v. Syvester, 27 Pa. Super. Ct, 362, 3G5.)
Whe the Wood and Provdent Trust Co. cases, supra, reate to
rea property ta es n the cty of Phadepha, t s, nevertheess,
thought that the reasonng used n those cases s equay appcabe
to the nstant case where State of Pennsyvana and cty (county) of
Phadepha persona property ta es are n queston.
In vew of the foregong, t s hed that the accrua date, for
edera ncome ta purposes, of the State of Pennsyvana persona
property ta es and of the cty (county) of Phadepha, Pa., per-
sona property ta es s anuary 1 of the ta (caendar) year for
whch the ta es are assessed. (See I. T. 290 , C. . I -2, 72
(1935), reatng to Phadepha rea property ta es.)
rtce 23(c)-: Ta ee.
R NU CT O 103 .
Percentage of pay ro contrbuted by an empoyer to New York
unempoyment nsurance fund. (See I. T. 327 , page 76.)
rtce 23(c)-: Ta es.
R NU CT OP 193 .
Ta mposed under artces 20 and 21 of the Me can aw, Ley
de Impuesto sobre a Renta. (See I. T. 3 2S , page 139.)
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101
23(e). rt. 23(e)-.
S CTION 23(e). D DUCTIONS ROM GROSS INCOM :
LOSS S Y INDI IDU LS.
rtce 23(e)-: Losses by ndvduas. 1939-23-9 62
G. C. M. 21013
R NU CT O 193 .
Where a resdenta estate contanng ornamenta trees and
shrubbery Is damaged by hurrcane and many of the trees de-
stroyed, the oss deductbe under secton 23(e)3 of the evenue
ct of 193 s the dn rence between the vaue of the estate mme-
datey precedng the casuaty and the vaue after the casuaty,
but not n e cess of an amount equa to the ad|usted bass of the
property. Ths concuson Is appcabe whether the vaue of the
estate mmedatey precedng the casuaty s greater or ess than
an amount equa to the ad|usted bass.
n opnon s requested reatve to the method of determnng the
deductbe oss, under secton 23(e)3 of the Revenue ct of 1915 ,
resutng from damage to a resdenta estate caused by a hurrcane.
In the case presented, the estate contaned vauabe ornamenta trees
and shrubbery whch were, n a arge part, destroyed. The vaue of
the estate when the hurrcane occurred was n e cess of ts bass.
The frst queston whch w be consdered s whether n deter-
mnng the oss the trees and shrubbery shoud be treated as an
ntegra part of the estate and no separate bass apportoned thereto.
In Mary Cheney Davs v. Commssoner (16 . T. ., 65, acques-
cence, C. . I-2, 13 (1929)), the facts were that consderabe
damage was caused to ornamenta trees and shrubbery on the ta -
payers resdenta estate by a hgh wnd, accompaned by ran and
seet. Many of the trees and shrubs were bady damaged and others
were destroyed. The oard hed that the ta payer was entted to
deduct a oss equa to the dfference n the market vaue of the entre
estate mmedatey before the storm and the vaue after the storm.
In ohn S. a et a. v. Commssoner (16 . T. ., 71, acquescence,
C. . III-2, 21 (1929)), ornamenta trees and shrubs on the ta -
payer s estate were damaged by a severe ce storm. The oard
aowed a oss equa to the dfference between the reasonabe vaue
of the estate mmedatey before and after the storm. To the same
effect s rederck . Nash v. Commssoner (22 . T. ., 4 2, acqu-
escence, C. . -2, 50 (1931)). Those cases foow Whppe v.
Unted States (25 . (2d), 520), whch adopts as a measure of dam-
age the dfference between the vaue of the entre estate before and
after the casuaty. In none of those cases was the queston e pressy
rased whether ornamenta trees and shrubs mght be treated sep-
aratey from the entre estate n computng oss from casuaty. It
seems to have been assumed that the trees and shrubbery shoud be
consdered as an ntegra part of the entre estate n determnng the
oss. owever, n arry ohnston Grant v. Commssoner (30
. T. ., 102 , acquescence, C. . III-2, (1934)), the queston
here presented appears to have been specfcay rased. In that case
an e tensve deep snkng of the ta payer s and cose to hs house
took pace. Ths snkng was hed to be a casuaty wthn the
meanng of secton 214(a)6 of the Revenue ct of 1926, whch was
smar, n so far as here pertnent, to secton 23(e)3 of the Revenue
ct of 193 . The Commssoner contended that the amount of the oss
shoud be mted to the and as the house was n no way physcay
damaged. The oard hed, however, that the and and mprovements
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23(k), rt. 23(k)-.
102
shoud be treated as a unt n determnng the oss, and stated that
the mprovements become an ntegra part of t the and and to
dvorce them n the stuaton here present woud be contrary to the
common, ordnary understandng and concepton of such vaues.
(See aso 17 C. ., 91 20 C. ., 79 50 C. .. 749 Tffany on Rea
Property (1920), 2d ed., voume 1, pages 76, 3, 6.)
In vew of the foregong, t s hed n the present case that the
trees and shrubbery shoud be consdered as an ntegra part of the
entre estate and no separate bass apportoned thereto n determn-
ng the oss sustaned.
In regard to the amount of the deductbe oss, t s the opnon of
ths offce that such oss s the dfference between the vaue of the
estate mmedatey precedng the casuaty and the vaue after the
casuaty, but not n e cess of an amount equa to the ad|usted bass
of the estate. Ths s true even though the vaue of the estate m-
medatey precedng the casuaty s far n e cess of the vaue after
the casuaty. or e ampe| owns an estate, the ad|usted bass of
whch s 100,000. Immedatey precedng the casuaty, the estate
has a market vaue of 200,000. Immedatey after the casuaty, the
estate has a market vaue of 190,000, the damage beng caused by
the casuaty. In ths case s oss s 10,000 and s deductbe n ta
entrety snce such oss does not e ceed the ad|usted bass of the
estate. The ad|usted bass of the estate, however, shoud be reduced
by the amount of the oss aowabe. (See secton 113(b).) Th9
concuson s n accord wth the decsons of the Unted States Su-
preme Court n everng v. Owens (59 S. Ct., 260 Ct. D. 137 ,
page 234, ths uetn). In that case the Court stated n part as
foows:
we thnk secton 113(b) ) must be read as a mtaton upon the
amount of the deducton so that It may not e ceed cost, and n the case of
deprecabe nonbusness property may not e ceed the amount of the oss
actuay sustaned n the ta abe year, measured by the then deprecated vaue
of the property. The Treasury rungs have not been consstent, but ths con-
structon s the one whch has fnay been adopted. Itacs supped.
Ths method of computng osses n such cases s kewse n accord
wth the rue ad down n G. C. M. 16255 (C. . -1,115 (1936)),
n whch t was concuded that:
Therefore, athough computaton must be made In accordance wth
secton 23(h) and secton 113, the amount deductbe s the oss actuay sus-
taned, and not In e cess of the amount computed under secton 113.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
S CTION 23(k). D DUCTIONS ROM GROSS
INCOM : D D TS.
btce 23 (k) -1: ad debts. 1939-9-9731
G. C. M. 20 54
R NU CT O 193 ND PRIOR R NU CTS.
Recoveres of debts prevousy deducted for edera ncome ta
purposes do not consttute ta abe ncome uness the deducton of
the debts n pror years resuted n a reducton of ta abty.
S. R. 2040 (C. . I -1, 129 (1925)) modfed. Recommended that
I. T. 31T2 (C. . 193 -1, 150) be modfed.
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103
23(k), rt. 23(k)--
dvce s requested whether the rung n G. C. M. 1 525 (C. .
1937-1, 0), to the effect that recoveres of debts prevousy charged
off at the drecton of edera or State supervsory offcers by banks
and other corporatons under edera or State supervson do not
consttute ta abe ncome uness the pror charge-off accompshed a
reducton n ta abty, s equay appcabe to recoveres of debts
otherwse ascertaned to be worthess and charged off by banks and
corporatons under edera and State supervson and to recoveres
of debts prevousy charged off by other ta payers generay.
The nqury s drected partcuary to the foowng paragraphs
of G. CM. 1 525, supra:
(a) The order of the bank e amner reatng to the charge-off n whoe
or n part of a debt owed to the bank s matera ony as estabshng con-
cusvey ether tota or parta worthessness of such debt

(g) If a debt has been so ascertaned to be worthess ether n whoe or
n part n any partcuar ta abe year but has not been aowed as a deducton
for ncome ta purposes n whoe or n part as the case may be, amounts sub-
quenty coected on account of such debt are not requred to be ncuded n
gross ncome for the ta abe year of such recept (artce 191, Reguatons 77
trade 23(k)-, Reguatons 6 and 94).

The deductons for bad debts contempated by the cause aowed as a deduc-
ton for ncome ta purposes (as used n (g) above) refer
to deductons for bad debts whch accompshed a reducton n ta abty and
do not refer to deductons for bad debts n cases n whch the ta payer, on
account of other aowabe deductons, had no net ncome rrespectve of the
deducton for bad debts.
The ssue presented requres a genera dscusson of the proper
treatment, for edera ncome ta purposes, of recoveres of debts
charged off and camed as deductons n pror years and nvoves
an nterpretaton of the foowng provsons of Reguatons 94:
ny amount subsequenty receved on account of a bad debt or on account
of a part of such debt prevousy charged off and aowed as a deducton for
ncome ta purposes, must be ncuded n gross Income for the ta abe year n
whch receved. ( rtce 23(k)-.)
ad debts or accounts charged off subsequent to March 1, 1913, because of the
fact that they w re determned to be worthess, whch are subsequenty re-
covered, whether or not by sut, consttute ncome for the year n whch re-
covered, regardess of the date when the amounts were charged off. (See
artce 23(k)-.) ( rtce 42-1.)
It s we setted that n the ordnary case amounts receved n
repayment of oans do not consttute ncome but are rembursements
of capta. (Chares M. owe, dmr., 21 . T. ., 757, petton to
revew dsmssed on moton of the Commssoner, urnet v. owe,
dmr., 59 ed. (2d), 1053.) Ths s aso true wth respect to amounts
receved n payment of debts arsng from unpad wages, saares,
rents, and smar tems of ta abe ncome whch have been ncuded
n gross ncome. Uness a ta payer has aready recovered hs capta
for ncome ta purposes, recoveres wth respect to a debt, n the
opnon of ths offce, can not be consdered as ncome.
In any case n whch a bad debt has been aowed as a deducton
and has had the effect of offsettng ta abe ncome (meanng, for
present purposes, ncome whch woud be the bass for the computa-
ton of a ta abty), the ta payer has, to that e tent, n effect had
the beneft of a recovery of capta for ncome ta purposes. In
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23(k), rt. 23(k)-.
104
determnng the e tent, f any, to whch a ta payer has thus benefted,
the credts aganst net ncome provded n the Revenue cts must
be taken nto account. To the e tent that a deducton does not resut
n such a beneft to the ta payer, the deducton can not be sad to
have accompshed a return of capta. Unt a ta payer has had the
ncome ta equvaent of a fu return of the capta represented by
hs debt, there s no vad ground for treatng as ncome any amount
receved n recovery of the debt. ccordngy, the above-quoted pro-
vsons of the reguatons are not to be nterpreted as requrng the
ncuson n ncome of amounts receved n recovery of a debt unt
the ta payer has fuy recovered the capta represented by the debt
ether by the means referred to above or party by such means and
party by repayment by the debtor.
G. C. M. 1 525, supra, nvoved ony bad debt deductons by banks
or other corporatons sub|ect to supervson of edera or State au-
thortes as a resut of the concusve presumpton of parta or tota
worthessness estabshed by orders of edera or State supervsory
offcers. (I. T. 3172, C. . 193 -1, 150.) owever, the prncpe
stated theren, that recoveres of debts prevousy deducted do not
consttute ta abe ncome uness the deducton of the debts n pror
years resuted n a reducton of ta abty, s equay appcabe
n cases of recoveres of debts vountary deducted by banks or other
corporatons sub|ect to edera or State supervson and to recoveres
of debts deducted by other ta payers.
In any case where the tota of the aowabe deductons, ncudng
bad debt deductons, taken by a ta payer n hs return e ceeds the
gross ncome ess the credts aganst net ncome, the queston w
arse as to the e tent to whch the deducton of the bad debt resuts
n a beneft. In such case t w be assumed that a deductons other
than bad debt deductons frst appy n reducton of the ta abe
ncome. or e ampe, f n hs return for 1933 a ta payer showed
gross ncome (ess the credts aganst net ncome) of 6,000 and
camed a bad debt deducton of 10,000 and other deductons aggre-
gatng 2,000, t woud be consdered that ony 4,000 of the deduc-
ton for the bad debt operated to offset ta abe ncome. There
woud thus reman 6,000 of the debt as to whch the ta payer dd
not have a return of capta.
If, n any one year, two or more bad debt deductons are taken and
the aggregate amount deducted on account thereof s more than
suffcent to offset the ta abe net ncome remanng after appyng
the other aowabe deductons, the bad debt deductons w be treated
as a unt (as f they consttute a snge bad debt deducton) and
f amounts are subsequenty recovered on any of such debts, they
w be treated as returns of capta unt the aggregate coected
on any and a such debts equas that porton of the unt whch
dd not operate to offset ta abe ncome. fter the capta has
been thus recovered, any amounts receved n recovery of any of the
debts w be treated as gross ncome. I. T. 3172, supra, sets forth
a dfferent rue, and t s recommended that that rung be modfed
to accord wth the foregong concuson.
What has been sad heren wth respect to the e tent to whch
bad debt deductons operate to offset ta abe ncome appes to debts
deducted both before and after the effectve date of the Revenue ct
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105
15 23(o). rt. 23(o)-.
of 1934. owever, as to debts deducted before tbe effectve date
of the Revenue ct of 1934, another factor must be taken nto
consderaton. Under the pror Revenue cts, a net oss sustaned
by a ta payer n one ta abe year s aowabe as a deducton n
computng net ncome of other ta abe years n the manner and to
the e tent provded n the varous Revenue cts. See secton 117
of the Revenue cts of 1932 and 192 secton 206 of the Revenue
cts of 1926 and 1924 and secton 204 of the Revenue cts of 1921
and 191 . In determnng whether the deducton of a bad debt
n any year pror to the effectve date of the Revenue ct of 1 )34
resuted n offsettng ta abe ncome (or, n other words, resuted n
a return of capta), t must be determned whether such a resut was
accompshed by means of the appcaton of a net oss.
In vew of the fact that t w be mpractcabe for the ureau
to undertake the great amount of research necessary to determne
whether any partcuar debt whch has been prevousy deducted
had the effect of offsettng ta abe ncome, every ta payer who re-
ceves any amount n compete or parta recovery of a debt prevousy
deducted and who cams that such amount consttutes n whoe or
n part capta rather than ncome w be requred to submt wth
Ms return a statement ncudng compete detas wth respect to the
pror deducton and other facts necessary for the ureau to deter-
mne the e tent, f any, to whch the deducton served to offset ta -
abe ncome. In the event that the ta payer does not reasonaby
substantate hs cam that the amount receved n recovery, or a
porton thereof, consttutes a return of capta, the fu amount
receved n recovery w be ncuded n gross ncome for the year
n whch receved.
S. R. 2940 (C. . I -1, 129 (1925)), n so far as t hods that
amounts whch mght be receved n recovery of debts under the
crcumstances there presented woud consttute ta abe ncome, s
hereby modfed.
. P. Wenche,
S CTION 23(o). D DUCTIONS ROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS.
btce 23 (o) -1: Contrbutons or gfts by 1939-16-9793
ndvduas. I. T. 3271
R NU CT O 103 .
ppcaton of the decson of the Supreme Court of the Unted
States n Unted States v. Peasants (59 Sup. Ct., 2 1, Ct D. 1379,
page 239. ths uetn), rendered under the Revenue ct of 1932, to
the determnaton of the deducton for chartabe contrbutons a-
owabe under the Revenue ct of 193 n cases where net ong-term
capta gan or oss requres the computaton of a parta ta
as prescrbed n secton 117(c) of that ct
dvce s requested reatve to the appcaton of the decson of
the Supreme Court of the Unted States n Unted States v. Peasants
(59 Sup. Ct., 2 1, Ct. D. 1379, page 239, ths uetn), rendered under
the Revenue ct of 1932, n determnng the 15 per cent deducton for
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23(o), rt. 23(o)-.
106
chartabe contrbutons aowabe under the Revenue ct of 193 n
cases nvovng the computaton of a parta ta as prescrbed n
secton 117 of that ct.
The effect of the Supreme Court decson n the Peasants case s
very smar under the Revenue cts of 1932 and 193 , and may be
summarzed as foows: In cases where the speca ta provded by
secton 101 (b) of the Revenue ct of 1932 and by secton 117(c)2 of
the Revenue ct of 193 s appcabe, the 15 per cent ma mum deduc-
ton whch may be taken for chartabe contrbutons under secton
23(n) of the Revenue ct of 1932 and secton 23(o) of the Revenue
ct of 193 s based upon the same net ncome upon whch the
speca ta s n fact computed and pad.
In the foowng dscusson t shoud be borne n mnd that the
term net ong-term capta oss s defned by secton 117(a)9 of
the Revenue ct of 193 as meanng the e cess of ong-term capta
osses for the ta abe year over the ong-term capta gans for such
year. It therefore foows that n the very process of ascertanng
the net ong-term capta oss a the ong-term capta gans
and an equvaent amount of ong-term capta osses are n effect
made use of to cance each other, eavng ony the e cess of osses over
gans, namey, the u net ong-term capta oss. When ths e cess
s aso e cuded from the computaton of the amount upon whch the
parta ta s to be computed, the effect s that the parta ta
s based upon what the ta payer s net ncome woud have been f he
had no ong-term capta gans and no ong-term capta osses
whatever.
Under the Revenue ct of 1932, the speca ta provded by sec-
ton 101(b) s appcabe whenever t s greater than the ta com-
puted n the ordnary manner. Under the Revenue ct of 193 , the
speca ta provded by secton 117(c)2 s aso appcabe whenever
t s greater than the ta computed n the ordnary manner. Under
secton 101(b) of the Revenue ct of 1932, the speca ta s deter-
mned by frst computng a parta ta n the ordnary manner
upon the ta payer s ordnary net ncome (that s, upon what hs
net ncome woud be f there were e cuded n computng such net
ncome a tems of capta gan, capta oss, and a deductons prop-
ery aocabe to the capta assets dsposed of durng the year) and
then subtractng from such parta ta an amount equa to 12
per cent of the capta net oss. Under secton 7(c)2 of the
Revenue ct of 193 , the speca ta s determned by frst comput-
ng a parta ta n the ordnary manner upon the ta payer s
net ncome ncreased by the amount of the net ong-term capta
oss (that s, upon what hs net ncome woud be f there were e -
cuded n computng t a the ong-term capta gans and a the
ong-term capta osses) and then subtractng from such parta
ta an amount equa to 30 per cent of the net ong-term capta oss.
s defned n secton 101 (c)6 of the Revenue ct of 1932, the term
capta net oss means the e cess of the sum of the capta osses
pus the capta deductons over the tota amount of capta gan, and
capta deductons are defned n secton 101(c)3 of that ct as
beng such deductons as are aowed by secton 23 and
are propery aocabe to capta assets sod or e changed
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107
23(o), rt. 23(o)-.
durng the ta abe year. In secton 7(a)9 of the Revenue ct
of 193 , the term net ong-term capta oss s defned as beng
the e cess of ong-term capta osses for the ta abe year over the
ong-term capta gans for such year.
The reasonng of the Court n the Peasants case s that (1)
snce, n computng the speca ta under secton 101(b) of the
Revenue ct of 1932 the capta net oss s not aowed as a
deducton from gross ncome, but ony as an offset (to the e tent
of 12y2 per cent of such capta net oss ) aganst a parta ta
determned by e cudng capta osses from the computaton, t
foows that the net ncome upon whch the ta s actuay pad
n such cases s the ordnary net ncome, that s, the net ncome
wth capta osses e cuded and (2) snce, when the speca ta
under secton 101(b) appes, the net ncome upon whch a ta
actuay pad s the net ncome wth capta osses e cuded, t
foows that whenever such speca ta appes, the term net n-
come n the phrase 15 per centum of the ta payer s net ncome
n secton 23 (n) of the Revenue ct of 1932 must be gven a cor-
respondng meanng and, therefore, (3) the ta payer, whenever
the speca ta appes, may have a deducton for chartabe contr-
butons to the e tent of not more than 15 per cent of the net n-
come upon whch hs speca ta s actuay computed, that s, 15
per cent of hs ordnary net ncome, whch n turn means 15
per cent of hs net ncome computed by e cudng a tems of cap-
ta gan, capta oss, and capta deductons.
ppyng the same reasonng to a case arsng under the Revenue
ct of 193 , t s hed that (1) snce, n computng the speca ta
under secton 117(c) 2 of the Revenue ct of 193 the net ong-term
capta oss s not aowed as a deducton from gross ncome, but
ony as an offset (to the e tent of 30 per cent of such net ong-
term capta oss) aganst a parta ta determned by e cud-
ng from the computaton the amount of the net ong-term capta
oss, t foows that the net ncome upon whch the speca ta
s actuay pad n such cases s the net ncome computed by
e cudng tne amount of the net ong-term capta oss (or, n
the words of secton 117(c)2, the net ncome ncreased by the
amount of the net ong-term capta oss ) and (2) snce, when
tbe speca ta under secton 117(c)2 s appcabe, the net n-
come upon whch a ta s actuay pad s the net ncome wth
net ong-term capta oss e cuded, t foows that whenever such
speca ta appes, the term net ncome n the phrase 15 per
centum of the ta payer s net ncome n secton 23(o) of the Rev-
enue ct of 193 must be gven a correspondng meanng and,
therefore, (3) the ta payer, whenever the speca ta appes, s
entted to a deducton for chartabe contrbutons to the e tent
of not more than 15 per cent of the net ncome upon whch hs
speca ta s actuay computed, that s, 15 per cent of hs net n-
come computed by e cudng the amount of hs net ong-term capta
oss.
The Supreme Court s opnon n the Peasants case mpes that
where the ta payer has a capta net oss under the Revenue ct
of 1932 but the speca ta under secton 101(b) of that ct s not
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t 23(o), rt. 23(o)-.
10
appcabe because not greater than the ta computed n the ordnary
manner, the 15 per cent mtaton s kewse based upon the net
ncome upon whch the ordnary ta s computed, but snce, n com-
putng the ordnary ta , the capta net oss s deducted from gross
ncome, t foows that when the ordnary ta s appcabe, the ma -
mum deducton for chartabe contrbutons whch the ta payer may
take s 15 per cent of the net ncome computed by ncudng n the
computaton (. e., deductng from gross ncome) the amount of the
capta net oss. In cases under the Revenue ct of 193 , where
the ta payer has a net ong-term capta oss, but the speca ta under
secton 117(c)2 s not appcabe because not greater than the ta
computed n the ordnary manner, t s, therefore, hed that the 15
per cent mtaton s aso based upon the net ncome upon whch the
ordnary ta s computed, and that snce, n computng the ordnary
ta , the net ong-term capta oss s deducted from gross ncome, t
foows that when the ordnary ta s appcabe, the ma mum deduc-
ton for chartabe contrbutons whch the ta payer may take s 15
per cent of the net ncome computed by ncudng n the computaton
(. e., deductng from gross ncome) the amount of the net ong-term
capta oss.
rtce 23(o)-: Contrbutons or gfts by ndvduas.
R NU CT O 193 .
Contrbutons to the mercan Natona Red Cross and ts chapters
and branches. (See I. T. 325 , page 123.)
rtce 23(o)-: Contrbutons or gfts by 1930-19-9 22
ndvduas. I. T. 276
( so Secton 22(b) rtce 22(b) (3)-.)
R NU CT O 103 .
Contrbutons to a potca organzaton are not deductbe by tbc
donor. potca gft receved by an ndvdua or by a potca
organzaton s not ta abe ncome to the recpent.
dvce s requested whether (1) contrbutons to potca organza-
tons are aowabe deductons n the donor s edera ncome ta
return, and whether (2) potca gfts or donatons to ndvduas
or to potca organzatons are sub|ect to edera ncome ta .
Wth respect to the frst nqury, t s hed that contrbutons to a
potca organzaton are not proper deductons n the donors ed-
era ncome ta return, there beng no provson n the Revenue ct
of 193 whch aows such deductons.
Wth respect to the second nqury, t s hed that a potca gft
receved by an ndvdua or by a potca organzaton s not
ta abe ncome to the recpent.
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109 25, rt. 25-6.
S CTION 23(p). D DUCTIONS ROM GROSS
INCOM : P NSION TRUSTS.
rtce 23(p)-: Payments to empoyees penson trusts.
R NU CT O 193 .
Lump sum and current annua contrbutons to an empoyees trust.
(See L T. 3266, page 144.)
S CTION 23(q). D DUCTIONS ROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS
Y CORPOR TIONS
rtce 23(q)-: Contrbutons or gfts by corporatons.
R NU CT OP 193 .
Contrbutons to the mercan Natona Red Cross and ts chapters
and branches. (See L T. 325 , page 123.)
S CTION 25. CR DITS O INDI IDU L
G INST N T INCOM .
rtce 25-5: Persona e empton of marred 1939-19-9 23
person. I. T. 3277
R NU CTS OP 1936 ND 193 .
Determnaton of persona e empton n the case of persons who
marred durng the year and who had dfferent accountng perods.
equrements whch are necessary n such a case to change
accountng perod and fe a |ont return.
dvce s requested reatve to the persona e emptons aowabe
n the returns fed by for the year ended anuary 31, 193 , and
by , hs wfe, for the caendar year 1937, and aso what requre-
ments must be met by and who were marred n the atter part
of October, 1937, n order propery to fe |ont returns for fsca years
endng anuary 31, begnnng wth the fsca year ended anuary 31,
1939.
, the wfe, s entted for the perod of her ta abe year durng
whch she was snge ( anuary 1 to the atter part of October, 1937)
to a persona e empton of ten-twefths of 1,000, or 33.33, and ,
the husband, s entted for the perod of hs ta abe year durng
whch he was snge n 1937 ( ebruary 1 to the atter part of October,
1937) to a persona e empton of nne-twefths of 1,000 or 750.
IThe persona e empton appcabe to marred persons vng to-
gether durng a ta abe year of 12 months s 2,500, whch e empton
s apportoned, f the status of the ta payers changes durng the
ta abe year, accordng to the number of months durng whch they
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26, rt. 26-2.
110
occupy the marred status. Therefore, there may be added to the
persona e empton aowabe to and for the perods they were
snge ( 750 and 33.33, respectvey, as ndcated above), a |ont
persona e empton of three-twefths of 2,500, or 625, whch
amount may be taken by ether or dvded between them n any
proporton agreed upon, so ong as the amount thereof camed by
does not e ceed two-twefths of 2,500. or 416.67, snce she occu-
ped the marred status but two months of her ta abe year, 1937.
Reatve to the fng of a |ont return by and for the fsca
year ebruary 1, 193 , to anuary 31, 1939, attenton s nvted to
I. T. 1514 (C. . 1-2, 174 (1922)), whch provdes that t s not per-
mssbe under the statute for a husband and wfe to fe a |ont
return uness ther accountng perods are concurrent, snce such
return woud not refect the aggregate ncome for the ta abe year
wthn the meanng of the statute. ccordngy, n order to fe a
|ont return for the fsca year ended anuary 31, 1939, t was neces-
sary for , the wfe, to request permsson to change her ta abe year
from the caendar year to the fsca year endng anuary 31, effectve
as of anuary 31,193 . In ths connecton the ncome ta reguatons
provde that f a ta payer changes hs accountng perod he sha,
pror to the e praton of 30 days from the cose of the proposed
perod for whch a return woud be requred to effect the change,
furnsh to the coector, for transmsson to the Commssoner, the
nformaton requred on orm 112 (appcaton for change n ac-
countng perod). (See artce 46-1 of Reguatons 94 and 101.)
ssumng that permsson had been granted to change her account-
ng perod from the caendar year to the fsca year endng anuary
1, effectve as of anuary 31, 193 , t was wth the stpuaton that
proper ad|ustments be made on her books of account and returns of
ncome. (See paragraph 2 of the nstructons on the back of orm
112 .) urther, she was requred to cose her books as of anuary 31,
193 , and to fe a return on or before pr 15, 193 , coverng the
perod anuary 1 to anuary 31, 193 . er returns for subsequent
ears shoud then be made on the bass of the fu fsca year endng
anuary 31, the ta abe year aready estabshed by for the fng
of hs returns, n whch case the husband and wfe coud eect to fe
a |ont return or separate returns as provded by the statute.
Credt for a net operatng oss sustaned by the M Corporaton
for the year 1037 Is not aowabe under secton 26(c) of the Reve-
nue ct of 1915 In determnng Its ta abty for the year 193 .
Such credt s aowabe ony as a part of the basc surta credt
under secton 27(b)2 of the ct, whch mts the credt to ta abe
years begnnng after December 31, 193 .
S CTION 26. CR DITS O CORPOR TIONS.
1939-25-9 0
I. T. 3290
R NU CT OP 193 .
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5 2 (d), rt. 2 (d)- .
dvce s requested whether, under the provsons of secton 26(c)
of the Revenue ct of 193 , the M Corporaton s entted to a credt
n determnng ts ta abty for the year 193 on account of ts net
oss for the year 1937.
Secton 26(c) of the Revenue ct of 193 provdes for the aow-
ance of a credt to a corporaton for the amount of the net operatng
oss of the precedng year to the e tent provded n the varous sec-
tons mposng ta . Ths net operatng oss s aowed ony as a
part of the basc surta credt under secton 27(b) 2, whch mts the
credt to ta abe years begnnng after December 31, 193 .
Snce under the specfc provsons of the ct no credt s aowabe
for the net operatng oss of a corporaton for the caendar year 1937,
the M Corporaton s not entted to a credt on account of ts net
operatng oss for that year.
S CTION 27(b). CORPOR TION DI ID NDS P D3
CR DIT: SIC SURT CR DIT.
rtce 27(b)-: asc surta credt.
R NU CT O 1 3
Credt for net operatng oss for year 1937. (See I. T. 3290, page
110.)
S CTION 2 (d). CONS NT DI ID NDS CR DIT:
S R OLD RS CONS NTS.
rtce 2 (d)-: Makng and fng of consents. 1939-7-9709
I. T. 250
R NU CT OP 193 .
Sharehoders consents requred In connecton wth the consent
dvdends credt under secton 2 of the Revenue ct of 193 may
be e ecuted by the sharehoders at any tme on or before the due
date of the corporaton s ncome ta return for the ta abe year
for whch the credt Is camed.
dvce s requested as to the tme wthn whch the sharehoders
consents provded for n secton 2 (d) of the Revenue ct of 193
may be e ecuted by the sharehoders.
Secton 2 (d) of the Revenue ct of 193 provdes n part as
foows:
(d) Sharehoder consents. The corporaton sha not be entted to a con-
sent dvdends credt wth respect to any ta abe year
(1) Uness It fes wth ts return for such year (n accordance wth regua-
tons prescrbed by the Commssoner wth the approva of the Secretary)
sgned consents made under oath by persons who were sharehoders, on the
ast day of the ta abe year of the corporaton, of any cass of consent stock
and
(2) Uness n each such consent the sharehoder agrees that he w ncude
as a ta abe dvdend, n hs return for the ta abe year In whch or wth
whch the ta abe year of the corporaton ends, a specfc amount .
s the consents must be fed wth the return, they may be sgned
and sworn to at any tme before the return s requred to be fed.
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31.
112
It s hed, therefore, that a sharehoder s consent, provded for
under secton 2 (d) of the evenue ct of 193 , may be e ecuted as
theren prescrbed at any tme on or before the due date of the corpo-
raton s ncome tu return for the ta abe year for whch the consent
dvdends credt s camed by the corporaton.
P RT III. CR DITS G INST T .
S CTION 31. T S O OR IGN COUNTRI S ND
POSS SSIONS O UNIT D ST T S.
1939-4-96 4
I. T. 3245
R NU CT O 193 .
The ta known as the ondo Obrero mposed by the Repubc
of Panama s an ncome ta and s aowabe as a credt under
secton 31 of the Revenue ct of 193 to the e tent provded n
secton 131 of that ct.
dvce s requested whether the ta known as ondo Obrero m-
posed by the Repubc of Panama s aowabe as a credt aganst
edera ncome ta under the provsons of secton 31 of the Revenue
ct of 193 .
Te ta referred to was eved by Law 49 of 1934 and became
effectve December 24, 1934. The pertnent provsons of the aw are
as foows:
The Natona Congress of Panama Decrees:
rtce 1. That there be estabshed a ta on the profts or Income that are
obtaned or derved from empoyment, busness, professon or any occupaton
performed n the Repubc or gans from property or fees of any nature. Ths
ta w be caed the Reserve und of the Laborer and armer.
bt. 2. Wth the e emptons set forth n paragraph 1 of ths artce, the
ta created by ths aw w he determned and coected on the foowng scae:
(o) If the net monthy ncome reaches a tota of more than 50 ba-
boas and ess than 73 baboas 2 per cent

Of more than 2,000 baboas 5 per cent
P OR rn 1. There s estabshed an e empton of 10 baboas for each head
of a famy and 10 addtona baboas for each chd or dependent havng no
ncome. Ts e empton w be e tended ony to those ta payers wth a net
ncome ess than 75 baboas.
Par. 2. or those that resde outsde of the country under the ursdcton of
the Government of Panama, the ta here estabshed w carry an addtona
ta of 20 per cent
rt. 3. The revenues comng from ths ta w be entered n a pubc fund,
artce 010 of the Department of grcuture, to be nvested n farmng and n
saares of aborers, and there w be made on them n speca account by the
treasury n order that they be apped to the ends desgnated by the aw.
It s hed that the ta known as ondo Obrero mposed bv the
Repubc of Panama s an ncome ta whch, under the provsons
of secton 31 of the Revenue ct of 193 , s aowabe as a credt
aganst edera ncome ta to the e tent provded n secton 131 of
that ct.
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113
41, rt. 41-1.
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 41. G N R L RUL .
stce 41-1: Computaton of net ncome. 1939-6-9702
I. T. 3247
R NU CT OP 193 .
The foowng rates of e change are accepted by the ureau of
Interna Revenue as the current or market rates of e change preva-
ng as of December 31, 193 :
Country or cty.
Monetary unt.
aue In
terms of
I t.-
Staes
Itay
apan
Me co .
Netherands
New Zeaand
Norway
Panama
Peru _
Phppne Isands...
Poand .
Portuga
Rumana.
South
Span...
Strats Settements.
Sweden ......
Swtzerand ..
Uruguay .
enezuea ....
Yugosava
Lra....
Yen....
Peso...
(uder
Pound.
rone..
abua.
So
Peso...
Zoty
scu
Leu.
Pound
Peseta
Doar.
rona
ranc.
Peso...
ovar
Dnar..
n
270315
. 1W250
. 43W4
. 707750
.233103
1.00UO00
.200132
. 500000
. 1 100
.042243
.00727
4.593333
.540000
. mm
.225405
. 10705
.313479
.02270
41-1: Computaton of net ncome.
R NU CT O 193 .
1939-7-9710
I. T. 3251
Company, whch keeps ts books of account ..n cash
recepts.and debasements bass, shoud amortze over the fe of the
ease of a budng the amount pad as ega fees for drawng the
ease, the amount pad for ateratons to the budng, and the
amount pad as a easng commsson. G. C. M 20307 (C 193 -1
157) Is not appcabe to the e pendtures In queston.
dvce s requested whether G. C. M. 20307 (C. 193 -1 157)
affects the M Company s method of treatng certan e pendtures for
ncome ta purposes.
The M Company reports ts ncome on the cash recepts and ds-
bursements bass. In 193 t eased a budng and pad a ega fee of
32 doars for drawng the ease whch e pres n 194 . teratons
costng 41a doars were aso made to the budng n 193 and a
easng commsson of 96 doars was pad n that year. The M
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44, rt. 44-5.
114
Company s amortzng these e pendtures over the fe of the ease
and nqures whether n vew of G. C. M. 20307, supra, such acton
s correct.
G. C. M. 20307, supra, was based upon the decson of the Unted
States Crcut Court of ppeas for the rst Crcut n Wech v.
Dc os et a., Trustees (94 ed. (2d), 42), where t was hed that a
ta payer who renders edera ncome ta returns on the bass of cash
recepts and dsbursements may deduct as ordnary and necessary
busness e pense n the year of payment nsurance premums on bus-
ness property even though such premums are pad n advance for a
perod of more than one year. G. C. M. 20307 reates to prepad n-
surance and s not appcabe to the tems nvoved n the nstant case
whch shoud be prorated and deducted over the fe of the ease.
(See generay artce 23(a)-10, Reguatons 94 I. T. 2263, C. .
-, 66 (1926).) The M Company, therefore, shoud contnue to
amortze over the fe of the ease of the budng the amount of 32a
doars pad as ega fees, the amount of 41a doars pad for atera-
tons to the budng, and the amount of 96a doars pad as a easng
commsson.
rtce 42-1: When ncuded n gross ncome.
R NU CT O 193 .
Credts or refunds under secton 516-a of the New York unempoy-
ment nsurance aw. (See I. T. 327 , page 76.)
S CTION 43. P RIOD OR W IC D DUCTIONS
ND CR DITS T N.
rtce 43-1: Pad or ncurred and pad or accrued.
R NU CT O 193 .
Persona property ta es n the State of Pennsyvana and cty
(county) of Phadepha, Pa. (See I. T. 3273, page 99.)
rtce 44-5: Gan or oss upon dsposton of nsta-
ment obgatons.
R NU CT O 193 .
mendment of Reguatons 101, artce 44-5. (See T. D. 4 99,
page 7 .)
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115 555.
P RT . R TURNS ND P YM NT O T .
S CTION 55. PU LICITY O R TURNS.
1939-3-9673
T. D.4 7
Income, e cess-profts, capta stock, estate, gft ta returns
returns made under Tte III of the Revenue ct of 1936 and
returns made under Tte I of the Soca Securty ct
Use of orgna returns or en to nspecton n accordance wth
Use of orgna returns open to Inspecton n accordance wth
of returns Inspecton of returns of corporatons by State offcers
and sharehoders and Inspecton of estate and gft ta returns.
Washngton, D. 0.
Coectors of Interna Revenue and Others Concerned:
y ecutve Order dated November 12 193 , the Presdent
ordered that ncome, e cess-profts, and capta stock ta returns,
estate and gft ta returns made under the Revenue ct of 1932 and
fed after une 16, 1933, and returns made under Tte I of the
Soca Securty ct, sha be open to nspecton n accordance and
upon compance wth the rues and reguatons promugated n
Treasury Decson 4 73 approved by the Presdent on the same date
C. . 193 -2, 261 . That Treasury decson deas wth the nspec-
ton of returns n so far as nspecton s permssbe ony upon
order of the Presdent and under reguatons approved by the
Presdent. Under authorty of aw, and wthout acton by the
Presdent, returns of corporatons, e cept ncome and e cess-
rofts ta returns and returns for the purpose of surta on persona
odng companes for years begnnng after December 31, 1934,
are open to nspecton by the proper offcers of any State
11 returns of corporatons are open to nspecton by bona fde
sharehoders of record ownng 1 per cent or more of the outstand-
ng stock and a returns under Tte III of the Revenue ct
01 1936 (or copes thereof) are open to nspecton by any offca,
body, or commsson, awfuy charged wth the admnstraton of
any State ta aw, f the nspecton s for the purpose of such ad-
mnstraton or for the purpose of obtanng nformaton to be
furnshed to oca ta ng authortes.
Pursuant to sectons 62, 409, 601(e), and 602(c) of the Revenue
ct of 193 , sectons 62, 351(c), and 503(a) of the Revenue ct of
1936, sectons 105(d) and 106(c) of the Revenue ct of 1935, sectons
62, 351(c), 701(d), and 702(b) of the Revenue ct of 1934, sectons
62,403, and 530 of the Revenue ct of 1932, secton 62 of the Revenue
ct of 192 , sectons 257 and 1101 of the Revenue ct of 1926, secton
905(c) of the Soca Securty ct, and sectons 215(e) and 216(b)
of the Natona Industra Recovery ct, the foowng reguatons
re hereby prescrbed wth respect to the use of orgna, and the
furnshng of copes of, returns open to nspecton n accordance wth
Treasury Decson 4 73, or otherwse wth respect to e amnatons
by sharehoders of the returns of corporatons by State offcers of
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55.
116
returns of corporatons made under the ncome, capta stock, or
e cess-profts ta provsons of the Revenue ct 01 1926, the Revenue
ct of 192 , the Revenue ct of 1932, sectons 215 and 216 of the
Natona Industra Recovery ct, the Revenue ct of 1934, the Rev-
enue ct of 1935, the Revenue ct of 1936, the Revenue ct of 193 ,
and under Tte I of the Soca Securty ct, e cept ncome and
e cess-profts ta returns and returns for the purpose of surta on
persona hodng companes for years begnnng after December 31,
1934 wth respect to the nspecton of returns under Tte III of the
Revenue ct of 1936 by any offca, body, or commsson, awfuy
charged wth the admnstraton of any State ta aw and wth
respect to the nspecton of estate and gft ta returns made under
the Revenue ct of 1932 and fed pror to une 17, 1933, and made
under the Revenue ct of 1926 and under pror Revenue cts. or
nspecton by State ta ng offcas of ncome returns other than
returns under Tte III of the Revenue ct of 1936, for any ta abe
year begnnng after December 31, 1934, see artces 55(b)- to
55(b)-4, ncusve, of Reguatons 6, as substtuted by Treasury
Decson 4626 (C. . -1, 61, 71) and artces 55(b)- to 55(b)-4,
ncusve, of Reguatons 94, both as amended by Treasury Decson
4732 (C. . 1937-1, 145), and secton 55 of the Revenue ct of 193 :
P RT I.
Income and cess-Profts Ta Returns, cept Returns Under Tte III
op the Revenue ct op 1936, Capta Stock Ta Returns, and Returns
Under Tte I of the Soca Securty ct.
rtce 1. Defntons. When used In Part I of these reguatons
(a) the term return means the orgna return (e cept a return under
Tte III of the Revenue ct of 1936) made for ncome, e cess-profts, or capta
stock ta purposes, or for purposes of the ta mposed by Tte I of the
Soca Securty ct
(6) the term corporaton ncudes assocatons, |ont-stock companes, and
nsurance companes
(c) the term partnershp ncudes a syndcate, group, poo, |ont venture,
or other unncorporated organzaton, through or by means of whch any bus-
ness, fnanca operaton, or venture s carred on, and whch Is not, wthn the
meanng of the edera ta aws, a trust or estate or a corporaton
( Z) the term stock ncudes shares n an assocaton, |ont-stock company,
or nsurance company and the term sharehoder ncudes a member n an
assocaton, |ont-stock company, or nsurance company.
rt. 2. ccess to returns by State offcers. (1) The proper offcers of a State
are entted as of rght upon the request of ts governor to have access to the
returns of a corporaton or to an abstract thereof, showng ts name and ncome.
(2) The request or appcaton of the governor must be n wrtng, sgned by
hm under the sea of hs State, and must show why access s desred, and the
names and offca postons of the offcers desgnated to have the access. The
request or appcaton shoud be addressed to the Commssoner, who w set
a convenent tme and pace for the access to the returns (or to an abstract
thereof as he may determne).
(3) ccess sha bo gven ony n the offce of the Commssoner, uness such
returns are n the custody of a coector of nterna revenue or nterna revenue
agent n charge, n whch event the return may be nspected n the offce of
such coector or agent, but ony n the presence of an nterna revenue offcer
desgnated by the coector or agent for that purpose.
rt. 3. amnaton of returns by sharehoder. bona fde sharehoder of
record ownng 1 per cent or more of the outstandng stock of a corporaton sha
be entted as of rght, upon makng request of the Commssoner, to e amne the
returns of such corporaton and of Its subsdares. s request for permsson
to e amne such returns must be made n wrtng, verfed by affdavt, and sha
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117
show bs address, the name of the corporaton, the perod of tme covered by the
return he desres to Inspect, the amount of the corporaton s outstandng capta
stock, the number of shares owned by hm, the date when he acqured them, and
whether he has the benefca as we as the record tte to such shares. It sha
aso show that he has not acqured hs shares for the purpose of the e amnaton
of the returns of the corporaton. If he has acqured them for such purpose,
he s not a bona fde sharehoder wthn the meanng of the statute. The appca-
ton sha be supported by satsfactory evdence showng that the appcant
s a bona fde sharehoder of record of the requred amount of stock of the cor-
poraton. The supportng evdence may be In the form of a certfcate sgned by
the presdent or vce presdent of the corporaton and countersgned by the secre-
tary under the corporate sea. Upon beng satsfed from the evdence presented
that the appcant has fuy met these condtons, the Commssoner w grant
the permsson to e amne the returns and set a convenent tme and pace for
the e amnaton. Ths prvege s persona and w be granted ony to the
sharehoder, who can not deegate t to another. In the case of a corporaton
whch has been dssoved, the returns may be e amned by any person who woud
have been entted to e amne them at the date of dssouton.
bt. 4. Penates for dscosure of returns. Secton 3167, Revsed Statutes,
as amended by the Revenue ct of 191 and reenacted wthout change by
secton 1115 of the Revenue ct of 1926, makes It a msdemeanor punshabe
by a fne not e ceedng 1,000 or by mprsonment not e ceedng one year, or
both, at the dscreton of the court, for any person to prnt or pubsh n any
manner whatever not provded by aw nformaton contaned n any Income
return, and further provdes that f the offender be an offcer or empoyee of the
Unted States he sha be dsmssed from offce or dscharged from empoyment
The penates provded n secton 3167, Revsed Statutes, are appcabe aso to
dscosure of nformaton contaned n e cess-profts and capta stock ta returns
and returns made under Tte I of the Soca Securty ct
P RT II.
etubns Undeb Tte III of the Revenue ct or 1936.
rtce 1. Inspecton of returns by State ta ng offcas. Orgna returns
of ta es mposed by Tte III sha be open to Inspecton, at convenent tmes
and paces, by any offca, body, or commsson awfuy charged wth the ad-
mnstraton of any State ta aw, or by the representatves of such offca,
body, or commsson desgnated n wrtng by the governor of the State, for
the purpose of such admnstraton, or for the purpose of obtanng Informaton
to be furnshed to oca ta ng authortes, as provded In secton 55(b) (1)
and (2) of the Revenue ct of 1936. Requests for permsson to nspect the
returns must be n wrtng sgned by the governor under the sea of hs State,
and must be addressed to the Commssoner of Interna Revenue, Records
Dvson, Washngton, D. C. The request sha state (a) the knd of returns
t Is desred to nspect, (6) the ta abe year or years covered by the returns t
s desred to nspect (c) the name of the offca, body, or commsson by whom
or whch the nspecton s to be made, (d) the name of the representatve of
snch offca, body, or commsson, desgnated to make the Inspecton, (e) by
specfc references, the State ta aw whch such offca, body, or commsson
s charged wth admnsterng and the aw under whch he, she, or It Is so
charged, (f) the purpose for whch the nspecton Is to be made, and (g) If
the nspecton s for the purpose of obtanng nformaton to be furnshed to
oca ta ng authortes, (1) the name of the offca, body, or commsson of
any potca subdvson of the State, awfuy charged wth the admnstra-
ton of the ta aws of such potca subdvson, f any, to whom or to whch
the nformaton secured by the nspecton Is to be furnshed, and (2) the pur-
pose for whch the nformaton s to be used by such offca, body, or
commsson.
rt. 2. amnaton of returns by sharehoder. bona fde sharehoder of
record ownng 1 per cent or more of the outstandng stock of a corporaton
sha be entted as of rght, upon makng request of the Commssoner, to
e amne the returns of such corporaton and of ts subsdares. s request
for permsson to e amne such returns sha be made n wrtng, verfed by
affdavt, ant) sha show hs address, the name of the corporaton, the perod
of tme covered by the return he desres to nspect the amount of the corpora-
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11
ton s outstandng capta stock, the number of shares owned by hm, the date
when he acqured them, and whether he has the benefca as we as the record
tte to such shares. It sha aso show that he has not acqured hs shares
for the purpose of the e amnaton of the returns of the corporaton. If he
has acqured them for such purpose, he s not a bona fde sharehoder wthn
the meanng of the statute. The appcaton sha be supported by satsfactory
evdence showng that the appcant s a bona fde sharehoder of record of
the requred amount of stock of the corporaton. The supportng evdence may
be n the form of a certfcate sgned by the presdent or vce presdent of the
corporaton and countersgned by the secretary under the corporate sea. Upon
beng satsfed from the evdence presented that the appcant has fuy met these
condtons, the Commssoner w grant the permsson to e amne the returns
and set a convenent tme and pace for the e amnaton. Ths prvege s
persona and w be granted ony to the sharehoder, who can not deegate t
to another. In the case of a corporaton whch has been dssoved, the returns
may be e amned by any person who woud have been entted to e amne
them at the date of dssouton.
part n.
state and Gft Ta Returns ed on oe efore une 16, 1933.
state ta returns and notces, and gft ta returns, sha be treated as
prveged communcatons and sha not be nspected nor ther contents ds-
cosed, e cept as foows:
rtce 1. Inspecton by e ecutor or donor. Upon appcaton to the Comms-
soner an estate ta return or notce may be nspected by the e ecutor, or hs
successor n offce, or by hs duy authorzed attorney n fact. Upon ke
appcaton a gft ta return may be nspected by the donor or by hs duy
authorzed attorney n fact.
rt. 2. Dscosure of nformaton by revenue offcer. n nterna revenue
offcer engaged n an offca nvestgaton of an estate ta or gft ta abty
may dscose the returned vaue of any tem or the amount of any specfc
deducton or other mted Informaton, f such dscosure s necessary n order
to verfy the same or to arrve at a correct determnaton of the ta . Ths
rght of dscosure, however, s mted to the purposes of the Investgaton,
and n no case e tends to such nformaton as the amount of the estate, the
amount of ta , or other genera data.
rt. 3. Inspecton by State offcers. Upon wrtten appcaton to the Com-
mssoner, a return or notce may be e hbted, or nformaton contaned theren
may be dscosed, to an offcer of any State, for offca use n connecton
wth an estate, nhertance, egacy, successon, gft, or other ta of the State,
provded a ke cooperaton s gven by the State to the Commssoner of Interna
Revenue or hs representatves for use n the admnstraton of the edera ta
aws. Such offcer may aso be permtted to nspect schedues, sts, and other
statements desgned to be suppementa to, or to become a part of, the orgna
return, and other records and reports whch contan nformaton Incuded
or requred by statute to be ncuded n the return.
rt. 4. Inspecton by person havng matera nterest. If any other person
has a matera nterest n ascertanng any fact dscosed by the return, or n
obtanng nformaton as to the payment of the ta , he may make a wrtten
appcaton to the Commssoner of Interna Revenue for such nformaton,
settng forth the nature of hs nterest and the purpose of the appcaton.
Thereupon, the Commssoner may permt an nspecton of, or furnsh a copy
of, the return, or may furnsh such nformaton as he deems advsabe.
rt. 5. Inspecton by Government attorneys. Returns sha be open to n-
specton by a Unted States attorney or by an attorney of the Department of
ustce n the course of hs offca dutes. The request for nspecton sha be
In wrtng and, e cept as provded n artce 6, sha be addressed to the Com-
mssoner, and sha state the purpose for whch nspecton s desred. It may
be sgned by the ttorney Genera, the ssstant to the ttorney Genera, an
ssstant ttorney Genera, or a Unted States attorney.
rt. 6. Returns n custody of coector or revenue agent n charge. If the re-
turn s n the custody of a coector or nterna revenue agent n charge, such
coector or agent n charge may, upon ke wrtten request made to hm, permt
nspecton thereof by a Unted States attorney or an attorney of the Demrtment
of ustce. Upon wrtten appcaton to hm such coector or agent n charge
may aso permt nspecton by the e ecutor or hs successor n offce, or hs duy
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119
So.
authorzed attorney In fact, n case of estate ta returns, or the donor or hs
duy authorzed attorney In fact In case of gft ta returns, n accordance wth
these reguatons.
P RT I .
Genera Provsons.
rtce 1. Use of returns n tgaton. The return of an ndvdua, partner-
shp, corporaton, or fducary, or a copy thereof, may be furnshed to a Unted
States attorney for offca use In proceedngs before a Unted States grand ury
or n tgaton In any court, f the Unted States s nterested n the resut, or
for use In preparaton for such proceedngs or tgaton or to an attorney of the
Department of ustce, for ke use, upon wrtten request of the ttorney Gen-
era, the ssstant to the ttorney Genera, or an ssstant ttorney Genera.
If a return or copy s thus furnshed, It sha be mted n use to the purpose for
whch It Is furnshed and Is under no condton to be made pubc e cept to the
e tent that pubcty necessary resuts from such use. The orgna return w
be furnshed ony In e ceptona cases, and then ony f t s made to appear
that the ends of |ustce may otherwse be defeated. Nether the orgna nor a
copy of a return desred for use n tgaton n court w be furnshed f the
Unted States Government s not nterested n the resut, but ths provson s
not a mtaton on the use of copes of returns by the persons entted thereto.
bt. 2. urnshng of copes of returns. copy of a return may be furnshed
to any person who s entted to nspect such return upon wrtten appcaton
therefor and the submsson of evdence satsfactory to the Commssoner of hs
rght to receve the same, e cept that f a return s n the custody of a coector
or of an nterna revenue agent n charge, such coector or agent n charge
may furnsh a copy of such return to a Unted States attorney, or an attorney
of the Department of ustce, or to the ta payer or hs duy authorzed attorney
n fact, n accordance wth these reguatons. Certfed copes w be furnshed
ony upon specfc request therefor sent to the Commssoner at Washngton.
The Commssoner may prescrbe a reasonabe fee for furnshng copes of
returns.
arr. . Suppementa documents, records, and reports. Persons entted to
nspect returns may have access to nformaton returns, schedues, sts, and
other statements desgned to be suppementa to, or to become a part of, the
returns to whch they are gven access, and the Commssoner may, n hs
dscreton, permt such persons to nspect other records and reports whch
contan Informaton ncuded or requred by statute to be ncuded n the
return.
rt. 4. Ths Treasury decson supersedes Treasury Decson 479 , approved
March 25, 19 C. . 1933-1, 364 ,
Gut T. evertnq,
ohn W. anes,
( ed wth the Dvson of the edera Regster anuary 6, 1939, 12.IT p. m.)
1939-21-9 41
T. D.4900
Reguatons governng the nspecton of ncome, e cess-profts,
and capta stock ta returns by the Speca Commttee on Un-
mercan ctvtes, ouse of Representatves.
Washngton, D. C.
Pursuant to the provsons of secton 257(a) of the Revenue ct
of 1926 secton 55 of the Revenue ct of 1932, as amended by secton
21 (h) of the Natona Industra Recovery ct sectons 215(e) and
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55.
120
216(b) of the Natona Industra Recovery ct sectons 55(a),
701(e), and 702(b) of the Revenue ct of 1934 sectons 105(e) and
106(c) of the Revenue ct of 1935 sectons 55(a), 351(c), and
503(a) of the Revenue ct of 1936 and sectons 55(a), 409, 601(e),
and 602(c) of the Revenue ct of 193 , ncome ta returns made
under the Revenue ct of 1932, the Revenue ct of 1932, as amended
by the Natona Industra Recovery ct, the Revenue ct of 1934,
the Revenue ct of 1936, the Revenue ct of 1936, as amended by
the Revenue ct of 1937, and the Revenue ct of 193 , and capta
stock and e cess-profts ta returns made under the Natona Indus-
tra Recovery ct, the Revenue ct of 1934, the Revenue ct of
1935, as amended by the Revenue ct of 1936, the Revenue ct of
1936, and the Revenue ct of 193 , for the caendar year 1932 and
subsequent ta abe years, sha be open to nspecton by the Speca
Commttee on Un- mercan ctvtes, ouse of Representatves, or
any duy authorzed subcommttee thereof, for the purpose of carry-
ng out the provsons of ouse Resouton 26 (Seventy-s th Con-
gress, frst sesson), passed ebruary 3, 1939. The nspecton of
returns heren authorzed may be by the commttee or a duy author-
zed subcommttee thereof, actng drecty as a commttee or a sub-
commttee, or by or through such e amners or agents as the com-
mttee or subcommttee may desgnate or appont. Upon wrtten
notce by the charman of the commttee or of the authorzed sub-
commttee to the Secretary of the Treasury, gvng the names and
addresses of the ta payers whose returns t s necessary to nspect
and the ta abe perods covered by the returns, the Secretary and any
offcer or empoyee of the Treasury Department sha furnsh such
commttee or subcommttee wth any data reatng to or contaned
n any such return, or sha make such return avaabe for nspecton
by the commttee or subcommttee or by such e amners or agents as
the commttee or subcommttee may desgnate or appont, n the offce
of the Commssoner of Interna Revenue. ny nformaton thus
obtaned by the commttee or the subcommttee thereof, whch s ree-
vant or pertnent to the purpose of the nvestgaton, may be sub-
mtted by the commttee or the subcommttee to the ouse.
. Moroknthau, r.,
pproved May 11, 1939.
rankn D. Roosevet,
The Whte ouse.
( ed wth the Dvson of the edera Regster May 13, 1939, 10.29 a. m.)
CUTI ORD R INSP CTION O INCOM , C SS PRO ITS, ND C PIT L
TOC T R TURNS Y T SP CI L COMMITT ON UN- M RIC N
CTI ITI S, OUS O R PR S NT TI S.
y vrtue of the authorty vested n me bv secton 257(a) of the
Revenue ct of 1926 (44 Stat., 9, 51) secton 55 of the Revenue ct
of 1932 (47 Stat., 169, 1 9) as amended by secton 21 (h) of the
Natona Industra Recovery ct (4 Stat., 195, 209) sectons 215(e)
and 216(b) of the Natona Industra Recovery ct (4 Stat., 195,
20 ) sectons 55(a), 701(e), and 702(b) of the Revenue ct of 1934
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121
101, rt. 101-1.
(43 Stat., 6 0, 69 , 770) sectons 105(e) and 106(c) of the Revenue
d of 1935 (49 Stat., 1014, 101 , 1019) sectons 55(a), 351(c), and
5.03(a) of the Revenue ct of 1936 (49 Stat., 161 , 1671, 1733, 173 ):
and sectons 55(a), 409, G01(e), and 602(c) of the Revenue ct of
193 (52 Stat., 447, 47 , 564, 566, 56 ), t s hereby ordered that n-
come, e cess-profts, and capta stock ta returns made under the
Revenue ct of 1932, the Revenue ct of 1932, as amended by the
Natona Industra Recovery ct, the Natona Industra Recovery
ct, the Revenue ct of 1934, the Revenue ct of 1935, as amended
by the Revenue ct of 1936, the Revenue ct of 1936, the Revenue
ct of 1930, as amended by the Revenue ct of 1937, and the Rev-
enue ct of 193 , for the caendar year 1932 and subsequent ta abe
vears, sha be open to nspecton by the Speca Commttee on Un-
mercan ctvtes, ouse of Representatves, or any duy author-
zed subcommttee thereof, for the purpose of carryng out the
provsons of ouse Resouton 26, passed ebruary 3,1939 (Seventy-
s th Congress, frst sesson) such nspecton to be n accordance and
upon compance wth the rues and reguatons prescrbed by the
Secretary of the Treasury n the Treasury decson reatng to the
nspecton of returns by that commttee, approved by me ths date.
Ths order sha be pubshed n the edera Regster.
rank | D. Roosevet.
The Whte ouse,
May 11, 1939.
( 131)
SU TITL C SUPPL M NT L PRO ISIONS.
suppement a. rates of ta .
S CTION 101. MPTIONS ROM T
ON CORPOR TIONS.
etc e 101-1: Proof of e empton. 1939-12-9760
I. T. 3264
R NU CT O 193 .
The M udng Corporaton, Incorporated for the partcuar
purpose of budng and mantanng a chapter hou.se for the N
Chapter of the M raternty, whose stock s hed by others than an
e empt corporaton, Is not entted to e empton from edera
Income ta aton under the provsons of secton 101(14) of the
Revenue ct of 193 .
dvce s requested whether the M udng Corporaton s entted
to e empton from edera ncome ta aton under secton 101(14)
of the Revenue ct of 193 .
The organzaton was ncorporated under the aws of the State of
R for the foowng purposes:
(a) To at a tmes and n every manner possbe promote the Interests of the
M raternty and especay to mantan among the aumnae of the N Chapter
172170 39 pt. 1 6
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1101, rt. 101(3)- .
122
of the M raternty frendshp and communcaton aso to mantan contnuous
communcaton wth the actve chapter there nnd to gve to sad actve chapter
a possbe support and assstance, whether soca or fnanca
( ) To bud and mantan for sad N Chapter a chapter house and to ths
end to buy, purchase, or otherwse acqure, hod, mortgage, encumber, ease, se
or otherwse transfer, hre, rent and dea n rea, persona or m ed property of
every knd and descrpton stuated n the State of R or In any of the Statea
of the Unted States, and to drect and do any and a of sad thngs.
There are neary 400 shares of stock of ths corporaton outstand-
ng, a of whch are owned by ndvduas.
Secton 101(14) of the Revenue ct of 193 provdes for the
e empton of:
Corporatons organzed for the e cusve purpose of hodng tte to property,
coectng ncome therefrom, and turnng over the entre amount thereof, ess
e penses, to an organzaton whch tsef Is e empt from the ta Imposed by
ths tte .
The capta stock of the corporaton s hed by others than the N
Chapter. It can not be sad that the property s hed e cusvey for
the benefca use of that organzaton. It s, therefore, hed that the
M udng Corporaton, whch has capta stock outstandng n the
hands of others than an e empt organzaton for whch the benefca
use. of the property s hed, s not entted to e empton under secton
101(14) of the Revenue ct of 193 .
rtce 101(3)-1: raterna benefcary socetes. 1939-11-9750
I. T. 32G1
R NU CT OP 193 .
The grand odge of the order of N, whch Incudes the N ome
estabshed for the care of the members of the order, ther depend-
ents, and members of an affated order unabe to earn a vehood
by reason of the Infrmtes of age. Is entted to e empton as a
fraterna benefcary socety under secton 101(3) of the Revenue
ct of 193 , and contrbutons to the organzaton by ndvdua
donors for the use of the N ome are deductbe by such Indvduas
n the manner and to the e tent provded by secton 23(o)0 of
the Revenue ct of 103 .
dvce s requested whether the grand odge of the order of ,
whch ncudes the N ome, s entted to e empton from edera
ncome ta as a fraterna benefcary socety under the provsons
of secton 101(3) of the Revenue ct of 193 , whch e empts
raterna benefcary socetes, orders, or assocatons, ( ) operatng under
the odge system or for the e cusve beneft of the members of a fraternty
tsef operatng under the odge system and ( ) provdng for the payment
of fe. sck, accdent, or other benefts to the members of such socety, order,
or assocaton or ther dependents
The evdence shows that the organzaton s ncorporated under the
aws of the State of R, that t s a fraterna benefcary socety-
operatng under the odge system, and that t s the governng organ-
zaton of a subordnate reated branches throughout the State of R.
The N ome was chartered by that State but surrendered ts charter
to the grand odge and conveyed a the property hed by t to the
and odge, whch now contros and manages the home through a
ard of trustees. ach subordnate odge n the State s requred,
to pay to the grand odge semannuay such amount per member
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123
101, rt. 101(6)-1.
as s prescrbed by the grand odge for the support of the grand odge
and the home. In addton the home receves ncome from the N
ome ndowment und. Ths fund conssts of vountary contr-
butons and bequests of money or other property and s controed
by the endowment fund trustees under the drecton of the grand
odge. The home s not founded as a hospta for the care of persons
temporary dsabed by sckness or accdent. It s estabshed for
the care and mantenance of the members of the order who are
unabe to earn a vehood by reason of the nfrmtes of age and
affctons ncdent thereto and who are n ndgent crcumstances
wthout other means of support and for the care of nfrm and hep-
ess wves and wdows of members of the order, and of hepess
orphans of members of the order who are wthout other and proper
provsons for ther care and educaton. such persons on beng
admtted to the home are cared for whe they are members thereof
and are requred to renqush a cams upon ther respectve odges
for benefts (such as wdow s, orphan s, and funera benefts) of any
knd as a condton of ther admsson to and support n the home.
ased upon the facts presented, t s hed that the grand odp|e
of the order of N, whch ncudes the N ome of the State of R, s
entted to e empton under the provsons of secton 101(3) of the
Revenue ct of 103 .
Contrbutons to ths organzaton by ndvdua donors for the
use of the N ome of the State of R are deductbe by such ndvdu-
as n arrvng at ther ta abe net ncomes n the manner and to the
e tent provded by secton 23 (o) 5 of the Revenue ct of 193 .
htk e 101(G)-1: Regous, chartabe, scen- 1939-10-9741
tfc, terary, and educatona organzatons I. T. 325
and communty chests.
( so Secton 23 (o), rtce 23(o)-, and
Secton 23(q), rtce 23(q)-.)
R NU CT O 103 .
The mercan Natona Red Cross and Its varous chapters,
branches, and au ares are e empt from edera ncome ta a-
ton under secton 101(G) of the Revenue ct of 193 , and contr-
butons thereto are deductbe n the manner and to the e tent
provded n secton 23(o) and secton 23(q) of the Revenue ct
of 193 .
dvce s requested whether the mercan Natona Red Cross
and ts consttuent chapters and brandes are e empt from edera
ncome ta aton under the provsons of secton 101(G) of the Reve-
nue ct of 193 , and whether contrbutons thereto are aowabe
deductons n the ncome ta returns of the donors.
The actvtes of the organzaton are conducted through chap-
ters, each of whch has one or more branches and au ares through
whch t operates. ach chapter s responsbe to the natona
organzaton for the pocy pursued n ts dstrct.
It s hed that the mercan Natona Red Cross and ts varous
chapters, branches, and au ares are entted to e empton from
edera ncome ta aton under the provsons of secton 101(G) of
the .Revenue ct of 193 . Contrbutons to such organzatons are
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101, rt. 101(7)-1.)
124
aowabe deductons n the ncome ta returns of ndvduas n the
manner and to the e tent provded by secton 23 (o) of the Revenue
ct of 193 . The deductbty of contrbutons by ta abe corpora-
tons s governed by secton 23 (q) of the Revenue ct of 193 .
ktce 101 (7)-1: usness eagues, chambers 1939-15-97 2
of commerce, rea estate boards, and boards G. C. M. 21000
of trade.
R NU CT O 193 .
The M ssocaton, the membershp of whch s composed of
persons, frms, assocatons, and corporatons, each representng a
dfferent trade, busness, occupaton, or professon, n whch any
frm, assocaton, corporaton, or person whose man actvty or
professon s not n competton wth the man actvty or professon
of a member s egbe for membershp, s entted to e empton
from edera ncome ta aton as a busness eague under the pro-
vsons of secton 101(7) of the Revenue ct of 193 .
dvce s requested whether the M ssocaton s entted to e emp-
ton from edera ncome ta aton as a busness eague under the
provsons of secton 101(7) of the Revenue ct of 193 .
The purposes for whch the organzaton was ncorporated, as
provded n the artces of ncorporaton, are as foows:
To nsttute and mantan a method of e changng busness nformaton
among ts members
To create and encourage cooperaton, busness effcency, and servce to ts
members and to brng ts members n touch wth prospectve busness
To encourage oca, natona, and foregn trade e panson for the beneft of
ts members
To deveop the busness effcency of ts members, and to promote a better
acquantance and coser assocaton among them.
The by-aws provde that the membershp n the assocaton sha
be composed of persons, frms, assocatons, and corporatons, each
representng a dfferent trade, busness, occupaton, or professon
that any frm, assocaton, corporaton, or person whose man actv-
ty or professon s not n competton wth the man actvty or
professon of a member s egbe for membershp n the assocaton
that an appcaton for membershp sha not be dened by reason
of any confct between the man actvty of such appcant and the
ncdenta actvty of a member and that each member of the asso-
caton sha desgnate an e ecutve of ts frm to be ts representatve
n the assocaton, and such representatve sha not be changed wth-
out the approva of the board of drectors of the assocaton. The
by-aws further provde that there sha be an admsson membershp
fee, that each member sha pay doars per month for the genera
e penses of the assocaton, and that the management of the organ-
zaton sha e vested n a board of trustees composed of the pres-
dent, vce presdent, treasurer, secretary, and fve others.
The organzaton hods weeky meetngs, mantans an offce, and
empoys a manager n order to factate the e change of busness
nformaton among ts members, and n order to create and encourage
coo|)eraton, busness effcency, and servce to ts members and to
brng them n touch wth prospectve busness. It s stated that the
character of busness nformaton e changed among ts members s
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125
101(9).
of a saes and saes prospect nature. Upon admsson to the asso-
caton, each member submts to the manager a st of busness men
wth whom he s acquanted and to whom he w furnsh another
member (or members) a etter of ntroducton. ach member of
the assocaton agrees to keep other members of the assocaton n-
formed of any busness changes whch come to hs attenton and
whch may, by ther nature, ndcate potenta markets for the sae
of the products of such other members. t each meetng of
the assocaton certan members are caed upon to e pan
how other members of the assocaton can hep them to secure more
busness. The ncome of the assocaton s derved from ts mem-
bers and s e pended for saares and genera offce e penses.
rtce 101(7)-1 of Reguaton 101, deang wth the e empton
of busness eagues, reads n part as foows:
usness eagues, chambers of commerce, rea estate boards, and boards of
trne. busness eague Is an assocaton of persons havng some common
busness nterest, the purpose of whch s to promote such common nterest
am not to engage n a reguar busness of a knd ordnary carred on for proft.
I s an organzaton of the same genera cass as a chamber of commerce or
board of trade. Thus ts actvtes shoud be drected to the mprovement of
busness condtons of one or more nes of busness as dstngushed from the
performance of partcuar servces for ndvdua persons.
It w be noted that the reguatons recognze that a busness
eague wthn the contempaton of secton 101(7) s an organza-
ton whch has for ts purpose the promoton of the busness nterests
of those who compose ts membershp. There s nothng n the regu-
atons whch requres that a busness eague promote the betterment
of genera commerca wefare. The reguatons merey requre that
the actvtes of the organzaton be drected to the mprovement
of busness condtons of one or more nes of busness. Whe the
nterests of the members of the nstant organzatons are dversfed,
they are no more so than the busness nterests of the members of a
oca board of trade or a chamber of commerce.
It s, accordngy, the opnon of ths offce that the M ssocaton
s a busness eague wthn the contempaton of secton 101(7)
of the Revenue ct of 193 .
. P. Wenche,
Chef Coume, ureau of Interna Revenue.
Secton 101 (9) : Soca cubs. 1939-5-9693
G. C. M. 20647
R NU CTS O 1030 ND 193 .
The M Soca Cub, whch derves over 75 per cent of ts ncome
from easng part of Its property and s not supported by member-
shp fees, dues, and assessments, Is not entted to e empton from
edera ncome ta aton under secton 101(9) of the Revenue cts
of 1936 and 193S.
dvce s requested whether the M Soca Cub s entted to e emp-
ton from edera ncome ta aton under secton 101(9) of the Reve-
nue cts of 1936 and 193 , whch e empt
Cubs organzed and operated e cusvey for peasure, recreaton, and other
onproftabe purposes, no part of the net earnngs of whch nures to the beneft
of any prvate sharehoder
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101(9), rt. 101(10)-1.)
126
or the year 1936 over 75 per cent of the ncome of the M Soca
Cub conssted of ncome from easng a part of ts property, and the
same condton e sted throughout the years 1937 and 193 . The cub
n rentng ts property s engaged n a busness ordnary carred on
for proft. Such actvt s not carred on for the accommodaton of ts
members. It s, therefore, not operated e cusvey for peasure,
recreaton, or other nonproftabe purposes wthn the meanng of the
statute and s not supported by membershp fees, dues, and assessments.
(See artce 101 (9)- of Reguatons 94, reatng to the Revenue ct of
1936.) It s evdent from the statement of recepts and e pendtures
for the year 193G that f the organzaton dd not have ths source of
ncome, t woud have to modfy or dscontnue ts other actvtes or
rase ts membershp dues, whch s ndcatve that the rentas nure to
the beneft of ts members wthn the meanng of the statute. (See
G. C. M. 16 07, C. . -2, 157 (1936), wheren a tenns cub was
dened e empton under substantay smar crcumstances.) ur-
thermore, the fact that the ncome may be used entrey n the further-
ance of ts other nonproftabe actvtes s not suffcent to |ustfy the
e empton. (G. C. M. 16 07, supra G. C. M. 9470, C. . -2, 162
(1931) and The ssocates v. Commssoner, 2 . T. ., 521.)
It s, therefore, hed that the M Soca Cub s not entted to e emp-
ton from edera ncome ta aton under secton 101(9) of the Reve-
nue cts of 1936 and 193 .
. P. Wence,
rtce 101(10)-1: Loca benevoent fe nsur- 1939-24-9 70
ance assocatons, mutua rrgaton and tee- I. T. 32 6
phone companes, and ke organzatons.
R NU CTS O 1S36 ND 193 .
The M Company, organzed for the purpose of enterng Into a
contract wth the Unted States or Its agences for the protecton
of the banks of the R Rver aganst eroson, the ony Income of
whch conssts of assessments aganst property owners affected
soey to meet e penses, no part of such ncome nurng to the
beneft of any prvate sharehoder or ndvdua, Is e empt from
edera ncome ta under secton 101(10) of the Revenue cts of
1936 and 193 .
dvce s requested whether the M Company s entted to e emp-
ton from edera ncome ta under secton 101(10) of the Revenue
cts of 1936 and 193 , whch e empts from edera ncome
ta aton
Renevoent fe Insurance assocatons of a purey oca character, mutua
dtch or Irrgaton companes, mutua or cooperatve teephone companes,
or ke organzatons but ony If 5 per centum or more of the Income conssts
of amounts coected from members for the soe purpose of meetng osses
and e penses.
The M Company was ncorporated n 1937 for the purpose of en-
terng nto contracts wth the Unted States or ts duy consttuted
agences for the protecton of the banks of the R Rver, that s, to pre-
vent the banks from beng damaged by eroson. The company has
comped wth the requrements of the Government by enterng nto
an agreement to furnsh the Government a rght of way and save t
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127
|us.
harmess from damages due to constructon work. It further agreed
to mantan the work after competon. Its source of ncome s from
contrbutons or assessments aganst ts members and such amounts
are used to pay e penses. No part of ts ncome nures to the beneft
of any prvate sharehoder or ndvdua.
It s hed that the M Company s e empt from edera ncome
ta aton under the provsons of secton 101(10) of the Revenue cts
of 1936 and 193 .
1930-10-9742
I. T. 3259
R NU CT O 193 .
The compensaton for overtme, pad pursuant to artce 1242,
subdvsons (a) and (e) of the Customs Reguatons of 1937,
to empoyees of the Customs Servce statoned n Canada s not
e empt from edera ncome ta aton.
dvce s requested as to the treatment for edera ncome ta
purposes of compensaton for overtme, pad pursuant to artce 1242,
subdvsons (a) and (e) of the Customs Reguatons of 1937, to
empoyees of the Customs Servce statoned n Canada.
rtce 1242(a) of the Customs Reguatons of 1937 reads as
foows:
kt. 1242. tra compensaton. (a) Customs offcers and empoyees per-
formng servces at nght, or on Sundays and hodays, for adng or unadng
of cargo or merchandse, or adng cargo or merchandse for transportaton
n bond or for e portaton n bond or for e portaton wth beneft of drawback,
or n connecton wth the recevng or devery of cargo or merchandse on or
from the wharf, or n connecton wth the unadng, recevng or e amnaton
of passengers baggage, or In boardng vesses, or In the entrance and cearance
of vesses, or n the ssuance and recordng of ther marne documents and
nstruments of tte, sha receve e tra compensaton, to be pad by the master,
owner, or agent of the vesse, or by the transportaton company.
rtce 1242(e) of the Customs Reguatons of 1937 reads as
foows:
(e) The e tra compensaton for overtme servces s n addton to the reguar
compensaton pad by the Government n the case of offcers and empoyees
whose compensaton s f ed on the ordnary per dem bass and those recevng
a compensaton per month or per annum.
ouchers coverng e tra compensaton for overtme servces are
pad from the appropraton Coectng the revenue from customs
for the fsca year n whch the servces are rendered. Coectons
from the persons n nterest n payment for such servces are de-
posted as a repayment to the appropraton from whch the e tra
compensaton s pad. No deductons are made from the e tra com-
pensaton for the retrement fund for edera empoyees.
Secton 116 of the Revenue ct of 193 provdes n part:
In addton to the tems specfed n secton 22(b), the foowng tems sha
not be ncuded n gross ncome and sha be e empt from ta aton under ths
tte:
a) arned ncome from sources wthout Unted States. In the case of an
ndvdua ctzen of the Unted States, a bona fde nonresdent of the Unted
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116.1
12
States for more than s months durng the ta abe year, amounts receved
from sources wthout the Unted States (e cept amounts pad by the Unted
States or any agency thereof) f such amounts woud consttute earned ncome
as defned n secton 25(a) f receved from sources wthn the Unted States
but such ndvdua sha not be aowed as a deducton from hs gross Income
any deductons propery aocabe to or chargeabe aganst amounts e cuded
from gross ncome under ths subsecton.
The four controng factors n the appcaton of the foregong
provson of aw to the case of a partcuar ta payer are: () the
ta payer must be a natve born or fuy naturazed ctzen of the
Unted States, (2) he must be away from the Unted States for more
than s months of the ta abe year, (3) he must receve earned n-
come wthn the meanng of that term as defned n secton 25(a) of
the Revenue ct of 193 for persona servces rendered wthout the
Unted States, and (4) the payor of the saary, wages, or compensa-
ton must not be the Unted States or any agency thereof. The n-
stant empoyees quafy as to requrements (1) and (2), and the
e tra compensaton receved for the servces rendered by the em-
poyees at nght, on Sundays, and on hodays unquestonaby con-
sttutes earned ncome wthn the meanng of that term as defned
n secton 25(a) of the Revenue ct of 193 . The soe queston at
ssue s, therefore, whether the payor of the e tra compensaton s
the Unted States, or any agency thereof, or the transportaton com-
panes or other persons who are requred to pay for the overtme
servce.
The ast paragraph of secton 4 of the ct of May 29, 1930 (46
Stat., 46 ), provdes:
The term basc saary, pay. or compensaton, wherever used n ths ct,
sha be so construed as to e cude from the operaton of the ct a bonuses,
aowances, overtme pay, or saary, pay, or compensaton gven n addton to
the base pay of the poston as f ed by aw or reguaton.
s the overtme compensaton of empoyees of the Unted States
Government s not sub|ect to deductons for the retrement fund n
whch such empoyees partcpate, the fact that no deductons are
made from the e tra compensaton of customs empoyees for the
retrement fund s no test that the amounts so receved are not pad
by the Unted States Government or any agency thereof.
In an opnon rendered by the ttorney Genera on ebruary 16,
1933 (37 Ops. tty. Gen., 121), whch reated to the status of em-
oyees n the Insovent Natona ank Dvson of the Offce of
omptroer of Currency, t was hed that, notwthstandng the fact
that the e penses of premnary and other e amnatons made by
such empoyees are pad out of the assets of the nsovent banks from
funds obtaned by assessments on the natona banks n recevershp
and not from edera appropratons, the empoyees must bo regarded
as empoyees of the Unted States, and the fact that they are not pad
from funds approprated by Congress does not affect ther status as
empoyees n the e ecutve cv servce of the Unted States.
ppyng that prncpe to the facts n the nstant case, ths offce
s of the opnon that the payment nto the Treasury by the transpor-
taton companes, or others smary nterested, of the amount of
compensaton due empoyees of the Customs Servce for overtme
resuts n the moneys so pad beongng to the Unted States.
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129
116, rt. 116-2.
It s, accordngy, hed that the compensaton for overtme pad to
empoyees of the Customs Servce statoned n Canada for servces
rendered at nght, on Sundays, and on hodays s not e empt from
edera ncome ta , and that such compensaton fas wthn the e -
cepton from earned ncome from sources wthout the Unted States
contaned n secton 116(a) of the Revenue ct of 193 .
rtce 116-2: Compensaton of State offcers 1939-15-97 3
and empoyees. Ct. D. 1390
state ncome ta ta aw of new york decson of supreme court.
1. Ta on Saary of mpoyee op Corporate Instrumentaty op
the edera Government Consttutonaty.
The mposton by the State of New York of an ncome ta on the
saary of an empoyee of the ome Owners Loan Corporaton, a
corporate nstrumentaty of the edera Government, does not
mpose an unconsttutona burden upon that Government.
2. edera Income Ta Decson Overrued.
Coector v. Day (11 Wa., 113) overrued, so fnr as It recognzes
an mped consttutona mmunty from ncome ta aton of the
saares of offcers or empoyees of a State government or ts nstru-
mentates.
Supreme Court op the Unted States.
ark Graven, ohn . Merr and ohn P. Icnness, as Commssoners Const-
tutng the State Tu Commsson of the State of cw York, pettoners, v. The
Peope of the State of ec York, Upon the Reaton of ames . O cefe.
59 S. Ct., r.95.
On wrt of certorar to the Supreme Court of the State of New York.
March 27, 1939.
opnon.
Mr. ustce Stone devered the opnon of the Court.
We are asked to decde whether the mposton by the State of New York
of an ncome tu on the saary of an empoyee of the ome Owners Loan Cor-
poraton paces an unconsttutona burden upon the edera Government
Respondent, a resdent of New York, was empoyed durng 1931 as an e amn-
ng attorney for the ome Owners Loan Corporaton at an annua saary of
2,400. In Ls ncome ta return for that year e ncuded hs saary as sub|ect
to the New York State ncome ta mposed by artce 10 of the ta aw of New
York (Conso. Laws, ch. CO). Subdvson 2f of secton 359, snce repeaed,
e empted from the ta Saares, wages and other compensaton receved from
the Unted States of offcas or empoyees thereof, ncudng persons n the
mtary or nava forces of the Unted States. Pettoners, New York
State ta commssoners, re|ected respondent s cam for a refund of the ta
based on the ground that hs saary was consttutonay e empt from State
ta aton because the ome Owners Loan Corporaton Is an nstrumentaty of
the Unted States Government and that he, durng the ta abe year, was an
empoyee of the edera Government engaged n the performance of a gov-
ernmenta functon.
On revew by certorar the board s acton was sot asde by the ppeate
Dvson of the Supreme Court of New York (253 pp. Dv., 91), whose order
n-as affrmed by the Court of ppeas. (27 N. Y., 221.) oth courts hed re-
spondent s s| ary was free from ta on the authorty of cw York c re. Rogers
Graves (209 . S., 401), whch sustaned the cam that New York coud not
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116, rt. 116-2.
130
consttutonay ta the saary of an empoyee of the Panama Ra Road Co., a
whoy-owned corporate nstrumentaty of the Unted States. We granted
certorar December 10, 193 , the consttutona queston presented by the
record beng of pubc mportance.
The ome Owners Loan Corporaton was created pursuant to secton 4(a)
of the ome Owners Loan ct of 1933 ( 4 Stat, 12 , 12 U. S. O., secton 14 1
et seq.), whch was enacted to provde emergency reef to home owners, partcu-
ary to assst them wth respect to home mortgage ndebtedness. The corpora-
ton, whch s authorzed to end money to home owners on mortgages and to
refnance home mortgage oans wthn the purvew of the ct, s decared by
secton 4(a) to be an nstrumentaty of the Unted States. Its shares of stock
are whoy Government-owned. (Secton 4(b).) Its funds are deposted In
the Treasury of the Unted States, and the compensaton of ts empoyees Is
pad by drafts upon the Treasury.
or the purposes of ths case we may assume that the creaton of the ome
Owners Loan Corporaton was a consttutona e ercse of the powers of the
edera Government. (Cf. ay Unted States, 303 U. ., 1.) s that
Government derves ts authorty whoy from powers deegated to t by the
Consttuton, ts every acton wthn ts consttutona power s governmenta
acton, and snce Congress s made the soe udge of what powers wthn the
consttutona grant are to be e ercsed, a actvtes of government consttu-
tonay authorzed by Congress must stand on a party wth respect to ther
consttutona mmunty from ta aton. (McCuoch v. Maryand, 4 Wheat.,
316, 432 an rockn v. Tennessee. 117 U. S., 151, 15 -159 South Carona v.
Unted States, 199 U. ., 437, 451-452 evcrrtg v. crhardt, 04 U. S., 405,
412-115 Ct. D. 1343, C. . 193 -1, 246 .) nd when the Natona Government
awfuy acts through a corporaton whch t owns and contros, those actvtes
are governmenta functons entted to whatever ta mmunty attaches to those
functons when carred on by the Government tsef through ts departments.
(See McCuoch v. Maryand, supra, 421-422 Smth v. ansas Cty Tte Co.,
255 U. S., 1 0, 20 edera Land ank y. Crosand, 261 U. S., 374 New York
em re. Rogers v. Graves, supra.)
The snge queston wth whch we are now concerned Is whether the ta
ad by the State upon the saary of respondent, empoyed by a corporate nstru-
mentaty of the edera Government, Imposes an unconsttutona burden upon
that Government. The theory of the ta mmunty of ether Government, State
or Natona, and ts nstrumentates, from ta aton by the other, has been
rested upon an Imped mtaton on the ta ng power of each, such as to fore-
sta undue Interference, through the e ercse of that power, wth the govern-
menta actvtes of the other. That the two types of mmunty may not, In
a respects, stand on a party has been recognzed from the begnnng
McCuoch v. Maryand, supra, 435-430), and possbe dfferences n appcaton,
dervng from dfferences n the source, nature and e tent of the Immunty of the
Governments and ther agences, were ponted out and dscussed by ths Court
n deta durng the ast term. evcrna v. Oerhardt, supra, 412-413, 416.)
So far as now reevant, those dfferences have been thought to be traceabe
to the fact that the edera Government s one of deegated powers n the
e ercse of whch Congress Is supreme so that every agency whch Congress can
consttutonay create s a governmenta agency. nd snce the power to create
the agency Incudes the mped power to do whatever s needfu or approprate,
f not e pressy prohbted, to protect the agency, there has been attrbuted to
Congress some scope, the mts of whch It s not now necessary to defne, for
grantng or wthhodng mmunty of edera agences from State ta aton.
(See an en v. The ssessors, 3 Wa., 573, 5 3, 5 5 ank v. Supervsors,
7 Wa., 26, 30, SI Thomson v. Pacfc Raroad. 9 Wa., 579, 5S , 590 Peope v.
Weaver, 100 U. S., 539, 5-13 Mercante ank v. New York, 121 U. S., 13 , 154
Owensboro Natona ank v. Owcvsboro, 173 U. S., 604, 66 Shaw v. bson-
Zahnser O Corporaton, 276 U. S., 575, 5 1 Okahoma v. arnsda Corporaton,
290 U. S 521, 525-526 atmore Natona ank v. State Tan Comm n, 297
U. S., 209, 211-212 Rr tsh-.Unercan Co. v. oard, 299 U. S., 159 amrs v. Draro
Contrartrv Co., 302 U s., 134, 161 evernn v. Ocrhardt, supra, 411, 412, 417
cf. Unted States v. ckns, C4 U. S., 27, 62.) Whether ts power to grant
ta e emptons as an ncdent .to the e ercse of powers specfcay granted by
the Consttuton can ever, n any crcumstances, e tend beyond the consttutona
Immunty of edera agences whch courts have Imped, Is a queston whch
need not now be determned.
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131
5 116, rt. 116-2.
Congress has decared In secton 4 of the rt that the Iome Owners Loan
Corporaton Is au nstrumentaty of the Unted States and that ts bonds
are e empt, as to prncpa and nterest, from edera and State ta aton, e cept
surta es, estate, nhertance and gft ta es. The corporaton tsef, ncud-
ng ts franchse, ts capta, reserves and surpus, and ts oans and ncome, s
kewse e empted from ta aton ts rea property s sub|ect to ta to the
same e tent as other rea property. ut Congress has gven no ntmaton of
any purpose ether to grant or wthhod mmunty from State ta aton of the
saary of the corporaton s empoyees, and the congressona ntenton s not to be
gathered from the statute by Impcaton. (Cf. atmore Natotw ank v.
State Ta Comm n, supra.)
It Is true that the sence of Congress, when It has authorty to speak, may
tometmes gve rse to an mpcaton as to the congressona purwse. The
nature and e tent of that mpcaton depend upon the nature of the con-
gressona power and the effect of ts e ercse.1 ut there s tte scope for the
appcaton of that doctrne to the ta mmunty of governmenta Instrumenta-
tes. The consttutona mmunty of ether government from ta aton by the
other, where Congress s sent, has ts source In an mped restrcton upon the
powers of the ta ng government. So far as the mpcaton rests upon the pur-
pose to avod nterference wth the functons of the ta ed government or the m-
poston upon t of the economc burden of the ta , t s pan that there s no
bass for mpyng a purpose of Congress to e empt the edera Government
or Its agences from ta burdens whch are unsubstanta or whch courts are
unabe to dscern. Sence of Congress mpes mmunty no more than does
the sence of the Consttuton. It foows that when e empton from State
ta aton Is camed on the ground that the edera Government s burdened by
the ta , and Congress has dscosed no ntenton wth respect to the camed
mmunty, t s n order to consder the nature and effect of the aeged burden,
and f t appears that there s no ground for mpyng a consttutona mmunty,
there Is equay a want of any ground for assumng any purpose on the part of
Congress to create an mmunty.
The present ta s a nondscrmnatory ta on Income apped to saares at
a specfed rate. It Is not n form or substance a ta upon the ome Owners
Loan Corporaton or Its property or Income, nor s t pad by the corporaton
or the Government from ther funds. It s ad upon ncome whch becomes the
property of the ta payer when receved as compensaton for hs servces and
the ta ad upon the prvege of recevng t s pad from hs prvate funds
and not from the funds of the Government, ether drecty or ndrecty. The
theory, whch once won a quafed approva, that a ta on ncome s egay
or economcay a ta on Its source, s no onger tenabe ( ec York c re. Oohn
v. Graves, 300 U. S., 30 , 313, 314 ae v. State oard, 302 U. S., 95, 106
e verno v. Gerhardt, supra cf. Metcaf t ddy v. Mtche, 269 U. S., 514
T. D. 3 24, C. . -, 21 (1926) o m Corporaton v. Doya, 2S0 U. .,
123 ames v. Dravo Contractng Co., supra, 149 evcrng v. Mountan Pro-
ducers Corporaton, 303 U. S., 376 Ct D. 1321, O. . 193 -1, 343 ), and the
ony possbe bass for mpyng a consttutona mmunty from State ncome
ta of the saary of an empoyee of the Natona Government or of a govern-
menta agency s that the economc burden of the ta s n some way passed
on so as to mpose a burden on the Natona Government tantamount to an
nterference by one Government wth the other n the performance of ts
functons.
In the four cases In whch ths Court has hed that the saary of an offcer or
empoyee of one government or ts nstrumentaty was mmune from ta aton
by the other, t was assumed, wthout dscusson, that the Immunty of a govern-
ment or ts nstrumentaty e tends to the saares of Its offcers and em-
1 The faure of Congress to rcsuntc Interstate commerce has generay boon taken to
Srn/y a cmRTessona purpose to eave undsturbed the authorty of the States to make
reguatons affectng the commerce In matters of pecuary oca concern, but to wthhod
from them authorty to make reguatons fft ctne those phases of It whch, because of the
Deed of a natona unformty, demand that ther reguaton, f any, he prescrbed by a
nde authorty. (Coocy v. hoard n Wardens, 12 ow.. 200, . 110 Mnnenota Rate Canes,
O r S 352 9 -400 e u v. Washt ton. 02 U. .. 12. 14 nuth Carona State
hqhu-ay Dtpnrtment . arnwe os., 303 D. S., 177, 1 4-1S. , Mk Contro oard v.
uenbera arm Products, decded ebruary 27, 1030.) s to the Impcatons from eon-
rrMnnn sence In the fed of State ta aton of nterstato commerce and Its Instrumen-
m. nee Western Lve Stock v. ureau of Revenue, 303 U. S., 250: c cn, Whte
trttt, Inc., v. Uenneford, decded anuary 3, 1930.)
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132
poyees Ths assumpton, made wth respect to the saary of a governmenta
offcer In Dobbns v. Commssoners of re County (16 Pet., 435) and In
Coector v. Day (11 Wa., 113), was ater e tended to confer mmunty on
ncome derved by a essee from ands eased to hm by a government n the
performance of a governmenta functon (Gtespc v. Okahoma, 257 U. S., 501
urnet v. Coronado O d Oas Co., 2 5 U. 393 Ct. D. 4 5, C. . I-1, 2G5
(1932) and cases cted), athough the cam of a ke e empton from ta on
the ncome of a contractor engaged n carryng out a Government pro|ect was
re|ected both n the case of a contractor wth a State (Metcaf f ddy v.
Mtche, supra), and of a contractor wth the Natona Government ( ames
v. Dravo Contractng Co., supra).
The utmate repudaton In everng v. Mountan Producers Corporaton,
supra, of the doctrne that a ta on the Income of a essee derved from a ease
of government owned or controed ands Is a forbdden nterference wth the
actvtes of the government concerned ed to the ree amnaton by ths Court,
In the Gerhardt case, of the theory underyng the asserted mmunty from
ta aton by one government of saares of empoyees of the other. It was there
ponted out that the mped mmunty of one government and ts agences from
ta aton by the other shoud, as a prncpe of consttutona constructon, be
narrowy restrcted. or the e panson of the Immunty of the one government
correspondngy curtas the soveregn power of the other to ta , and where
that mmunty Is nvoked by the prvate ctzen t tends to operate for hs beneft
at tho e pense of the ta ng government and wthout correspondng beneft
to the government n whose name the mmunty s camed. (See Metcaf
ddy v. Mtche, supra, 523-524 ames v. Dravo Contractng Co., supra, 156-
15 .) It was further ponted out that, as apped to the ta aton of saares of
the empoyees of one government, the purpose of the mmunty was not to confer
benefts on the empoyees by reevng them from contrbutng ther share of
the fnanca support of the other government, whose benefts they en|oy, or to
gve an advantage to that government by enabng t to engage empoyees at
saares ower than those pad for ke servces by other empoyers, pubc or
In Dobbns v. Commssonsrs of re County (1 Pet., 4 5) a Pennsyvana ta . nom-
nay ad upon the offce of the captan of a edera revenue cutter, hut roughv measured
by the saary pad to the offcer, was hed Invad. The Court seems, to have rested Its
decson n part on the ground that a ta on the emouments of hs offce was the equva-
ent of a ta upon an actvty of the Natona Government, and In part on the ground th:t
It was an Infrngement of the Imped superor power of Congress to t the compensaton
of Government empoyees wthout dmnuton by State ta aton.
In Coector v. Day (11 Wa.. 113). ths Court hod that the saary of a State probate
udge was consttutonay Immune from edera Income ta on the grounds that the sa-
ary of an offcer of a State Is e empt from edera ta aton If the functon he performs
as an offcer Is e empt, ctng Dobbns . Commssoner of re County, supra, and that
there was an Imped consttutona restrcton upon the power of the Natona Govern-
ment to ta a State In the e ercse of those functons whch were essenta to the mante-
nance of State governments as they were organzed at the tme when the Consttuton
was adopted. The possbty thnt a nondscrmnatory ta upon the ncome of a State
offcer dd not nvove any substanta nterference wth the functonng of the State
government was not dscussed ether In ths or the Dobbns case.
In Netv York e ret. Ropers . O-raves (200 U. S., 401) the queston was whether the)
saary of tho genera counse of the Panama Ra Road Co. was e empt from State Income
ta because the raroad company was an Instrumentaty of the edera Government.
The soe queston rasod by the ta ng State was whether the raroad company was a
Government Instrumentaty. The court, havng found that the raroad company was
such an Instrumentaty, dsposed of the matter of ta e empton of the saary of Its
empoyees by decarng: The raroad company beng Immune from State ta aton. It
necessary resuts that f ed saares and compensaton pad to Its offcers and empoyees
In ther capacty as such are kewse Immune. ( ew York e re. Rogers . Craves,
supra, 40S.)
In rush v. Commssoner (300 . S.. 352 Ct. D. 1212, C. . 1037-1. 217 ) the app-
cabe Treasury reguaton upon whch the Government roed e empted from edera n-
come ta the compensaton of State offcers and empoyees for servces rendered In
connecton wth the e ercse of an essenta governmenta functon of tho State. The
Court hed that the mantenance of the pubc water system of New York Cty was an
essenta governmenta functon, and In determnng whether the saary of the engneer
In charge of that pro|ect was sub|ect to edera Income ta the Court decared, ctng
ew York rm re. Rogers v. Craves, supra, 40 : The answer depends upon whether the
water system of the cty was created and Is conducted In the e ercse of the cty s gov-
ernmenta functons. If so, Its operatons are mmune from edera ta aton and. as a
necessary coroary, f ed saares and compensaton pad to Its offcers and empoyees In
ther capacty as such are kewse Immune. ( rush v. Commssoner, supra, SCO.)
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133
116. rt. 116-2.
prTate, but to prevent undue Interference wth the one government by Imposng
on It the ta burdens of the other.
In appyng these controng prncpes n the Gerhardt cnse the Court hed
that the saares of empoyees of the New York Tort uthorty, a State nstru-
mentaty created by New York and New ersey, were not Immune from edera
ncome ta , even thougn the uthorty be regarded as not sub|ect to edera
ta aton. It was sad that the ta payers en|oyed the beneft and protecton
ot the aws of the nted States and were under a duty, common to a ctzens,
to contrbute fnanca support to the Government that the ta ad on ther
s ares and pad by them coud be sad to affect or burden ther empoyer, the
Port uthorty, or the States creatng t, ony so far as the burden of the ta
was economcay passed on to the empoyer that a nondscrmnatory ta
m on the ncome of a members of the communty coud not be assumed to
obstruct the functon whch New York and New ersey had undertaken to per-
form, or to cast an economc burden upon them, more than does the genera
ta aton of property and Income whch, to some e tent, ncapabe of measure-
ent by economsts, may tend to rase the prce eve of abor and materas.
The Court concuded that the camed mmunty woud do no more than reevo
the ta payers from the duty of fnanca support to the Natona Government n
order to secure to the State a theoretca advantage, specuatve u character
and measurement and too unsubstanta to form the bass of an Imped const-
tutona mmunty from ta aton.
The concuson reached In the Gerhardt case that n terms of consttutona
ta mmunty a edera Income ta on the saary of an empoyee s not a pro-
hbted burden on the empoyer makes t mperatve that we shoud consder
anew the mmunty here camed for the saary of an empoyee of a edera
Instrumentaty. s aready ndcated, such dfferences as there may be be-
tween the mped ta mmunty of a State and the correspondng mmunty
of the Natona Government and Its nstrumentates may be traced to the
fact tbat the Natona Government s one of deegated powers, n the e ercse
cf whch t s supreme. Whatever scope ths may gve to the Natona Govern-
ment to cam Immunty from State ta aton of a nstrumentates whch t
may consttutonaty create, and whatever authorty Congress may possess as
ncdenta to the e ercse of ts deegated powers to grant or wthhod mmunty
from State ta aton, Congress has not sought n ths case to e ercse such power.
ence these dstnctons between the two types of mmunty can not affect
the queston wth whch we are now concerned. The burden on government
of a nondscrmnatory ncome ta apped to the saary of the empoyee of a
government or ts nstrumentaty s the same, whether a State or Natona
Government s concerned. The determnaton n the Gerhardt case that the
edera ncome ta mposed on the empoyees of the Port uthorty was not
a burden on the Port uthorty made t unnecessary to consder whether the
uthorty tsef was mmune from edera tn nton the camed mmunty
faed because even f the Port uthorty were tsef mmune from edera
ncome ta , the ta upon the ncome of ts empoyees cast upon t no unconst-
tutona burden.
The fact that the e penses of the one government mght be essened f n those who
. wth t were e empt from ta aton by tbe other was thought not to e. an adequate
bass for ta mmunty n Metraf . ddy v. Mtche (269 U. S. 514) : Group No. 1 O
Corporaton v. ass (2 3 U. ., 279 Ct I). 330, C. . - 1, 53 (11)31)1) urnet v.
ergns Trust (26 U. S., 50 Ct, D. 653, C. . II-1, 214 (1933)1) .ame v. Druro
Contractng Co. (302 . S., 134) Ueverng v. Mountan Producers Corporaton (303
. S.. 376).
That the economc burden of a ta on saares s passed on to the empoyer or that
empoyees w accept a ower Government saary because of ts ta Immunty, are for-
muas wh h have not won acceptance by economsts and can not be |udcay assumed.
s to the passng on of the economc burden of the ta . see Rcgman. Income Ta .
II ncycopeda of Soca Scences, 626-03 ehn, Pubc natue (5th I M ), page 320
I1 t. Pubc nance, pa e 240 Lut. Pubc nance (2d d.), pace 3. .. and sec,
Indan Motonce Co. v. Unted Mates (2:3 . S.. 570. 5 1. footnote 1 Ct. It. 354, C. .
1, 439 (1931) ). s to preference for Government empoyment because the saary Is
ta e empt, ree Dcknson, Compensatng Industra ffort (1937). paces 7- Douga .
The eaty of Non-Commerca Incentves n Industra Lfe. Ch. of Tbe Trend of
conomcs (1924) oume I, etter. conomc Prncpes (1915), page 203.
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116, rt. 116-2.
134
ssumng, as we do, that the ome Owners Loan Corporaton Is cothed
wth the same Immunty from State ta aton as the Government tsef, we
can not say that the present ta on the ncome of ts empoyees ays any un-
consttutona burden upon t. the reasons for refusng to mpy a con-
sttutona prohbton of edera ncome ta aton of saares of State empoyees,
stated at ength n the Gerhardt case, are of equa force when mmunty s
camed from State ncome ta on saares pad by the Natona Government
or ts agences. In ths respect we perceve no bass for a dfference n resut
whether the ta ed ncome be saary or some other form of compensaton, or
whether the ta payer be an empoyee or an offcer of ether a State or the
Natona Government, or of ts nstrumentates. In no case s there bass for
the assumpton that any such tangbe or certan economc burden s mposed
on the government concerned as woud |ustfy a court s decarng that the ta -
payer s cothed wth the mped consttutona ta mmunty of the govern-
ment by whch he s empoyed. That assumpton, made n Coector v. Day,
supra, and n New York e re. Rogers v. Graves, supra, s contrary to the
reasonng and to the concusons reached n the Gerhardt case and n Metcaf
d ddy v. Mtche, supra: Group No. 1 O Corporaton v. ass (2 3 U. S., 279)
ames v. Dravo Contractng Co., supra evcrng v. Mountan Producers Cor-
poraton, supra McLoughn v. Commssoner (UO . U. S., 21 Ct. D. 1316, C. .
193 -1, 243 ). In ther ght the assumpton can no onger be made. Coector
v. Dap, supra, and New York e re. Rogers v. Graves, supra, are overrued so
far as they recognze an mped consttutona mmunty from ncome ta aton
of the saares of offcers or empoyees of the Natona or a State Government
or ther nstrumentates.
So much of the burden of a nondscrmnatory genera ta upon the Incomes
of empoyees of a government. State or Natona, as may be passed on econom-
cay to that government, through the effect of the ta on the prce eve of
abor or materas, Is but the norma ncdent of the organzaton wthn the
same terrtory of two governments, each possessng the ta ng power. The
burden, so far as t can be sad to e st or to affect the government n any
ndrect or ncdenta way, s one whch the Consttuton presupposes, and
hence t can not rghty be deemed to be wthn an Imped restrcton upon the
ta ng power of the Natona and State Governments whch the Consttuton
has e pressy granted to one and has confrmed to the other. The mmunty
s not one to be mped from the Consttuton, because f aowed t woud
mpose to an nadmssbe e tent a restrcton on the ta ng power whch the
Consttuton has reserved to the State governments.
Reversed.
Mr. Chef ustce ughes concurs n the resut.
Mb. ustce rankfurter, Concurrno.
I |on n the Court s opnon but deem t approprate to add a few remarks.
The voume of the Court s busness has ong snce made mpossbe the eary
heathy practce whereby the ustces gave e presson to ndvdua opnons.1
ut the od tradton st has reevance when an Important shft n consttu-
tona doctrne s announced after a reconstructon n the membershp of the
Court. Such shfts of opnon shoud not derve from mere prvate udgment.
They must be duy mndfu of the necessary demands of contnuty n cvzed
socety. reversa of a ong current of decsons can be ustfed ony If rooted
n the Consttuton tsef as an hstorc document desgned for a deveopng
naton.
or 120 years ths Court has been concerned wth cams of mmunty from
ta es mposed by one authorty n our dua system of government because of
the ta payer s reaton to the other. The bass for the Court s Interventon n
ths fed has not been any e pct provson of the Consttuton. The States,
after they formed the Unon, contnued to have the same range of ta ng
power whch they had before, barrng ony dutes affectng e ports. Imports, and
on tonnage. Congress, on the other hand, to ay ta es n order to pay the
Debts and provde for the common Defense and genera Wefare of the Unted
States ( rtce I, secton ), can reach every person and every doar n tho
and wth due regard to consttutona mtatons as to the method of ayng
Tho state of the (ocket of the ch Court of ustraa and that of the Supreme Court
6f Canada 1 permts them to contnue the cassc practce of seratm opnon .
rtce I, secton 10, Unted States Consttuton.
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135
116. rt. 116-2.
toes. ut, as Is true of other great actvtes of the State and Natona Gov-
ernments, the fact that we are a federasm rases probems regardng these
vta powers of ta aton. Snce two governments have authorty wthn the
same terrtory, nether through ts power to ta can be aowed to crppe the
operatons of the other. Therefore State and edera Governments must avod
e actons whch dscrmnate aganst each other or obvousy nterfere wth one
another s operatons. These were the determnng consderatons that ed the
great Chef ustce to strke down the Maryand statute as an unambguous
measure of dscrmnaton aganst the use by the Unted States of the ank
of the Unted States as one of ts nstruments of government.
The arguments upon whch McCuoch v. Maryand (4 Wheat., 310) rested
had ther roots n actuaty. ut they have been dstorted by stere refnements
unreated to affars. These refnements derved authorty from an unfortunate
remark n the opnon n McCuoch v. Maryand. Party as a foursh of rhet-
orc and party because the nteectua fashon of the tmes nduged a free
use of absoutes, Chef ustce Marsha gave currency to the phrase that the
power to ta nvoves the power to destroy. (Id., at page 431.) Ths dctum
was treated as though t were a consttutona mandate. ut not wthout pro-
test. One of the most trenchant mnds on the Marsha court, ustce Wam
ohnson, eary anayzed the dangerous nroads upon the potca freedom of
the States and the Unon wthn ther respectve orbts resutng from a doc-
trnare appcaton of the generates uttered In the course of the opnon
n McCuoch v. Maryand. The seductve cchd that the power to ta nvoves
the power to destroy was fused wth another assumpton, kewse not to be
found n the Consttuton tsef, namey the doctrne that the mmuntes are
correatve because the e stence of the Natona Government mpes mmun-
tes from State ta aton, the e stence of State governments mpes equvaent
mmuntes from edera ta aton. When ths doctrne was frst apped Mr.
ustce radey regstered a powerfu dssent, the force of whch gathered
rather than ost strength wth tme. (Coector v. Day, 11 Wa., 113, 12 .)
these doctrnes of ntergovernmenta mmunty have unt recenty been
movng n the ream of what Lncon caed perncous abstractons. The
web of unreaty spun from Marsha s famous dctum was brushed away by
one stroke of Mr. ustce omes s pen: The power to ta s not the power
to destroy whe ths Court sts. (Panhande O Co. v. Msssspp, 277 U. S.,
21 , 223 (dssent).) aure to e empt pubc functonares from the unversa
dutes of ctzenshp to pay for the costs of government was hypothetcay
transmuted nto hoste acton of one government aganst the other. suc-
cesson of decsons thereby wthdrew from the ta ng power of the States and
Naton a very consderabe range of weath wthout regard to the actua work-
ngs of our federasm, and ths, too, when the fnanca needs of a governments
began steady to mount. These decsons have encountered ncreasng dssent.
In vew of the powerfu pu of our decsons upon the courts charged wth
mantanng the consttutona equbrum of the two other great ngsh
federasms, the Canadan and the ustraan courts were at frst ncned to
foow the earer doctrnes of ths Court regardng ntergovernmenta Immunty.
oth the Supreme Court of Canada and the gh Court of ustraa on fuer
TTestnn v. Cty Counc of Chareston (2 Pet.. 449. 472-473).
I dssent from the opnon of the Court In ths case because, It seems to me that tte
Genera Government has the same power of ta ng the ncome of offcers of the State
rorernments as t has of ta ng that of ts own offcers. In my tudgment, the
mtaton of the power of ta aton n the. Genera Government, whch the present dec-
son estabshes, w be found very dffcut of contro. Where are we to stop n enumer-
atng the functons of the State governments whch w ho nterfered wth by edera
ta aton ow can we now te what the effect of ths decson w be I can
not but regard t as founded on a faacy, and that t w ead to mschevous conse-
quences. (11 Wa., 113. 12S-129.)
g., Gespe v. Okahoma (2 7 T . S., 5011 Panhande O Co. v. Ifsssspp (277
T S 01 ) Mara 11 en Co. v. Massachusetts (279 U. S., 020) : Indan Motacyee Co. v.
ntr d btates I2S3 U. ., f 70) urnet . Coronado O f (as Co. (2 5 T . S., 393) : . eto
Tort e rc. ogert . Uraves (299 U. S., 401) rush . Commssoner vf Interna
Revenue (300 T . S., 352).
g Mr ustce randes, dssentng. In aybrd Mnng Co. v. Wc.tr (271 T . 009,
613)- ustce omes, dssentng. In Panhande O Co. v. Msssspp (277 T . S., 21 ,
) Mr ustce Stone, dssentng, n Indan Motocycr Co. . Unted Stats (2 3 TT. S.,
r t kwn fr ustce Roberts, dssentng, n rush v. Commssoner of Interna Rcrcnua
t3 v s 352, 374). See, aso, Mr. ustce ack, concurrng, In everng v. Oerhardt
antSof4Toro4nt r. Lambe (12 pp. Cas.. 573) D mdcn v. redder (1 C. L. It.. 91).
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116, rt. 116-1.
136
consderaton and for present purposes the rtsh North merca ct ( 0 and
31 ct, ch. 3), and the Commonweath of ustraa Consttuton ct (63 and
64 ct, ch. 12), rase the same ega Issues as does our Consttuton haye
competey re|ected the doctrne of Intergovernmenta Immunty. In ths
Court dssents have graduay become ma|orty opnons, and even before the
present decson the ratonae of the doctrne had been undermned.10
The |udca hstory of ths doctrne of Immunty s a strkng ustraton of
an occasona tendency to encrust unwarranted nterpretatons upon the Con-
sttuton and thereafter to consder merey what has been |udcay sad about
the Consttuton, rather than to be prmary controed by a far concepton of
the Consttuton. udca e egess Is unavodabe wth reference to an organc
act ke our Consttuton, drawn n many partcuars wth purposed vagueness
so as to eave room for the unfodng future. ut the utmate touchstone of
consttutonaty Is the Consttuton tsef and not what we have sad about t.u
Nether Dobbns v. Commssoners (16 Pet., 435), and Its offsprng, nor Coector
v. Day. supra, and ts, can stand appea to the Consttuton and ts hstorc
purposes. Snce both are the startng ponts of an nterdependent doctrne,
both shoud be, as I assume them to he, overrued ths day. Whether Congress
may, by e press egsaton, reeve ts functonares from ther cvc obgatons
to pay for the benefts of the State governments under whch they ve Is matter
for another day.
Mb. ustce uter, Dssentng.
Mr. ustce McReynods and I are of opnon that the ome Owners Loan
Corporaton, beng an nstrumentaty of the Unted States heretofore deemed
mmune from State ta aton, t necessary resuts, as hed n New York e
re. Ropers v. Graves (1937) ( OS) U. S., 401), that f ed saares and com-
pensaton pad to ts offcers and empoyees In ther capacty as such are ke-
wse mmune and that the |udgment of the State court, unquestonaby
requred by that decson, shoud be affrmed.
rom the decson |ust announced, t Is cear that the Court has overrued
Dobbns v. The Commssoners of re County (1S42) (1C Pet., 4, )), Coector v.
Day (1 71) (11 Wa., 113), New York e re. Rogers v. Graves, supra, and
rush v. Commssoner (1937) (300 U. S., 352). Thus now It appears that the
Unted States has aways had power to ta saares of State offcers and
empoyees and that smary free have been the States to ta saares of offcers
and empoyees of the Unted Sates. The compensaton for past as we as for
future servce to be ta ed and the rates prescrbed In the e erton of the newy
dscosed power depend on egsatve dscreton not sub|ect to |udca revson.
ute ndeed are the vague ntmatons that ths Court may protect aganst
e cessve or destructve ta aton. Where the power to tn e sts, egsatures
may e ert t to destroy, to dscourage, to protect or e cusvey for the purpose
of rasng revenue. (See e. g. caze ank v. enno, Wa., 533, 54S MrCray
v. Unted States, 195 U. S., 27, UZ et seq. Magnaw Co. v. amton, 292 U. S.,
40, 44 et seq. Cncnnat Soap Co. v. Unted States, 301 U. S., 30S Ct. D. 1227,
C. . 1937-1, 317 .)
pprasa of urkng or apparent mpcatons of the Court s opnon can serve
no usefu end for, shoud occason arse, they may be Ignored or gven drecton
dfferng from that at frst seemngy Intended. ut safey t may be sad that
presenty marked for destructon s the doctrne of recproca Immunty that
by recent decsons here has been so much Impared.
specay s ths true of the ustraan Consttuton. One of Its framers. who after-
wards became one of the most dstngushed of ustraan |udges, Mr. ustce ggns,
characterzed It as havng foowed our Consttuton wth pedantc Imtaton. u -
trnstnn Temperance and Genera Mutua Lfe ssurance Co., Ltd., v. owe, 31 C. L. R..
200, 330.)
booft v. Ctu of t. ohn (40 Can. Sup. Ct., 507) Caron v. The nq (1924) ( . C,
900) mnqamated Socety of ngneers v. deade Steamshp Co., Ltd. (2 C. L. R.,
120) : Went v. Commssoner of Ta aton (56 C. L. R., 657).
10 . g., ames v. Dravo Contractng Co. (302 D. ., 134) : everng . Mountan Pro-
ducers Corporaton (303 . S., 37( ) : frevertno . Oerhardt ( 04 . 9., 405).
u Compare Taney C. ., In Passenger Cases (7 ow., 2 3, 470) : I am
qute wng that t be regarded as the aw of ths court, that Its opnon upon the con-
structon of the Consttuton s aways open to dscusson when It Is supposed to have been
founded In error, and that Its udca authorty shoud hereafter depend atogether on
the force of the reasonng by whch It Is supported.
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137
I 117, rt. 117-1.
btce 116-2: Compensaton of State offcers and empoyees.
R NU CT O 193 .
S CTION 117. C PIT L G INS ND LOSS S.
rtce 117-1: Meanng of terms. 1939-4-96 5
I. T. 324G
R NU CT O 193 .
In appyng secton 117(a )1 of the Revenue ct of 103 to a
sae or other dsposton of rea property consstng of and and m-
provements, the net proceeds of sae shoud be apportoned on the
bass of the vaue of the and and the vaue of the deprecabe m-
provements on the date of sae.
I. T. 3217 (C. . 193 -2, 94) amp ed.
dvce s requested wth respect to the appcaton of I. T. 3217
(C. . 193 -2, 94), whch nvoved the nterpretaton of secton
117(a) 1 of the Revenue ct of 19.5 , n connecton wth a sde of cer-
tan mproved rea estate used n busness.
I. T. 3217 hed, syabus, as foows:
Under secton 117(a) of the Revenue ct of 193 , whch e cudes from the
term capta assets property, used n the trade or busness, of a character
whch Is sub|ect to the aowance for deprecaton provded n secton 23(1),
the gan derved or oss sustaned upon the sae of mproved rea property used
n trade or busness consttutes a capta gan or oss n so far as such gan
or oss Is aocabe to the and and an ordnary gan or oss n so far as aocabe
to the deprecabe Improvements.
Informaton s desred whether gan reazed n such a case
shoud be apportoned to the and and mprovements thereon on the
bass of the vaues thereof on the date of sae or on the bass of the
ad|usted costs.
Upon the sae of rea property consstng of and and mprove-
ments thereon, the net proceeds of the sae shoud be apportoned on
the bass of the vaue of the and and the vaue of the deprecabe
mprovements on the date of sae n order to determne the amount
reazed from the and and from the deprecabe mprovements sep-
aratey, and the net proft on each shoud then be determned by de-
ductng the cost or other bass of each part from the respectve
amounts reazed. If the commsson on the sae s not deducted from
the seng prce n determnng the proceeds of the sae, and the
amount appcabe to each cass of assets can not be separatey de-
termned, t shoud be aocated on the bass of the separate seng
prces.
In the case presented for an appcaton of the rue, the ta payer
has satsfactory estabshed that the seng prce of the property,
13,000, shoud be aocated on the bass of 1, 00 to the and and
1,200 to the budng. The cost of the and was 1,550 and the cost
of the budng was 1,100. Deprecaton on the budng n the
amount of 233.74 has been sustaned and aowed as a deducton.
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117, rt. 117-1.
13
seng commsson of 1G5.22 was pad. The proft on the sae
was 41 .52, whch shoud be aocated to the and and budngs as
foows:
|
Land.
udng.
Tota.
1, 00.00
99.13
1, 200. 00
60.09
3,000.00
165.23
1,700. 7
1,550.00
1,133.91
2, 34.7
Cost
ukns 1,100.00
6 .2
2,41(1.29
Net proft
160. 7
267.6
41 . 52
Therefore, n the case presented, 150. 7 of the gan s aocabe to
the and and 267.65 to the budng. I. T. 3217 (C. . 193 -2, 94)
s ampfed accordngy.
rtce 117-1: Meanng of terms. 1939-24-9 71
L T. 32 7
R NU CT O 193 .
or the purpose of determnng capta gans and osses under
secton 117 of the Revenue ct of 193 , the perod durng whch an
asset was hed s to he computed hy e cudng the day on whch the
asset was acqured by the ta payer and ncudng the day on whch
sod by hm.
dvce s requested whether for the purpose of determnng short-
term capta gans and osses for edera ncome ta purposes, both
the date of purchase and the date of sae shoud be ncuded n arrvng
at the perod durng whch an asset was hed.
Secton 117 of the Revenue ct of 193 reads n part as foows:
Sec. 117. Capta Gans and Losses.
(a) Defntons. s used n ths tte

(2) Short-term capta gan. The term short-term capta gan means
gan from the sae or e change of a capta asset hed for not more than
1 months, f and to the e tent such gan s taken nto account In com-
putng net ncome
(3) Short-term capta oss. The term short-term capta oss means
oss from the sae or e change of a capta asset hed for not more than
1 months, f and to the e tent such oss s taken nto account n computng
net ncome
It s hed that for the purpose of determnng short-term capta
gans and osses under secton 117 of the Revenue ct of 193 , the
perod durng whch an asset was hed s to be computed by e cudng
de day on whch the asset was acqured by the ta payer and ncudng
the day on whch sod by the ta payer. Ths hodng s aso app-
cabe n a other cases nvovng determnaton of capta gan or oss
under secton 117 of the Revenue ct of 193 . (See L ooper v. Com-
mssoner, 26 . T. ., 75 , ctng Sheets v. Scden s Lessee, 2 Wa.,
177, Segehchffer v. Penn Mutua Lfe Ins. Co., 24 ed., 226, and
other cases.)
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139
131. rt. 131-1.
SUPPL M NT C CR DITS G INST T .
rtce 131-1: nayss of credt for ta es. 1939-24-0 72
( so Secton 23(c), rtce 23(c)-.) I. T. 32
R NU CT O 193 .
The tn mposed under artces 20 and 21 of the Me can aw,
Ley de Impuesto 6obre a Renta Is not an ncome ta , and
credt therefor s not aowabe under secton 131 of the Revenue
ct of 1S . The amount of such ta , however, s aowabe as a
deducton under secton 23(c) of that ct.
dvce s requested whether the ta mposed under artces 20 and
21 of the Me can aw Le| de Impuesto sobre a Renta s an
ncome ta , credt for whch s aowabe under secton 131 of the
Revenue ct of 193 , reatng to credts for ncome ta es mposed by
foregn countres.
Pertnent provsons of the aw are found n Chapter III, second
schedue, artces 20 and 21, whch, together wth the reguatons
thereon, read as foows:
rt. 20. Ta payers who, normay or occasonay, receve Income from any
of the foUowng sources, are Incuded under ths schedue:

III.
the persons or companes whch receve Income n the country from
the e potaton of movng pcture fms sha be especay consdered as
ncuded under ths secton.

rt. 21. .
The ta sha be payabe at the rate of 5 per cent n the case referred to
n Secton III of the foregong artce, on the tota revenue of the dstrbutor
or essor of the fms, and be coectbe at the tme of recept.
rtce 74 of the reguatons reads n part as foows:
rt. 74. Persons who are granted the rght to e pot cnematograph fms
by e hbtng them, sha e act a recept from the dstrbutors or essors of the
fms when payng the amount specfed n Secton III of artce 20 of the aw.
These recepts sha state the tota amount pad, 5 per cent beng payabe
thereon n accordance wth the ast paragraph of artce 21 of the aw. Stamps
for ths amount sha be canceed thereon for account of sad dstrbutors or
essors.
It w be noted that under artces 20 and 21 of the aw, supra, the
ta payabe by a moton pcture company sha be at the rate of 5 per
cent on the tota revenue of the dstrbutor of the fms. In I. T. 2596
(C. . -2, 1 4 (1931)), t was hed that n genera a ta based on
gross recepts s an e cse ta and may not be camed as a credt
under secton 131 of the Revenue ct of 193 . Snce the bass for the
ta here nvoved s tota revenue, the ta s n the nature of an e cse
ta based on the gross recepts of the ta payer. (See I. T. 3193,
C. . 193 -1, 193, whch nvoved a dfferent secton of the same
Me can statute.)
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143, rt. 143-1.
140
It s hed, therefore, that the ta mposed under artces 20 and 21
of the Me can aw, Ley de Impuesto sobre a Renta, s not an
ncome ta , and credt therefor s not aowabe under secton 131 of
the Revenue ct of 193 . owever, the amount of such ta s aow-
abe as a deducton under secton 23(c) of the Revenue ct of 193 .
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 142. IDUCI RY R TURNS.
rtce 142-1: ducary returns. 1939-6-9703
( so Secton 147.) I. T. 324
R NU CT OP 193 .
ducary returns under the Revenue ct of 193 .
dvce s requested whether under the Revenue ct of 193 a
fducary s requred to fe a return for a trust whch had a gross
ncome for the year 193 of ess than 5,000 and a net ncome of ess
than 100 (secton 142(a) (5) and (G), Revenue ct of 193 ) after
deductons aowabe under secton 162 (b) and (c) of that ct, that
s, dstrbutons to benefcares.
It s hed that where the gross ncome of a trust for the caendar
year 193 s ess than 5,000 and the net ncome of the trust under
secton 162 of the Revenue ct of 193 s ess than 100, no return
for edera ncome ta purposes s requred of the fducary uness a
dstrbuton of 1,000 or more s made to a benefcary, n whch case
an nformaton return under secton 147 s requred on orm 1041
nstead of on orm 1099.
S CTION 143. WIT OLDING O T
T SOURC .
rtce 143-1: Wthhodng ta at source. 1939-25-9 1
I. T. 3291
R NU CT O f .
Where a Canadan ctzen s actuay resdng n ngand and
as no address n Canada, a wthhodng agent shoud, n accord-
ance wth the provsons of secton 143(h) of the Revenue ct of
103 , wthhod ncome ta at the rate of 10 per cent, nstead of 5
per cent, from a dvdend payment upon stock of a domestc cor-
poraton.
dvce has been requested reatve to the amount of ta to be de-
ducted at the source from dvdends pad to upon stock of a domes-
tc corporaton.
It appears that s a Canadan ctzen but resdes n ngand for
busness reasons. The queston presented s whether n vew of the
recproca ta conventon between the Unted States and Canada, an
ncome ta of ony 5 per cent shoud be wthhed from the dvdend
payment or whether 10 per cent shoud be wthhed.
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141
5 143, rt. 143. 3.
rtce 1(a) of the recproca ta conventon between the Unted
States and Canada, ratfed ugust 13, 1937, provdes n part:
The rate of Income ta Imposed by one of the contractng States, In respect
of Income derved from sources theren, upon ndvduas resdng n the other
Stoe, who are not engaged n trade or busness n the ta ng State and have
no offce or pace of busness theren, sh not e ceed 5 per centum for each
ta abe year Itacs supped.
rtce 3 of Treasury Decson 4 3 (page 66 of Reguatons 101,
page 147, ths uetn), contanng the reguatons promugated
under the Revenue ct of 193 to carry nto effect the provsons of
the conventon between the Unted States and Canada, provdes n
part:
Resdent of Canada or corporaton organzed under the aws of Canada.
or the purpose of wthhodng, every ndvdua whose address s n Canada
(ncudng a nonresdent aen ndvdua, fducary, or partnershp) sha be
consdered by Unted States wthhodng agents as a resdent of Canada
. Itacs supped.
In the nstant case, the nonresdent aen stockhoder, , s not
resdng n Canada but s resdng n ngand, and apparenty he
was resdng n ngand durng the year 193 when the dvdend wa
pad. The provsons of the ta conventon between the Unted
States and Canada appy ony to ndvduas resdng n the other
State. Moreover, from a readng of the anguage contaned n sec-
ton 143(b) of the Revenue ct of 193 , t s cear that ncome ta
6ha be wthhed from dvdends at the rate of 10 per cent where the
nonresdent aen ndvdua s not a resdent of a contguous country.
It s hed, therefore, that where a Canadan ctzen s actuay re-
sdng n ngand and has no address n Canada, a wthhodng agent
shoud, n accordance wth the provsons of secton 143(b), supra,
wthhod ncome ta at the rate of 10 per cent, nstead of 5 per cent,
from a dvdend payment upon stock of a domestc corporaton.
rtce 143-3: empton from wthhodng. 1939-1 -9 13
G. C. M. 211 7
R NU CT OP 193 .
rench ctzen resdng In rance s e empt from edera
Income ta aton on annuty payments made to her by a domestc
Insurance company. owever, nterest on the proceeds of a fe n-
surance pory pad to her by the nsurance company consttutes
ta abe Income and Is sub|ect to the wthhodng provsons of sec-
ton 143(b) of the Revenue ct of 193 .
dvce s requested as to the ta abty for edera ncome ta
purposes of nterest and annuty payments made by a domestc com-
pany to , a rench ctzen.
The ta payer, , acqured rench ctzenshp on une , 1937,
the date of her marrage to a rench ctzen. Under the terms of a
pocy of nsurance ssued by the M Lfe Insurance Co. of the Unted
States, and n accordance wth an agreement wth the nsured, ,
made durng hs fetme, the proceeds of the pocy are hed n
trust by the nsurance company and nterest thereon s pad monthy
to the ta payer n addton to an annuty of doars a month unt
uy 7, 1954. The specfc queston nvoved s whether the annuty
payments and the nterest on the proceeds of the pocy are e empt
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143, rt. 143- .
142
from edera ncome ta n vew of the conventon and protoco on
doube ta aton between the Unted States and rance, procamed
bv the Presdent of the Unted States pr 16, 1935, effectve an-
uary 1, 1936. (See T. D. 4 0, page 5, ths uetn.)
rtce I of the conventon provdes n part as foows:
The foowng casses of ncome pad n one of the contractng States to a
corporaton of the other State, or to a ctzen of the ntter State resdng there,
are e empt from, ta n the former State:

(c) prvate pensons and fe annutes.
The term fe annutes s not defned n the conventon and
protoco but the term annuty s denned n S. O. 160 (C. . III-2,
CO (1024)) as a stated sum payabe perodcay at stated tmes
durng fe, or a specfed number of years, under an obgaton to
make the payments n consderaton of a gross sum pad for such
obgaton. Inasmuch as the annuty n the nstant case s pad
by an nsurance company perodcay durng fe, or a specfed
number of years, under an obgaton contaned n an nsurance
pocy, the annuty s hed to come wthn the provsons of rtce
I (c) of the conventon quoted above. s the ta payer s a rench
ctzen resdng n rance, the annuty pad to her s e empt from
ta aton and s, therefore, not sub|ect to the deducton of ncome
ta at the source. owever, nasmuch as there s no provson n
the conventon and protoco, or the reguatons ssued thereunder,
whch e empts nterest from ta aton, t foows that nterest on
the proceeds of a fe nsurance pocy pad to by a domestc
nsurance company consttutes ta abe ncome and s sub|ect to the
wthhodng provsons of secton 143(b) of the Revenue ct of 193 .
(Cf. I. T. 3000, C. . 1937-1, 113 T. D. 4 0, page 5, ths uetn.)
. P. Wenche,
rtce 143- : Ownershp certfcates n the 1930-20-9 32
case of fducares and |ont owners. I. T. 3279
R NU CT O 193 .
In the case of |ont owners of bonds, ncudng estates by the en-
tretes, separate ownershp certfcates must be e ecuted n behaf
of e ch |ont owner showng hs or her proportonate part of the
nterest.
Reference s made to the ast sentence of artce 143- of Regua-
tons 101, readng as foows:
If bonds are owned onty by two or more persons, a separate ownershp
certfcate must be e ecuted n behaf of each of the owners.
dvce s requested as to the appcabty of that sentence to the
case where a bond s owned |onty by husband and wfe n a State
where a |ont tenancy between the two spouses s recognzed as an
estate by the entretes.
The above-quoted sentence of the reguatons s based upon secton
143 of the Revenue ct of 193 deang wth the wthhodng of n-
come ta at the source and secton 147 of that ct reatng to n-
formaton at the source.
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143
14 , rt. 1-1 -2.
or edera ncome ta purposes, the State aw s controng on
the queston of who s entted to the ncome from property owned
|onty by a husband and wfe as tenants by the entretes. Snce
the specfc wordng of the above-quoted provson of the reguatons
s broad enough to ncude n ts scope a forms of |ont ownershp,
one form of whch s tenancy by the enttes, t foows that separate
ownershp certfcates must be prepared n behaf of ea h |ont owner
showng h or her proportonate part of the nterest. If separate
ncome ta rvturns are fed by the husband and wfe, each shoud
ncude n hs or her return the respectve porton of the nterest as
dscosed by the ownershp certfcate.
S CTION 147. IN ORM TION T SOURC .
rtce 147-1: Return of nformaton as to payments of 1,000.
R NU CT O 103 .
Return requred of fducary. (See I. T. 324 , page 140.)
S CTION 14 . IN ORM TION Y CORPOR TIONS.
rtce 14 -2: Return of nformaton respectng 1939-6-9704
contempated dssouton or qudaton. L T. 3249
R NU CT O 193 .
Where under the aw of the State a corporaton may be vountar-
y dssoved wthout the adopton of a corporate resouton, an a
certfcate of dssouton s e ecuted n the form requred and for-
warded to the proper State offca, such acton w be consdered
as the adopton of a pan by the corporaton for ts dssouton
wthn the meanng of secton 14 (d) of the Revenue ct of 193 ,
requrng the fng of an Informaton return n the ease of con-
tempated dssouton or qudaton of a corporaton.
dvce s requested by the M Company whether t s requred to
fe an nformaton return under secton 14 (d) of the Revenue ct
of 193 , and, f so, the due date of such return.
It s stated that the corporaton was duy dssoved on ugust 2,
193 , n accordance wth the aws of the State of R by the fng of a
certfcate of vountary dssouton e ecuted by , who was then the
owner and hoder of a the authorzed and outstandng stock of the
corporaton. Snce nether a resouton nor a pan for dssouton
was ever adopted, the queston arses whether an nformaton return
s requred pursuant to secton 14 (d) of the Revenue ct of 193 ,
whch provdes:
(d) Contempated dssouton or qudaton. very corporaton sha, wthn
30 days after the adopton by the corporaton of a resouton or pan for the
dssouton of the corporaton or for the qudaton of the whoe or any part
of ts capta stock, render a correct return to the Commssoner, verfed under
oath, settng forth the terms of such resouton or pan and such other nfor-
maton as the Commssoner sha, wth the approva of the Secretary, h
reguatons prescrbe.
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165, rt. 165-1.
144
If such a return s requred from the M Company, advce s re-
quested as to the due date of the return.
Under the provsons of artce 14 (d)- of Treasury Decson
4 11 (C. . 193 -1, 67), promugated under the provsons of secton
14 (d) of the Revenue ct of 193 , a corporaton s requred, wthn
30 days after the adopton on or after May 2 ,193 , of any resouton
or pan for or n respect of the dssouton of the corporaton or the
qudaton of the whoe or any part of ts capta stock, to fe wth the
Commssoner an nformaton return on orm 966. ke return s
requred to be fed by the corporaton n the case of any amendment
of, or suppement to, a resouton or pan for or n respect of the
dssouton of the corporaton or the qudaton of the whoe or any
part of ts capta stock adopted on, before, or after May 2 , 193 ,
f such amendment or suppement was adopted on or after May
2 , 193 .
If under a State aw a corporaton may be vountary dssoved
wthout the adopton of a corporate resouton or pan smpy by
compyng wth certan statutory requrements, and a certfcate of
dssouton s e ecuted n the form requred and forwarded to the
proper State offca, such acton w be consdered as the adopton of
a pan by a corporaton for ts dssouton wthn the meanng of sec-
ton 14 (d) of the ct. The date the certfcate was e ecuted s hed
to be the date of adopton of the pan.
ccordngy, nasmuch as ugust 2,193 , was the date on whch the
certfcate of dssouton was e ecuted ( and t was subsequenty fed
wth the proper offcer of the State of R), the return on orm 966 was
cue to be fed wth the ureau wthn 30 days after ugust 2, or on
or before September 1, 193 . In such a case the date the certfcate of
dssouton was e ecuted shoud be stated on ne 4 of the return
and a duy certfed copy of such certfcate of dssouton shoud be
attached to the return. (See tem 6 of orm 966.)
SUPPL M NT . ST T S ND TRUSTS.
S CTION 165. MPLOY S TRUSTS.
rtce 165-1: mpoyees trusts. 1939-13-9765
( so Secton 23(q) rtce 23(p)-.) I. T. 3266
R NU CT O OoS.
The penson trust created by the M Company and ts subsdares,
effectve anuary 1, 1939, soey for the purpose of provdng retre-
ment annutes for a of ts empoyees, ncudng offcers, no bene-
fts or rembursements from whch may Inure to the empoyers,
meets the requrements of sectons 23(p) and 163 of the Revenue
ct of 193 . To the e tent that contrbutons by the empoyers to
the fund w provde reasonabe pensons based on servces pror
to anuary 1, 1939, they are deductbe over a 10-year perod as pro-
vded n secton 23(p) of the Revenue ct of 193 . Contrbutons
made by the empoyers wth respect to servces rendered by em-
poyees after anuary 1, 1939, are deductbe n the year contrbuted,
provded the amount of the contrbuton wth respect to each
empoyee when added to hs stpuated compensaton does not
e ceed reasonabe compensaton for servces rendered by hm.
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145
I 165. rt. 165-1.
dvce s requested whether the empoyees penson trust created
by the M Company and ts subsdares meets the requrements of
sectons 23(p) and 165 of the Revenue ct of 193 . dvce s aso
requested as to the proper treatment for ncome ta purposes of
contrbutons made to the penson trust fund by the M Company
and ts subsdares.
Pror to anuary 1, 1939, the M Company had a penson pan
whch was a noncontrbutng pan, the company assumng the entre
cost of pensons. ffectve anuary 1, 1939, a new pan, under whch
both the empoyer and empoyees contrbute, was adopted. The trust
agreement creatng the penson trust effectve anuary 1, 1939, was
entered nto wth a trust company of the cty of R. Partcpaton
n the penson pan s whoy vountary. mpoyees who had been
n the servce of the company or ts controed subsdares for one
year on December 31,193 , and who had not attaned the age of more
than 65 years were egbe to partcpate n the penson pan on an-
uary 1, 1939. The empoyees n the servce of the company and
controed subsdares on December 31, 193 , and those hred there-
after are egbe to partcpate n the penson pan on the date on
whch they compete one year of servce, provded they have not
attaned the age of 65 years.
The penson pan s dvded nto two man parts. One part reates
to servces rendered pror to anuary 1, 1939, and the other part
reates to servces rendered on and after anuary 1, 1939. Under the
frst part, the M Company and controed subsdares made a ump-
sum payment to the trustee wth respect to servces rendered by em-
poyees pror to anuary 1, 1939, as to those empoyees who sgnfed
ther ntenton pror to ebruary 1. 1939, to partcpate n the pen-
son pan. The fnancng of the abty on account of servces ren-
dered pror to anuary 1, 1939, s beng spread over an ndefnte
perod n amounts dependent on the future fnanca condtons of
the empoyng companes. It s panned, however, to make pay-
ments as amounts can be spared up to not more than per cent of
the consodated annua net earnngs after edera ta es. The pen-
son trust may be amended, modfed, atered, or termnated at any
tme, provded, however, that a of the fund sha be wed for the
e cusve beneft of the trust benefcares. It s aso provded that
the trust fund s created soey for the beneft of the trust benef-
cares and that no contrbuton made thereto nor any earnngs of
the fund sha under any crcumstances whatsoever be returned to
any one or more of the empoyers.
Under the second part, reatng to servces rendered after Decem-
ber 31, 193 , equa contrbutons are made by the empoyee and the
empoyer. Contrbutons of empoyees are deducted from ther pay.
The |ont contrbutons of empoyer and empoyee wth respect to
servces rendered after December 31, 193 , are transmtted each
month to the empoyees trust. Contrbutons w cease when an
empoyee s monthy retrement ncome for servces rendered after
December 31, 193 , reaches a specfed amount. If an empoyee
shoud de before retrement payments commence, there w be pay-
abe to a benefcary or benefcares desgnated by hm a sum whch
w equa the empoyee s own contrbutons to the penson fund,
pus nterest compounded annuay. In case of termnaton of servce
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5 165, rt. 165-1.
146
before the retrement date and before the competon of 10 years of
servce, an empoyee may eect to receve a cash payment equa to
the amount of hs contrbutons, pus nterest compounded annuay.
fter 10 years of servce but before retrement, an empoyee receves
a vested rght to hs nterest n the fund acqured by hs own and
the empoyer s contrbutons for servces rendered after December 31,
193 . n empoyee who reaches norma retrement age, and an em-
poyee who s retred wth the consent of the empoyer before the
norma retrement age, receves a vested rght to a of the retrement
ncome provded for hm for servces rendered after December 31,
193 . of the empoyees, ncudng offcers, of the M Company and
controed subsdares are egbe to partcpate n the penson pan.
Secton 165 of the Revenue ct of 193 provdes:
mpoyees Trusts.
(a) empton from ta . trust formng part of a stock bonus, penson,
or proft-sharng pan of an empoyer for the e cusve beneft of some or a
of hs empoyees
(1) f contrbutons are made to the trust by such empoyer, or em-
poyees, or both, for the purpose of dstrbutng to such empoyees the earn-
ngs and prncpa of the fund accumuated by the trust n accordance wth
such pan, and
(2) f under the trust nstrument t s Impossbe, at any tme pror
to the satsfacton of a abtes wth respect to empoyees umer the
trust, for any part of the corpus or ncome to be (wthn the ta abe year
or thereafter) used for, or dverted to, purposes other than for the e cusve
beneft of hs empoyees,
sha not be ta abe under secton 161, but the amount actuay dstrbuted or
made avaabe to any dstrbutee sha be ta abe to hm n the year n whch
so dstrbuted or made avaabe to the e tent that t e ceeds the amounts pad
n by hm. Such dstrbutees sha for the purpose of the norma ta be aowed
as credts aganst net ncome such part of the amount so dstrbuted or made
avaabe as represents the tems of nterest specfed n secton 25(a).
(b) Ta abe year begnnng before anuary 1, 1930. The provsons of cause
(2) of subsecton (a) sha not appy to a ta abe year begnnng before
anuary 1, 1039.
ased on the foregong, t s hed that the penson trust n queston
quafes as an empoyees trust under secton 165 of the Revenue ct
of 193 . The earnngs of such penson trust, therefore, w not
consttute ta abe ncome n the hands of the trustee. To the e tent
that contrbutons to the penson trust fund by the M Company and
controed subsdares wth respect to servces rendered by empoyees
pror to anuary 1, 1939, provde reasonabe pensons for the em-
poyee partcpants, the amounts so contrbuted by each company are
deductbe over a 10-year perod as provded n secton 23(p) of the
Revenue ct of 193 . Wth respect to the amounts contrbuted by the
M Company and controed subsdares for servces rendered by em-
poyees after December 31,193 , t s hed that such contrbutons are
deductbe n the year n whch contrbuted, provded, however, that
the amount of the contrbuton for each empoyee when added to hs
stpuated compensaton does not e ceed a reasonabe compensaton
for servces rendered by hm.
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147
| 211, rt. 211-7.
SUPPL M NT . NONR SID NT LI N INDI IDU LS.
S CTION 211. T ON NONR SID NT
LI N INDI IDU LS.
rtce 211-71 Ta aton of nonresdent aen 1939-4-9690
ndvduas. T. D. 4 3
( so Secton 231, rtce 231-1: Ta aton of
foregn corporatons.
INCOM T .
Reguatons wth respect to the ta aton of nonresdent aen
ndvduas and foregn corporatons not engaged n trade or bus-
ness wthn the Unted States and not havng an offce or pace of
busness theren as affected by the recproca ta conventon
between the Unted States and Canada, effectve anuary 1, 1930.
Washngton, D. C.
Paragraph . The recproca ta conventon between the Unted
States and Canada whch was ratfed ugust 13, 1937, provdes as
foows:
TICI L
The hgh contractng partes mutuay agree that the Income ta aton mposed
n the two States sha be sub|ect to the foowng recproca provsons:
(0) The rate of ncome ta mposed by one of the contractng States, n
respect of ncome derved from sources theren, upon ndvduas resdng n the
other State, who arc not engaged n trade or busness n the ta ng State and
have no offce or pace of busness theren, sha not e ceed 5 per centum for
each ta abe year, so ong as an equvaent or ower rate of Income ta aton
s mposed by the other State upon ndvduas resdng n the former State
who are not engaged n trade or busness In such other State and do not have
an offce or pace of busness theren.
(6) The rate of Income ta mposed by one of the contractng States, n
respect of dvdends derved from sources theren, upon nonresdent foregn
corporatons organzed under the aws of the other State, whch are not engaged
In trade or busness n the ta ng State and have no offce or pace of busness
theren, sha not e ceed 5 per centum for each ta abe year, so ong as an
equvaent or ower rate of ncome ta aton on dvdends s mposed by the
other State upon corporatons organzed under the aws of the former State
whch are not engaged n trade or busness n such other State and do not
have an offce or pace of busness theren.
(c) ther State sha be at berty to ncrease the rate of ta aton pre-
scrbed by paragraphs (a) and (6) of ths artce, and n such case the other
State sha be reeased from the requrements of the sad paragraphs (o)
and (6).
(1) ffect sha be gven to the foregong provsons by both States as and
from the 1st day of anuary, 1936.
rtce II.
The provsons of ths conventon sha not appy to ctzens of the Unted
States of merca domced or resdent n Canada.
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211, rt. 211-7.
14
ettc.e III.
Ths conventon sha be ratfed and sha take effect Immedatey npon
the e change of ratfcatons whch sha take pace at Washngton as soon as
possbe.
Sgned, n dupcate, at Washngton by the duy authorzed representatves
of Canada and the Unted States of merca, ths 30th day of December, n the
year of our Lord, one thousand nne hundred and thrty-s .
Par. . Secton 211 of the Revenue ct of 193 provdes:
Sec. 211. Ta on Nonresdent en Indvduas.
(a) No Unted States busness or offce,
(1) Genera rue. There sha be eved, coected, and pad for
each ta abe year, n eu of the ta mposed by sectons 11 and 12,
upon the amount receved, by every nonresdent aen ndvdua
not engaged n trade or busness wthn the Unted States and not
havng an offce or pace of busness theren, from sources wthn the
Unted States as nterest (e cept nterest on deposts wth per-
sons carryng on the bankng busness), dvdends, rents, saares,
wages, premums, annutes, compensatons, remuneratons, emou-
ments, or other f ed or determnabe annua or perodca gans,
profts, and ncome, a ta of 10 per centum of such amount, e cept
that such rate sha be reduced, n the case of a resdent of a con-
tguous country, to such rate (not ess than 5 per centum) as may
be provded by treaty wth such country. or Incuson n com-
putaton of ta of amount specfed n sharehoder s consent, see
secton 2 .
(2) ggregate more than 21,600. The ta mposed by para-
graph (1) sha not appy to any Indvdua f the aggregate
amount receved durng the ta abe year from the sources theren
specfed s more than 21,600.
(3) Resdents of contguous countres. Despte the provsons
of paragraph (2), the provsons of paragraph (1) sha appy to
a resdent of a contguous country so ong as there s n effect
a treaty wth such country (ratfed pror to ugust 26, 1937) under
whch the rate of ta under secton 211(a) of the Revenue ct of
1 36, pror to ts amendment by secton 501(a) of the Revenue ct
of 1937, was reduced.

(c) No Unted States busness or offce and gross ncome op
more than 21,6C0. nonresdent aen ndvdua not engaged n trade
or busness wthn the Unted States and not havng an offce or pace
of busness theren who has a gross ncome for any ta abe year of
more than 21.G00 from the sources specfed n subsecton (a) (1), sha
be ta abe wthout regard to the provsons of subsecton (a)(1), e cept
that
(1) The gross ncome sha ncude ony ncome from the sources
specfed n subsecton (a)(1)
(2) The deductons (other than the so-caed chartabe deduc-
ton provded n secton 213(c)) sha be aowed ony f and to
the e tent that they are propery aocabe to the gross ncome
from the sources specfed n subsecton (a) (1)
(3) The aggregate of the norma ta and surta under sectons
11 and 12 sha, n no case, be ess than 10 per centum of the gross
ncome from the sources specfed n subsecton (a)(1) and
(4) Ths subsecton sha not appy to a resdent of a contguous
country so ong as there s n effect a treaty wth such country
(ratfed pror to ugust 26, 1937) under whch the rate of ta
under secton 211(a) of the Revenue ct of 1936, pror to ts
amendment by secton 501(a) of the Revenue ct of 1937, was
reduced.
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149
211, rt. 211-7.
Par. C. Secton 231(a) of the Revenue ct of 193 provdes:
Nonresdent CORPOR TIONS. There sha be eved, coected, and
pad for euch ta abe |ear, n eu of the ta mposed by sectons 13
and 14, upon the amount receved by every foregn corporaton not
engaged n trade or busness wthn the Unted States and not havng
au offce or pace of busness theren, from sources wthn the Unted
States as nterest (e cept nterest on deposts wth persons carryng on
the bankng busness), dvdends, rents, saares, wages, premums,
annutes, compensatons, remuneratons, emouments, or other f ed or
determnabe annua or perodca gans, profts, and ncome, a ta of
15 per centum of such amount, e cept that n the case of dvdends
the rate sha be 10 per centum, and e cept that n the case of corpora-
tons organzed under the aws of a contguous country such rate of
10 per centum wth respect to dvdends sha be reduced to such rate
(not ess than 5 per centum) as may be provded by treaty wth such
country. or ncuson n computaton of ta of amount specfed n
sharehoder s consent, see secton 2 .
Pah. D. Secton 143(a) of the Revenue ct of 193 provdes n
part:
Ta - bkz Covenant onds.
(1) Requrement of wthhodng. In any case where bonds,
mortgages, or deeds of trust, or other smar obgatons of a cor-
poraton, ssued before anuary 1, 1934, contan a contract or pro-
vson by whch the obgor agrees to pay any porton of the ta
Imposed by ths tte upon the obgee, or to remburse the obge
for any porton of the ta , or to pay the nterest wthout deducton
for any ta whch the obgor may be requred or permtted to
pay thereon, or to retan therefrom under any aw of the Unted
States, the obgor sha deduct and wthhod a ta equa to 2 per
centum of the Interest upon such bonds, mortgages, deeds of trust,
or other obgatons, whether such Interest s payabe annuay or
at shorter or onger perods, f payabe to an ndvdua, a part-
nershp, or a foregn corporaton not engaged n trade or busness
wthn the Unted States and not havng an offce or pace of bus-
ness theren: Provded, That f the abty assumed by the obgor
does not e ceed 2 per centum of the Interest, then the deducton
and wthhodng sha be at the foowng rates: ( ) 10 per centum
n the case of a nonresdent aen ndvdua (e cept that such
rate sha be reduced, In the case of a resdent of a contguous
country, to such rate, not ess than 5 per centum, as may be pro-
vded by treaty wth such country), or of any partnershp not
engaged n trade or busness wthn the Unted Sates and not
havng any offce or pace of busness theren and composed n
whoe or n part of nonresdent aens, ( ) n the case of such a
foregn corporaton, 15 per centum, and (C) 2 per centum n the
case of other ndvduas and partnershps: Provded further, That
If the owners of such obgatons are not known to the wthhodng
agent the Commssoner may authorze such deducton and wth-
hodng to be at the rate of 2 per centum, or, f the abty
assumed by the obgor does not e ceed 2 per centum of the nter-
est, then at the rate of 10 per centum.
Pae. . Secton 143(b) of the Revenue ct of 193 provdes:
Nonkesdent ens. persons, n whatever capacty actnff, In-
cudng essees or mortgagors of rea or persona property, fducares,
empoyers, and a offcers and empoyees of the Unted States, hav-
ng the contro, recept, custody, dsposa, or payment of nterest
(e cept Interest on deposts wth persons carryng on the bankng
busness pad to persons not engaged n busness n the Unted States
and not havng an offce or pace of busness theren), dvdends, rent,
saares, wages, premums, annutes, compensatons, remuneratons,
emouments, or other f ed or determnabe annua or perodca
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211, rt. 211-7.
150
gans, profts, and Income (but ony to the e tent that any of the
above tems consttutes gross ncome from sources wthn the Unted
States), of any nonresdent aen ndvdua, or of any partnershp
not engaged n trade or busness wthn the Unted States and not
havng any offce or pace of busness theren and composed n whoe
or n part of nonresdent aens, sha (e cept n the cases provded for
n subsecton (a) of ths secton and e cept as otherwse provded
n reguatons prescrbed by the Commssoner under secton 215) de-
duct and wthhod from such annua or perodca gans, profts, and
ncome a ta equa to 10 per centum thereof, e cept that such rate sha
be reduced, n the case of a nonresdent aen ndvdua a resdent of a
contguous country, to such rate (not ess than 5 per centum) as may
be provded by treaty wth such country: Provded, That no such de-
ducton or wthhodng sha be requred n the case of dvdends pad by
a foregn corporaton uness (1) such corporaton Is engaged n trade or
busness wthn the Unted States or has an ofce or pace of busness
theren, and (2) more than 5 per centum of the gross ncome of such
corporaton for the three-year perod endng wth the cose of ts ta abe
year precedng the decaraton of such dvdends (or for such part of
such perod as the corporaton has been n e stence) was derved from
sources wthn the Unted States as determned under the provsons
of secton 119: Provded further, That the Commssoner may au-
thorze such ta to be deducted and wthhed from the nterest upon
any securtes the owners ot whch are not known to the wthhodng
agent. Under reguatons prescrbed by the Commssoner, wth the
approva of the Secretary, there may be e empted from such deducton
and wthhodng the compensaton for persona servces of nonresdent
aen ndvduas who enter and eave the Unted States at frequent
ntervas.
Par. . Secton 143(c) of the Revenue ct of 193 provdes:
It TT N and Patment. very person requred to deduct and wth-
hod any ta under ths secton sha make return thereof on or before
March 15 of each year and sha on or before une 15, n eu of the
tme prescrbed n secton 56, pay the ta to the offca of the Unted
States Government authorzed to receve t. very such person s
hereby made abe for such ta and Is hereby Indemnfed aganst the
cams and demands of any person for the amount of any payments
made n accordance wth the provsons of ths secton.
Par. G. Secton 144 of the Revenue ct of 193 provdes:
In the case of foregn corporatons sub|ect to ta aton under ths
tte not engaged n trade or busness wthn the Unted States and not
havng any offce or pace of busness theren, there sha be deducted
and wthhed at the source n the same manner and upon the same
tems of ncome as Is provded n secton 143 a ta equa to 15 per
centum thereof, e cept that n the case of dvdends the rate sha be
10 per centum, and e cept that n the case of corporatons organzed
under the aws of a contguous country such rate of 10 per centum
wth respect to dvdends sha be reduced to such rate (not ess than
5 per centum) as may be provded by treaty wth such country and
such ta sha be returned and pad n the same manner and sub|ect
to the same condtons as provded n that secton: Provded, That n
the case of nterest descrbed n subsecton (a) of that secton (reat-
ng to ta -free covenant bonds) the deducton and wthhodng sha
be at the rate specfed In such subsecton.
Par. . Secton 901 of the Revenue ct of 193 provdes n part:
(a) When used In ths ct
(1) The term person means an ndvdua, a trust or estate,
a partnershp, or a corporaton.
(2) The term corporaton ncudes assocatons, |ont-stock
companes, and nsurance companes.
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211. rt. 211-7.
(3) The term partnershp Incudes a syndcate, group, poo,
ont venture, or other unncorporated organzaton, through or by
means of whch any busness, fnanca operaton, or venture s
carred on, and whch Is not, wthn the meanng of ths ct,
a trust or estate or a corporaton and the term partner In-
cudes a member n such a syndcate, group, poo, |ont venture, or
organzaton.
(4) The term domestc when apped to a corporaton or
partnershp means created or organzed n the Unted States or
under the aw of the Unted States or of any State or Terrtory.
(5) The term foregn when apped to a corporaton or part-
nershp means a corporaton or partnershp whch s not domestc.
(6) The term fducary means a guardan, trustee, e ecu-
tor, admnstrator, recever, conservator, or any person actng n
any fducary capacty for any person.
(7) The term wthhodng agent menus any person requred
to deduct and wthhod any ta under the provsons of secton
143 or 144.

(b) The terms Incudes and ncudng when used n a def-
nton contaned n ths ct sha not be deemed to e cude other
thngs otherwse wthn the meanng of the term defned.
Pursuant to the provsons of secton 62 of the Revenue ct of
193 the foowng reguatons are hereby prescrbed to carry nto
effect the quoted provsons of the conventon between the Unted
States of merca and Canada under the Revenue ct of 19:5 (the
provsons of T. D. 4766, C. . 1937-2, 15 , appcabe under the
Revenue cts of 1936 and 1937, remanng n fu force and effect as
to ta abe years begnnng pror to anuary 1, 193 ):
btc e 1. Rate of taw. The conventon was ratfed and became effcetve
ugust 13, 1937. Under the terms of the conventon, the provsons of whch
are retroactve to anuary 1, 1936, the ta at the rate of 10 per cent mposed
by secton 211(a) s reduced to 5 per cent wth respect to the amount receved
from sources wthn the Unted States as Interest (e cept nterest on deposts
wth persons carryng on the bankng busness), dvdends, rents, saares,
wages, premums, annutes, compensatons, remuneratons, emouments, or
other f ed or determnabe annua or perodca gans, pr fts. and ncome, by
every nonresdent aen ndvdua not engaged n trade or busness wthn the
Unted States and not havng an offce or pace of busness theren, provded
he Is a resdent of Canada.
Under the terms of the conventon the ta at the rate of 10 per cent Imposed
by secton 231(a) s reduced to 5 per cent wth respect to the amount receved
from sources wthn the Unted States as dvdends, by every foregn corpora-
ton not engaged In trade or busness wthn the Unted States and not havng an
offce or pace of busness theren, provded It s organzed under the aws of
Canada.
rt. 2. Wthhodng n genera. The tems of Income from sources wthn the
Unted States enumerated n sectons 211(a) and 231(a) are sub|ect to the
wthhodng provsons of sectons 143 and 144, at the rates specfed theren, wth
the e cepton that a Items of f ed or determnabe annua or perodca ncome
pad to nonresdent aen ndvduas who are resdents of Canada (other than
the compensaton for persona servces receved by such resdents who enter
and eave the Unted States at frequent ntervas) and dvdends pad to non-
resdent foregn corporatons whch are organzed under the aws of Canada
are sub|ect to wthhodng at the reduced rate of 5 per cent.
rt. 3. Resdent of Canada or corporaton organsed undrr the aws of
Canada. or the purpose of wthhodng, every Indvdua whose address Is
In Canada (Incudng a nonresdent aen ndvdua, fducary, or partnershp)
sha be consdered by Unted States wthhodng agents as a resdent of Canada,
and every corporaton whose address s In Canada sha he consdered by such
wthhodng agents as a corporaton organzed under the aws of Canada. These
provsons reatve to Canadan resdents and Canadan corporatons are based
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211, rt. 211-7.
152
upon the assumpton that the payee Is the actua owner of the property from
whch the ncome s derved and consequenty s the person abe to the ta
upon such ncome.
person recevng ncome whch s dstrbutabe to an organzaton e empt
from edera ncome ta under secton 101 of the Revenue ct of 193 , or
correspondng sectons of pror Revenue cts, sha be consdered merey a
condut through whch the ncome fows and not a ta abe entty. In preparng
ownershp certfcate, orm 1001, the person recevng the nco-e shoud make
a notaton thereon substantay as foows: s ths organzaton has been hed
to be e empt from the payment of ncome ta by the Commssoner of Interna
Revenue under date of , the nterest on ths certfcate s
not sub|ect to wthhodng, gvng the date of the offca etter n whch the
organzaton was hed to be e empt. smar statement made wth respect
to other tems of f ed or determnabe annua or perodca ncome whch are
sub|ect to wthhodng w reeve the wthhodng agent from abty to
wthhod the ta .
bt. 4. Recpent not actua owner. If the recpent n Canada s a nomnee
or agent through whom the ncome fows to a person who s not entted to the
reduced rate of 5 per cent, L e., a nonresdent aen ndvdua who s not a
resdent of Canada, or a nonresdent foregn corporaton not organzed under
the aws of Canada, the recpent In Canada from whom a ta of ony 5 per
cent was wthhed, becomes n turn a wthhodng agent, and U requred to
wthhod an addtona ta of 5 per cent (10 per cent on ncome other than
dvdends receved for such foregn corporaton) before transmttng the Income.
(o) ducares and partnershps. ducares and partnershps wth an
address n Canada are abe to have 5 per cent ncome ta deducted at the
source. If the fducary or partnershp s actng as a nomnee or agent recevng
the ncome for and on behaf of a person other than a resdent of Canada or
a corporaton organzed under the aws of Canada, an addtona ta of 5 per
cent or 10 per cent, as the case may be, must be deducted by such Canadan
fducary or partnershp and remtted to the Unted States Treasury. If the
fducary or partnershp receves the ncome n ts own rght and dstrbutes ts
ncome under a trust deed or partnershp agreement, then no further ta n
Canada need be deducted.
(6) Ta -free covenant bonds. No addtona wthhodng s requred wth
respect to nterest on so-caed ta -free covenant bonds ssued pror to anuary
1, 1034, where the abty assumed by the obgor e ceeds 2 per cent but under
secton 143(a) of the Revenue ct of 193 ony 2 per cent ncome ta s requred
to be wthhed at the source. n addtona ta of 5 per cent or 10 per cent,
as the case may be, s requred to be wthhed, however, by Canadan wthhod-
ng agents as above provded, (1) where the bonds were ssued pror to anuary
1, 1934, and the abty assumed by the obgor does not e ceed 2 per cent
(2) where the bonds were ssued on or after anuary 1, 1934, rrespectve of
the abty assumed by the obgor (3) where the bonds do not contan a
ta -free covenant, regardess of the date of ssue.
rt. 5. Return of ta wthhed from persons whose addresses are n
Canada. very Unted States wthhodng agent sha make and fe wth the
coector, n dupcate, an nformaton return on orm 1042 , for the caendar
year 193 and each subsequent caendar year, n addton to wthhodng
return, orm 1042, wth respect to the tems of ncome from whch a ta of
ony 5 per cent was wthhed from persons whose addresses are n Canada.
There sha he reported on orm 1042 not ony such tems of ncome sted on
orm 10-12, but aso such tems of nterest sted on monthy returns, orm
1012, ncudng tems of nterest where the abty for wthhodng Is ony 2
per cent. In the case of corporatons whose addresses are wthn Canada,
ony the f ed or determnabe annua or perodca ncome from sources wthn
the Unted States consstng of dvdends shoud be reported.
rt. 0. Returns fed by Canadan wthhodng agents. orm 1042 s the
form to be prepared annuay for the caendar year 193 and each subsequent
caendar year by persons n Canada who receve for the account of any person
(other than a resdent of Canada or a corporaton organzed under the aws
of Canada) f ed or determnabe annua or perodca ncome from sources
wthn the Unted States whch s sub|ect to ta at the rate of 10 per cent or 15
per cent, as the case may be, but from whch ony 5 per cent has been wthhed
as a resut of the conventon. nnua wthhodng return. orm 1042, shoud
be forwarded to the coector of nterna revenue, atmore, Md., accompaned
by the ta shown to be due n Unted States doars. n e tenson of tme to
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153
15 231, rt. 231-1.
sne 15 Is hereby granted to Canadan wthhodng agents n whch to fe such
returns.
The foowng tabe of wthhodng rates nnder the Revenue ct of 193 and
te ta conventon between the Unted States and Canada has been prepared
or the purpose of makng a summary of such rates ready avaabe to
wthhodng agents:
Wthhodng rates under the Revenue ct of 193 .
1
Corporate bond nterest
Other
Wth ta -free
covenant and
ssued before
an. 1, 1 34
Wthout
ta -free
covenant
or ssued
Dv-
dends
from do-
Dv-
dends
from
Saary
f ed or
deter-
mnabe
annua
or per-
odca
Casses of ta payers.
If corpo-
raton
If eorpo-
raton
assumes
not over 2
per cent
of the
ta .
on or
after
an. 1,
1934,
wth
ta -free
covenant.
mestc
corpora-
ton.
foregn
corpora-
ton.
or other
com er-
satun for
persona
servces.
Income
from
rou-oM
wthn
assumes
over 2
I he
Unted
Staes.
I
per cent
of the
ta .
1 1. Ctvn or resdent Indvd-
1 m. fducary, or partner-
( hp
Per cent.
3
Per cent.
2
Per cent.
Per cent.
Per cent.
Per cent.
Per cent.
t Nonresdent ndvdua, f-
ducary, or partnershp
| taoep as staed n tem
. Domestc corporaton or
resdent foregn corpora-
2
10
10
10
10
no
10
ton emu as stated
In tem 0 beow)
a amrdua fducary, or
e rtnerstup, uUcnt of
2
IS
15
10
10
16
15
Nonresdent corporaton or-
ganzed under aws of
Canada
a
6
6
(
g
0)
. fn nown owner
2
1
10
15
5
5
15
1
2
10
Saary or compensaton for persona servces rendered n the Unted States s not sub|ect to wthhodng
e the case of nonresdent aens, resdents of Canada or Me co, who enter and eave the Unted States at
treqoent ntervas.
Gut T. everng,
ohn W. anes,
( ed wth the Dvson of the edera Regster anuary 17, 1039, 3.47 p. m.)
SUPPL M NT I. OR IGN CORPOR TIONS.
S CTION 231. T O O IGN CORPOR TIONS.
btce 231-1: Ta aton of foregn corporatons.
R NU CT O 10.1 .
Reguatons wth respect to ta aton of nonresdent aen ndvd-
uas and foregn corporatons not engaged n a trade or busness
wthn the Unted States and not havng an offce or pace of bus-
ness theren as affected by the recproca ta conventon between the
Unted States and Canada, effectve anuary 1, 1936. (See T. D.
4 3, page 147.)
172176 39 Pt. 1 6
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5 1 . 154
TITL . MISC LL N OUS PRO ISIONS.
S CTION 1 . T S O INSOL NT N S.
1939_4_9Gf
T. D. 4S
R NU CT OP 193 .
Reguatons reatng to assessment and coecton of ta es o
Insovent banks and trust companes.
Treasukt Department,
Offce of Commssoner of Interna Reventte,
Washngton, D. G.
Secton 1 of the Revenue ct of 193 , enacted May 2 , 193:
(Pubc, No. 554, Seventy-ffth Congress, chapter 2 9, thrd sesson)
provdes:
Sec. 1 . Ta es of Insovent anks.
Secton 22 of the ct of March 1, 1 79 (20 Stat. 351 12 U. S. O.
570), s amended to read as foows:
Sec. 22. (a) Whenever and after any bank or trust company, a
substanta porton of the busness of whch conssts of recevng de-
posts and makng oans and dscounts, has ceased to do busness by
reason of nsovency or bankruptcy, no ta sha be assessed or coected,
or pad nto the Treasury of the Unted States on account of such bank,
or trust company, whch sha dmnsh the assets thereof necessary for
the fu payment of a ts depostors and such ta sha be abated from
such natona banks as are found by the Comptroer of the Currency to
be nsovent and the Commssoner of Interna Revenue, when the
facts sha appear to hm, s authorzed to remt so much of the sad
ta aganst any such nsovent banks and trust companes organzed
under State aw as sha be found to affect the cams of ther depostors.
(b) Whenever any bank or trust company, a snbstanta porton of
the busness of whch conssts of recevng deposts and makng oans
and dscounts, has been reeased or dscharged from Its abty to
ts depostors for any part of ther cams aganst t, and such de-
postors have accepted, n eu thereof, a en upon subsequent earnngs
of such bank or trust company, or cams aganst assets segregated by
such bank or trust company or aganst assets transferred from t to an
ndvdua or corporate trustee or agent, no ta sha be assessed or
coected, or pad nto the Treasury of the Unted States on account of
such bank, or trust company, such ndvdua or corporate trustee or
such agent, whch sha dmnsh the assets thereof whch are avaabe
for the payment of such depostor cams and whch are necessary for
the fu payment thereof.
(c) ny such ta so coected sha be deemed to be erroneousy
coected, and sha bo refunded sub|ect to a provsons and mta-
tons of aw, so far as appcabe, reatng to the refundng of ta es, but
ta so abated or refunded after the date of the enactment of the Reve-
nue ct of 103 sha be reassessed whenever t sha appear that pay-
ment of the ta w not dmnsh the assets as aforesad. The runnng
of the statute of mtatons on the makng of assessment and coecton
sha be suspended durng, and for nnety days beyond, the perod
for whch, pursuant to ths secton, assessment or coecton may not be
made, and a ta whch has been abated may be reassessed and coected
durng the tme wthn whch, had there been no abatement, coecton
mght have been made.
(d) Ths secton sha not appy to any ta mposed by the Soca
Securty ct
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155
1 .
snca: 1. ffectve date of amendment. The amendment of secton 22, made
by secton 1 of the Revenue ct of 193 , s effectve on May 2 , 193 , the date
of enactment of the Revenue ct of 1S 3 .
m. 2. anks and trust companon covered. Secton 22 (as amended) of the
ct of March 1, 1S70. appes to any natona bank, or bank or trust company
organsed under State aw, a substanta porton of the busness of whch con-
ssts of recevng deposts and makng oans and dscounts, and whch has
(a) ceased to do busness by reason of nsovency or bankruptcy, or
(b) been reeased or dscharged from ts abty to ts depostors for any
|ssrt of ther depost cams, and the depostors have accepted n eu thereof a
fen upon ts subsequent earnngs or cams aganst ts asfets ether (1) segre-
gated and hed by t for beneft of the depostors or (2) transferred by t to an
ndvdua or corporate trustee or agent who hods the assets for the beneft of
e depostors.
ct. 3. Defntons. s herenafter used n these reguatons:
(a) The term secton, uness otherwse ndcated by the conte t, means
secton 22 of the ct of March 1, 1 79, as amended by secton 1 of the
Revenue ct of 193 .
(6) The term bank, uness otherwse ndcated by the eonte t, means
any natona bank, or bank or trust company organzed under State aw,
wthn the scope of the secton. See artce 2.
(c) The term effectve date means May 2 , 193 .
d) The term Commssoner means the Commssoner of Interna
Revenue.
(e) The term coector means coector of nterna revenue.
n. 4. Scope of secton generay. The secton pror to amendment was
Intended to assst depostors of a bank whch had ceased to do busness by
reason of nsovency to recover ther deposts, by prohbtng coecton of
ta es of the bank whch woud dmnsh the assets necessary for payment of Its
depostors. y the amendment ke assstance s gven to depostors of banks
whch are n fnanca dffcutes but whch, n certan condtons, contnue n
busness.
In order that the secton sha operate n a case where the bank contnues
busness t s necessary that the depostors sha agree to accept, n eu of a
or a part of ther depost cams as such, cams aganst segregated assets, or a
en upon subsequent earnngs of the bank, or both. When such an agreement
e sts no ta dmnshng such assets or earnngs, or both, otherwse avaabe
and necessary for payment of depostors, may be coected therefrom. If, under
snch an agreement, the depostors have the rght aso to ook to the unsegre-
gated assets of the bank for recovery, In whoe or part, the unsegregated assets
are kewse, to the e tent of the depostors cams, unavaabe for ta co-
ecton.
To ustrate the workng of the secton, assume that depostors agree to
forego 30 per cent of ther depost cams, that as to 45 per cent they w ook
to segregated assets and 60 per cent of the earnngs from bank operatons, and
that as to the remanng 25 per cent of the depost cams the bank remans
abe. The segregated assets and 60 per cent of the earnngs from bank
operatons are mmune from ta coecton unt the tota reazatons from
such source are suffcent to meet the percentage of the depostors chums pay-
abe from that source. When the reazaton from such source Is suffcent to
satsfy the percentage of the depostors cams chargeabe thereto, any
baance of the segregated assets, and the stated percentage of bank earnngs,
w be avaabe for ta coecton. The unsegregated assets and the other 40
per cent of bank earnngs w be avaabe for ta coecton to the e tent that
coecton therefrom w not dmnsh the amount necessary for payment of out-
standng depostors cams other than those aocated to the segregated assets.
See artce 11.
or the purposes of the secton, depostors cams ncude bona fde nterest,
ether on the deposts as such, or on the cams accepted u eu of deposts
as such.
The secton Is not ntended for the reef of banks as such, and does not
prevent coecton of ta from assets not necessary, or not avaabe, for pay-
ment of depostors. The secton s not for the reef of credtors other than
depostors, athough It may ncdentay operate for ther beneft See artce 11.
sr. 5. Segregated or transferred assets. In a case nvovng segregated
or transferred assets, It s not necessary, for appcaton of the secton, that
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1 .
156
the assets sha techncay consttute a trust fund. It Is suffcent that segre-
gated assets be defntey separated from other assets of the bank and that
transferred assets be defntey separated both from other assets of the bank and
from other assets hed or owned by the trustee or agent to whom assets of the
bank have been transferred that the bank be whoy or partay reeased
from abty for repayment of deposts made wth t as such and that the
depostors have cams aganst the separated assets. ny e cess of separated
assets over the amount necessary for payment of such depostors w be ava-
abe for ta coecton.
Where the segregated assets are transferred to a separate corporate trustee
or corporate agent the assets are wthn the protecton of the secton no
matter by whom the stock of such corporaton s hed.
owever, property of a separate corporaton not conveyed by the bank pur-
suant to an nsovency agreement wth depostors, s not wthn the mmunty of
the secton, even though the corporaton s stock s owned by the bank. Ta
due from a separate corporaton to whch assets of an nsovent bank are
conveyed s coectbe, even though such ta be due to the property so con-
veyed, e cept n so far as ta coecton w dmnsh assets conveyed by the
bank for beneft of depostors or the earnngs from such assets to whch the
depostors are entted, and whch are necessary for payment of the depostors
cams. Other assets and earnngs of a separate corporaton are avaabe for
coecton of the ta es of such corporaton even though the assets and earnngs
of such corporaton If receved by the bank woud be avaabe for satsfacton
of cams of the bank s depostors and such cams can not otherwse be pad
rt. 6. Unsegregated assets. (a) Depostors cams aganst assets. Cams
of depostors, to the e tent that they are to be satsfed out of segregated assets,
w not be consdered n determnng the avaabty of nnsegrogated assets for
ta coecton. If depostors have agreed to accept payment out of segregated
assets ony, coecton of ta from unsegregated assets w not dmnsh the
assets avaabe and necessary for payment of the depostors cams. Thus, t
may be possbe to coect ta es from the unsegregated assets of a bank athough
the segregated assets are Immune under the secton.
If the unsegregated assets of the bank reman sub|ect to any porton of the
depostors cams, such unsegregated assets w be wthn the mmunty of
the secton ony to the e tent necessary to satsfy the cams to whch such
assets are sub|ect Ta es w st be coectbe from the unsegregated assets
to the e tent of the amount by whch the tota vaue of such assets e ceeds the
abty to depostors to be satsfed therefrom.
(6) Depostors cams aganst earnngs. ven though under a bona fde
agreement a bank has been reeased from depostors cams as to unsegregated
assets, f a or a porton of ts earnngs are sub|ect to depostors cams, a
assets the earnngs from whch, n whoe or part, are charged wth the payment
of depostors cams, w be mmune from ta coecton. ut see artce 7.
kt. 7. Income. (a) vaabty for ta coecton Income, whether from
segregated or unsegregated assets, whch s necessary for, appcabe to, and
actuay used for, payment of depostors cams, s wthn the mmunty of the
secton. If ony a porton or percentage of ncome from segregated or unsegre-
gated assets s avaabe and necessary for payment of depostors cams, the
remanng ncome s avaabe for ta coecton.
(6) Ta abty. The fact that earnngs may be whoy or party unava-
abe under the secton for coecton of ta es does not e empt the ncome, or
any part thereof, from ta abty. The secton affects coectbty ony, and
s not concerned wth ta abty. ccordngy, the ta on ncome of a gven
year sha ordnary be determned, even though, under the secton, assessment
and coecton must be postponed. The ta sha be determned wth respect to
the entre ta abe ncome and not merey wth respect to the porton of the
earnngs out of whch ta may be coected.
(c) ampe: n agreement between a bank sub|ect to ta under secton
14(d) of the Revenue ct of 193 and ts depostors provdes (a) that certan
assets are to be segregated for the beneft of the depostors who have waved a
percentage of ther deposts (6) that CO per cent of the bank s earnngs sha
be pad to the depostors unt the porton of ther cams not waved has been
I d: and (c) that the unsegregated capta assets sha not be sub|ect to
de wtors cams. The speca cass net ncome of the bank for the caendar
year 103 s 10,000, and that amount aso consttutes ts earnngs for that
year. The bank has an outstandng ta abty for pror years of 7,000.
The ncome ta abty of the bank for 193 s 16 | per cent of 10,000, or
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157
5 1 .
(1. 50, makng a tota outstandng ta abty of ,650. The porton of the
earnngs of the bank for 193 avaabe for ta coecton after provson for
depostors s 4,000 ( 10,000 ess 60 per cent, or 6,000). Of the tota outstand-
ng ta abty of ,G50, 4,000 may be assessed and coected Immedatey,
tearng 4,650 to be coected from the 40 per cent of future annua earnngs
sat covered by the agreement, from any e cess of the segregated assets over
the amount due depostors therefrom, and from unsegregated assets to the
etent that coecton of ta therefrom w not reduce the earnngs to whch
depostors are entted under the agreement See artce 6(6).
t. . batement and refund. n assessment or coecton, whether made
fcfore or after the amendment, contrary to the secton when made, s sub|ect
to abatement or refund wthn the appcabe statutory perod of mtatons.
n abatement or refund after the amendment s equay aowabe whether
sessment or coecton was erroneous because coecton woud dmnsh assets
cessary for payment of depostors, or because the same ta had been propery
fated or refunded on or before the effectve date of the amendment, and
assessed or coected after such date. See artce 12. owever, In the
hsnce of pror abatement or refund on or before the date of the amendment, a
dam for abatement or refund w not be aowed If, at the tme of e amnaton
. the cam, coecton woud not dmnsh the assets necessary for payment of
stors. If there was a pror proper abatement or refund on or before the
Sertve date of the amendment, a cam for abatement or refund of the same
reassessed or re-coected after the effectve date of the amendment may be
med even though the assets are suffcent to meet cams of depostors,
ta assessed pror to the effectve date of the amendment and n accordance
Sh the secton as t then e sted Is sub|ect to abatement where assessment,
b2d t been made after the effectve date of the amendment, woud have been
Mrary to the amended secton. owever, ta propery coected n accord-
S|fewth the secton pror to amendment, may not be refunded thereafter even
oogh coecton after the effectve date of the amendment woud have been
oatrary to the amended secton.
ny abatement or refund Is sub|ect to e stng statutory perods of mta-
ton, whch perods are not suspended or e tended by the amended secton.
r.9. stabshment of mmunty. The mere showng of Insovency, or that
ostors have cams aganst segregated or other assets or earnngs w not
1 tsef secure Immunty from ta coecton. It must be affrmatvey estabshed
to the satsfacton of the Commssoner that coecton of ta w dmnsh the
asets necessary for payment of depostors cams. See aso artce 10.
ny cam of mmunty under the secton sha be supported by a statement,
sder oath or affrmaton, whch sha show (a) the tota of depostors cams
standng, and (6) separatey and n deta, the amount of each of the fo-
dng, and the amount of depostors cams propery chargeabe aganst each
segregated or transferred assets (2) unsegregated assets: (3) estmated
future average annua earnngs and profts: (4) amount coectbe from share-
hoders and (5) any other resources avaabe for payment of depostors cams,
e deta sha show the fu amount of depostors cams chargeabe aganst
rt of the tems (1) to (5), ncusve, even though part or a of the amount
argeabe aganst a partcuar tem s aso chargeabe aganst some other tem
-Items. There sha aso be fed a copy of any agreement between the bank
ra ts depostors, and any other agreement bearng on the cam of mmunty
ttdcr the secton.
t. 10. Procedure durng mmunty.- s ong as. pursuant to the secton, any
- remans unpad, the bank sha fe wth each ncome ta return a statement
rt-qnred by artce 9. n dupcate, and sha aso fe such addtona state-
srts as the Commssoner may requre. Whether or not such addtona
mttmcnts sha be requred, and the frequency thereof, w depend on the
f-rnmstnnces, ncudng the fnanca status and apparent prospects of the
nk. and the tme whch s avaabe for assessment and coecton after the
|Mk becomes fnancay abe to pay ta es wthout dmnshng the assets neces-
Sry for payment of depostors cams.
kt. 11. Termnaton of mmunty. Immunty under the secton s termnated
tenever, wthn the statutory perod of mtatons as e tended by the secton,
the ta can be coected wthout dmnshng the assets necessary for payment
f depostors cams, ncudng cams of new depostors secured durng the
t od of mmunty from ta coecton. or the mmunty to end, the assets
must be suffcent to cover any remanng baance st due under the agreement
wd any outstandng addtona deposts made by the same or other depostors
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I 901. rt. 901-5.1
15
subsequent to the agreement In other words, the bar of the secton, when once
n force, s termnated ony as, and to the e tent that, coecton may be made
wthout dmnshng assets avaabe for satsfacton of a outstandng depostors
cams, regardess of when ther deposts were made.
Whe the mmunty from ta coecton s for protecton of depostors ony
n some cases the mmunty w not end unt the assets are suffcent to cove
ndebtedness of credtors generay. Ths stuaton w e st where unde
appcabe aw the cams of genera credtors are on a party wth those o
depostors, so that to pay depostors n fu t Is necessary to pay a credtor
In fu.
In determnng the suffcency of the assets to satsfy the depostors cams
sharehoders abty to the e tent coectbe sha be treated as avaabe
assets. See artce 9. Depost nsurance payabe to depostors sha not be
treated as an asset of the bank and sha be dsregarded n determnng the
suffcency of the assets to meet the cams of depostors.
rt. 12. Coecton of taw after termnaton of mmunty. (a) Genera. 11
assets n e cess of those necessary for payment of outstandng deposts become
avaabe, such e cess assets sha be apped toward satsfacton of accumuated
outstandng ta es, coectbe under the secton, and not barred by the statute
of mtatons. ut see artce 5. Where suffcent assets are avaabe, statutory
Interest sha be coected wth the ta . Generay, uness the nterests of the
Unted States w be |eopardzed thereby, t w be suffcent f the amount
avaabe for payment of coectbe ta es wthout dmnshng assets necessary
for payment of depostors, s determned and pad by the ta payer each tme a
edera ncome ta return s fed. owever, assessments and coectons may
be made at such other tmes as the coector or Commssoner sha fnd appro-
prate and necessary to protect the nterests of the Unted States.
(6) Ta due before the effectve date of the amendment. The secton does
not permt assessment or reassessment or coecton of ta propery abated or
refunded pursuant to the secton on or before May 2 , 193 . Ta due on or
before that date, and not so abated or refunded, and st outstandng on the
sad date, Is wthn the provsons of the amended secton and coectbty s
determnabe n accordance wth the amended secton the same as In the case
of ta due after such date. ccordngy, a ta due pror to the effectve date
of the amendment and then coectbe under the secton may not be assessed or
coected thereafter f such assessment or coecton woud be contrary to the
secton as amended. See artce .
If the statutory perod for assessment or coecton had e pred before the
effectve date of amendment, the secton does not revve t ccordngy, n
such stuaton the ta s not coectbe under the amended secton, regardess
of the bank s fnanca condton.
bt. 13. Soca securty ta es. These reguatons do not reate to soca
securty ta es, snce the mmunty granted by the amended secton does not
appy to ta es mposed by the Soca Securty ct.
rt. 14. uthorty for reguatons. These reguatons are ssued under au-
thorty of secton 3447, evsed Statutes of the Unted States.
Guy T. everng,
Commssoner of Interna Revenue,
ohn W. anes,
( ed wth the Dvson of the edera egster anuary 17, 1939, .47 p. m.)
TITL I. G N R L PRO ISIONS.
rtce 901-5: Lmted partnershp as corporaton.
R NU CT O 19 .
mendment of Reguatons 101, artces 901- and 901-6. (See
T. D. 4 94, page 79.)
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159 22(a), rt. 22(a)-.
INCOM T RULINGS. P RT II.
R NU CTS O 1937 ND 1934
SU TITL . G N R L PRO ISIONS.
P RT IL COMPUT TION O N T INCOM .
D INITION.
btce 22(a)-: What ncuded n gross ncome. 1939-3-9674
T. D.4 79
INCOM T .
rtce 22(a)- of Refatons 94 and 6, reatng to tems to be
ncuded n gross ncome, amended.
Offce or Commssoner of Intern a Revenue,
Washngton, D. C.
The frst sentence of the second paragraph of artce 22(a)- of
Reguatons 94 and of artce 22(a)- of Reguatons 6 readng as
foows:
If property a transferred by a corporaton to a sharehoder, or by an empoyer
to an empoyee, for an amount substantay ess than ts far market vaue, such
sharehoder of the corporaton or such empoyee sha ncude In gross ncome
the dfference between the amount pad for the property and the amount of Its
far market vaue.
s amended to read as foows:
If property s transferred by a corporaton to a sharehoder, or by an em-
poyer to an empoyee, for an amount substantay ess than ts far market
vaue, regardess of whether the transfer s n the guse of a sae or e change,
such sharehoder or empoyee sha ncude n gross ncome the dfference
between the amount pad for the property and the amount of ts far market
Taue to the e tent that such dfference s n the nature of (1) compensaton for
eerrces rendered or to be rendered or (2) a dstrbuton of earnngs or profts
ta abe as a dvdend, as the case may be.
The second sentence of the second paragraph of artce 22 (a)-1 of
Reguatons 6 readng as foows:
In computng the gan or oss from the subsequent sae of such property Its
wst sha be deemed to be ts far market vaue at the date of acquston by
the sharehoder or the empoyee.
s amended to read as foows:
In computng the gan or oss from the subsequent sae of such property ts
bass sha be the amount pad for the property, ncreased by the amount of
men dfference Incuded n gross ncome.
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22(a), rt. 22(a)-2.1 160
Ths Treasury decson s prescrbed pursuant to the provsons of
secton 62 of the Revenue cts of 1936 and 1934.
Mton . Carter,
ohn W. anes,
( ed wth the Dvson of the edera Regster anuary 6, 1039. 12.17 p. m.)
rtce 22 (a)-2: Compensaton for persona servces.
R NU CT OP 1930.
rtce 22(a)-2: Compensaton for persona 1939-23-9 63
servces. Ct. D. 1401
INCOM T R NU CTS O 1932 ND 1936 D CISION OP SUPR M
COURT.
Gross Income Compensaton of udges of Unted States Courts
Consttutonaty ok Statute.
The provson of secton 22 of the Revenue ct of 1932, reenacted
by secton 22(a) of the Revenue ct of 1936, s not unconsttutona
In so far as It ncudes n gross Income, on the bass of whch
ta es are to be pad, the compensaton of |udges of courts of the
Unted States takng offce after une 6, 1932.
Supreme Cotrt of the Unted States.
eorge W. O Maey, Indvduay and as Coector of Interna Revenue, appe-
ant, v. oseph W. Woodrough and a . Woodrough.
59 . Ct, 3 .
On appea from the Dstrct Court of tha Unted States for the Dstrct of Nebraska.
May 22, 1939.
opnon.
Mr. ustce rankfubtkb devered the opnon of the Court.
The case Is here under secton 2 of the ct of ugust 23, 1937 (50 Stat, 751),
as a drect appea from a |udgment of a dstrct court whose decson wa
aganst the consttutonaty of an ct of Congress. The sut beow, an acton
at aw to recover a ta on ncome camed to have been egay e acted, wag
dsposed of upon the peadngs and turned on the snge queston now before us,
to wt: Is the provson of secton 22 of the Revenue ct of 1932 ( 47 Stat, 169,
17 ), reenacted by secton 22(a) of the Revenue ct of 1930 ( 49 Stat, 164 ,
1057), consttutona n so far as t Incuded In the gross Income, on the bass
of whch ta es were to be pad, the compensaton of |udges of courts of the
Unted States takng offce after une 6, 1932.
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161
22(a), rt. 22(a)-2.
That ths Is the soe Issue w emerge from a smpe statement of the fnot
nd of the governng egsaton. oseph W. Wood rough wns apponted a Unted
States crcut |udge on pr 12, 1933, and quafed as such on M:y 1. 11)33.
ur the caendar year of 1936 a ont ncome ta return of udge WooUrougU
wd hs wfe dscosed hs |udca saary of 12,500, but camed t to be con-
sttutonay mmune from ta aton. Snce t wns not ncuded n gross n-
tome no ta was payabe. Subsequenty a defcency of (131.00 was assessed
co the bass of that tem, whch, wth nterest, was pad under protest. Cam
or refund havng been re|ected, the present sut was brought, and |udgment went
aganst the coector. The assessment of the present ta was techncay under
tb ct of 1936, but that ct merey carred forward the provsons of the ct
of 1932, for the ncuson of compensaton of |udges of tourts of the Unted
States, takng offce after une 6, 1932, whch had been smary ncorporated
n the Revenue ct of 1S31 (4 Stat., C 0, G 0-O 7). Therefore, the power of
Ccasress to ncude udge Woodrough s saary as a crcut |udge n hs gross
ceme must be |udged on the bass of the vadty of secton 22 of the Revenue
rt of 1932, and not as though that power had been orgnay asserte by the
Revenue ct of 1930. or t was the ct of une 6, 1932, that gave notce to a
udges thereafter to be apponted, of the new congressona pocy to ncude
the |udca saares of such |udges n the assessment of ncome ta es. The
Ifact that udge Woodrough before he became a crcut |udge and pror to une 6,
1932. had been a dstrct udge s whoy rreevant to the matter n ssue. The
two offces have dfferent statutory orgns, are fed by separate nomnatons and
wnfrmatons, and en|oy dfferent emouments. new appontee to a crcut
court of appeas occupes a new offce no ess when he s taken from the dstrct
I bench than when he s drawn from the bar.
I y means of secton 22 of the Revenue ct of 1932, Congress sought to avod,
t east In part, the consequences of van v. Gore (253 U. S., 245 T. D. 3037, C. .
, 93 (1920) ). That case, decded on une 1, 1920, rued for the frst tme that
provson requrng the compensaton receved by the |udges of the Unted
States to be ncuded n the gross ncome from whch the net ncome Is to be
vmnuted, athough merey part of a ta ng measure of genera, nondscrmnatory
sppcaton to a earners of Incomes, s contrary to rtce III, secton 1, of the
Consttuton whch provdes that the Compensaton of the udges sha
w r be dmnshed durng ther Contnuance n Offce. (See aso the separate
opnon of Mr. ustce ed n Poock v. armers Loan d Trust Co., 157 U. ., 429,
5 5, 604 et seq.) To be sure, n a etter to Secretary Chase, Chef ustce Taney
e pressed smar vews.1 In dong so, he merey gave hs e tra-|udca opnon,
nsertng at the same tme that the queston coud not be ad|udcated. Chef
ustce Taney s vgorous vews were shared by ttorney Genera oar. There-
sfter, both th Treasury Department and Congress acted upon ths constructon
of the Consttuton. owever, the meanng whch vans v. Oore mputed to the
hstory whch e pans rtce III. secton 1, was contrary to the way n whch
It was read by other ngsh-speakng courts. The decson met wde and steady
frowng dsfavor from ega schoarshp and professona opnon. vans v. Oore
The etter was wrtten on ebruary 16, 1 03, and w be found In 157 T7. ., 701.
I shoud not have troubed you wth ths etter, f there was any mode by
hch the nteaton rond be decded In a ud a proceedng Rut a of the unges of the
f- rt of the I nted Sutes have an Interest n the queston, and coud not therefore wth
pru rety undertake to hear am derde It. (157 U. .. at 702.)
1 . Op. . G., 1G1 : hut see the opnon of ttorney Genera Tnmer (31 Op. . G., 475).
f e Mr. ustce ed, concurrng, In Poock v. armers Loan t Trust Co. (157 U. .,
5SS. 0 C07).
See Wayne v. Unted States (26 Ct. CI., 274) ct of uy 2 , 1 92 (ch. 311, 27 Stat.,
See |udgments In Cooper v. Commssoner of Income Ta (4 Comm. L. R., 1304), con-
nng secton 17 of the ueensand Consttuton ct of 1 G7 whch prohbted any re-
wton or dmnuton of the saary of a |udge durng hs term of offce aso, udges v.
tttorneu-Oenero for a. katchr can 19371 (2 D. L. R., 209), construng secton 90 of the
rtsh North merca ct, 1 67, that The saares of the udges
tha be f ed and provded by the I arament of Canada In connecton wth the Income
a ct 1932 of Saskatchewan.
:Se Cark urther Lmtatons T pon edera Income Ta aton (-10 Yne I,. .. 75)
Own Oonstrtrona -nv n 1919-1920 (15 m. Po. Sc. Rev., 635, 641-644) cman,
ttant fnn of tdcnI Saares (24 Iowa L. Rev.. 9) Lowndes, Ta ng Income of ed-
frs udcary (10 a. L. Rev., 15.1) Powe, Consttutona Law In 1919-1920 (19 Mch.
L Rer 7_tS I Powe, The S teenth mendment and Income from State Securtes
a , n ncome Ta Magazne ( uy, 1923), 5-0 20 Co. L. Rev.. 794 43 arv. L. Rev.,
s 2CTh. L. Rev- 376 : 45 L. . Rev.. 291 7 a L. Rev., 09: 3 t| of Ch. L. Rev., 141).
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22(b).
162
tsef was re|ected by most of the courts before whom the matter came after ta
derson.
avng rc|rard to these crcumstances, the queston mmedatey before n
whether Congress e ceeded ts consttutona power n provdng that Unte
States |udges apponted after the Revenue ct of 1932 sha not en|oy mmunty
from the ncdences of ta aton to whch everyone ese wthn the defned casses
of ncome s sub|ected. Thereby, of course, Congress has commtted tsef tt
the poston that a nondscrmnatory ta ad generay on net ncome s not
when apped to the ncome of a edera |udge, a dmnuton of hs saary wthn
the prohbton of rtce III, secton 1 of the Consttuton. To suggest that t
makes nroads upon the ndependence of |udges who took offce after Congress
had thus charged them wth the common dutes of ctzenshp by makng Uorn
bear ther aquot share of the cost of mantanng the Government, s to trvaze
the great hstorc e perence on whch the framers based the safeguards of
rtce III, secton 1. To sub|ect them to a genera ta s merey to recognze
that |udges are aso ctzens, and that ther partcuar functon n government
does not generate an Immunty from sharng wth ther feow ctzens the mate-
ra burden of the Government whose Consttuton and aws they are charged
wth admnsterng.
fter ths case came here. Congress, by secton 3 of the Pubc Saary Ta ct
of 1930, amended secton 22(a) so as to make t appcabe to |udges of courts
of the nfed States who took offce on or before une , 1932. That secton,
however, s not now before us. ut to the e tent that what the Court now says s
nconsstent wth what was sad n Me v. Graham (20 U. 501), the htter
can not survve.
udgment reversed.
Mr. ustce McReynods dd not hear the argument n ths cause and took no
part n ts consderaton or decson.
r. ustce trrua dssents n an opnon adherng to the theory that te
Imposton of an ncome ta on compensaton of |udges of consttutona courts s
voatve of the prohbton contaned n rtce III, secton 1 of the Consttuton,
aganst dnhaUng such compensaton durng ther contnuance n offce.
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
1930-3-9675
L T. 3243
R NU CT O 193 .
It nta receved by , a mnster of the gospe, who eased the
house furnshed to hm by the M Church and used the renta there-
from to pay for an apartment occuped by hm, s e empt from
edera Income ta .
dvce s requested whether , a mnster of the gospe, s ta abe
on the money he receved n 1937 from rentng the house furnshed
to hm by the M Church of whch he s the mnster, whch money
he used to pay for an apartment occuped by hm.
It s stated that (he church of whch s the mnster owns the
house whch t furnshes for the use of ts mnster. Snce was
The rases, pro and con. are coected In the recent dssentng opnon by Chef udge
ond of te Court of ppea of Mar| and In Gorrfy v. nenms (5 . (2d), 69, 2). Par-
tcuar attenton shoud be raed to the decson ef the Supreme Court of South frca
( rause v. Commssoner for Inand Revenue 11)20 , So. r. I. ( . I ). 2 6), construng
secton 100 of the South frca ct. whch had taken over the Identca cause from
rtce III, secton 1, of our Consttuton.
Te provsons regardng securty of saary came from the ct of Settement of ITOO
(12 and : W. III. . 2, Secton III), and the ct of 1760 (1 Geo. I, ch. 23). See
adswortu The Consttuton I ostton of the udges (43 L. . Rev., 2,r ) 2 oMsworth.
The story of ngsh Law (5GO-S 4 6 d., 234, 514.
u ubUc, No. 32, Seventy-s th Congress, frst sesson, chapter 59. Secton 209 of the
same statute, however, provdes that In the case of the udges of the Supreme Court,
and of the nferor courts of the Unted States created under rtce III of the Consttu-
ton, who took offce on or before une 6, 1932, the compensaton receved as such sha
not be sub|ect to ncome ta under the Revenue ct of 193 or any pror Revenue ct.
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22(b), rt. 22(b)(4)-ft.
snge and dd not requre a house for hs resdence, the church ap-
proved the easng thereof by the mnster and the rentng of an
apartment by hm wth te money receved as renta from the house.
Secton 22(b)6 of the Revenue ct of 1936 provdes as foows:
(b) cusons from gro nrmr. The foowng tems sha not be n-
cuded n gross ncome and sha be e empt from ta aton under ths tte:
.
( ) Mmsters. The renta vaue of a dweng house and appurtenances
thereof furnshed to a mnster of the gospe as part of hs compensaton

It s hed that the renta receved by from the house furnshed
to hm by the church, whch renta he used to pay for an apartment
occuped by hm, comes wthn the above provsons of aw and a
e empt from edera ncome ta .
rtce 22(b) (4)-4: Interest upon Unted States obgatons.
R NU CT OP 103 .
empton of nterest (ncrement n vaue) on Unted States sav-
ngs bonds. (See I. T. 3262, page 96.)
rtce 22(b) (4)-5: Treasury bond e empton 1939-15-97 4
n the case of trusts or partnershps. I. T. 3269
R NU CT O 1036.
Where a trust owns bonds ssued under the Second Lberty ond
ct, and the nterest on such bonds s apportoned between the
trust and the benefcary, each s entted to the e empton provded
under secton 7 of the Second Lberty ond ct, as amended, wth
respect to nterest on 5,000 prncpa amount of such bonds.
dvce s requested wth respect to the e empton from ncome ta
of nterest upon Unted States Treasury bonds ssued under the Sec-
ond Lberty ond ct n the case of a trust created by the w of ,
the ncome of whch s ta abe n part to the trust and n part to the
benefcary.
y the terms of the trust created under the w of , one-haf of
the ncome of the trust s to be pad to , and the remander of the
ncome s to be accumuated. The ncome of the trust conssts of
nterest on muncpa bonds. Treasury bonds, and bonds ssued by
prvate corporatons. The casses of nterest ncome are apportoned
between the trust and the benefcary, one-haf to each. The trust
owns Unted States Treasury bonds ssued under the Second Lberty
ond ct on whch the tota nterest receved amounted n 1937 to
14| doars. Of ths nterest, the trustee aotted one-haf to the
ncome to be reported by the trust and one-haf to the ncome to be
reported for the account of the benefcary. Inasmuch as the
amounts apportoned to the trust and to the benefcary represent
nterest on such Treasury bonds n e cess of 5,000, the queston has
arsen whether the trust and the benefcary are each entted to cam
the e empton n respect of nterest on 5,000 of such Treasury bonds
M provded n secton 7 of the Second Lberty ond ct, as amended.
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23(a), rt. 23(a)- .
164
Secton 7 of the Second Lberty Loan ond ct, approved Sep-
tember 24, 1917, provdes as foows:
That none of the bonds authorzed by secton 1, nor of the certfcates author-
zed by secton 5, or by secton 6, of ths ct, sha bear the crcuaton prvege.
such bonds and certfcates sha be e empt, both as to prncpa and nterest
from a ta aton now or hereafter mposed by the Dnted States, any State,
or any of the possessons of the Unted States, or by any oca ta ng authorty,
e cept (a) estate or nhertance ta es, and (b) graduated addtona ncome
ta es, commony known as surta es, and e cess profts and war-profts ta es,
now or hereafter mposed by the Unted States, upon the ncome or profts of
ndvduas, partnershps, assocatons, or corporatons. The nterest on an
amount of such bonds aud certfcates the prncpa of whch does not e ceed
n the aggregate 5,000, owned by any ndvdua, partnershp, assocaton, or
corporaton, sha be e empt from the ta es provded for n subdvson (h)
of ths secton. (40 Stat., 2 .)
rtce 22(b) (4)-5 of Reguatons 94 provdes n part as foows:
Treasury bond e empton n the oase of trusts or partnershps. (a) When
the ncome of a trust s ta abe to benefcares, as n the case of a trust the
ncome of whch s to be dstrbuted to the benefcares currenty, each bene-
fcary s entted to e empton as f he owned drecty a proportonate part of
the Treasury bonds hed n trust. When, on the other hand, ncome s ta abe
to the trustee, as n the case of a trust the ncome of whch s accumuated for
the beneft of unborn or unascertaned persons, the trust, as the owner of the
bonds hed n trust, Is entted to the e empton on account of such ownershp.
In vew of the provsons of secton 7 of the Second Lberty ond
ct and artce 22(b) (4)-5 of Reguatons 94, whch are quoted
above, t s hed (bat where a trust owns Treasury bonds ssued under
authorty of the Second Lberty ond ct, and the nterest on such
bonds s apportoned between the trust and the benefcary, each s
entted to cam the e empton from ncome ta , as provded n sec-
ton 7 of that ct, n respect of the nterest on 5,000 prncpa
amount of such bonds.
INCOM : P NS S.
rtce 23(a)-: usness e penses.
R NU CT OP 1936.
ppcabty of G. C. M. 20307 (C. . 193 -1, 157) to tems other
than prepad nsurance. (See L T. 3251, page 113.)
rtce 23(a)-: usness e penses. 1939-2 -9S90
G. C. M. 21103
R NU CTS O 1934 ND 1936.
The ordnary and necessary e penses Incurred by In operatng
hs farm for the breedng and deveopment of horses and n con-
ductng a racng stabe are deductbe for edera ncome ta pur-
poses snce the enterprse was carred on for the purpose and wth
reasonabe e pectaton of dervng a proft
dvce s requested reatve to the deductbty, for edera n-
come ta purposes, of the ordnary and necessary e penses ncurred
by the ta payer n operatng a farm and racng stabe.
The ta payer s a man of ndependent means and resdes n the
State of R. e has numerous busness nterests n that State. e-
gnnng wth the year 192 , he was engaged n the purchasng, de-
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165
23(a), rt. 23(a)- .
Teopng, and seng of sadde horses and show horses, usng rented
quarters for that purpose. Later he acqured an nterest n a racng
stabe. orses were purchased and entered n varous racng meets
and severa purses were won by the horses so entered. owever,
Ithese operatons were not proftabe and substanta osses were n-
curred. The ta payer states that as the resut of the e perence thus
obtaned be became convnced that the best prospects for makng
profts out of such a busness ay n breedng, deveopng, and se-
ng sadde horses and show horses and n breedng, racng, and se-
ng thoroughbred horses, and that ths coud ony be done by the acqu-
ston and ownershp of suffcent acreage, budngs, and equpment
to carry out a contnuous program of breedng and deveopng and
n estabshng a reputaton for an outstandng farm and stabe. It
was wth ths n mnd that he acqured the and, budngs, and
equpment ocated n the State of S. rom tme to tme he has ac-
qured addtona acreage and added necessary budngs and equp-
ment.
The ta payer further states that pror to, and at the tme of, the
acquston of the farm he was fuy aware of the fact that t woud
requre consderabe tme to deveop outstandng bood nes n the
sadde horse, show horse, and thoroughbred dvsons of the busness
that he was aso aware of the fact that the deveopment of a few out-
standng horses woud resut n arge earnngs ana profts that he ac-
qured the orgna farm and the addtona acreage, budngs, and
tcpment as a busness venture for the purpose and wth the nten-
ton of makng profts from the operaton of ths busness and that
a of hs programs and poces durng a of the years of hs opera-
ton of the farm were determned wth that n vew.
It has been the pocy of the ta payer at a tmes to hre e per-
enced and competent managers, traners, assstants, and other farm
hep, and from tme to tme he has changed the personne n order
that e penses coud be reduced and the effcency of operatons m-
proved. , whom he hred as genera farm manager, had been
m the busness of horse breedng, tranng, and showng of horses for
many years and was recognzed as one of the outstandng men n
the country n that busness. e was empoyed at an annua saary
pus a bonus based upon the fnanca and busness progress of the
farm and especay upon the proft derved from the sae of horses.
It was the understandng that hs empoyment woud contnue ony so
ong as the operatons of the farm showed a proft or had good pros-
pects of showng a proft. rom the outset there was nstaed, and
there has been contnuousy mantaned, at the farm a compete and
detaed accountng system n charge of a resdent accountant. n
assstant accountant empoyed n the ta payer s offce n the State of
vsts the farm severa tmes each year to audt the books. The ac-
countant s reports are carefuy revewed by the ta payer and ds-
cussed wth the accountant and secretary and wth the genera farm
manager. The ta payer devotes a great dea of hs tme and atten-
ton to the operatons and busness affars of the farm. e consuts
wth hs empoyees as to operatng poces and at a tmes has n-
ssted on rgd economy of operatons, reducton of e penses, and the
necessty of puttng the enterprse on a payng bass. costs and
e penses ncdent to hs trps to the farm and to attend race meetngs
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23(a), rt. 23(a)-.
166
and horse shows are pad by hm personay and are not charged as
e penses of operatng the farm. None of hs offce e penses n the
State of R s charged to the operaton of the farm. The entre cost
of the operaton and mantenance of the ta payer s resdence on the
farm s pad by the ta payer personay and has never been charged
to the operatons of the farm, nor s the farm resdence used as a
pace of soca entertanment.
The e penses ncurred n the operaton of the enterprse mate-
ray e ceeded the gross ncome for the years 1930 to 1937, ncusve,
but the prospects of makng a proft are now much mproved as nd-
cated by resuts n recent months. The ncome derved conssts prn-
cpay of recepts from saes of horses and from racng purses.
There s aso some ncome from saes of catte, sheep, msceaneous
ve stock, stud fees, etc. The prncpa e pendtures consst of op-
eratng e penses, ncudng deprecaton on budngs and equpment
The ta payer states that, n hs |udgment, hs faure thus far to
pace the farm on a payng bass has been due argey to two factors,
(1) the nabty thus far to breed, deveop, and contnue to man-
tan severa outstandng race horses, and (2) unfavorabe economc
condtons. e ponts out that the bood ne of hs horses has been
constanty mprovng and the saes have been brngng better prces
and greater revenue. In each of the years snce 1932, saes of horses
have resuted n substanta profts. conservatve estmate of the
vaue of horses on hand on December 31, 1937, shows that such vaue
far e ceeded ther cost. It s stated, and the evdence ndcates, that
the farm s now n a poston to captaze on ts outstandng reputa-
ton whch has been but up over the years. The traner of thorough-
bred horses for the ta payer states that the decson upon the ques-
ton of whether to keep or se a horse has at a tmes been made by
reference to whether the sae or keepng of the horse w brng n the
most money. e further states that the same consderaton governs
n the matter of whch horses to race and whch meets to attend.
The fundamenta queston s whether, under the facts presented,
the ta payer s operaton of the enterprse consttutes a trade or bus-
ness enttng hm to the deductons provded by secton 23 of the
Revenue cts of 1934 and 1936 for e penses, etc., ncurred n carryng
on a trade or busness.
Numerous cases have been decded by the courts and by the oard
of Ta ppeas nvovng the queston of whether horse breedng
and racng actvtes consttute a trade or busness. In a few cases
such actvtes have been hed not to consttute a trade or busness.
(Regnad C. anderbUt v. Commssoner. 5 . T. ., 1055, affrmed
n Deernq v. ar, 23 . (2d), 975: arry C. sher v. Comms-
soner, 29 . T. ., 1041, affrmed per curam n sher v. Comms-
soner, 74 . (2d), 1014. See aso Thache.r v. Lowe, 2 ed.. 994,
and Louse Ceney v. Commssoner, 22 . T. ., 672, n whch farm-
ng operatons were hed not to consttute a busness.) In other
cases, whch are much more numerous, the decson has been to the
contrary. ( moner such cases are Wson, v. sner, 2 2 ed., 3
Commssoner v. Wdener, 33 . (2d), 33 Commssoner v. ed.
67 . (2d), 76 Whtney v. Commssoner, 73 . (2d), 5 9 Smth v.
Commssoner, 7 . (2d), 40 Margaret . mon/ v. Commssoner,
22 . T. ., 139 , acquescence, C. . -2, 3 (1931) ames Cark
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167
23(a), rt. 23(a)-.
et a, ecutor, v. Commssoner, 24 . T. ., 1235, acquescence,
C . I-1, 2 (1932) and Laura M. Curts v. Commssoner, 2
. T. ., 631, acquescence. C. . II-2, 4 (1933). See aso Pant v.
Wash, 2 0 ed., 722, n whch t was hed that a farm was conducted
a. s busness.)
n anayss of the above-cted cases dscoses that the operaton
of horse breedng farms and racng stabes may consttute a trade
or busness that the queston of whether or not such operatons con-
sttute a trade or busness depends upon whether the actvtes are
for the purpose or wth the ntenton of makng a proft, provded
the e pectaton of proft s reasonabe that the queston of nten-
ton s a queston to be determned n each case upon the partcuar
facts presented that, the ta payer s ntenton or purpose of makng
a proft, as dscosed by hs own testmony and by other evdence,
s suffcent to estabsh the busness character of the enterprse, pro-
vded the e pectaton of proft s reasonabe and that the fact that
osses are ncurred year after year does not necessary ndcate that
the prospect of proft s not reasonabe or that the ta payer s nten-
ton s not to make a proft. It s true that n Thacher v. Lowe,
supra, de court stated that n ascertanng the ntenton of the ta -
payer t coud see no escape from makng the cru of the determna-
ton hs recepts and e pendtures. owever, as ponted out n
Commssoner v. ed, supra, the ony evdence submtted n the
Lowe case was a statement of the ta payer s recepts and osses.
In the nstant case the ta payer states that hs ntenton and pur-
pose n operatng the farm and racng stabe s to make a proft and
that, n hs opnon, the prospects for proft are reasonabe. The ev-
dence n the case ndcates that there s a reasonabe prospect that
the operatons may be proftabe n the near future. The operatons
are carred on n a busnesske manner and economy s stressed. The
farm s not used by the ta payer for entertanment, soca actvtes,
or other nonbusness purposes. The ta payer hmsef devotes a great
dea of tme and attenton to the operatons n an effort to make them
successfu from a fnanca standpont.
L the ght of the facts n ths case and the cted decsons, t s
the opnon of ths offce that the ta payer, n carryng on the actv-
tes n queston, s engaged n carryng on a trade or busness. The
tase of Regnad C. anderbt, supra, s dstngushabe from the
nstant case n that the oard of Ta ppeas dd not there have
tetmony of the ta payer hmsef as to hs ntenton. urthermore,
n that case there was evdence to ndcate that the farm was operated
as a pace of peasure, e hbton, and soca dverson. Lkewse, n
the case of arry C. sher, supra, the oard had no evdence as to
the ta payer s ntenton or ob|ect n carryng on the enterprse. The
case of Louse Cheney, supra, s dstngushabe n that there the
oard found that there was merey a van hope that on some remote
day a proft mght resut.
Snce the operaton of the farm and racng stabe n the present
case consttutes a trade or busness, the ta payer s entted to deduct
such ordnary and necessary e penses and other tems as the statute
permts to be deducted n carryng on a trade or busness.
. P. Wenche,
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23(c), rt. 23(c)- .
16
R NU CT O 1936.
Purchase of fe nsurance poces for empoyees. (See I. T. 326 ,
page 196.)
rtce 23(c) -1: Ta es. 1939-1-9661
I. T. 3241
R NU CT O 193 .
purchaser of rea estate In rgna, In whch State rea estate
ta es accrue for the entre year on anuary 1, s not entted to a
deducton for any ta es assessed for the frst caendar year n whch
he owns the property, even though by the terms of the contract of
sae the ta es are apportoned between the vendor and vendee as of
the date of sae. ny part of the ta es for the frst caendar year
pad by the purchaser shoud be added to the cost of the property.
dvce s requested whether ta es pad n 1937 on rea estate st-
uated n the cty of R, State of rgna, purchased durng that year
by , consttute a part of the cost of the property or whether such
ta es are an aowabe deducton for edera ncome ta purposes.
Durng 1937 the ta payer purchased certan parces of rea estate
stuated n the cty of R, rgna. In accordance wth the custom n
that State, ta es for the year were prorated to the date of purchase
and charged to the seer and the purchaser assumed the ta es after
that date. The ta payer treated the ta es accrued to the date of
purchase as part of the cost of the property and camed the ta es
pad for the perod from the date of purchase to the end of the year
as a deducton n hs return for 1937.
Pertnent sectons of the aw appcabe, contaned n the ta code
of rgna, rgna Code of 1936, nnotated, read as foows:
Sec. 251. What rea estate to be ta ed en for ta es . rea es-
tate, e cept such as Is e empted by the consttuton of rgna, shn be sub-
|ect to such annua ta aton as may be prescrbed by aw, and there sha be a
en on such rea estate for the payment of ta es and eves mposed thereon,
hereafter assessed, pror to any other en or encumbrance thereon.
Seo. 252. When commssoners of the revenue to commence assessments.
ach commssoner of revenue sha commence, annuay, on the 1st day of
anuary, and proceed wthout deay to ascertan a the rea estate n hs
county or cty, as the case may be, and the person to whom the same Is charge-
abe wth ta es on that day. The begnnng of the ta year for the assessment
of ta es on rea estate sha be anuary the 1st, am the owner of rea estate
on that day sha be assessed for the ta es for the year begnnng on that day.

Sko. 424. Ta year. cept where otherwse specfcay provded, the ta
year sha begn on the 1st day of anuary of each year and sha end on the
31st day of December of each year and a assessments sha be made as of the
1st day of anuary of each year.
Under secton 297 of the ta code, the counc of any cty or town
n rgna may by ordnance provde for the coecton of ctv or
town ta es n equa semannua nstaments. The cty of R, rgna,
has provded by acton of the counc that the rea estate ta es for
each year are due and payabe on une 30 and December 31 of each
year n equa nstaments.
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169
523(e), rt. 23(e)-3.
Under the statutes of rgna, ta es on rea property are assessed
to the owner as of anuary 1 for the perod of the caendar year
begnnng on that date. Inasmuch as ownershp of the property on
anuary 1 s the event whch determnes abty for the ta es
thereon, t s hed that rgna rea property ta es accrue, for
edera ncome ta purposes, on anuary 1 of each year.
Under the aws of rgna, as a genera rue proraton of ta es
s not aowed, and when an assessment has been made, the then owner
and the property become abe for the ta for the whoe year.
Warwck County v. Cty of Newport News, 153 a., 7 0, 151 S. .,
417.) ceptons to the genera rue aganst proraton e st n cases
where the property s acqured for pubc purposes and the statute
reeves the ta payer from the payment of ta es for the porton of
the year after the date of sae. Smary, ta payers whose ands
are acqured by the Unted States are reeved from payment of ta
for the perod subsequent to the date of sae. (Sectons 277 and 27 .)
Snce the purchaser of rea estate subsequent to anuary 1 takes
t sub|ect to the en whch attaches on that date, and snce rea
property s ordnary conveyed by warranty deed n whch the
grantor covenants to convey free from a encumbrances t becomes
the duty of the grantor to dscharge the en for ta es whch attached
on anuary 1. though t s the genera custom n rgna to pro-
vde for the apportonment of ta es for the year n whch the sae
takes pace, t s a matter of agreement between grantor and grantee
and does not affect the date as of whch abty for property ta es
becomes f ed. In other words, f the grantee, by agreement wth
the grantor, chooses to pay part of the ta abty of the grantor,
he merey adds the amount to the cost of hs property.
In the nstant case, therefore, the ta es pad by the grantee, whch
had prevousy accrued aganst the grantor, are not deductbe, and
such payment must be treated, for edera ncome ta purposes, as a
capta e pendture consttutng part of the purchase prce of the
property.
S CTION 23(e). D DUCTIONS ROM GROSS INCOM :
LOSS S Y INDI IDU LS.
rtce 23 (e) -3: Loss of usefu vaue. 1939-22-9 50
G. C. M. 21171
R NU CT CI I03ML
The M Raroad Co. Is entted to deductons, n accordance wth
the provsons of artce 23(e)-3, Reguatons 94, on account of the
dscardng of roadway property n connecton wth two constructon
pro|ects regardess of the fact that the pro|ects are pad for hy the
State out of funds aotted n whoe or n part by the edera
Government.
n opnon s requested reatve to the aowance of deductons from
the gross ncome of the M Raroad Co. for the year 1936 on account
of certan roadway property dscarded or retred durng that year n
connecton wth constructon pro|ects, the cost of whch pro|ects was
borne by the States out of funds aotted n whoe or n part by the
edera Government from unempoyment reef funds.
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170
The constructon nvoved two pro|ects. The frst conssted of a
subway under two brdges n order to emnate a dangerous grade
crossng. The second conssted of the nstaaton of fashng ght
sgnas at s grade crossngs to repace ordnary wooden and meta
sgns whch were dscarded. The cost of competng the two pro|ects
was borne entrey by the States from funds aotted n whoe or n
part by the edera Government, the cost of the frst pro|ect beng 35a
doars and of the second, 5a doars. The deducton camed by the
ta payer, representng the retrement vaue of the roadway property
removed to make way for the new constructon and nstaaton, s
shown as 2 doars as to the frst pro|ect and doars as to the
second, or a tota of ta doars. The dscarded or retred roadway
property and factes conssted n genera of oag, pank, fence
guards, crossngs, sgns, etc. The M Raroad Co. handes ts roadway
accounts by the retrement method of accountng rather than by
deprecaton.
The queston has been rased whether the retrement of the od
roadway property represented an nvountary converson of property
wthn the meanng of secton 112(f) of the Revenue ct of 1936,
recompense for whch was receved n e cess of the vaue of the od
property through the award coverng the new nstaaton. If so, no
deducton woud be aowabe n vew of the provsons of secton
112(f). If the transacton dd not represent an nvountary conver-
son under secton 112(f), the queston s presented whether any de-
ducton s aowabe for edera ncome ta purposes snce any oss
whch the ta payer may have sustaned by reason of dscardng or
retrng the property n queston appears to have been compensated
for wthn the meanng of secton 23(f) of the ct (provdng for
the deducton of osses sustaned by corporatons and not compensated
for by nsurance or otherwse) by the new and better factes erected
n ts pace at the e pense of the edera and State Governments.
Secton 112(f) of the Revenue ct of 1936 provdes n part as
foows:
(f) Invountary conversons. If property (as a resut of Its destructon In
whoe or In part or an e ercse of the power of requston or con-
demnaton, or the threat or mmnence thereof) s compusory or nvountary
converted Into property smar or reated n servce or use to the property so
converted, or nto money whch s forthwth n good fath, under reguatons
prescrbed by the Commssoner wth the approva 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.
Under the facts of ths case, ths offce s of the opnon that the
dscardng or retrement of the od roadway property dd not con-
sttute an nvountary converson wthn the meanng of secton 112(f)
of the Revenue ct of 1936 and artce 112(f) of Reguatons 94.
In connecton wth the second queston rased n the case, t appears
that no part of the award for the new factes was made by way of
compensaton to the ta payer for the vaue of the od factes ds-
carded or retred to make way for the new constructon. It s stated
that the entre amount of the award was made after the roadway
had been ceared of the od property. The mere fact that the cost of
the new factes was borne by the edera and State Governments
rather than by the ta payer does not of tsef change the character
of the oss to the ta payer /. To offset any porton of the vaue of the
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171
23(e). rt. 23(e)-.
new property aganst the od property dscarded or retred woud
requre that such porton be sub|ect to a deducton whenever the new
property s dscarded or retred. In other words, such porton woud
then consttute a capta asset on whch osses and/or deprecaton
mght be taken. Moreover, t woud seem that f the award s treated
as havng been receved n payment for the retrement of the od
property, the e cess of the award over such retrement vaue woud
consttute gan or ncome to the ta payer, a concuson contrary to
that reached by the Supreme Court of the Unted States n dwards
v. Cuba Raroad Go. (26 U. S-, 62 T. D. 372 , C. . I -2, 122
(1925)). The transacton s aso ceary not an e change of propertes
of ke knd wthn the meanng of secton 112(b) of the ct.
In vew of the foregong, ths offce s of the opnon that, for ed-
era ncome ta purposes, a oss was sustaned by the ta payer through
dscardng or retrng the property n queston, whch oss s aowabe
n accordance wth the provsons of artce 23(e)-3 of Reguatons 94,
reatng to u oss of usefu vaue of assets and the permanent ds-
cardng thereof.
. P. Wenche,
rtce 23(e)-4: Shrnkage n vaue of stocks. 1939 9-9732
L T. 3255
R NU CT O 1036.
I. T. 3215 (C. . 193S-2, 152), hodng that a stockhoder of the
M Corporaton whose ony asset, rea estate ocated n Wsconsn,
was sod at forecosure was not entted to deduct n oss In hs return
for 1930 on account of the worthessness of such stock based on the
forecosure udgment because the rght of redempton bad not e -
pred at the cose of the year 1936, reates ony to a determnaton of
worthessness based soey on the forecosure and does not precude
a deducton on account of worthessness based on other facts.
dvce s requested reatve to I. T. 3215 (C. . 193 -2, 152), whch
nvoves the deductbty of a oss by a stockhoder of the M Corpora-
ton on account of worthessness of the stock of the corporaton where
ts ony asset, rea estate n Wsconsn, was sod under forecosure
proceedngs.
The ast paragraph of I. T. 3215 reads as foows:
t s hed that the stock of the M Corporaton dd not become worthess
through the forecosure |udgment obtaned on March , 1930. Under the State
aw, the property was sub|ect to redempton unt pubc sae thereof at east one
year after the date of the |udgment, uness an earer sae was made pursuant to
stpuaton of the partes. Unt fna sae occurs, wberennder the pro erty Is no
onger sub|ect to redempton by the corporaton. It can not be sad that the corpo-
raton has ost ts ony asset (G. C. M. 19367 (C. . 1937-2, 115)), and the
(acts do not ndcate that the stork c he teorthess for other reasons pror
thereto. (Cf. I. T. 1697, C. . II-, 95 (1923), and ram R. I oyd v. Commt-
oncr, 34 . T. ., 301.) Itacs supped.
It s contended that I. T. 3215 s authorty for the poston that nas-
much as the M Corporaton dd not ose ts ony asset through the fore-
cosure unt the perod of redempton e pred, the stock of the corpora-
ton coud not have become worthess n the hands of a stockhoder unt
e praton of the perod of redempton and that, therefore, no oss s
deductbe by a stockhoder pror to the e praton of such perod.
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S 24, rt. 24-7.
172
In I. T. 1697, cted n the above-quoted paragraph, the foowng
anguage occurs:
The fact that the M Company had an equty of redempton unt Octo-
ber, 1919, was a condton subsequent whch woud not of Itsef prevent the stock
from beng determned worthess at the tme of the forecosure sae f the other
e stng facts at that tme showed the stock to be n fact worthess.
It s apparent that I. T. 3215 reates ony to a determnaton of
worthessness based soey on the forecosure |udgment on the ony asset
(rea estate) of the corporaton there nvoved where the perod of
redempton aowed under State aw had not e pred that the rung n
that case s mted n ts appcaton to the stuaton nvoved theren
where the facts dd not ndcate worthessness for other reasons and
that each case of ths nature must be decded on the partcuar facts
nvoved.
S CTION 23(k). D DUCTIONS ROM GROSS
INCOM : D D TS.
rtce 23(k)-: ad debts. 1939-9-9733
I. T. 3256
R NU CT O 193 .
I. T. 3172 (C. . 193 -1, 150), concernng ta abty of amounts
recovered on debts deducted by banks n a pror year pursuant to
charge-offs at the specfc drecton of edera or State supervsory
offcers, s modfed, n vew of G. C. M. 20 54. (See page 102.)
rtce 23(k)-: ad debts.
R NU CT O 1936.
Recoveres of bad debts charged off n pror years. (See G. C. M.
20 54, page 102.)
S CTION 24. IT MS NOT D DUCTI L .
rtce 24-7: Dsaowance of deductons for 1939-2-9064
unpad e penses and nterest. I. T. 3242
R NU CTS O 193G ND 1937.
Secton 21(c) of the Revenue ct of 1930, as added by secton
301 of the Revenue ct of 1937, docs not prohbt the deducton
by as ordnary busness e penses of the amounts of accrued
saares payabe for 1937 to hs sons for servces rendered by them
n that year, where such amounts were credted n 1937 to the sons
accounts wthout mtaton or restrcton and were returned by
them as Income constructvey receved for that year.
dvce s requested reatve to the appcaton of secton 24(c) of
the Revenue ct of 1936, as added by secton 301 of the Revenue
ct of 1937, to the case of , who keeps hs books on the accrua bass
and camed deductons for the year 1937 on account of saares pay-
abe to hs two sons n e cess of amounts actuay pad to them.
Durng the year 1937, was the propretor of an ndvdua bus-
ness empoyng hs two sons, ana C, who performed servces for
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173
24. rt. 24-7.
the compensaton accrued by the ta payer. Durng that year,
accrued on hs books as saary e pense 3,000 payabe to and
3,000 payabe to C. The amounts actuay pad durng the year
were 1,900 to and 1, 00 to C. ach reported on hs ndvdua
return for 1937 the entre amount of 3,000 as compensaton for that
year. The queston s presented whether, snce each son reported
the entre amount of 3,000 and pad the ta thereon, shoud be
aowed a deducton of 6,000 n hs return for 1937 as a busness
e pense even though the entre amount was not pad durng that
ta abe year or wthn two and one-haf months thereafter. The
queston arses by reason of the provsons of secton 24(c) of the
Revenue ct of 1936, as added by secton 301 of the Revenue ct
of 1937, readng as foows:
(e) Unpad e penses and nterest.- In computng net Income no deducton
sha be aowed n respect of e penses ncurred under secton 23(a) or
nterest accrued under secton 23(b) -
(1) If not pad wthn the ta abe year or wthn two and one-haf months
after the cose thereof and
(2) If, by reason of the method of accountng of the person to whom the
payment s to be made, the amount thereof s not, uness pad, ncudbe n
the gross ncome of such person for the ta abe year n whch or wth whch
the ta abe year of the ta payer ends and
3) If, at the cose of the ta abe year of the ta payer or at any tme
wthn two and one-haf months thereafter, both the ta payer and the person
to whom the payment s to be made are persons between whom osses woud
be dsaowed under secton 24(b).
The report of the Ways and Means Commttee of the ouse of
Representatves (report No. 1546, dated ugust 13, 1937) n e -
panaton of the purpose of secton 301 of the Revenue ct of 1937
states n part as foows (page 29):
Your commttee recommends that secton 24 of the Revenue ct of 19 6
be amended by addng a new subsecton under whch t s provded that
where the credtor, by reason of Ms method of accountng, t not requred
to ncude n hs gross ncome the amount of the e penses or the nterest unt
t pad, no deducton sha be aowed to the debtor under secton 23(a) (for
e penses) or secton 23(b) (for nterest) for sums not pad by the debtor
durng hs ta abe year or wthn two and one-haf months after the cose of
such ta abe year. Itacs supped.
rtce 24-7, Treasury Decson 4791 (C. . 193 -1, 3), amendng
Reguatons 94, provdes as foows:
bt. 24-7. Dsaowance of deductons for unpad e penses and nterest.
The appcaton of secton 24(c), as added by the Revenue ct of 1937, may
be ustrated by the foowng e ampe:
ampe: s the hoder and owner of an nterest-bearng note e ecuted by
the M Corporaton a of the stock of whch s owned by hm. and the M
Corporaton make ther ncome returns on the bass of a caendar year but
the M Corporaton makes ts returns on the accrua bass and makes hs
returns on the cash recepts and dsbursements bass. The M Corporaton does
not pay any nterest on such note durng the caendar year 1937 or wthn
two and one-haf months after the cose thereof, but cams a deducton for the
year 1937 wth respect to the nterest accrung on the note n that year. ,
eng on the cash recepts and dsbursements bass, does not ncude such
nterest n hs return for the year f)37. y the appcaton of secton 24(c),
as added by the Revenue ct of 1937, no deducton for such nterest s aow-
abe n computng the net ncome of the M Corporaton for the year 1937.
The provsons of such secton 24(c) do not otherwse affect the genera rues
governng the aowance of deductons under the accrua bass. ence In the
event the M Corporaton shoud pay such nterest after March 15, 193 , no
deducton therefor woud be aowabe n computng ts net Income for the
year n whch the payment was made. Itacs supped.
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I 25, rt. 25-4.
174
It w be noted that the report of the Ways and Means Commttee
and the e ampe gven under artce. 24-7 (T. D. 4791, supra) ndcate
that the queston of the deductbty of e penses and nterest under
secton 24(c) of the Revenue ct of 1936, as added by secton 301 of
the Revenue ct of 1937, depends n part on whether the credtor ta -
payer s requred to ncude n gross ncome n hs return for the same
ta abe year the sums for whch deducton s taken by the debtor
ta payer.
rtce 42-2 of Reguatons 94, nterpretng the provsons of secton
42 of the Revenue ct of 1936 wth respect to the queston of construc-
tve recept of ncome, provdes that:
Income whch s credted to the account of or set apart for a ta payer and
whch may be drawn upon by hm at any tme s sub|ect to ta for the year
durng whch so credted or set apart, athough not then actuay reduced to
possesson. To consttute recept In such a case the Income must be credted
t r set apart to the ta payer wthout any substanta mtaton or restrcton as
to the tme or manner of payment or condton upon whch payment s to be
made, and must be made avaabe to hm so that t may be drawn at any tme,
and ts recept brought wthn hs owu contro and dsposton. book entry, f
made, shoud ndcate an absoute transfer from one account to another.
In vew of the ntent and purpose of Congress n enactng the
provsons of secton 24(c) of the Revenue ct of 1936, as added by
secton 301 of the Revenue ct of 1937, t s the opnon of ths offce
that where t s concusvey shown that amounts deducted for accrued
e penses (and nterest) by a debtor ta payer have been credted to
the account of the person to whom such amounts are due under cr-
cumstances whch woud requre the reportng of the sums credted
as ncome constructvey receved under the provsons of artce 42-2
of Reguatons 94 the deducton for such amounts s aowabe snce
factor (2) of secton 24(c), supra, s absent n such a case and there
s no bass for the dsaowance of the deducton.
In the nstant case the estabshed method of reportng ncome by
and C s the cash bass and the accrued saary was credted by ,
wthout restrcton or mtaton, to ther accounts n the year 1937,
so that t s propery ncudbe m ther returns for that year on the
bass of constructve recept. In ths case, factor (2) of secton 24(c),
eupra, s absent, as a consequence of whch a deducton by the payor
n 1937 for the accrued saares shoud be aowed.
S CTION 25. CR DITS O INDI IDU L
G INST N T INCOM .
rtce 25-4: Persona e empton of head of 1939-2-9665
famy. G. C. M. 20921
R NU CT OP 1936.
, who contrbuted the greater part of the amount e pended n
193t for the mantenance of the home and the support of the fam-
y consstng of hs father, mother, two mnor brothers, and hm-
sef, s not entted to a persona e empton of 2,500 as head of
a famy nor to a credt for dependents, snce he dd not have the
rght to e ercse famy contro, hs father s ncome, though ess
than s Income, was avaabe for famy support, and the mem-
bers of the famy can not be sad to have been dependent on hm
chefy for support. . ......
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175
L 25, rt. 25-4.
n opnon s requested whether s entted to credts under
secton 25 of the Revenue ct of 1936 as head of a famy and for
dependents, the crcumstances beng as foows:
Durng the year 1936, resded n the same househod wth hs
mother, father, and two brothers, 17 and 15 years of age, respectvey.
s earnngs for the year were 2, 00 and the earnngs of hs father,
the ony other member of the famy who had any ncome durng the
year, were 1,900. The tota amount e pended by and hs father
durng the year 1936 for mantenance of the home and support of the
entre famy was 3,600 of whch contrbuted n e cess of 2,000.
The ncome of and hs father was deposted n a snge checkng
account and wthdrawas from ths account were under s super-
vson and coud be made ony over hs sgnature. The ease for the
house occuped by the famy was n the name of . It s contended
that under these crcumstances shoud be aowed a persona e -
empton as head of a famy and credt for dependents.
Secton 25(b), Revenue ct of 1936, provdes n part
Credts for both norma ta and surta . There sha he aowed for the pur-
poses of the norma ta and the surta the foowng credts aganst net ncome:
(1) Persona e empton. In the case of a snge person, a persona e emp-
ton of 1,000 or n the ease of the head of a famy or a marred person vng
wth husband or wfe, a persona e empton of 2,f 00.
(2) Credt for dependents. 400 for each person (other thnn husband or
wfe) dependent upon and recevng hs chef support from the ta payer f such
dependent person s under 1 years of age or s Incapabe of sef-support
because mentay or physcay defectve.
rtce 25-4 of Reguatons 94, based upon secton 25 of the Reve-
nue ct of 1936, provdes n part as foows:
head of a famy s 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.
Under the facts presented n the nstant case, t does not appear
that the ta payer had the rght to e ercse famy contro wthn
the meanng of the above-quoted provsons of the reguatons. The
facts regardng the amount whch the ta payer contrbuted to the
famy s mantenance, the easng of the house n hs name, and hs
contro of the |ont checkng account, are not suffcent to rebut the
presumpton that the rght to e ercse famy contro contnued to
reman n the father, whose ncome was avaabe and used for fam-
y support. It was, of course, necessary that the ta payer e pend a
certan amount of hs ncome for vng quarters, food, etc.. for hm-
sef wherever he resded. mounts pad by hm for such benefts
ore not contrbutons to the support of dependent members of hs
famy. (I. T. 199 , C. . 111-1, 20 (1924).) In vew of ths fact
and consderng the amount of the father s ncome avaabe for fam-
y mantenance n the ta abe year, t does not appear that any of
the other members of the famy were dependent chefy upon the ta -
payer for support n that year. Contrbutons to the support of per-
sons who are not dependent chefy upon hm do not entte the ta -
payer to e empton as head of a famy. annah D. Stratton v.
Commssoner, 5 . T. ., 1025 Chester . Morrow v. Commssoner,
. T. ., 44 Louse ngsey v. Commssoner, 11 . T. ., 296
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25, rt. 25-5.
176
Louse C. a v. Commssoner, 1G . T. ., 7 5 oseph . Rudger
v. Commssoner 22 . T. ., 204.)
It s the opnon of ths offce, therefore, that the ta payer s not
entted to the credt of 2,500 as head of a famy nor to a credt for
dependents for the year 1930.
. P. Wenche,
rtce 25-4: Persona e empton of head of 1939-14-9770
famy. I. T. 3267
R NU CT O 1936.
Two brothers, and , own the house In whch they nnd ther
dependent mother ve. , who Is absent from home the greater
part of the tme, makes the ma|or contrbuton toward the man-
tenance of the home and the support of the mother. ed, Is
entted to persona e empton as head of a famy and to credt for
one dependent under sectons 25(b) and 23(b)2 of the Revenue
ct of 1936.
dvce s requested whether s entted to the persona e empton
aowed the head of a famy under secton 25(b) of the Revenue ct
of 1936, and artce 25-4 of Reguatons 94, and whether he s aso
entted to a credt for one dependent under secton 25-b)2 of that
ct and artce 25-6 of Reguatons 94.
and hs brother, , both snge men, own the house n whch
they and ther mother ve. The ta payer, , s away from the homo
a great dea of the tme as a traveng saesman. The brother, ,
resdes at home a of the tme. In the year 1937, the ta payer. ,
contrbuted over 1,200 toward the mantenance of the home whe
hs brother durng the same year contrbuted appro matey 600.
s mother, the dependent for whom the e empton and credt are-
camed, s physcay ncapactated and has no ncome.
Inasmuch as durng the year 1937 furnshed more than one-haf
of the amount requred for the mantenance of the home and the sup-
port of hs dependent mother who resded n the same househod
wth hm, he s entted to cassfcaton as the head of a famy for
the ta abe year 1937 regardess of hs frequent absences from home.
urthermore, nasmuch as he contrbuted the chef support of hs
mother n 1937, he s aso entted to a credt of 400 for her as a
dependent.
rtce 25-5: Persona e empton of marred person.
R NU CT O 103U.
Dvson of the marred person s e empton between husband and
wfe where ther ta abe years are not concurrent. (See I. T. 3277,
page 109.)
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177
25, rt. 25-6.
btc e 25-6: Credt for dependents. 1939-17-9 03
L T.3274
NU CT O 1936.
, who s requred by court order to pay 2 doars monthy for
amony and support money for hs dvorced wfe and hs two
chdren under 1 years of age vng wth ther mother, Is entted
to a credt for two dependents wth respect to tte mnor chdren,
the amony payments beng the ony means of support of the
dvorced wfe md the chdren, even though no specfc amount s
desgnated n the court order for support of the chdren.
I. T. 2090 (C. . II1-2, 163 (1924)) dstngushed.
dvce s requested whether a credt of 00 camed by n hs
ncome ta return for 1937 on account of the support furnshed hs
two mnor chdren s aowabe under the crcumstances heren set
forth.
In the year 1936 the ta payer and hs wfe were dvorced. The
foowng s a part of the order ssued by the court n connecton
wth the dvorce proceedngs:
It s further ordered that the defendnnt. , be and he hereby s requred
to pay to the pantff for amony and support money for the pantff and
the mnor chdren of the partes, the sum of 2 doars per month: the frst
payment to commence as of the 1st day of September, 193 , and to contnue n
a ke amount m :thy unt the further order of the court.
Durng th , ta abe year 1937, the mnor chdren resded wth
ther mother. Payments aggregatng 24a doars were made durng
that year by the ta payer n accordance wth the court order. The
ta payer s former wfe had no ncome other than the payments made
by the ta payer. It appears that the provsons of the court order
were n effect for the entre ta abe year 1937. It s noted that no
specfc menton was made n the court order as to any amount to be
set asde for the support of the chdren. The evdence ndcates,
however, that n the |ursdcton n queston sometmes no menton
s made n the court order as to the amount whch represents amony
to be pad to the wfe and the amount whch represents money for
the support of the chdren.
The contenton s made that snce , the ta payer, contrbuted
the chef support of hs mnor chdren he shoud be aowed the
credt provded for dependents rrespectve of the provsons of I. T.
2096 (C. . III-2,163 (1924)), whch reads as foows:
father who furnshes the chef support of hs chd s entted to the credt
for a dependent whether the custody of the chd has been awarded to the
mother under the court decree or whether the support s furnshed as the resut
of an agreement between husband and wfe not entered nto through court
proceedngs. If the court orders the father to pay the wfe amony and no
specfc menton Is made n the decree as to any amount to be set asde for the
support of the chd, the father s not entted to the credt for a dependent,
eTen though the amony s the ony means whch the wfe has for the support
of hersef and chd.
The nstant case does not fa squarey wthn the provsons of
I. T. 2096, supra, whch contempated a case n whch the court dd
not requre that any porton of the payments be used for the support
of the chd. ere the court ordered the payment by the ta payer
of a desgnated amount each month for amony and support money
for the pantff (wfe) and the mnor chdren of the partes
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27(a), rt. 27(a)- .
17
. In vew of the provsons of the court order and the
fact that the wfe had no other source of ncome, t s evdent that
durng the ta abe year 1937 the husband furnshed the chef sup-
port of hs two chdren, both of whom were under 1 years of age.
It s hed, therefore, that he s entted to the credt for two de-
pendents under secton 25(b)2 of the Revenue ct of 1936, that s,
a credt of 00.
I. T. 2096, supra, has not been amended or revoked and s to be
foowed n any case where the facts are substantay the same as
those set forth n that rung.
S CTION 26. CR DITS O CORPOR TIONS.
rtce 26-2: Credt n connecton wth contracts
restrctng payment of dvdends.
R NU CT O 1936.
Devery to snkng fund trustee n 1937 of dvdend notes receved
n 1937 but payabe n 193 . (See I. T. 3270, page 179.)
S CTION 27(a). CORPOR TION CR DIT OR DI ID NDS
P ID: DI ID NDS P ID CR DIT IN G N R L.
rtce 27(a)-: Dvdends pad credt n genera. 1939- -9719
I. T. 3253
R NU CT O 19S0.
In determnng the amount of dvdends pad credt under secton
27 of the Revenue ct of 1936, a capta oss whch s an unaow-
abe deducton and accrued ncome ta reduce the earnngs or
profts avaabe for dvdend dstrbuton wthn the meanng of
secton 115(a) of that ct
dvce s requested n the case of the M Corporaton reatve to the
dvdends pad credt provded n secton 27 of the Revenue ct of
1936 n the computaton of surta on undstrbuted profts mposed
by secton 14 of that ct.
The M Corporaton keeps ts books of account on the accrua bass.
t the cose of busness on December 31 1936, t had no accumuated
earnngs and for the caendar year 1937 ts books showed net earnngs
or profts of 5,000 after takng nto consderaton a oss of 5,000
durng the year from the sae of securtes. s the corporaton, for
edera ncome ta purposes, was mted to a capta net oss of 2,000.
ts net ncome for such purposes amounted to ,000. The amount ot
,000 was dstrbuted to stockhoders durng the year. The queston
nvoved s the amount of the dvdends pad credt aowabe to the
corporaton.
Secton 27(a) of the Revenue ct of 1936 provdes as foows:
(a) Dvdends Pad Credt n Genera. or the purposes of ths tte, the
dvdends pad credt sha be the amount of dvdends pad durng the ta abe
year.
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27(d), rt. 27(d)-.
The term dvdend s defned n secton 115(a) of the Revenue
ct of 1936 as any dstrbuton made by a corporaton to ts share-
hoders (1) out of ts earnngs or profts accumuated after
ebruary 2 ,1913, or (2) out of the earnngs or profts of the ta abe
year .
Secton 27(h) of the Revenue ct of 1936 provdes as foows:
(h) Nohta ah Dwno r|no S. 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.
rtce 27(h)- of Reguatons 94 provdes n part as foows:
nonta abe dstrbuton . No dvdends pad credt sha be aowed wth re-
spect to any part of the dstrbuton by a corporaton to ts sharehoders whch
a-
ta) not out of earnngs or profts of the ta abe year or out of earnngs or
profts of the corporaton accumuated subsequent to ebruary 2 , 1913 .
Whe the corporaton s net ncome, for edera ncome ta pur-
poses, was ,000, n determnng ts actua earnngs or profts for the
year avaabe for dstrbuton as dvdends ths amount must be re-
duced by 3,000. the amount of the oss not aowabe for ncome ta
purposes. urthermore, a proper reserve for the payment of accrued
ncome ta es s deductbe n the computaton of the earnngs or profts,
whch, n ths nstance, amounts to 20. ccordngy, the earnngs
or profts avaabe for dstrbuton as dvdends amounted to 4,1 0
( ,000 ess 3,000 and 20). (Cf. . C. M. 2951, C. . II-1, 160
(192 ).) Snce a dvdends pad credt s not aowabe when the ds-
trbuton s not pad out of earnngs or profts, and snce ony 4,1 0
of the ,000 dstrbuton n 1937 by the M Corporaton was so pad,
the corporaton s entted to a dvdends pad credt of 4,1 0 under
secton 27 (a) of the Revenue ct of 1936.
S CTION 27(d). CORPOR TION CR DIT OR DI ID NDS
P ID: DI ID NDS IN O LIG TIONS O
T CORPOR TION.
Dvdends pad credts are aowabe for 1937, under secton 27(d)
of the Revenue ct of 193 , to the subsdares of the M Company
for the face vaue of dvdend notes ssued by such subsdares
durng that year. Such credts are not aowabe to the subsdares
under secton 27(a)4 of the Revenue ct of 193 wth respect to the
same notes when redeemed In 193 . No dvdends pad credt s
aowabe under secton 27(a)4 of the Revenue ct of 193 to the
M Company, Itsef, for the year 193 when payments In redempton
of the notes were receved by the M Company and pad over to the
snkng fund trustee under a trust ndenture coverng the Issuance of
coatera trust certfcates by the M Company.
rtce 27(d)-: Dvdends n obgatons of
the corporaton.
( so Secton 26 rtce 26-2.)
1939-15-97 5
L T.3270
R NU CT OP 1933.
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27(d), rt. 27(d)- .
1 0
dvce s requested as to the dvdends pad credts aowabe to
the M Company and to ts subsdares wth respect to the payment
of dvdends by the subsdares- n the form of notes, whch notes
were devered by the M Company to a snkng fund .trustee under
the crcumstances heren set forth.
The subsdares of the M Company ssued n the year 1937 notes
n payment of dvdends for that year and dvdends pad credts n
the amount of the face vaue of the notes were taken by the sub-
sdares n ther ncome ta returns for the year 1937. Under a trust
ndenture coverng the ssuance of coatera trust certfcates by the
M Company, the capta stock of the subsdares s pedged by the
M Company wth a snkng fund trustee and the dvdend notes n
ueston were requred to be, and were, turned over to the snkng
und trustee, the terms of the ndenture provdng that a ncome
from the pedged stock sha be pad nto the snkng fund. Durng
the year 193 , payments were made to the M Company by the sub-
sdares n qudaton of the dvdend notes (whch were hed by
the trustee) and the M Company turned over these payments to the
snkng fund trustee n accordance wth the requrements of the trust
nstrument.
It s the contenton of the ta payer that the subsdares are entted
to fu dvdends pad credts under secton 27(a)4 of the Revenue
ct of 193 for a payments made by them n qudaton of these
dvdend notes snce these payments were made n qudaton of an
ndebtedness, evdenced by notes, n e stence on December 31, 1937,
regardess of the dvdends pad credts taken n ther returns for 1937.
It s aso contended that snce the payments n 193 by the M Com-
pany to the snkng fund trustee of these amounts of money const-
tuted an rrevocabe settng asde of funds ,to retre an ndebtedness
of a knd descrbed n secton 27(a)4 of the Revenue ct of 193 ,
the M Company s entted to a dvdends pad credt n 193 for these
payments or, n the aternatve, the dvdends pad credt shoud bo
aowed when funds so deposted wth the snkng fund trustee are
used to purchase und retre outstandng coatera trust certfcates of
the M Company.
Under the provsons of secton 27(d) of the Revenue ct of 1936,
and aso under the provsons of secton 27(e) of the Revenue ct or
193 , the subsdares, havng used n the year 1937 the fu face vaue
of these obgatons (notes), rather than an amount ess than the face
vaue thereof, as dvdends pad credts are precuded from further
dvdends pad credts ether n the year 1937 or 193 as a resut of
the ssuance n 1937 and payment n 193 of these notes. Secton
27(a)4 of the Revenue ct of 193 , reed upon by the ta payer as
gvng ts subsdares the rght to a further credt n the year 193
for a payments made by them n that year n qudaton of the
dvdend notes ssued n 1937, deas wth notes n genera, whe sec-
ton 27(e) of the Rsvenue ct of 193S deas specfcay wth the
credt to be aowed on payment of obgatons ssued n payment
of dvdends and s, therefore, controng.
It appears that the dvdend notes of the subsdares payabe to
the M Company were mmedatey upon ther recept by the M Com-
pany turned over to the trustee under the terms of the coatera trust
ndenture to be apped to an obgaton or ndebtedness of the M
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27(g), rt. 27(gM.
Company. It s stated that the M Company dd not actuay receve
credt upon ts obgaton upon turnng over the notes to the trustee,
and t was ony when the notes were pad and the trustee used the
proceeds therefrom to pay and retre the coatera trust notes that
the M Company receved actua credt upon the obgaton. Regard-
ess of when credt was aowed by the trustee upon the obgaton of
the M Company, t s hed that the M Company s not entted to a
dvdends pad credt n the year n whch the redempton of the
dvdend notes occurred. The amount for whch the credt for 193
s sought was set asde n 1937 by the M Company to pay or to retre
ts ndebtedness by ts acton n ndorsng and deverng to the
trustee the dvdend notes of the subsdares n accordance wth the
terms of the coatera trust ndenture. The notes n queston had a
far market vaue at the tme of ssuance and devery to the M Com-
pany equa to ther face vaue, and no queston s therefore, nvoved
of te rght to an addtona dvdends pad credt for an amount by
whch the obgatons are redeemed over ther far market vaue at the
tme of the dvdend pa Tnent.
S CTION 27(g). CORPOR TION CR DIT OR DI ID NDS
P ID: PR R NTI L DI ID NDS.
rtce 27(g)-1: Preferenta dstrbutons. 1939-3-9676
I. T. 3244
R NU - CT O 1036.
The M Company s not entted to a dvdends-pad credt wth
respect to qudatng dstrbutons made n acqurng a port of
ts outstandng preference shares at dfferent prces by drect pur-
chases from stockhoders and by purchases on the Stock
change.
dvce s requested as to the amount of dvdends-pad credt, f
any, aowabe to the M Company under the provsons of sectons 14
and 27 of the Revenue ct of 1936 by reason of the dstrbutons n
parta qudaton made by the company n redeemng and canceng
a part of ts preference shares durng the caendar years 1936 and 1937.
In November, 1936, the board of drectors of the M Company
adopted a resouton offerng to purchase for retrement Or sha-es of
the company s preference stock at the owest prces obtanabe but not
n e cess of per share. The proposa was to be made by etter to
each hoder of preference shares and by advertsng. Crcuars were
mmedatey sent to preference stockhoders requestng tenders for
10a preference shares to be acqured for retrement. s the resut of
ths request for tenders, 6ar shares were purchased by the company,
some beng devered n 1936 and some n 1937. In December, 1936,
the M Company adopted a resouton authorzng the treasurer
to compete the acquston of the desred W shares by purchase
from the sharehoders or on the R Stock change so as to obtan the
shares at the owest possbe cost to the company. Durng December,
1936. 4 shares were purchased on the e change, thus makng a tota
of 10a shares purchased for retrement. Under the artces of ncor-
poraton, the preference shares thus acqured may not be ressued.
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43, rt. 43-2.
1 2
Secton 27(g) of the Revenue ct of 1936 provdes that no dv-
dends-pad credt sha be aowed wth respect to any dstrbuton
uness the dstrbuton s pro rata, equa n amount, and wth no pref-
erence to any share of stock as compared wth other shares of the
same cass. efore a corporaton may be entted to any dvdends-
pad credt wth respect to a dstrbuton, regardess of the medum
n whch the dstrbuton s made, every sharehoder of the cass of
stock wth respect to whch the dstrbuton s made must be treated
the same as every other sharehoder of that cass. The mtaton
mposed s unquafed and the e stence of a preference s suffcent to
prohbt aowance of a dvdends-pad credt, regardess of the fact
(1) that such preference s authorzed by a the sharehoders of the
corporaton, or (2) that the part of the dstrbuton receved by the
sharehoder benefted by the preference s ta abe to hm as a dv-
dend. The dsaowance of the dvdends-pad credt, where any
preference or nequaty n fact e sts, e tends to the entre amount
of the dstrbuton and not merey to a part of such dstrbuton. (See
artce 27(g)-, Reguatons 94.)
In the nstant case, tenders wth respect to 6a preference shares
of stock for retrement were accepted and pad for by the M Company,
but t s not shown that these shares were tendered on a pro rata
bass by a the sharehoders. urthermore, 4 shares whch were
necessary to make up the tota of 10 shares to be retred were
purchased on the R Stock change.
In vew of the fact that tne purchase of preference shares for can-
ceaton and retrement was not on a pro rata bass and that every
sharehoder of the cass dd not receve (n proporton to the number
of shares hed by hm) hs pro rata part of the dstrbuton, t s hed
that the M Company s not entted to a dvdends-pad credt for any
orton of the dstrbuton n parta qudaton by reason of the
mtaton mposed by secton 27(g) of the ct.
P RT I . CCOUNTING P RIODS ND M T ODS O CCOUNTING.
S CTION 43. P RIOD OR W IC D DUCTIONS ND
CR DITS T N.
rtce 43-2: When charges deductbe. 1939-7-9711
L T. 3252
R NU CT O 19r,6.
In the year 1936, , who keeps hs books of account on the
cash recepts and dsbursements bass, purchased from the M
Company for 5 doars stock of the O Company. Under hs con-
tract wth the M Company, agreed to pay for the stock on or
before uy , 1939, when the stock s to be devered to hm.
The stock became worthess n 1937, havng made hs ony
payment on the stock n that year. ed, the oss sustaned by
s deductbe n the year or years n whch he makes payments
on account of hs contractua obgaton. The M Company s not
entted to deduct n oss for the year 1937 on account of the
worthessness of such stock snce t hods s contractua obgaton
to pay therefor.
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44, rt 44-5.
dvce s requested wth respect to the deductbty, for edera
ncome ta purposes, of a oss ncurred n connecton wth certan
stock whch purchased n 1936 under a contract wth the M
Company.
y wrtten agreement dated uy , 1936, , whose books of
account are kept on the cash recepts and dsbursements bass, pur-
chased from the M Company, whose books of account are kept on
the accrua bass, certan stock of the O Company for an agreed
prce of h doars (beng the prce at whch the former company
subscrbed for such stock). Under the terms of the agreement,
the stock s to be pad for by on or before uy , 1939, and s
to be transferred and devered to hm upon payment of the agreed
purchase prce. In the meanwhe the dvdends on such stock are
to be pad to . In the year 1937 pad to the M Company
doars on the agreed purchase prce and ths s the ony payment
made by . owever, he has defntey obgated hmsef to pay
the baance of the purchase prce of the stock even though the stock
became worthess n November, 1937.
It s hed that nasmuch as mantans books of account on the
cash recepts and dsbursements bass he w be deemed to have
sustaned a oss for edera ncome ta purposes n the ta abe
year or years n whch he actuay makes payments on the amount
of the agreed purchase prce of such stock n an amount not n
e cess of such payments.
It s further hed that nasmuch as the M Company hods s con-
tractua obgaton to pay to t the sum of 5a doars for the stock
(beng the cost of such stock to the M Company), these partcuar
shares of stock are not worthess n ts hands and, therefore, t s
not entted, for edera ncome ta purposes, to deduct from ts
frross ncome for the year 1937 any part of ts nvestment n such
shares of stock.
btc|e 44-5: Gan or oss upon dsposton of nsta-
ment obgatons.
R NU CT O 193 .
mendment of Reguatons 94. artce 44-5. (See T. D. 4 99,
page 7 .)
rtce 44-5: Gan or oss upon dsposton 1939-26-9 91
of nstament obgatons. I. T. 3293
R NU CT O 1930.
Where a ta payer In 1 37 transmtted by gft to hs wfe a
one-haf nterest n hs busness, ncudng unreazed proft on
nstament accounts recevabe, and the other one-haf to a partner-
shp then formed by hm and hs wfe, gan or oss resuted to hm
upon both dspostons.
though the partnershp has eected to report ts ncome from
saes on the Instament bass, t s not requred to Incude n Its
ncome for 1937 or subsequent years coUectons receved by t on
account of aes or other dspostons made by the ta payer as an
ndvdua.
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44, rt. 44-5.
1 4
dvce s requested reatve to certan transactons n connecton
wth the ncome ta return of for the year 1937 nvovng secton
44 (c) and (d) of the Revenue ct of 1936.
operated a reta store and reported ncome from hs saes on the
nstament bass unt ebruary 2 , 1937, at whch tme he had n-
stament accounts recevabe contanng unreazed proft of doars.
On March 1, 1937, he gave to hs wfe, , a one-haf nterest n the en-
tre assets of hs busness, ncudng such nstament accounts receva-
be. e and hs wfe then entered nto a partnershp agreement and
contnued to operate the busness. The partnershp adopted a fsca
ta abe year ended September 30, 1937, and n ts return therefor
reported ncome from saes on the nstament bass. fed hs
return for the ta abe year 1937 on the caendar year bass.
The questons presented are (1) whether, under secton 44(d) of
the Revenue ct of 1936, there was a dsposton of the one-haf of
the nstament obgatons transferred to the wfe whch resuted n
gan or oss to the husband, and whether the turnng over of the
remanng one-haf of the husband s nstament obgatons to the
partnershp consttuted a dsposton whch woud gve rse to gan
or oss at the moment of the formng of the partnershp wth the
wfe and (2) whether, under secton 44(c) of that ct, the partner-
shn s requred to report the nstament proft ncuded n ater
coectons wth respect to saes n perods pror to the dsposton,
due to the fact that t s reportng on the nstament bass.
Secton 44(c) of the Revenue ct of 1936 provdes:
Change from accrua to nstament oass. If a ta payer entted to the
benefts of subsecton (a) eects for any ta abe year to report hs net ncome
on the nstament bass, then n computng hs ncome for the year of change
or any subsequent year, amounts actuay receved durng any such year on
account of saes or other dspostons of property made n any pror year
sha not be e cuded.
Secton 44(d) of the ct provdes n part:
Gan or oss upon dsposton of nstament obgatons. If an nstament
obgaton s satsfed at other than ts face vaue or dstrbuted, transmtted,
sod, or otherwse dsposed of, gan or oss sha resut to the e tent of the
dfference between the bass of the obgaton and (1) n the ease of satsfacton
at other than face vaue or a sae or e change the amount reazed, or (2) n
case of a dstrbuton, transmsson, or dsposton otherwse than by sae or
e change the fnr market vaue of the obgaton at the tme of such ds-
trbuton, transmsson, or dsposton. ny gan or oss so resutng sha be
consdered as resutng from the sae or e change of the property n respect
of whch the Instament obgaton was receved. The bass of the obgaton
sha be the e cess of the face vaue of the obgaton over an amount equa
to the ncome whch woud be returnabe were the obgatons satsed n
fu.
In vew of the foregong t s hed:
(1) Under the specfc provsons of secton 44(d), supra, nasmuch
as the ta payer, n March, 1937, transmtted to hs wfe by gft
one-haf of the nstament obgatons and transmtted the other
one-haf thereof to a partnershp then formed by hm and hs wfe,
gan or oss, computed n accordance wth that secton and recognzed
under the ct, resuted to hm upon both such dspostons at that
tme and, hence, s ncudbe n determnng hs net ncome for hs
ta abe (caendar) year 1937.
(2) The partnershp, athough t has eected to report ts busness
saes on the nstament bass, s not requred, under the provsons of
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5 101, rt. 101(6)-1.
secton 44(c), supra, to ncude n computng ts ncome for ts ta -
abe year 1937, or any subsequent ta abe year, coectons receved
by t on account of saes or other dspostons of property whch
were made by the ta payer as an ndvdua. The partnershp dd
not change from the accrua to the nstament bass. (See, n ths
connecton, I. T. 2521, C. . I -1 (1930)t 123.)
Oeneray ta abe ncome from coecton, recognzed gan or oss
upon dsposton, or aowabe bad debt deducton, resutng (entrey
asde from secton 44(c)) to the partnershp n respect of any nsta-
ment account recevabe acqured by t upon ts formaton, s depend-
ent upon the facts reevant to the coecton, dsposton, or worth-
essness thereof, and s measured by the dfference between the
proper gan or oss bass thereof to the partnershp and the amount
whch t utmatey reazes therefor. Interest earned by the part-
nershp thereon s ncudbe (as such) n computng ts net ncome
as ana when receved or accrued, dependng upon the method of
accountng and makng returns reguary empoyed by t.
R NU CT O 19 0.
Reguatons governng the nspecton of ncome, e cess-profts, and
capta stock ta returns by the Speca Commttee on Un- mercan
ctvtes, ouse of Representatves. (See T. D. 4900, page 119.)
btce 55(b)3: Inspecton of copes of returns.
R NU CT O 1936.
Use of orgna returns open to nspecton n accordance wth
Treasury Decson 4 73 (C. . 193 -2, 261) furnshng copes of
returns nspecton of returns of corporatons by State offcers and
sharehoders and nspecton of estate and gft ta returns. (See
T. D. 4 7 , page 115.)
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 101. MPTIONS ROM T
ON CORPOR TIONS.
rtce 101(6) 1: Regous, chartabe, scentfc, terary,
and educatona organzatons and communty chests.
R NU CT O 193 .
Nurses assocaton organzed and operated for the betterment of
the professon. (See G. C. M. 20941, page 1 6.)
172179 39 pt. 1 7
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101, rt. 101-7-1.)
1 6
rtce 101 (7)-1: usness eagues, chambers
of commerce, rea estate boards, and boards
of trade.
( so Secton 101, rtce 101(6)-1.)
R NU CT OP 1036.
The M Nurses ssocaton, whch was Incorporated and Is oper-
ated for the betterment of the professon, s entted to e empton
from edera ncome ta aton as a busness eague under secton
101(7) of the Revenue ct of 1936, but t Is not entted to such
e empton under secton 101(6) of the ct as an organzaton or-
ganzed and operated e cusvey for regous, chartabe, scentfc,
terary, or educatona purposes.
dvce s requested whether the M Nurses ssocaton s entted to
e empton from edera ncome ta aton ether under secton 101 (6)
or secton 101(7) of the Revenue ct of 1936.
The purposes of the assocaton as stated n ts artces of ncorpo-
raton are as foows:
The ob|ects of ths assocaton sha be the advancement of the educatona
and terary standard of nurses and nursng, the furtherance of the effcent
and scentfc care of the sck, to ad In the practce of medcne and surgery, the
mantenance of the honor and character of the nursng professon and the
furtherance of corda reatons between the nurses of the State of and the
nurses of other States and countres.
The membershp of the assocaton conssts of regstered nurses who
are actve members of nurses aumnae assocatons, regstered nurses
resdng or practcng n the State who hod acceptabe certfcates of
tranng, regstered nurses resdng n the State who hod certfcates
of regstraton n any State and who are members of dstrct assoca-
tons n the State of R, and resdent Government nurses on duty
wthn the State.
The actvtes of the assocaton consst generay of servce to
nurses, ncudng programs at State, dstrct, and speca meetngs at
whch consderaton s gven to probems of mportance to the nursng
professon through the deveopment of courses for graduate nurses
under the auspces of the State of R Unversty, and servce to heath
organzatons by adng them n an advsory capacty, fndng proper
nurses, etc. The by-aws of the assocaton provde for certan stand-
ng commtteeS| ncudng a commttee on egsaton. It s provded
that ths commttee sha keep nformed as to a proposed egsatve
acton and actvey work for the same as the board of drectors sha
deem advsabe.
Ths offce s of the opnon that the M ssocaton s an assocaton
of persons n a professon, organzed and operated for the betterment
of the professon through numerous methods, rather than an assoca-
ton organzed and operated e cusvey for regous, chartabe, sc-
entfc, terary, or educatona purposes. The assocaton s substan-
tay smar to other professona organzatons, such as a bar assoca-
ton, a medca assocaton, or an assocaton of accountants, whch have
been hed not entted to e empton under secton 101(6) of the Reve-
nue ct of 1036 or correspondng provsons of pror Revenue cts.
(See fred . Cook v. Commssoner, 30 . T. .. 292 G. C. M. 4 05,
C. . II-2, 5 (192 ) I. T. 2437, C. . II-2, 292 (192 ), revokng
L T. 1 2, C. . II-2, 201 (1923) I. T. 31 2, C. . 193 -1, 16 p-
pea of George O. May, 1 . T. ., 1220.) though the M Nurses
1939-5-9694
G. C. M. 20941
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115, rt. 115-2.
ssocaton and the other professona organzatons above referred to
have some actvtes of an educatona, scentfc, etc., nature, t can not
be sad that they are organzed and operated e cusvey for any of
the purposes contempated by secton 101(6) of the Revenue ct of
1936. The organzaton s, however, entted to e empton from ed-
era ncome ta aton as a busness eague under the provsons of
secton 101(7) of that ct.
. P. Wenche,
rtce 101(9)-1: Soca cubs.
R NU CT OP 1936.
Soca cub dervng ncome from easng part of ts property. (See
G. C. M. 20647, page 125.)
rtce 101(10)-1: Loca benevoent fe nsurance
assocatons, mutua rrgaton and teephone com-
panes, and ke organzatons.
R NU CT OP 1936.
Corporaton organzed for protecton of rver banks from eroson.
(See I. T. 32 6, page 126.)
SUPPL M NT . COMPUT TION OP N T INCOM .
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
rtce 115-2: Sources of dstrbutons n 1939-14-9771
genera. G. CM. 21122
R NU CT O 1036.
Where the tota dstrbutons by the M Company to severa
casses of stockhoders durng the year 1937 were n e cess of
earnngs avaabe for dvdends, as determned n accordance wth
artce 115-2, Reguatons 94, dvdends must be regarded as hav-
ng been dstrbuted n accordance wth the corporate charter gvng
stockhoders wth prorty the rght to dvdends before any earn-
ngs or profts can be dstrbuted to other stockhoders.
dvce s requested as to the proper treatment under artce 115- 2,
Reguatons 94, of dvdend payments made by the M Company n
1937 to two casses of stockhoders, one havng prorty over the other,
where such payments are n e cess of earnngs and profts.
In addton to ts common stock, the M Company had outstandng
for the year 1937 cumuatve preferred stock, commony caed pror
preferred stock, whch was entted under the corporate charter to
dvdends at the rate of 6 per share before the payment of any dv-
dends on any other cass of stock. It aso had outstandng durng
that year cumuatve convertbe stock entted to cumuatve dv-
dends at the rate of 2 per share. Durng the year 1937 the corpora-
ton made perodc dvdend dstrbutons on the pror preferred stock
n the tota amount of 6 per share and on the cumuatve convertbe
stock n the tota amount of 2 per share. The tota amount thus ds-
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I 115, rt. 115-2.1
1
trbuted n the year 1937 as dvdends was 35a doars whereas the cor-
poraton earned ony 24a doars durng that year and had no ac-
cumuated earnngs or profts as of anuary 1, 1937. The earnngs
and profts of the corporaton were suffcent to cover the dvdend
requrements on the pror preferred stock, and f apped frst to the
dvdends on that stock, woud eave earnngs and profts to be apped
to the dvdends pad on the cumuatve convertbe stock equa to 12
per cent of the amount dstrbuted to hoders of such stock. On the
other hand, f the earnngs and profts were prorated as to a the
dvdends pad, then G .57 per cent of the amount receved by the
hoders of each cass of stock woud be regarded as a dstrbuton of
earnngs and profts and the remander woud consttute a dstrbuton
of capta.
rtce 115-2 of Reguatons 94 provdes n part as foows:
If the dstrbutons made durng the ta abe year e ceed the earnngs or
profts of such year, then that proporton of each dstrbuton whch the tota
of the earnngs or profts of the year bears to the tota dstrbutons made
durng the year sha be regarded as out of the earnngs or profts of that year.
It s the opnon of ths offce that effect shoud be gven to the
pror rghts of the hoders of the pror preferred stock and that the
entre amount receved by tem shoud be ta ed as havng been pad
out of the earnngs and profts of the corporaton. Ths concuson s
based prmary upon the fact that there s nothng n secton 115(a)
of the Revenue ct of 1936 whch mpars the contractua rghts of
the stockhoders. The pertnent porton of that secton reads as
foows:
Sec. 115. Dstrbutons by corporatons.
(a) Defnton of dvdend. The term dvdend when used n ths tte
means any dstrbuton made by a corporaton to ts sharehoders,
out of the earnngs or profts of the ta abe year (computed as of
the cose of the ta abe year wthout dmnuton by reason of any dstrbutons
made durng the ta abe year), wthout regard to the amount of the earnngs
and profts at the me the dstrbuton was made.
In e panaton of the hst cause of the above secton, whch frst
appeared n the Revenue ct of 1936, the Senate Commttee on -
nance n ts report on the 1936 revenue b (Report No. 2156, une
1, 1936, page 1 ) stated:
In order to enabe corporatons wthout regard to defcts e stng at the be-
gnnng of the ta abe year to obtan the beneft of the dvdends pad credt for
the purposes of the undstrbuted profts surta , secton 115(a) changes the
defnton of a dvdend so as to ncude dstrbutons out of the earnngs or
profts of the current ta abe year. The amendment smpfes the determna-
ton by provdng that dstrbutons durng the year, not e ceedng n amount
the current earnngs, are dvdends consttutng ta abe ncome to the share-
hoder and a dvdends pad credt to the corporaton. s respects such dv-
dends the compcated determnaton of accumuated earnngs or profts s ren-
dered unnecessary.
Thus, t appears that Congress ntended that a corporaton shoud
compute ts net earnngs and profts as of the end of the year, and
that f dvdend dstrbutons had been made n e cess of that amount,
determnaton of the amount of each dstrbuton whch was pad out
of earnngs and profts woud be determned on the pro rata bass
rather than ookng to the actua earnngs on hand at the tme of
each dstrbuton. owever, t does not foow that where dvdends
are pad to dfferent casses of stockhoders the prortes as between
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116, rt. 116-2.
stockhoders must be dsregarded. If, for e ampe, a corporaton
earns ony an amount suffcent to meet ts preferred stock requre-
ments and pays the requred dvdends on ts preferred stock and
aso makes dstrbutons on ts common stock, the preferred stock-
hoders shoud, nevertheess, report as dvdends the entre amount
dstrbuted to them even though the corporaton aso made dstrbu-
tons to ts common stockhoders whch, when added to the preferred
stock dvdends, were n e cess of the corporate earnngs and profts
for that year. In such a case, f the preferred stockhoders are en-
tted to payment of ther dvdends before any dstrbuton can be
made to common stockhoders, t s apparent that the earnngs and
profts are used frst for the preferred stockhoders, and f the earn-
ngs and profts are thereby e hausted, the payments to the common
stockhoders merey reduce ther equty and consttute n effect a
return of capta.
The rght of a preferred stockhoder to preference out of the
earnngs of the corporaton for each year was recognzed n arcay
et a. v. Wabash y. Co. et a. (30 . (2d), 260) wheren the court
granted a decree forbddng payment of the dvdends on |unor
stock out of earnngs accumuated durng the year for whch the pre-
ferred dvdends had not been pad. Thus, the preferred stock-
hoders have an equtabe cam on the earnngs of the corporaton
for each year whch must be met before any part of those earnngs
can be pad to other casses of stockhoders.
In the present case, therefore, the earnngs and profts must be
regarded as havng been frst used for the payment of the dvdends
on the pror preferred stock as requred by the charter of the cor-
poraton and the contract wth the pror preferred stockhoders, and
ony the earnngs and profts remanng after such dvdend requre-
ments have been met shoud be regarded as havng been pad to the
unor stockhoders. In other words, the earnngs and profts of the
1 Company for the year 1937 must be regarded as havng been ds-
trbuted n accordance wth the provsons of the corporate charter
gvng the pror preferred stockhoders the rght to dvdends before
any earnngs or profts can be dstrbuted to the other stockhoders.
. P. Wenche,
S CTION 116. CLUSIONS OM GROSS INCOM .
rtce 116-2: Compensaton of State offcers and empoyees.
R NU CT O 1036.
(1) Ta aton by State of saary of edera empovee (2) Coec-
tor v. Day (11 Wa., 113), overrued. (See Ct. D. 1390, page 129.)
R NU CT O 1036.
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119, rt. 119-14.
190
S CTION 119. INCOM OM SOU C S WIT IN
UNIT D ST T S.
rtce 119-14: Teegraph and cabe servce. 1939-1-9G56
( so rtce 119-15.) T. D. 4 77
INCOM T .
Income from transmsson of messages from ponts wthn the
Unted States to ponts wthout the Unted States. Reguatons 94
and 6, amended.
Washngton, D. C.
Reguatons 94, approved November 12, 1936, and Reguatons 6,
approved ebruary 11,1935, are amended as foows:
(a) rtce 119-14 of Reguatons 94 and 6 s redesgnated rt-
ce 119-15.
(6) new artce s added after artce 119-13 of Reguatons 94
and 6 to read as foows:
rt. 119-14. Teegraph and cabe servce. foregn corporaton carryng on
the busness of transmsson of teegraph or cabe messages between ponts n
the Unted States and ponts outsde the Unted States derves ncome party
from sources wthn and party from sources wthout the Unted States.
(1) Oross ncome. The gross Income from sources wthn the Unted States
derved from such servces sha be determned by addng (o) Its gross reve-
nues derved from messages orgnatng n the Unted States and ( ) amounts
coected abroad on coect messages orgnatng n the Unted States and de-
ductng from such sum amounts pad or accrued for transmsson of messages
beyond the company s own crcut. mounts receved by the company n the
Unted States wth respect to coect messages orgnatng wthout the Unted
States sha be e cuded from gross ncome.
(2) Net ncome. In computng net ncome from sources wthn the Unted
States there sha be aowed as deductons from gross ncome determned In
accordance wth paragraph (1), (a) a e penses Incurred n the Unted States
(not Incudng any genera overhead e penses) Incdent to the carryng on of
the busness n the Unted States, (6) a drect e penses Incurred abroad n
the transmsson of messages orgnatng n the Unted States (not ncudng
any genera overhead e penses or mantenance, repars and deprecaton of
cabes and not Incudng any amount aready deducted n computng gross
ncome), (c) deprecaton of property (other than cabes) ocated n the
Unted States and used n the trade or busness theren, and (d) a propor-
tonate part of the genera overhead e penses (not Incudng any tems ncurred
abroad correspondng to those enumerated n (a), (6), and (c)) and of man-
tenance, repars, and deprecaton of cabes of the entre cabe system of the
enterprse based on the rato whch the number of words orgnatng n the
Unted States bears to the tota words transmtted by the enterprse.
Ths Treasury decson s ssued under the authorty contaned n
sectons 62 and 119 of the Revenue cts of 1936 and 1934.
Guy T. evernq,
pproved December 22, 193 .
ohn W. anes,
( ed wth the Dvson of the edera Regster December 23, 193 , 11.59 a. m.)
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191
131, rt. 131-1.
rtce 119-15: Computaton of ncome.
R NU CT O 1936.
rtce 119-14, eguatons 94, redesgnated. (See T. D. 4 77,
page 190.)
SUPPL M NT C CR DITS G INST T .
S CTION 131. T S O OR IGN COUNTRI S
ND POSS SSIONS O UNIT D ST T S.
rtce 131-1: nayss of credt for ta es. 1939-20-9 33
G. C. M. 21227
R NU CT O 1936.
The 5 per cent ta mposed upon nonresdents of Canada wth
respect to dvdends s an ncome ta wthn the meanng of secton
131(a) of the Revenue ct of 1936 and aowabe as a credt aganst
the Unted States ncome ta to the e tent provded by secton
131(b) of that ct.
ta payer who cams ta pad to a foregn country as a deduc-
ton s precuded, after the e praton of the due date for fng hs
return, from amendng hs return and camng the amount of the
ta as a credt aganst hs tota Unted States ncome ta abty
rather than as a deducton.
n opnon s requested whether the ta on dvdends mposed by
the Domnon of Canada may be camed as a credt under secton
131(a) of the Revenue ct of 1936.
, the ta payer, fed a return for the ta abe year 1937 n whch
a deducton of 3a doars was camed as ncome ta pad to the
Domnon of Canada. Ths return was fed on March 15, 193 . n
amended return was fed on anuary 1 , 1939, accompaned by a
cam for refund on account of doars camed as credt for ncome
ra pad to a foregn country on the dvdends referred to above.
There are n reaty two questons nvoved, namey, (1) whether the
ta mposed by Canada on dvdends s an ncome ta , and (2)
whether, havng camed the foregn ta as a deducton n the orgna
return, the ta payer may, after the perod for fng the orgna
return has e pred, fe an amended return and obtan the beneft of
such ta as a credt aganst hs Unted States ncome ta .
The Canadan ncome ta on dvdends s provded for n secton
9 . Part III, of the Income Ta War ct of Canada, whch provdes
n part as foows:
2. Rate of ta . In addton to any other ta mposed by ths act nn Income
ta of 5 per centum s hereby mposed on a persons who are nonresdents of
Canada n respect of
(a) dvdends receved from Canadan debtors rrespectve of the currency
n whch the payment s made .
Ths offce s of the opnon that the 5 per cent ta mposed upon
nonresdents of Canada wth respect to dvdends s an ncome ta
wthn the meanng of secton 131(a) of the Revenue ct of 1936,
and s aowabe as a credt aganst the Unted States ncome ta to
the e tent provded by secton 131(b) of that ct.
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143, rt. 143-1.
192
Secton 131(a) of the Revenue ct of 1936 provdes n part that f
the ta payer sgnfes n hs return hs desre to have the benefts
of that secton, the ta mposed by Tte I (Income Ta ) sha be
credted wth the amount of any ncome, war-profts, and e cess-
profts ta es pad or accrued durng the ta abe year to any foregn
country, etc. In G. C. M. 19727 (C. . 193 -1, 255) t was hed
that ncome ta es pad to a foregn country shoud ether be aowed
as a credt aganst Unted States ncome ta , sub|ect to the mta-
tons contaned n secton 131 of the Revenue ct of 1936, or aowed
as a deducton from gross ncome under secton 23(c) of the ct.
That concuson was oased on the decson of the oard of Ta
ppeas n Raph Lese Raymond v. Commssoner (34 . T. .,
1171, acquescence, C. . 193 -1, 25) and Connor v. Unted States
(19 ed. Supp., 97).
In the nstant case, the ta payer dd not sgnfy n hs orgna
return hs desre to have the benefts of secton 131, but camed a
deducton n such return for the ncome ta pad to Canada on
dvdends. ta payer may cam foregn ta es as a deducton from
gross ncome, or as a credt aganst hs Unted States ncome ta ,
at any tme before the due date of hs ncome ta return but not ater.
Support for ths poston s found n Grant v. Rose (24 ed. (2d),
115), wheren the court stated that the statutory rght of choce
s e hausted on e praton of the tme for fng returns. The choce
referred to n that case was the choce of fng a |ont or separate
return by the husband or wfe. The dstrct court decson was
affrmed by the Crcut Court of ppeas for the fth Crcut (Rose
v. Grant, 39 ed. (2d), 340) and has been accepted by the ureau
as a precedent. (See I. T. 2535, C. . 1 -1, 125 (1930).)
In vew of the foregong, ths offce s of the opnon that a ta payer
aso has the rght of choce to cam foregn ta es as a credt, or as
a deducton, at any tme before the ast due date on whch hs return
s requred to be fed under the appcabe Revenue ct. In the
nstant case, therefore, nasmuch as the ta payer s return for 1937
was requred to be fed on or before March 15, 193 , he coud have
camed the foregn ta es as a credt aganst hs Unted States ncome
ta , or as a deducton from gross ncome, at any tme on or before
that date whether n the orgna or amended return. The rght of
choce to cam such ta es as a credt havng been e hausted after
March 15, 193 , there s no bass for aowng the ta payer to cam
such ta es as a credt n the amended return fed on anuary 1 , 1939.
. P. Wenck,
Chef Counse, ureau of Interned Revenue.
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 143. WIT OLDING O T T SOURC .
rtce 143-1: Wthhodng ta at source.
R NU CT OP 1936.
oregn corporatons tradng n securtes through resdent brokers.
(See I. T. 32G0, page 199.)
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193
143, rt. 143-1.
btce 143-1: Wthhodng ta at source.
1939-12-9759
I. T. 3263
NT CT O 1936.
though payments by the Unted States under the aws reatng
to Word War veterans are e empt from ta aton under secton 3
of the ct of ugust 12, 1935 (49 Stat., 607), the provsons of
secton 143(b) of the te venue ct of 1936, wth respect to the
deducton of ncome ta of 10 per cent at the source, are appcabe
wth respect to the Income derved from estates of nonresdent
aen veterans accumuated from such payments or from the
nvestment of such funds.
dvce s requested as to the appcabty of the wthhodng
provsons of secton 143(b) of the Revenue ct of 1936 wth respect
to payments made to , a nonresdent aen veteran.
The M Company, a domestc corporaton, conservator of the estate
of , an ncompetent veteran s recevng from the Unted States
through the eterans dmnstraton on behaf of the veteran 4a
doars each month based upon servce-connected dsabty. The
veteran s a nonresdent aen resdng n urope, and hs estate has
been accumuated from payments made by the Government. The
conservator durng 1937 deducted 10 per cent ncome ta at the
account of the nonresdent aen. The queston s presented whether
the conservator was requred to wthhod a ta under secton 143(b)
of the Revenue ct of 1936 n vew of the provsons of secton 3
of the ct of ugust 12, 1935 (Pubc, No. 262, Seventy-fourth
Congress, 49 Stat., 607).
Secton 3 of the ct of ugust 12,1935, provdes n part as foows:
Payments of benefts due or to become due sha not be assgnabe,
and such payments 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. Such provsons sha not attach to cams of the
Unted States arsng under such aws nor sha the e empton heren contaned
u to ta aton e tend to any property purchased n part or whoy out of such
payments. Itacs supped.
Inasmuch as secton 3 s appcabe to the beneft payments made
to , such payments are not sub|ect to edera ncome ta and wth-
hodng of the ta of 10 per cent s not requred to be made by the
conservator.
s the provsons of such secton wth respect to e empton from
ta aton of payments of benefts to veterans or ther benefcares do
not e tend to property purchased n part or whoy out of such pay-
ments there s nothng n secton 3 to prevent the deducton of
ncome ta of 10 per cent at the source from ncome (as dstngushed
from the amount of such beneft payments) derved from estates of
veterans accumuated from such pa| ments or from the nvestment
of such funds. (See generay Lawrence v. Shaw, 300 U. S., 245
McCurry v. Peek, 1 7 S. ., 54 enderson v. Cty of Mssoua, 79
source from 7 doars ncome
P. (2d), 547.)
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S 162, rt. 162-1. 194
rtce 143-1: Wthhodng ta at source.
R NU CT OP 1936.
nnutes pad by branch offce of domestc fe nsurance company
n Chna on contracts ssued n Chna. (See I. T. 2 0, page 197.)
S CTION 162. N T INCOM .
rtce 162-1: Income of estates and trusts. 1939-14-9772
G. C. M. 20965
R NU CT O 1936.
Where, by a decree of a court of competent ursdcton, utmate
dsposton of that porton of the Income of the trust created under
the w of whch s aocabe to the share of C, a deceased bene-
fcary, was deferred unt t Is determned who Is entted to the
corpus, such Income s ta abe to the trust.
n opnon s requested as to the ta aton of that part of the ncome
of a testamentary trust created by , a resdent of the State of S, whch
s aocabe to the share of C, a deceased benefcary.
Decedent s estate was devsed to hs three chdern, , C, and D, to
hod n trust for a perod of 15 years after hs death and so ong there-
after as mght be necessary to carry out the purposes of artce of
hs w. Certan annutes were provded for and the ncome from the
remander of the estate was, durng the 15-year perod, to be dvded
nto three equa parts for the use of the three chdren of the dece-
dent. It was further provded that f any of my sad chdren de
wthout ssue, sad share sha revert to the corpus of my estate. C
ded pror to 1936 wthout ssue and and D, the survvng trustees
of the trust, retaned n trust the one-thrd of the ncome whch
woud have been dstrbutabe to C had she been ave n 1936. To
whom such ncome s ta abe s the ssue presented.
It s admtted that there s consderabe doubt whether under the
aws of the State of S the provson n the w that the share of any
chd dyng wthout ssue sha revert to the corpus of the estate s
vad. The ta payer, , states, however, that t s not now possbe
to say whether that partcuar one-thrd of the trust ncome s prop-
ery dstrbutabe to and D or whether t s propery dstrbutabe
to the statutory takers, f any, of that part of the estate of whch
shoud de ntestate. It s aso ponted out that f the provson n
the w for the reverson to corpus of the share of any chd dyng
wthout ssue s vad, t s mpossbe to determne concusvey pror
to the e praton of the 15-year perod whether and D w be en-
tted equay to such ncome.
In the year 1930, the survvng trustees fed a second and parta
accountng of the trust n the Orphans Court of R County, State of
S. Ths accountng came up for audt and n ts decree dated ,
1936, the accumuated ncome of the trust was dsposed of by the
foowng statement:
To and D. survvng trustees, to bo hed by them unt t can be determned
who s entted to the corpus, of ncome, vz: 23| doars.
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195
162. rt. 162-1.
The trustees state that the decree of the court was consdered by
them as bndng and concusve n so far as the dstrbuton of the
one-thrd of the ncome of the trust s concerned and that so ong as
the decree was n effect the ncome was not dstrbutabe to anyone.
It s the opnon of ths offce that the decree of the Orphans Court
of It County, State of S, unt reversed or overrued estabshes tho
aw of that State as to the dstrbuton of the ncome n queston. It
s a we recognzed rue that where the queston nvoved s the mean-
ng of a edera revenue aw, the w of Congress contros over oca
aw. ( agan v. Commssoner, 43 ed. (2d), 1.) owever, when
the appcaton of the edera revenue aw s dependent upon facts
whch can be nterpreted ony n accordance wth State rues of prop-
erty, the State rue must preva. Such appears to be the stuaton here.
reuer v. evcrng (291 U. S.| 35) s one of the eadng cases on
the concusveness of a determnaton by a oca court concernng the
correct amount dstrbutabe to a trust benefcary. It was there hed
that the decree of the State court was bndng. The court stated:
Moreover, the decson of that court, unt reversed or overrued, estabshes
the aw of Caforna respectng dstrbuton of the trust estate. It s none the
ess a decaraton of the aw of the State because not bused on a statute, or
earer decsons. The rghts of the benefcares are property rghts and the
court has ad|udcated them. What the aw as announced by that court ad|udges
dstrbutabe Is, we thnk, to be so consdered n appyng secton 219 of the
ct of 1921.
In the reuer case t was argued that the proceedng n the State
court was a cousve one, but the Supreme Court refused to accept the
argument, statng:
The respondent suggests that the proceedng In the State court was a cousve
one cousve n the sense that a the partes oned n a submsson of the
ssues aud sought a decson whch woud adversey affect the Government s
rght to addtona Income ta . We can not so hod, n vew of the record n
the State court whch s made a part of the record here. The case appears to
have been ntated by the fng of a trustee s account, n the usua way. Notce
was gven to the Interested partes. Ob|ectons to the account were presented,
and the matter came on for hearng In due course, a partes beng represented
by counse. The decree purports to decde ssues reguary submtted and not
to be n any sense a consent decree.
(To the same effect are ar v. Commssoner, 300 U. S., 5 Letts
v. Commssoner, 4 ed. (2d), 760 ubbe v. everng, 70 ed.
(2d), 66 and Susan . rmstrong v. Commssoner, 3 . T. .,
C5 , acquescence, page 2, ths uetn.)
It s cear n the present case that the Orphans Court of R Countv
was a court havng |ursdcton of the admnstraton of the trust. It
s estabshed that the decree obtaned was n no way cousve. The
effect of ths decree was to determne that the ncome n queston, whch
woud have been dstrbutabe to C had she ved, was to be hed n trust
unt a determnaton s made as to the person or persons entted
thereto.
rtce 162 1 of Reguatons 94 provdes as foows:
There s ta abe to the estate or to the trust a ncome thereof
accumuated for the beneft of unborn or unascertaned persons or persons wth
contngent nterests .
Under the facts presented n the present case, and n vew of the
decree of the Orphans Court, County of R, State of S, t s the opnon
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165, rt. 23(a)-6.
196
of ths offce that the ncome n queston s to be accumuated for the
beneft of unascertaned persons wthn the meanng of the above-
quoted provson of the reguatons. ccordngy, t s hed that such
ncome s not dstrbutabe to and D wthn the meanng of secton
162 of the Revenue ct of 1936, but s ta abe to the trust.
. P. Wenche,
S CTION 165. MPLOY S TRUSTS.
( so Secton 23(a), rtce 23(a)-6.) 1939-14-9773
I. T. 326
R NU CT O 1030.
The trust estabshed by for the purpose of provdng payment
of reasonabe pensons to hs reguar empoyees, not beng a bene-
fcary of the trust, s wthn the purvew of secton 165 of the
Revenue ct of 1936, reatng to empoyees trusts. Ta payer s con-
trbutons to the trust are deductbe by hm as addtona compensa-
ton pad. owever, to the e tent ta payer s contrbutons are ap-
ped toward the payment of premums on fe nsurance poces
coverng ves of empoyees, such amount consttutes addtona n-
come to the empoyees and shoud be ncuded n ther returns for the
year or years n whch so apped.
dvce s requested whether the penson fund created by the ta -
payer, , s wthn the provsons of secton 165 of the Revenue ct
of 1936, reatng to empoyees trusts, and whether ta payers con-
trbutons to the trust are deductbe by hm.
The penson trust was created by the ta payer under ndenture
dated une , 1937. The stated purpose of the pan s to provde
for the payment of reasonabe pensons to ta payer s empoyees. Pro-
vson s made for the estabshment of a trust fund nown as the
penson fund. The penson fund conssts of contrbutons made by
the ta payer together wth dvdends and earnngs thereon. em-
poyees, e cept part tme and casua empoyees, are egbe to par-
tcpate n trust fund benefts. though the trust nstrument as
orgnay drawn ncuded as a benefcary of the trust, hs name
was wthdrawn pror to the effectve date of the trust snce an em-
oyer can not be hs own empoyee. If were ncuded as a bene-
cary, the trust woud not operate for the e cusve beneft of hs
empoyees as requred by secton 165 of the varous Revenue cts.
The trustees are to purchase retrement ncome nsurance wth or
wthout death benefts for each nsurabe partcpant. The pan
aso provdes that n the event of death of a partcpant, death benefts
under the pocy sha be pad to the empoyee s wfe, or to hs estate.
The trust nstrument may be amended, modfed, atered, or ter-
mnated at any tme by ta payer, wth the provson, however, that
any such acton sha not have retroactve effect and no part of the
fund then e stng may be returned to the ta payer.
On the bass of the foregong, t s hed that the trust n queston
quafes as an empoyees trust under secton 165 of the appcabe
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197
212. rt. 212-1
Revenue cts, and ta payer s contrbutons thereto are deductbe
by hm as addtona compensaton pad. owever, t w be observed
that a part of ta payer s contrbutons may be used for the purpose
of provdng nsurance on the ves of hs empoyees. To the e tent
ta payer s contrbutons are apped toward the payment of pre
mums on fe nsurance poces coverng ves of empoyees, such
amount consttutes addtona ncome to the empoyees and shoud be
ncuded n ther returns for the year or years n whch so apped.
SUPPL M NT . NONR SID NT LI N INDI IDU LS.
S CTION 212. GROSS INCOM .
rtce 212-1: Gross ncome of nonresdent 1039-21-9 42
aen ndvduas. I. T. 32S0
( so Secton 143, rtce 143-1.)
R NU CT O 1936.
Wthhodng of ncome ta s not requred of the M Company, a
domestc fe nsurance company, wth respect to the perodc pay-
ments made n Chna on annuty contracts ssued by Its branch offce
n Chna to nonresdent aens, whch contracts are secured by assets
hed n Chna.
dvce s requested whether secton 143(b) of the Revenue ct of
1936 requres wthhodng of ncome ta by the M Company, a do-
mestc fe nsurance company, wth respect to perodc payments on
annuty contracts wrtten n ongkong, Chna, where such payments
are made to nonresdent aens resdng n Chna.
The M Company ssues annuty contracts through ts branch offce
n Chna n foregn currences such as ongkong doars and rtsh
pounds. Recepts n foregn currences are mantaned n banks and
are nvested n Chna, as t s the pocy of the company to mantan
bank deposts or nvestments n foregn currency assets appro matey
equvaent to ts foregn currency abtes, so that t may not be
sub|ect to possbe oss as the resut of fuctuaton n the e change rates
as between assets and abtes. Payments on foregn currency con-
tracts are made from such funds. The M Company s requred to
make deposts n the Crown Coony of ongkong n accordance wth
the foowng provsons of the ongkong Lfe Insurance Companes
Ordnance No. 11 of 1907:
3-0) very company, wherever estabshed, whch sha begn to carry on
the busness of fe nsurance wthn the coony, and every company regstered
n ongkong whch sha begn to carry on the busness of fe nsurance n
Chna, sha depost and keep deposted wth the regstrar securtes to be
approved by the governor n counc to the vaue of 50,000 ongkong doars.
(4) In augmentaton of the depost mentoned n subsecton (1), every
company abe to make a depost under ths secton sha e requred to make
and keep deposted further depost up to 200,000 ongkong doars, and unt
such further depost s made t sha send n yeary to the regstrar returns
under the oath of the charman, agent, secretary, or other prncpa offcer
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212, rt. 212-1.
19
of the company of the amount of premums receved by the company on
account of such poces Issued, granted, or entered Into In ongkong, and n
the case of a company regstered n ongkong, entered nto n Chna, by such
company whether before or after the commencement of ths ordnance, as the
company s, for the tme beng abe In respect of. nd the company sha
after deductng 25 per cent therefrom and the net amount of osses or cams
actuay pad In respect of such poces, depost wth the regstrar securtes of
such knds as aforesad, to the vaue of such baance of premums, unt the
depost equas 200,000 ongkong doars.
(7) securtes deposted wth the regstrar sha be odged by hm wth
the treasurer for safe custody.
s of December , 103 , the M Company had on depost wth the
regstrar certfcates of depost of the N ank, ongkong, aggregat-
ng 0a doars, and ongkong Government bonds n the amount of
4r a doars, or a tota of 125a doars. The above deposts were n
ongkong doar currency as requred by the aw. The M Company s
entre abty to contract hoders n ongkong, ncudng the re-
serves on outstandng contracts as at the date of ts ast vauaton,
totaed 61a ongkong doars. ssets equang obgatons to con-
tract hoders n ongkong were physcay hed n ongkong. The
payments made to annutants n ongkong are made from funds
deposted there and derved from the ncome of such ongkong assets
and from payments made by ongkong annutants.
Secton 212(a) of the Revenue ct of 193G provdes:
Genera rue. In the case of a nonresdent aen Indvdua gross Income
ncudes ony the gross ncome from sources wthn the Unted States.
The term source s defned n Webster s New Internatona
Dctonary as:
That from whch anythng comes forth, regarded as ts cause or orgn the
frst cause.
It s the opnon of ths offce that the word sources as used n
secton 212(a) n determnng the ta abty of annuty payments
means the thng or actvty from whch ncome s derved, and the
stus of such thng or actvty w determne the source of the
ncome. ppyng ths prncpe to the nstant case, t s hed that
the annuty contract s the thng or actvty from whch the ncome,
consstng of annuty payments, s derved. The annuty contracts
whch are ssued by the branch offce of the M Company n Chna
have a stus n Chna. It foows, therefore, that the stus of the
ncome derved from such annuty contracts s aso n Chna. Con-
sequenty, the ncome derved by nonresdent aens from such an-
nuty contracts s not to be treated as ncome from sources wthn
the Unted States. Ths rung appes to the annuty contracts
ssued by the branch offce n ongkong whether they are ssued n
ongkong doars or rtsh pounds. s the ncome derved from
such annuty contracts s not to be treated as ncome from sources
wthn the Unted States, the wthhodng provsons of the edera
ncome ta aws are not appcabe. (See secton 143(b) of the
Revenue ct of 1936.)
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199 231, rt. 231-1.
SUPPL M NT I. OR IGN CORPOR TIONS.
S CTION 231. T ON OR IGN CORPOR TIONS.
rtce 231-1: Ta aton of foregn corporatons. 1939-10-9743
( so Secton 143, rtce 143-1.) L T. 3260
R NU CT O 1336.
The rentng In the Unted States of an offce whch s occuped
by an assstant secretary, whose ony dutes were to receve
dvdends and nterest from securtes purchased by foregn cor-
poratons through resdent brokers, such securtes beng hed by
oca banks as custodans, does not resut n such foregn corpora-
tons beng engaged n a trade or busness wthn the Unted States
or havng an offce or pace of busness theren.
dvce s requested whether the M Company, the N Company, and
the O Company, three foregn corporatons, are to be consdered
as engaged n a trade or busness or havng an offce or pace of
busness n the Unted States durng the caendar year 1936 for the
purposes of secton 231(b) and secton 143(b) of the Revenue ct
of 1936.
Unt December , 1936, the M Company, the N Company, and
the O Company had custodan accounts wth the P Company and
the Natona ank, both of the cty of S. These custodan ac-
counts conssted of mercan securtes and the ncome derved
therefrom. Saes of securtes n the Unted States were based on
cabe orders to mercan stock brokers and nstructons to the
custodans concernng the devery of the securtes nvoved n such
saes. Purchases of securtes were aso based on nstructons ssued
to brokers who were requested to dever the securtes purchased to
the respectve custodans.
On December , 1936, the custodans of the securtes purchased
and sod wthn the Unted States by the foregn corporatons were
advsed that an offce had been estabshed n the Unted States at
R Street, cty of S, and that one, , had been apponted as
assstant secretary. In these communcatons the custodans were
requested to transfer the securtes hed by them as custodans nto
the name of such nomnee as you may seect and that after the
makng of the necessary transfers your nomnee ssue such dv-
dend orders as may be requred so that future dvdends woud
be maed to the assstant secretary. The custodans remaned n
possesson of the securtes but coected no ncome therefrom. The
procedure theretofore foowed wth respect to purchases and saes
of securtes was not changed, the authorty to consummate a such
transactons beng retaned by the foregn offce so that the ony func-
ton of the assstant secretary was the coecton of the ncome from
securtes and the keepng of the necessary records wth respect to
such coectons.
It s stated by the assstant secretary that the purpose of man-
tanng the offce was ony to coect the ncome from the nvestments
hed by the foregn corporatons through two resdent custodans.
The ease e ecuted by and between the T Corporaton as the and-
ord and as assstant secretary of the N Company was for a
perod of fve months and contans a specfc provson that the ease
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231, rt. 231-1.
200
may be termnated as of the ast day of any month durng such
perod.
Secton 211(b) of the Revenue ct of 1936 provdes n part that
as used n that secton and secton 231 the phrase engaged n trade
or busness wthn the Unted States does not ncude the effectng
of transactons n the Unted States n stocks, securtes, or com-
modtes through a resdent broker, commsson agent, or custodan.
It foows, therefore, that the buyng and seng of securtes n the
Unted States on cabe orders to resdent stock brokers or through
custodans do not consttute engagng n trade or busness wthn the
Unted States.
The three corporatons are not otherwse engaged n trade or bus-
ness wthn the Unted States and can not be cassed as resdent
foregn corporatons under secton 231(b) uness the appontment of
as assstant secretary and the easng of offce space consttutes
havng an offce or pace of busness wthn the Unted States
wthn the meanng of secton 231 of the Revenue ct of 1936.
rtce 231-1 (b) of Reguatons 94, promugated under the Revenue
ct of 1936, states n part as foows:
Whether a foregn corporaton has an offce or pace of busness wthn
the Unted States depends upon the facts n a partcuar case. The term
offce or pace of busness, however, mpes a pace for the reguar transac-
ton of busness and does not ncude a pace where casua or ncdenta trans-
actons mght be, or are, effected.
The offce n the nstant case was not a pace estabshed for the
reguar transacton of the busness, but was a pace where casua or
ncdenta transactons were effected. The reguar busness of each
of the corporatons under consderaton was the buyng and seng
of securtes through resdent brokers or through custodans n the
Unted States. Ths s the type of busness specfcay e cuded by
secton 211(b) as not, comng wthn the meanng of the term trade
or busness as used n that secton and secton 231(b). It appears
from the facts that athough the corporatons apponted as as-
sstant secretary, hs dutes conssted merey of the coectng of
ncome derved from nterest and dvdends. Such actvtes, beng
ncdenta to the reguar busness of the corporatons, coud not
reasonaby be consdered as the actve conduct of a trade or busness
wthn the Unted States. (See G. C. M. 1 35, C. . 1937-2, 141
aton v. Phoen Securtes Co., 22 ed. (2d), 497 De Norte Co. v.
Wknson, 2 ed. (2d), 76 Rose v. Nunnah| Investment Co., 22
ed. (2d), 102.) The mere rentng of offce space for certan mted
purposes does not meet the requrement of the statute. (See aso
ovey v. e Long ook ye Co., 211 N. Y., 420, 105 N. ., 667.)
In McCoach v. Mneh Schuyk aven Raroad Co. (22
U. S., 295), whch arose under the ct of ugust 5, 1909, the Court
stated that the mere recept of ncome from property dd not const-
tute engagng n busness and commented as foows:
The dstncton s between (a) the recept of ncome from outsde
property or nvestments by a company that s otherwse engaged n busness
n whch event the nvestment ncome may be added to the busness ncome n
order to arrve at the measure of the ta , and (6) the recept of ncome from
property or nvestments by a company that s not engaged n busness e cept
the busness of ownng the property, mantanng the nvestments, coectng the
Income and dvdng t among ts stockhoders. In the former case the ta s
payabe n the atter not
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201
231, rt. 231-1.
In G. C. M. 17014 (C. . -2, 317 (1936)) t was hed n part
that the test of abty for ncome ta , e cess-profts ta , and cap-
ta stock ta , n so far as such ta es were based upon, or measured
by, engagng n or dong busness wthn the Unted States, shoud
be dentca. It was concuded that f the foregn corporaton was
engaged n trade or busness for ncome ta purposes t was dong
busness for capta stock ta purposes. Conversey, f a foregn cor-
poraton was not engaged n busness for ncome ta purposes, t
was not dong busness for capta stock ta purposes. In ths con-
necton attenton s nvted to the case of the Unon Internatonae de
Pacements v. oey (96 ed. (2d), 591), n whch the court hed wth
respect to ta years not affected by the Revenue ct of 1936 that the
buyng and seng of securtes through domestc brokers dd not
consttute dong busness n the Unted States for capta stock ta
purposes.
In vew of the foregong, t s hed that durng the caendar year
1936, for the purposes of secton 231(b) and secton 143(b), the three
corporatons referred to heren (1) were not engaged n trade
or busness wthn the Unted States, and (2) had no offce or
pace of busness wthn the Unted States.
rtce 231-1: Ta aton of foregn corporatons. 1939-25-9 2
G. C. M. 21219
R NU CT OP 1936.
The arrangement for the e cusve sae of ts products n the
Unted States between the M Company, a foregn corporaton, and
the N Company, a domestc corporaton, was one of ordnary prnc-
pa and agent, and the M Company was engaged n trade or bus-
ness wthn the Unted States durng the year 193(5. The M Com-
pany was, therefore, a resdent corporaton wthn the meanng of
secton 231(b) of the Revenue ct of 1936.
n opnon s requested whether the M Company, a foregn
corporaton, s to be regarded as a resdent corporaton wthn the
meanng of secton 231(b) of the Revenue ct of 1936.
The agreement between the M Company, a foregn corporaton, and
the N Company, a domestc corporaton, provdes that the M Com-
pany conveys to the N Company the soe agency for the sae of ts
products n the Unted States. The N Company agrees to make saes
of such products wthn the Unted States not to make saes of the
same knd of products of any other company e cept on e press per-
msson from the M Company not to make saes of M Company
products to purchasers domced outsde of the Unted States or to
any compettor of the M Company wthout consent of that companv:
and not to take a fnanca nterest n any compettor of the M
Company. It s aso provded that the N Company w secure yeary
contracts whch w be sub|ect to the approva of the M Company.
The N Company assumes the fu de credere for a saes e ecuted,
e cept that the M Company agrees to share equay wth the N
Company any oss ncurred up to a specfed amount n any one year
durng the fe of the agreement. It s further provded that the N
Company s to receve a commsson based on a graduated percentage
of the geng prce of the products.
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202
The ta payer contends that t s a nonresdent foregn corporaton
wthn the meanng of secton 231(a) of the Revenue ct of 1936 and
rees on G. C. M. 17014 (C. . -2, 317 (1936)). In that memo-
randum t was hed that where a foregn corporaton has a capta
stock ta ta abe year endng wthn an ncome-ta ta abe year
controed by the Revenue ct of 1936, and such corporaton has no
offce or pace of busness wthn the Unted States, and ts ony
stocks, securtes, or commodtes through a resdent broker, com-
msson agent, or custodan, such corporaton s e empt from the
capta stock ta mposed by secton 105(b) of the Revenue ct of
1935, as amended. It was aso hed n G. C. M. 17014, supra, that the
term engaged n trade or busness wthn the Unted States as
used n secton 231(b) of the Revenue ct of 1936 reatng to ncome
ta , and the term carryng on or dong busness n the Unted
States as used n secton 105(b) of the Revenue ct of 1935, as
emended, reatng to capta stock ta , have the same meanng. It
was stated n that rung that t apparenty was the ntenton of
Congress that the test of abty for ncome ta , e cess-profts ta ,
and capta stock ta , n so far as such ta es were based upon, or
measured by, engagng n or dong busness wthn the Unted States,
shoud be dentca.
Under the terms of the agreement n the nstant case, t s evdent
that the ta payer (the M Company) s engaged n trade or busness
n the Unted States through an ordnary agent who ses ts products
n the Unted States. The so-caed de credere provson nd-
cates an ordnary agency rather than that of a commsson agent,
and ths s not changed by the fact that the agent agrees to share n
the osses. On ths pont t s stated n the mercan Law Insttute
Restatement of the Law of gency, secton 424, page 970, as foows:
d. De credere abty. saes agent may assume a de credere abty.
If so, he has a duty to pay the prncpa what the purchaser fas to pay,
whether or not ths s due to the nsovency of the purchaser or to other
causes.
The words commsson agent n secton 211 (b) of the Revenue
ct of 1936 contempate a person smar, to a Droker who effects
transactons n commodtes for the pubc n genera as dstngushed
from an ordnary agent who receves hs compensaton on the bass of
a percentage of merchandse sod. The dea of e cusveness enters
nto an empoyment of agency, whe, wth respect to brokers, there
s a hodng out of one s sef generay for empoyment n matters of
trade, commerce, etc. (See Stratford v. Cty Counc of Montgomery.
110 a., 619, 20 S., 127.) The use of the words commsson agent
n the statute does not contempate the case where a foregn corpora-
ton carres on the busness n the Unted States of seng products
or merchandse n ths country through an ordnary agent, nor s ths
stuaton changed by the fact that the compensaton of the agent s
measured by a percentage of the voume of busness transacted. Such
an agent s more n the nature of an empoyee than an ndependent
broker or commsson merchant. It has been hed that even where a
person was empoyed to se or dstrbute products of an empoyer and
descrbed as a commsson agent, beng pad on a commsson bass,
he was nevertheess an agent and the prncpa was abe for the
actvtes
Unted States n
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203
274, rt. 274-1.
agent s acts under the Workmen s Compensaton ct. Roberts v.
Unted States dety Guaranty Co., 42 Ga. pp., C6 , 157 S. .,
537.)
In vew of the foregong, t s evdent that the arrangement s one
whereby the M Company conveys to the N Company the soe agency
for the sae of the former s products n the Unted States and the
agent agrees to se such products e cusvey for ts prncpa. The
arrangement s one of ordnary prncpa and agent through whch
the M Company carres on ts actvtes n the Unted States. In
other words, the ta payer (the M Company) shps products to ths
country whch are sod from tme to tme by an agent empoyed
e cusvey for the purpose of securng orders makng saes for
the ta payer s products. It s the opnon of ths offce that the gst
of the whoe agreement s contaned n that part thereof whch states
that The M Company conveys to the N Company the soe agency
for the sae of ts products n the Unted States.
fter carefu consderaton of the facts submtted, t s hed that
the M Company was engaged n trade or busness wthn the Unted
States durng the year 1936, and s, therefore, a resdent corporaton
wthn the meanng of secton 231(b) of the Revenue ct of 1936.
. P. Wknche,
SUPPL M NT L. SS SSM NT ND COLL CTION O D ICI NCI S.
S CTION 274. N RUPTCY ND R C I RS IPS.
rtce 274-1: ankruptcy, proceedngs for the 1939-15-9791
reef of debtors, and recevershps. T. D. 4 92
TITL 26 INT RN L R NU . C PT R I, P RT 3.
Income ta Immedate assessment In bankruptcy and recever-
shp cases. rtces 1293 and 12 4 of Reguatons 09, 1191 and 1192
of Reguatons 74 and 77, and 274-1 and 274-2 of Reguatons 6
and 94 amended.
Washngton, D. O.
To Coectors of Interna Revenue and others concerned:
rtce 1293 of Reguatons 69 s amended to read as foows:
ct. 1293. ankruptcy and recevershp proceedngs. Durng a bankruptcy
proceedng, or an equty recevershp proceedng n ether a edera or a State
court, the assets of the ta payer are n genera under the contro of the court
n whch such proceedng Is pendng, and the coecton of tu es can not be made
by dstranng upon such assets. owever, any assets whch under appcabe
provsons of aw are not under the contro of the court may be sub|ect to
dstrant.
s used n these reguatons the term bankruptcy proceedng ncudes pro-
ceedngs under Chapters I to II of the ankruptcy ct, as amended, or under
secton 74, 75, 77, or 77 , or Chapters to III, of such ct, as amended and
the term ad|udcaton of bankruptcy Incudes, n addton to nn ad|udcaton
In a proceedng under Chapters I to II, the approva of a petton as propery
fed under secton 77 or 77 or Chapter by a court of competent |ursdcton
or the fng of a petton under secton 74 or 75 or Chapters I to III wth a
court of competent |ursdcton.
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204
trustee n bankruptcy (ncudng a trustee, recever, debtor In possesson,
or other person desgnated as n contro of the assets of a debtor n any bank-
ruptcy proceedng by order of the court n whch such proceedng s pendng)
or a recever n any recevershp proceedng s requred to gve notce n wrtng
to the Commssoner of Interna Revenue n Washngton, D. C, of the ad|udca-
ton of bankruptcy or the appontment of a recever. (See secton 2 2(a). as
amended by secton 505 of the Itevenue ct of 1934.)
Coectors shoud, prompty after notce of outstandng abty aganst a ta -
payer n any bankruptcy or recevershp proceedng, and n any event wthn the
tme mted by the approprate provsons of the ankruptcy ct, as amended,
and the orders of the court n whch such proceedng s pendng, fe cam
coverng such abty n the court n v hch such proceedng s pendng. Such
cam shoud be fed whether the unpad ta es nvoved have been assessed or
not, e cept n cases where the departmenta nstructons drect otherwse for
e ampe, where the payment of the ta es s secured by a suffcent bond. Such
cam shoud cover the amount represented by the assessment, pus nterest at the
rate of 6 per cent per annum for the perod from the date of fng cam by the
coector to the date of termnaton of the bankruptcy or recevershp proceedng
or to the date of payment f payment s made n fu pror to such termnaton.
t the same tme cam s fed wth the bankruptcy or recevershp court, the
coector w send notce and demand for payment to the ta payer together wth
a copy of such cam.
Under secton 3466 of the Revsed Statutes and secton 3467 of the Revsed
Statutes, as amended, and secton 64 of the ankruptcy ct, as amended, ta es
are entted to the prorty over other cams theren stated and the trustee,
recever, debtor n possesson, or other person desgnated as n contro of the
assets of the debtor by the court n whch bankruptcy or recevershp proceedng
s pendng, may be hed personay abe for faure on hs part to protect the
prorty of the Government respectng ta es of whch he has notce. ankruptcy
courts have |ursdcton under the ankruptcy ct, as amended, to determne
n dsputes regardng the amount and vadty of ta es of a bankrupt or of a
debtor n a proceedng under the ankruptcy ct, as amended. bankruptcy
or recevershp proceedng does not dscharge any porton of a cam of the
Unted States for ta es e cept n the case of a proceedng under Chapter
of the ankruptcy ct, as amended, and e cept to the e tent whch may be
provded n a pan or arrangement duy effectuated n a bankruptcy proceedng
and any porton of a cam of the Unted States for ta es whch has been aowed
by the court n whch the bankruptcy or recevershp proceedng s pendng and
whch remans unsatsfed after the termnaton of the bankruptcy or recever-
shp proceedng sha be coected wth nterest as provded n sectons 2S2 (b)
and (c) of the ct and secton 404 of the Revenue ct of 1935.
rtce 1294 of Reguatons 69 s amended to read as foows:
rt. 1294. Immedate assessments n bankruptcy and, recevershp cases. It
the Commssoner has determned that a defcency s due n respect of ncome
ta and the ta payer has fed a petton wth the oard of Ta ppeas pror
to the ad|udcaton of bankruptcy or the appontment of a recever, the trustee,
assets of the debtor by the court n whch the bankruptcy or recevershp pro-
ceedng s pendng, may prosecute the ta payer s appea before the oard as to
that partcuar determnaton. No petton sha be fed wth the oard for a
redetermnaton of the defcency after the ad|udcaton of bankruptcy or the
appontment of a recever.
Cam for the amount of a defcency, even though pendng before the oard
for consderaton, may be fed wth the court n whch the bankruptcy or
recevershp proceedng s pendng wthout awatng fna decson of the oard.
In case of fna decson of the oard before the termnaton of the bankruptcy,
debtor, or recevershp proceedng, a copy of the oard s decson may be fed
by the Commssoner wth the court n whch such proceedng s pendng.
Whe the Commssoner s requred by secton 2S2, as amended by secton 505
of the Revenue ct of 1934, to make mmedate assessment of any defcency,
such assessment s not made as a |eopardy assessment wthn the meanng of
secton 279, as amended by secton S19 (b) and (c) of the Revenue ct of 193 ,
and consequenty the provsons of that secton do not appy to any assessment
made under secton 2 2, as amended. Therefore, the notce of the defcency
provded for n secton 279(b) w not be maed. though such notce w not
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203
274, rt. 274-1.
be Issued, nevertheess a etter w be sent to the ta payer, or to the trustee,
recever, debtor n possesson, or other person desgnated by the court n whch
the bankruptcy or recevershp proceedng s pendng as n contro of the assets
o the debtor, notfyng hm In deta how the defcency was computed, that he
may furnsh evdence showng wheren the defcency s Incorrect, and that
upon request he w be granted a hearng wth respect to such defcency. If
ateT such evdence Is submtted and hearng hed any ad|ustment appears
necessary n the defcency, approprate acton w be taken. copy of the
notfcaton etter w be attached to the assessment st as the coector s author-
ty for fng cam n any bankruptcy or recevershp proceedng.
If any porton of the cam aowed by the court n a bankruptcy or recever-
shp proceedng remans unpad after the termnaton of such proceedng, the
coector w send notce and demand for payment thereof to the ta payer.
Such unpad porton wth nterest as provded n sectons 2 2 (b) and (c)
of the ct and secton 404 of the Revenue ct of 1935, may be coected from
the ta payer by dstrant or proceedng n court wthn s years after the
termnaton of the bankruptcy, debtor, or recevershp proceedng. tensons
of tme for the payment of such unpad amount may be granted n the same
manner and sub|ect to the same provsons and mtatons as provded n sec-
ton 274(k), as amended by secton 5U2 of the Revenue ct of 102 and by
secton 16 of the Revenue ct of 193 . (See artce 1234.)
Ths artce deas ony wth mmedate assessments provded for In secton
2 2, as amended, and the procedure n connecton wth such assessments.
rtces 1191 of Reguatons 74 and 77 are amended to read as
foows:
rt. 1191. ankruptcy and recevershp proceedng . Durng a bankruptcy
court, the assets of the ta payer are In genera under the contro of the court
n whch such proceedng s pendng, and the coecton of ta es can not be
made by dstranng upon such assets. owever, any assets whch under ap-
pcabe provsons of aw are not under the contro of the court may be sub-
|ect to dstrant.
s used n these reguatons the term bankruptcy proceedng ncudes
proceedngs under Chapters I to II of the ankruptcy ct, as amended, or
under secton 74, 75, 77, or 77 . or Chapters to III, of such ct, as amended
and the term ad|udcaton of bankruptcy Incudes, n addton to an ad-
|udcaton n a proceedng under Chapters I to II, the approva of a petton
as propery fed under secton 77 or 7715 or Chapter y a court of com-
petent ursdcton or the fng of a petton under secton 74 or 75 or Chapters
I to III wth a court of competent |ursdcton.
trustee n bankruptcy (Incudng a trustee, recever, debtor n possesson,
or other person desgnated as n contro of the assets of a debtor n any
bankruptcy proceedng by order of the court n whch such proceedng s pend-
ng) or a recever In any recevershp proceedng s requred to gve notce
n wrtng to the Commssoner of Interna Revenue n Washngton, D. C, of
the ad|udcaton of bankruptcy or the appontment of a recever. (See secton
274(a), as amended by secton 505 of the Revenue ct of 1934.)
Coectors shoud, prompty after notce of outstandng abty aganst a
ta payer n any bankruptcy or recevershp proceedng, and n any event wthn
the tme mted by the approprate provsons of the ankruptcy ct, as
amended, and the orders of the court n whch such proceedng s pendng,
fe cam coverng such abty n the court n whch such proceedng s pend-
ng. Such cam shoud be fed whether the unpad ta es nvoved have been
assessed or not, e cept n cases where the departmenta Instructons drect
otherwse for e ampe, where the payment of the ta es s secured by a
suffcent bond. Such cam shoud cover the amount represented by the assess-
ment, pus nterest at the rate of 6 per cent per annum for the perod from
the date of fng cam by the coector to the date of termnaton of the
bankruptcy or recevershp proceedng or to the date of payment f payment
s made n fu pror to such termnaton. t.the same tme cam Is fed wth
the bankruptcy or recevershp court, the coector w send notce and demand
for payment to the the ta payer together wth a copy of such cam.
Under secton 34G0 of the Revsed Statutes and secton 3467 of the Revsed
Statutes, as amended, and secton 64 of the ankruptcy ct, as amended, ta es
re entted to the prorty over other cams theren stated and the trustee.
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206
recever, debtor In possesson, or other person desgnated as In contro of the
assets of the debtor by the court n whch bankruptcy or recevershp proceedng
s pendng, may be hed personay abe for faure on hs part to protect the
prorty of the Government respectng ta es of whch he has notce. ank-
ruptcy courts have |ursdcton under the ankruptcy ct, as amended, to
determne a dsputes regardng the amount and vadty of ta es of a bankrupt
or of a debtor n a proceedng under the ankruptcy ct, as amended.
bankruptcy or recevershp proceedng does not dscharge any porton of a
cam of the Unted States for ta es e cept n the case of a proceedng under
Chapter of the ankruptcy ct, as amended, and e cept to the e tent whch
may be provded n a pan or arrangement duy effectuated n a bankruptcy
proceedng and any porton of a cam of the Unted States for ta es whch
has been aowed by the court n whch the bankruptcy or recevershp pro-
ceedng s pendng and whch remans unsatsfed after the termnaton of the
bankruptcy or recevershp proceedng sha be coected wth nterest as pro-
vded n secton 29 of the ct and secton 404 of the Revenue ct of 1935.
rtces 1192 of Reguatons 74 and 77 are amended to read as
foows:
rt. 1192. Immedate assessments n bankruptcy and recevershp cases.
If the Commssoner has determned that a defcency s due n respect of n-
come ta and the ta payer has fed a petton wth the oard of Ta ppeas
pror to the ad|udcaton of bankruptcy or the appontment of a recever, the
trustee, recever, debtor n possesson, or other person desgnated as n contro
of the assets of the debtor by the court n whch the bankruptcy or recevershp
proceedng Is pendng, may prosecute the ta payer s appea before the oard
as to that partcuar determnaton. No petton sha be fed wth the oard
for a redetermnaton of the defcency after the ad|udcaton of bankruptcy
or the appontment of a recever.
Whe the Commssoner s requred by secton 274, as amended by secton 505
of the Revenue ct of 1934, to make Immedate assessment of any defcency,
such assessment s#not made as a |eopardy assessment wthn the meanng of
secton 273, as amended by secton 19 (a) and (e) of the Revenue ct of 193 ,
and consequenty the provsons of that secton do not appy to any assessment
made under secton 274, ns amended. Therefore, the notce of the defcency
provded for In secton 273(b) w not be maed. though such notce w
not he ssued, nevertheess a etter w be sent to the ta payer, or to the
trustee, recever, debtor n possesson, or other person desgnated by the court
n whch the bankruptcy or recevershp proceedng Is pendng as n contro of
the assets of the debtor, notfyng hm In deta how the defcency was com-
puted, that he may furnsh evdence showng wheren the defcency s ncorrect,
nnd that upon request he w be granted a hearng wth respect to such
defcency. If after such evdence Is submtted and hearng hed any ad|ust-
ment appears necessary n the defcency, approprate acton w be taken.
copy of the notfcaton etter w be attached to the assessment st as the
coector s authorty for fng cam n any bankruptcy or recevershp proceedng.
Such unpad porton wth nterest as provded n secton 29 of the ct and
secton 404 of the Revenue ct of 1935, may be coected from the ta payer by
dstrant or proceedng n court wthn s years after the termnaton of the
bankruptcy, debtor, or recevershp proceedng. tensons of tme for the pay-
ment of such unpad amount may be granted In the same manner and sub|ect
to the same provsons and mtatons as provded n sectons 272(|), as amended
by secton 16 of the Revenue ct of 193 , and 297. (See artce 1173.)
Ths artce deas ony wth Immedate assessments provded for In secton 274,
as amended, and the procedure In connecton wth such assessments.
G
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207
274, rt. 274-1.
rtce 274-1 of Reguatons 6 s amended to read as foows:
rt. 274-1. ankruptcy and recevershp proceedngs. Durng a bankruptcy
court, the assets of the ta payer are n genera under the contro of the court
n whch such proceedng s pendng, and the coecton of ta es can not be made
provsons of aw are not under the contro of the court may be sub|ect to
dstrant.
the term ad|udcaton of bankruptcy Incudes, In addton to an ad|udcaton
n a proceedng under Chapters I to II, the approva of a petton as propery
fed under secton 77 or 77 or Chapter by a court of competent ursdcton
or the fng of a petton under secton 74 or 75 or Chapters I to III wth a
court of competent ursdcton.
trustee n bankruptcy (ncudng a trustee, recever, debtor n possesson, or
other person desgnated as n contro of the assets of a debtor n any bankruptcy
proceedng by order of the court n whch such proceedng s pendng) or a
recever n any recevershp proceedng Is requred to gve notce n wrtng to
the Commssoner of Interna Revenue In Washngton, D. C, of the ad|udcaton
of bankruptcy or the appontment of a recever. (See secton 274(a) and
artce 275-1.)
payer n any bankruptcy or recevershp proceedng, and n any event wthn the
and the orders of the court n whch such proceedng s pendng, fe cam
coverng such abty n the court n whch such proceedng s pendng. Such
cam shoud be fed whether the unpad ta es nvoved have been assessed or
not, e cept n cases where the departmenta nstructons drect otherwse for
e ampe, where the payment of the ta es s secured by a suffcent bond. Such
cam shoud cover the amount represented by the assessment, pus nterest at
the rate of 6 per cent per annum for the perod from the date of fng cam
by the coector to the date of termnaton of the bankruptcy or recevershp
proceedng or to the date of payment f payment s made n fu pror to such
termnaton. t the same tme cam s fed wth the bankruptcy or recevershp
court, the coector w send notce and demand for payment to the ta payer
together wth a copy of such cam.
Statutes, as amended (paragraphs 40 and 41, respectvey, of the ppend
to these reguatons), and secton 04 of the ankruptcy ct, as amended, ta es
are entted to the prorty over other cams theren stated and the trustee,
assets of the debtor by the court n whch bankruptcy or recevershp pro-
ceedng s pendng, may be hed personay abe for faure on hs part to
protect the prorty of the Government respectng ta es of whch he has
notce. ankruptcy courts have |ursdcton under the ankruptcy ct, as
amended, to determne a dsputes regardng the amount and vadty of
ta es of a bankrupt or of a debtor n a proceedng under the ankruptcy ct,
as amended. bankruptcy or recevershp proceedng does not dscharge any
porton of a cam of the Unted Sttes for ta es e cept In the case of a
proceedng under Chapter of the ankruptcy ct, as amended, and e cept
to the e tent whch may be provded In a pan or arrangement duy effectu-
ated n a bankruptcy proceedng: and any porton of a cam of the Unted
States for ta es whch has been aowed by the court In whch the bankruptcy
or recevershp proceedng Is pendng and whch remans unsatsfed after the
termnaton of the bankruptcy or recevershp proceedng sha be coected
wth nterest as provded In secton 29 .
rtce 274-2 of Reguatons 6 s amended to read as foows:
rt. 274-2. Immedate assessments n bankruptcy and recevershp cases.
If the Commssoner has determned that a defcency s due In respect of
ncome ta and the ta payer has fed a petton wth the oard of Ta
ppeas pror to the ad|udcaton of bankruptcy or the appontment of a
recever, the trustee, recever, debtor n possesson, or other person desgnated
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274, rt. 274-1.
20
as n contro of the assets of the debtor by the court n whch the bankruptcy
or recevershp proceedng s pendng, may prosecute the ta payer s appea
before the oard as to that partcuar determnaton. No petton sha be
fed wth the oard for a redetermnaton of the defcency after the ad|ud-
caton of bankruptcy or the appontment of a recever.
for consderaton, may bo fed wth the court n whch the bankruptcy or
recevershp proceedng s pendng wthout awatng fna decson of the
oard. In case of fna decson of the oard before the termnaton of the
bankruptcy, debtor, or recevershp proceedng, a copy of the oard s decson
may be fed by the Commssoner wth the court n whch such proceedng
s pendng.
Whe the Commssoner s requred by secton 274 to make mmedate assess-
ment of any defcency, such assessment s not made as a |eopardy assessment
wthn the meanng of secton 273, as amended by secton 19 (a) and (e) of
the Revenue ct of 193 , and consequenty the provsons of that secton do not
appy to any assessment made under secton 274. Therefore, the notce of the
defcency provded for n secton 273(b) w not be maed. though such
notce w not be ssued, nevertheess a etter w be sent to the ta payer,
or to the trustee, recever, debtor n possesson, or other person desgnated
by the court n whch the bankruptcy or recevershp proceedng s pendng
as n contro of the assets of the debtor, notfyng hm n deta how the
defcency was computed, that he may furnsh evdence showng wheren the
defcency s ncorrect, and that upon request he w be granted a hearng
wth respect to such defcency. If after such evdence s submtted and hearng
hed any ad|ustment appears necessary n the defcency, approprate acton
w be taken. copy of the notfcaton etter w be attached to the assess-
ment st as the coector s authorty for fng cam n any bankruptcy or
recevershp proceedng.
Such unpad porton wth nterest as provded n secton 29 of the ct and
secton 404 of the Revenue ct of 1935, may be coected from the ta payer by
dstrant or proceedng n court wthn s years after the termnaton of the
bankruptcy, debtor, or recevershp proceedng. tensons of tme for the
payment of such unpad amount may be granted n the same manner and sub-
|ect to the same provsons and mtatons as provded n sectons 272(|), ns
amended by secton 16 of the Revenue ct of 193 , and 297. (See artce 272-3.)
Ths artce deas ony wth mmedate assessments provded for n secton
274 and the procedure n connecton wth such assessments.
rtce 274-1 of Reguatons 94 (secton 3.274-1 of Tte 26, Code of
edera Reguatons) s amended to read as foows:
rt. 274-1. ankruptcy and recevershp proceedngs. Durng a bankruptcy
court, tbe assets of the ta payer are n genera under the contro of the court n
whch such proceedng s pendng, and the coecton of ta es can not be made
provsons of aw are not under the contro of the court may be sub|ect to ds-
trant.
the term ad|udcaton of bankruptcy ncudes, n addton to an ad|udcaton
n a proceedng under Chapters I to II, the approva of a petton as propery
fed under secton 77 or 77 or Chapter by a court of competent |ursdcton or
the rng of a petton under secton 74 or 75 or Chapters I to III wth a
court of competent |ursdcton.
trustee n bankruptcy (ncudng a trustee, recever, debtor n possesson,
or other person desgnated as n contro of tbe assets of a debtor n any bank-
ruptcy proceedng by order of the court n whch such proceedng s pendng) or
a recever n any recevershp proceedng s requred to gve notce n wrtng
to the Commssoner of Interna Revenue n Washngton, D. C, of the ad|udca-
ton of bankruptcy or the appontment of a recever. (See secton 274(a) and
artce 275-1.)
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209
5 274. rt. 274-1.
payer In any bankruptcy or recevershp proceedng, and n any event wthn the
and the orders of the court n whch such proceedng s pendng, fe cam cover-
ng such abty In the court n whch such proceedng s pendng. Such cam
shoud be fed whether the unpad ta es nvoved have been assessed or not,
e cept In cases where the departmenta nstructons drect otherwse for e am-
pe, where the payment of the ta es s secured by a suffcent bond. Such cam
shoud cover the amount represented by the assessment, pus nterest at the rate
of 6 per cent per annum for the perod from the date of fng cam by the co-
ector to the date of termnaton of the bankruptcy or recevershp proceedng or
to the date of payment f payment s made n fu pror to such termnaton.
t the same tme cam s fed wth the bankruptcy or recevershp court, the
coector w send notce and demand for payment to the ta payer together wth
a copy of such cam.
Statutes, as amended (paragraphs 41 and 42, respectvey, of the ppend to
these reguatons), and secton 64 of the ankruptcy ct, as amended, ta es are
entted to the prorty over other cams theren stated and the trustee, re-
cever, debtor n possesson, or other person desgnated as n contro of the
assets of the debtor by the court n whch bankruptcy or recevershp pro-
ceedng s pendng, may be hed personay abe for faure on hs part to
protect the prorty of the Government respectng ta es of whch he has notce.
ankruptcy courts have ursdcton under the ankruptcy ct, as amended, to
determne a dsputes regardng the amount and vadty of ta es of a bank-
rupt or of a debtor n a proceedng under the ankruptcy ct, as amended.
bankruptcy or recevershp proceedng does not dscharge any porton of a
cam of the Unted States for ta es e cept n the case of a proceedng under
Chapter of the ankruptcy ct, as amended, and e cept to the e tent whch
may be provded n a pan or arrangement duy effectuated n a bankruptcy
proceedng and any porton of a cam of the Unted States for ta es whch
has been aowed by the court n whch the bankruptcy or recevershp pro-
ceedng s pendng and whch remans unsatsfed after the termnaton of the
bankruptcy or recevershp proceedng sha be coected wth nterest as pro-
vded n secton 29 .
rtce 274-2 of Reguatons 94 (secton 3.274-2 of Tte 26, Code
of edera Reguatons) s amended to read as foows:
kt. 274-2. Immedate assessments n bankruptcy and recevershp cases.
If the Commssoner has determned that a defcency s due n respect of n-
come ta and the ta payer has fed a petton wth the oard of Ta ppeas
pror to the ad|udcaton of bankruptcy or the appontment of a recever, the
trustee, recever, debtor n possesson, or other person desgnated as n contro
of the assets of the debtor by the court n whch the bankruptcy or recever-
shp proceedng s pendng, may prosecute the ta payer s appea before the
oard as to that partcuar determnaton. No petton sha be fed wth the
oard for a redetermnaton of the defcency after the ad|udcaton of bank-
ruptcy or the appontment of a recever.
Whe the Commssoner s requred by secton 274 to make mmedate assess-
ment of any defcency, such assessment s not made as a eopardy assessment
wthn the meanng of secton 273, as amended by secton 1 ) (n) and (e) of
the Revenue ct of 193 , and consequenty the provsons of that secton do not
appy to any assessment made under secton 274. Therefore, the notce of the
defcency provded for n secton 273(b) w not be maed. though such
notce w not be Issued, nevertheess a etter w be sent to the tn payer, or
to the trustee, recever, debtor n possesson, or other person desgnated by the
court In whch the bankruptcy or recevershp proceedng s pendng as n con-
tro of the assets of the debtor, notfyng hm n deta how the defcency was
computed, that he may furnsh evdence showng wheren the defcency s
Incorrect, and that upon request he w be granted a hearng wth respect to
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1001, rt. 1001-5.
210
such defcency. If after such evdence s submtted and hearng hed any
ad|ustment appears necessary n the defcency, approprate acton w be taken.
copy of the notfcaton etter w be attached to the assessment st as the
coector s authorty for fng cam n any bankruptcy or recevershp
proceedng.
Such unpad porton wth nterest as provded n secton 29 may be coected
from the ta payer by dstrant or proceedng n court wthn s years after the
termnaton of the bankruptcy, debtor, or recevershp proceedng. ten-
sons of tme for the payment of such unpad amount may be granted n the
same manner and sub|ect to the same provsons and mtatons as provded
n sectons 272(|), as amended by secton 16 of the Revenue ct of 193 , and
297. (See artce 272-3.)
Ths artce dens ony wth mmedate assessments provded for n secton
274 and the procedure n connecton wth such assessments.
sectons of aw: Sectons 274 and 62 of the Revenue ct of 1936 (49
Stat., 1725, 1673 26 U. S. C, Sup. I , 274, 62) sectons 274 and 62
of the Revenue ct of 1934 (4 Stat., 744, 700 26 U. S. C, 274, 62)
sectons 274 and 62 of the Revenue ct of 1932 (47 Stat, 237, 191)
sectons 274 and 62 of the Revenue ct of 192 (45 Stat., 56, 10)
and sectons 2 2 and 1101 of the Revenue ct of 1926 (44 Stat., 62,
111).)
Guy T. everno,
pproved pr 3, 1939.
ohn W. anes,
SUPPL M NT O. O RP YM NTS.
S CTION 322. R UNDS ND CR DITS.
rtce 322 1: uthorty for abatement, credt, and refund of ta .
R NU CT O 1036.
ssgned cam e ecuted by assgnor and transmtted by assgnees
(See G. C. M. 2105 , page 2 0.)
TITL III. G N R L PRO ISIONS.
rtce 1001-5: Lmted partnershp as corporaton.
R NU CT OP 1936.
mendment of Reguatons 94, artces 1001-5 and 1001-6. (See
T. D. 4 94, page 79.)
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211 22(a), rt. 22(a)-.
INCOM T RULINGS. P RT III.
R NU CTS O 1935 ND 1934 OR PRIOR CTS.
SU TITL . G N R L PRO ISIONS.
D INITION.
rtce 22(a)-: What ncuded n gross ncome.
R NU CT O 19 4.
mendment of artce 22(a)-. (See T. D. 4 79, page 159.)
rtce 22(a)-: What ncuded n gross ncome. 1939-9-9734
Ct. D. 13 6
INCOM T R NU CT O 1S21 D CISION O COURT.
1 Income Omsson rom Returns or Profts on Saes-
raud Ta vason.
Decedent, an offcer of a corporaton, n 1922 and 1923 receved
bonds as profts from saes of o negotated by hm for the corpora-
ton, but conceaed the recept thereof from the corporaton and
mnged the bonds and coupon proceeds wth hs own funds.
congressona commttee havng begun an nvestgaton of ths and
other smar corporatons n May, 1923, the decedent resgned hs
offce In September, 1923, turned over certan bonds to hs son for
devery to the corporaton n case of hs death or durng hs fe
upon hs wrtten order, and went abroad n December of that year.
In 1925, whe n Canada, the decedent dscosed the 1922 and 1923
transactons to certan offcas of the corporaton and gave an
order upon hs son for devery of bonds to the corporaton n an
amount coverng those receved pus the coupons dsposed of.
ed, that the oard of Ta ppeas was ampy ustfed n fndng
that the decedent took the bonds as hs own, that he was therefore
sub|ect to ta thereon even though the corporaton coud have
recamed them, and that he frauduenty omtted them from hs
1922 and 1923 returns, wth ntent to evade ta .
2. Decson ffrmed.
Decson of the Unted States oard of Ta ppeas (1937)
(35 . T. ., 975) affrmed.
Umted States Crcut Court of ppeas for the Second Crcut.
The Natona Cty ank of Neto York, ecutor, state of ames . O NeU,
Deceased, pettoner, v. Chty T. Ieverng, Commssoner of Interna Revenue,
respondent.
9 ed. (2d), 93.
On petton for revew of a decson of the oard of Ta ppea , assessng tbe pettoner
for ncome ta defcences for the years 1022 and 1921 .
efore Manton, L. and, and ugustus N. and, Crcut udges.
uy 11, 193 .
OPINION.
L. and, Crcut udge: Ths case arses on a petton to revew an order of
the oard of Ta ppeas, assessng an ncome ta defcency for each of the
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22(a), rt. 22(a)- .
212
years 1922 and 1923 aganst the pettoner, as e ecutor of ames . O Ne. The
facts are as foows: Durng the years 1D21, 1922, and 1923 O Ne was presdent
and genera manager of the Prare O Gas Co. e resgned on September 11,
1923, eft for rance n December of that year, and so far as the record shows,
dd not return unt some tme durng the year 192 he ded on ugust 21, 1931,
a resdent of the cty of New York. In 1921 two Te as o companes, controed
by one, umphreys, owned arge o feds whch umphreys wshed to e pot.
O Ne, one ackmer, and Stewart, presdent of the Standard O Co. of Indana,
went over these feds, and about the mdde of November, ackmer brought n
Sncar, presdent of the Sncar Refnng Co., whom he tod that he had aready
arranged to buy 30,000,000 barres of o from umphreys. On the 16th ard
17th, O Ne, Stewart, Sncar, ackmer and umphreys agreed upon a prce
of 1.75 to the Prare, Sncar and Standard O companes and ackmer and
umphreys agreed prvatey upon a prce of 1.50 a barre between themseves.
ackmer tod the other three that ther companes must buy from the Contnen-
ta Tradng Co., Ltd., a Canadan company, organzed on the 16th by a Toronto
barrster, named Oser. They agreed one contract was made by whch um-
phreys s companes were to se 33,000,000 barres to the Contnenta company at
1.50 a barre another, by whch the Contnenta company was to se to the
Prare and Sncar companes the same o at 1.75. (The Standard O Co.
shared n ths contract wth the Sncar company.) These contracts were ater
ratfed by the Standard O Co., the Prare company and the Sncar company,
a of whch knew of the dfference n prce between the two contracts. ppar-
enty at about the same tme Sncar tod ackmer that he woud e pect some
part of that dfference for hmsef, and on the 26th, Oser tod Stewart that he
aso mght have a share. Stewart thereupon e ecuted a decaraton of trust to
hs company of any nterest that he mght receve nformed one of ts offcers,
and put the nstrument n hs safe depost bo . It does not appear when O Ne
decded to take a part, but he must have done so, for he, ackmer, Sncar and
Stewart dvded the dfference between themseves In substantay equa propor-
tons, and a kept any knowedge of t from ther companes, e cept as we have
|ust stated as to Stewart. ppe ne was ad and the o began to run n anu-
ary of 1922 arge profts resuted, amountng durng the year 1922 and up to
une, 1923, to over 3,000,000. s the money came In, Oser bought Lberty bonds
wth t whch he dstrbuted among the four: 727,000 each to O Ne and ack-
mer 759,500 to Stewart and 750,000 to Sncar. (O Ne receved 441,000 n
1922 and 2 6,000 n 1923, the ast devery was probaby on une 15.) It does
not defntey appear what O Ne dd wth hs bonds unt the end of 1923
e cept that he cpped a the coupons for 1922 and 1923 and n ugust, 1922,
and une, 1923, cashed them on at east 162,000 of the bonds and deposted the
proceeds n hs bank. e apparenty m ed them wth a number of other bonds
and may never have reduced the entre batch beow those whch he receved
a we know s that he used at east 31,000 of those comng from the Contnenta
company for hs own purposes n 1924.
commttee of the Senate began to nvestgate the whoe transacton n May of
1923 ths apparenty frghtened those n contro of the Contnenta company,
for on Say 26 they sod the contract to the Prare and Sncar companes for
400,000, athough ony one-thrd of the o had at the tme been devered and
the sum was totay nadequate. Shorty before O Ne eft for rance n
December, 1923, he devered to hs son three or four packages of bonds teng
hm that among them were 727,000, the property of the Prare company, whch
hs son was to dever to t n case of hs death, or durng hs fe upon hs wrtten
order. In May, 1925, whe n Canada, he had an ntervew wth hs former secre-
tary, ountz, and tzpatrck, the charman of the Prare company s board of
drectors, and ts attorney, anney. e tod them of the bonds and that he had
aways ntended to keep them apart and gve them to the Prare company: that
he had never returned them as part of hs ncome, and had cpped the coupons
by mstake. e gave no e panaton of hs faure to nform the company earer,
e cept that there wore other persons concerned who mght be n|ured by the
dscosure. Thereupon he gave ountz an order upon hs son for 00,000 n
Lberty bonds, addng 73,000 for the coupons he had dsposed of, and on ths
order the son devered that number to the Prare company.
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213
22(a), rt. 22(a)-.
O Ne fed ncome ta returns on une , 1923, and on une 9, 1924 nether
one ncuded the bonds, nor dd Stewart, ackmer or Sncar ncude thers n
ther returns. owever, on ebruary 23, 192 , nckmer s attorney tod the
ta ng offcas of those whch ackmer had receved, and the Commssoner
thereupon assessed nm and on ugust 2G, 1929, posted a etter to O Ne pro-
posng to assess hm aso. The defcency notce was sent to hs e ecutor on
uy 11, 1934.
The ta payer rases three ob|ectons: (1) that O Ne never regarded the bonds
as hs own, but hed them aways as agent or trustee for hs company (2) that
even though he had taken and hed them as hs own, they were not hs property
and as constructve trustee he coud not be ta ed upon them (3) that assumng
that he coud be ta ed, he dd not so understand t, and therefore dd not fe
frauduent returns wthn the meanng of the statute. s to the frst pont, f
O Ne aways meant to hod the bonds as agent for hs company, he went about
t n a curousy ndrect and covert way, for there was no apparent reason why
be shoud not have turned them over at once. Stewart dd mean to take them ony
as trustee, and he at once dvested hmsef of any nterest n them, whe contnu-
ng to protect the others concerned. Why coud not O Ne have done the same
thng It was not even necessary to nform another offcer of hs company an
effectve trust coud have been set up through a thrd person who woud have kept
bs confdence. The transacton on ts face had every earmark of the usua ct
bonus or commsson, and there s not a shred of evdence that he ever Intended
anythng ese unt December, 1923: f there had been, t woud be hard to recon-
ce t wth cppng the coupons and depostng more than a ffth of them to hs
own account. The decaraton and devery to hs son n December, 1923, had no
ega effect, and nobody suggests that t had t s put forward as evdence of the
ntent wth whch he had orgnay receved the bonds, ke the eventua resttu-
ton n May, 1925. There s however no reason so to construe It. In the frst pace
t was atogether nadequate as resttuton he parted wth no contro, at most
t was an e presson of pous desre to be reazed n the future. ut even f
t were more, t coud hardy throw any ght upon the ntent wth whch he had
receved the bonds n 1922, because there was another adequate, and very dffer-
ent, motve for t. When the Senate commttee began to unearth the affar n
May, 1923. as we have sad, a those concerned at once took frght and canceed
the arrangement. though the companes dd not know t ater of the dstrbu-
ton of the profts, they mght fnd out and prudence dctated at east a gesture,
ookng towards resttuton. We aso thnk that the decaraton ought not to
reate back to O Ne s ntent when he receved the bonds of May and une, 1923.
If t dd, why was t so ong deayed though we do not know why he
resgned n September and eft for rance n December for a four years absence,
and whe perhaps we may not connect these events wth the progress of the
Investgaton, t woud be at east gratutous to assume that the decaraton was
n fact not actuated n any degree at a by dscosures made after une. It
appears to us that the oard was ampy |ustfed n fndng that he took a the
bonds as hs own.
It s another matter whether even so they were part of hs ta abe ncome.
They were of course the property of the Prare company n the sense that t
coud have recamed them: they were not therefore ke the earnngs of an -
ct quor seer, whch beong to hm, however acqured. (Unted States v.
uvan, 274 U. S., 259 T. D. 402 , C. . I-2, 177 (1927) Stenberg v.
Unted States, 14 ed. (2d), 564 tS. C. . 2).) ut there are severa cases n
whch persons have been ta ed upon property whch coud be recovered from
them. or e ampe, the ender upon usurous nterest f on an accrua bass
must ncude hs apparent proft In hs return, though possby he may be aowed
to deduct t as a oss f the borrower recams It. ( arker v. Magruder,
ed. (2d), 122 (O. . D. C.).) gan, when a raroad coects too arge
fares, the e cess s Income, though the passengers have a theoretca rght of
resttuton. (Chcago R. I. d P. Ry. v. Commssoner, 47 ed. (2d), 990 (C. C. .
).) In oard v. Commssoner (51 ed. (2d), 73, 75 (C. C. . 6)), an
unawfu bonus obtaned by a drector at hs company s e pense was hod to be
Income: and, athough the ta payer seeks to dstngush the decson because
the company knew of the arrangement, that dd not make t awfu. There
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22(a). rt. 22(a)-.
214
are Indeed decsons to the contrary. Commssoner v. Turncy ( 2 ed. (2d),
6G1 (C. C. . 5)) s one, but t was by a dvded court. Our own decson
n Rau v. Unted States (260 ed. Rep., 131) s another, whch Unted States
v. Commcrford (64 ed. (2d), 2 ) can not be sad to overrue. ut n
Rau v. Unted States the resut dd not turn on that pont aone, and t probaby
dd not receve the attenton t otherwse woud have had. t any rate we are
dsposed to overrue t, because, athough the decsons are not, as we have shown,
entrey harmonous, the weght of authorty s aganst t, and It seems to us
wrong n prncpe. though ta es are pubc dutes attached to the ownershp
of property, the State shoud be abe to e act ther performance wthout beng
compeed to take sdes n prvate controverses. Possesson s n genera
prma face evdence of ownershp, and s perhaps ndeed the source of the con-
cept tsef, though the tme s ong past when t was synonymous wth t. It
woud be ntoerabe that the ta must be assessed aganst both the putatve
tortfeasor and the camant coecton of the revenue can not be deayed, nor
shoud the Treasury be compeed to decde when a possessor s cams are wth-
out ega warrant. If he hods wth cam of rght, he shoud be ta abe as an
owner, regardess of any nfrmty of hs tte no other doctrne s practcay
possbe, and no n|ustce can resut. We thnk therefore that O Ne was
ta abe upon the bonds for the years 1922 and 1923.
Whether he frauduenty omtted them from hs returns on une , 1923, and
une 9, 1924, s a more dffcut queston. It s not enough that he was de-
fraudng hs prncpa, or knew that he was he must have meant aso to
defraud the Treasury. True, he knew that n one way or another he was dong
|ust that, because the bonds were somebody s ncome, and nobody was payng a
ta upon them but t does not foow, because he was suppressng them so that
the Prare company coud not decare them though that may be an actonabe
wrong that hs return was frauduent and made wth an ntent to evade hs
own ta . We sha assume arguendo, that the statute requres that ntent.
thngs are possbe and t may be that even whe O Ne hed the bonds
meanng to keep them, he thought that he was not ta abe but that s too
e treme a con|ecture to be serousy entertaned. So far, therefore, as con-
cerns hs return on une , 1923, made at a tme when he had not shown the
east dsposton towards resttuton and whe he was st busy takng bonds
and hodng them surrepttousy, the case s cear. The return of une 9,
1924, stands on a dfferent footng, and f hs decaraton of December, 1923,
and hs subsequent conduct had been ess equvoca, our doubts mght preva.
On the whoe we thnk that there was enough to |ustfy the concuson that
he understood that he shoud have charged these as we aganst hmsef.
We have aready sad that we beeved that when he took hs aotments n
May and une, 1923. he meant to keep them for hmsef, and we have |ust
hed that as to such bonds t was absurd to suppose that he thought hmsef
not ta abe. Therefore, we have ony to consder how far he mght have
supposed that the transacton wth hs son changed the stuaton. e s dead,
and f he were ave, hs testmony woud not be concusve we can not knoo
what he thought, but we do know what he dd n the year before we know
that hs decaraton n fact reated ony to the future and we know that n the
sprng of the year 1924 he was contnung to treat these bonds as hs own.
though fraud must be we proved, the ta payer has the burden of show-
ng that the Commssoner was wrong and that the oard had no bass for
ts fndng. When the stuaton as a whoe s reconstructed, so far as the
evdence aows, t appears to us that there s ratona ground for sayng
that he knew that hs return of 1924 shoud contan the bonds of 1923, |ust
as the earer return shoud have. nd, ndeed, athough we recognze that
the ssues are dfferent, we are not dsposed to scrutnze wth too |eaous
an eye whether he thought a fraud on the Treasury n whch he was certany
engnged, woud nure to hs own advantage, or to that of a prncpa whch
he had so recenty shown hmsef ready to despo.
Order affrmed.
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215
1522(a), rt. 22(a)-.
rtce 22(a)-: What ncuded n gross ncome. 1939-13-9766
Ct.D. 13 9
INCOM T R NU CT O 102 D CISION O COURT.
1 INCOM S L O STOC SSIGNM NT O MPLOYM NT CON-
TR CT Defecton of Income to be arned vodance op
Ta .
The pettoner, after arrvng at an understandng wth the M
Corporaton for the sae at a certan prce of a the common stock
of the N Corporaton, of whch he was an empoyee and the
ma|orty of the stock of whch he controed, organzed two new
corporatons, O and P, whch he owned and controed. e then
acqured optons on the baance of N s stock, and entered nto a
wrtten contract wth M for the sae of the stock at the prce agreed
upon, but whch provded that part of the purchase prce was to
be pad for the stock and the baance for the empoyer nterest n
a persona servce contract wth O. Thereafter, pettoner offered
to O an opton on the stock of N whch he controed and an assgn-
ment of the optons he hed, whch offers were accepted. O then
assgned the optons and empoyment contract to P, whch e er-
csed the optons, sod to M the shares t had acqured, and trans-
ferred the empoyment contract to a subsdary of M In e change
for sock of M, whch was subsequenty reacqured for a sum equa
to that pad for the empoyment contract. ed, that the varous
transactons, ntrcate and nvoved as they were, were smpy
antcpatory arrangements for the defecton of ncome to be earned
and must be dsregarded for ta aton purposes, and that the sum
pad for the shares gven In e change for the empoyment contract
was ta abe as Income of the pettoner.
2, Decson ffrmed.
Decson of the Unted States oard of Ta ppeas (1937) ( 6
. T. ., 14) affrmed.
. Rehearng Dened.
Petton for rehearng dened October 4, 193 .
Unted States Crcut Court of ppeas fob the ourth Crcut.
Waace Groves, pettoner, T. Commssoner of Interna Revenue, respondent.
99 ed. (2d), 179.
On petton to revew the decson of the Unted States oard of Ta ppeas.
efore Pakkeb and Northoott, Crcut udges, and ates, Dstrct udge.
une 6, 193 .
opnon.
Northcott, Crcut udge: Ths Is a petton to revew a decson of the Unted
States oard of Ta ppeas nvovng Income ta es of Waace Groves, the
pettoner, for the year 1930 n the amount of 137,449.57. The decson of the
oard s reported n 36 . T. ., 14.
The facts as found by the oard, about whch there s no dspute, are as
foows:
Pettoner, now a resdent of New Tork, was In 1931 a resdent of atmore,
Md.. where he fed hs ncome ta return for 1930. In 1929 and nto 1930 he was
empoyed by rst Industra ankers, Inc., engaged n the sma oan busness,
at an annua saary of 12,000. That corporaton was orgnnzed anuary 9,
1929, and ts outstandng shares In 1930 were 54.000 common and 46,296 pre-
ferred. Of the 54.000 common, 1 ,000 were owned In equa shares by emont
Co., C. T. Wams Co., and the ankers ond Share Co., and 36,000 were
owned by the rst Industra Corporaton, of whch pettoner was an offcer
and drector. Pettoner controed the 36.000 shares hed by the rst Indus-
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22(a), rt. 22(a)- .
216
tra odng Corporaton. In the hearng before the oard It was stated by
pettoner s counse that pettoner or hs brother was the prncpa hoder of
the common shares of the rst Industra odng Corporaton.
In une, 1930, rthur M. Greene, presdent of the Merchants Manufacturers
Securtes Co., Informay began negotatons wth the pettoner ookng to the
acquston of an nterest n rst Industra ankers, Inc., whch resuted n
an understandng that the Securtes company shoud acqure the 54,000 com-
mon shares for 1,000,000 and that rst Industra ankers, Inc., shoud be
merged wth the Domestc nance Corporaton, subsdary of the Securtes
company. Ths understandng was then to be emboded In a wrtten agreement,
the mechancs and detas of whch were to be eft entrey wth the attorneys
and accountants of Greene.
On une 20, 1030, pettoner caused the rnbank Corporaton to be organzed,
wth an authorzed capta stock of 5,000 shares of 10 par vaue.
On une 21, 1930, the Wagegro Corporaton was organzed wth nn authorzed
capta stock of 1,000,000, consstng of 5,000 cass and 5,000 cass shares,
and pettoner and hs brother mmedatey became drectors. The pettoner
owned and controed both these companes.
On une 26, 1930, pettoner acqured optons to purchase the 1 ,000 shares of
rst Industra ankers, Inc., from emont Co., C. T. Wams Co., and
the ankers ond Share Co., for 191,146.14.
The wrtten agreement between Greene, representng the Securtes company,
and the pettoner s dated une 27, 1930. It provded for the efforts of both
to accompsh the merger of Domestc nance and rst Industra ankers,
Inc., and set forth the detas of the contempated method of accompshng
such merger, among whch was the acquston by Domestc nance of the
54,000 common shares of rst Industra ankers, Inc., In e change for 1 ,000
common shares of Domestc nance. It provded that upon such merger pet-
toner woud cause the sad 1 ,000 common shares of Domestc nance to be
devered to the Securtes company.
Pettoner agreed that on or pror to the date of cosng the merger he woud
enter nto an empoyment contract wth the Securtes company or such other
company or corporaton as shoud have authorty to engage n the sma oan
busness, agreeng to devote hs entre tme and servces for a perod begn-
nng on the date of the cosng of the merger and endng anuary 1, 1933, for
an annua saary of 1 ,000 and bndng hmsef not to engage drecty or n-
drecty n any busness n competton wth hs empoyment or through ts
subsdary or affated companes n the so-caed sma oan busness for a
perod of two years from and after the date of termnaton of the empoyment
contract. The pettoner further agreed that upon the date of the cosng of the
contract and the payment of the consderaton he woud cause the empoyer
nterest n sad contract to be vested n such corporaton as the Securtes com-
pany woud desgnate.
The wrtten agreement stpuated that as payment for sad 1 ,000 shares of
common capta stock of Domestc nance Corporaton there woud be pad
the sum of 425,000 n cash, and as payment for the assgnment of the empoy-
ment contract there woud be transferred 23,000 shares of cass stock of the
Securtes company accompaned by the commtment of some person, frm or
corporaton to purchase sad 23,000 shares for the sum of 575,000, the Secur-
tes company guaranteeng the performance of the obgatons of sad
commtment.
On ugust , 1930, pettoner made an offer to the rnbank Corporaton of
an opton to purchase 36,000 shares of rst Industra ankers, Inc., for
300,000, an assgnment of optons hed by hm for the purchase of 1 .000 such
shares, and 5,000 n cash, n e change for the ssuance to hm by the rn-
bank Corporaton of ts 5,000 shares of capta stock. On the same date, ths
offer was accepted and the opton coverng 36,000 shares controed by the
pettoner was e ecuted, and those optons coverng the 1 ,000 shares were
assgned. On the same date, pettoner and the rnbank Corporaton agreed
that pettoner woud e empoyed by the corporaton for the perod ugust 15,
19. ,0, to anuary 1, 1933, and woud receve compensaton of 1,500 a month,
and woud refran from the sma oan busness, e cept n New Me co and
rzona, for two years after termnaton of the empoyment.
t the frst meetng of the drectors of Wagegro, on ugust , 1930, pettoner
was eected presdent and treasurer. t the meetng consderaton was gven to
an offer dated ugust , 1930, of rthur Greene to purchase from the corporaton
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22(a). rt. 22(a)-.
5,000 of Its cass shares for 300,000 n cash, the shares to be Issued n
Greene s name. The offer was accepted. Thereupon the drectors mmedatey
resgned, and Greene, Dastream, and D on were eected n ther paces.
Dastream and D on were assocates of Greene. Greene was now the Wagegro
Corporaton s soe sharehoder. On ugust 11, 1930, the charter of the Wagegro
Corporaton was amended as the resut of a stockhoders meetng at whch
the pettoner voted a the hares under a pro y from Greene.
On ugust 12, 1930, the rnbank Corporaton made a wrtten offer to the
Wagegro Corporaton, whch was accepted by the Wagegro Corporaton on
ugust 13, 1930, to assgn to Wagegro the four optons for the purchase of 54,000
shares of rst Industra ankers, Inc., and ts empoyment contract wth
the pettoner, n e change for 5,000 cass shares of Wagegro to be ssued to
t On ugust 13, 1930, the four optons and the empoyment contract were
assgned by the rnbank Corporaton to the Wagegro Corporaton, and the
Wagegro Corporaton resoved to e ercse the optons to purchase the 54,000
hares of rst Industra ankers, Inc., for appro matey 500,000. The
optons were e ercsed and the 54,000 shares purchased by the Wagegro Corpo-
raton. t the same meetng, an offer was receved from the Securtes com-
pany to ssue to the Wagegro Corporaton 23,000 shares of ts cass stock
havng a present far market vaue of 575,000, In e change for an assgnment
of the rnbank-Groves empoyment contract ths offer was accepted, and the
empoyment contract was assgned by the Wagegro Corporaton to the Domestc
nance Corporaton by drecton of the Securtes coapany. The far market
vaue of the 23,000 cass shares of Securtes company was 575,000.
On ugust 15, 1930, Greene made an offer to Wagegro, whch Wagegro
accepted, to purchase 23,000 cass shares of the Securtes company for
575,000, payabe 75,000 In cash and 500,000 by the surrender for retrement
of 5,000 cass shares of the Wagegro Corporaton. On the same date, ugust
15, 1930, the Securtes company made .an offer to the Wagegro Corporaton,
whch the Wagegro Corporaton on that date accepted, to purchase the 54,000
common shares of rst Industra ankers, Inc., for 425,000 cash. Thereupon
a the drectors and offcers, vz, Greene, Dastream, and D on resgned and
Groves, Sonutterwerck, and Tayor were eected to ther paces. Sommerwerck
and Tayor were assocates of Groves.
In anuary, 1931, the empoyment contract, whch was then st hed by
Domestc nance Corporaton, was substantay modfed by the partes by a
reducton n the amount of compensaton to 100 a year, n change n the
servces to be rendered by pettoner, and In the e tent of the restrctons
aganst engagng n the sma oan busness.
The 54,000 shares of rst Industra ankers, Inc., were not transferred to
or acqured by the Securtes company n e change for 1 ,000 shares of Domestc
nance Corporaton as provded by the contract une 27, 1930, between the ,
Securtes company and the pettoner.
The rnbank Corporaton s st In e stence and operates as a hodng
company. It st hods the Wagegro shares. The Wagegro Corporaton Is st
a e stence, havng the same capta, and has been actve as a fnance company,
buyng securtes, seng securtes, and buyng notes.
The Securtes company, on ts ncome ta return for the fsca year ended
March 31, 1931, took a deducton of 151,315. 0 as amortzaton of the rnbank-
Groves empoyment contract, computed upon a cost bass of 575,000 amortzed
over the perod ugust 15, 1930, to anuary 1, 1933.
Pettoner owned a the stock of the rnbank Corporaton whch corporaton
In turn owned a the stock of the Wagegro Corporaton.
The Commssoner of Interna Revenue, the respondent here, made a determna-
ton of pettoner s ta abty for the year 1930 f ng the defcency at
173,6 9.57, based chefy on the vaue as f ed by hm of the 23.000 shares of
the Securtes company stock, and upon appea to the oard of Ta ppeas
ths defcency was reduced to 137,449.57, the oard fndng the vaue of the
23,000 shares of the Securtes company stock to be ess than found by the
respondent. The oard hed that certan other tems determned by the respond-
ent were not correct charges but hed that pettoner was propery chargeabe
wth the ta on the 575,000 pad as consderaton for the 23,000 shares turned
over for pettoner s empoyment contract
1721T 39 pt 1 S
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21
The soe queston Invoved Is whether the sura of 575,000 pad for the shares
gven n e change for the empoyment contract, was ta abe as ncome of the
pettoner for the year 1030.
It s contended on behaf of the pettoner that the 23,000 shares of stock
n queston were not receved by hm personay but we fa to see what dfference
ths woud make. The shares were receved by a corporaton owned and
controed absoutey by the pettoner, and the pettoner aona It woud be
hard to fnd a more ntrcate or nvoved fnanca transacton than the one
conceved and carred out by the pettoner n the nstant case. study of the
crcumstances as shown by the record eads to the nevtabe concuson that the
pettoner upon arrvng at an agreement wth Greene wth regard to the sae
of the Industra company stock, reazng that he woud have to pay a arge
ncome ta , set out to devse a scheme to escape at east a part of that ta .
Shorty after negotatons were opened, and wthn the same month, he organzed
the rnbank Corporaton, n whch he owned a the stock, and the ne t day
he organzed the Wagegro Corporaton n whch the rnbank Corporaton n
turn hed a the stock. In the same month ( une 26, 1030) he acqured optons
on the rest of the stock n the Industra company and the ne t day, une 27,
1930, he entered Into a wrtten contract for the sae of a the Industra company
stock for the prce evdenty aready agreed upon but whch provded that
425,000 of the 1,000,000 was to be pad for the stock and 575,000 the baance
of the 1,000,000 was to be pad for the empoyer nterest n a persona servce
contract whch the pettoner entered nto wth the rnbank Corporaton,
whch was entrey owned by hm. Ths persona servce contract was assgned
to another corporaton, the Wagegro Corporaton, aso owned by the pettoner
and was transferred for 23,000 shares of Securtes company stock whch was
sod back to the purchasng company for a prevousy agreed upon prce of
573,000.
Ths persona servce contract whch Groves made wth hmsef, as owner
of rnbauk and mmedatey transferred to hmsef as owner of Wagegro,
was but another step n the deberatey conceved scheme to escape ta aton.
t the tme t was made Groves was free to contract drect wth the Securtes
company, f they wshed to secure hs servces, and the contract entered nto
wth so much formaty was aowed to run ony a short fve months when t was
set asde practcay n ts entrety.
There can be no doubt that the transactons shown here, ntrcate and n-
voved as they were, were smpy antcpatory arrangements for the defecton
of ncome to be earned. Such arrangements must be dsregarded for the pur-
poses of ta aton. s was sad by the Supreme Court n Stone v. Whte (301
U. S., 532 Ct. D. 1232, C. . 1937-1, 224 ):
It s n the pubc nterest that no one shoud be permtted to avod hs ust
share of the ta burden e cept by postve command of aw, .
The fact that pettoner organzed the two corporatons, owned and controed
entrey by hm, n antcpaton of dvertng to them the ncome he knew he
woud earn, nstead of recevng these earnngs hmsef, can not ava hm to
escape a proper ta . ta payer can not enter nto a contract under whch he
assgns to another ncome to be earned and thereby shft the ta on that ncome
from hmsef. ere the assgnment was made to a corporaton the pettoner
hmsef controed. s was sad by Mr. ustce omes In Lucas v. ar (2 1
U. S., I):
ut ths case s not to be decded by attenuated subtetes. It turns on the
mport and reasonabe constructon of the ta ng ct. 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 sk-
fuy 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.
gan n Corss v. o cer (2 1 U. S., 376 Ct. D. 1 , C. . I -1, 254 (1930) ),
Mr. ustce omes sad:
The ncome that s sub|ect to a man s unfettered command and that he s free
to en|oy at hs own opton may be ta ed to hm as hs ncome, whether he sees
t to en|oy t or not.
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22(a), rt. 22(a)-2.
The fact that pettoner eft the money wth hs Wagegro Corporaton, pendng
ths tgaton, can not operate to evpmpt hm from the payment of the ta . In
urnet v. Sanford t rooks Co. (2 2 U. S., 359 Ct. D. 277, C. . -, 363
(1931) ). opnon by Mr. ustce Stone, the Court sad:
It s the essence of any system of ta aton that t shoud produce revenue
ascertanabe and payabe to the Government, at reguar ntervas. Ony by such
a system s t practcabe to produce a reguar fow of ncome and appy methods
of accountng, assessment, and coecton capabe of practca operaton.
s was decded n everng v. Gordon ( 7 ed. (2d), 6(13):
The Government can not be controed by the manpuatons of the ta payer s
accounts, nor by the shftng of funds from one personay domnated corpora-
ton to another, n the enforcement of the ta aws. It s the Commssoner s duty
to ook through forms to substance and to assess the earnngs of corporatons to
ther sharehoders n the year such earnngs are dstrbuted.
It s contended on behaf of the pettoner that the makng of the contract for
persona servces was a devce panned by the attorneys and accountants n the
empoy of Greene to enabe hm (Greene) and hs assocates to escape ta aton
and that ths contract was not what t purported to be and that the 575,000
pad for the assgnment of the empoyer Interest n the contract was n reaty a
part of the agreed purchase prce for the Industra ankers stock. The pet-
toner was a party to ths contract, gave hs fu approva and hs assent to
the arrangement as conceved and carred out and w not now be heard to deny
that the contract was what t purported to be. avng entered nto a scheme
concocted for the soe purpose of perpetratng a fraud upon the Government by
the evason of a proper ta , the pettoner s estopped from denyng the bona
fdes of the contract, when t suts hs purpose to do so, n seekng to evade
ta aton.
The varous steps taken by the pettoner were antcpatory arrangements for
the defecton of ncome. The Wagegro and rnbank Corporatons were not
created by the pettoner for the purpose of carryng on any rea or actua bus-
ness n the ordnary way but ony n furtherance of the scheme to evade ta a-
ton. The oard was |ustfed n ookng through the form to the substance of
the varous transactons arranged and carred out by the pettoner. The pet-
toner n effect receved and st en|oys the possesson of the proceeds of the
sae of the 23,000 shares of the Securtes stock and shoud be ta ed for the
1575.000 as ncome for the year 1930.
ffrmed.
thereof. (See Mm. 491G, page 71.)
ncome ta revenue act of 192 decson of court.
Income Commssons Ta abe When Receved Though Re-
stored n Later Year.
Money whch offcers of a budng and oan assocaton charged
and receved, under cam of rght and wthout restrcton as to use
and dsposton, as commssons on the sae of capta stock of the
assocaton, consttuted ta abe Income for the years n whch re-
ceved, despte the fact that the offcers subsequenty restored the
equvaent thereof (athough wthout |udgments determnng ther
abty to make such restoraton) n settement of suts nst-
tuted aganst them by the recever of the assocaton.
R NU CTS O 1926, 192 , 1932, ND 1934.
rtce 22(a)-2: Compensaton for persona
servces.
1939-25-9 3
Ct. D 1404
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220
Unted States Crcut Court or ppeas foe the Tenth Cbcott.
No. 165 . sther . Saunders, dmnstratr of the state of Mes O.
Saunders, Deceased, v. Commssoner of Interna Revenue.
No. 1062. sther . Saunders, as dmnstratr of the state of Mes .
Saunders, Deceased, appeant, v. Unted States, appeee.
No. 16G3. the L. Westcott, appeant, v. Unted States, appeee.
No. 1664. Thomas L. Lews, appeant, v. Unted States, appeee.
101 . (2d), 407.
On pettons to revew decsons of the Unted States oard of Ta ppeas (No. 165 ).
ppea from the Dstrct Conrt of the Unted States for the Dstrct of Coorado (Noa,
1662, 1663, and 1661).
efore Phps, batton, and Wams, Crcut udges.
anuary 9, 1939.
OPINION.
batton, Crcut udge, devered the opnon of the court
These are four separate cases. The frst s on pettons to revew decsons
of the oard of Ta ppeas, and the other three are appeas from |udgments
of the Dstrct Court of Coorado and the queston common to a of them s
whether money whch offcers of a budng and oan assocaton charged and
receved under cam of rght on the sae of capta stock of the corporaton
and ater returned to the corporaton on the advce of counse but wthout
|udgments determnng ther abty to make restoraton, represents ncome
sub|ect to ta .
Mes . Saunders, the L. Westcott, and Thomas L. Lews were offcers of the
Raway Savngs and udng ssocaton, a corporaton engaged n busness at
Puebo, Coo., durng the years 1929, 1930, and 1931. In makng ther separate
ncome ta returns for the years In queston here they ncuded arge sums
receved as commssons on the sae of capta stock of the corporaton. The
corporaton was paced In recevershp n uy, 1932, and soon thereafter
the recever nsttuted separate suts aganst such former offcers to recover the
respectve sums whch they had receved as such commssons. ctng upon
the advce of counse that they were not entted to keep and retan any of the
sums of money thus receved, the defendants setted the suts by devery of
persona property to the corporaton. The property devered was treated as
fu settements, and the suts were dsmssed wth pre|udce. The defendants
dd not fe any peadngs, and ther abty to the corporaton was not deter-
mned by any |udgment other than an order authorzng the recever to make
the settements, the |udgments of dsmssa In the two cases, and the |udgment
for pantff for the conceded amount n the thrd. Ths tgaton ensued for
the purpose of brngng ther ncome ta matters nto conformty wth the
new stuaton brought about n that manner. In the frst case, Saunders pet-
toned the oard of Ta ppeas for a redetermnaton of defcences n hs
ncome ta es for the years 1930 and 1931 n the respectve amounts of 9 1.3
and 140.52 n the second, he brought sut aganst the Unted States to recover
|udgment for 3,0 .54, wth nterest, as overpayment n ncome ta es for the
year 1929 n the thrd, the L. Westcott smary brought sut to recover
|udgment for overpayment n ncome ta es for the years 1930 and 1931, n the
respectve amounts of , 93.15 and 4,059 and n the fourth, Thomas L.
Lews sought In ke manner to recover |udgment for overpayment In Income
ta es for the years 1930 and 1931, n the respectve amounts of 6,749.95 and
3,73 .64, wth nterest. The court dened the rght to recover for overpayments,
and entered separate |udgments aganst Saunders and Westcott and In favor of
Lews for 0 . 2 on account of an e empton whch s not chaenged here.
(Le cs v. Unted States, 17 . Supp., 543.) Restng Its acton upon that decson,
the oard of Ta ppeas decded adversey to Saunders n respect to hs
asserted defcences for 1930 and 1931. Saunders, Westcott, and Lews perfected
separate appeas, from the |udgments of the court, and Saunders pettoned for
revew of the decson of the oard. Saunders subsequenty ded, and sther
. Saunders, admnstratr of hs estate, was substtuted n hs stead.
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221
5 22(a), rt. 22(a)-13.
Motons were fed In ths court to strke the bs of e cepton In the cases
appeaed from the dstrct court on the ground that they were setted after the
e praton of the term at whch the |udgments were entered and the motons for
new tra were dened, and that such term was not e tended for that purpose.
The terms of court n the Dstrct of Coorado begn at Denver on the frst
Tuesday In May and November, at Puebo on the frst Tuesday In pr, at
Grand uncton on the second Tuesday n September, at Montrose on the thrd
Tuesday In September, at Durango on the fourth Tuesday n September, and
at Sterng on the second Tuesday n une of each year. (2 U. S. C. ., 146.)
Motons for new tra were dened durng the May term at Denver. That
term automatcay e pred at the tme f ed by aw for the convenng of the
ne t term at that pace (Contnenta Petroeum Co. v. Unted States, 7 . (2d),
91) and It was not e tended for the purpose of settng these bs ether by
standng rue or by order entered before the term e pred. Orders were entered
after that term e pred and the November term began, whch purported to
enarge the tme, but they were whoy Ineffectve for such purpose. (Con-
tnenta Petroeum Co. v. Unted States, supra.) The court was wthout urs-
dcton to sette the bs after the e praton of the term at whch the motons
or new tra were dened. (Trame v. Unted States, 56 P. (2d), 142 Unted
State v. ones, 7 . (2d), 1005 Contnenta Petroeum Co. v. Unted States,
supra Unted States v. Rasmussen, 95 . (2d), 42.) The motons to strke are
we taken and the bs are strcken.
Comng to the merts, the ta payers receved under cam of rght and owner-
shp the fund representng commssons on the sae of capta stock durng the
years 1929, 1930, and 1931, and retaned the unrestrcted contro of It n respect
to use and dsposton unt the recever Insttuted the suts aganst them In
1932. That was the frst tme ther rght to the money was questoned. Reve-
nue thus receved under cam of rght and wthout restrcton as to use and
dsposton consttutes ta abe Income, even though the person recevng t may
subsequenty be ad|udged abe to restore t or ts equvaent. (North mercan
O Consodated v. urnet, 2 6 U. S., 417 Ct D. 499, C. . I-1, 293 (1932)
rown v. everng, 291 U. S., 193 Ct D. 7 6, C. . III-1, 223 (1934)
or v. Commssoner, 51 . (2d), 206.)
There was no udca determnaton that these ta payers were obgated to
make restoraton to the budng and oan assocaton. They acted upon the
advce of counse Instead of tgatng the queston to |udgment. ut It Is unnec-
essary to e pore that feature of the stuaton further. The cases ust cted
seem to make t pan that when they receved the fund under cam of rght
and ownershp, and retaned It wthout restrcton as to use and dsposton
unt the suts were fed, t was ncome sub|ect to ta for the respectve years n
whch t was receved despte the fact that they subsequenty made restoraton
of ts equvaent.
The orders of the oard of Ta ppeas and the |udgments of the court are
severay affrmed.
btce 22 (a)-13: Improvements by essees. 1039-1-9657
Ct. D. 1373
INCOM T R NU CT OP 1032 D CISION O SLTR M COURT.
Gross Income Lease Income of Lessor stmated Deprecated
aue of Improvements.
Under a ease of certan property for use as a movng pcture
theater for a term of 10 years begnnng upon competon of mprove-
ments some of whch were to be made by the essee and were to be-
come the property of the essor at the e praton or sooner termna-
ton of the ease, one-tenth of the estmated deprecated vaue, as of
the end of the term of the ease, of the Improvements made by the
essee was not ncome to the essor n the frst year of the term, n
the absence of any fndng that such vaue consttuted addtona
rent for the use of the premses, or that the essee s mprovements
resuted n ncrease In market vaue of the essor s and In the ta -
abe year. ssumng that, sub|ect to the ease, the essor became
the owner of the Improvements at the tme they were made, mere
acquston of that sort dd not amount to contemporaneous re-
azaton of gan wthn the meanng of secton 22(a) of the Revenue
ct of 1932.
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222
Supreme Coubt of the Unted States.
M. . att Co., pettoner, v. Unted State .
305 U. S., 267.
On wrt of certorar to the Court of Cams.
December 5, 193 .
OPINION.
Mr. ustce una devered the opnon of the Court.
Pettoner pad, and n ths sut seeks to recover, an amount Incuded n a
defcency assessment made by the Commssoner of Interna Revenue as add-
tona ncome ta for the year endng anuary 31, 1932. The queston s whether
pettoner s abe under Revenue ct of 1932, secton 22(a).1
The matera substance of the fndngs foows:
or tsef and a subsdary corporaton, pettoner made consodated return.
The Commssoner added to the Income of the subsdary on account of mprove-
ments made to ts property by a essee. e rued the mprovements were ncome
to essor n that year to the e tent of ther vaue at termnaton of the ease.
Lessor purchased the rea estate n 1927, and September 13, 1930, eased t for
use as a movng pcture theater for a term of 10 years, begnnng upon compe-
ton of Improvements to be made. t Its own cost and e pense, essor agreed
to make ateratons n accordance wth pans and specfcatons prepared by an
archtect seected by the partes. Lessee agreed to nsta the atest type of
movng pcture and takng apparatus, theater seats and a other f tures, fur-
nture and equpment necessary for the successfu operaton of a modern
theater to become the property of essor at the e praton or sooner termnaton
of the ease.
Lessor made a contract wth the buder to make the contempated mprove-
ments and agreed to pay, up to a specfed mt, actua cost, pus buder s proft
and archtect s fee. ddtona work ordered by essee was to be pad for by t.
Lessee consented to the terms of the contract and agreed to pay for work and
materas ordered by t. mprovements were competed n anuary, 1931
essee took possesson of the property ebruary 1 of that year.
The tota cost of a Improvements was 114,46 .77 essor pad 73,794.47
essee pad the baance, 40,674.30. The estmated deprecated vaue at the
termnaton of the ease of the ateratons and mprovements pad for by the
essee wbs computed by the Commssoner and was agreed to by the pantff
pettoner , as foows:
Deprecated
vauo at end
of 10 years.
Cost.
(2) Gazng, archtect s fee and other tems .
3,959. 75
10, 36 . 37
760. 0
1 5.97
9.1 7. 24
. 197.39
7,075.42
3,961.36
2,771. 3
7,256.49
(3) Pantng .....
(4) Other mprovements .........
( ) Chars
3,055. 7
2,35 .47
1,9 0.63
Tota
40,674.30
17,423.14
rom these fgures t appears that the cacuatons were based on annua de-
precaton of tems (1) and (2) at 3 per cent, on (5) and (7), at 6 per cent,
on ( ), at 5 per cent, and on (3), (4), and (6), at 10 per cent.
1 Gross Income Incudes gans, profts, and Income 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 In property,
whether rea or persona, growng out of the ownershp or use of or Interest In such prop-
erty: aso from nterest, rent, dvdends, securtes, or the transacton of any busness
carred on for gan or proft, or sans or profts and ncome derved from any source what-
ever. (47 Stat, 17 .) The reguaton apped by the Commssoner (Regu-
atons 77, artce 63) has snce been changed. ( ee Reguatons 1)4 and 0, artcs
22(a)-13.)
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223
22(a), rt. 22(a)-13.
tat the year n queston, the Commssoner added to ncome of essor
1,14231, one-tenth of the cost so deprecated. The resutng addtona ta
as 211.61. Pettoner pad t the Commssoner dsaowed cam for refund.
I The ower court hed pettoner not entted to recover t sustaned the ta on
the ground that, mmedatey upon competon of the mprovements made by
essee, they became the property of essor, and consttuted compensaton pad
by easee as addtona renta for the use of the eased premses.
Pettoner nssts that where mprovements are made by essee, there s no
reazaton of gan at the tme the mprovements are competed that the ac-
cesson of vaue to the property s not ncome but a capta addton. The
Unted States says that, whe the case presents the queston whether depre-
dated vaue of mprovements by essee consttutes ncome to essor n the ta -
abe year, the basc queston s whether ncome s ever reazed by the essor
n such cases, and f so, when. ssumng that mprovements made by essee and
whch w outast the term consttute ncome to essor at some tme, ts bref
dscusses the questons whether the ncome s reazed upon (1) competon of
the mprovements, (2) termnaton of the ease, or (3) dsposton of the m-
proved property. It concudes that the soundest theory seems to be that
such ncome s ta abe at the tme the mprovements are erected. nd, wthout
supportng the ower court s rung that the estmated deprecated vaue at the
end of the 10-year term consttuted addtona rent or compensaton pad for
the use of the premses, t asks that the udgment be uphed.
We are not caed on to decde whether under any ease or n any crcum-
stances, ncome s receved by essor by reason of mprovements made by essee,
nor to choose, for genera approva or condemnaton, any of the theores e -
pounded by the Unted States. Concretey, the queston presented s whether,
under the ease here nvoved, one-tenth of what the Commssoner and ta payer
ca and agree to be estmated deprecated vaue, as of the end of the term,
was ncome to pettoner n the frst year of the term. nd that queston s to
be decded upon the ower court s speca fndngs unaffected by any statement
of fact, reasonng, or concuson that may be found n ts opnon.
There s nothng n the fndngs to suggest that cost of any mprovement made
by essee was rent or an e pendture not propery to be attrbuted to ts capta
or mantenance account as dstngushed from operatng e pense. Whe the
ease requred t to make Improvements necessary for successfu operaton, no
tem was specfed, nor the tme or amount of any e pendture. The requrement
was one makng for success of the busness to be done on the eased premses.
It we may have been deemed by essor essentn or approprate to secure pay-
ment of the rent stpuated n the ease. ven when requred, mprovements
by essee w not be deemed rent uness ntenton that they sha be s pany
dscosed. Rent s a f ed sum, or property amountng to a f ed sum, to be
pad at stated tmes for the use of property t does not
Incude payments, uncertan both as to amount and tme, made for the cost of
Improvements . The facts found are ceary not suffcent to sustan
the ower court s hodng to the effect that the makng of mprovements by
essee was payment of rent.
It remans to be consdered whether the amount n queston represented ta -
abe ncome, other than rent, n the frst year of the term.
The fndngs fn to dscose any bass of vaue on whch to ay an ncome ta
or the tme of reazaton of ta abe gan, f nny there was. The fgures made
by the Commssoner are not defned. The fndngs do not show whether they
are ntended to represent vaue of mprovements f removed or the amount at-
trbutabe to them as a part of the budng.
The fgures themseves repe the suggeston that they were Intended to repre-
sent amounts obtanabe for the tems f removed. We are not requred to as-
sume that the Commssoner ntended hs estmates to represent savage, at the
end of the term, of ventatng system, gazng, archtect s fees and the ke,
draperes, chars, eectrc sgns, and marquee, the usefu ves of whch n pace
Stone t. Unted States (1 4 T . ., 3 0. 3 3) Crocker v. Unted States (240 T7. S., 74,
) rothers v. Unted States (250 U. S.. , 9:): Unted States v. Wes (2 3 U. .,
302. 120 fCt. D. 340. C. . -, 475 ) Unted Staes v. naut-Petere (299 . ., 201,
206). nd see mercan Propeer Co. v. Unted States (300 U. S., 475, 479-4 0 Ct. D.
121 , C. . 1937-1. 207)).
Duffy v. Centra ft. ft. (26 IT. S., 55, 63 T. D. 3704, C. . I -1, 143 (1925) ) Dodne
T. ot/an (19 . I., 4, 11) Gud v. Sampson (232 Mass., 509, 513) Garner v. annah
(6 Due, 262, 206) : oard of Commssoners of Caddo Levee Dstrct v. Pure O Co. (167
It., 01, 11) 2 ackstone, page 41.
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22(a), rt. 22(a)-13
224
have decned from 30 to 60 per cent. It does not appear that f detached from
the budng they woud then have any vaue, even as |unk, over necessary cost
of remova. It s cear that, f any vaue as of that tme may be attrbuted to
them, t s ncuded n and not separabe from that of the eased premses.
quay con|ectura woud be assumpton that the fgures represent enhance-
ment of vaue of the eased premses by reason of the mprovements when new
or as deterorated at the end of the term. The eased property s capabe of
nventory and anayss for the purpose of ascertanng orgna and estmated
present costs of ts eements and other reevant facts as ndcatons of worth
to be taken Into account n determnng ts vaue 1. e., the money equvaent
of the property as a whoe. ut present or future vaue, however ascertaned.
Is snge n substance t can not be arrved at by mere summaton of actua
or estmated cost of consttuent eements, new or deprecated. The addton
to vaue of the eased premses resutng from the essee s mprovements may
not be arrved at by formua or arthmetcay by merey settng aganst each
tem or eement ts cost ess deprecaton estmated to accrue durng the term
of the ease. The amount ncuded n the tota vaue of the structure reason-
aby to be attrbuted to the mprovements after use for 10 years s not ascer-
tanabe by the smpe cacuatons empoyed by the Commssoner.
Grantng that the mprovements ncreased the vaue of the budng, that
enhancement s not reazed ncome of essor. So far as concerns ta abe
Income, the vaue of the Improvements s not dstngushabe from e cess, f
any there may be, of vaue over cost of mprovements made by essor. ach
was an addton to capta not Income wthn the meanng of the statute.
Treasury reguatons can add nothng to ncome as defned by Congress.
ut, assumng that at some tme vaue of the mprovements woud be ncome
of essor, t can not be reasonaby assgned to the year n whch they were n-
staed. The Commssoner found that at the end of the term some woud
be worthess and e cuded them. e aso e cuded deprecaton of other tems.
These e cusons mpy that eements whch w not outast essee s rght to
use are not at any tme ncome of essor. The ncuson of the remanng vaue
s to hod that pettoner s rght to have them as a part of the budng at
e praton of ease consttutes ncome n the frst year of the term n an amount
equa to ther estmated vaue at the end of the term wthout any deducton
to obtan present worth as of date of nstaaton. It may be assumed that,
sub|ect to the ease, essor became owner of the Improvements at the tme they
were made. ut t had no rght to use or dspose of them durng the term.
Mere acquston of that sort dd not amount to contemporaneous reazaton of
gan wthn the meanng of the statute.
Reversed.
Wet v. ( . P. Te. Co. (295 TT. .. M. 671) Oson v. Unted States (292 U. S.. 246,
255) : Standard O Co. v. So. Pacfc Co. (2G U. .. 14 . 155).
Denver Stock Yard Co. v. Unted States (304 U. ., 470, 479).
Mnnesota Rate Canes (230 IT. S., 352, 434) uefed Co. v. Pub. Sen. Comm (262
. .. 679. 690) Standard O Co. v. So. Pacfc Co. (26 D. ., 146, 157, 159) UcCarde
v. Indanapos Co. (272 U. S 400. 416).
ewtt Reaty Co. v. Commssoner (C. C. . 2) (76 P. (2d), 0. 4): sner v
Maromhcr (252 U. ., 1 9, 207 T. D. 3010, C. . . 25 (1920) ) : Lucas v. e ander
(279 U. S 573. 577 Ct. D, 7 , C. . III-2 273 (1929)1). Cf. owers v. erbawh-
mt re Co. (271 T . ., 170, 175 T. D. 3 1. C. . -1, 199 (1920)1).
Unted States v. Phes (257 U. S., 156, 169, 175 T. D. 3270, C. . 5, 37 (1921)1):
Merchants L. d T. Co. v. Smrtanka (255 D. S., 509, 519-520 T. D. 3173, C 4 34
(1921) ) Taft v. owers (27 U. ., 470, 4 0, et seq. Ct. D. 49. C. . III-1, 226
(19 9)1) Lucas v. mercan Code. Co. (2 0 U. S 445. 449 fCt. D.. 16 . C. . I -1, 314
(1930)1) ckert v. urnet (2S3 IT. ., 13 , 142 Ct. D. 325, C. . -, 241 (1931)1)
urnet . Logan (2 3 U. S., 404. 412-U3 Ct. D. 351, C. . -, 345 (1931)1) Unted
States v. Safety Car eatng Co. (297 U. S., . 99 Ct. D. 1073, C. . -1, 294 (1936)1) |
oshand v. everng (29 U. S.. 441, 444-445 Ct. D. 1124, C. . -1, 219 (1936)1)
Cf. Commssoner v. an orst (C. C. . 9) (59 . (2d), 677, 6 0).
oshand v. everng (29 U. S.. 441. 447).
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225 22(a). rt. 22(a)-16-
rtce 22(a) 16: cquston or dsposton by 1939-17-9 10
a corporaton of ts own capta stock. T. D. 4 95
INCOM T .
cquston or dsposton by a corporaton of Its own capta
stock. Treasury Decson 4430 C. . III-1. 36 (1034) , amend-
ng artces 543 and 563. Reguatons 65 and 69, and artces 66 and
176, Reguatons 74 and 77, revoked.
Washngton, D. G.
In vew of the decson of the Supreme Court of the Unted States
rendered on anuary 30, 1939, n the case of Commssoner of Inter-
na Revenue v. R. . Reynods Tobacco Co. Ct. D. 13 3, beow ,
Treasury Decson 4430, approved May 2, 1934 (C. . III-1, 36),
whch amended artces 543 and 563 of Reguatons 65 and 69 ana
artces 66 and 176 of Reguatons 74 and 77, reatng to gan or
oss from the acquston or dsposton by a corporaton of ts own
capta stock, s hereby revoked.
Ths Treasury decson s prescrbed pursuant to the provsons
of secton 62 of the Revenue cts of 1932 and 192 , secton 1101 of
the Revenue ct of 1926, and secton 1001 of the Revenue ct of 1924.
Gut T. everno,
pproved pr 17,1939.
ohn W. anes,
( ed wth the Dvson of the edera Regster pr 1 , 1939, 3.56 p. m.)
rtce 22(a)-16: cquston or dsposton by a cor- 1939-7-9712
poraton of ts own capta stock. Ct. D. 13 3
ncome ta revenue act of 192 decson of supreme court.
1. Gross Income Purchase and Resae by Corporaton of Its
Own Stock Constructon of Stattttb Reguatons pproved
T R N CTM NT O ST TUT WIT OUT LT R TION.
Gan accrung to a corporaton consequent on the purchase and
resae of ts own shares does not consttute gross ncome wthn the
meanng of secton 22(a) of the Revenue ct of 192 , as construed
by artce 66 of Reguatons 74. That secton s so genera n ts
terms as to render an nterpretatve reguaton approprate the
admnstratve constructon emboded n the reguaton has, snce
at east 1920, been unform wth respect to each of the Revenue
cts from 1913 to 1932, and Congress must be taken to have
approved such constructon by ts successve reenactments, wth-
out ateraton, of the defnton of gross ncome as t stood n the
earer cts and thereby to have gven t the force of aw.
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22(a), rt. 22(a)-16.
226
2. Reou-atons Retroactve Operaton.
The amendment of artce 66 of Reguatons 74 by Treasury
Decson 4430 C. . III-1, 36(1934) , whch was adopted on
May 2, 1934, whe ths cause was pendng before the oard of
Ta ppeas, and whch prescrbed that gan reazed by a corpo-
raton from purchase and resae of ts own stock consttutes gross
ncome, does not govern the ascertanment of the corporaton s ta
abty for the year 1929. The power to Issue reguatons wth
retroactve effect n an nstance where, by repeated reenactment
of the statute, Congress has gven Its sancton to the e stng
reguaton, may not be e ercsed In such manner as to repea the
rue of aw that e sted durng the perod for whch the ta s
Imposed. The reenactment of the defnton of gross ncome n the
1936 and 193 cts foowng the amendment of the reguaton does
not, wthout more, amount to sancton of retroactve enforcement
of such amendment
Supreme Court of the Unted States.
No. 32 . Ouy T. everng, Commssoner of Interna Revenue, pettoner, t.
R. . Reynods Tobacco Co.
306 U. S., 110.
On wrt of certorar to the Unted States Crcut Court of ppeas for the ourth Crcut.
anuary 30, 1939.
OPINION.
Mr. ustce Roberts devered the opnon of the Court
The soe queston for decson Is whether gan accrung to a corporaton
consequent on the purchase and resae of ts own shares consttutes gross
Income wthn the meanng of secton 22(a) of the Revenue ct of 192 .1
The respondent, a New ersey corporaton, on occasons between 1921 and
1929, purchased ts own cass common stock for reasons of pocy, such as
the emnaton of a very arge snge hodng, the broadenng of the ownershp
of the stock, and the support of the market to protect the nvestments of
empoyee sharehoders. Ths stock was resod from tme to tme. Whe hed t
was treated as treasury stock and the cost of It was entered n the accounts as
Investments n noncompettve companes. The books showed no ncrease or
reducton of capta stock on account of purchases or saes. Durng 1929 the
company sod shares acqured n that and pror years for a sum whch e -
ceeded cost by 2 6,5 1.21, whch amount was entered n the books as a cash
tem and added to surpus. In ts ncome ta return for 1929 the company
sted ths gan under the capton Other tems of nonta abe ncome, as
Proft R. . R. stock.
The Commssoner determned a defcency n the ta pad for 1929 nvovng
tems not here n controversy and the company appeaed to the oard of Ta
ppeas where those tems were ad|usted. efore the case was cosed the
Commssoner by amended answer aeged that the ta payer s net ncome shoud
be ncreased by the amount of the net proft reazed through traf-
fckng In cass common stock of the company, and camed a
resutng defcency. e based hs cam upon Treasury Reguatons 74, artce
66, as amended by a Treasury decson of May 2, 1934, whch states Where
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.
The oard, after fndng the facts n deta, sustaned the Commssoner.
The crcut court of appeas reversed the oard s rung. ecause of asserted
confct we granted the wrt of certorar.
Ch. 52. 45 Stat., 791.
Treasury Decson 4430 (C. . III-1, 36 1934 ).
35 . T. ., 949.
. . Reynods Tobacco Co. v. Commssoner of Interna Revenue (97 . (2d), 302).
See rst Chrod Corporaton v. Commssoner (nfra Ct D. 13 4, page 22 , ths
uetn ).
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227
5 22(a). rt. 22(a)-16-
Secton 22(a) Is: Genera defnton. Gross ncome Incudes pans, profts,
and ncome derved from saares, wages, or compensaton for persona servce,
ot whatever 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 prop-
erty aso from nterest, rent, dvdends, securtes, or the transacton of any
busness carred on for gan or proft, or gans or profts and ncome derved
from any source whatever. Secton 62 drects the Commssoner, wth the
approva of the Secretary of the Treasury, to prescrbe and pubsh a need-
fu rues and reguatons for the enforcement of ths tte. rtce 66 of
Treasury Reguatons 74, promugated under the ct of 192 , so far as matera,
s: If the corporaton purchases any of ts stock and hods t as
treasury stock, the sae of such stock w be consdered a capta transacton
and the proceeds of such sae w be treated as capta and w not consttute
ncome of the corporaton. corporaton reazes no gan or oss from the
purchase or sae of ts own stock.
Pettoner contends that, as Congress must be taken to have e ercsed ts
consttutona power to the fuest e tent n ayng the ta , secton 22(a) shoud
be hed to ncude the gan reazed from saes of a corporaton s own stock, and
the quoted reguaton can not restrct the scope of the statutory defnton. The
respondent repes that such gan s capta gan and not ncome, as Is demon-
strated by the theory and practce of accountng and by court decsons.
The court beow found t unnecessary to decde ths ssue, hodng that whether
the Increment s Income s at east a debatabe queston and the reguaton was,
therefore, proper as an Interpretaton of the meanng of the secton. We agree
that secton 22(a) s so genera n ts terms as to render an nterpretatve
reguaton approprate.
The admnstratve constructon emboded n the reguaton has, snce at east
1920, been unform wth respect to each of the Revenue cts from that of 1913
to that of 19 2, as evdenced by Treasury rungs and reguatons, and decsons
of the oard of Ta ppeas. In the meantme successve Revenue cts have
reenacted, wthout ateraton, the defnton of gross Income as t stood n the
cts of 1913, 1916, and 191 . Under the estabshed rue Congress must be
taken to have approved the admnstratve constructon and thereby to have
gven It the force of aw.
The pettoner concedes that f nothng further appeared he woud be hound
to appy the statute n conformty to the reguaton. e asserts, however, that
the amendment adopted by the Treasury May 2, 1934, whe ths cause was
pendng before the oard, s controng. y the amendment artce 66 s made
to read: Whether the acquston or dsposton by a corporaton of shnres of
ts own capta stock gves rse to ta abe gan or deductbe oss depends upon
the rea nature of the transacton, whch s to be ascertaned from a ts facts
and crcumstances.
ut where a corporaton deas In ts own shares as t mght In the shares
of another corporaton, the resutng gan or oss Is to be computed n the same
manner as though the corporaton were deang In the shares of another.
ny gan derved from such transactons s sub|ect to ta , and any oss sustaned
See c. f. Dcknson, ccountng Practce and Procedure, 130, 132 Suney and
Pnkerton. Corporaton ccountng, 121 Rtreghtoff, dvanced ccountng. 134-135.
ohnson v. Commssoner (56 P. (2d), 5 ) . . Squbb rf Son v. everng (9 .
(2d), 69) : compare org v. Internatona Sver Co. (11 . (2d). 143. 147) : Commssoner
t. Inand nance Co. (63 . (2d), 6) Carter ote Co. v. Commssoner (67 . (2d),
642).
Unrrssey . Commssoner (296 T . S., 44. 354 Ct. D. 1064, C. . -1. 204 (1936) I).
t L,. O. 1035 (C. . 2. 132, C. . 3, 160) L. O. 296 (C. . 5. 210) L. O. 426
(C. . 5, 210) : . R. R. 603 (C. . 5, 207) I. T. 119 (C. . 1-1. 275) . R. R. 799
(C. . 1-1, 374) I. T. 1 02 (C. . II-2, 207). Reguatons 45. artces 542 and 663
Reguatons 62, artces 543 and 663 Reguatons 65, artces 543 and 503 Reguatons
69, artces 543 and 563 Reguatons 74, artces 66 and 176 Reguatons 77. artces 66
and 176. Smmons f ammond Ufa. Co. (1 . T. ., 03) Cooperafre urnture Co.
(2 T ., 165) tantc Carton Corporaton (2 . T. ., 3 0) utchnn Lumber tt
Porane Co. (4 . T. ., 705)- armers Depost Nat. ank (5 . T. ., 520) . S.
Crorker Co (5 . T. ., 537, 541) Interurban Const. Co. (5 . T. .. 520) Lberty
nrncv Co (5 . T. ., 77 ) Unon Trust Co. (12 . T. ., 6 , 600) 105 West SSth
Street Inc (15 . T. ., 210, 213) mercan Cgar Co. (21 . T. .. 404, 405) Carter
ote Co (25 . T. ., 933).
See Revenue ct of 1913, Secton II. (3 Stat., 167) Revenue ct of 191R, secton
2(a) (39 Stat 757) Revenue ct of 191N. secton 213(a) (40 Stat.. 1005) Revenue ct
of tW wfon 213(a) (42 Stat, 23 ) Revenue ct of 1021. secton 213(a) (43 Stat.,
Srr rTme ct of 19-6. secton 213(a) (44 Stat., 23) Revenue rt of 192 , secton
2 a) (45 Stat 797) e e ct of 1932, secton 22(a) (47 Stat, 17 ).
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22(a), rt. 22(a)-16.)
22
s aowabe as a deducton where permtted by the provsons of appcabe
statutes.
Pettoner urges that the amendment operates retroactvey and governs the
ascertanment of gross ncome for ta abe perods pror to the date of Its
promugaton, and, further, snce Congress has reenacted secton 22(a) In the
Revenue cts of 1936 and 193 , t has approved the reguaton as amended. We
hod that the respondent s ta abty for the year 1929 s to be determned In
conformty to the reguaton then n force.
Secton 605 of the Revenue ct of 192 provdes that In case a reguaton or
Treasury decson reatng to the nterna-revenue aws Is amended by a subse-
quent reguaton or Treasury decson made by the Secretary or by the Com-
mssoner wth the approva of the Secretary, such subsequent reguaton or
Treasury decson may, wth the approva of the Secretary, be apped wthout
retroactve effect. u It s cear from ths provson that Congress ntended to
gve to the Treasury power to correct msnterpretatons, naccuraces, or oms-
sons n the reguatons and thereby to affect cases n whch the ta payer s
abty had not been nay determned, uness, In the |udgment of the Treasury,
some good reason requred that such ateratons operate ony prospectvey. The
queston s whether the granted power may be e ercsed n an nstance where,
by repeated reenactment of the statute, Congress has gven ts sancton to the
e stng reguaton.
Snce the egsatve approva of e stng reguatons by reenactment of the
statutory provson to whch they appertan gves such reguatons the force of
aw, we thnk that Congress dd not ntend to authorze the Treasury to repea
the rue of aw that e sted durng the perod for whch the ta s mposed. We
need not now determne whether, a has been suggested, the ateraton of the
e stng rue, even for the future, requres a egsatve decaraton or may be
shown by reenactment of the statutory provson unatered after a change In the
appcabe reguaton. s the pettoner ponts out, Congress has, n the Revenue
cts of 1936 and 193 , retaned secton 22(a) of the 1923 ct n haec verba.
rom ths t s argued that Congress has approved the amended reguaton. It
may be that by the passage of the Revenue ct of 1936 the Treasury was author-
zed thereafter to appy the reguaton n ts amended form. ut we have no
occason to decde ths queston snce we are of opnon that the reenactment of
the secton, wthout more, does not amount to sancton of retroactve enforce-
ment of the amendment, n the teeth of the former reguaton whch receved
congressona approva, by the passage of successve Revenue cts ncudng that
of 192 .
The |udgment s affrmed.
btce 22 (a)-16: cquston or dsposton by a cor- 1939-7-9713
ncome ta revenue act of 1932 decson of supreme court.
1. Gross Income Purchase and Resae by Corporaton op Its
Own Stock Constructon of Statute Reguatons pproved
by Reenactment or Statute Wthout teraton.
Gan accrung to a corporaton consequent on the purchase and
resae of ts own shares does not consttute gross ncome wthn the
meanng of secton 22(a) of the Revenue ct of 1932, as construed
by artce 66 of Reguatons 77. That secton s so genera n ts
terms as to render an nterpretatve reguaton approprate the
admnstratve constructon emboded n the reguaton has, snce
at east 1920, been unform wth respect to each of the Revenue
cts from 1913 to 1932, and Congress must be taken to have ap-
proved such constructon by ts successve reenactments, wthout
ateraton, of the defnton of gross ncome as t stood n the
earer cts and thereby to have gven t the force of aw.
45 Stat.. 74. Somewhat smar provsons were contaned n earer cts. (See
Revenue ct of 1921, secton 1314, 42 Stat, 314 Revenue ct of 1920, secton 110 (a),
44 Stat, 114.)
Saubb f Son v. everng (9 . (2d). 69, 70).
Ct. D. 13 4
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229
22(a), rt. 22(a)-1 .
. Reguatons Retroactve Operaton.
The amendment of artce 66 of Reguatons 77 by Treasury De-
cson 4430 C. . III-1, 36 (1034) , whch was adopted on
May 2, t34, and whch prescrbed that gan reazed by a cor-
poraton from purchase and resae of Its own stock consttutes gross
ncome, does not govern the ascertanment of the corporaton s ta
abty for the year 1933. The power to ssue reguatons wth
retroactve effect n an r.stance where, by repeated reenactment of
the statute. Congress has gven ts sancton to the e stng regua-
aton, may not be e ercsed n such manner as to repea the rue
of aw that e sted dur.g the perod for whch the ta s mposed.
The reenactment of the defnton of gross ncome n the 1936 and
103 cts foowng the amendment of the reguaton does not,
wthout more, amount to sancton of retroactve enforcement of such
amendment.
rst Chrod Corporaton, pettoner, v. Commssoner of Interna Revenue.
306 U. S., 117.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut
anuary 30, 1939.
OPINION.
Ths case presents the same queston as that nvoved n No. 32 , decded ths
day Ct. D. 13 3, page 223, ths uetn . Certorar was granted because of a
confct n the decsons beow. The statutory provson under whch ths case
arses s secton 22(a) of the Revenue ct of 1032, whch s the same as the
correspondng secton of the Revenue ct of 192 . The reguatons, orgna
and amended, have the same reaton to ths controversy as to that n No.
32 . The oard of Ta ppeas sustaned a determnaton of a defcency n
the pettoner s ta for the caendar year 1933 and the crcut court of appeas
affrmed the oard s rung.1
or the reasons gven In No. 32 the |udgment must be
Reversed.
rtce 22(a)-1 : Sae and purchase by cor- 1939-16-9795
poraton of ts bonds. Ct. D. 1392
INCOM T R NU CTS O 1926 ND 192 D CISION O SUPR M
COURT.
Deducton Merger of Corporaton and Subsdary Redempton
of onds of Subsdary Unamortzed ond Dscount and
pense.
Under the appcabe provsons of the Revenue cts of 1026 and
192 , the ta payers, Pennsyvana corporatons, were entted to
deduct unamortzed bond dscount and e pense n connecton wth
the redempton of bonds of whoy-owned subsdares, one corpora-
ton havng prevousy acqured a the assets of ts subsdary sub-
|ect to ts abtes (the subsdary hodng no pubc franchses),
and the other corporaton havng prevousy acqured a of the
assets and franchses of ts subsdary sub|ect to ts abtes, pur-
suant to the Pennsyvana statutes. In the one case, the transac-
ton consttuted a de facto merger even though t dd not compy
wth a the provsons of the State aw. and n the other the trans-
acton consttuted a short form merger under such aw. In
nether case was the transfer a mere sae by one corporaton of
a ts assets to another whch assumed the abtes of the former.
97 . (2d), 22.
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230
4 6. Guy T. everng, Commssoner of Interna Revenue, pettoner, v. Metro-
potan dson Co.
4 7. Guy T. everng, Commssoner of Interna Revenue, pettoner, v. Penn-
syvana Water Power Co.
59 S. Ct, 634.
On wrtt of certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut.
pr 3, 1939.
OPINION.
These cases present the queston whether, under the Revenue cts of 1926 and
192 , a Pennsyvana corporaton may deduct unamortzed bond dscount and
e pense n connecton wth redempton of the bonds of a subsdary, a of whose
assets It had prevousy acqured pursuant to oca aw. The court beow an-
swered ths queston n the affrmatve. y reason of a drect confct of dec-
son we granted the wrt of certorar.
The respondent n No. 4 6 Is a Pennsyvana corporaton suppyng eectrc
ght and power In that State and aso operatng, through subsdares, a system
whch serves communtes n Pennsyvana nnd Maryand. It fed consodated
returns for tsef and ts subsdares for 1927 and 192 . Durng 192 the com-
pany retred certan bonds of Pennsyvana corporatons whch were formery
subsdares whose obgatons the ta payer had assumed when t took over
ther assets by transfers effected pursuant to an act of the genera assemby
of pr 29, 1 74, as amended and suppemented.4 When these obgatons were
redeemed there e sted, wth respect to them, unamortzed dscount and e -
pense aggregatng 752,4 1.26, whch the company In Its return deducted from
gross ncome. The Commssoner rued aganst the deducton and determned
a defcency. The oard of Ta ppeas sustaned the Commssoner. The
crcut court of appeas reversed the oard hodng that the transactons where-
by the ta payer acqured the assets and assumed the abtes of ts former
subsdares, pursuant to the statute, consttuted a merger, as a consequence
of whch the subsdares ceased to e st by operaton of aw whereas the
ta payer contnued to e st and became abe for the subsdares debts both
under contract and by operaton of aw. The court, therefore, hed that the
unamortzed dscount and e pense was deductbe n respect of the subsdary s
bonds.
In 1923 the respondent n No. 4 6 desred to erect a generatng pant for eec-
trc energy. Wshng to fnance t by a separate bond ssue the respondent or-
ganzed Metropotan Power Co., a Pennsyvana corporaton, as a whoy
owned subsdary. The ta payer purchased, guaranteed, and sod, at the same
prce t had purchased, 3,250,000 of bonds of the subsdary: purchased a
of Its stock and oaned It on open account appro matey 3,000,000. The
Power company hed no pubc franchses and, under a contract wth the ta -
payer, sod a of ts eectrcty to the atter at a prce suffcent to enabe t
merey to earn the costs of operaton and other charges. Incudng deprecaton,
ta es, and Interest. In 1927, pursuant to State authorty, the Power company
sod a Its assets sub|ect to Its abtes to the ta payer, a defct from opera-
tons beng charged aganst the ta payer s surpus. t the tme of the transfer
the ta payer surrendered the stock of the Power company for canceaton and
the atter became Inactve and was dssoved n 192 . The ta payer assumed
abty for the outstandng bonds of the Power company payment of whch
Revenue ct of 1920, sectons 200(d), 212(b), 232, and 234(a) (1) (2) and (4) (44
Stat.. 9, 10, 23, 41-42) Revenue ct of 192 , sectons 23 (a) (b) and (f), 41, 42, 43,
4 (45 Stat., 791, 790- 00, 03, 07).
9 . (2d). 07, 12.
See Genera ( an cf ectrc Corporaton v. Commstoner of Interna Revenue (9 .
(2d). 561), In whch certorar was aso granted Ct. D. 13 3, pace 233. ths uetn.
ct of pr 29, 1 74 (P. L, 73), secton 23. amended by act of pr 17, 1 76
(P. L., 30), secton 5, nnd act of une 2, 1915 (P. L., 724), secton 1. Purdon s Pa.
Stats., Tte 15. secton 59r .
35 . T. ., 1110.
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231
22(a). rt. 22(a)-1 .
It tad orgnay guaranteed and, darng 1927, caed them for redempton and
redeemed them. t the tme of the redempton there remaned unamortzed
dscount and e pense ncurred n Issung the bonds aggregatng 30 ,097.90
whch the ta payer deducted from ts gross ncome. The Commssoner rued
aganst the deducton and the oard of Ta ppeas sustaned hm. The
court of appeas reversed the oard, hodng that, whe the transacton was
not consummated under the State statute t nevertheess was under State aw
a de facto merger and, the ta payer was accordngy entted to the deducton.
The respondent n No. 4 7 s a Pennsyvana corporaton operatng a hydro-
eectrc pant at otwood, Pa. In 1924 t desred to provde ts customers
wth a more adequate suppy by an au ary steam power pant s ts cor-
porate powers dd not permt steam generaton of eectrcty t caused the
ncorporaton of a Pennsyvana company, known as otwood Power Co.,
a of whose shares were purchased and owned by the respondent. Wth the
proceeds of the sae of the Power company s stock nnd those of a bond ssue
the steam pant was erected. Ths pant sod a ts output to the ta payer
whch agreed, n return, to pay the Power company s costs and e penses and
an aowance for deprecaton, and to pay a sum to provde for amortzaton of
debt, dscount, and securty ssue e pense, and the e penses attendng the ssue,
regstraton and transfer of the capta stock and bonds, a nterest on bonds and
other ndebtedness, and a sum suffcent to provde a net return of per cent
on the Power company s stock. The steam pant was managed by the ta -
payer s offcers and empoyees wthout compensaton and was operated as a
department of the ta payer. In 1927 the ta payer surrendered certan cor-
porate powers so as to be n a poston to effect a merger or consodaton
wth ts subsdary under the Pennsyvana statutes.7 Thereupon the Power
company conveyed a of ts assets and franchses to the ta payer pursuant to
the Pennsyvana ct of 1 74 as amended, the soe consderaton beng the
devery to the subsdary of a ts capta stock hed by the ta payer and
the assumpton by the ta payer of the subsdary s ndebtedness. The sub-
sdary ceased to e st. In 192 the ta payer retred the bonds of ts former
subsdary and charged off unamortzed dscount and e pense n respect of
them n the sum of 145,159.52 and, n ts ncome ta return for that year,
camed a sma deducton for amortzaton for a porton of the year pror to
the retrement, and a deducton of the baance of the sum above mentoned as of
the date when the retrement took pace. The Commssoner dsaowed the
deducton and determned a defcency. The oard of Ta ppeas sustaned
the rung. The crcut court of appeas reversed the oard.
The pettoner concedes that f there has been a true merger or consodaton
whereby the dentty of the corporaton ssung the bonds contnues n the
successor and the atter becomes abe for the debts of the former by o|)eraton
of aw, the successor may deduct amortzaton of dscount and e penro n re-
spect of bonds ssued by ts predecessor as we as unamortzed dscount and
e pense on any of such bonds retred pror to maturty.9 The rue s not app-
cabe upon a mere sae by one corporaton of a ts assets to another whch
assnrnes the abtes of the former.10
The contenton of the pettoner s that the transactons n ssue fa wthn
the atter category. The respondents, on the other hand, nsst that, n the
ght of the appcabe statute of Pennsyvana and the decsons of her courts,
the transactons consttuted mergers n the proper acceptaton of that term.
The queston, then, s soey one respectng the aw of Pennsyvana.
T rt the compete revson of the corporaton aws of the Commonweath n
1933 there were but two statutes avaabe to corporatons seekng to merge
or consodate. The act of pr 29, 1 74, secton 23, supra, so far as matera,
provdes that any corporaton, wth the consent of ts stockhoders, may se,
dspose of and convey to any corporaton created under or acceptng
35 . T. .. 1110.
Sw or aven Water f Porer Co. v. Pubc Servce Commsson (2 7 Pa., 241, 249
134 t.. 419. 421).
36 T .. 407.
mercan Gas ectrc Co. v. Commssoner ( P. (2d). 27) mercan as
ectrc Co v Unted Mates, (17 P. Supp., 151) ew York Cent. R. Co. v. Commssoner
(79 (2 ) 247): Western Maryand Rt- Co. v. Commssoner (33 . (2d). 09.1)
Inos Power t Lght Corporaton v. Commssoner (S3 . T. ., 11 9) Connectcut
efrtrc Servce Co. v. Commssoner (36 . T. .. 44 4).
vTurner-rarber-Love Co. v. everng (6 . (2d). 416 Ct. D. 27. C. . III-1
970 (103 171 - mercan Gas rf ectrc CO. v. Commssoner, supra mercan Gas a
kctr c . Y. Unted States, supra.
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232
the provsons of ths act, ts franchses, and a ts property, rea, per-
sona and m ed, and thereafter such corporaton sha cease to e st,
and the sad property and franchses not nconsstent wth ths act, sha
thereafter be vested n the corporaton so purchasng as aforesad. .
The act of May 3, 1009, permts what It terms a merger but what a
n truth a consodaton to be effected by a |ont agreement of two or more
corporatons approved by the stockhoders settng forth the terms and
condtons of the merger and consodaton and provdng for the organzaton
of a new corporaton to whch the franchses and property of the consodatng
corporatons are to be transferred. Ths act contempates the ssue of etters
patent to the consodated corporaton, and the ssue of new stock by t, n
eu of that of the od. The procedure under the act of 1 74 has repeatedy
been referred to n the decsons of the Supreme Court of the Commonweath
as the short form and that under the act of 1 09 as the ong form of
merger.
Inasmuch as the transfer of the franchses and assets s authorzed by
statute, t seem reasonaby cear that the transferee s, as matter of aw, abe
for the obgaton of the transferor. The cases ndcate that ths s so.11 The
pettoner argues and the Crcut Court of ppeas for the Second Crcut has
hed to the contrary, n reance on Merwne v. t. Pocono Lght Imp. Co.
(304 Pa., 517, 156 t., 150). That court thought the ease ndcated that the
abty, f any, of the transferee was not under the statute but was ony that
of a frauduent transferee under 13 z., chapter 5. cton for a tort had
been brought aganst the transferor pror to a transfer under the act of 1 74.
fter the conveyance the defendant fed a suggeston that the property had
been conveyed In proceedngs under the act, that the defendant had ceased to
e st, and that the acton shoud be abated. The pantff sought to substtute
the transferee as defendant The tra court dened substtuton and abated
I he acton. The Supreme Court hed that the termnaton of corporate e stence
of the defendant under the act of 1 74 dd not abate the acton, but that If
the pantff recovered a |udgment she coud evy wherever defendant s assets
abe for the |udgment may be found, whch seems to us to mean no more
than that the assets after the conveyance remaned sub|ect to the transferor s
abtes. transfer fuy authorzed by statute can not be a frauduent
conveyance wthn the 13 Uz.
We are of opnon that a transfer wthout vauabe consderaton, wth the
ntent that the transferor sha, as the statute provdes, cease to e st, made
n accordance wth the statute, has a the eements of a merger and comes
wthn the prncpe that the corporate personaty of the transferor s drowned
n that of the transferee. It resuts that the contnung corporaton may deduct
unamortzed bond dscount and e pense n respect of the obgatons of the
transferrng affate.
somewhat dfferent queston arses wth respect to the transfer of assets
of Metropotan Power Co. It s admtted that ths transfer was not made In
accordance wth the terras of the act of 1 74. No franchses were transferred
because the Metropotan Power Co. hed no pubc franchses of any knd
The transfer was merey of assets wth the assumpton of a the abtes
by the transferee. It s Important to note, however, that amongst the abtes
assumed were bonds on whch the parent company was aready abe as
guarantor. The court beow has hed, and we concur, that, under the aw of
Pennsyvana, the transfer In queston consttuted a de facto merger, even
though the transfer dd not compy wth a the provsons of the act of 1 74.
and that, as matter of aw, the ta payer woud be abe for the debts of the
transferor.
udgments affrmed.
Purfon s Pa. Stats.. Tte 15, secton 421, etc.
u See York aven Water Power Co. v. Pubc fterrce Commsson (2 7 Pa.. 241
246. 134 t.. 419. 4L 0) : ust s state (297 Pa., 537, 541. 147 t.. 606, 607) : compnre
Stockey Penna. Corp. Laws, 1033. pages 39, 104 Penna. Uttes Co. v. Pubc Servce
Commsson (09 Pa. Super. Ct. 612).
rrkortz s ppea (319 Pa., 397. 407, 179 t., 746 at 751) Commonweath v.
Merchants Natona ank (323 Pa., 145. 153. 1 5 t., 23, 27).
Commonweath v. Marehants Natona ank, supra, page 152.
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233
23(a), rt. 23(a)-.
ktce 22(a)-1 : Sae and purchase by cor- 1939-16-9796
poraton of ts bonds. Ct. D. 1393
INCOM T R NU CT O 1026 D CISION O SUPR M COURT.
Deducton Mekgeb of Corporaton and Subsdary Redempton
of onds of Subsdary Unamortzed und Dscount and
pense.
Conveyances by subsdares to the ta payer corporaton, consum-
mated under the provsons of Pennsyvana statutes, consttute
mergers so as to authorze the ta payer to take a deducton for
unamortzed bond dscount md e pense n respect of bonds ssued
by the subsdares pror to the conveyance, for the reasons gven
n everng v. Metropotan dson Co. and everng v. Penn-
syvana Water d Power Co. Ct. D. 1392, page 229, ths uetn.
Genera Oas d ectrc Corporaton, pettoner, v. Commssoner of Interna
Revenue.
59 S. Ct, 63 .
On wrts of certorar to the Unted States Crcut Court of ppeas for the Second
Crcut.
prU 3, 1939.
opnon.
These are companon cases to Nos. 4 6 and 4 7 Ct D. 1392, page 229,
ths uetn aud nvove the same queston. The crcut court of appeas
hed tat conveyances by subsdares to the ta payer, consummated under the
act of pr 29, 1 74, dd not consttute mergers so as to authorze the ta payer
to take a deducton for unamortzed bond dscount and e pense n respect of
bonds Issued by the subsdares pror to the conveyance.
or reasons gven n Nob. 4 6 and 4 7 the udgments must be reversed.
So ordered.
S CTION 22(b). G OSS INCOM : CLUSIONS
ROM GROSS INCOM .
rtce 22(b) (4)- : Interest upon Unted States obgatons.
R NU CT O 1934.
empton of nterest (ncrement n vaue) on Unted States
savngs bonds. (See I. T. 3262, page 96.)
INCOM : P NS S.
rtce 23(a)-: usness e penses.
R NU CT O 1934.
Losses ncurred n the operaton of a farm and racng stabe. (See
G. C. M. 21103, page 164.)
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23(e), rt. 23(e)-.
234
S CTION 23(e). D DUCTIONS ROM GROSS
INCOM : LOSS S Y INDI IDU LS.
a. D.137
COURT.
Deducton Loss by Indvdua Casuaty ass.
The amount of deducton aowabe to an ndvdua under sec-
tons 23(e)3 of the Revenue cts of 1932 and 1934 on account of
oss sustaned durng the ta abe year through n|ury to deprec-
abe nonbusness property s mted by the provsons of sectons
113(b) ) of those cts so that t may not e ceed the amount of
the oss actuay sustaned n that -year, measured by the then
deprecated vaue of the property.
No. 1 0. uy T. everng, Commssoner of Interna Revenue, pettoner, v.
Donad . Owens and Maron avand Owens.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Second Crcut
No. 31 . mcdeo Obc and Mrs. medeo Obc, pettoners, v. uy T. everng,
305 U. S., 46R
On wrt of certorar to the Unted States Crcut Court of ppeas for the ourth Crcut
anuary 3, 1939.
OPINION.
Mr. ustce Rohertb devered the opnon of the Court
The courts beow have gven opposng answers to the queston whether the
bass for determnng the amount of a oss sustaned durng the ta abe year
through n|ury to property not used n a trade or busness, and therefore not
the sub|ect of an annua deprecaton aowance, shoud be orgna cost or vaue
mmedatey before the casuaty.1 To resove ths confct we granted certorar
n both cases.
In No. ISO the fncts are that the respondent Donad . Owens purchased an
automobe at a (ate subsequent to March 1, 1913, and pror to 1934, for 1, 25.
and used t for peasure unt une, 1934, when t wns damaged n a coson.
The car was not nsured. Pror to the accdent ts far market vaue was
225 after that event the far market vaue was 190. The respondents fed
a |ont ncome ta return for the caendar year 1934 n whch they camed a
deducton of 1,635, the dfference between cost and far market vaue after
the casuaty. The Commssoner reduced the deducton to 35, the dfference
n market vaue before and after the coson. The oard of Ta ppeas
sustaned the ta payers cam and the crcut court of appeas affrmed ts
rung.
In No. 31 t appears that the ta payers acqured a boat, boathouse, and per
n 1926 at a cost of 5,325. In ugust, 1933, the property, whch had been
used soey for peasure, and was unnsured, was totay destroyed by a storm.
Its actua vaue Immedatey pror to destructon was 3,905. The ta payers
camed the rght to deduct cost n the computaton of ta abe ncome. The
Commssoner aowed ony vaue at date of destructon. The oard of Ta
ppeas hed wth the ta payers but the crcut court of appeas reversed the
oard s rung.
Decson In No. ISO Is governed by the Revenue ct of 1934 1 n No. 31 by
the Revenue ct of 1932. The provsons of both statutes touchng the queston
presented are substantay the same and we sha refer ony to those of the
1934 ct. Secton 23(e)3 permts deducton from gross ncome of osses of
property not connected wth the trade or busness of the ta payer, f the
everng v. Owrno ( . . (2d). 31 ) everng v. Obc (97 . (2d). 431)
Ch. 277 (4 Stat., 6 0), sectons 23 (e), (f), (h), (1), 24(a) 1, 41, 113 26 U. S. C.
sectons 23. 24. 41, 113.
Ch. 209 (47 Stat., 169), sectons 23 (e), (f). (g), (n), 24(a) 1, 113.
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235
I 23(e), rt. 23(e)-.
oss arses from casuaty. Subsecton (h) decares that The
bass for determnng the amount of the deducton for osses sustaned, to be
aowed under subsecton (e) sha be the ad|usted bass provded n
secton 113(b). Secton 113 s entted d|usted bass for determnng gan
or oss n subsecton (a) t provdes that The bass of property sha be
the cost of such property, wth e ceptons not matera. Subsecton (b), to
whch 23(h) refers. Is: d|usted bass. The ad|usted bass for determnng
the gan or oss from the sae or other dsposton of property, whenever ac-
qured, sha be the bass determned under subsecton (a), ad|usted as heren-
after provded. (1) Genera rue. Proper ad|ustment n respect of the prop-
erty sha n a cases be made ( ) n respect of any perod snce ebruary
2 , 1913, for e hauston, wear and tear, obsoescence, amortzaton, and depe-
ton, to the e tent aowed (but not ess than the amount aowabe) under
ths ct or pror Income ta aws.
The Income Ta cts have consstenty aowed deducton for e hauston,
wear and tear, or obsoescence ony n the case of property used n the trade
or busness. The ta payers n these cases coud not, therefore, have camed
any deducton on ths account for years pror to that n whch the casuaty
occurred. or ths reason they cam they may deduct upon the unad|usted
bass that s, cost s the ncome ta aws ca for accountng on an annua
bass as they provde for deductons for osses sustaned durng the ta abe
year as the ta payer s not aowed annua deductons for deprecaton of
nonbusness property as secton 23(e)3 requres that the deducton sha be
on the ad|usted bass provded n secton 113(b), thus contempatng an
ad|ustment of vaue consequent on deprecaton and as the property nvoved
was sub|ect to deprecaton and of ess vaue n the ta abe year, than ts org-
na cost we thnk secton 113(b)( ) must be read as a mtaton upon the
amount of the deducton so that t may not e ceed cost, and n the case of
deprecabe nonbusness property may not e ceed the amount of the oss actu-
ay sustaned n the ta abe year, measured by the then deprecated vaue of
the property. The Treasury rungs have not been consstent, but ths con-
structon s the one whch has fnay been adopted.
In No. 1 0 |udgment reversed.
In No. 31 |udgment affrmed.
rtce 23(e)-: Losses by ndvduas.
R NU CT OP 192 .
Loss n compromse settement from vaues n orgna separa-
ton agreement. (See Ct. D. 1394, page 263.)
Ct. D. 1405
INCOM T R NU CT O 1032 decson of court.
1. Deducton Loss Insovency of Insurance Company Irrev-
ocabe Desgnaton of enefcares.
n nsured who, after the payment of a premums on hs poces
of fe nsurance, rrevocaby desgnated hs chdren as benefc-
ares nstead of e ercsng hs opton to surrender the poces for
ther cash vaues or to receve annutes thereunder, s not entted
to a deducton, under secton 23(e) of the Revenue ct of 1932, for
an aeged oss n the amount of ther cash vaue due to the n-
sovency of the nsurance company, snce by such rrevocabe des-
gnaton he had termnated hs rght to canceaton and surrender
and had dvested hmsef of a contro and domnon over the
poces and a the rghts and prveges appertanng thereto.
2. Decson ffrmed.
Decson of the Unted States oard of Ta ppeas (193 ) (37
. T. ., 399) affrmed.
Trea|rary ernatons 6. artces 23(e)-, 23(h). 113(0)1 G. C. M. 110255 (C. .
-. 115-11 ).
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236
Unted States Crcut Court of ppeas foe the Seventh Cbcutt.
Robert . Morse, pettoner, v. Commssoner of Interna Revenue, respondent.
100 ed. (2d), 593.
Petton for revew of the decson of the Unted States oard of Ta ppeas.
efore vans, Ma|or, and Treanor, Crcut udges.
November 2 , 193 .
OPINION.
Ma|or, Crcut udge: We have before us a petton for revew of a decson
of the oard of Ta ppeas entered ebruary 25, 193 , determnng that the
Commssoner correcty asserted an ncome ta defcency for the caendar
year 1932, n the amount of 5,9 2.24.
Pettoner was the nsured n four 20-payment fe nsurance poces ssued
by the Commerca Lfe Insurance Co. of Chcago (ater taken over by the
Od Coony Lfe Insurance Co.), Nos. 2190 ssued September 16, 1907, 426 ,
4269, and 4270 ssued anuary 26, 1910. ach of the poces was n the
amount of 10,000 and provded that, after the payment of premums for 20
years, the nsured mght ether contnue the contract n force wthout further
payment of premums, or e ercse the opton to surrender the pocy for a
stated cash vaue, or the opton of recevng an annuty. Pocy No. 2190 was
fuy pad up n 1927 and at that tme had a cash surrender vaue of 4,9 0.
Pocy No. 426 was fuy pad up n 1929 and had a cash surrender vaue of
),200. The other two poces, Nos. 4269 and 4270 were fuy pad up n 1930
and had a cash surrender vaue of 5,200 each. The tota amount of premums
pad upon such poces was 21,744.
of the poces were orgnay payabe to the pettoner s estate. On
anuary 11, 192 , the pettoner, by causng proper ndorsement on the poces,
desgnated hs son, ohn, as benefcary under poces Nos. 4269 and 4270, and
hs daughter, arbara oan, as benefcary under poces Nos. 2190 and 426 ,
reservng the power of revocaton. On une 24, 1932, pettoner, by causng
proper Indorsement on the poces. Irrevocaby desgnated the same ndvduas
as benefcares of the same poces.
In 1932, the Od Coony Lfe Insurance Co. became Insovent and on Sep-
tember 20, 1932, recevers were apponted by the Crcut Court of Cook County,
111. On that date, the poces had a tota cash vaue of 21,996.20, beng the
cash vaue of the respectve poces at the end of 20 years, pus nterest at
3 per cent. November 7, 1932, the court approved the frst report of the
recevers and ordered the qudaton of the busness of the company. Novem-
ber 10, 1932, the court approved and ordered the recevers to accept a pro-
posed agreement of the Lfe Casuaty Insurance Co. of Chcago, whch
agreed to rensure, under certan condtons (ncudng a 100 per cent en on
reserves) the poces whch had been wrtten by the nsovent company.
In hs ncome ta return for the year n queston, pettoner camed a oss
of 21,996.20 (the cash vaue of the poces), as a deducton under secton
23(e) of the Revenue ct of 1932. Sad ct s as foows:
(e) Losses by ndvduas. Sub|ect to the mtatons provded n subsec-
ton (r) of ths secton, n the case of an ndvdua, osses sustaned durng the
ta abe year and not compensated for by nsurance or otherwse
(1) f ncurred n trade or busness or
(2) f Incurred n any transacton entered nto for proft, though not con-
nected wth the trade or busness .
The oard of Ta ppeas based ts decson upon the premse that because
of the rrevocabe desgnaton by pettoner of hs son and daughter as bene-
fcares under the poces, no oss was sustaned by pettoner. Respondent
argues three propostons n support of the oard s decson. rst, the oss,
as camed, was not one recognzabe under the pertnent provson of the
Revenue ct second, the pettoner has sustaned no deductbe oss, and
thrd, pettoner has not proved ether the amount or the year of the aeged
oss. s reated, the oard dsposed of the matter by decdng the second
queston adversey to pettoner. In vew of our concusons that the decson
of the oard must be sustaned, we sha kewse consder ony the same
queston. In other words, assumng, but not decdng, that the aeged oss
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237
23(e), rt. 23(e)- .
to w thn the anguage of the Revenue ct In queston, and aso assumng, but
kewse not decdng, that the tme and amount of the aeged oss were
propery f ed, we sha consder ony the queston as to whether the pettoner
sustaned a deductbe oss. determnaton of ths queston must depend
upon the nterest or property rght, f auy, retaned by the pettoner n the
poces after rrevocaby desgnatng hs chdren as benefcares.
It seems to be the genera rue, whch, we gather from pettoner s bref, s
not dsputed, that the rrevocabe desgnaton of a benefcary creates theren
a vested rght n the proceeds of the pocy. (Washngton Centra ank v.
ume, 12 U. S., 195, 206.) Pettoner, however, by some process not entrey
cear to us, seeks to dstngush between the rght acqured by the rrevocabe
benefcary to the proceeds of au nsurance pocy havng a cash surrender
vaue, and one whch does not. No case Is cted, and our own Investgaton
has faed to produce one, where the e act queston here rased has been
determned.
In Morgan v. Penn Mutua Lfe Insurance Co. (94 . (2d), 129), we fnd a
dscusson whch, though not entrey In pont, furnshes some ght on the
queston. There the acton was by the benefcary as pantff aganst the n-
surance company to recover on a pocy whch had been surrendered by the
nsured for the cash vaue wthout the consent or knowedge of the benefcary.
The court ponts out that the pocy n sut reserved to the nsured the rght
to change the benefcary and aso the rght of assgnment. In dscussng the
queston, the court on page 130 sad:
Where no rght s reserved n the pocy to change the benefcary wth-
out hs consent, the pocy confers mmedatey upon ts ssue a vested rght
n the benefcary that can not be defeated by assgnment or transfer wthout
hs consent, but It Is equay we setted by controng authorty n the
natona courts that, where the pocy by ts terms gves the nsured the rght
to change the benefcary or assgn the pocy, the benefcary takes ony a con-
tngent Interest theren n the nature of an e pectancy. Ctng cases.
The court revewed the authortes and decded adversey to the contenton
there advanced by the pantff that, even though the nsured had the power
to change the benefcary, ths woud not entte hm to surrender the pocy
wthout the consent of the benefcary, on the ground that the pocy reserved
to the Insured the absoute rght to make such change. The court concuded
that the benefcary, under such crcumstances, had no vested rght In the
pocy. gan the court, page 131, sad:
The Insured, under the terms of ths pocy, had compete contro and do-
mnon of t, and, under such crcumstances, the benefcary, havng a mere
e pectancy, coud have no nterest nor concern n the method or means em-
poyed by the Insured n makng dsposton of hs own property.
The court, n ths case, havng stressed the reservaton contaned n the
pocy regardng the Insured s rght to change the benefcary or assgn, It seems
certan, from the anguage used, woud have hed otherwse f confronted wth
a proposton such as we fnd here, wheren the nsured made an rrevocabe
desgnaton of benefcares.
In Mutua Lfe Insurance Co. of Weo York v. en (212 111., 134), the
court seems to recognze the prncpe that the nsured Is precuded from takng
acton to the detrment of the benefcary uness the power Is e pressy reserved
by a provson of the pocy. On page 13 t s sad:
ut t was not shown that the assured had the power to cance the pocy.
The appeee was named as benefcary n the pocy and had possesson of the
nstrument. She had a vested rght n the fund provded to be pad by the
pocy, uness power to dvest that rght was e pressy reserved to the assured
by a provson of the pocy.
D rc et a. v. Conn. Mutua Lfe Insurance Co. (69 S. W., 76 ) was a sut
on a pocy payabe In 10 years and whch, after sad payments had been com-
peted, was surrendered by the Insured, wthout the consent of the benefcary,
for Its cash surrender vaue. The opnon s sent concernng any provson
n the pocy as to the nsured s rght to change the benefcary, but after
dsposng of other questons, the court, page 772, says:
The Insured, ames Sweeney, had no authorty to coect the cash surren-
der vaue of the pocy In 1 94, snce hs ony daughter, Mrs D rcy, as soe
benefcary, had a vested Interest theren, whch coud not be effected by such
a settement
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23(e), rt 23(e).-
23
In other words, notwthstandng the fact that the nsured had surrendered
the pocy and obtaned ts cash surrender vaue, a recovery of the face vaue
was had by the benefcary.
In Condon v. New York Lfe Insurance Co. of New York (166 N. W., 452),
the court, n dscussng the rghts of nsured and benefcary, on page 453 sad t
It s hed by the great weght of authorty that the Interest of a desgnated
benefcary In an ordnary fe pocy vests upon the e ecuton and devery
thereof, and, uness the same contans a provson authorzng a change of
benefcary wthout the consent thereof, the nsured can not make such change.
Ctng cases.
nd ths appes to a pocy to whch there are attached the ncdents of a
oan vaue, cash surrender vaue, and automatc e tensons by premums pad.
Ctng cases.
It seems pan from ths anguage that the benefcary, rrevocaby desgnated
as such, has a vested rght not sub|ect to change at the hand of the nsured,
and ths, rrespectve of whether the pocy s one of ordnary fe or one
provdng for a cash surrender vaue.
Our attenton s caed to a cass of cases whch hod that, where an nsured
has rrevocaby desgnated a benefcary, the nsured renqushes a rght to
the cash surrender vaue. These cases arse, n determnng for revenue pur-
poses, the gross estate of a decedent and we fnd the poston of the partes
reversed to what they are here, the Government contendng that the cash or
surrender vaue of an nsurance pocy s a part of the decedent s estate, whe
the representatves of the decedent argue to the contrary. The courts have
usuay decded aganst the Government s contenton. Typca of such cases s
everng v. Parker ( 4 . (2d), 3 ), wheren the court had under consdera-
ton poces n whch the wfe of the nsured was desgnated as benefcary
wth no rght reserved on the part of the nsured to change the same. The
poces aso provded for a cash or surrender vaue. The court on page 39
sad:
The New York Lfe pocy was pad up March 7, 1913, and remaned n
force. fter that date the nsured had no rght to surrender t or to borrow
money upon t.

ach of the Unon Centra poces contaned a oan provson, but requred
the ega assgnment of the pocy to the company as coatera securty. Un-
der the terms of these three poces the vested nterest of the benefcary coud
not be dvested wthout her consent, hence there coud be no ega assgnment
of the poces by anyone but hersef. Ctng cases.
In dscussng the stuaton where the nsured reserves no rght to change
benefcary, on the foowng page t s sad:
Where the nsured reserves no rghts ncdenta to ownershp or contro of
the poces, so that death transfers nothng to the benefcary and shfts no
economc benefts, there s no transfer wthn the reach of the ta ng power, and
such poces are not covered by the statute. (Industra Trust Co. et a. v.
Unted States, 296 U. S., 220, 56 S. Ct., 1 2, 0 L. d., 191 Ct. D. 1057, C. . -1,
4 (1936) ngham v. Unted States, 296 U. S., 211, 56 S. Ct., 1 0, 0 L. d.,
100 Ct. D. 105 , C. . -1, 367 (1936) Waker v. Unted States (C. O. . ),
3 . (2d), 103, 10 , 110.)
Other cases where the same concuson has been reached are Pennsyvana
Company v. Commssoner (79 . (2d), 295) and Levy s state v. Commssoner
(65 . (2d), 412).
Notwthstandng pettoner s argument that there s no anaogy between such
cases and the nstant one, t appears to us that they are of persuasve effect.
Under such decsons. If pettoner had ded n 1932, and the Government had
sought to ncude the cash or surrender vaue of the poces n decedent s gross
estate, It woud have been unsuccessfu for the reason that pettoner, durng
hs fetme, by hs own act, had vested n the benefcares a nterest, ncudng
the cash or surrender vaue. e woud have had no rght to surrender, borrow
or assgn.
The case of ye v. McOurk ( 2 . (2d), 212 Ct. D. 1142, C. . -2, 270
(1936) ) s stressed n support of pettoner s poston. In that, case t was
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23(n), rt. 261.
be 4 that the nsured, durng hs fetme, had a property rght n the nsurance
sub|ect to dstrant for ncome ta es owng by the nsured. It s ponted
out n that case, however, that the nsured reserved the rght to change the
benefcary, and that, of course, s the dstngushng feature. Under such a
reservaton, the nsured, no doubt, had a rght to change hs benefcary and
retaned a property Interest n the pocy, ncudng, perhaps, the rght of sur-
render for the cash vaue thereof.
In the nstant case, the nsured had a rght, after makng payment of 20
annua premums as the poces provded, to the cash or surrender vaue
thereof, but nstead of e ercsng such rght, he desgnated hs chdren as rrev-
ocabe benefcares. y ths act we thnk he termnated hs rght to cancea-
ton and surrender and dvested hmsef of a contro and domnon over the po-
ces and a the rghts and prveges appertanng thereto. Pettoner s argument
that such acton coud appy ony to the proceeds of the poces, effectve at
pettoner s death, n contrast to the cash or surrender vaue of the same, s not
tenabe. To permt pettoner to e ercse the opton whch he at one tme had,
of surrenderng the poces and obtanng the cash vaue thereof, s to nuty
hs act n rrevocaby desgnatng hs chdren as benefcares. Ths resut s
certan to foow for the reason that f, after makng such desgnaton, the
nsured had a rght to surrender the poces and obtan the cash vaue thereof,
he was enabed to destroy a the rghts of the benefcares theren. Thus fns
s wrtten to a contract wthout the consent of the benefcary, notwthstandng
a vested rght was created n the pocy by the act of the nsured hmsef.
The decson of the oard s affrmed.
S CTION 23 (k). D DUCTIONS ROM GROSS
INCOM : D D TS.
btk e 23(k)-: ad debts.
Recoveres of bad debts charged off n pror years. (See G. C. M.
20 54, page 102.)
S CTION 23(o). D DUCTIONS ROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS.
INCOM T R NU CT O 1032 D CISION O SUPR M COURT.
1. Deducton Chartabe Contrbutons Net Income Capta
Net Loss.
The 15 per cent aowed as a deducton for chartabe contrbu-
tons under secton 23(n) of the Revenue ct of 1932 s to be
cacuated on net ncome computed wthout regard to capta net
oss as to whch speca provson s made by secton 101(b). The
words the ta payer s net ncome n secton 23(n) refer to the
net ncome whch under the statutory scheme s actuay sub|ect
to ta . It was the ntenton of Congress to make net Income, ascer-
taned rrespectve of capta net oss, the sub|ect of the ta , and
the provson n secton 23(n) aowng a deducton for chartabe
contrbutons s appcabe to that ta abe net ncome.
2. Case Dstngushed.
evcrmg v. ss (293 T . S., 144 Ct, D. 4. C. . III-2,
191 (1934) ) dstngushed.
rtce 23(o)-: Contrbutons or gfts by
ndvduas.
1939-3-96 1
Ct. D. 1379
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23(n), rt. 261.
240
Supbeme Court op the Unted States.
The Unted States, pettoner, v. rederck Peasants.
305 U. S., 357.
On wrt of certorar to the Court of Cams.
anuary 3, 1939.
OPINION.
Mr. Chef ustce ughes devered the opnon of the Court.
The queston s whether the 15 per cent aowed as a deducton for chartabe
contrbutons under secton 23(n) of the Revenue ct of 1932 s to be cacuated
on the ta payer s net ncome computed wthout regard to a capta net oss as
to whch speca provson s made by secton 101(b).
Secton 23(n) provdes that n computng net ncome there sha be aowed
as a deducton from gross Income
In the case of an ndvdua, contrbutons or gfts made wthn the ta abe
year to or for the use of: to an amount whch n a the above cases
combned does not e ceed 15 per centum of the ta payer s net ncome as com-
puted wthout the beneft of ths subsecton.
Respondent n 1932 made chartabe contrbutons to the amount of 3,496.
s net ncome, rrespectve of a capta net oss, was determned by the Comms-
soner to be 94,963.52. Upon that net ncome the Commssoner assessed the
norma ta and surta at the rates prescrbed by sectons 11 and 12. Re-
spondent contended that ths was hs net ncome as descrbed n secton 23(n)
and that as hs chartabe contrbutons were ess than 15 per cent of that
amount they were deductbe n fu n determnng hs norma ta and surta .
The Commssoner refused to aow the deducton.
The ta payer had sustaned a capta net oss, as defned n secton 101(c)6,
of 154,921.9 . The Commssoner rued that Snce the capta oss of 154,-
921.9 s In e cess of ad|usted ordnary net Income of 94,963.52 (wthout con-
trbutons) there s no net ncome aganst whch to make a deducton for
contrbutons.
avng pad the ta assessed by the Commssoner upon that theory, respond-
ent fed hs cam for a refund and on ts re|ecton brought ths sut n the
Court of Cams. udgment was rendered n hs favor. (22 . Supp., 9G4.)
ecause of an asserted confct wth decsons of crcut courts of appeas and
wth our rung n cverng v. ss (293 U. S., 144), certorar was granted.
October 10, 193 .
Capta net gans and capta net osses of ndvdua ta payers are the
sub|ect of speca treatment under secton 101. In the case of a capta net
gan, there s to be eved, at the eecton of the ta payer, and In eu of a
other ta es mposed by the ncome ta tte, a ta of 12 per cent of the
capta net gan, to be added to the ta computed upon the bass of the ord-
nary net ncome. (Secton 101(a).) In the case of a capta net oss,
secton 101(b) provdes for a ta to be determned, aso n eu of other Income
ta es but rrespectve of any eecton by the ta payer, as foows:
a parta ta sha frst be computed upon the bass of the ordnary net
ncome at the rates and n the manner as f ths secton had not been enacted,
and the tota ta sha be ths amount mnus 12 per centum of the capta net
oss but n no case sha the ta of a ta payer who has sustaned a capta net
oss be ess than the ta computed wthout regard to the provsons of ths
secton.
1 These sectons provde:
Sec. 11. Norma ta on ndvduas.
There sha be eved, coected and pad for each ta abe year upon the net Income of
every ndvdua a norma ta equa to the sum of the foowng:
Sec. 12. Surta on ndvduas.
(a) Rates of surta . There sha be eved, coected, and pad for each ta abe year
upon the net Income of every Indvdua a surta as foows: .
very v. Commssoner (C. C. . 7) ( 4 P. (2d), 905 Ct. D. 1214, C. . 1937-1. 167 )
Lockhart v. Commssoner (C. C. . 3) ( 9 (2d), 143) enz v. Commssoner (C. C. .
) (94 . (2d). 32).
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241
23(d), rt. 261.
Secton 101(c)6 defnes capta net oss as the e cess of the sum of the
capta osses pus the capta deductons over the tota amount of capta gans.
Secton 101(c)7 defnes ordnary net ncome as the net ncome, computed n
accordance wth the provsons of ths tte, after e cudng a tems of capta
gan, capta oss, and capta deductons.
There s no doubt as to the purpose of ths provson as to capta net osses
whch was frst ntroduced n the Revenue ct of 1924. Pror to that tme, and
under the Revenue ct of 1021, capta osses were to be deducted from capta
gans n the process of determnng the capta net gan. If capta deduc-
tons and capta osses were n e cess of the capta gan, or f there were
capta osses n the absence of capta gan, such osses were deductbe as
ordnary osses. We are tod that the opportunty to mnmze ta es by the
practce of takng capta osses to offset ordnary net ncome consttuted a
partcuary serous probem after the ct of 1921, whch reduced the rate of
tu ou capta net gans. The resuts to the Treasury of that method of treatng
capta osses ed to the adopton n the ct of 1924 of the pan for sub|ectng
capta net osses to a mted rnte n order to protect the revenues, a pan
whch was contnued In the Revenue cts of 1926, 192 , and 1932.
It w be observed that the provson for the mtaton wth respect to a
capta net oss under secton 101(b) (unke the provson n secton 101(a)
as to a capta net gan) gves no opton to the ta payer.7 The mtaton s
e pct and most be foowed as wrtten. The mtaton appes equay when
were s no capta gan and hence nothng to be deducted from capta osses on
that score. The mtaton s appcabe uness, as stated n the ast cause of
secton 101(b), a greater ta woud resut from not appyng It In the nstant
case there s no queston that the mtaton does appy and the Commssoner has
apped t
In such a case the statute drects that a parta ta sha be frst computed upon
the bass of the ordnary net ncome and at the rates and n the manner pro-
vded n sectons 11 and 12. The tota ta s then arrved at by deductng 12
per cent of the capta net oss. That oss thus fgures n the computaton of the
tota ta ony by the aowance of an offset to the specfed e tent aganst the ta
determned apart from the capta osses. Thus where the mtaton s appcabe
and the offset of 12 per cent of the capta net oss s aowed accordngy,
capta osses are not deductbe In determnng the ta payer s net Income for the
purpose of the norma ta and surta . nd, as In such case there s no capta
gan, the ordnary net Income under secton 101(b), that s, the net Income
computed after e cudng capta oss and capta deductons, Is the ony net
Income upon whch a ta s ad.
We have noted that the mtaton of secton 101(b) Is not appcabe f the
ta , computed wthout regard to that secton, woud be greater. The atter
method of computaton brngs out the dstncton ceary. or n that method
the capta net oss s deducted from the ordnary net ncome n order to arrve
at the tota net ncome for the purpose of appyng the norma ta and surta
rates. See ustraton n Reguatons 77, artce 503. ut where the mtaton
of secton 101(b) governs, because the ta as otherwse computed woud not be
greater, capta osses are not deducted n determnng the net ncome whch s
to be ta ed, but are used ony for the purpose of determnng the specfed offset
aganst the ta on that net ncome. (Id.)
We are not mpressed wth the argument based on the provsons of sectons
21, 22, and 23. True, secton 21 provdes that net Income means gross ncome
computed under secton 22 ess the deductons aowed by secton 23. Secton
22 defnes gross ncome and secton 23 provdes for deductons, ncudng deduc-
tons for osses. ut sectons 21, 22, and 23 are not to be construed so as to
derogate from the speca and e pct provsons of secton 101(b). Under the
mtaton of that secton, as we have seen, the ta payer s not permtted to de-
duct capta osses so as to reduce the net Income sub|ect to ta and hs capta
Revenue ct of 1024, secton 20 (c).
Revenue ct of 1921. secton 200(h)4.
Pper v. WUcuU (64 P. (2d). 13, 15, 16 ICt. D. 710. C. . II-2, 164 (1 33) )
S ty-ffth Congre-sssona Record, 242 ouse Report 179, S ty-eghth Congress frst
n. page 20.
Revenue ct of 1026. secton 20 (c) 192 , secton 101(b) : 1932, secton 101(b).
Reguatons 77, artce 503.
(2dfe92ft)P r Y Ucut 0 - (2d) 13 1 I offman v. Commssoner (71 P.
Pee Iustraton In Reguatons 77, artce 503.
See note L
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242
osses enter nto the computaton of hs utmate ta ony through the deducton
of 12 per cent of the capta net oss from the ta whch Is computed upon the
net ncome ascertaned rrespectve of that oss.
It s n ths ght that we must decde the partcuar queston here presented
as to the meanng of the words the ta payer s net ncome n secton 23(n)
provdng for a deducton of 15 per cent for chartabe contrbutons. Do these
words refer to the ta payer s net ncome whch under the statutory scheme s
actuay sub|ect to ta Or s that net ncome, athough treated as subsstng
for the purpose of beng ta ed, to be regarded as none stent for the purpose of
admttng deductons for contrbutons We thnk that Congress, n the appca-
ton of the speca provson of secton 101(b) for an offset n case of a capta
net oss, ntended to make the ta payer s net ncome, ascertaned Irrespectve
of that oss, the sub|ect of the ta and that the provson n secton 23(n) aow-
ng a deducton for chartabe contrbutons s appcabe to that ta abe net
Income.
There s nothng to the contrary n our decson In Ieverng v. ss, supra.
In that case there was a capta net gan. The net ncome of the ta payer
comprehended that net gan as we as hs net ncome otherwse computed. We
decded that t was hs tota net ncome whch was to be regarded as the bass
for the aowance under secton 23(n). We found nothng n secton 101, whch
In that appcaton prescrbed merey a method for segregatng a porton of that
net Income for ta aton at a speca rate, that In any wse atered the rght
of the ta payer to take the deducton n accordance wth secton 23(n). (Id.,
150, 151.) ere, nstead of a capta net gan, we have a capta net oss. There
Is no gan to be added to the ta payer s net ncome otherwse computed, and
thus that s the ony net Income ta abe under the statute. To that net ncome,
the provson of secton 23(n) appropratey appes. We observed n the ss
case that the e empton of ncome devoted to charty and the reducton of the
rate of ta on capta gans were berazatons of the aw n the ta payer s
favor, were begotten from motves of pubc pocy, and are not to be narrowy
construed. That observaton s equay pertnent here.
The admnstratve constructon nvoked by the Government has not been of
suffcenty consstent character to afford adequate support for ts contenton.11
We concude that the Commssoner erred n refusng to permt the deducton
sought by respondent for hs chartabe contrbutons and that the |udgment of
the Court of Cams shoud be affrmed.
ffrmed.
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
rtce 42-1: When ncuded n gross ncome. 1939-10-9744
G. C. M. 21040
R NU CT O 1934.
Compensaton receved n 1935 by the e ecutors of the estate of
for servces rendered by hm pror to hs death n November,
1934, but not payabe or determnabe unt after December 31, 1934,
shoud not be ncuded n hs return for the ta abe year 1934.
G. C. M. 1G121 (C. . -1, 121 (1936)) revoked.
In G. C. M. 16121 (C. . -1, 121 (1936)) t was hed, syabus t
Compensaton receved n 1935 by the e ecutors of the estate of for servces
rendered by hm pror to hs death n November, 1934, but not payabe unt
after anuary 1, 1935, shoud be ncuded n hs return for the ta abe year
1934 even though hs books of account were kept on the cash recepts and
dsbursements bass.
See I. T. 2104 (C. . III-2, 152 1924 ) kns v. Commssoner, 24 . T. . 72
LUngood v. Commssoner, 25 . T. ., 5 5, 5 9 (C. . I-1, 9, 3 1932 : C. .
I-2, , f. 2 . 20 1932 ) Straus v. Commssoner (27 . T. ., 1116, C. . III-2.
25. 29, 135 1034 ).
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243
15 51, rt. 61-1.
In that case the compensaton was receved n 1935 by the e ecutors
of s estate for servces rendered by hm pror to hs death n
November, 1934. Such compensaton was not payabe unt after
anuary 1, 1935, t beng based on a percentage of the net profts
derved from the sae of merchandse n the stores drecty under s
contro. The contract provded that fna settement coud not be
requred unt after the succeedng annua nventory was fnshed,
not ater, however, than March 1 of the succeedng year.
In ehrman, ecutr , v. Commssoner (3 . T. ., 37) the
Unted States oard of Ta ppeas hed to the contrary where the
compensaton of the decedent wno ded n ugust, 1934, was based
on a percentage of net profts of certan stores and was not ascer-
tanabe unt after December 31, 1934, after takng nventory as of
the end of the year. In that case the compensaton was pad n
anuary, 1935. The Commssoner announced hs nonacquescenoa
n that decson n Cumuatve uetn 193 -2, page 43.
In vew of the wthdrawa by the Commssoner of hs nonac-
quescence n the ehrman decson and announcement of hs ac-
quescence theren (page 12, ths uetn), G. C. M. 16121, supra, s
hereby revoked.
. P. Wenchb,
S CTION 51. INDI IDU L R TURNS.
btce 51-1: Indvdua returns. 1939- -9720
G. C. M. 20995
R NU CT O 1934.
and , husband and wfe, for more than 20 years pror to 1929
ved In Caforna. In 1929 was sent to New York by hs em-
poyer n connecton wth the empoyer s busness n that cty.
s famy, consstng of hs wfe and two chdren, was wth hm
n New York from 1929 to 1935, when they returned to Caforna.
ed, that dd not abandon hs domce In Caforna, and that he
and hs wfe are entted to fe edera ncome ta returns for 1935
on the bass of the communty property aws of that State.
n opnon s requested whether and are ega resdents of
New York or Caforna for edera ncome ta purposes for the
caendar year 1935, and f they are ega resdents of the atter State,
whether they are entted to fe returns and report ther ncome on
the communty property bass.
and are husband and wfe, beng empoyed n an e ecutve
capacty wth a arge organzaton. They resded n the cty of R,
Caforna, for more than 20 years pror to 1929 and had a domce
n that State durng such tme. In 1929 s empoyer requested
hm to go to New York Cty and straghten out certan busness
stuatons there. (herenafter referred to as the ta payer) was at
that tme of the opnon that ths assgnment woud requre about
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51, rt. 61-1.
244
three years and he sgned a contract for that perod. Soon thereafter
he moved wth hs famy to New York Cty. In 1930 he sod the
house n Caforna n whch he and hs famy had resded for
severa years but retaned, and st retans, ownershp of both a
summer home and a reta busness n Caforna. fter comng to
New York the ta payer and hs famy ved n a rented apartment
n New York Cty, hs chdren attendng schoo n that cty. e
states that hs man purpose n brngng hs famy to New York was
to furnsh educatona advantages for hs chdren durng ther schoo
years. In the sprng of 1935 hs wfe and chdren returned to Ca-
forna and snce ther return have mantaned a competey furnshed
home near the cty of R. The ta payer s st empoyed wth the
same organzaton n New York and t s not known when hs serv-
ces there w termnate. e has been returnng to hs famy n
Caforna severa tmes each year, and spends hs summer vacaton,
and Chrstmas hodays wth hs famy there. The ta payer never
regstered or voted n ether Caforna or New York. e had a bank
account and some nvestments n New York and others n Caforna.
The ta payer fed State ncome ta returns n New York from 1929
to 1936 as a resdent of that State, but decares that he was gnorant
of the fact, unt some tme n 1936, that the fng of returns as a
nonresdent was permssbe under New York aw.
The rue governng change of abode as affectng domce s pany
set out as foows n Wamson v. Osenton (232 U. S., 619):
The essenta fact that rases a change of abode to a chance of domce Is
the absence of any ntenton to ve esewhere (Storey on Confct of Laws,
secton 43 ), or, as Mr. Dcey puts It n hs admrabe book, the absence
of any present ntenton of not resdng permanenty or ndefntey In the
new abode. (Confct of Laws, 2d ed., 111.)
Ths same rue s set out n Gbert v. Davd (235 IT. S., 561). In
that case there s a quotaton from Storey, Confct of Laws, 7th ed.,
secton 46, page 41, whch states that a mere foatng ntenton to
return to a former domce s not suffcent to prevent the new nace
of abode from beng a domce f other requstes are present. ow-
ever, an ndetermnate or foatng ntenton to return does not
ncude an ntenton to return on the occurrence of some event whch
mght reasonaby be antcpated. (19 C. ., 40 , secton 20.) The
ntenton to reman ndefntey n the new abode, whch s necessary
to acqure a domce of choce, e cudes any defnte ntenton of re-
turnng to the pace of prevous domce, and the orgna domce
s not changed even by a ong absence f there s any defnte ntenton
of returnng.
In Unted States v. nght (291 ed., 129) t was stated n part
as foows:
change of abode wth present Intent to return to the former abode npon
the contempated happenng of an event n the ndefnte future, ns busness ds-
patched, heath recovered, empoyment ended, empoyer s reca, s not a change
of resdence or domce. ( f d. 203 ed., 571.)
In that case the defendant, who was a naturazed ctzen of the
Unted States, ved n South frca for over 20 years after natura-
zaton as an agent for an mercan credt assocaton and was hed
not to have abandoned hs mercan domce.
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245
51, rt. 51-1.
eae, n hs Treatse on the Confct of Laws, chapter 2, secton
1 .1, states:
It foows that no mere ength of resdence Is suffcent to create
a change of domce In the absence of such an Intenton to make the new res-
dence a home nor s there a change f there s an anmua rvvertend to the
od home.
The facts n the nstant case do not revea that the ta payer
had a present ntent not to return to Caforna durng: or before 1935,
but rather ndcate that the ntent to return to Caforna (the
anmus revertend) contnued to e st. The ta payer kept a summer
home n Caforna and contnued to own a reta busness there whch
was operated at a oss n 1935, and whch appears to be a busness
not suted to management from New York. The return of hs wfe
and chdren to Caforna eary n 1935 and the settng up of a com-
pete estabshment there especay tend to ndcate that Caforna
was, and contnued to be, the domce of the ta payer. It s aso
we to note the contnued e stence of the Caforna branch of the
organzaton by whch the ta payer was empoyed where he coud
have reasonaby antcpated contnuance of hs empoyment. -
though the rentng of an apartment by the ta payer whch he occu-
ped wth hs famy n New York mght we ndcate a change of
domce, hs statement n regard to the educatona demands of hs
chdren, the terms and nature 6f hs empoyment, and most mpor-
tant of a the return of hs famy to Caforna eary n 1935 nega-
tve an ntent to estabsh a domce n New York. so the facts
show that the ta payer remans n New York Cty ony for the pur-
pose of hs empoyment, whch now appears to be of an ndefnte
nature, and that he returns to Caforna severa tmes each year.
urthermore, the decaratons of the ta payer as to hs constant n-
tenton to mantan hs domce n Caforna are of some weght.
(19 C. ., 43 , secton 76, No. 5.) The facts reatng to the fng of
State ncome ta returns n New York and the ocaton of hs bank
account and certan nvestments there are not suffcent to counter-
baance the ndcatons of a Caforna domce.
In vew of the facts as above presented n addton to the presump-
ton that the former domce contnues unt another domce s
obtaned (Desmare v. Unted States, 93 U. S., 605 Mtche v. Unted
States, 21 Wa., 350) ths offce s of the opnon that the domce,
and thus the ega resdence of the ta payer for ncome ta purposes
n the year 1935 was n Caforna. The ta payer s wfe s propery
consdered as havng the same domce as her husband. ( nderson
et a. v. Unted States, 202 ed., 200 Prnce v. New York Lfe Insur-
ance Co., 24 ed. Supp., 41 eae, Treatse on the Confct of Laws,
chapter 2, secton 27.2.)
The ta payer and hs wfe beng domced n, and thus ega res-
dents of, Caforna durng 1935, ther returns may be fed and
ncome reported on a communty property bass for that year.
(Unted States v. Macom, 2 2 U. S., 792.)
. P. Wenche,
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5 51, rt. 51-1.
246
rtce 51-1: Indvdua returns. 1939-20-9 34
Ct. D. 139
INCOM T NO CT O 1932 D CISION O CODRT.
1. Deducton ont Return Saes of Securtes Whch abe
not Capta ssets Gans Reazed by One Spouse Losses
Sustaned by the Otheb Offset Lmtaton on Stock
Losses.
In a ont return fed by a husband and wfe as permtted by
secton 51(b) of the Revenue ct of 1932, osses sustaned by one
spouse from the sae of securtes whch are not capta assets may
not be offset aganst gans reazed by th other spouse n the same
year from smar saes, under the provsons of secton 23(r) of
that ct.
2. Reguatons Sustaned.
The provsons of artce 3 1 of Reguatons 77, reatng to deduc-
tons n the case of the fng of a |ont return, sustaned.
. Decson ffbmed.
Decson of the Unted States oard of Ta ppeas (193 ) (37
. T. ., 225) affrmed.
Unted States Crcut Court of ppeas fob the Second Crcut.
. Denny Perce and ma C. Perce, pettoners, v. Commssoner of Interna
Revenue, respondent.
100 . (2d), 397.
ppea from the Unted States oard of Ta ppeas.
efore L. and, Swan, and Chase, Crcut udges.
December 12, 193 .
OPINION.
The pettoners, husband and wfe who fed a ont return for the year
1933, seek revew of an order of the oard determnng a defcency n ncome
ta for that year. Order affrmed.
Swan, Crcut udge: The pettoners, husband and wfe, eected to fe a
snge ont return for the year 1933, as they were prveged to do by vrtue
of secton 51(b) of the Revenue ct of 1932. (47 Stat., 1 .) Mr. Perce
reazed a proft of neary 55,000 from the sae durng 1933 of securtes whch
were not capta assets as defned n secton 101 (47 Stat., 192) that Is
to say, the securtes so sod had not been hed by hm for more than two
years. Durng the same year Mrs. Perce sustaned a oss of 3,646.7 n se-
ng securtes whch she had not hed for more than two years. In ther
ont return Mrs. Perce s oss was deducted from her husband s proft. The
Commssoner s dsaowance of the deducton resuted n a defcency ta
whch the oard has confrmed. The queston presented s whether, n a ont
return of husband and wfe, osses sustaned by one spouse from the sae of
securtes whch are not capta assets may be offset aganst gans reazed by
the other spouse from smar saes.
t east snce the enactment of secton 223 of the ct of 191 (40 Stat., 1074)
the revenue aws have aways granted to a husband and wfe who are vng
together the prvege of fng ether separate returns or a snge ont return.
Regardng the atter aternatve secton 51(b)2 of the Revenue ct of 1932 (47
Stat., 1 ) provdes:
(2) The ncome of each sha be Incuded n a snge ont return, In whch
case the ta 6ha be computed on the aggregate Income.
The Supreme Court on May 1, 1939, dened pettons for certorar n two cases Invov-
ng a smar queRton, whch were decded on the authorty of the Perce case, namey,
Demuth v. Commssoner, No. 7 6 (C. C. . 2d Cr., 100 . (2d), 1012), and Stoeet v.
Commssoner, No. 76 (C. C. . 1st Cr., 102 . (2d), 103).
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247
51, rt. 51-1.
though nothng Is there sad about deductons the Treasury reguatons
have for many years contaned a provson to the foowng effect:
Where the ncome of each s ncuded n a snge ont return,
the ta s computed on the aggregate ncome and a deductons or credts to
whch ether s entted sha be taken from such aggregate ncome. (Regua-
tons 77, artce 3 1 Reguatons 74, artce 3S1 Reguatons 65, artce 401.)
s ong ago as 1921 t was rued by the Soctor of the ureau of Interna
Revenue that n cases n whch the husband or wfe has aowabe deductons
n e cess of hs or her gross ncome, such e cess may, f a ont return s fed,
be deducted from the net ncome of the other for the purpose of computng
both the norma ta and the surta . Soctor s Opnon 90 (C. . 4, 236 (1921)).
Indeed, t s ony when the aowabe deductons of one spouse e ceed hs or her
ncome, that any advantage can be derved from fng a ont return.
Most of the aowabe deductons, for e ampe, ta es, nterest and ordnary
osses, are not dependent upon the recept by the ta payer of a partcuar knd
of ncome. ut the 1932 ct ntroduced such a mtaton wth respect to osses
sustaned from the sae of securtes whch are not capta assets. Secton 23
(47 Stat., 179) provdes:
In computng net ncome there sha be aowed as deductons:

(e) Losses by ndvduas. Sub|ect to the mtatons provded In subsec-
ton (r) of ths secton, n the case of an ndvdua, osses sustaned durng
the ta abe year and not compensated for by nsurance or otherwse

(2) f Incurred In any transacton entered nto for proft, though not con-
nected wth the trade or busness

(r) Lmtaton on ttock osses. (1) Losses from saes or e changes of
stocks and bonds (as defned In subsecton (t) of ths secton) whch are not
capta assets (as defned n secton 101) sha be aowed ony to the e tent
of the gans from such saes or e changes (ncudng gans whch may be derved
by a ta payer from the retrement of hs own obgatons).
Under the mtaton mposed by secton 23(r) t s obvous that, f separate
returns had been fed, nether husband nor wfe coud take deducton of the
oss In queston. Mrs. Perce coud not deduct t from her gross ncome because
such a oss s aowabe ony to the e tent of her gans from saes of noncapta
securtes, and she had no such gans. Mr. Perce coud not deduct t from hs
gans from saes of noncapta securtes because t was not hs oss but was
sustaned by a dfferent ta payer. ut the pettoners contend that when
husband and wfe fe a |ont return they become a ta abe unt wth the resut
that a oss of ths character sustaned by one spouse Is an aowabe deducton
aganst gans of the same character receved by the other. Ths contenton
can not be sustaned n vew of the Treasury reguatons and udca decsons
In anaogous cases. s aready noted, the reguatons provde that the deduc-
tons to be taken from the aggregate Income of husband and wfe sha be those
to whch ether Is entted. ere nether was entted to the deducton n
queston. Nor have the cases reatng to |ont returns treated the two spouses
as one. Thus, It has been hed that where a husband has sod property to hs
wfe at a oss, the oss he sustaned may be deducted n the |ont return. (Com-
mmoner v. Thomas, 4 P. (2d), 502 (C. C. . 5) Commssoner v. ruvdt|r,
2 . (2d), 944 (C. C. . 7) v. Unted States, 12 P. Supp., 79 (Ct Cs.).
See aso Oummey v. Commssoner, 26 . T. ., 94.) nother anaogous rung
s our decson n an eck v. Commssoner ( 0 P. (2d), 217 Ct D. 1116, C. .
-1, 232 (1936) ), hodng that the husband s net oss of a prevous year can
not be apped apanst the wfe s net ncome n a ont return. These cases
contradct the pettoners theory that husband and wfe become a snge ta abe
entty when they fe a ont return on the contrary each s treated as a separate
Indvdua who can carry deductons nto the ont return ony n hs or bar
own rght.
Order affrmed.
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112(g), rt. 112(g)-2. 24
R NU CTS O 1020, 102 , 1932, ND 1934.
Use of orgna returns open to nspecton n accordance wth
Treasury Decson 4 73 (C. . 193 -2, 261) furnshng copes of
returns: nspecton of returns of corporatons by State offcers and
sharehoders and nspecton of estate and gft ta returns. (Sea
T. D. 4 7 , page 115.)
R NU CTS O 1926, 1932, ND 1934.
Reguatons governng the nspecton of ncome, e cess-profts, and
capta stock ta returns by the Speca Commttee on Un- mercan
ctvtes, ouse of Representatves. (See T. D. 4900, page 119.)
SU TITL Ct-SUPPL M NT L PRO ISIONS.
S CTION 112(g). R COGNITION O G IN OR LOSS:
D INITION O R ORG NIZ TION.
rtce 112(g)-2: Defnton of terms. 1939- -9721
Ct. D. 13 5
INCOM T R NU CT O 1026 D CISION O COURT.
1. Gan or Loss Recognton change of Property Reorgan-
zaton Separate Transactons Parts of Snge Pan Ta
vodance.
The Company, pursuant to a pan for transferrng tts mnng
property to , caused the C Company to be organzed eary n
December, 1025, and on December 1 transferred to C, n e change
for stock of the atter, a of Its property whch was not to be
transferred to the P Company. The new stock was prompty ds-
trbuted as a dvdend to s stockhoders, and on December 31
the mnng property was transferred to n e change for shares of
Its stock. On anuary 22, 1020, the C Company transferred
certan shares of ts stock to the stockhoders of , recevng n
e change s stock hed by and a of s outstandng stock.
The Company was thereafter dssoved. ed, the ncorpora-
ton of and transfer to C dd not consttute a bona fde reorgan-
zaton wthn the meanng of secton 203(h)( ) of the Revenue
ct of 1020. They were but parts of a snge pan, havng no
purpose other than to gve the subsequent transfer to the ap-
pearauce of a transfer of a the assets of and thus brng It
wthn the nonrecognton provsons of the statute. snge trans-
acton may not be broken up Into varous eements to avod a
ta .
2. Decson Controng.
Oregory v. everng (1035) (293 T . S., 405 Ct. D. 911, C. .
I -1, 193 (1035) ) controng. 1
. Certorar Dened.
Petton for certorar dened October 10, 193 .
4. Rehearng Dened.
Petton for rehearng dened November 7, 193 .
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249 112(g), rt. 112(g)-2.
T3rrm States Ctkcvt Court of ppeas fob the ourth Crcut.
Guy T. cvcrng, Commssoner of Interna Revenue, pettoner, v. khorn
Coa Co., respondent.
95 ed. (2d), 732.
On petton to revew the decson of the Unted States oard of Ta ppeas.
efore Parker and Nokthcott. Crcut udges, and . . Watkns,
Dstrct udge.
October 1 , 1937.
OPINION.
Parker, Crcut udge: Ths s a petton to revew n decson of the oard
of Ta ppeas hodng proft reazed by the khorn Coa Coke Co. upon a
transfer of certan mnng propertes to the M Creek Coa Coke Co. to be
nonta abe. The ground of the decson was that the transfer was made pur-
suant to a pan of reorganzaton wthn the meanng of 203(h) 1( ) of the
Revenue ct of 1926. The facts were stpuated and are set forth at ength
In the fndngs of the oard whch are reported wth ts opnon In 31 . T. .,
45. Those matera to the queston presented by the petton are n substance
as foows:
Pror to December 1 , 1925, the khorn Coa Coke Co., to whch we
sha hereafter refer as the od company, owned certan coa mnng proper-
tes In West rgna and certan stocks n other mnng companes engaged n
busness In that State. It was cosey assocated wth the M Creek Coa Coke
Co., whch owned neghborng property and a ma|orty of the drectorate of
both corporatons conssted of the same persons. ary In December, 192 ), a
pan was formed whereby the od company was to transfer ts mne, mnng
pant and mnng equpment at Maybeury, W. a., to the M Creek Co. n
e change for 1,000 shares of the capta stock of that company. Ths e change
was accompshed on December 31, 1925, at whch tme, It s stpuated, the
stock receved by the od company had a far market vaue of 55 1,000, whch
Is n e cess of the defcency asserted by the Commssoner. There s no conten-
ton that the transfer by the od company was to a corporaton controed
by It or by ts stockhoders and therefore wthn the nonrecognton provson
of secton 203(h)( ) of the ct but argument of the ta payer s that the
transfer was of a the propertes of one corporaton for the stock of another
and therefore wthn the nonrecognton provson of secton 203(h) 1( ).
The contenton that the transfer n queston was of a the propertes of the
od company depends upon the ega concuson to be drawn from certan ev-
dentary facts reatng to the pror organzaton of another corporaton and the
transfer to t of a the property of the od company whch was not to be trans-
ferred to the M Creek Co. These facts, whch were found by the oard and
are undsputed, are as foows: t the tme that the transfer to the M Creek
Co. was decded upon, the offcers of the od company caused another corpora-
ton to be organzed under the name of the khorn Coa Co., whch we sha
refer to hereafter as the new company, and on December IS, 1925, transferred
to t, In e change for 6,100 shares of Its stock, a of the property of the od
company whch was not to be transferred to the M Creek Co. e cept certan ac-
counts, whch were transferred to the new company on December 2 . 1931 191151,
n consderaton of ts assumng the abtes of the od company. The 6,100
shares of stock n the new company were prompty dstrbuted by the od com-
pany as a dvdend to ts stockhoders. Ths eft the od company ownng ony
the property whch was to be transferred to the M Creek Co. under the pan
and whch was transferred to that company on December 31, as mentoned n
the precedng paragraph. oowng that transfer and the recept by the od
company of the 1,000 shares of the stock of the M Creek Co. pursuant thereto,
the new company proceeded to pace tsef n the same poston reatve to the
stockhoders of the od company that the od company had occuped, and then
to wnd up ts affars. It accompshed that resut In the foowng manner:
On anuary 22, 1926, It e changed 1,440 shares of ts capta stock for the 7,540
shares of the outstandng capta stock of the od company, makng the e change
wth the stockhoders of that company. Ths gave those who bad been stock-
172170 0 pt. 1 0
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112(g), rt. 112( )-2.1 250
hoders n the od company the same Interest In the new company that they had
had In the od, and gave to the new company the ownershp of a of the stock
In the od. The 1,000 shares of stock receved from the M Creek Co. were
then transferred to the new company and the od company was dssoved. No
busness whatever was done by the od company after the transfer of assets to
the M Creek Co. on December 31 and no reason appears for the organzaton
of the new company e cept to provde a transferee to take over and hod the
assets whch were not to be transferred to the M Creek Co. so that the trans-
fer to that company when made woud be a transfer of a the assets of the od
company.
The oard was of opnon that a of these transactons were carred through
pursuant to prearranged pan, sayng: We do not doubt that before a snge
step was taken a pan had been formuated for regroupng the corporate
assets and The stpuated facts |ustfy the nference that one of the motves
whch the stockhoders of khorn bad n organzng the new corporaton and
causng the three corporatons to adopt the severa steps or pans of reorganza-
ton whch were adopted and carred out, was to make the transfer of the mn-
ng propertes from khorn to M Creek wthout resutng ta abty to
khorn or to themseves. The oard thought, however, wth fve members
dssentng, that because the transfers from the od company to the new were
genune and were separate and dstnct from the transfer to the M Creek Co.,
the atter must be treated as a transfer of substantay a of the propertes
of the corporaton wthn the meanng of the reorganzaton statute, summng
up ts concusons as foows: In our opnon, the facts show affrmatvey that
the transfer to M Creek was competey separate and dstnct from the earer
transfer by khorn to the new corporaton. The transfer made on December
1 was compete wthn tsef, regardess of what khorn panned to do ater,
or dd subsequenty do. It was not a sham or a devce Intended to obscure the
character of the transacton of December 31. The stpuated facts do not sug-
gest other than a bona fde busness move. The transfer made on December 31
was aso compete wthn tsef, and was made for reasons germane to the bus-
ness of both corporatons. Ths transfer fas wthn the terms of cause ( )
of secton 203(h), whether or not khorn was dssoved.
Whe we are bound by the oard s fndngs of evdentary facts, we are not
bound by the foregong concuson set forth n the opnon and embodyng a
m ed queston of aw and fact. s sad by the Supreme Court n the recent
case of evcrng v. Te -Penn O Co. (300 T . S., 4 1, 57 S. Ct., 569, 574 Ct. D.
1220, C. . 1937-1, 236 ) : The utmate fndng s a concuson of aw or at
east a determnaton of a m ed queston of aw and fact. It Is to be ds-
tngushed from the fndngs of prmary, evdentary, or crcumstanta facta
It s sub|ect to udca revew and, on such revew, the court may substtute
ts |udgment for that of the oard.
carefu consderaton of the evdentary facts dscoses no purpose whch
coud have been served by the creaton of the new company and the transfer of
the assets to t, e cept to strp the od company of a of ts propertes whch
were not to be transferred to the M Creek Co., In antcpaton of that transfer.
The creaton of the new company and ts acquston of the assets of the od
was not a corporate reorganzaton, therefore, wthn the meanng of the
statute or wthn any far meanng of the term reorganzaton. It dd not
nvove any rea transfer of assets by the busness enterprse or any rearrangng
of corporate structure, but at most a mere shftng of charters, havng no
apparent purpose e cept the avodance of ta es on the transfer to the M
Creek Co. whch was n contempaton. To use n part the anguage of the
Supreme Court n Oregon/ v. everng (293 U. S., 465, 469), t was smpy an
operaton havng no busness or corporate purpose a mere devce whch put
on the form of a corporate reorganzaton as a dsguse for conceang Its rea
character, and the soe ob|ect and accompshment of whch was the consum-
maton of a preconceved pan, not to reorganze a busness or any part of a
busness, but to gve to the ntended transfer to the M Creek Co. the ap-
pearance of a transfer of a the corporate assets so as to brng t wthn the
nonrecognton provson of secton 203(h)( ).
Under such crcumstances we thnk that the decson n Gregory v. evcr-
ng, supra, s controng. In that case, for the purpose of avodng ta es
on a qudatng dvdend of shares of stock hed by a corporaton, a subsd-
ary was organzed wthn the terms of the reorganzaton statute and the
shares were transferred to It. The stock of the subsdary was then devered
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251
112(g), rt. 112(g)-2.
to the soe stockhoder of the orgna corporaton and shorty thereafter the
subsdary was dssoved and the shares whch had been transferred to t were
devered to the stockhoder. The Conrt hed that athough the organzaton
of the subsdary came wthn the etter of the reorganzaton statute, such
corporate manpuaton woud be gnored when t fufed no proper corporate
functon and was not In reaty a reorganzaton wthn the meanng of the
tarate. The Court sad: In these crcumstances, the facts speak for them-
seves and are susceptbe of but one nterpretaton. The whoe undertakng,
though conducted accordng to the terms of subdvson ( ), was n fact an
eaborate and devous form of conveyance masqueradng as a corporate re-
organzaton, and nothng ese. The rue whch e cudes from consderaton
the motve of ta avodance s not pertnent to the stuaton, because the trans-
aton upon ts face es outsde the pan ntent of the statute. To hod other-
wse woud be to e at artfce above reaty and to deprve the statutory
provson n queston of a serous purpose.
We do not see how that case can be dstngushed from ths. If the property
whch was to be transferred to M Creek had been transferred to a new com-
pany created for the purpose and had been by that company transferred to M
Creek, no one woud contend that there was a dstncton and certany there
Is no dfference n prncpe between creatng a subsdary to take and convey
the property to the ntended transferee and creatng a subsdary to take over
the other assets and havng the od company make the transfer. In ether
case, the apparent reorganzaton s a mere artfce and It can make no dffer-
ence whch of the affated corporatons makes the transfer of assets whch t
s desred to brng wthn the norrecognton provsons of the statute.
It Is suggested n the opnon of the oard that the case before us s anaogous
to that whch woud have been presented f the od company, pror to the trans-
fer to M Creek, had dstrbuted to ts stockhoders a of the assets e cept
those destned for such transfer but the dstncton s obvous. In the case
supposed, tre busness enterprse woud have defntey dvested Itsef of the
property dstrbuted. ere t dd not dvest tsef of the property at a, but
merey made certan changes n the ega papers under whch t en|oyed cor-
porate e stence. No rue s better setted than that n ta matters we must
ook to substance and not to form and no one who ooks to substance can see
n the mere change of charters, whch s a that we have here, any reason for
permttng a transfer of a part of the corporate assets to escape the ta aton
to whch t s sub|ect under the statute.
Congress has seen ft to grant nonrecognton of proft n sae or e change of
assets ony under certan condtons, one of whch s that one corporaton sha
transfer substantay a of ts propertes for stock n another. If non-
recognton of proft can be secured by the pan adopted n ths case, the e emp-
ton s broadened to cover a transfers of assets for stock, whether substan-
tay a or not, f ony the transferor w go to the sght troube and e pense
of gettng a new charter for hs corporaton and makng the transfer of assets
to the new corporaton thus created n such way as to eave n the od ony the
assets to be transferred at the tme the transfer s to be made. We do not
thnk the statutory e empton may be thus broadened by such an artfce.
avng reached ths concuson, t s unnecessary to decde whether the unty
of the pan under whch the transfer was made brngs t, wthout a unfyng
contract, wthn the prncpes ad down n Starr v. Commssoner (C. C. . 4)
( 2 ed. (2d), 964 Ct. D. 1147. C. . -2, 229 (1036) ), wheren we sad:
Where transfers are made pursuant to such a pan of reorganzaton, they are
ordnary parts of one transacton and shoud be so treated n appcaton of
the we-setted prncpe that, n appyng Income ta aws, the substance, and
not the form, of the transacton sha contro. ( rst Seatte D. . Nat. ank
v. Commssoner (C. C. . 9), 77 ed. (2d), 45 Ct. D. 1022. C. . I -2, 207
(1035) Prare O Gas Co. v. Matter (C. C. . 10), 66 ed. (2d), 309 Ct.
D. 767. C. . III-1, 1 3 (1934) oward v. Commssoner (C. C. . 6), 56
ed. (2d), 7 1: mercan Securty rf Trust Co. v. Tat (D. C), 5 ed. Supp.,
337.) Ths s demanded aso by the prncpe, equay we setted, that a snge
transacton may not be broken up nto varous eements to avod a ta . ( hes
Rra y Corporaton v. Commssoner (C. C. . 2), 71 ed. (2d), 150, 151 Ct. D.
931, C. . I -1, 245 (1935) West Te as Refnng d Deveopment Co. v. Com-
mssoner (C. C. . 10), 6 ed. (2d), 77, 79, 0 Prare O d- CSas Co. v. ot-
ter, gupra (C. C. . 10), 66 ed. (2d), 309, 311 Tusa Trbttre Co. v. Comms-
soner (C. C. . 10), 6 ed. (2d), 937.)
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112(g), rt. 112(g)-2.
252
or the reasons stated, the decson of the oard w be reversed and the
cause w be remanded to t for further proceedngs n accordance wth tha
opnon.
Reversed.
ON R RING.
efore Parkeb and Northcutt, Crcut udges, and . . Wat-kns, Dstrct
udge.
pr 5, 193 .
Tabkeb, Crcut udge: The rehearng granted n ths case and carefu
consderaton of the brefs fed and arguments made thereon have served
ony to strengthen the ma|orty of the court n the opnon heretofore e -
pressed and we see no bass whatever for the contenton that our former
opnon was based on a ground not consdered by the oard of Ta ppeas.
The queston before the oard was whether the transfer to M Creek was
of a the assets of the od company and that queston must necessary have
been answered there as It must be here by a consderaton of the rea nature
of the ncorporaton of the new company and the transfer made to t when
vewed n reaton to the pan for the transfer of assets to M Creek.
It was not ntended by what was sad n the orgna opnon, to the effect
that the transfer of assets from the od company to the new dd not consttute
a bona fde reorganzaton, to suggest that the transfer was a ta abe trans-
acton, but to pont out that the creaton of the new company and the transfer
of the assets to t was a mere shftng of charters havng no purpose other
than to gve to the ater transfer to M Creek the appearance of a transfer
of the corporate assets so as to brng that transfer wthn the nonrecognton
provsons of 203(h)( ). The transfer to the new company was nonta abe
whether t was a rea reorganzaton or a mere shftng of charters, whch
woud of course come wthn the terms of the reorganzaton statute. It s ony
In reaton to the subsequent transfer to M Creek that t becomes mportant
to determne whether the organzaton of the new company and ts takng
over of the assets was a genune reorganzaton. If there was no rea re-
organzaton and transfer, but a mere shftng of charters, the subsequent
transfer to M Creek was not wthn the terms of the nonrecognton pro-
vson of the statute.
We are confrmed n our orgna opnon by the recent decson of the
Supreme Court n Mnnesota Tea Co. v. evcrng ( T . S., , 5 S. CL, 93,
39S7 Ct. D. 1305, C. . 193 -1, 2 ). In that case there was a reorganza-
ton n whch stockhoders pad the debts of a corporaton from the cash ds-
trbuted to them n the course of the reorganzaton. The queston was
whether the corporaton was ta abe on the amount of the debts thus pad on
the theory that the cash used for that purpose was n reaty receved by the
corporaton, or whether t was nonta abe on the theory that the dstrbuton
to the stockhoders was wthn the nonrecognton provsons of the statute.
In hodng the corporaton ta abe thereon the Court sad: The concuson
s nescapabe, as the court beow very ceary ponted out, that by ths round-
about process pettoner receved the same beneft as though t had retaned
that amount from dstrbuton and apped t to the payment of such Indebted-
ness. Payment of ndebtedness, and not dstrbuton of dvdends, was from
the begnnng, the am of the understandng wth the stockhoders and was the
end accompshed by carryng that understandng nto effect. gven resut at
the end of a straght path s not made a dfferent resut because reached by
foowng a devous path. The premnary dstrbuton to the stockhoders
was a mennngess and unnecessary ncdent n the transmsson of the fund
to the credtors, a aong ntendpd to come to ther hands, so transparenty
artfca that further dscusson woud be a needess waste of tme. Itacs
ours.
In the case at bar, the am of the ncorporaton of the new company and
the transfer made to t, was thnt the transfer to M Creek shoud appear
to be a transfer of a of the assets of the company and ths was the end
accompshed, and the ony end accompshed so far as the record shows, by
the ncorporaton and transfer. The ncorporaton of the new company and
the transfer to t was a meanngess and unnecessary ncdent. It s true
that the new company was ncorporated under tho aws of a dfferent State
from the od but It does not appear that any corporate purpose was served
by ths change of ursdctons and certany the ntegrty of the e stng
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233
112(g), rt. 112(g)-4.
busness was not affected bv the change. (Cf. raden Stee Corporaton v. Com-
mssoner (C. C. . 10), 7 ed. (2d), 0 , 10.) It s sad that the transfer
to M Creek had a rea corporate purpose. Ths s true, but t was ta abe
uness consttutng a transfer of a of the assets of the corporaton. The
ncorporaton of and transfer to the new company, whch had no proper corpo-
rate purpose, were resorted to n order to gve the transfer to M Creek the
appearance of beng a trnnsfer of a the assets of the transferor and hence
not ta abe. that was done by the compcated corporate maneuverng
empoyed was the transfer of a part of the assets of the od company to M
Creek n e change for 1,000 shares of ts stock, eavng the busness of the
od company n the bands of the od stockhoders, wth a new charter, but
otherwse unaffected. Ths resut s not a dfferent resut because reached
by foowng a devous path.
nd we thnk t cear that the ncorporaton of the new company and the
transfer made to t were but parts of a snge pan under whch the transfer
was made to M Creek and that they shoud be treated as parts of one trans-
cton. When ths s done, there s no room for the contenton that a of the
ssets of the corporaton were transferred to M Creek. ven though there
was no unfyng contract, the unty of the pan brngs the case wthn the
rae apped n Starr v. Commssoner (C. C. . 4) ( 2 ed. (2d), 964).
or the reasons stated here and n our former opnon, the decson of the
oard of Ta ppeas w be reversed.
Reversed.
. . Watkns, Dstrct udge, dssents.
rtce 112(g)r-4: changes n reorganzaton 1939-19-9 24
for stock or securtes and other property or Ct. D. 1397
money. ,
IN COM T R NU CT O 192 D CISION O COURT.
Gan ok Loss Recognton change of Stock Reorganza-
ton Dvdend.
Pursuant to resoutons passed by the and Y Corporatons,
transferred to Y msceaneous assets and shares of common stock
of Y whch t hed, recevng In e change new common stock of Y,
debentures, and cash, to be dstrbuted to Its stockhoders. s
stockhoders, of whch the ta payer corporaton was one, surren-
dered ther hodngs n e change for aquot portons of new com-
mon stock of Y, debentures wth Interest thereon, and cash
dvdends on the new stock, and was dssoved. Under the facts
of the case, the surrender of the stock of hed by the ta payer
and recept by It of the stock and debentures of Y was n aw a
nonta abe e change made pursuant to a pan of reorganzaton
wthn the meanng of secton 112()( ) of the Revenue ct
of 192 , and the dvdend receved on the new stock of Y was
ta abe as an ordnary dvdend.
Unted States Crcut Court of ppeas for toe Thrd Crcut.
Commssoner of Interna Revenue, pettoner, v. ood Industres, Inc.,
respondent.
101 . (2d), 74 .
On petton for revew of decson of the Unted States oard of Ta ppeas.
efore ggs, Mars, and Cark, Crcut udges.
ebruary 0, 1939.
OPINION.
ggs, Crcut udge: Ths proceedng comes before us upon the petton of
the Commssoner of Interna Revenue to revew a decson of the Unted States
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112(g), rt. 112(g)-4. 254
oard of Ta ppeas fndng no defcency n ncome ta pad b| tbe respondent
for tbe caendar year 1931. Pettoner seeks to assess addtona ta n tbe sum
of 30,7 7.50. refy the facts are as foows:
t the begnnng of the year 1931, Genera akng Co., a New York corpora-
ton, operated a number of bakng pants n varous parts of tbe Unted
States. The company had outstandng 90,775 shares of preferred stock and
429,719 shares of the common stock. oth casses of stock possessed equa
Totng rghts.
Genera akng Corporaton, a corporaton of the State of Maryand, was
formed for the purpose of acqurng and hodng the stock of the New York
company. Of the 429,719 shares outstandng of the common stock of the New
York company, the Maryand corporaton n anuary, 1931, hed 429,406 shares.
The Maryand corporaton dd not own any of the preferred stock of the New
York company.
In anuary, 1931, the offcers and drectors of both compnnes decded that
there was no onger any suffcent reason for the contnued e stence of
the Maryand corporaton, and thereupon, upon the passage of approprate
resoutons by tbe drectors and stockhoders of tbe two companes and the
makng of contracts to such end, the Maryand corporaton transferred to tbe
New York company msceaneous assets, havng a tota book vaue of 61,5 0.1 ,
and the shares of common stock of the New York company hed by t Pursuant
aso to the ont pan of the two companes, the New York company then pro-
ceeded to ssue to the Maryand corporaton ts new common stock, debentures
and cash, to the end that the Maryand corporaton mght dstrbute these to
ts stockhoders.
The respondent, whch had possessed 50,000 shares of the preferred stock
of the Maryand corporaton, receved 75,000 shares of the new common stock of
the New York company, debentures of the New York company havng a face vaue
of 150,000 wth Interest on such debentures n cash n the sum of 2,062.50
and cash n the sum of 37,500 as a dvdend at the rate of 50 cents per share upon
the new common stock of the New York company. The other stockhoders of the
Maryand corporaton aso surrendered ther stock n the Maryand corporaton
and receved ther aquot portons of the new common stock of the New York
company, ts debentures and cash at about the same tme. The Maryand cor-
poraton, as was contempated In the |ont pan of the two companes, was then
dssoved n accordance wth the aws of Maryand.
We shoud state that the New York company In order to effect the pan
ncreased the number of shares of ts common stock and changed the cassfcaton
of these shares from no par vaue to 5 par vaue common stock. The 5 par
vaue common stock s the new stock of the New York company referred to.
The ncrease n number of shares and change n par vaue were made for tbe
purpose of effectng the e change of the stocks of the two companes In accordance
wth the pan and possess no other sgnfcance.
Two questons are presented by the appea at bar. The frst Is whether or
not the surrender of the stock of the Maryand corporaton hed by the re-
spondent and the recept by the respondent of the stock and securtes of the
New York company was In aw a nonta abe e change made pursuant to a pan
of reorganzaton between the two companes or a ta abe dstrbuton In quda-
ton of the Maryand corporaton. The second queston presented s whether or
not the dvdend of 50 cents per share receved by the respondent on Its new stock
of the New York company s ta abe as an ordnary dvdend or as a qudatng
dvdend.
The pettoner contends that the transacton here nvoved was not a re-
organzaton wthn the mennng of secton 112 of the Revenue ct of 192
( ct of May 29, 192 , ch. 52, 45 Stat, 791) but was a mere qudaton of the
Maryand corporaton and a gan upon the common stock and debentures of the
New York company receved by the respondent upon the surrender of ts stock n
the Maryand corporaton. The pettoner further argues that as such t a
ta abe n accordance wth the provsons of secton 115 of the 192 ct
Subsecton (b)(3) of secton 112 provded that upon the sae or e change of
property the entre amount of the gan or oss determned as provded under
secton 111 shoud be recognzed, e cept that no gan or oss sha be recog-
nzed If stock or securtes In a corporaton a party to a reorganzaton are,
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255 112(g), rt. 112(g)-4.
n pursuance of n pan of reorganzaton, e changed soey for stock or secur-
ty n such corporaton or n another corporaton, a party to the reorganzaton.
It s obvous that n the case at bar the stock of the Maryand corporaton
was e changed soey for stock or securtes n the New York company.
Tbe queston presented for our determnaton s whether or not ths e change
took pace n pursuance of a pan of reorganzaton. Subsecton () of secton
112 provded that as used In sectons 112, 113, and 115 the term reor-
ganzaton means ( ) a merger or consodaton (ncudng the acquston
by one corporaton of at east a ma|orty of the votng stock and at east a
ma|orty of the tota number of shares of a other casses of stock of another
corporaton, or substantay a the propertes of another corporaton), or
I ) a transfer by a corporaton of a or a part of ts assets to another cor-
poraton f Immedatey after the transfer the transferor or ts stockhoders
or both are n contro of the corporaton to whch the assets are trans-
ferred, (D) a mere change n dentty, form or pace of organzaton
however effected.
In our opnon there was no forma merger or consodaton n the sense that
these words are ordnary used. Nor can the respondent ava tsef of
te cause n parentheses quoted above snce t s apparent that the New York
company dd not acqure a of the propertes of the Maryand corporaton,
the New York company dd acqure the msceaneous assets heretofore referred
to of the vaue of 61,5 0.1 , and receved them wth an ndefeasbe tte,
bat tbe stock of the New York company hed by the Maryand corporaton was
acqured by the New York company ony to the end that t mght be ressued,
though n a new form, to the Maryand corporaton. In our opnon ths type of
momentary acquston s not the knd of acquston referred to n the statute.
owever, In accordance wth the defnton of reorganzaton supped by
the statute, the term reorganzaton ncudes a transfer by a corporaton of
part of ts assets to another corporaton provded that mmedatey after
the transfer the stockhoders of the transferor are In contro of the corporaton
to whch tbe assets were transferred. It s apparent from an nspecton of the
record n the pendng cause that the requrements of ths defnton are fufed
teray by the transactons at bar. It foows therefore that f the statute
be teray apped the respondent may ava tsef of the e cepton supped
by subsecton (b)(3) of secton 112 and that no gan or oss may be recognzed
opon the stock and debentures of the New York company n ts hands.
The pettoner ponts out, however, that the vaue of the msceaneous assets
of the Maryand corporaton acqured by the New York company represented
ess than one-tenth of 1 per cent of the tota vaue of the assets of the Maryand
corporaton, the stock of the New York company hed by the Maryand corpora-
ton possessng a book vaue of 96,625,395.54. The pettoner argues that the
vaue of the msceaneous assets transferred was so sma and unmportant
that n fact the sum of a the transactons was nothng more than the surrender
of the stock of the Maryand corporaton by ts stockhoders and recept by them
of the assets of the Maryand corporaton n qudaton. The pettoner contends
that the varous transactons between the companes pursuant to ther pan hust
be vewed essentay as a snge transacton eadng to the qudaton of the
Maryand corporaton and the steps taken to that end w not be treated
separatey. In other words, the pettoner contends that the substance and
not the form of the transacton contros, ctng asnck v. CommU oncr ( 5 .
(2d), , 10, certorar dened, 209 U. S., 592) and the cases cted theren, and
that n substance the transactons resuted n qudaton of the Maryand
corporaton, not n the reorganzaton of the two companes.
In support of hs poston the pettoner ctes the decson of the Supreme
Court n Mnnesota Tea Co. v. crerng (302 17. S., (309 Ct. D. 1305, C. .
193S-1, 2 ). In ths case the ta payer, a corporaton, dstrbuted ts assets
to ts stockhoders upon qudaton. Incuded n the assets so dstrbuted was
the sum of 106,471.73, the amount of the remanng debts of the corporaton
whch the stockhoders contracted to pay upon ts dssouton. The queston
presented to the Supreme Court for ts ad|udcaton was whether or not ths
mm was ta abe to the corporaton or whether or not t had been dstrbuted
to the stockhoders wthn the meanng of secton 112(d) (1) and (2) of the
fevenue ct of 192 (26 U. S. C. ., 112(d) (1) and (2)), as part of a pan
of reorganzaton. The Supreme Court hed that the sum was ta abe to the
corporaton, statng: The concuson s nescapabe that by ths
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112(g), rt. 112(g)-4.
256
roundabout process pettoner receved the same beneft as though t had
retaned that amount from dstrbuton and apped t to the payment of such
ndebtedness. Payment of ndebtedness, and not dstrbuton of dvdends, was,
from the begnnng, the am of the understandng wth the stockhoders and
was the end accompshed by carryng that understandng nto effect gven
resut at the end of a straght path s not made a dfferent resut because
reached by foowng a devous path. The premnary dstrbuton to the
stockhoders was a meanngess and unnecessary ncdent n the transmsson
of the fund to the credtors, a aong ntended to come to ther hands, so
transparenty artfca that further dscusson woud be a needess waste of
tme. The reaton of the stockhoders to the matter was that of a mere condut
The controng prncpe w be found n Gregory v. everng (293 U. S., 465,
469-470 Ct D. 911, C. . I -1, 193 (1935) .)
Though the transactons between the two companes are teray wthn the
provsons of secton 112(1) 1( ) we woud not fee bound to hod that the
surrender of the stock hed by the respondent n the Maryand corporaton and
the recept by t of the stock and debentures of the New York company was a
nonta abe e change f the net resut to the respondent was that whch woud
have come to pass had the Maryand corporaton been dssoved wth the consent
of ts stockhoders n the ordnary way and wthout enterng nto any trans-
actons or agreements wth the New York company. In such a case the aeged
reorganzaton mght be a mere coak for dssouton. (Mnnesota Tea Co. v.
everng, supra.)
amnng the case at bar n the ght of the crcumstances, however, we
see that hoders of the preferred stock of the Maryand corporaton, of whch
the respondent was one, each receved for every 100 shares of the Maryand
corporaton hed by them, 150 shares of the new common stock of the New York
company and for a dvdends accrued and unpad, 5
per cent snkng fund debentures (of the New York company) , wth
nterest thereon ad|usted and accrung from anuary 1, 1931, , at the
rate of 300 prncpa amount thereof on each 100 shares of stock. Ths resut
to the stockhoders of the Maryand corporaton a a very dfferent one than that
whch woud have eventuated had the stock of the New York company hed by
the Maryand corporaton been dstrbuted on qudaton for the reason that
the stockhoders of the Maryand corporaton receved other and further rghts
than those whch woud have come to them upon the dssouton of ther corpora-
ton. These rghts were created and came to the stockhoders of the Maryand
corporaton because of the consummaton of the |ont pan of the two companes
whereby the obgatons of the Maryand corporaton were assumed by the New
York company and the Maryand corporaton was done away wth.
We thnk therefore that a reorganzaton of the two companes dd n fact
take pace not ony wthn the tera anguage of the statute but aso wthn
ts sprt
It foows that the dvdend pad by the New York company upon ts new
shares was an ordnary dvdend and not a qudatng dvdend.
The dentca questons presented for our decson by the case at bar were
ad|udcated n favor of the ta payer by the Crcut Court of ppeas for the
ourth Crcut n everng v. Leary (93 P. (2d). 26), by the Crcut Court
of ppeas for the Second Crcut n everng v. chroekopf, r. (100 .
(2d), 415), by the Crcut Court of ppeas for the rst Crcut n Comms-
soner v. Whtaker (101 . (2d), 640), and by the Crcut Court of ppeas for
the Nnth Crcut n Commssoner v. ob (100 P. (2d), 920). In reachng the
concusons e pressed n ths opnon we have foowed n part the reasonng
of the decsons cted.
The decson of the oard of Ta ppeas s affrmed.
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257
115. rt. 116-1.
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
rtce 115-1: Dvdends. 1939-21-9 43
Ct. D. 1399
INCOM T R NU CT OP 192 D CISION O COURT.
1. DISTRI UTIONS Y CORPOR TION -DI ID ND CORPOR T R SOLU-
TION Chargng Off Cash Wthdrawas by Stockhoders In-
come to Stockhoders.
The drectors of a famy corporaton, of whch the ta payer s
deceased husband had been the ma|orty stockhoder, adopted a
resouton on March 1, 1929, whereby the amount of cash wth-
drawas made by the decedent for a number of years pror to hs
death and by the admnstrator and dstrbutees of hs estate were
charged off to surpus. ed, That such conwrate acton created
a ta abe dvdend wthn the meanng of secton 115(a) of the
Revenue ct of 192 , notwthstandng a recta n the resouton
that the acconnts were not beng forgven and that the ta payer s
share of the debts of the estate whch were charged off and the
credtng of wthdrawas made by her Indvduay therefore rep-
resented ncome to her n 1929.
2. Decson ffrmed.
Decson of the Unted States oard of Ta ppeas (1936) (34
. T. ., 155) affrmed.
3. Certorar Dened.
Petton for certorar dened ebruary 27, 1939.
Unted States Crcut Court of ppeas for the S th Crcut.
ate udson, pettoner, v. Commssoner of Interna Revenue, respondent.
99 . (2d), 630.
Tctton to revew order of the Unted States oard of Ta ppeas.
efore cks, en, and amton, Crcut udges.
November 12, 193 .
opnon.
en, Crcut udge: Petton to revew an order of the oard of Ta
ppeas determnng a defcency n ncome ta of 5,127.99 for the year 1929.1
(34 a T. ., 155.)
The facts, as stpuated, and found by the oard, are as foows:
Chares udson, deceased, was the presdent and prncpa stockhoder of the
udson Dugger Co., a Tennessee corporaton, ownng 0,731 shares of the
capta stock, the remanng shares, 76 4, beng owned by hs son, Gavn
udson. Pettoner s the wdow of Chares udson, and aso s trustee for
Mare udson, ther daughter. t the death of Chares udson, on December
24,1924, Gavn, ate and Mare udson shared equay n hs estate.
Chares udson for a number of years pror to hs death had wthdrawn from
the corporaton varous sums of money whch were charged to hs wrsona
account. t the tme of hs death hs account was n debt to the corporaton
n the amount of 43,910.19. Chares udson ded ntestate, and Gavn udson
was apponted admnstrator.
s admnstrator, Gavn udson wthdrew from the corporaton suffcent
funds to pay funera e penses and admnstraton fees, and n genera to wnd
up the estate. These amounts were charged on the books of the corporaton
to the account of Gavn udson, admnstrator, and after beng reduced by
certan credts whch need not be temzed, the baance due the corporaton was
Defcences for the same year were determned aganst ate udson, trustee for Mare
udson, and aganst Gavn udson, respectvey. y agreement the decson In ths case
vu bnd the other two partes.
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25
5 ,76 . 1. In 1926, by order of the Probate Court of Sheby County, Tenn.,
the admnstrator dstrbuted the capta stock of the corporaton beongng to
the estate, one-thrd each to pettoner ndvduay, and to her as trustee for
Mare udson, and to hmsef ndvduay.
Durng the perod from anuary 1, 1925, to March 15, 1929, pettoner s
wthdrawas from the corporaton eft a baance due of 16,271.96. Durng
practcay the same perod Mare udson wthdrew certan amounts whch
eft her aggregate debt baance as of March 15, 1929, 2,0 9.64. Upon March
1, 1029, as shown by the corporate mnutes, the drectors took up the queston
of the debt baances of the stockhoders, and adopted the foowng resouton:
e t resoved that the overdrafts shown on the accounts of Chares udson,
Gavn udson, admnstrator, Mrs. Chares udson and Mss Mare udson
be ceared out of the assets of the udson Dugger Co. by chargng them and
each of them to surpus, t beng the sense of ths resouton and so understood
by a that the accounts above set out are not beng forgven and that udson
Dugger Co. st owns ts equty theren that at such tme as may be convenent
and approprate proper settement w be made to the company by the partes
of such account.
The varous overdrafts were charged on the books of the udson Dugger
Co. to undvded profts, and the accounts of the debtors were credted wth
amounts equa to the debt baances shown n ther respectve accounts. Pettoner
does not contend that the corporate surpus was not at that tme suffcent for
the payment of dvdends n the amounts of the overdraft. Nether does t
appear that any of the tems represented n the overdrafts was returned for
ta aton by the ndvdua drawers In the respectve years when the wthdrawas
were made. None of the amounts was taken as a deducton for ncome ta
purposes by ether the corporaton or by the estate. In 1931, at a meetng of the
stockhoders, the presdent of the corporaton suggested, snce there was
controversy between the stockhoders and the corporaton, and aso wth the
edera Government wth reference to these accounts, that stock n the company
be surrendered by each of the debtors, and canceed. The corporaton approved
ths suggeston, and n 1932, such a surrender was actuay made by pettoner,
both n her own rght and as trustee for her daughter.
In determnng defcences aganst pettoner and Gavn udson and Mnre
udson, the Commssoner decded that each had receved a dvdend of
34,226.33, or one-thrd of 102,679.04, the atter sum beng the aggregate of tha
debts of Chares udson and Gavn udson, admnstrator, owng to the
corporaton. e further determned that the sum of 16,271.96 credted to
pettoner s account consttuted a dvdend to her, and that 2,0 9.64 credted
to the account of Mare udson was a dvdend to her. The oard of Ta
ppeas sustaned the Commssoner.
Pettoner contends:
1. That no dvdend was decared by the corporaton, and that the amount of
the wthdrawas does not consttute ncome.
2. That cams aganst the admnstrator and aganst Chares udson, when
charged off. are not dvdends to dstrbutees of the estate and
3. That the cam of the corporaton aganst the estate had been outawed
at the tme the account was charged off, and that therefore the amount of the
debts, even f they were canceed, was not a dvdend to the dstrbutees. We do
not consder ths contenton, because that queston was not rased before the
oard of Ta ppeas nor decded by It.
The man queston presented Is whether the acton taken by the corporaton
In ts resouton of March 1, 1929, created a ta abe dvdend wthn the defn-
ton n secton 115(a) of the Revenue ct of 192 (45 Stat., 791), whch pro-
vdes that The term dvdend when used n ths tte means any
dstrbuton made by a corporaton to ts sharehoders, whether n money or
n other property, out of ts earnngs or profts accumuated after ebruary
2 , 1913.
Pettoner urges that as the corporaton s resouton states that the debts
are not to be forgven, the charge-off dd not consttute a dvdend, especay
as the debts are aeged to have been pad by transferrng to the corporaton
some of the shares of capta stock whch pettoner Inherted. The faacy
of ths argument s apparent from the nature of the acts done and the effects
thereof.
Ths court has hed In Cohen v. Commssoner (77 ed. (2d), 1 4) that cash
wthdrawas from a corporaton made by ts stockhoders consttute dvdends
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259
116, rt. 115-1.
(
C.
In the ta abe year durng whch corporate acton was taken canceng or
chargng off such accounts aganst surpus. The resouton of March 1, 1029,
authorzed |ust such acton as that taken n the Cohen case. The accounts of
the foowng persons were actuay credted, n accordance wth that acton,
wth the foowng amounts:
Mrs. Chares udson 16,271.96
Mare udson 2, 0 9. 64
Chares udson _ 43, 910.19
Gavn udson, admnstrator 5 , 76 . 1
at the resouton ntroduced an eement of ambguty by specfyng that the
debts were not beng forgven. So fur as we know, accountng practce pro-
rdes no way In whch tems charged aganst surpus may be carred on the
books as not beng forgven. We are aware that certan decsons hod that
book entres, whe of evdenta vaue, are not determnatve of ta abty.
Cf. everng v. Mdand Mut. Lfe Ins. Co., 300 T . S., 216, 223 Ct. D. 1206,
. 1937-1, 17 .) ut n ths case book entres refect the acts done by the
eorporaton. The ndvduas were n fact gven credt for payment of the
debts, and they were charged off to surpus. The book entres carfy the vague
tnd Indefnte reservaton of the resouton. The burden of proof was on the
pettoner to show that the Commssoner erred n hs determnaton. (Cohen
t. Commssoner, supra.) Ths burden they dd not sustan. Whe In the
Cohen case the debt was charged oft by forma resouton, n the nstant case
the same thng was accompshed by resouton and by book entres made In
conformty to the resouton. (Cf. Wese v. Commssoner, 93 ed. (2d), 921
(C. C. . ).) We concude that the prncpe announced n Cohen v. Comms-
toner, that there was a dstrbuton of profts, and that ncome accrued at that
tme, contros.
The reease to the corporaton by pettoner of suffcent shares of stock at
100 par vaue to pay for her one-thrd of the estate debts does not affect the
concuson. The record does not show that these shares when reeased had any
substanta vaue. The transacton resuted n no oss to her, and amounted
to no more than a mnor reaotnent of shares among the sharehoders. The
corporaton was a cosed one, owned by three members of one famy. The stock
turned n was canceed and the book vaue of the outstandng shares was
changed. In reaty the so-caed repayment of the wthdrawas merey resuted
In the fact that a fewer number of shares e sted, but they were hed In prac-
tcay the same proportons as prevousy, and represented the same quantum
of net worth.
The second prncpa queston s whether the Commssoner was correct In hs
determnaton that one-thrd of the 102,679.04. consttutng the aggregate sura
of the deceased s wthdrawas, and the estate e penses, represents ncome to the
pettoner. Up to March 1, 1920, the amount had been carred on the books
of the corporaton as an asset n the form of accounts recevabe.
Under secton 336 of the Code of Tennessee, 1932, pettoner was personay
obgated for debts of the estate, n proporton to the vaue of her dstrbutve
share. ( mercan Surety Co. v. Grace, 151 Tenn., 575.) The resouton of March
1,1929, was the frst corporate acton taken wth regard to the wthdrawas. It
provded for chargng off the debts to undvded profts. When the accounts
were credted wth the amount of the debts and the charge-off was made n
accordance wth the resouton, the acton was tantamount to canceaton.
(Wewe v. Commssoner, supra.) s to pettoner, the charge-off consttuted
ether an Increase n her nherted estate or the renqushment of a en on
her nherted property.
We concude that pettoner receved In 1929, as dvdends, one-thrd of the
sum of 102,679.04. The addtona wthdrawas of 16,271.90 credted to pet-
toner s account must of course, n vew of the above consderatons and n vew
of our hodng n Cohen v. Commssoner, supra, be regarded as ncome n 1929.
The order of the oard of Ta ppeas s affrmed.
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260
(1) Ta aton by State of saary of edera empoyee (2) Co-
ector v. Day (11 Wa., 113), overrued. (See Ct. D. 1390, page 129.)
R NU CTS O 1926, 1D2 , 1932, ND 1934.
S CTION 117 C PIT L G INS ND LOSS S.
rtce 117-1: Meanng of capta assets. 1939-15-97 6
Ct. D. 1391
COURT.
Capta Gan Redempton or onds Sae on change op
Capta ssets.
The redempton of bonds before maturty by the Issung corpora-
ton Is not tantamount to a sae or e change of capta assets wth-
n the meanng of secton 20 (a) 1 of the Revenue ct of 1926 and
secton 101(c) of the Revenue ct of 192 , and gan from such
redempton s not capta gan. y the enactment of secton 117(f)
of the Revenue ct of 1934, provdng that amounts receved upon
the retrement of bonds sha be consdered as amounts receved n
e change therefor, Congress dd not attempt to construe the pror
cts but purposey made a matera addton thereto.
SUP M COU T O T UNIT D ST T S.
Dougas arbanks, pettoner, v. The Unted States of merca.
59 S. Ct, 607.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut.
March 27,1939.
OPINION.
Mr. ustce McRetnods devered the opnon of the Court.
oth courts beow rued that gan derved by the pettoner from redempton
of bonds durng 1927, 192 and 1929 was not capta gan wthn the meanng
of the controng statutes.
No contest now e sts concernng the facts. The narrow pont as counse
ngree s ths Must the redempton of bonds before maturty by the Issung
corporaton be treated as tantamount to a sae or e change of capta assets
wthn the mennng of secton 20S(a), Revenue ct of 1926, and secton 101(c),
Revenue ct 192 .
Revenue ct 1921 (November 23, 1921, ch. 136, 42 Stat., 227, 232) provdes
Sr.r. 206. (n) That for the purpose of ths tte:
(1) The term capta gan means ta abe gan from the sae or e change of capta
assets consummated after December 31, 1921
Ths provson wthout matera change was reenacted by Revenue ct 1924 ( une 2.
1924, ch. 2:4. sec ton 2() (a), 43 Stat.. 253, 262) Revenue ct 1926 ( ebruary 26, 1920,
ch. 27, secton 20 (a), 44 Stat., 9, 19) Revenue ct 192 (May 29, 192 , ch. 52, sec-
ton 101(c), 45 Stat., 91, 11) Revenue ct of 1932 ( une 6, 1932, ch. 209, secton
101(c) , 47 Stat., 109, 191).
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261
119, rt. 119-15.
If redempton amounts to sae or e change, the pettoner s gan was sub|ect
to ta aton at the 12M per cent rate otherwse, under norma and surta rates.
Payment and dscharge of a bond Is nether sae nor e change wthn the
commony accepted meanng of the words. The courts beow found no su-
cent reason for dsregardng ths and rghty apped te statutes under that
vew.
The Ta cts of 1921, 1924. 1926, 192 , and 1932 contan ke defntons of
capta gan. rom 1921 to 1929 the Commssoner hed that such gan dd not
arse from redempton. In 1929 the oard of Ta ppeas hed otherwse.
(Werner v. Commssoner, 15 . T. ., 4 2.) ut n 1932 t defntey overrued
that determnaton. ( Watson v. Commssoner, 27 . T. ., 463.)
The Revenue ct 1934 (May 10, 1934, ch. 277, 4 Stat., 6 0, 714-715) provdes
Sec. 117. Capta Gans and Losses.
(a) Genera rue. In the case of a ta payer, other than a corporaton, ony
the foowng percentages of the gan or oss recognzed upon the sae or
e change of a capta asset sha be taken Into account n computng net
ncome: .
(f) Retrement of bonds, etc. or the purposes of ths tte, amounts re-
ceved by the hoder upon the retrement of bonds, debentures, notes, or cer-
tfcates 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, sha be consdered as amounts receved n
e change therefor.
What we regard as the correct meanng of the defnton of capta gan In the
Revenue ct 1921 and ts four successors s accentuated by ong-contnued
e ecutve constructon, aso the ast concuson of the oard of Ta ppeas.
The crcut court of appeas beow was rght In hodng that by the ct
1934 Congress dd not attempt to construe the pror cts and purposey made a
matera addton thereto. In vcr v. Commssoner of Interna Revenue
(decded December 2 , 193 ), the Crcut Court of ppeas rst Crcut acted
upon a dfferent vew. Ths confct caused us to brng up the present cause
notwthstandng the appcaton for certorar had been dened earer n the
term.
The chaenged |udgment must be af rmed.
S CTION 119. INCOM ROM SOURC S WIT IN
UNIT D ST T S.
rtce 119-14: Teegraph and cabe servce.
R NU CT O 1934.
mendment of Reguatons 6. (See T. D. 4 77, page 190.)
rtce 119-15: Computaton of ncome.
R NU CT O 1934.
rtce 119-14, Reguatons 6, redesgnated. (See T. D. 4 77,
page 190.)
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262
SUPPL M NT O CR DITS G INST T .
rtce 131-1: nayss of credt for ta es. 1939-2-9666
Ct D. 1375
1. Credt State Income Ta es Pad by Domestc Corporaton
Consttutonaty of Statute.
New ersey corporaton carryng on busness In New York and
rgna but not dong busness n any foregn country Is not en-
tted to credt ta es pad to such States on ncome earned theren
aganst ta es due the Unted States, snce t does not come wthn
the cassfcaton of corporatons whch secton 131 of the Revenue
ct of 192 provdes sha be entted to such credt. There Is noth-
ng so unreasonabe, arbtrary, or caprcous n the cassfcaton
f ed by Congress as to be voatve of the Consttuton.
2. Certorar Dened.
Petton for certorar dened November 7, 193 .
3. Rehearno Dened.
Petton for rehearng dened December 12, 193 .
Court of Cams of the Unted States.
George W. eme Co. v. The Unted States.
23 . Supp., 7 7.
uy 5, 193 .
OPINION.
Per curam: Pantff s a New ersey corporaton whch durng the ta abe
years here nvoved carred on busness n New York and rgna and pad
an ncome ta to those States on account of Income earned theren. Pursuant
to the Revenue ct of 192 t fed edera ncome ta returns for 1929, 1930,
and 1931, and camed and was aowed deductons from gross ncome for the
ncome ta es pad n those years to New York and rgna. Thereafter t fed
cams for refund n whch t contended n substance, as t now contends here,
that a refund shoud be granted because ctzens and domestc corporatons
carryng on busness n foregn countres were entted under secton 131 of the
Revenue ct of 192 to credt aganst the ta es due the Unted States a certan
proporton of the ta es pad to foregn countres, whereas, as ndcated above,
t was ony entted to a deducton from ts gross ncome (and not to a credt
aganst ts ta due the Unted States) for the ta es whch t pad to New York
and rgna. The Commssoner re|ected the cams, and, we thnk, rghty so.
Pantff was not carryng on any busness n a foregn country, pad do
ncome ta es to a foregn country, and therefore dd not come wthn the cass-
fcaton of corporatons whch Congress provded n secton 131 shoud be entted
to the credt Pantff s ncome was derved soey from sources wthn the
Unted States. Its compant s that nstead of havng been granted a rght
of deducton from gross ncome for these State ncome ta es, t shoud hare
been granted a rght of credt aganst the ta otherwse due the Unted States.
Suffce t to say that Congress dd not grant such a rght and certany t does
not e wthn the power of ths court to so amend the statute. nd beng wth-
out such power, t woud ava nothng to pantff f ths court shoud say, as
pantff contends, that the statutes grantng the credts are unconsttutona,
because ths court has |ursdcton ony to render money udgments (Unted
States v. ones, 131 U. S., 1), and no money |udgment coud resut to pantff
f we were to say that some other ta payer has receved a beneft to whch that
ta payer was not entted. t best the ssue s moot or academc as now pre-
sented by ths pantff.
sde from the fact that no money |udgment coud resut to pantff from a
fndng that credts shoud not have been granted on account of foregn ta es
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15 162, rt. 162-1.
pad, the contenton that secton 131 of the Revenue ct of 192 s voatve of
the Consttuton s wthout mert The grantng or denyng of credts and de-
ductons s a matter of egsatve grace and s eft to the sound dscreton of
Congress. Such provsons may be hed nvad ony when shown to be arbtrary
and caprcous or to resut n gross and patent nequates. ( rushaber v.
Cton Pacfc R. R. Co., 240 U. S., L) The same s true wth respect to the
seecton and cassfcaton of ctzens and corporatons for ta ng purposes.
(Daman v. Sayton, 2 2 U. S., 514 Ct D. 31 , C. . -, 3 0 (1931) .) Certan
deductons were granted to ta payers n pantffs cassfcaton, ncudng a de-
ducton for ncome ta pad to a State other than that n whch t was ncor-
porated, whereas certan credts were granted to other corporatons on account
of ncome ta es pad to foregn countres on Income earned n those countres.
These two casses are so dssmary stuated, both as to the source of ncome
and the economc consderatons surroundng the earnng of that ncome, that
we can fnd nothng unreasonabe n the cassfcatons deberatey f ed, nor
can we say that there was anythng arbtrary or caprcous n such acton.
Pantff presents a smar argument wth respect to credts aowed on
account of ncome derved from foregu possessons as dstngushed from
foregn countres, but we are convnced that n ke answer must be gven to that
contenton. In short, we are of the opnon that a the consderatons advanced
are wthout mert and accordngy the petton shoud be dsmssed. It s so
ordered.
S CTION 162. N T INCOM .
rtce 162-1: Income of estates and trusts. 1939-17-9 04
( so Secton 23, rtce 23(e)-.) Ct. D. 1394
1. Income Trusts Cheated Pursuant to Separaton and Compro-
mse greements -Ta abe to enefcary.
Income receved by the ta payer n 1930 from two trusts, one
created by her husband n 1924 pursuant to a separaton agreement,
and the other created n 1930 (subsequent to the dvorced husband s
death) pursuant to a compromse settement of unfufed obga-
tons under the separaton agreement, was propery ta abe to her.
2. Deducton ad Debt Loss.
The ta payer was not entted to a deducton n 1930 for bad
debts or osses as a resut of the compromse settement of the
obgatons whch her husband had entered nto under the separa-
ton agreement and had not performed pror to bs death.
Unted States Crcut Court of ppeas for the Second Crcut.
sabeth R. Thomas, pettoner, v. Commssoner of Interna Revenue,
respondent.
100 ed. (2d), 40S.
ppea from the Unted States oard of Tn ppeas.
efore Manton, L. and, and ugustus N. and, Crcut udges.
December 5, 193 .
OPINION.
Prom an order of the oard determnng that there was a defcency n the
ncome ta of the pettoner sabeth R. Thomas for the year 1930 n the
amount of 21,1 3.54, the atter appeas. ffrmed.
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162, rt. 162-1.
2G4
ugustus N. and, Crcut udge: The oard of Ta ppeas determned a
defcency n the ncome ta of the pettoner sabeth R. Thomas for the year
1930 amountng to 21,1 3.54, the correctness of whch Is dsputed by her on
the present appea.
The ta payer marred dward R. Thomas on November 5, 1912, and ther son
and ony chd was born on October 2, 1913. On May , 1924, the coupe havng
aready separated, entered nto a contract for the settement of property rghts
and cams arsng out of the marta reaton. Ths was foowed by a decree
of dvorce rendered on une 27, 1924, by the Crcut Court of orda, where the
partes were domced. The decree of dvorce awarded to the ta payer the
custody of her son.
In the contract of May , 1924, the ta payer renqushed a her rghts of
dower, Inhertance and descent n the property of her husband, renounced any
rght to admnster hs estate, reeased a cams for future mantenance and
support, and assumed abty for the support of the chd. The husband on
hs part agreed to pay hs wfe varous amounts n cash, to convey to her
certan rea estate and to create a trust fund of 200,000 on her behaf. In
addton to these undertakngs whch were to be performed at once, he aso
agreed (a) to pay the ta payer specfed sums annuay durng ther ont ves
(6) to create wthn fve years (that s, by May , 1929) an addtona trust
fund of 100000 (c) to charge hs estate wth a oan of 93,400 on certan
nsurance poces on hs own fe of the face amount of 425,000 payabe to
her, and to pay premums upon such poces when due (d) to assgn to her hs
nterest to the e tent of 300,000 n the remander of an estate created by hs
father s w, such 300,000 to become payabe upon the death of the fe tenant,
who was nn ugusta Thomas, hs mother, on condton, however, that the
ta payer shoud not have remarred (e) to create upon the mother s death a
trust fund of 200,000, the ncome of whch shoud be pad to the ta payer for
fe or unt remarrage (f) to guarantee performance by the Mornng Tee-
graph Co. of ts contract wth the ta payer whereby she was to receve 10,400
annuay for 15 years for wrtng artces.
The husband ded on uy 6, 1926. t the tme of hs death he had fuy
performed a the obgatons of the separaton agreeement whch had become
due. There remaned unperformed: (1) The creaton of the 100,000 trust by
May , 1929, (2) the repayment by hs estate of the 93,400 oan upon the fe
nsurance poces (3) the creaton of a 200,000 trust upon hs mother s death
(4) the payment of 300,000 to the ta payer out of hs father s estate after the
death of hs mother.
In addton, the ta payer had not receved payment from the Mornng Tee-
graph Co. for her artces snce September 27, 1926.
compromse agreement was e ecuted n 1930 by the ta payer, by the second
wfe of dward R. Thomas, by the e ecutors of hs w and by the trustee
named n the contract of May , 1924. Under ths agreement the 100,000 trust
was created for the ta payer the 93,400 oan on the nsurance poces, together
wth nterest, was pad n fu, and the e ecutors agreed to estabsh the 200 000
trust upon the death of the mother, and 125,000 In cash pus nterest of
12,304.17 were pad drecty to her n consderaton of her reease of her rghts
under the separaton agreement.
Durng the year 1930 the ta payer receved ,552. 6 as her dstrbutabe
share of the ncome from the trust of 200,000 created n 1924, and kewse
0, 5 .73 from the trust of 100,000 set up n 1930. The returns of the ta payer
were on a cash bass, but she faed to report ether of these two recepts of
ncome n her ta returns, regardng them as ony payments n e change for
her renqushment of persona rghts growng out of the marta status. The
Commssoner assessed them aganst her for that year. rom the ncome
returned for 1930 she camed a bad debt deducton of 232,322.67 on the theory
that the varous obgatons under the separaton agreement of May , 1024,
were debts and that the deducton was aowabe snce the unperformed obga-
tons vaued as of a gven date e ceeded the aggregate of the tems n the
compromse agreement as then vaued. The Commssoner re|ected the deduc-
ton. s rungs aganst the ta payer n assessng both tems of ncome
derved from the trusts and n re|ectng the bad debt deducton she had camed
were sustaned by the oard of Ta ppeas.
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162, rt. 162- .
The questons presented on ths appea are: (1) whether the ncome from the
tmsts, pad over to the ta payer n 1 30. was propery ta abe aganst her, and
2 whether she was entted to a had debt deducton as a resut of the sette-
ment of the obgatons whch her husband had entered nto under the separaton
agreement of May , 19154, and not fufed pror to hs death.
The queston whether the ncome from the trusts was ta abe aganst the
ta payer or her husband s estate s not on ts face a smpe one. It woud have
been ta abe aganst the husband durng hs fetme, even though a part of the
consderaton was n eu of the dower rghts or statutory nterests n hs
estate to whch she woud be entted upon hs death. (Dougas v. Wcut,
2 . O. S.. 1 ICt. D. 1041, C. . I -2, 250 (1935) .) ughes, C. ., there sad
(at page ):
owever desgnated, t was a provson for annua payments to serve the
rnrpose of amony, that s, to assure to the wfe sutabe support. The fact
that the provson was to be In eu of any other nterest n the husband s
property dd not affect the essenta quaty of these payments.
There s, however, authorty for hodng that the wfe s abe for the ta
ter the ega obgatons of the husband to support her n settement of whch
a trust was created, had ceased. In Commssoner v. arry S. umrnha
(91 . (2d), 1009 (C. C. . 2), affrmng 34 . T. ., 994, per curam), we hed
that the ncome of a trust set up for support and mantenance of a dvorced
wfe was ta abe to her upon her remarrage. In Robert endnnng (36
. T. ., 4 6, affrmed n 97 . (2d), 51 (C. C. . 3)), the opposte resut was
reached. In nether of the ast two cases cted were the courts confronted
wth the dffcuty that e sts here of apportonng the consderaton between
the wfe s rght to support and her statutory rghts n her husband s property
nor were they confronted wth the admnstratve dffcuty of ta ng hs estate
after be bad ded.
In everng v. rooks ( 2 . (2d), 173 (C. C. . 2) TCt. D. 115 , C. .
-2, 242 (1036) ), where a trust settement had been made n e change both
for renqushment of the dvorced wfe s rght to support and for her statutory
rghts n ber husband s property, we hed that the husband aone was sub|ect
to the ta sayng:
Whether the trust ncome s used to dscbarge the husband s duty made
specfc by agreement, to support the wfe, or to dscbarge an obgaton to
pay her agreed sums for a reease of rghts n hs property, can not be matera
n determnng the ta abty of the husband.
The same resut was reached by the Supreme Court under smar crcum-
stances n Dougas v. Wcuts (290 U. .. 1).
In everng v. utterworth (200 U. S., 365 Ct. D. 769, C. . I-1,
151 (1934) ), the Supreme Court hed that the ncome from a testamentary
trust accepted by a wfe n eu of dower was ta abe to her. rom everng
v rooks ( 2 . (2d), 173 (C. C. . 2)) and everng v. utterworth (290
U. S., 365) t may be nferred that the ncome n the case at bar shoud for
reasons of practca admnstraton be treated as pad by the husband for
support and mantenance of the wfe whe he s ave and receved by her
for her dower or other statutory rghts after he has ded. Such a rung avods
sub|ectng the husband s estate to admnstratve burdens after hs death and
aso avods attemptng to dscover what porton of the consderaton was fur-
nshed for support and mantenance of the wfe and what porton for her
statutory nterests n her husband s property. In everng v. rooks ( 2 .
(2d), 173 (C. C. .)), such a determnaton was hed to be mpractcabe durng
the fe of the husband and woud be equay so after hs death.
pportonng the consderaton woud be mpossbe n the present case. c-
cordngy the ta payer has not sustaned the burden of overcomng the decsons
of the Commssoner and the oard.
We hod that the ncome receved from the trusts In 1930 was propery as-
sessed to the ta payer.
The fna queston s whether the bad debt deducton of 232,322.67 was ava-
abe to the ta payer as camed n her ncome ta report. We thnk It was
propery dsaowed by the oard.
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266
Under the compromse agreement the obgatons to create the trust fund of
100,000 and to pay off the oan on the Insurance poces were carred out
The e ecutors of the w of the ta payer s deceased husband aso entered nto
an agreement to estabsh the 200,000 trust fund on the death of hs mother
as he had hmsef done n the separaton agreement. The ony remanng
obgatons were the guarantee of payment of 300,000 out of the estate of the
husband s father upon the death of nn ugusta Thomas and the guarantee
that the Mornng Teegraph Co. woud pay the ta payer 10,400 annuay for
15 years for wrtng artces. These obgatons were e tngushed by the pay-
ment of 125,000 and 12304 nterest under the compromse. The payment of
300,000 was ony to be made f the ta payer dd not remarry. The amount
due the ta payer from the Mornng Teegraph Co. at the tme of the com-
promse amounted wth nterest to 42,619.72 and the vaue of the baance to
be pad her n annua nstaments durng the remanng fe of the contract
had a vaue of 71,167.20, but was dependent upon her wrtng artces. There
was no proof that the Mornng Teegraph was unabe to pay the 42,619.72
that was due.
We thnk there has been no showng that ether of these tems gave rse to
bad debts or osses. In respect to the 300,000 tem the ta payer receved an
assgnment of a remander nterest n property hed n trust for the fe of
nn ugusta Thomas whch was guaranteed to yed 300,000 when the re-
mander fe n. ut no proof was adduced that t woud not then yed
300,000 and by the terms of the separaton agreement the guarantee woud
cease to operate f the ta payer remarred. It seems Impossbe to treat such
a guarantee ether as a bad debt or a oss whatever may have been the fnanca
condton of the estate of the guarantor pror to the compromse. The same
consderatons appy to the obgatons of the Mornng Teegraph Co. for there
was no proof that t was necessary to resort to the guarantee to secure fu
payment of the cams aganst the prmary obgor. There was, therefore,
nether a bad debt nor a oss.
or the reasons we have aready gven there wns no bad debt whch mght
be deducted. ut even f the obgatons runnng to the ta payer under the
separaton agreement had not been performed, the nonperformance woud not.
In our opnon, have resuted n bad debts wthn the statutory meanng of
the term, but rather n osses arsng from breaches of contract. (LcceUyn
v. ec. Reducton Co., 275 U. S., 243 Wadsworth SIfg. Co. v. Commssoner,
44 . (2d), 762 (C. C. . 6).) The provsons n the ncome ta aws aowng
deductons for bad debts and for osses sustaned durng the ta abe year
are mutuay e cusve. (Sprnt/ Cty oundry v. Commssoner, 292 U. S., 1 2
Ct. D. 29, C. . III-1, 2 1 (1934) .)
The best that the ta payer can cam s that f her rghts under the separa-
ton agreement be taken as a whoe she was forced to compromse them for
ess than ther vaue assumng that the obgor was sovent. ut we are not
persuaded that the ta payer has proved any deductbe oss even on that as-
sumpton. ad there been a oss t woud not be deductbe under the Income
ta cts because t dd not arse n any transacton entered nto for proft.
Order affrmed.
L. and, Crcut udge (concurrng):
I concur, but I wsh to state some doubts, whch seem to me substanta, as
to the proprety of ta ng a wdow upon the ncome of a trust fund, accepted
by her durng her husband s fe, n e change for amony. The husband s
confessedy ta abe upon that ncome whe he ves, and the wfe s not we
are hodng that the reverse s true after hs death. In prncpe I fnd t
very hard to support ths change, because the ncome durng the ater perod
seems to me equay wth that durng the earer part of a snge consdera-
ton. The husband s abty s ony for ther |ont ves, whch s aways
actuaray a shorter perod than the fe of ether one. Ordnary, therefore,
the annua Income w be ess than what she woud have accepted, f she were
confned to the perod durng whch he s abe. If It were practcabe to
contnue the tn upon hs estate after hs death, I shoud therefore thnk that
that was the proper way he has gven a qud pro quo measured by a ess sum
for a onger perod. ut I can not see how ths coud be admnstered n
practce. The ncome of the trust must be cacuated as part of the husband s
Income, whch, beng dead, he can not have and t woud not be possbe even
by mpoundng some part of hs estate to provde for It. True, one coud n
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267
5 311, rt. 311-L
that way secure the norma ta , but that s not enough the actua ta coud
not even be cacuated. I know that t s not a very good reason for ta ng
one person that t s mpossbe to coect the ta out of another, but we are
contnuay admonshed that the ta aton s a practca matter, and here I am
dsposed to accept that as an adequate e cuse. The resut may be somewhat
unfar before the aw becomes f ed, but thereafter women who accept such
settements w be apt to take nto consderaton the fact that f ther husbands
de frst, the ta w shft to them.
SUPPL M NT L. SS SSM NT ND COLL ITION OP D ICI NCI S.
S CTION 274. N RUPTCY ND R C I RS IPS.
rtce 274 1: ankruptcy, proceedngs for the reef of
debtors, and recevershps.
rtces 274-1 and 274-2 of Reguatons 6, artces 1191 and 1192
of Reguatons 7 and 74, and artces 1293 and 1294 of Reguatons
69, amended. (See T. D. 4 92, page 203.)
SUPPL M NT N. CL IMS G INST TR NS R S ND IDUCI RI S.
ncome and profts ta revenue act of 1926, as amended decson
of supreme court.
1. Sut eopardy ssessment Testamentary Transkkbkes of De-
ceased Transfkhee Statute of Lmtatons.
Sut brought May 6, 1932, by the Unted States aganst transferees
under the w of a transferee of property of a corporaton dssoved
n 1921, based on a |eopardy assessment made aganst the deceased
transferee on ebruary 14, 1931, after a redetermnaton by the
oard of Ta ppeas of a defcency In 1920 ncome and profts ta es
assessed aganst the corporaton s barred by the statute of mta-
tons contaned n sectons 277, 27 , and 2 0 of the Revenue ct of
1926, as amended. No assessment was made aganst the testamen-
tary transferees, and sectons 27 (d) and 2 0 are not brond enough
to mpose upon them any abty on account of assessment aganst
the testator.
2. Same- Pboceedno efore oard of Ta ppeas ffect of
aure to Substtute Party or to Obtan Dsmssa.
The assessment sued on was out of tme. The testator ded whe
the petton to the oard of Ta ppeas was pendng and more than
23 months before the eopardy assessment was made no substtu-
ton of a party to carry on the proceedng was apped for or ordered
and the Commssoner faed to seek or obtan dsmssa for ack of
a necessary party or want of prosecuton. Suspenson of the Com-
mssoner s authorty to assess the asserted transferee abty does
not contnue for more than n reasonabe tme after the testator s
death.
R NU CTS O 1926, 192 , 1932, ND 1934.
S CTION 311. TR NS RR D SS TS.
rtce 311-1: Cams n cases of transferred
assets.
1939-4-96 6
Ct. D. 13 0
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2G
On wrt of certorar to the Unted States Crcut Court of ppeas for the Seventh Crcut.
Unted Staes, pettoner, v. Contnenta Natona ank d Trust Co., Trustee
Under the Last W and Testament of ames Duggan, Deceased, et ak
305 U. S., 39 .
anuary 3, 1939.
OPINION.
Mr. ustce uter devered the opnon of the Court.
May 6, 1932, pettoner sued respondents n the edera Court for the Northern
Dstrct of Inos to enforce a cam for part of ncome and profts ta es for
1920 assessed aganst an Inos corporaton dssoved n December, 1921. The
queston for decson s whether the sut s barred by apse of tme.
The pertnent substance of the compant, as amended ebruary 14, 1937,
foows:
In 1919 and 1920, ames Duggan, hereafter caed the testator, was the prn-
cpa stockhoder of the ohnson Cty g Muddy Coa Mnng Co., whch
owned a subsdary corporaton. May t, 1921, these corporatons made con-
sodated ncome and profts ta returns for 1920, showng a ta of 0,269.21,
Whch was pad. Durng 1920 and 1921 the mnng company was beng dssoved
t converted ts assets nto cash and securtes and transferred 295,331.64 to
testator he approprated t to hs own use. avng determned defcency of
316,620.61 aganst the company, the Commssoner of Interna Revenue December
6, 1924, sent notce to t by 60-day etter. The ta payer havng faed to petton
the oard of Ta ppeas for redetermnaton, assessment was made aganst t
for that amount.
pr 15, 1926, the Commssoner notfed testator that there was proposed for
assessment aganst hm the amount of 295,331.64, consttutng hs abty, as
transferee of ta payer s assets, on account of the unpad baance of ts 1920 ta es.
une 11, 1926, testator fed wth the oard of Ta ppeas hs petton for re-
determnaton. In March, 1929, he ded. anuary 27, 1931, the oard made an
order of redetermnaton In the amount proposed by the Commssoner, wth n-
terest from December 6, 1924. The order was not revewed. ebruary 14, 1931,
the Commssoner made a |eopardy assessment aganst the deceased n the
amount f ed by the oard as hs abty as transferee.
s w was admtted to probate a trust company t named was apponted
e ecutor and, the e ecutor havng been dsmssed, one Robnson was, on Septem-
ber 15, 1930, apponted admnstrator. efore settement of the estate, pantff,
pr 24, 1931, fed ts cam wth the admnstrator. ut he pad nothng on
account of t and, makng dstrbuton n accordance wth the w, transferred
to defendant enry Duggan 50,000 and to defendant trustee the rest of the
estate, about 1,500,000. Pantff aeged that the assets so dstrbuted had be-
come mpressed wth a trust for the payment of ts cam aganst testator and
prayed decree enforcng t aganst trustee and benefcares under the w to the
e tent of assets transferred by the ta payer to testator wth nterest.
Defendants, une 6, 1933, moved to dsmss the compant on the ground that
the sut was barred by sectons 277, 27 , 2 0, Revenue ct, 1926, as amended, and
secton 311(b), Revenue ct, 192 . Pantff, anuary 11, 1937, confessed defend-
ants moton to dsmss. Then, appyng for eave to amend the compant, t
represented to the court that amendment was necessary because the aegaton
that an assessment was made aganst testator was omtted from the orgna
b and was an mportant fact n determnng whether the present acton was
tmey brought. Leave havng been granted, t mmedatey amended by addng
the aegaton that, ebruary 14, 1931, the Commssoner made aganst testator
the |eopardy assessment above referred to. The compant was not otherwse
changed. March 22, 1937, the court sustaned defendants moton and entered
decree dsmssng the amended b of compant. The crcut court of appeas
affrmed. (94 . (2d), 1.) Ths Court granted a wrt of certorar. (304 U. S.,
554.)
The queston s whether the sut s barred by the statutory provsons on whch
the moton to dsmss was based. rst to be consdered are sectons 277, 27 ,
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269
311, rt. 311-1
nd 2 0, read In connecton wth appcabe provsons of sectons 274 and 279
of the Revenue ct of 19C6.
The pertnent substance of these foows
Wthn 60 days after notce of the Commssoner s determnaton of def-
cency, the ta payer may fe petton wth the oard of Ta ppeas for
redetermnaton no assessment or proceedng n court for coecton sha
be made or begun unt the oard s decson has become fna. (Secton
214(a).1) The amount redetermned by decson that has become fna sha
be assessed and upon hs demand sha be pad to the coector. (Secton
-14(b).)
ssessment sha be made wthn fve years after the return no proceedng
n court wthout assessment for the coecton of ta es sha be begun after the
e praton of that perod. (Secton 277(a).) The runnng of the statute of
mtatons on assessment or proceedng n court for coecton of defcency
sha be suspended for the perod durng whch the Commssoner s prohbted
from makng assessment or brngng sut and for 60 days thereafter. (Secton
277(b).) Where the assessment has been made wthn the perod propery
appcabe thereto, the ta may be coected by dstrant or proceedng n court
but ony f begun wthn s years after assessment of the ta .
(Secton 27 (d).) If the Commssoner beeves that assessment or coecton
of defcency w be eopardzed by deay, he sha mmedatey assess the de-
fcency and notce and demand sha be made by the coector for the pay-
ment thereof. (Secton 279(a).) eopardy assessment may be made whether
or not tbe ta payer has fed petton wth the oard. (Secton 279(c).) If
t s made after the oard s decson t may be ony for the defcency deter-
mned by the decson. (Secton 279(d).) The ta payer may obtan stay of
coecton of the eopardy assessment. (Secton 279(f)-(h).)
The abty at aw or n equty of a transferee of property of a ta payer
n respect of the ta sha be assessed, coected, and pad n the same manner
and sub|ect to the same provsons and mtatons as n case of a defcency
In a ta . (Secton 2 0(a).) Transferee abty must be assessed wthn
one year from e praton of the perod of mtaton for assessment aganst the
ta payer. (Secton 2 0(b).) The runnng of the perod of mtaton on
transferee abty sha, after notce to transferee under secton 274(a), be sus-
pended for the perod durng whch the Commssoner s prohbted from makng
assessment of that abty and for CO days thereafter. (Secton 2 0(d).)
Ths s not a sut upon assessment of defcency aganst the ta payer on
account of the Commssoner s determnaton as shown n hs etter of Decem-
ber 6, 1924. The tme for such a sut, s years after assessment, e pred ong
before the commencement of ths sut. (Secton 27 (d).) (Unted States v.
Updke, 2 1 U. S., 4 0, 494 Ct. D. 192, C. . I -1, 22 (1930)1.)
Nor s t a sut authorzed to be brought, n absence of assessment, to en-
force abty of a transferee of the ta payer s property. The tme for
brngng such a sut Is s years, made up of fve years after return aowed
for assessment aganst ta payer (secton 277(a)) and one year thereafter
for assessment aganst transferee. (Secton 2 0(b).) The ta payer havng
made ts return on May 16, 1921, the s years e pred May 10. 1927.
Ths sut s aganst transferees under the w of a transferee of the prop-
erty of tbe ta payer t s based on the |eopardy assessment made aganst
testator. ,
Pantff asserts that t had s years after that assessment, or unt ebruary
14. 1937, wthn whch to brng ths sut. Its reasonng Is that secton 2 0,
specfyng no perod of mtaton for coecton of abty of a transferee
after t has been assessed, and provdng that t sha be coected sub|ect to
the same mtatons as n the case of defcency n a ta makes appcabe
the perod of mtaton upon coecton defned n secton 27 (d).
ut no assessment was made aganst any of the defendants. None of them
s a transferee of the property of the ta payer a are testamentary trans-
ferees of the estate of testator. It s cear that sectons 27 (d) and 2 0 upon
whch pantff rees are not broad enough to mpose on defendants any a-
44 Stat., 55 et seq.
The oard s decson become fna npon e praton of the tme (f months
renders dprson) aowed for f n retMon for revew by n emt court of appea:
Court of ppea of te Dstrct of Coumba. (Sectons 1001, 1003.)
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311, rt. 311-1.
270
bty on account of the assessment aganst the testator nd, as aready
shown, sut on assessment aganst the ta payer, or sut n absence of assess-
ment of tranferee abty, was by the appcabe statutes of mtatons barred
ong before ths sut was brought.
Moreover, the assessment sued on was out of tme. Pantff ctes secton
2 0(d) and seeks to appy to the facts of ths case the rue that assessment
aganst transferee s requred to be made wthn s years after return (sectons
277(a), 2 0(d)), as foows: The ta payer made ts return May 16, 1921.
When, on pr 15, 1926, the Commssoner notfed testator that he proposed
to assess transferee abty aganst hm, there remaned 13 months and a
day of the perod aowed for makng that assessment the Commssoner
Was prohbted from makng the proposed assessment for the 60-day perod
wthn whch testator was permtted to petton for redetermnaton by the
oard and unt Its decson, anuary 27, 1931, became fna, une 27, 1931,
and for 60 days thereafter, September 25, 1931. (Sectons 27 (d), 2 0(d).)
Takng n the 13 months and a day, pantff had unt October 25, 1932, wthn
whch to assess testator.
ut that cacuaton s defectve for t fas to take nto account any part
of the perod after appea to the oard that eapsed between the death of
pettoner In March, 1929, and the assessment, more than 23 months ater,
ebruary 14, 1931. Redetermnaton s granted to safeguard aganst erroneous
e actons by the Commssoner. Suspenson of hs authorty to assess or coect
s protecton aganst compusory payment pendng fna decson upon ob|ec-
tons nterposed by pettoner. The proceedng s an adversary one n whch
the party prayng reef by redetermnaton s pettoner and the Commssoner
s respondent. The controversy s brought to ssue by petton, answer, and
repy that are by the oard requred to be defnte and certan. (Rues 6, 14,
1. ) efore ts decson ether party, for cause shown, may have the pro-
ceedng dsmssed. (Rue 31.) nd n case of pettoner s death, the oard
may order substtuton of proper partes. (Rue 37.)
No persona representatve of testator nor any other person apped for sub-
sttuton of a party to carry on the proceedng n the pace of the deceased
testator, and none was ordered. The Commssoner faed to obtan or seek
dsmssa for ack of a necessary party or want of prosecuton. (Cf. Rusk v.
Commssoner (C. C. . 7), 53 . (2d), 42 , 430.) Pantff does not contend
that, no substtuton havng been apped for or made, the Commssoner was not
entted to an order of dsmssa. Nor does t suggest anythng to support the
Cf. secton 11, Revenue ct of 192 . It provdes:
(a) The amounts of the foowng abtes sha, e cept as herenafter n ths secton
provded, be assessed, coected, and pad n the same manner and sub|ect to the same pro-
vsons and mtatons as n the case of a defcency n a ta Imposed by ths tte.
(1) The abty, at aw or n equty, of a transferee of property of a ta payer, n respect
of the ta Imposed upon the ta payer by ths tte.
(b) The perod of mtaton for assessment of any such abty of a transferee
sha be as foows: (1) In the case of the abty of an uta transferee of
the property of the ta payer, wthn one year after the e praton of the perod of m-
taton for assessment aganst the ta payer (2) In the case of the abty of a transferee
of a transferee of the property of the ta payer, wthn one year after the e praton of
the perod of mtaton for assessment aganst the precedng transferee, but ony f wthn
three years after the e praton of the perod of mtaton for assessment aganst the
ta payer
e cept that If before the e praton of the perod of mtatons for the assessment of the
abty of the transferee, a court proceedng for the coecton of the ta or abty n
respect thereof has been begun aganst the ta payer or ast precedng transferee, respec-
tvey. then the perod of mtaton for assessment of the abty of the transferee sha
e pre one year after the return of e ecuton In the court proceedng.
The report of the Senate Commttee on nance states: Secton 2 0 of the Revenue
ct of 1926 does not specfcay provde any mtaton perod In the case of a transferee
of a transferee of the ta payer. Secton 311(b)2 of the ouse b provdes, wth specfc
e ceptons, that the perod for assessment In such case sha be one year after the e pra-
ton of the perod of mtaton for assessment aganst the precedng transferee. It seemed
to the commttee that ths woud unduy proong tgaton and that there shoud be a
tme when the transferee may know that he Is no onger abe to be proceeded aganst.
commttee amendment therefore provdes that n a cases the ta must be assessed
wthn three years after the e praton of the perod of mtaton for assessment aganst
the ta payer. (Senate Report No. 9(0, Seventeth Congress, frst sesson, page 32.)
Revsed to November 1, 1929. Rues 31 and 37 are numbered 21 and 23 n the present
edton of the rues. .
Secton 90 (c), Revenue ct of 1926, provdes: If a petton for redetermnaton of
a defcency has been fed by the ta payer, a decson of the oard dsmssng the pro-
ceedng sha be consdered as ts decson that the defcency Is the amount
determned by the Commssoner. n order specfyng such amount sha be entered In
the records of the oard uness the oard can not determne such amount from the pead-
ngs. (44 Stat., 107.)
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271
322, rt. 322-1.
assumpton, made n ts cacuaton of tme and throughout ts argument, that
suspenson of Commssoner s authorty to assess contnued through the perod
of more than 23 months between testator s death and the assessment. There s
no ground on whch t may be hed that Congress ntended n case of death of
pettoner, where no appcaton for or order of substtuton s made, Indefntey
to contnue suspenson of the Commssoner s authorty to assess. quay un-
reasonabe woud t be to hod that suspenson of the Commssoner s authorty
to assess the asserted transferee abty contnued after testator s death for
more than a reasonabe tme wthn whch, no substtuton havng been apped
for or made, to obtan dsmssa. Unquestonaby that tme and more had
e pred ong before the assessment was made.
s the sut s barred by provsons of the Revenue ct of 1926, we need not
consder secton 311(b) of the Revenue ct of 192 , upon whch defendants aso
reed.
udgment affrmed.
SUPPL M NT . O RP YM NTS.
S CTION 322. R UNDS ND CR DITS.
btce 322-1: uthorty for abatement, credt, 1939-11-9752
and refund of ta . Ct. D. 13 7
INCOM T R NU CTS O 1926 ND 1032 UDICI L COD D CISION
O SUPR M COURT.
1. Sut Recovery of Overpayments or Ta Credt ganst
Defcences ursdcton of Court.
The dstrct court has |ursdcton, under secton 24(20) of the
udca Code, as amended, of suts brought aganst the Unted
States based on cams for the refund of amounts In e cess of
10,000 arsng from an admtted overpayment of ta for 1917
apped by the Commssoner agnnst a barred defcency for 1M ,
and admtted overpayments of ta es for the years 1922 to 1925
apped aganst defcences for 1926, 1927, and 192 , the overpay-
ments havng been wrongfuy receved by coectors who were
ether dead or out of offce when the suts were commenced. The
credtng of the overpayments by the Commssoner aganst ta es
due for other years dd not destroy the ta payers cause of acton
nor oust the courts of ursdcton.
2. Cask Dstngushed.
Lotce ros. Co. v. Unted States (193 ) (304 U. S., 302 Ct. D.
1347, C. . 193 -1, 327 ) dstngushed.
No. 416. The Unted States of merca, pettoner, v. ertesen Petersen
ngneerng Co.
59 S. Ct., 541.
On wrt of certorar to the Unted States Crcut Court of ppeas for the rst Crcut.
No. 437. The Unted States of merca, pettoner, v. C. T. affray, R. . M,
Robnson and Sm. 11. rcher, as Trustees of the state of Mnnesota 4
Ontaro Paper Co.
On wrt of certorar to the Unted States Crcut Court of ppeas for the ghth Crcut.
ebruary 27, 1939.
opnon.
Mr. ustce McRetnodb devered the opnon of the Court.
In each of these causes counse for the Unted States mantan the dstrct
court wag wthout |ursdcton to determne the ssues. The crcut covts
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322, rt. 322-1.
272
of appea rued otherwse and approved udgments for respondents. The co-
ectors who receved the e cess ta es In queston were ether dead or out of
offce when the proceedngs to recover were commenced. The queston of |urs-
dcton ony s open for our consderaton.
Secton 145 udca Code1 empowers the Court of Cams to hear and deter-
mne cams aganst the Unted States arsng out of contract, e press or mped.
Pror to 1 )21 secton 21(20) udca Code gave dstrct courts concurrent |urs-
dcton when the cam dd not e ceed 10,000.
The cts of 1921, 1924, 1925, and 1926 enarged the |ursdcton of dstrct
courts by addng the foowng to secton 24(20) udca Code:
Concurrent wth the Court of Cams, of any sut or proceedng, commenced
after the passage of the Revenue ct of 1921, for the recovery of any nterna-
revenue ta aeged to have been erroneousy or egay assessed or coected,
or of any penaty camed to have been coected wthout authorty or any sum
aeged to have been e cessve or n any manner wrongfuy coected, under the
nterna-revenue aws, even f the cam e ceeds 10,000. f the coector of nter-
na revenue by whom such ta . penaty, or sum was coected s dead or s not
n offce as coector of nterna revenue at the tme such sut or proceedng s
commenced.
Secton 3226 Revsed Statutes as amended and reenacted by Revenue ct 1926
(ch. 27, secton 1113(a), 44 Stat., 9, 116), provdes
No sut or procedng sha be mantaned n any court for the recovery of
any nterna-revenue ta aeged to have been erroneousy or egay assessed or
coected, unt a cam for refund or credt has been duy fed wth
the Commssoner of Interna Revenue, . No such sut or proceedng
sha be begun after the e praton of fve years from the date of
the payment of such ta , penaty, or sum, uness such sut or proceedng s
begun wthn two years after the dsaowance of the part of such cam to
whch such sut or proceedng reates. The Commssoner sha wthn 90 days
after any such dsaowance notfy the ta payer thereof by ma.
Secton 3226 was further amended by ct une 6, 1932 (ch. 209, secton
1103(a), 47 Stat., 169, 2 6), so as to read as shown n the margn.
No. 416.
The Commssoner of Interna Revenue undertook to deduct more than 10,000
from an admtted overpayment by respondent upon 1917 ta es and to appy ths
to a decared defcency for 191 ta es then barred by the statute of mtatons.
y ths sut respondent seeks a |udgment for the amount so deducted.
The crcut court of appeas propery hed ths acton was brought to recover
that part of a cam for refund of the 1917 overpayment whch had been ds-
aowed by mpropery appyng t to an nvad assessment of a defcency ta
for 191 . so, rghty we thnk, that tmey and proper cam for the over-
payment for 1917 bad been made as requred by secton 3220 Revsed Statutes
as reenacted 1920.
nd w accept the concusons stated n the foowng e cerpt from ts
opnon
The certfcate of overassessment ssued by the Commssoner on uy 27,
1926, dscosed an overpayment by the ta payer of the 1917 ta of 91,570.34,
Tucker ct March 3. 1S 7 (ch. 359, 24 Stat.. 505): ct une 27. 1S9R (ch. 503, 30
ftat., 401) uv 1, 1N9S (ch. 510. 0 Stat.. 507, 049) ebruary 2(1, 1000 (ch 2. . 31 Stat.
33): March 3. 1011 (30 Sat.. 10 7, 1130) U. S. C. ., Tte 2 , secton 250(1).
The dstrct courts sha have orsna |ursdcton as foows:
Twenteth. Concurrent wth the Court of Cams, of n cams not e ceedng 10,000
founded upon the Consttuton of he Unted States or any aw of Congress, or upon any
reguaton of an e ecutve department, or upon nnv contract, e press or Imped, wth the
Government of the ued States, . ( ct March 3, 1911, SO Stat., 10 7. 1091
1003: U. S. C. .. Tte 2 , secton 41(20).)
See ct November 23, 1021 (ch. 130, 42 Stat.. 227, 311) une 2, 1024 (ch. 234 43
Stat.. 253. 34 ) ebruary 24, 1925 (ch. 309. 43 Stat., 972) ebruary 20. 1920 (ch. 27.
44 Stat., 9, 121). D. . C. ., Tte 2 , secton 41(20).
4 Secton 3220 of the Revsed Statutes, as amended, Is amended to read as foows:
Skc. 3220. No sut or proceedng sha be mantaned n any court for the recovery of
any Interna-revenue ta aeged to have been erroneousy or Iegay assessed or coected,
unt a cam for refund or credt has been duy fed wth the Commssoner of
Interna Revenue, . No such sut or proceedng sha be begun after
the e praton of two years from the date of mang by regstered ma by the Comms-
soner to the ta payer of a notce of the dsaowance of the part of the cam to whch
- - sut or proceedng reates. (U. S. C. ., Tte 26, sectons 1672-167 .)
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273
IS 322. rt. 322-1.
rf whch the Commssoner ordered refunded to the ta payer appro matey
55,000, and on uy 27, 1926, credted 3-1,555.6 to a defcency ta for 19a
It can not be sad that the certfcate of overasscssment consttuted an account
tated between the Government and the ta payer, snce the ta payer refused
to assent to the appcaton of any part of the overpayment to a defcency tu
for 101 . To consttute nn account stated there must be an agreement as to
abty and the amount due. (Goodrch, drnr., v. Coffn, 3 Mane, 324.) That
the ta payer s petton was not based on an aowance of nn overpayment for 1917,
Md an mped promse by the Government to refund, s equay cear, snce the
ta payer refused to assent to the appcaton of 34,555.0 to a defcency ta
of 1 1 . The appcaton by the Commssoner on uy 27, 1926, of n part of
be overpayment for 1917 to a defcency ta for 191 , aganst the protest of
:be ta payer, consttuted a dsaowance of so much of the pettoner s orgna
tam for refund. The sut was one whch coud have been brought
aganst a coector, f vng, but who s now dead or out of offce.
Lote-e ros. Co. v. Unted States (304 D. S., 302, 303) s not controng. There
the sut was egnn n the dstrct court to recover nn overpayment of 1917
ta es the aeged resut of a credt mnde by the Commssoner from an admtted
overpayment for 191 . or ths no acton coud have been mantaned aganst
the coector he dd not make or authorze the credt. Therefore, the amend-
ment to secton 24(20) udca Code (2 T . . C. ., secton 41(20)) enargng
the |ursdcton of the dstrct court hnd no appcaton. ere the coector
nght have been sued snce he wrongy receved payment on account of 1917
ta es. The present cause fas wthn the very words of the amendment.
No. 437.
Respondents overpad nterna revenue ta es n sums e ceedng 10,000 for
1922, 1923, and 1924 and for 1925, 7, 00. The Commssoner ssued certf-
cates to that effect ugust 16, 1933. e refused to repay these sums but under-
took to credt them to defcences whch he assessed aganst respondents for
192f, 1927, 192 .
Thereupon ths sut was brought to recover the overpayments for 1922 to 1925
ander secton 24(20) udca Code as amended (U. S. C. ., Tte 2 , secton
41(20)) whch gves dstrct courts ursdcton n respect of ta es erroneousy
receved by a coector out of offce. Respondents mantan that, n fact, there
were no defcences for 1926, 1927, 192 , and that by attemptng to credt over-
payments for 1922 to 1925 aganst none stg defcences the Commssoner n
effect dened ther cams for refund.
On the other hand pettoner nssts, the Commssoner s acton n aowng
the overpayments and credtng them aganst aeged defcences amounted to
payments on account of ta es assessed for 1926 to 192 . nd, as It was the
Commssoner and not the coector who caused such credt of overpayments
to defcences, the dstrct court was wthout |ursdcton.
The crcut court of appeas hed the sut was one to recover overpayments
admttedy made to the coector and n respect of whch tmey cams for
refund had been fed.
It sad
The credtng of the overpayments, by the Commssoner, aganst ta es due
from the ta payer for other years was a matter of defense, a |ustfcaton for
the faure to refund, and not a matter whch destroyed the ta payer s cause
of acton or ousted the court of ursdcton.
Ths concuson we thnk s correct. Other ponts suggested, so far as pres-
enty mportant, are suffcenty answered by what has been sad n No. 416.
oth of the chaenged |udgments must be affrmed.
Mr. ustce Rbsb took no part u the consderaton or decson of ether of
these causes.
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01, rt. 01-3. 274
TITL I. G N R L PRO ISIONS.
rtce 01-3: ssocaton dstngushed from trust. 1939-24-9 73
Ct. D. 1403
INCOM T R NO CTS O 192 ND 1932 D CISION O COURT.
1. Trust Ta abe as ssocaton On. and Gas Lease.
busness enterprse engaged n the deveopment of an o and
gas ease for proft was managed by two ndvdua sharehoders,
transferabe benefca percentage Interests beng assgned to var-
ous persons by contracts purportng to mt the abty of such
assgnees, and the tte to the property, so far as the percentage
sharehoders were concerned, beng n one of the managers, denom-
nated a trustee. Under the provsons of the Revenue cts of 192
and 1932 snch an organzaton consttutes an assocaton and
not an ordnary trust, and s therefore ta abe as a corporaton.
2. Decsons Controng.
Morrsscy v. Commssoner (1935) (296 U. S., 344 Ct. D. 1064,
C. . -1, 264 (1936) ) cverng v. Comb (1935) (296 U. S.,
65 Ct. D. 1066, C. . -1. 272 (1936) ) evrrnff v. Coeman-
Obcrt ssocates (1935) (296 T . ., 369 Ct. D. 1067, C. . -1,
261 ( ) ) and Scav on v. Commssoner (1935) (296 U. S., 62
Ct. D. 1065, C. . -1, 270 (1936) ), controng.
3. Decson ffrmed.
Decson of the Unted States oard of Ta ppeas (1937) (36
. T. ., 444) affrmed.
4. Certorar Dened.
Petton for certorar dened March 27, 1939.
Unted States Crcut Court op ppeas for the Nnth Crcut.
Thrash Lease Trust, pettoner, v. Commssoner of Interna Revenue, respondent.
99 . (2d), 925.
Upon petton to revew a decson of the Unted States oard of Ta ppeas.
efore Wbur and Gabrecht, Crcut udges, and St. Surb, Dstrct udge.
November 15, 193 .
OPINION.
Garrecht. Crcut udge: Ths s a petton to revew a decson of the oard
of Ta ppeas. The queston presented s whether the oard erred n sustan-
ng the Commssoner s determnaton that the pettoner was an assocaton ta -
abe as a corporaton.
The case arses under the Revenue ct of 192 (ch. 52, 45 Stat., 791) and
the Itevenue ct of 1932 (ch. 209, 47 Stat., 369).
The ta rate mposed under secton 13 of each of these cts s not In ques-
ton. The ssue here nvoves the appcaton of the foowng anguage found n
both statutes: (a) When used n ths ct (2) The term corpora-
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275
01, rt. 01-3.
ton ncudes assocatons, |ont-stock companes, and nsurance companes.
and the Treasury reguatons appcabe thereto whch are found n the margn.1
The facts are substantay as foows:
On October 17, 1930, a tract of 12 acres n Smth County, Te ., was eased
by . . Thrash and . S. Rushng for 3 years and, as ong thereafter as o
and gas shoud be produced, the essor to receve one-eghth of the o produced
and payment of the market vaue of one-eghth of the gas. On May 25, 1931,
ths ease was assgned by Rushng to Gordon Macman, Trustee, hs hers,
successors and assgns. The assgnment agreement was sgned Gordon Mac-
man, ssgnee. erbert R. Macman, Gordon s father, was at ths tme
acqurng o eases and dstngushng them by varous desgnatons, and ths
ease was taken n the name of Gordon Macman, trustee, as a matter of
convenence for the purpose of separatng the dentty of ths ease from other
eases. t the tme of acqurng the ease and to wthn a few days before a
we was paced on producton, erbert R. Macman was the ony one who
bad put any money nto the property. In une, 1931, he e pended between
2,500 and 3,000, for the drng of a we and sent Gordon to Te as to take
charge of operatons for whch he receved a monthy saary and was to have an
Interest n the venture.
In takng the assgnment of the ease Gordon Macman personay bound
hmsef to pay to hs assgnor, Dr. . S. Rushng, 4 ,000 out of seven thrty-
seconds of the frst o and gas produced to begn the drng of a we on
the property and thereafter to proceed therewth n a dgent and workman-
ke manner unt the we had been dred to a depth from whch o was
then beng produced n the vcnty. In the event o was struck, Gordon Mac-
man was further obgated to deveop the property wth due dgence so
the assgnor shoud receve the fu consderaton payabe out of o wth
reasonabe dspatch. Gordon Macman entered nto a drng contract wth
one, op, whereby the former agreed to pay the atter 10,000 for drng a
we on the property. Ths contract was made n une, 1931, and was sgned,
Gordon Macman, Trustee.
Percentage Interests were assgned to many persons, sometmes of nterests
h the o and gas and sometmes of nterests n the ease. The tota of the
former was 24 pus per cent and of the atter, 42 pus per cent O was struck
In commerca quanttes on uy 31, 1931. or nterests assgned before pro-
ducton began the aggregate consderaton was ,000, and for those assgned
ater the aggregate consderaton was 1 ,000. There were some varatons
n the terms of the dfferent assgnments of nteresta were transferabe
and some have been transferred. erbert R. Macman conducted a busness
transactons e cept the actua operatons of the we, whch were carred on
Treasury Reguatons 74:
bt. 1312. nnocoton. ssocaton and |ont-stock companes Incude assocatons,
common aw trusts, and organzatons by whatever name known, whch act or do busness
n an organze capacty, whether created under and pursuant to State aws, agreements,
decaratons of trust, or otherwse, the net ncome of whch. If any, Is dstrbuted or
dstrbutabe among the sharehoders on the bass of the capta stock whch each hods,
or. where there Is no capta stock, on the bass of the proportonate share or capta
whch each has or has nvested n the busness or property of the organzaton.
bt. 1314. ssocaton dstngushed from trust. Where trustees merey hod property
for the coecton of the Income and Its dstrbuton among the benefcares of the trust,
and are not engaged ether by themseves or n connecton wth the benefcares, n the
carryng on of any busness, and the benefcares have no contro over the trust, athough
ther consent may be requred for the fng of a vacancy among the trustees or for a
mofcaton of the terms of the trust, no assocaton e sts, and the trust aud the bene-
fcares thereof w be sub|ect to ta as provded by sectons 161-170 and by artces
1- t . If, however, the benefcares have postve contro over the trust, whether
through the rght perodcay to eect trustees or otherwse, an assocaton e sts wthn
the meanng of secton 701. ven In the absence of any contro by the benefcares, where
the trustees are not restrcted to the mere coecton of funds and ther payment to the
benefcares, but are assocated together wth smar or greater powers than the drectors
n a corporaton for the purpose of carryng on some busness enterprse, the trust s an
assocaton wthn the meanng of the ct.
Treasury Reguatons 77:
bt. 1314. ssocaton dstngushed rom trust. Where trustees merey hod property
for the coecton of the Income and ts dstrbuton among the benefcares of the trust,
and are not engaged, ether by themseves or n connecton wth the benefcares, n the
carryng on of any busness, no assocaton e sts, and the trust and the benefcares
thereof w be sub|ect to ta as provded by sectons 161-170 and by artces 61- 91.
Where the trustees are not restrcted to the mere coecton of funds and ther payment
to the benefcares, but have smar or greater powers than the drectors n a corporaton
for the purpose of carryng on some busness enterprse, the trust s an assocaton wthn
the meanng of the ct.
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01, rt. 01-3.
276
under hs drecton by Gordon Maeman, who e ercsed hs own udgment
amost e cusvey, but at tmes he consuted wth hs father. None of the per-
sons who acqured percentage nterests ever partcpated n any way n the
producton operatons or n any respect concernng the ease or the operatons
of the property. Whenever there were funds avaabe for the purpose, Gordon
Maeman dstrbuted them to the persons nterested. fter e penses of opera-
tons were pad and the 12 fa per cent to the orgna essor, the surpus money
was dstrbuted to the percentage assgnees, accordng to ther nterests, the
remander, about 20 per cent, beng equay dvded between erbert It. and
Gordo Maeman. No meetng of the owners of percentage nterests has ever
occurred no offcers were ever eected no rues, reguatons or by-aws adopted.
There was no wrtten agreement between erbert It. Maeman and Gordon
Maeman nether was there any trust nstrument defnng the rghts and n-
terests of the percentage owners among themseves or n reaton to the Mac-
mans, who acted as managers by common consent. or the fsca year
endng uy 31, 1932, the net ncome of the venture was 13,044.03 for the fsca
year endng uy 31, 1033, the net ncome was 10,10 .72. ducary ncome
ta returns were red n the name of Gordon Maeman, trustee. The Com-
mssoner determned that the pettoner was ta abe as an assocaton and
assessed defcency accordngy. Upon revew by the oard of Ta ppeas,
the Commssoner s acton was sustaned.
s supportng ts decson the oard of Ta ppeas cted Morrssey v.
Commssoner (296 17. S., 344) everng v. Combs (290 U. S., 305) everng
v. Cocman-Ubnrt ssocates (296 U. S., 369), and Swatson v. Commssoner
(296 U. S., 362). Pettoner ponts out that n each of those cases a forma
trust agreement was entered nto trustees were apponted to conduct the
busness the dutes of the trustees and the rghts of the benefcares were
aso specfed that n the case at bar there was no trust agreement and no
dutes were defned for the sef-styed trustee. There was no meetng of the
benefcares and no appontments of agents or representatves, the Macmans
actng by common consent.
Whe the oard made no specfc fndngs to that effect, the testmony nd-
cates that t was not e pected that the unt hoders woud be abe for
obgatons ncurred other than as covered by the paragraph n the assgned
contract whch reads as foows: The nterest hereby assgned sha bear ts
proportonate share of the cost of drng the second we on sad premses,
deducton therefor to be made from the proceeds derved from the sae of the
products produced from the frst we dred on sad premses, as and when
such cost s ncurred. It mght we be sad that ths was a further re-
sembance to a corporaton In that there was a purpose to mt the abtes
of the sharehoders.
The facts here woud ndcate that those percentage hoders were engaged
n an enterprse for the transacton of busness and that the property was
hed and operated as a venture for proft as dstngushed from the tradtona
type of trust, the ony ob|ect of whch s to hod and conserve partcuar prop-
erty, wth ncdenta powers, and not for the purpose of conductng a busness
and sharng ts gans. In Morrssey v. Commssoner, supra, the Court stated:
ssocaton mpes assocates. It mpes the enterng nto a |ont enter-
prse, and, as the appcabe reguaton mports, an enterprse for the transacton
of busness. s the courts have repeatedy ponted out each case
must be determned upon ts own facts. s the Morrssey case, supra, sad:
t s mpossbe n the nature of thngs to transate the statutory
concept of assocaton nto a partcuarty of deta that woud f the status
of every sort of enterprse . In ths case, as n the Morrssey case,
the percentage hoders were unted for the purpose of carryng on a busness
enterprse for ther own beneft. though there was no defnte trust agree-
ment or any wrtng e pressng the purposes and mtatons of the enter-
prse, t s apparent that the Macmans were mpedy gven e tensve powers
of management and contro of the busness whch was defntey carred on
for proft.
The entty, whatever t may be caed, was operatng as a contnung busness
enterprse and ntended to reap a proft from the producton and sae of
o and gas produced by the essee on premses hed under a ease n whch
a the percentage sharehoders had an Interest. Ths was not any ordnary
trust. The tte to the property, as far as the percentage sharehoders were
concerned, was n a snge person denomnated trustee. The respectve nterests
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277
1104
at the severa percentage hoders were sub|ect to transfer the management,
far as appears, was centered In the Macmans, who conducted the busness
pnch after the manner of drectors of a corporaton.
Ths s a border ne case. The entty here, the Thrash I ease Trust pettoner.
M ts genera structure and method of operaton, s suffcenty anaogous to
corporate organzaton to ustfy the acton of the Commssoner n determn-
ng that the ncome of the enterprse shoud be ta ed n the same manner as
that o a corporaton. Ths hodng s n harmony wth the cases from the
Supreme Court above noted and wth the prevous decsons of ths court.
ICommUroner v. andergrft Reaty d Investment Co., 2 . (2d), 3S7
Monrova O Co. v. Commssoner, 3 . (2d), 417 ert v. evcrng, 92 .
a),49 gaUon v. Commssoner, 96 . (2d), 337.)
ffrmed.
hcb 01-5: Lmted partnershp as corporaton.
R NU CT O 1034.
mendment of Reguatons 6, artces 01-5 and 01-6. (See
T. D. 4 94, page 79.)
S CTION 1104. MIN TION O OO S
ND WITN SS S.
(Secton 1104 of the Revenue ct of 1926, as 1939-1 -9 15
amended by Secton 61 of the Revenue Ct D. 1395
ct of 192 .)
federa ta es unted states code decson op
supreme court.
ursdcton of Count Contempt Proceedng aure to Testfy
efore Interna Revenue gent Cv Pboceedng.
contempt proceedng for faure to obey a dstrct court s
order to testfy before an Interna revenue agent, actng under
Tte 20, U. S. C, sectons 1514 and 1523, In connecton wth the ta
abty of another s a cv proceedng, and the crcut court of
appeas was not In error In dsmssng pettoner s appea from
the |udgment of the ower court, snce he had not comped wth
the statutory requrements governng cv appeas.
Supreme Coubt of the Unted States.
Wam eCronc, pettoner, y. Unted States of merca.
59 S. Ct, 6 5.
Ob wrt of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut
pr 17, 1939.
OPINION.
Mr. ustce ack devered the opnon of the Court.
The conrt of appeas dsmssed the pettoner s appea from a |udgment of
contempt for faure to obey a dstrct court s order to testfy before an nterna
revenue offca.1 Ths dsmssa was proper f the contempt proceedng wns
cv and not crmna. notce of appea was fed and a b of e ceptons
egned. ut pettoner s appea was not, as appeas from cv udgments were
requred to be, apped for or aowed by the tra |udge or a |udge of the
eourt of appeas.
100 ed. (2d), 22.
2 U. S. C, secton 230 aska Packers ssocaton v. Pttsbury (301 U. S., 174).
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1104.
27
The facts dscose:
On pr 21, 193 , an nterna revenue agent, actng under 26 U. S. C, sec-
ton 1514 (coped n the margn), served pettoner wth summons to appear
before hm and testfy n connecton wth the ta abty of another. Pet-
toner responded to the summons, but decned to gve any statement or nfor-
maton as to the matter under nqury. Thereupon, both the agent and the
assstant Unted States attorney for the dstrct appeared before the dstrct
court, and the agent fed an affdavt of facts and prayed that pettoner be
ordered to submt to such questons as may be propounded to hm
that are matera and pertnent to the sub|ect matter of the nvestgaton.
fter hearng, n whch pettoner appeared, the dstrct court ordered hm to
appear before the agent and testfy upon a matters and facts wthn
hs knowedge and concernng the sub|ect matter of the nqury and nvestga-
ton, . Pettoner dd so appear but agan decned to answer the
agent s questons. fter a second hearng by the dstrct court, pettoner was
found n contempt for faure to obey the court s prevous order to testfy
before the agent and was ordered hed n a unt
he purges hmsef of , contempt by obeyng the order to testfy.
Pettoner nssts that no cv acton was nvoved here and that proceedngs
to whch the Unted States and ts agents are partes can not be cv. ow-
ever, rtce III, secton 2, of the Consttuton, e pressy contempates the
Unted States as a party to cv proceedngs by e tendng the |ursdcton
of the edera |udcary to Controverses to whch the Unted States sha
be a Party. n acton by the Interstate Commerce Commsson to compe a
wtness to testfy s a drect cv proceedng, e pressy authorzed by an
ct of Congress, n the name of the Commsson, and under the drecton of
the ttorney Genera of the Unted States, aganst the wtness re-
fusng to testfy, . So here, the mere presence of the Unted States
as a party, actng through ts agents, does not mpress upon the controversy
the eements of a crmna proceedng. In accordance wth ts consttutona
authorty to do so, Congress has e pressy authorzed such a proceedng by an
agent of the Unted States n the edera courts to compe attend-
ance, testmony, or producton of books, papers, or other data. (26 U. S. C,
secton 1523.)
Whe partcuar acts do not aways ready end themseves to cassfcaton
as cv or crmna contempts, a contempt s consdered cv when the punsh-
ment s whoy remeda, serves ony the purposes of the companant, and s
not ntended as a deterrent to offenses aganst the pubc ere, the summons
served on pettoner requred ony that he testfy n a ta nqury propery con-
ducted by an agent of the ureau of Interna Revenue. nd the agent s petton
to the dstrct court, to whch we may ook In determnng the nature of the
proceedng, nvoked |udca assstance soey n obtanng pettoner s testmony.
uthorty of the court was sought to buttress the procedure for coecton of
ta es and not n vndcaton of the pubc |ustce, 10 as n crmna cases.
The Commssoner, for the purpose of ascertanng the correctness of any return or
for the purpose of makng a return where none has been made, s authorzed, by any
offcer or empoyee of the ureau of Interna Revenue, ncudng the fed servce, desg-
nated by hm for that purpose, to e amne any books, pa ers, records, or memoranda
bearng upon the matters requred to be ncuded In the return, and may requre the
attendance of the person renderng the return or of any offcer or empoyee of such per-
son, or the attendance of any other person havng knowedge n the premses, and mar
take hs testmony wth reference to the matter requred by aw to be ncuded n such
return, wth power to admnster oaths to such person or persons.
Pettoner recs on edera Trade Commsson v. . McLean rf on (94 ed. (2d),
02, 04). There the Court of ppeas for the Seventh Crcut sad, we became con-
vnced that the edera Trade Commsson, an agency of the Government, represent-
ng no prvate Interest of Its own, but actng soey In the pubc Interest, had no wen
standng as a prvnte party that t coud utze procedure cv contempt Intended to
safeguard the rghts and nterests of prvate partes. ecause of the confct on ths
pont n the |udgment beow, we granted certorar. t . S., .)
Interstate Commerce Commsson . rmson (154 T . S.. 447, 470).
Cf. evcrng v. Mtche (303 U. .. 391, 402 Ct D. 1320, C. . 193 -1, 317 ). .
Cf. rotcnson v. Unted States (32 ed. (2d). 44. 4 . 49 Ct. P. 64. C. . IM,
192 (1929) ) Unted States v. rst 2 ot. ank (295 ed., 142, affrmed 267 U. S., 5.6
T. D. 3546, C. . III-, 422 (1924) ).
Oompers . ucks Stove Rame Co. (221 T . S. 41 , 441) o v. Capta Co. (2f9
T . S., 105) Lamb v. Cramer (2 5 U. S.. 217. 220, 221) O e v. Ru c (27 . S., 35 ,
363 parte Grossman (267 U. S. 7. I): Unon Too Co. v. Wson (259 0. S.,
107) In re Merchants Stock Co., pettoner (223 U. S.. 639) Matter of Chrstenten n-
gneerng Co. (194 U. S., 45 ) essette v. W. . Conkey Co. (294 U. S 324).
Cf. Lamb v. Cramer, supra. 220 Oompers v. ack Stove f Range Co., supra, 44 .
Cf. o v. Capta Co., supra, 10 .
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279
51104.
The udgment of contempt was cv, and appea from It was governed by
the statutory roes of cv appeas.
There remans the suggeston that the appea In queston can be consdered
a cv appea propery taken under rue 73 of the new edera Rues of Cv
Procedure whch became effectve September 10, 193 . owever, pettoner s
notce of appea was fed May 2, 193 . The controng statute requred app-
caton for aowance of a cv appea wthn three months after udgment from
whch appea was sought The three months e pred uy 2 , 193 , and the
contempt udgment had become unappeaabe we before the effectve date of
the new rues. Therefore, pettoner s not aded by the provson of rue 6
tbat the new rues sha govern a actons then pendng Septem-
ber 16, 193 , . Ths acton from whch there was then no rght of
appea was not pendng wthn the meanng of the rue.
The court of appeas was not n error n dsmssng pettoner s appea for
faure to compy wth the statutory requrements governng cv appeas. Its
|udgment s affrmed.
a Rue 73. ppea to a Crcut Court of ppeas.
ok taken, when an appea a permtted by aw from a dstrct court to a crcut court
of appeas and wthn the tme prescrbed, a party may appea from a |udgment by fng
wth the dstrct court a notce of appea. aure of the appeant to take any of the
further steps to secure the revew of the |udgment appeaed from does not afreet tha
vadty of the annea, but 1 eround ony for buch remedes as are specfed In ths rue
r, when no remedy Is specfed, for such acton as the appeate court deems approprate,
whch may ncude dsmssa of the appea.
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903, Regs. 96, rt. 201.) 2 0
TITL II. R UNDS O MOUNTS COLL CT D UND R
T GRICULTUR L D USTM NT CT.
S CTION 903. ILING O CL IMS.
Reguatons 9C. rtce 201: Cams orm and 1939-r -97S
where to fe. G. C. M. 2105
( so Secton 322, Reguatons 94, rtce 322-1.)
R NU CT O 1036.
Secton 3477 of the Revsed Statutes, prescrbng certan requre-
ments wth respect to assgnment of cams aganst the I nted
States, appes ony to vountary assgnments an not to assgnments
by operaton of aw such as by decree n bankruptcy. Cam for
refund n the nstant case was propery fed.
n opnon s requested whether the cam for refund of processng
ta es pad by the M Company, fed under the crcumstances heren
set forth, has been propery fed, and whether such cam s governed
by secton 3477 of the Revsed Statutes prescrbng certan requre-
ments wth respect to assgnment of cams aganst the Unted States.
Processng ta es n the amount of 11a doars were pad by the
M Company under the provsons of the grcutura d|ustment
ct. In anuary, 1936, trustees were apponted by a dstrct court,
n pursuance of a petton fed under secton 77 of the ankruptcy
ct, to take over and operate the busness of the M Company.
pan of reorganzaton was approved by the court n November, 1936.
The pan provded for the organzaton of a new corporaton to whch
a the assets of the M Company were to be transferred. In consdera-
ton of such transfer, the new corporaton was to pay a vad n-
debtedness e stng aganst the M Company, ncudng a cams that
mght have prorty by vrtue of aw at the date of the nsttuton of
the bankruptcy proceedngs. The N Company was thereupon n-
corporated. In anuary, 1937. the trustees of the M Company, under
the authorty and drecton of the court, deeded to the N Company
the rea estate, machnery, f tures, stock n process, choses n acton,
and a persona property of every descrpton beongng to the M
Company. The trustees were dscharged by the court n anuary,
1937.
In une, 1937, a cam for refund was fed on orm P. T. 79 for
the refund of 11a doars of processng ta es pad by the M Company.
Ths form was sgned M Company, by , Secretary and Treasurer.
The refund form was transmtted wth a etter dated une , 1937,
sgned by , as secretary and treasurer of the N Company, wth a
note to the effect that the cam was sgned by the M Company but
that the N Company had purchased a the propertes of the M Com-
pany and that the refund woud go to the N Company.
s above noted, a property of the M Company has been assgned
and transferred to the N Company by order of the Unted States
dstrct court. The queston arses whether the rghts of the M
Company, f any, for refund of processng ta es were successfuy
transferred by ths court order.
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2 1
903, Regs. 96, rt. 201.
Secton 3477 of the Unted States Revsed Statutes (U. S. C. .,
Tte 31, secton 203) provdes that a transfers and assgnments
made of any cam upon the Unted States sha be nu and vod,
uness they are freey made and e ecuted n the presence of at east
attestng wtnesses, after the aowance of such a cam, the
wtanment of the amounts due, and the ssung of a warrant for
te payment thereof. The cam here n queston has not been
Secton 3477 of the Revsed Statutes has been consdered by the
courts and t has been hed that the statute appes ony to cases
of vountary assgnment and not to nstances where tte s trans-
ferred by operaton of aw. In rwn v. Unted States (97 IT. S.,
S 2), the foowng statement was made wth respect to secton 3477:
It does not embrace cases where there has been a transfer of tte by opera-
ton of aw. The passng of cams to hers, devsees, or assgnees n bankruptcy
re not wthn the ev at whch the statute s amed .
The provsons of secton 3477 of the Revsed Statutes were con-
sdered n Western Pacfc Raroad Co. v. Unted States (26 U. S.,
271). The petton n that case covered cams for transportaton
servces furnshed the Unted States between September 24. 1914. and
une 1 , 1916, (1) by the Western Pacfc Raway, a predecessor n
tte of the camant, (2) by the recevers of the property of the
Western Pacfc Raway apponted n a edera dstrct court n
Caforna, and (3) by the camant, the Western Pacfc Raroad
Co., whch purchased the property of the raroad under a sae made
by the recever. y the sae made under decree n the edera Ds-
trct Court of Caforna, the camant, the Western Pacfc Raroad
Co., acqured by a speca master s deed a the property, assets, and
choses n acton beongng to the Western Pacfc Raway or to ts
recevers. The Government n ths case contended that as to the
cams for transportaton furnshed by the Western Pacfc Raway
and ts recevers, whch were acqurec by camant under the speca
master s deed, a recovery was precuded by secton 3477 of the Re-
vsed Statutes. The court stated that the ob|ect of that secton was
to protect the Government and to prevent frauds upon the Treasury.
It was hed that such secton apped ony to cases of vountary assgn-
ment of demands aganst the Government and not to cases nvovng
a transfer of tte by operaton of aw. The court stated that the
.-ae to the camant of so much of the cams as had accrued to the
recevers for transportaton furnshed by them, was ceary a transfer
by operaton of aw and dd not come wthn the prohbton of the
statute. The court hed wth respect to the cams for transporta-
ton furnshed by the Western Pacfc Raway that such cams were
transferred by operaton of aw.
It s hed, therefore, that tte to the cam n the present case was
obtaned by the N Company by operaton of aw and that the pro-
vsons of secton 3477 dd not precude ts transfer.
The queston remans as to whether a proper cam for refund has
been fed n ths case.
Secton 903 of the Revenue ct of 1936 provdes that No refund
sha be made or aowed of any amount pad by or coected from
any person as ta under the grcutura d|ustment ct uness,
172176 39 pt. 1 10
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903, Regs. 96, rt. 201.
2 2
after the enactment of ths ct, and pror to uy 1, 1937, a cam for
refund has been fed by such person . The person who
pad the ta n ths case was the M Company. owever, that company,
f st n e stence, has nether nterest nor tte to the cam for re-
fund. The N Company stands n the shoes of the M Company,
havng acqured a rght, tte, and nterest n the cam aganst th-3
Government. In Natona oods, Inc., v. Unted States ( 2 Ct. CI.,
627, 13 ed. Supp., 364, certorar dened October 12, 1936) t was
hed that the assgnor of a cam aganst the Government (whch
cam had been transferred by operaton of aw) was not the proper
party to mantan a sut to recover on the cam. It s hed n the
present case that the N Company s the proper party to fe the refund
cam.
The cam was sgned by the M Company but the etter of trans-
mtta reveas that t was fed by the assgnee. The facts reatng
to the transfer were mentoned n the etter of transmtta. It s hed
that ths cam shoud be consdered as propery fed upon behaf of
the N Company, the successor n nterest.
. P. Wenche,
Chef Counse ureau of Interna Revenue.
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MPLOYM NT T S.
SOCI L S CURITY CT.
TITL TLT. T S WIT R SP CT TO MPLOYM NT.
Secton 04: cse ta on empoyers. 1939-10-9745
Reguatons 91, rtce 304: Labty for Mm. 4 2
empoyers ta .
( so Secton 901 Reguatons 90, rtce 200.)
Coectbty of soca securty ta es from certan nsovent
banks and trust companes.
Provsons of secton 22 of the ct of March 1, 1 79 ( 20 Stat,
351 12 U. S. C, 570), as amended by secton 1 of the Revenue
ct of 103 , not appcabe wth respect to empoyers e cse ta es
mposed under Ttes III and I of the Soca Securty ct
(S. S. T. 37 (C. . -2, 3 0 (1936)) modfed.)
Wa hnaton, D. C, ebruary 14, 1939.
1. Secton 1 of the Revenue ct of 193 , enacted May 2 , 193
(Pubc, No. 554, Seventy-ffth Congress), provdes:
Sec. 1 . Ta es of Insovent anks.
Secton 22 of the ct of March 1, 1 79 ( 20 Stat 351 12 U. S. C. 570), s
amended to read as foows:
Sec. 22. (a) Whenever and after any bank or trust company, a substanta
porton of the busness of whch conssts of recevng deposts and makng oans
and dscounts, has ceased to do busness by reason of nsovency or bankruptcy,
no ta sha be assessed or coected, or pad nto the Treasury of the Unted
States on account of such bank, or trust company, whch sha dmnsh the
assets thereof necessary for the fu payment of a ts depostors and such
ta sha be abated from such natona banks as are found by the Comptroer
of the Currency to be nsovent and the Commssoner of Interna Revenue,
when the facts sha appear to hm, s authorzed to remt so much of the sad
ta aganst any such nsovent banks and trust companes organzed under
State aw as sha be found to affect the cams of ther depostors.
(b) Whenever any bank or trust company, a substanta porton of the bus-
ness of whch conssts of recevng deposts and makng oans and dscounts,
has been reeased or dscharged from ts abty to ts depostors for any part
of ther cams aganst t, and suc depostors have accepted, n eu thereof,
a en upon subsequent earnngs of such bank or trust company, or cams
aganst assets segregated by such bank or trust company or aganst assets
transferred from t to an ndvdua or corporate trvstee or agent, no ta sha
be assessed or coected, or pad nto the Treasury of the Unted States on
account of such bank, or trust company, such ndvdua or corporate trustee
or such agent, whch sha dmnsh the assets thereof whch are avaabe
for the payment of such depostor cams and whch are necessary for the fu
payment thereof.
(c) ny such ta so coected sha be deemed to be erroneousy coected,
and sha be refunded sub|ect to a provsons and mtatons of aw, so far as
2 3
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Regs. 91, rt. 402.
2 4
appcabe, reatng to the refundng of ta es, but ta so abated or refunded
after the date of the enactment of the Revenue ct of 193 sha be reassessed
whenever t sha appear that payment of the ta w not dmnsh the assets
as aforesad. The runnng of the statute of mtatons on the makng of assess-
ment and coecton sha be suspended durng, and for )0 days beyond, the
perod for whch, pursuant to ths secton, assessment or coecton may not
be made, and a ta whch has been abated may be reassessed and coected
durng the tme wthn whch, had there been no abatement, coecton mght
have been made.
(d) Ths secton sha not appy to any ta Imposed by the Soca Securty
ct.
2. ttenton s nvted to paragraph (d) of the foregong prov-
sons of aw, to the effect that secton 22 of the ct of March 1, 1 79
(20 Stat., 351 12 U. S. C, 570) , as amended by secton 1 of the
Revenue ct of 193 , s not appcabe wth respect to the empoyers
e cse ta es mposed by secton 04 and secton 901 of the Soca
Securty ct. ccordngy, banks or trust companes, a substanta
porton of the busness of whch conssts of recevng deposts and
makng oans and dscounts, whch have ceased to do busness by
reason of nsovency or bankruptcy and whose assets are nsuffcent
to pay ther depostors n fu, f not otherwse e empt from soca
securty ta es, may not be reeved from payment of such ta es by
vrtue of the provsons of secton 22 of the ct of March 1, 1 79,
as amended.
3. Payment of the empoyers e cse ta es for whch such banks
and trust companes are abe under Ttes III and I of the
Soca Securty ct, and whch are requred to be reported on any
return due under those ttes on a date subsequent to Mav 27. 193 ,
shoud be made to coectors offces wthout regard to affdavts of
nsovency whch may have been fed, or whch may be fed, by such
banks and trust companes for the purpose of securng reef from
such payment.
4. ttenton s nvted to the fact that the provsons of secton 22
of the ct of March 1, 1 79. both pror and subsequent to amend-
ment, are nappcabe wth respect to the ta on empoyees mposed
by secton 01 of the Soca Securty ct.
5. The rung pubshed as S. S. T. 37 (C. . -2, 3 0 (1936))
and a subsequent pubshed rungs n whch reference s made
thereto are modfed accordngy. (See S. S. T. 135. C. . 1037-1,
305 S. S. T. 164. C. . 1937-1. 432 S. S. T. 1 6, C. . 1937-2. 371.)
6. ny correspondence reatng to the contents of ths nvmeograph
shoud refer to the number thereof and to the symbos .C.
Guy T. evernq,
Com n sso ner.
Secton 07: Coecton and payment of ta es. 1939-6-9705
Reguatons 91. rtce 402: Returns for perods S. S. T. 352
wthn the caendar year 193 and subsequent years.
( so rtce 410.)
The separaton date to be shown on an empoyer s ta return,
orm SS-a. under Tte III of the Soca Securty ct n the
case of a reeased empoyee who contnues to receve dsmssa
pay for a certan perod after hs reease s the date on whch
the empoyee was actuay reeased from actve servce. S. S. T.
300 (C. . 193 -1. 3 7) ampfed.
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2S5
Regs. 91, rt. 3.
dvce s requested reatve to the separaton date to be shown on
an empoyer s ta return, orm SS-a, under Tte III of the
Soca Securty ct n the case of a reeased empoyee who contnues
to receve monthy payments of dsmssa pay for a certan perod
after hs reease.
It s stated that many empoyers when they reease an empoyee
contnue to make payments to hm as dsmssa pay for severa months
after hs reease. The queston arses as to the date to be entered n
tem 20 of Schedue , orm SS-a, as the separaton date. The n-
structons on the reverse sde of orm SS-a provde n part as
foows:
Item 20. Separaton date. nter n ths coumn for each empoyee who re-
ceved ta abe wages durng the quarter, but who was not n your empoy at
the end of the quarter, the month and day upon whch such empoyee eft
your servce.
or the purpose of ths tem, the date on whc the empoyee was
actuay reeased from actve servce shoud be entered n tem 20 of
orm SS-a as the separaton date. or e ampe, where an em-
poyee was reeased by hs empoyer on September 15, 193 , but w
receve monthy payments of dsmssa pay through March 15, 1939,
the month and day, 9-15, shoud be entered n tem 20 of the return
for the perod ended September 30,193 , as the date the empoyee eft
the empoyer 6 servce. That date ( 9-15 ) shoud aso be entered
n tem 20 of each subsequent return on whch dsmssa payments
to the ndvdua are reported.
Secton 07: Coecton and payment of ta es.
Reguatons 91, rtce 410: Payment of ta .
Separaton date to be shown on return, orm SS-a, n the case
Secton 11: Defntons. 1939-4-96 7
Reguatons 91. rtce 3: Who are empoyees. S. S. T. 350
of a reeased empoyee. (See S. S. T. 352, page 2 4.)
Indvduas engaged by the M Theater ssocaton to perform
servces for the O Theater are empoyees of that theater for the
purpose of Ttes III and I of the Soca Securty ct.
dvce s requested whether ndvduas engaged by the M Theater
ssocaton to perform servces for the O Theater are empoyees of
that theater for the purpose of Ttes III and I of the Soca
Securty ct.
It s stated that the O Theater s one of a group of theaters whch
are members of the M Theater ssocaton. The O Theater (heren-
after caed the owner) n |onng the crcut entered nto an agree-
ment appontng the M Theater ssocaton as ts agent. Under such
agreement, the M Theater ssocaton (herenafter caed the agent)
s authorzed to engage and f the compensaton of the members of
the cast of each producton appearng at the O Theater. The mem-
bers of the chorus are engaged for the duraton of the show at a f ed
saary. The agent receves from the owner a st of ames of the nd-
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Regs. 91, rt. 3.
2 6
vduas who are to be engaged by hm on behaf of the owner. of
those whose names are submtted are hred by the agent. ach of the
competed choruses has 14 members. member of the chorus may be
dscharged by ether the agent or the owner for cause. Ths s equay
true wth respect to other stage performers. Durng ther stay at the
O Theater, the members of the cast are sub|ect to the rues and regua-
tons estabshed by such theater. Immedatey foowng the fna
performance, the performers are pad by the owner of the theater.
Under Ttes III and I of the Soca Securty ct, the empoyer-
empoyee reatonshp e sts when the person for whom servces are
performed has the rght to drect and contro the ndvdua who
performs the servces, not ony as to the resut to be accompshed by
the work but aso as to the detas and means by whch that resut s
accompshed. That s, an empoyee s sub|ect to the w and contro
of the empoyer not ony as to what sha be done but ho o t sha be
done. In ths connecton, t s not necessary that the empoyer actuay
drect or contro the manner n whch the servces are performed t s
suffcent f he has the rght to do so. ( rtce 3, Reguatons 91 art-
ce 205, Reguatons 90.)
Under the facts presented n ths case, t s hed that the O Theater
e ercses, or has the rght to e ercse, over the members of the cast
the degree of drecton and contro contempated by the reguatons as
necessary to estabsh the ega reatonshp of empoyer and empoyee.
ccordngy, such ndvduas, wth respect to the servces they perform
at the O Theater, are ts empoyees for the purpose of Ttes III and
I of the Soca Securty ct.
Secton 11: Defntons. 1939-5-9695
Reguatons 91, rtc e 3: Who are empoyees. S. S. T. 351
( so Reguatons 91. rtce 6 Secton 907
Reguatons 90, rtces 205 and 20G(1).)
Truckers and ndvduas engaged by them to harvest vegetabes
for the SI Company are empoyees of that company for the purpose
of Ttes III and I of the Soca Securty ct, and ther servces
do not consttute agrcutura abor wthn the meanng of those
ttes.
dvce s requested whether truckers and ndvduas engaged by
them to harvest vegetabes for the M Company are empoyees of that
company for the purpose of Ttes III and I of the Soca Secu-
rty ct and whether the servces of the truckers and the other nd-
vduas n queston consttute agrcutura abor wthn the mean-
ng of the above-mentoned ttes.
The M Company, a shpper of vegetabes, furnshes varous farmers
wth seeds, for whch t receves n return shares n the crops rased.
The company subsequenty purchases the farmers shares of the crops.
The company then enters nto wrtten contracts wth ndvduas
known as truckers, who n turn engage others to harvest the entre
crop of vegetabes. The M Company s nether the owner nor tenant
of the farms on whch the crops are produced. The agreement be-
tween the trucker and the company provdes n part as foows:
Trucker agrees to harvest vegetabes for shpper at such tme and pace and
at such prce as sha be verbay agreed upon day by both partes before
trucker eaves for feds to dever such vegetabes to oadng patform as
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2 7
Regs. 91, rt. 3.
sha he aso verbay agreed upon day and return a unused contaners to
shppers warehouse day to dever such vegetabes accordng to spec-deatons
agreed upon and set out heren and to accept the pack-out count of shpper
at oadng patform as bass for settement. Such settement sha be made
weeky.
Trucker agrees to provde, transport, and pay hs own abor and pay a hs
own e penses ncdent to such harvestng and transportng of vegetabes and
empoyees of trucker and to perform the work accordng to the pans and
specfcatons set out In ths contract.
Shpper agrees to notfy trucker when he wants hm to harvest vegetabes and
at what prce, show trucker where to harvest, specfcatons for pack, etc., and
to pay trucker weeky for tota accepted pack-out count at prces agreed upon.
Shpper agrees to furnsh contaners to trucker at hs warehouse for such
vegetabes as requre contaners for harvestng and transportng.
It s mutuay understood and agreed that shpper may have a fed nspector
advse wth trucker at any tme regardng quaty, specfcatons, and when
to stop harvestng.
It s aso mutuay understood and agreed that If shpper s day harvestng
prce s not satsfactory to trucker that he s not bound to go to the fed and
harvest that day but f he does harvest he must accept the day prce agreed
upon.
It s aso mutuay understood and agreed that shpper s not bound to pro-
vde any harvestng for trucker and that ths contract s n force ony n so far
as day agreed on between trucker and shpper.
The company s fed supervsor gves detaed nstructons to the
trucker as to the sze, quaty, and quantty of vegetabes to pck
and prescrbes the method and manner n whch the vegetabes are
to be ted and packed n the crates. The trucker obtans a harvestng
crew and the supervsor eads or drects the trucker to the partcuar
fed to be harvested. The company s fed supervsor has the rght
to go nto the feds at any tme to advse the trucker as to the quaty
nd other specfcatons of vegetabes to pck. e may drect the
trucker at any hour durng the day to stop work wthout regard
to whether the assgned feds have been competey harvested. The
fed supervsor nspects the fed after the vegetabes have been
harvested, and, f the trucker and crew dd not harvest the crops
satsfactory, they are requred to return and compete the work.
The trucker owns the trucks wth whch he transports the harvestng
crew to and from the fed and the harvested crops to the company s
packng shed. e pays the e pense of operatng the trucks, makes
agreements wth the aborers as to what remuneraton they sha
receve, and pays them for ther servces. It s customary for the
company to make advances for e penses to truckers wth whom t has
contracts and who are n good standng. Contaners for the vege-
tabes are supped by the company and pcked up by the trucker
at the company s packng shed, and the company requres the trucker
to return the contaners to the sheds. The company pays the trucker
on a pack-out bass, . e., a fat rate for each contaner of vege-
tabes devered to the packng shed and found to be acceptabe by
the company as meetng the specfcatons prevousy gven the
trucker. If certan vegetabes are found to be unsatsfactory, as, for
nstance, not propery ted or not of the prescrbed sze, the com-
pany may refuse to accept them and s not requred to pay the
trucker for gatherng them. though the M Company pays the
farmers for the vegetabes aso on the pack-out bass, t s under-
stood that the company w have compete contro of harvestng
the crops.
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Regs. 91, rt. 3.
2
rtce 3 of Reguatons 91, appcabe to Tte III of the Soca
Securty ct, reads n part as foows:
very ndvdua s an empoyee wthn the moanng of Tte III
of the ct f he performs servces n an empoyment as defned n secton 11(b)
(see artce 2).
owever, the reatonshp between the person for whom such servces are
performed and the ndvdua who performs such servces must as to those
servces be the ega reatonshp of empoyer and empoyee. Generay such
reatonshp e sts when the person for whom servces are performed has the
rght to contro and drect the ndvdua who performs the servces, not ony
as to the resut to be accompshed by the work but aso as to the detas and
means by whch that resut s accompshed. That s, an empoyee s sub|ect
to the w and contro of the empoyer not ony as to rhat sha be done but
how t sha be done. In ths connecton, t s not necessary that the empoyer
actuay drect or contro the manner n whch the servces are performed t
s suffcent f he has the rght to do so.
In the present case, the M Company f es the tme for harvestng
the vegetabes, desgnates the feds from whch they are to be gath-
ered, prescrbes the sze, quaty, etc., of the vegetabes to be harvested,
drects the trucker at any tme to stop work, and n genera retans
the rght to contro the trucker and the harvestng crew wth respect
to the manner n whch the work sha be done. The servces per-
formed do not requre a hgh degree of sk and the cumuatve effect
of the facts presented s that the contro of the shpper s actua and
compete from the standpont of practca management.
Under the facts presented, t s hed that the M Company retans
the rght of drecton and contro over the truckers to an e tent
suffcent to estabsh the ega reatonshp of empoyer and empovee.
ccordngy, such ndvduas are, for the purpose of Ttes III
and I of the Soca Securty ct, empoyees of that company. Snce
the harvestng crew members, who assst the truckers n harvestng
the cropS| are engaged wth the e press consent of the M Company
and are, n effect, sub|ect to contro by that company, they are aso
ts empoyees wthn the meanng of the ta ng provsons of the
ct. (See generay S. S. T. 336, C. . 193 -2, 295.)
In vew of the fact that the M Company s nether owner nor
tenant of the farms on whch the vegetabes are produced, t foows
that the servces performed by the truckers and the other ndvduas
n queston do not consttute agrcutura abor wthn the mean-
ng of Ttes III and I of the Soca Securty ct. (See artce
2 6(1), Reguatons 90 artce 6, Reguatons 91 S. S. T. 125, C. .
1937-1, 397.)
Secton 1: D.fntons.
Reguatons 91, rtce 3: Who are empoyees.
Status of rtuastc offcers of fraterna organzatons. (See
Mn. 4 0, page 312.)
Regu tons 91, rtce 3: Who are empovees. S. S. T. 356
Students of the N gh Schoo who are paced n vocatona tran-
ng pursuant to the North Carona State pan for vocatona educa-
ton are empoyees of the agences tranng them. mounts pad to
the students by such agences consttute ta abe wages under
Ttes III and I of the Soca Securty ct.
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2 9
Regs. 91. rt. 3.
dvce s requested whether the students of the N gh Schoo who
are paced n vocatona tranng pursuant to the North Carona State
pan for vocatona educaton are empoyees of the agences tranng
them, and, f so, whether amounts pad to them by such agences con-
sttute ta abe wages under Ttes III and I of the Soca
Securty ct.
It s stated that the N gh Schoo has formuated a dversfed
occupatona program under whch certan of ts students are paced
n the occupaton or ndustry of ther choce for tranng. Ths pro-
cedure s n accordance wth the North Carona State pan approved
by the edera oard for ocatona ducaton, pursuant to the pro-
vsons of the Smth- ughes ct of ebruary 23, 1917 (39 Stat., 929),
and the ct of une , 1936 (49 Stat., 14 ). The types of tranng
ncude saesmanshp, offce practce, prntng, photography, me-
chancs, etc.
The agreement form used by the N gh Schoo n pacng students
wth agences for vocatona tranng provdes as foows:
1. The w permt
(Tranng agency.) (Student.)
to enter ther estabshment or the purpose of ganng practca knowedge and
e perence as (a) (an)
2. The course of tranng Is desgned to run for semesters n prac-
tca work. The tranng w be n accordance wth the genera outne arranged
for
(Occupaton.)
3. The gh Schoo w make provson for the student to receve
nformaton and technca nstructon reated to the occupaton.
4. The status of the student, whe n tranng, sha be that of an apprentce.
5. The student, whe n tranng, sha progress from |ob to |ob n order to
gan e perence n a phases of operatons and dutes and sha be kept on one
operaton ony ong enough to become profcent
6. The schedue of compensaton sha be f ed by the tranng agency, the
student, and the coordnator of the hgh schoo n accordance wth e stng abor
aws and recommendatons of the oca advsory commttee.
7. The student agrees to observe the rues and reguatons of the tranng
agency and to abde by a mped and stated terms ncuded n ths
memorandum.
. The student agrees further to make every effort to attend reguary and to
notfy (hs) (her) empoyer, and the coordnator, of any unavodabe absence
from empoyment tranng.
The agreement form s sgned by the coordnator of the hgh schoo,
empoyer, parent or guardan, and student, and s dated as of the
begnnng of tranng.
The coordnator of the hgh schoo states that the tranng agency
s a corporaton, partnershp, or ndvdua engaged n the ne of
busness wth whch the student desres to become famar: that the
students are consdered as empoyees by the tranng agences that
they must be compensated by the agency whch trans them and that
they are pad drecty by such agency that ther compensaton does
not equa the reguar rates receved by those permanenty empoyed n
the same ndustres or trades that there s no f ed bass for determn-
ng the compensaton that the students must devote certan hours to
the work and are constanty under the supervson of the agences
tranng them and the schoo coordnator that the agences make re-
ports to the coordnator at the tme of the atter s reguar vsts to the
paces where the students are engaged as to ther work, atttude, and
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Regs. 91, rt. 3.
290
reguarty of attendance and that the hgh schoo may aow credt
toward graduaton from the hours spent by the students n such work.
Under Ttes III and I of the Soca Securty ct, the reaton-
shp of empoyer and empoyee e sts when the person for whom serv-
ces are performed has the rght to drect and contro the person who
performs the servces not ony as to the resut to be accompshed by
the work but aso as to the detas and means by whch that resut s
accompshed. ( rtce 3, Reguatons 91 artce 205, Rncuatons
90.) The term wages s defned under Ttes III and I of the
Soca Securty ct as a remuneraton for empoyment sub|ect
to a mtaton under Tte III not here matera.
sed on the facts presented, t s apparent that the students of the
N gh Schoo partcpatng n the cooperatve vocatona tranng
pan n queston perform servces for the agences tranng them, whch
servces are sub|ect to the supervson and contro of the tranng
agences for whch performed. The fact that such students are aso
sub|ect to some e tent to the supervson of the schoo coordnator
does not affect the tranng agences rght to contro the servces per-
formed for such agences by the students n ther status as apprentces.
though the students may perform such servces for the purpose of
ganng practca knowedge and e perence, t s cear that the tran-
ng pan requres that the work be done under reguar empoyment
condtons and that the students be comnensated therefor. ccord-
ngy, t s hed, for purposes of Ttes III and I of the Soca Se-
curty ct, that the students of the N gh Schoo paced n vocatona
tranng under the pan heren outned are empoyees of the tranng
agences wth respect to the servces performed for the agences, and
that the amounts pad to such students by the agences consttute
ta abe wages.
Refatons 91. rtce 3: Who are empoveos. S. S. T. 3GO
Indvduas comprsng shearng crews engaged by , a sheep
shearng contractor, to perform servces In connecton wth the
shearng of sheep for woo growers nre empoyees of for the
dvce s requested whether ndvduas comprsng shearng
crews engaged by , a sheep shearng contractor, to perform servces
n connecton wth the shearng of sheep for woo growers are empov-
ees of or of the woo growers for the purpose of Ttes III and I
of the Soca Securty ct.
It s stated that s engaged n the shearng of sheep on a contract
bass. Ora contracts are entered nto wth woo growers and ether
provde that (1) for a stpuated rate per head, w furnsh the
ndvduas and machnery for the shearng and the grower w fur-
nsh the abor necessary for the handng of the woo or (2) for a
stpuated rate per head, w furnsh a the machnery and abor
necessary for the shearng and handng of the woo. mantans a
somewhat permanent shearng crew whch accompanes hm from
ranch to ranch. e has compete supervson over the members of
hs crew and s responsbe for ther work. The shearers are pad by
hm for ther servces at a specfc rate per head.
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291
Regs. 91, rt. 3.
rtce 3 of Reguatons 91, appcabe to Tte III of the Soca
Securty ct, reads n part as foows:
very Indvdua s an empoyee wthn the meanng of Tte III of
the ct f he performs servces n an empoyment as deued n secton
11(b) .
owever, the reatonshp between the person for whom such servces are
performed and the ndvdua who performs such servces must as to those
servces be the ega reatonshp of empoyer and empoyee. Generay such
reatonshp e sts when the person for whom servces are performed has the
rght to contro and drect the ndvdua who performs the servces, not ony
as to the resut to be accompshed by the work but aso as to the detas and
means by whch that resut s accompshed. That s, an empoyee s sub|ect to
the w and contro of the empoyer not ony as to what sha be done but how
t sha be done. In ths connecton, t s not necessary that the empoyer actuay
drect or contro the manner n whch the servces are performed t s suffcent
f he has the rght to do so.
rtce 205 of Reguatons 90, appcabe to the ta mposed under
Tte I , contans substantay the same provsons.
Under the facts presented, t s hed that e ercses over the nd-
vduas comprsng the shearng crews the degree of drecton and
contro contempated by the reguatons as necessary to estabsh the
ega reatonshp of empoyer and empoyee. ccordngy, such nd-
vduas are empoyees of for the purpose of Ttes III and I
Reguatons 91, kttce 3: Who are empovees. S. S. T. 363
( Uso Secton 907 Reguatons 90, rtce 205.)
ssocate physcans engaged by the O Cnc, who are requred
to devote ther fu tme to the practce of medcne at the cnc and
to promote the nterests of the cnc n preference to the prvate
nterests of each ndvdua, are empoyees of that cnc for tte
dvce s requested whether assocate physcans renderng serv-
ces to the O Cnc under condtons herenafter sot forth are em-
poyees of the cnc for the purpose of Ttes III and I of the
Soca Securty ct.
The O Cnc s a partnershp operated by three physcans. ve
assocate physcans are engaged to perform servces n the cnc.
Under the terms of the agreements between the cnc and the asso-
cate physcans, the cnc agrees to pace them on ts staff, to furnsh
prvate quarters n the cnc offce budng, to pace ther names on
the offce regster and on a statonery, and to furnsh such nstru-
ments, medcnes, and suppes, as may be necessary n the practce of
ther specates, whch equpment and suppes are to be the property
of the cnc. The assocate physcans agree to devote ther fu tme
to the cnc, to observe certan offce hours, not to carry on any outsde
busness for gan, to endeavor dgenty to bud up a practce for the
cnc n ther specates, to take care of such genera work as other
members of the cnc may ca upon them to hande, . e., genera sur-
gca work, anesthetcs, etc., and to cooperate wth the other physcans
n every way for the genera beneft of the cnc. The earnngs of the
three partners are pooed and dvded accordng to an agreed rato.
Ten per cent of the ncome of the cnc s set asde n a savngs ac-
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Regs. 91. rt. 3.
292
count to be shared by the eght physcans. The fve assocate phys-
cans receve a certan nterest n the savngs account and a guaranteed
mnmum compensaton rangng from doars to 4 doars per
month. They purchase no nterest n the good w, offce equpment,
brary, or other property. The ncome of each of the assocate
physcans s based n part upon the ength of servce, professona
quafcatons, and apttude for advancement n the practce of med-
cne and surgery. fnanca obgatons of the cnc are ncurred
by the three partners. of the physcans pass on quafcatons of
physcans appyng for affaton wth the cnc and on aboratory
techncans, cerks, etc., empoyed by the cnc. ach physcan de-
termnes the amount of fees for servces rendered by hm, whch feea
are coected by the cnc bookkeeper and beong to the cnc.
rtce 3, Reguatons 91, and artce 205, Reguatons 90, reatng
to Ttes III and I , respectvey, of the Soca Securty ct, state
that physcans, awyers, dentsts, and others who foow an nde-
pendent trade, busness, or professon, n whch they offer ther
servces to the pubc, generay are ndependent contractors and not
empoyees. owever, ths s not to say that such persons are n a
stuatons to be cassfed as ndependent contractors as dstngushed
from empoyees for the purpose of the ta ng provsons of the
Soca Securty ct. The tests for determnng whether an nd-
vdua s an empoyee are set forth n artces 3 and 205. supra, and
f such ndvdua s sub|ect to the necessary contro and drecton,
he s an empoyee regardess of the fact that he may be a physcan,
awyer, dentst, or other professona man.
In the present case, the O Cnc engages the assocate physcans
n queston to perform servces n the cnc and to endeavor pr-
mary to promote the nterests of the cnc n preference to the pr-
vate nterests of the ndvdua doctors. The assocate physcans
agree to devote a of ther professona tme n the nterests of the
cnc, to observe certan offce hours, and to cooperate n every way
possbe for ts genera beneft. Under the fnanca arrangement
between the cnc and the assocate physcans a certan compensa-
ton s guaranteed and t s understood that the servce of a new man
comng nto the cnc staff sha yed to the cnc some proft over
and above hs share of offce overhead. It s the opnon of the
Inreau that the O Cnc has the rght to e ercse, and does e er-
cse, such contro and drecton over the manner and means n whch
the assocate physcans perform ther dutes as estabshes the rea-
tonshp of empoyer and empoyee. Such contro and drecton,
athough not as detaed perhaps as n the case of other empoyees
performng servces of a dfferent character, requrng detaed con-
tro, s such as s necessary n vew of the character of the work.
It s accordngy hed that the fve assocate physcans performng
servces under the stated crcumstances are empoyees of the 0
Cnc for the purpose of Ttes III and I of the Soca Securty
ct.
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293
Regs. 91. rt. 3.
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 3C7
, a gof professona, and the Indvduas whom he engages to
assst hm n operatng the gof shop of the Y Country Cub are
empoyees of that cub for the purpose of Ttes III and I of the
Soca Securty ct.
dvce s requested whether , a gof professona, and the persons
whom he engages to assst hm n performng servces are empoyees
of the Y Country Cub wthn the meanng of Ttes III and I of
the Soca Securty ct, and, f so, the manner n whch s wages
shoud be computed.
s empoyed at the Y Country Cub and receves a saary of O
doars per month. e aso receves the proceeds from the operaton
of the gof shop, whch consst of doars per month for each bag
of cubs ceaned and kept n the shop, and the profts from the sae
of gof bas, bags, and suppes. In addton he nstructs cub mem-
bers at the rate of 2 doars per hour, whch rate s estabshed by the
cub. The cub has the rght to drect and contro the manner n whch
he manages the gof shop, hs books are open to cub nspecton at a
tmes, he must be avaabe for, and s requred to keep, esson appont-
ments, and he may engage such further hep as the needs of the busness
requre.
In S. S. T. 23 (C. . 1937-2, 401) t was hed that a gof profes-
sona engaged n seng gof cubs and essons on the grounds of the
M Gof Cub s not an empoyee of that cub for the purpose of Tt es
III and I of the Soca Securty ct. In that case the gof profes-
sona was ceary not under the contro of the cub. e f ed hs own
prces, made hs appontments, and carred on hs actvtes wthout
orders of any nature from members or offcas of the cub. though
under artces 3 and 205 of Reguatons 91 and 90, respectvey, t s
stated that ndvduas who foow an ndependent professon are
generay ndependent contractors and not empoyees, t does not fo-
ow that such ndvduas are n a stuatons ndependent contractors
nstead of empoyees for the purpose of the ta ng provsons of the
Soca Securty ct. If an ndvdua s sub|ect to the contro of the
person for whom he performs servces not ony as to the resut to be
accompshed by hs work but aso as to the detas of accompshng
the resut, he s an empoyee regardess of whether he s a gof profes-
sona or other professona man.
In the present case, t s apparent from the facts presented that
and the ndvduas whom he engages to assst hm are sub|ect to the
supervson and contro of the Y Country Cub. ccordngy, t s
hed that and hs assstants are empoyees of that cub for purposes
of Ttes III and I of the Soca Securty ct. s monthy saary,
pus the proceeds derved from the gof shop and essons gven to
members, mnus the wages pad to hs assstants and any e penses n-
curred n connecton wth the operaton of the gof shop, consttutes
hs ta abe wages for the purpose of the above-mentoned ttes.
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Regs. 91, rt. 6.
294
Reguatons 91, rtce 4: Who are empoyers. S. S. T. 354
Where a partnershp Is dssoved by the death or retrement of
ono of ts members, the empoyng unt contnues for purposes of
Ttes III and I of the Soca Securty ct unt the wndng
up of the partnershp affars s competed. new empoyment
begns, however, upon the resumpton of busness by the survvng
partners. S. S. T. 199 (C. . 1937-2, 40: ), ampfed.
dvce s requested whether, for the purpose of Ttes III and I
of the Soca Securty ct, the empoyng unt s consdered to con-
tnue where, upon the dssouton of a partnershp by the death or
retrement of one of ts members, the remanng members engage n
the wndng up of the partnershp affars.
In S. S. T. 199 (C. . 1937-2, 405) t was hed that where a part-
nershp busness contnues after the death or retrement of a partner
a new empoyment begns, the survvng partner beng the empoyer.
Ths rung, however, appes ony where the busness of the partner-
shp s contnued and the qudaton of the deceased partner s n-
terest s ncdenta.
It s hed that where a partnershp s dssoved by the death or re-
trement of a member, the empoyng unt contnues for purposes of
Ttes III and I of the Soca Securtv ct unt the wndng up
of the partnershp affars s competed. The contnuaton of the part-
nershp durng the perod requred to wnd up ts affars s provded
for n the Unform Partnershp ct (see secton 30), and the same
rue has been enacted nto the aw of a number of States. (See sec-
ton 2424, Deerng s Cv Code of Caforna (1937) chapter 40,
secton 61, CahPs Consodated Laws of New York (1930) Tte
59, secton 92, Purdon s Penna. Statutes nnotated (1930).) ven
under the common aw, the same rue obtans. (See Rossmoore v.
Commssoner, 70 ed. (2d), 520 20 R. C. L., 90 -969.) Servces
performed n wndng up the partnershp affars shoud not be re-
garded as beng performed n a new empoyment. Servces performed
n carryng on the busness of the new partnershp, however, or n
carryng on the busness on behaf of a remanng partner, are to be
regarded as servces performed n a new empoyment.
Secton 11: Defntons.
Reguatons 91, rtce 6: grcutura abor.
Servces performed n harvestng vegetabes. (See S. S. T. 351,
page 2 6.)
Reguatons 91, rtce 6: grcutura abor. S. S. T. 357
( so Secton 907 Reguatons 90, rtce 200(1).)
Servces performed for the M Dary arm n connecton wth the
processng, packng, packagng, transportng, marketng, and de-
very of mk and other dary products, and n ceanng the process-
ng rooms and equpment, are not e cepted from empoyment as
agrcutura abor for the purpose of Ttes III and I of the
Soca Securty ct.
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295 Regs. 91, rt. 6.
dvce s requested whether servces performed by the empoyees
of the M Dary arm n connecton wth the processng, packng,
packagng, transportaton, marketng, and devery of mk and other
dary products, and n ceanng the processng rooms and equpment,
are e cepted from empoyment as agrcutura abor under sec-
tons 11 (b) and 907(c) of the Soca Securty ct.
It s stated that owns and operates the M Dary arm of appro -
matey y acres and that he utzes the crops grown and harvested
thereon to feed hs dary catte. The mk produced from the dary
herd s processed nto pasteurzed mk, cream, buttermk, and butter,
whch products are then sod. Reta routes are owned and mantaned
for the purpose of marketng the mk and other dary products. The
dutes of the empoyees embrace the varous types of servces per-
formed n connecton wth the preparaton and dstrbuton of the
products of the dary and n ceanng the processng rooms and equp-
ment. Products of the dary are sod both at reta and at whoesae.
The e cepton accorded to agrcutura abor under the pro-
vsons of sectons 11 (b) and 907(c) 1 of the Soca Securty ct,
as set forth n artces 6 and 206(1) of Reguatons 91 and 90, re-
spectvey, does not ncude servces performed by an empoyee n
connecton wth the processng of artces from materas whch were
produced on a farm, or n connecton wth the packagng, transporta-
ton, or marketng of those materas or artces, uness such processng,
packagng, transportng, or marketng s carred on as an ncdent to
ordnary farmng operatons as dstngushed from manufacturng
or commerca operatons.
The ureau has consstenty hed that the e cepton accorded to
uagrcutura abor n the ta ng provsons of the Soca Securty
ct does not e tend to servces performed n the empoy of a dary
farmer n connecton wth the preparaton of mk and other dary
products for market when such actvtes are not merey ncdenta to
farmng operatons but are cearv commerca actvtes. (See gen-
eray S. S. T. 125, C. 19:57-1. 397 S. S. T. 15 . C. . 1937-1. 404.)
Under the facts presented, t s apparent that the operaton of the
M Dary arm s more appropratey descrbed as a commerca opera-
ton than as a mere ncdent to ordnary farmng operatons. ccord-
ngy, t s hed that the servces performed by empoyees of the M
Dary arm n connecton wth the processng, packng, packagng,
transportng, marketng, and deverng of mk and other dary prod-
ucts, and n ceanng the processng rooms and equpment, are not
e cepted from empoyment as agrcutura abor for the pur-
pose of Ttes III and I of the Soca Securty ct.
Secton 11: Defntons. 1939-14 9775
Crcumstances under whch servces performed n connecton wth
the threshng of gran consttute agrcutura uhor wthn tht
meanng of Ttes III and I of the Soca Securty ct.
dvce s requested whether servces performed n connecton wth
the threshng of gran consttute agrcutura abor wthn the
meanng of sectons 11 (b) and 907(c), Ttes III and I ,
respectvey, of the Soca Securty ct.
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Regs. 91, rt. 6.
296
It s stated that n the threshng of gran the threshng machnes,
whch are set up temporary n gran feds, are usuay owned and
operated by persons other than the owners or tenants of the farms
on whch the gran s produced, and the servces performed n con-
necton wth the threshng operatons n such cases are rendered by
empoyees of the owner of the threshng machne who contracts wth
the farmers to thresh the gran for a f ed fee. In other stuatons
the threshng machnes are owned and operated by a cooperatve
group or assocaton of farmers, whe n a few nstances the machne
s owned by the owner or tenant of the farm on whch the gran s
produced. though arrangements made by farmers wth respect
to the threshng of gran vary wdey from case to case, t may be
stated generay that n some nstances servces performed n con-
necton wth threshng operatons are rendered by empoyees of the
owner or tenant of the farm on whch the gran s produced, whereas
n other cases such servces are performed by ndvduas who are not
n hs empoy.
grcutura abor, whch s e cepted from empoyment under
Ttes III and I of the ct, ncudes a servces performed by an
empoyee on a farm of whch the empoyer s owner or tenant n con-
necton wth the cutvaton of the so and the rasng and harvestng
of crops, and aso ncudes servces performed by an empoyee n con-
necton wth the processng of artces from materas whch were
produced on a farm owned or tenanted by the empoyer, provded such
processng s carred on as an ncdent to ordnary farmng operatons
as dstngushed from manufacturng or commerca operatons
(artce 6, Reguatons 91 artce 206(1), Reguatons 90).
revew of court decsons deang wth the threshng of gran
reveas that n some cases ths process has been consdered as essen-
tay ndustra, beng the frst operaton whch changes the form of
the product n the manufacture of four and other gran dervatves.
Other decsons have consdered the operaton as essentay agrcu-
tura snce t s usuay the ast operaton on the farm where the
gran was produced and s essenta to marketng and shppng the
product. owever, the cassfcaton depends upon the condtons
under whch the threshng takes pace. It may be stated as a genera
rue that the threshng of gran s an agrcutura process when t s
carred on by the farmer on whose farm the gran s produced and
when the servces performed n connecton therewth are rendered
by empoyees of such farmer. On the other hand, when such servces
are performed by ndvduas who are not n the empoy of the owner
or tenant of the farm upon whch the gran s produced, the threshng
process s to be regarded as essentay commerca.
ccordngy, where servces are performed n connecton wth the
threshng of gran by empoyees of the owner cr tenant of the farm
on whch the gran s produced, such servces consttute agrcutura
abor wthn the meanng of sectons 11(b) and 907(e) of the
Soca Securty ct and are. therefore, e cepted from empoyment
under Ttes III and I thereof. owever, where the ndvduas
performng such servces are empoyees of an assocaton of farmers
or of any person other than the owner or tenant of the farm on whch
the gran s produced, such servces are not so e cepted.
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297
Regs. 91, rt. 6.
Reguatons 91. rtce 6: grcutura abor. S. S. T. 304
Servces performed by empoyees of the M Company on farms
owned or tenanted by that company In the rasng, harvestng, pack-
ng, and transportng of water cress consttute agrcutura abor
wthn the meanng of sectons 11(b) and 907(c) of the Soca
Securty ct.
dvce s requested whether servces performed by empoyees of the
M Company on farms owned or tenanted by that company n the
rasng, harvestng, packng, and transportng of water cress const-
tute agrcutura abor wthn the meanng of sectons 11(b)
and 907(c) 1 of the Soca Securty ct.
It s stated that the M Company produces water cress n beds,
varyng n sze from 1 to 10 acres, whch are stuated n agrcutura
sectons. The sod s removed from the beds by means of ordnary
spades and shoves and the so s puverzed n preparaton for the
pantng of the water cress seed fter the seeds have been panted,
the beds are fooded wth fresh sprng water. The water s kept at a
unform fow and depth by means of dams. Weeds are removed from
the beds bv hand durng the growng season, fertzer added from
tme to tme, and bare spots covered wth transpanted cress. The
water cress s harvested by cutters, who wade n the water and cut
and te the cress nto sma bunches. The cress s removed to pack-
ng sheds ad|acent to the beds where t s packed n wooden barres.
Ice s paced between ayers of cress as a preservatve and hoes are
bored n the bottom of the barres to dran water formed by the met-
ng ce The barres of water cress are then transported to the near-
est e press staton for shpment to whoesae brokers.
Sectons 11 (b) 1 and 907(c) of the Soca Securty ct provde n
part as foows:
The term empoyment means any servce, of whatever nature,
performed wtbn the Unted States by an empoyee for hs empoyer, eeept
(1) grcutura abor .
The term agrcutura abor ncudes (a) a servces performed
by an empoyee, on a farm of whch the empoyer s owner or tenant,
n connecton wth thp cutvaton of the so and the rasng and
harvestng of crops, and (b) servces performed by an empoyee n
connecton wth the processng, packng, packagng, transportng, or
marketng of artces whch were produced n ther raw or natura
state on a farm of whch the empoyer s owner or tenant. The serv-
ces referred to under (b) do not consttute agrcutura abor,
however, uness the processng, packng, packagng, transportng, or
marketng s carred on as an ncdent to ordnary farmng operatons
a dstngushed from manufacturng or commerca operatons.
(Reguatons 91, artce 6 Reguatons 90, artce 203(1).)
It s hed that servces performed by empoyees of the M Company
on farms owned or tenanted by that company n the rasng, harvest-
ng, and packng of water cress, and aso servces performed by such
empoyees n transportng the water cress to the e press staton, con-
sttute agrcutura abor wthn the meanng of sectons 11(b)
and 907(c) of the Soca Securty ct.
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Regs. 91, rt. 6.
29
Status under Ttes III and I of the Soca Securty ct of
servces performed n connecton wth repar and mantenance
actvtes by empoyees of the M Company on a farm owned and
operated by that company.
dvce s requested whether servces performed n connecton wth
repar and mantenance actvtes by empoyees of the M Company
on a farm owned and operated by that company consttute agr-
cutura abor wthn the meanng of that term as used n Ttes
III and I of the Soca Securty ct.
The M Company owns and operates a arge farm whch s used
soey for agrcutura purposes. number of empoyees are engaged
n specazed repar and mantenance actvtes whch, athough
necessary and essenta to the proper operaton of the farm, are
nevertheess not e cusvey agrcutura n character. Whether such
servces are e cepted from the ta ng provsons of the Soca
Securty ct as agrcutura abor s the queston presented.
grcutura abor, whch s e cepted from empoyment
under Ttes III and I of the ct, ncudes a servces performed
by an empoyee on a farm of whch the empoyer s owner or tenant
n connecton wth the cutvaton of the so, the rasng and harvest-
ng of crops, or the rasng, feedng, or management of ve stock,
bees, and poutry, and aso ncudes servces performed by an em-
poyee n connecton wth the processng, packng, packagng, trans-
portaton, or marketng of materas whch were produced on a farm
owned or tenanted by the empoyer, provded such processng, pack-
ng, packagng, transportaton, or marketng s carred on as an
ncdent to ordnary farmng operatons as dstngushed from man-
ufacturng or commerca operatons. ( rtce 6, Reguatons 91
artce 206(1), Reguatons 90.)
s stated n S. S. T. 125 (C. . 1937-1, 397), where the nature of
the servce s such that t mght propery be sad of the ndvdua
performng t that he s pursung a speca trade, cang, or occupa-
ton not cosey connected wt agrcuture, the servce does not const-
tute agrcutura abor even though the servce may be performed
on a farm by an empoyee of the owner or tenant thereof. ccord-
ngy, t s hed that servces performed n the empoy of the M Com-
pany by engneers, carpenters, pumbers, cement fnshers, panters,
brck masons, weders, surveyors, and eectrcans, who may be sad
to be engaged n a speca trade, cang, or occupaton not cosey
connected wth agrcuture, n connecton wth mantenance and
operaton of ts faun propertes consttute empoyment wthn the
meanng of that term as defned n Ttes III and I of the Soca
Securty ct. On the other hand, servces performed by ordnary
farm aborers empoyed by the M Company n connecton wth such
repar and mantenance of ts farm propertes consttute agr-
cutura abor for purposes of the ta ng provsons of the Soca
Securty ct.
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299
Regs. 91, rt. 10.
Reguatons 91, rtce 10: Offcers and S. S. T. 361
members of crews.
Where ofcers and members of the reguar crew of a vesse owned
by the O Company and documented under the aws of the Unted
States perform servces n connecton wth the ayng-up of such
vesse for the wnter months and the condtonng of t for use
durng the foowng sang season, such servces are e cepted
from empoyment by secton 11(b)5. Tte III, of the Soca
Securty ct.
dvce s requested whether servces performed on a vesse owned
by the O Company durng the ay-up and ft-out seasons are
e cepted from empoyment under secton 11 (b)5, Tte III,
of the Soca Securty ct where such servces are performed by
offcers and members of the vesse s reguar crew.
The vesse n queston s a passenger boat operated on the Great,
Lakes by the O Company and s documented under the aws of the
Unted States. In September of each year t s wthdrawn from
navgaton for the wnter months. The number of crew nem ers
retaned after the vesse ceases to operate s dependent upon the type
of servces whch they perform and the number s decreased graduay
as the dfferent casses of empoyees compete ther assgnments. y
the month of November, the ony remanng members of e crew
are the captan, the chef engneer, and the assstant engneers. The
engneers perform servces unt the 1st of December, whe the cap-
tan of the vesse s engaged for the entre year and s granted a
vacaton durng the months of December and anuary. In ebru-
ary the engneers report back to the vesse for the purpose of con-
dtonng the shp pror to ts beng put nto operaton. Other
members of the crew are caed back as the work progresses and the
ordnary seamen return to the vesse mmedatey pror to the sang
season. The captan of the vesse supervses the ndvduas durng
the ay-up and ft-out seasons. It s hs duty to mantan
proper dscpne among the crew members and to see that the work s
competed n accordance wth the rues and reguatons ssued by
the ureau of Marne Inspecton and Navgaton. The compensaton
of the crew members durng the ay-up and ft-out seasons
remans the same as durng the navgaton season.
Secton 11 (b)5, Tte III, of the Soca Securty ct e cepts
from empoyment
Servce performed as an offcer or member of the crew of a vesse docu-
mented under the aws of the Unted States or of any foregn country .
The e presson offcers and members of the crew ncudes the
master or offcer n charge of the vesse, however desgnated, and every
ndvdua, sub|ect to hs authorty, servng on board and contrbut-
ng n any way to the operaton and wefare of the vesse. (Regua-
tons 91, artce 10.)
It was hed n S. S. T. 221 (C. . 1937-2, 430) that where a docu-
mented vesse s temporary wthdrawn from navgaton n order
to effect repars or because of changes n schedue or other smar
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Regs. 91, rt. 10.
300
reasons, servces performed as watchmen by members of the crew
of such vesse are e cepted from empoyment under sectons 11 (b)5
and 907(c) 3 of the ct.
In S. S. T. 2 3 (C. . 193 -1, 437) an ndvdua was empoyed
durng the ay-up season to act as watchman over the shp and
ts cargo. The vesse was temporary wthdrawn from navgaton
by reason of unfavorabe weather condtons on the Great Lakes
durng the wnter season. owever, snce t appeared that the
reguar crew had been dsbanded (as dstngushed from the facts
n that porton of S. S. T. 221, supra, deang wth temporary wth-
drawa of the vesse from navgaton), t was hed that the ndvdua
was not a member of a crew wthn the meanng of artce 10 of
Reguatons 91.
In the nstant case the vesse s temporary wthdrawn from
navgaton. Whe certan members of the crew are dsmssed from
tme to tme durng the ay-up season, dsbandment of the crew
s not accompshed unt the servces of the engneers termnate at
the. end of November. Durng the ft-out season begnnng n
ebruary, the members of the reguar crew of the former sang
season are reassembed and the new crew to operate the vesse s
formed. urthermore, the subordnate offcers and the members of
the crew are under the supervson of the captan of the vesse durng
the ay-up and ft-out seasons. ppyng the concuson
reached n S. S. T. 221, as set out above, to the facts of the nstant
case, t s concuded that servces performed durng the ay-up
and ft-out seasons by subordnate offcers and members of the
reguar crew of the vesse are e cepted from empoyment under
secton 11 (b)5 of the Soca Securty ct.
In vew of the fact that the captan s engaged on an annua bass,
hs status durng hs vacaton perod, the months of December and
anuary remans that of an offcer of a vesse, and, therefore, re-
muneraton pad to hm n that capacty does not consttute wages
wthn the meanng of Tte III of the Soca Securty ct.
The concuson reached heren aso appes to such servces per-
formed by an offcer or member of the reguar crew of a vesse on
the navgabe waters of the Unted States as provded n secton
907(c)3, Tte I , of the ct.
Reguatons 91, rtce 10: Offcers and members S. S. T. 366
of crews.
Lghter captans, scow captans, bargemen, and other ndvduas
performng servces on board nonsef-propced ghters and barges
owned and operated by the M Company are not otcers or mem rs
of the crew wthn the meanng of sectons 11 (b)5 and 907(c)3
dvce s requested whether servces performed by certan nd-
vduas n the operaton of ghters and barges owned by the M
Company are e cepted from empoyment under sectons 11(b) 5 and
907(c)3 of the Soca Securty ct.
In connecton wth the transportaton of ts products between
certan ponts n and near a harbor, the M Company owns and op-
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301
Regs. 91, rt. 10.
erates nonsef-propeed ghters and barges whch are towed from
pace to pace by tugboats. The ghters and barges are documented
under the aws of the Unted States and operated upon the nav-
gabe waters of the Unted States. Usuay one person, referred
to as a ghter captan, scow captan, or bargeman, s- paced n fu
charge of the craft and ts cargo. The M Company sets forth specfc
and detaed nstructons as to how the servces aboard the ghter
or barge are to be performed. It s the duty of such person to super-
vse the oadng and unoadng of the ghter or barge, to e amne t
for needed repars, to cast off and te up durng voyages, to ook after
the genera wefare of the craft, and to perform a servces nc-
denta to the operaton of the craft e cept the actua oadng and
unoadng operatons. Such ndvdua hods a seaman s certfcate.
The ghters and barges are equpped wth vng quarters n order
that the ndvduas may reman aboard when necessary. Monthy
food aowances are made to the ndvduas operatng the ghters
and barges snce none of such craft has factes for servng meas.
Secton 11(b)5, Tte III, of the ct e cepts from the term
empoyment :
(5) Servce performed as an offcer or member of the crew of a vesse docu-
mented under the aws of the Unted States or of any foregn country .
Secton 907(c)3, Tte I , of the ct e cepts:
(3) Servce performed as an offcer or member of the crew of a vesse on the
navgabe waters of the Unted States .
In S. S. T. 210 (C. . 1937-2, 429) t was hed that barges, usuay
nonsef-propeed but towed by a tugboat, used n the transportaton
of cargoes between varous ponts n and near a harbor are u vesses
wthn the meanng of the above-quoted provsons of the ct. It
s accordngy hed that the ghters, scows, and barges operated by
.he M Company are vesses wthn the meanng of sectons 11(b)5
and 907(c)3 of the Soca Securty ct.
It does not foow, however, from a hodng that the watercraft
o||erated by the M Company are vesses that servces performed
aboard such vesses are such as to brng the ndvduas nvoved
wthn the category of offcers or members of the crew. The
fact that the ndvduas servng on board may hod seamen s certf-
cates s not determnatve of the queston the nature of the partcu-
ar servces nvoved and the crcumstances under whch tney are
performed are the determnng factors.
In Domede et a. v. Lcnoe et a. ( 7 ed. (2d), 296), the court
hed, under facts very smar to those n the nstant case, that the
soe empoyee n charge of a dump scow whch had no means of sef-
propuson, whose dutes were to supervse the oadng and unoadng
thereof, and who was sub|ect to the order of the captan of the tug
whch towed the scow, s nether a master nor a member of the crew
wthn the cause e cudng such persons from the provsons of the
Longshoremen s and arbor Workers Compensaton ct, notwth-
standng the fact that the empoyee ved aboard the scow and made
trps beyond the harbor mts. The pertnent provsons of that ct
are not materay dfferent from the provsons of sectons 11 (b)5
and 907(c) 3 of the Soca Securty ct. (See aso one v. Interna-
tona Mercante Marne Co. et at, 252 pp. Dv., 347, 300 N. Y. S.,
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Regs. 91, rt. 11.
302
23 .) The prncpes apped by the court n determnng whether
an ndvdua was a master or member of the crew of a scow, under
crcumstances bascay smar to those n the nstant case, are con-
sdered to be equay appcabe to the queston here nvoved. Under
the facts presented, t s accordngy hed that where an ndvdua
M Company, such ndvdua s not an offcer or member of the
crew wthn the meanng of sectons 11(b)5 and 907(c)3, supra.
If an ndvdua s not an offcer or member of the crew when
he performs hs dutes on board a vesse aone, he does not become
such merey by the presence of other empoyees on board, and the
smar servces of addtona empoyees woud not be entted to be
cassfed as servces performed by offcers or members of the crew.
(See Moore Dry Dock Co. v. PUUbury et a., 100 ed. (2d), 245.)
On some of the ghters and barges operated by the M Company,
from one to three ndvduas are empoyed aboard each vesse to
perform servces smar to those set forth above. It s hed that
the ndvduas performng such servces for the M Company are
not performng servces as offcers or members of the crew wthn
the meanng of sectons 11(b)5 and 907(c)3 of the Soca Securty
ct, and ther servces are not e cepted from empoyment under
Ttes III and I of the ct by reason of those sectons.
Secton 11: Defntons. 1939-1 -0 16
Reguatons 91, rtce 11: Government empoyees. S. S. T. 362
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
Servces performed by nstructors engaged by te Cty oard
of ducaton pursuant to the provsons of the Oho State pan for
vocatona educaton to conduct enroed tranng casses n the
pant of the O Company are e cepted from empoyment under
sectons S(b)7 and 007(c)6 of the Soca Securty ct. mounts
pad by the () Company to the board of educaton as donatons
toward the nstructors remuneraton do not consttute wages
under Ttes III and I of the ct.
Inqury s made whether servces performed by nstructors engaged
by the N Cty oard of ducaton to conduct tranng casses n the
pant of the O Company consttute empoyment under the Soca
Securty ct, and whether amounts pad by that company to the
N Cty oard of ducaton as donatons toward the remuneraton
of nstructors conductng such tranng casses consttute ta abe
wages under Ttes III and I of the Soca Securty ct.
contract has been entered nto between the N Cty oard of
ducaton and the Oho State oard for ocatona ducaton n
whch the oca board agrees to estabsh and mantan courses of
nstructon n trade and ndustra sub|ects whch w meet the re-
qurements of the Oho State pan for vocatona educaton formu-
ated pursuant to the provsons of the Smth- ughes ct of eb-
ruary 23, 1917 (39 Stat., 929), and the ct of une , 1936 (49 Stat.,
14 ). The State board agrees to remburse the oca board of
educaton for one-haf of the saares pad to nstructors engaged to
conduct such courses.
aboard a ghter or barge of the
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303
Regs. 91, rt. 11.
The ndvduas to whom.payments for servces were made were
n the empoy of the O Company when the program was n-
tated by the N Cty oard of ducaton and were recom-
mended by that company to the oca board of educaton after
conferences wth the dstrct coordnator for the State board for
vocatona educaton. When the nstructors had quafed for and
obtaned teachng certfcates from the State of Oho, they were en-
gaged by the oca board and paced on ts pay ro, the amounts of
ther saares beng determned by that board. The nstructors are
requred to conduct casses n the pant of the O Company and must
teach ther casses n accordance wth the program adopted for the
partcuar pant. The oca board has the rght to dscharge the n-
structors and, n the event the company s dssatsfed wth the resuts
of the work of any nstructor, ts ony recourse s to advse the board
of ts dssatsfacton. The nstructors, n the performance of ther
dutes n the O Company pant, are responsbe ony to the oca
superntendent of schoos and the State board for vocatona edu-
caton. Certan suppes are furnshed by the oca board of edu-
caton and the O Company provdes the premses, toos, equpment,
and a part of the suppes and educatona matera. The remander
of the educatona matera s furnshed by the State board for voca-
tona educaton. The nstructors partcpate n the State teachers
retrement fund. The O Company donates drecty to the oca board
of educaton an amount equa to 50 per cent of the nstructors re-
muneraton. The O Company aso pays to the nstructors amounts
n addton to ther reguar remuneraton for part-tme servces per-
formed n advsng and nstructng empoyees of the company who
are not enroed n the empoyee tranng groups.
Secton 3 of the Smth- ughes ct of ebruary 23, 1917 (39 Stat.,
929), provdes for the appropraton of amounts for use of the States
n payng the saares of teachers of trade, home economcs, and n-
dustra sub|ects. Secton of that ct reads n part as foows:
Sec. . That n order to secure the benefts of the appropraton for any pur-
pose specfed n ths ct, the State board sha prepare pans, showng the
knds of vocatona educaton for whch t s proposed that the appropraton
sha be used the knds of schoos and equpment courses of study methods
of nstructon quafcatons of teachers . Such pans sha be sub-
mtted by the State board to the edera oard for ocatona ducaton, and
f the edera board fnds the same to be n conformty wth the provsons
and purposes of ths ct, the same sha be approved.
Under secton 367-1 of the Oho Genera Code, the State accepts
the provsons of the Smth- ughes ct and, pursuant to ths acton,
has prepared pans as requred by secton , supra. The Oho State
pan for vocatona educaton provdes for the type of nstructon here
nvoved and prescrbes how t sha be conducted.
Under the ta ng provsons of the Soca Securty ct, the term
wages s defned as a remuneraton for empoyment wth an
e cepton under Tte III not here matera. Sectons 11(b) 7 and
907(c)6 of the Soca Securty ct provde n part as foows:
The term empoyment means any servce, of whatever nature,
performed wthn the Unted States by an empoyee for hs empoyer, e cept

Servce performed n the empoy of a State, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca subdvsons.
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Regs. 91. rt. 14.
304
The nstructors engaged to conduct enroed tranng casses n the
pant of the O Company are empoyed pursuant to the provsons of
the Oho State pan for vocatona educaton. They are under the
contro of, and are pad by, the N Cty oard of ducaton. It s hed
that n so far as such nstructors perform servces n conductng the
enroed tranng casses, they are empoyees of the N Cty oard of
ducaton, an nstrumentaty of the State of Oho. Therefore, such
servces are e cepted from empoyment under the provsons of
sectons 11(b)7 and 907(c)6 of the Soca Securty ct, and amounts
pad by the company to the oca board of educaton as a donaton
toward the nstructors remuneraton do not consttute wages un-
der Ttes III and I of the ct. owever, wth respect to part-
tme servces performed by the nstructors for the O Company n
supervsng and nstructng empoyees other than those enroed n the
tranng casses, the nstructors are empoyees of the company and
remuneraton receved by them for such servces consttutes wages
sub|ect to the ta es mposed under Ttes III and I of the ct
Reguatons 91. rtce 14: Wages. S. S. T. 34
Cash aowances for unches pad by the O Company to ts em-
poyees consttute wages wthn the meanng of Ttes III and I
dvce s requested whether cash aowances for unches pad by
the O Company to ts empoyees consttute wages wthn the meanng
of Ttes III and I of the Soca Securty ct.
The O Company pays to each of ts empoyees a cash aowance for
unches n the amount of 4 doars a month. Ths amount s pad
to a empoyees regardess of the mportance of the postons occu-
ped or the vaue of the servces rendered by those to whom the pay-
ments are made, but the empoyees are not requred to use the aow-
ances for the purchase of unches. It s stated that the O Company
has aways adhered to the practce of payng ts empoyees the pre-
vang wage for work of the same character and the furnshng of
unches or the payment of cash aowances s not a part of the contract
of empoyment. The company states that e perence has shown that
furnshng unch money promotes effcency, reduces the oss of work-
ng tme, and assures to each empoyee a whoesome unch every bus-
ness day whch he otherwse mght be ether unwng or unabe to
obtan that t makes t possbe for the empoyees to have ther
unches n groups n restaurants where a whoesome atmosphere
prevas, whch resuts n ncreased effcency and that t s a practca
busness pocy whch produces substanta benefts to the company
as we as to the empoyees.
Sectons 11(a), Tte III, and 907(b), Tte I , of the Soca
Securty ct, defne the term wages as foows:
The term wages means a remuneraton for empoyment, n-
cudng the cash vaue of a remuneraton pad n any medum other than
cash .
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305
Regs. 91, rt. 14.
(Secton 11(a) contans an e cepton not matera here.)
rtce 207, Reguatons 90, promugated under Tte I , contans
the foowng provsons:
Ordnary, factes or prveges (such as entertanment, cafeteras, restau-
rants, medca servces, or so-caed courtesy dscounts on purchases), fur-
nshed or offered by an empoyer to hs empoyees generay, are not consdered
as remuneraton for servces f such factes or prveges are offered or fur-
nshed by the empoyer merey as a convenence to the empoyer or as a means
of promotng the heath, good w, contentment, or effcency of hs empoyees.
rtce 14, Reguatons 91, promugated under Tte III of the
ct, contans provsons whch, whe not dentca, have been gven
a ke nterpretaton.
In S. S. T. 302 (C. . 193 -1, 45G) t was hed that the cash vaue
of unches served by the M Company to ts empoyees dd not con-
sttute wages because n that case t was estabshed that such prac-
tce was for the company s beneft and convenence rather than for
the beneft of ts empoyees and that such practce reduced the dura-
ton of the mdday unch perod, made t possbe to transact more
busness durng the noon hour, and avoded essened effcency due to
procurng unwhoesome and mpropery prepared unches esewhere.
In the present case, however, these purposes are not served by the
mere makng of cash aowances to the empoyees to cover the cost of
ther unches. Whe the practce of furnshng cash aowances for
unches promotes the good w, contentment, and effcency of the em-
poyees and thus resuts n a beneft to the empoyer, yet the same
resut woud be obtaned from a correspondng ncrease n wages.
It s cear n ths case that t can not propery be sad that the pay-
ments n queston are made soey to promote the nterests of the O
Company, as n S. S. T. 302, supra. The rea effect of the aowance
s merey to ncrease by 4 doars a month the amount of compensa-
ton pad to each empoyee.
Under the facts presented, t s hed that the cash aowances for
unches pad by the O Company to ts empoyees consttute wages
wthn the meanng of sectons 11(a) and 907(b) of the Soca
Securty ct.
Reguatons 91, rtce 14: Wages.
Shortages and overages n accounts of mk deverymen.
(See S. S. T. 355, page 315.)
Secton 11: Defntons, 1939-14-9776
Reguatons 91, rtce 14: Wages. S. S. T. 359
Payments made to dscharged empoyees of the M Company
npon ther renstatement pursuant to an order of the Natona
Labor Reatons oard do not consttute wages wthn the
meanng of Ttes III and I of the Soca Securty ct
dvce s requested whether payments made to empoyees of the
M Company, who had been dscharged and who were renstated
pursuant to an order ssued by the Natona Labor Reatons oard,
consttute wages wthn the meanng of Ttes III and I of
the Soca Securty ct,
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Regs. 91, rt. 14.
306
In accordance wth the terms of an agreement entered nto by the
M Company, the O Unon, and the Natona Labor Reatons oard
n connecton wth a dspute as to certan unfar abor practces of the
company, the oard ssued an order requrng, among other thngs,
that the company make payment of stated amounts to certan of ts
empoyees appro matng the oss of pay suffered by them by reason
of ther dscharge, and, wth respect to certan other empoyees, pay-
ment of a sum equa to that whch they normay woud have earned
from the date of ther dscharge to the date or ther renstatement
computed at ther reguar weeky rate of pay.
Wth certan e ceptons not here matera, sectons 11(a) and
907(b) of the Soca Securty ct defne the term wages as a
remuneraton for empoyment, and sectons 11(b) and 907(c) de-
fne the term empoyment as any servce, of whatever nature,
performed wthn the Unted States by an empoyee for hs em-
poyer.
Secton 1 of the Natona Labor Reatons ct (49 Stat., 449) pro-
vdes n part:
It Is hereby decared to be the pocy of the Unted States to emnate the
causes of certan substanta obstructons to the free fow of commerce and to
mtgate and emnate these obstructons when they have occurred by encourag-
ng the practce and procedure of coectve barganng and by protectng the
e ercse by workers of fu freedom of assocaton, sef-organzaton, and desg-
naton of representatves of ther own choosng, for the purpose of negotatng
the terms and condtons of ther empoyment or other mutua ad or protecton.
The term empoyee s defned as foows n secton 2 of that
ct:
The term empoyee sha ncude any empoyee, and sha not be mted
to the empoyees of a partcuar empoyer, uness the ct e pcty states
otherwse, and sha ncude any ndvdua whose work has ceased as a
consequence of, or n connecton wth, any current abor dspute or because
of any unfar abor practce, and who has not obtaned any other reguar
and substantay equvaent empoyment .
In secton certan practces of an empoyer are desgnated as
unfar abor practces, and n secton 10(c) the oard s gven
authorty to ssue orders requrng empoyers to cease and desst from
unfar abor practces, and to take such affrmatve acton, ncudng
renstatement of empoyees wth or wthout back pay, as w effectu-
ate the poces of the ct. Itacs supped.
s ndcated above, for purposes of the Natona Labor Reatons
ct, the term empoyee ncudes any ndvdua whose work has
ceased as a consequence of, or n connecton wth, any current abor
dspute or because of any unfar abor practce, and who has not ob-
taned any other reguar and substantay equvaent empoyment.
owever, t does not foow that the sum of money pad to that n-
dvdua upon renstatement pursuant to an order of the oard con-
sttutes remuneraton for servces performed by an empoyee for hs
empoyer for the purpose of the ta ng provsons of the Soca Se-
curty ct. Such empoyee has actuay performed no servces for
whch such payments are made, and the empoyer has done a wthn
hs power to termnate the empoyment reaton, at east temporary.
urthermore, the ndvdua has no rght to demand any compensa-
ton from the empoyer for that perod and t s wthn the dscreton
of the oard to decde whether renstatement sha be wth or
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307
Regs. 91, rt. 14.
wthout back pay, dependng on the crcumstances n the partcuar
case.
In gwnes, Inc., v. Natona Labor Reatons oard ( 7 ed.
(2d), 146) the court dscussed the nature of such payments as foows
n passng on the queston of whether such an award by order of the
oard consttuted an award of damages wthout a |ury tra:
short an smpe answer to ths contenton s found n the fact that as
between empoyer and empoyee the statute confers no rght of acton trabe by
|ury or otherwse. No provson n t authorzes an empoyee to make cam.
The ct does not purport to confer, t does not confer, prvate rghts.
The procedure the statute outnes s not desgned to award, the orders t
authorzes do not award, damages as such. The proceedng s not, t can not
be made, a prvate one to enforce a prvate rght. It s a pubc procedure
ookng ony to pubc ends. The statute has n mnd the mantenance of n-
dustra amty, and therefore peace, the preventon of ndustra war.
The statute authorzes reparaton orders not n the nterest of tht empoyee,
but n the nterest of the pubc. cease and desst order o eratng retrospec-
tvey s not a prvate award, operatng by way of penaty or of damages. It s
a pubc reparaton order, operatng retrospectvey by way of an order to cease
and desst as to unfar practces from ther begnnng practces as to whch,
because forbdden n the Interest of ndustra amty, and therefore peace, Con-
gress has the rght to eradcate them as from the begnnng.
It s hed that the payments n queston made to empoyees of the
M Company do not consttute remuneraton for servces performed by
an empoyee for hs empoyer, but are payments to the empoyees on
account of unempoyment caused by an unfar abor practce of the
empoyer, whch amounts were not awarded to the empoyees because
they rendered servces to the M Company. ccordngy, such pay-
ments do not consttute wages wthn the meanng of Ttes III
and I of the Soca Securty ct.
Computaton of wages under Tte III of the Soca Securty
ct n the case of a saesman whose e penses e ceed hs comms-
sons durng the ast quarter of a caendar year or durng a quarter
wthn whch he attans the age of 65. S. S. T. 4 (C. . 1937-1,
43 ) ampfed.
dvce s requested whether n cases where the e penses of a saes-
man e ceed hs commssons durng the ast quarter of a caendar year
t s permssbe to deduct such e cess e penses from the commssons
pad to such saesman for servces performed n the frst quarter of
the succeedng caendar year n computng ta abe wages under Tte
III of the Soca Securty ct. Inqury s aso made as to the
method of computng the wages of a saesman who attans the ace of
65 and whose e penses ncurred durng the quarter wthn whch he
attans that age e ceed hs commssons.
In S. S. T. 4 (C. . 1937-1, 43 ) t was hed that where, n any
caendar month after December 31, 1936, the amount of e penses n-
curred by a saesman n hs empoyer s busness and propery accounted
for to hs empoyer e ceeds the commssons actuay or constructvey
d to the saesman for that month, the amount of such e cess shoud
carred over to the foowng month, and that procedure contnued
unt such tme as the tota commssons pad e ceed the tota e penses
reported. The e cess (so computed) of commssons over e penses
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Regs. 91, rt. 14.
30
was hed to consttute wages sub|ect to the ta es mposed under Tte
III of the Soca Securty ct.
The prncpe stated n that rung appes aso n the case of
quartery return perods whch, under Treasury Decson 477 (C. .
1937-2. 374). were provded for n eu of monthy return perods.
Secton 11(a) of the Soca Securty ct provdes as foows:
The term wages means a remuneraton for empoyment, ncudng the
cash vaue of a remuneraton pad n any medum other than cash e cept
that such term sha not ncude that part of the remuneraton whch, after
remuneraton equa to 3,0 ) has heen pad to an ndvdua by an empoyer wth
respect to empoyment durng any caendar year, s pad to such ndvdua by
such empoyer wth respect to empoyment durng such caendar year. Itacs
supped.
The ta es mposed by Tte III of the ct are based upon wages
wth respect to empoyment durng each caendar year begnnng wth
the caendar year 1937. The 3,000 mtaton paced upon the amount
of remuneraton to be ncuded as wages of an empoyee appes ony
when remuneraton receved by an empoyee from the same empoyer
for empoyment durng any one caendar year e ceeds 3,000. The
mtaton reates to remuneraton for empoyment durng any one
caendar year and not to the amount of remuneraton rrespectve of
the year of empoyment) whch s pad and receved In any one ca-
endar year. ( rtce 14, Reguatons 91.) In determnng the amount
of wages sub|ect to ta , the aw and reguatons contempate that each
caendar year s to be treated as a unt, and that any e penses ncurred
by an empoyee n the busness of hs empoyer whch are propery
deductbe from wages pad to or receved by the empoyee wth respect
to servces performed n a partcuar caendar year must aso have
been ncurred n connecton wth the servces performed durng that
year.
ccordngy, t s hed that where n any quarter, e cept the ast
quarter of a caendar year, the amount of e penses ncurred by a saes-
man n hs empoyer s busness and propery accounted for to hs
empoyer e ceeds the tota remuneraton actuay or constructvey
pad to such saesman for that quarter, the amount of such e cess may
be carred over to the foowng quarter and added to the e penses
ncurred dm ng that quarter n computng the saesman s wages under
Tte III of the ct. Ths procedure may be contnued unt such
tme as the tota remuneraton pad e ceeds the tota e penses so
accumuated, or unt the ast quarter of the caendar year, whchever
frst occurs but the e penses ncurred n one year may not be carred
forward to the succeedng year. It s further hed that where n the
ast quarter of a caendar year the tota amount of e penses so accumu-
ated e ceeds the amount of remuneraton actuay or constructvey
pad to the saesman by hs empoyer for that quarter, the saesman s
wages for the entre year may be recomputed by deductng the tota
e penses ncurred by such saesman wthn the caendar year and
propery accounted for to hs empoyer from the tota remuneraton
pad for servces performed wthn such year. The overpayment of
ta , f any, found to have been made may be ad|usted n accordance
wth the provsons of artces 502(b) and 503(b) of Reguatons 91.
If no ad|ustment can be made, a cam for credt or refund of the
amount of overpayment may be fed n accordance wth the provsons
of artce 504 of Reguatons 91.
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309
Regs. 91, rt. 16.
It s further hed that where a saesman attans the age of 65, the
amount of e penses ncurred by hm durng the quarter wthn whch
he attans that age shoud be deducted from the commssons actuay
or constructvey pad to hm for servces performed durng that
perod n computng hs wages for the quarter. If the tota of such
e penses e ceeds the commssons pad, a cam for credt or refund
of any overpayment of ta found to have been made wth respect
to the ndvdua s remuneraton for the caendar year may be fed
n accordance wth the provsons of artce 504 of Reguatons 91.
Reguatons 91, rtce 16: Items ncuded as S. S. T. 349
wages.
Where an empoyee of the M Company receves a Unted States
savngs bond as a bonus, the vaue of the bond when receved con-
sttutes wages for the purpose of Ttes III and I of the Soca
Securty ct.
dvce s requested whether bonuses n the form of Unted States
savngs bonds pad to certan empoyees by the M Company consttute
wages wthn the meanng of Ttes III and I of the Soca
Securty ct, and, f so, the amount to be ncuded n computng the
empoyees wages for the purpose of the ta es mposed by those
ttes.
Secton 01, Tte III, of the Soca Securty ct provdes that
there sha be eved, coected, and pad upon the ncome of every
ndvdua a ta equa to a specfed percentage of the wages (as de-
fned n secton 11) receved by hm after December 31, 1936, wth
respect to empoyment (as defned n secton 11) after such date.
Secton 04 eves an e cse ta on every empoyer wth respect to
havng ndvduas n hs empoy, whch s measured by the amount
of wages pad by hm after December 31, 1936, wth respect to em-
poyment after that date. Secton 901 of the Soca Securty ct
mposes an e cse ta on empoyers wth respect to havng ndvd-
uas n ther empoy. The measure of the ta mposed by that sec-
ton s the tota amount of wages payabe by an empoyer wth respect
to empoyment durng the caendar year regardess of the tme of
actua payment.
The empoyees ta mposed by secton 01 attaches at the tme
the wages are ether actuay or constructvey receved, and the
empoyers ta mposed by secton 04 attaches at the tme such wages
are ether actuay or constructvey pad. The term wages means
a remuneraton for empoyment sub|ect to a mtaton not here
appcabe. The medum n whch the remuneraton s pad s mma-
tera. (Reguatons 91, artce 14.) Where pad as an tem other
than money, the wages are computed on the bass of the far vaue
of such tem at the tme of payment. (Reguatons 91, artce 16.)
It s hed that the bonuses pad by the M Company n Unted
States savngs bonds consttute wages wthn the meanng of Ttes
UI and I of the Soca Securty ct, and that the amount to be
ncuded n computng the tota wages for the purpose of the ta es
mposed by those ttes s the vaue of the bonds at the tme they are
receved by the empoyees and/or become ther unrestrcted property.
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Regs. 90, rt. 211.) 310
TITL I . T ON MPLOY S O IG T OR MOR .
Secton 901: Imposton of ta .
Reguatons 90, rtce 200: Nature of ta .
Coectbty of soca securty ta es from certan nsovent banks
and trust companes. (See Mm. 4 2, page 2 3.)
Secton 902: Credt aganst ta . 1939- -9724
Reguatons 90, rtce 211: Credt of contr- S. S. T. 353
butons aganst ta .
Contrbutons requred of empoyees under secton 7(d) 1 of the
entucky Unempoyment Compensaton Law of 193 , when tmey
pad by the empoyer nto the unempoyment compensaton fund
of that State wthout deducton from the wages of hs empoyees,
are sub|ect to credt under secton 902, Tte I , of the Soca
Securty ct.
dvce s requested whether contrbutons requred of empoyees
under secton 7(d) of the entucky Unempoyment Compensaton
Law of 193 , when tmey pad by the empoyer nto the unempoy-
ment compensaton fund of that State wthout deducton from the
wages of hs empoyees, are sub|ect to credt by the empoyer under
secton 902, Tte I , of the Soca Securty ct aganst the ta
mposed by secton 901 thereof.
It s stated that , the empoyer, made payments of wages to cer-
tan of hs empoyees wth respect to empoyment durng the caendar
year 193 wthout wthhodng from such payments or the ne t suc-
ceedng payment the amount of the empoyees contrbutons re-
qured under the provsons of the entucky Unempoyment
Compensaton Law of 193 . The amount of such contrbuton, n
addton to other contrbutons requred from the empoyer, was
pad by the empoyer nto the State fund pror to the date on whch
the return ( orm 940) for the caendar year 193 was requred to
be fed under the provsons of Tte I of the Soca Securty ct.
The entucky Unempoyment Compensaton Law of 193 requres
contrbutons to the State fund by empoyees n addton to contr-
butons by empoyers. The empoyer s made abe for such em-
poyees contrbutons and may wthhod the amount thereof from
the wages of hs empoyees at the tme such wages are pad, or
at the tme wages for the ne t pay ro perod are pad, but there-
after he aone s abe for payment. Secton 7(d) 1 of the en-
tucky Unempoyment Compensaton Law of 193 provdes n part as
foows:
ach worker sha contrbute to the pooed account one (1) per centum of
hs wages pad by a sub|ect empoyer wth respect to hs covered empoyment
whch occurs after December 31, 1937 . ach sub|ect empoyer sha
be abe for hs worker s contrbutons and may. notwthstandng any prov-
son of the aw n ths State to the contrary, wthhod n trust the amount of
hs workers contrbutons from ther wages at the tme such wages are
pad . If any sub|ect empoyer fas to deduct the contrbutons of
any of hs workers at the tme ther wages are pad, or fas to make a deduc-
ton therefor at the tme wages are pad for the ne t succeedng payro
perod, he aone sha thereafter be abe for such contrbutons, but for the
purpose of secton hereof, such contrbutons sha be treated as a sub|ect
empoyer s contrbutons requred from hm.
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311
Regs. 90, rt. 211.
Secton of that act provdes for the mposton of penates on
past due contrbutons, for the coecton thereof by cv acton, for
prortes n any dstrbuton of a sub|ect empoyer s assets, and for
the procedure as regards ad|ustment and refunds.
Secton S02, Tte I , of the Soca Securty ct provdes as
foows:
The ta payer may credt aganst the ta mposed by secton 901 the
amount of contrbutons, wth respect to empoyment durng the ta abe year,
pad by hm (efore the date of fng hs return for the ta abe year) nto
an unempoyment fund under a State aw. The tota credt aowed to a
ta payer under ths secton for a contrbutons pad nto unempoyment funds
wth respect to empoyment durng such ta abe year sha not e ceed 90
per centum of the ta aganst whch t s credted . Itacs supped.
Secton 907(f) of the same ct defnes contrbutons as foows:
The term contrbutons means payments requred by a State aw to be
made by an empoyer nto an unempoyment fund, to the e tent that such
payments are made by hm wthout any part thereof beng deducted or de-
ductbe from the wages of ndvduas n hs empoy. Itacs supped.
It s cear from the provsons of the entucky aw quoted above
that the empoyer s payment of the amount of any empoyee s contr-
butons not deducted from such empoyee s wages wthn the tme
provded theren s thereafter a payment requred by the entucky
aw. y the terms of the statute the empoyer aone s thereafter
abe for such contrbutons. Thereafter, too, t s soey aganst hm
that penates for denquent payment w be assessed and suts
for coecton drected and t s soey by hm that any cams for
ad|ustment or refund w be nsttuted and to hm that any pay-
ment thereon w be made. or a of these purposes such contrbu-
tons, by the terms of the statute, are to be treated as a sub|ect em-
poyer s contrbutons requred from hm. urthermore, these
vments are not vountary contrbutons wthn the meanng of
S. T. 323 (C. . 193 -2, 327), merey because the empoyer has
waved the rght he had n the frst nstance of deductng the amount
of such payments from the wages of hs empoyee. Moreover, no
payment by the empoyer of the amount of an empoyee s contrbuton
at any tme after the abty therefor has become the soe abty
of such empoyer (and thus under the terms of the entucky act a
requred payment) s, accordng to the provsons of that act. de-
ductbe from the wages of such empoyee. Inasmuch as payments
by the empoyer of the type here under consderaton are payments
requred to be made by the empoyer by the entucky Unempoy-
ment Compensaton Law of 193 , and nasmuch as such payments
are made wthout beng deducted or deductbe from the wages of
hs empoyees, t s concuded that these payments are contrbutons
as defned n secton 907(f) of the Soca Securty ct for the purpose
of the credt aowed under secton 902 of the ct.
ccordngy, empoyee contrbutons when pad under secton
7(d) 1, supra, by an empoyer sub|ect to the entucky Unempoy-
ment Compensaton Law of 193 nto the unempoyment compensa-
ton fund of that State (before the date of fng hs return for the
ta abe year), no deducton beng made from the wages of hs em-
poyees, are sub|ect to credt by the empoyer under secton 902,
Tte I , of the Soca Securty ct aganst the ta mposed by sec-
ton 901 thereof.
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Regs. 90, rt. 205. 312
Reguatons 90, rtce 204: Who are empoyers.
Servces performed n wndng up affars of dssoved partnershp.
(See S. S. T. 354. page 294.)
Reguatons 90, rtce 205: mpoyed ndvduas.
Indvduas performng servces for the O Theater. (See S. S. T.
350, page 2 5.)
Truckers and ndvduas engaged bv them to harvest vegetabes for
M Company. (See S. S. T. 351, page 2 6.)
Secton 907: Defntons. 1939- -9722
Reguatons 90, rtce 205: mpoyed ndvduas. Mn. 4 0
Status under Tte I of the Soca Securty ct of houorary
offcers of corporatons. S. S. T. 150 (C. . 1937-1, 460) revoked
aso status of rtuastc offcers of fraterna organzatons under
Ttes III and I .
Washngton, D. C, ebruary 4, 1939.
The ureau has had occason to reconsder the rung pubshed
as S. S. T. 15 ) (C. . 1937-1, 400) whch hods that n determnng
the tota number of empoyees for purposes of the ta mposed by
Tte I of the Soca Securty ct, honorary offcers of a corpora-
ton, who functon ony as drectors and receve no compensaton as
offcers or drectors, shoud be ncuded. (The queston of the status
of uncompensated honorary offcers s of no mportance n connec-
ton wth Tte III of the ct snce the ta es mposed by that tte
are measured by the amount of wages pad and receved, ether
actuay or constructvey, and are appcabe to empoyers of one
or more and to ther empoyees.)
Secton 9 )1. Tte I , of the Soca Securty ct provdes n part:
On and after anuary 1, 19:56, every empoyer (as defned In secton 907)
s pay for each caendar year an e cse ta , wth respect to havng nd-
vduas n hs empoy, equa to the foowng percentages of the tota wages
(as defned In secton 907) payabe by hm (regardess of the tme of pay-
ment) wth respect to empoyment (as defned n secton 907) durng such
caendar year: .
Secton 907, Tte I , of the Soca Securty ct provdes n part:
(a) The term empoyer does not ncude any person uness on each of
some 20 days durng the ta abe year, each day beng n a dfferent caendar
week, the tota number of ndvduas who were n hs empoy for some porton
of the day (whether or not at the same moment of tme) was or more.

(c) The term empoyment means any servce, of whatever nature, per-
formed wthn the Unted States by an empoyee for hs empoyer, .
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313
Regs. 90, rt. 205.
Secton 1101 (a) of the ct provdes n part:
(4) The term corporaton ncudes assocatons, .

(6) The term empoyee ncudes an offcer of a corporaton.
It has been concuded after further consderaton of the matter
that an honorary offcer of a corporaton may not, n any rea sense,
be regarded as an offcer wthn the contempaton of secton 1101 (a)o
of the ct. In determnng whether ths concuson appes n any
partcuar nstance, however, t s necessary frst to decde whether the
ndvdua nvoved s n fact an honorary offcer. Whe ths de-
cson must n turn rest upon a consderaton of the facts n each
specfc case wth respect to whch the queston arses, n genera t
w be consdered that an offcer of a corporaton s an honorary
offcer wthn the meanng of the foregong rue f (1) he s specfcay
desgnated an honorary offcer (2) such desgnaton s soey to do hm
honor or to have hm ncuded n the organzaton because of hs
name, promnence, or standng n the communty (3) t woud not
ordnary be necessary to f hs offce shoud he de or resgn (4) as
such offcer, he does not actuay perform any servce and s not re-
qured or e pected to perform any and (5) as such offcer, he does
not receve, and s not entted to receve, remuneraton. If t s de-
termned, upon a consderaton of these factors, that an ndvdua s
reatonshp to a corporaton s n fact soey that of an honorary
offcer, he s not an empoyee of the corporaton for purposes of
Tte I of the Soca Securty ct and shoud not be ncuded n
determnng whether the corporaton s an empoyer of eght or more
so as to be sub|ect to the ta mposed under that tte.
Reconsderaton of the rung pubshed n Cumuatve uetn
1937-1, 4 0, as S. S. T. 150, resuts n a determnaton, on the bass
of the concusons stated above, that such rung s erroneous. ccord-
ngy, S. S. T. 150 s hereby revoked.
RITU LISTIC O IC RS O R T RN L ORG NIZ TION S.
The ureau has aso gven consderaton to the queston of whether
offcers of fraterna organzatons, whose dutes are e cusvey rtua-
stc, are to be consdered empoyees for purposes of Ttes III
and I of the Soca Securty ct.
The concuson has been reached n these cases that rtuastc serv-
ces, as such, do not consttute servce wthn the meanng of that
term as used n sectons 11 (b) and 907 (c) of the ct and accordngy
that those offcers whose dutes and actvtes are e cusvey rtuasto
are not, n the performance of such dutes and actvtes, to be con-
sdered as beng n an empoyment for purposes of Ttes III and
I of the ct. In determnng whether or not servces are e cusvey
rtuastc wthn the meanng and ntent of the foregong rue, nc-
denta noncompensated admnstratve servces may be gnored. Un-
der ths rue the ta es mposed under Ttes III and I of the ct
attach ony wth respect to the compensaton of those offcers whose
servces are not e cusvey rtuastc and ony such offcers are to be
counted for the purpose of determnng whether the organzaton s
an empoyer of eght or more ndvduas so as to be sub|ect to the
ta mposed under Tte I of the ct
172176 39 pt. 1 11
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Regs. 90, rt. 206(1). 314
Correspondence and nqures n regard to the contents of ths
mmeograph shoud refer to ts number and to the symbos C:RR.
Gut T. evernq,
Commssoner.
gh schoo students paced n vocatona tranng. (See S. S. T.
356, page 2 .)
Shearng crews. (See S. S. T. 360, page 290.)
ssocate physcans renderng servces n cnc. (See S. S. T.
363, page 291.)
God professona. (See S. S. T. 367, page 293.)
Reguatons 90, rtce 206(1): grcutura abor.
Servces performed n harvestng vegetabes. (See S. S. T. 351,
page 2 6.)
Servces performed n the operaton of a dary. (See S. S. T. 357,
page 294.)
Threshng of gran. (See S. S. T. 35 , page 295.)
Servces performed n rasng, harvestng, packng, and transport-
ng water cress. (See S. S. T. 364, page 297.)
Servces performed n connecton wth the repar and mantenance
of farm propertes. (See S. S: T. 36 , page 29 .)
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315
Regs. 90, rt. 207.
Reguatons 90, rtce 206(3) : Offcers and members of crews.
Offcers and members of the crew on vesse durng ay-up and
ft-out seasons. (See S. S. T. 361, page 299.)
Reguatons 90, rtce 206(3): Offcers and members of crewg.
Indvduas performng servces on board nonsef-propeed ght-
ers and barges. (See S. S. T. 366, page 300.)
Reguatons 90, rtce 206(5)-(6): Government empoyees.
Instructors conductng tranng casses organzed pursuant to the
Oho State pan for vocatona educaton. (See S. S. T. 362, page
302.)
Cash aowances for unches pad by the O Company to ts em-
poyees. (See S. S. T. 34 , page 304.)
Computaton of wages under Tte I of the Soca Securty
ct n the ca e of mk deverymen where deductons from, or ad-
dtons to, ther reguar remuneraton are made due to short-
ages or overages n ther accounts.
dvce s requested whether shortages or overages n the ac-
counts of mk deverymen shoud be taken nto consderaton n
the computaton of wages payabe to such deverymen for the
purpose of Tte I of the Soca Securty ct.
It s stated that a certan creamery s engaged n the retang
of dary products and empoys a number of mk deverymen. The
deverymen frequenty have shortages or overages n ther
accounts due to errors n makng change and smar reasons. Pur-
suant to an agreement, whch forms an ntegra part of the contract
of empoyment, such shortages or overages are charged or
credted to the account of the ndvdua deveryman and are de-
ducted from, or added to, hs reguar pay. or e ampe, a certan
deveryman may receve a saary of 10 doars per month and be
charged durng a gven month wth a shortage of doars n hs
account. The net amount receved by hm for such month woud,
therefore, be 9a doars. Or, n another month, there may be an
u overage of w doars and the amount pad to hm woud be
doars. The queston for determnaton s the bass to be used n
computng the wages of such deverymen.
The term wages as defned under secton 907(b) of the Soca
Securty ct ncudes a remuneraton for empoyment. rtce
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Regs. 90, rt. 209.
316
207 of eguatons 90, appcabe to Tte I , provdes that the bass
upon whch the remuneraton s payabe, the amount of remunera-
ton, and the tme of payment, are mmatera n determnng whether
the remuneraton consttutes wages.
Where under the contract of empoyment between the empoyer
and the deverymen t s provded that deductons from, or add-
tons to, the reguar remuneraton of such deverymen w be made
n cases of shortages or overages n ther accounts, t s hed
n computng the ta abe wages of the deverymen, for the pur-
pose or Tte I of the Soca Securty ct, that ony the amount
actuay payabe to such empoyee durng the caendar year shoud
be ncuded (that s, saary mnus shortages, pus overages ).
Thus, n the e ampe above outned, t s hed where a net amount
of 9a doars s payabe to a deveryman for one month and 11a
doars for another month, hs reguar remuneraton beng 10a doars
per month, and where the defcency and e cess are due, respectvey,
to a shortage and an overage n hs account, the ta abe
wages of such empoyee are 9 doars and 11a doars, respectvey,
for those months. Ths concuson s equay appcabe under Tte
III of the ct.
Payments made to dscharged empoyees upon renstatement by
order of the Natona Labor Reatons oard. (See S. S. T. 359,
page 305.)
Reguatons 90, rtce 209: Items ncuded as wages.
Payment of bonuses n Unted States savngs bonds. (See S. S. T.
349, page 309.)
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317 Regs. 100, rt. Z
C RRI RS T ING CT O 1937.
Reguatons 100, ktce 2: Who are empoyers. C. T. 16
The M ospta ssocaton, whch s mantaned by the O Ra-
road Co., a carrer as defned n secton () of the Carrers
Ta ng ct of 1937, and whch was ncorporated to suppy hospta-
zaton and treatment to empoyees of the raroad, s ah empoyer
wthn the meanng of secton 1(a) of that ct.
dvce s requested whether the M ospta ssocaton s an em-
pover wthn the meanng of secton 1 (a) of the Carrers Ta ng
ct of 1937.
The M ospta ssocaton (herenafter caed the assocaton)
was ncorporated to suppy hosptazaton and treatment for em-
poyees of the O Raroad Co. (herenafter caed the raroad) and a
number of ts subsdares. The assocaton s governed by a board
of trustees consstng of s members, a of whom are empoyees of
the raroad and four of whom are offcas of the raroad. The four
raroad offcas became members of the board by reason of ther pos-
tons wth the raroad, whe the other two trustees are eected by
members of the assocaton. ve of the eght offcers of the assoca-
ton are raroad offcas. The assocaton mantans hosptas and
staffs of surgeons and physcans at varous ponts on the nes of the
raroad system. The hospta ands and budngs are owned by the
raroad and medca servces and treatment at such hosptas are con-
fned to empoyees of the raroad. unds for carryng on the actv-
tes of the assocaton are derved from contrbutons by the raroad
empoyees. The raroad does not contrbute any defnte sum to the
assocaton but has furnshed and equpped some of the hosptas and
has haued materas and suppes wthout charge. It provdes free
transportaton for empoyees of the assocaton.
rtce 2 of Reguatons 100, promugated under secton 1(a) of the
Carrers Ta ng ct of 1937, provdes n part as foows:
ach of the foowng persons Is an empoyer wthn the meanng of the
ct-
Co) ny carrer, that s, any e press company, seepng-car company, or
carrer by raroad, sub|ect to Part I of the Interstate Commerce ct.
(6) ny company whch
(1) s drecty or Indrecty owned or controed by one or more em-
poyers as defned n paragraph (a) of ths artce, or under common con-
tro therewth, and
(2) operates any equpment or facty or performs any servce (e cept
truckng servce, casua servce, and the casua operaton of equpment or
factes) n connecton wth
( ) the transportaton of passengers or property by raroad, or
( ) the recept, devery, eevaton, transfer n transt, refrgera-
ton or cng, storage, or handng of property transported by raroad.
s used above n ths artce
The term controed Incudes drect or ndrect contro, whether egay
enforceabe and however e ercsabe or e ercsed. The contro may be by
means of stock ownershp, or by agreements, censes, or any other devces whch
Insure that the operaton of the company s n the nterests of one or more
carrera It Is the reaty of the contro, however, whch s decsve, not ts
form nor the mode of ts e ercse.
It appears that the O Raroad Co., whch s a carrer as defned
n secton () of the Carrers Ta ng ct of 1937, has a ma|orty
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Regs. 100, rt. 3.
31
membershp on the assocaton s board of trustees, and that, of the
eght offcers of the assocaton, fve are offcas of the raroad. These
factors, together wth the fact that the raroad owns the hospta
budngs and the and on whch they are ocated, ndcate that the
assocaton s controed by a carrer (. e. the O Raroad Co.)
wthn the meanng of the above-quoted provsons of the reguatons.
It remans to be determned whether the assocaton s operatng
any equpment or facty or performng any servce (whch s or
the type not e cepted by the ct) n connecton wth the transporta-
ton of passengers or property by raroad.
The Interstate Commerce Commsson has hed that propertes
owned by raways and used for hosptas for ther empoyees are
Interstate Commerce ct, the Commsson s drected, n evauatng
raway propertes for rate-makng and recapture purposes, to nves-
tgate and report separatey property owned or used by sad com-
mon carrer for ts purposes as a common carrer and property
hed for purposes other than those of a common carrer. (Cf.
secton 19a(b). rst and Thrd Interstate Commerce ct.) Under
that secton, the Commsson ponted out n the case of the Pennsy-
vana Raroad Co. et a. (1929) (22 I. C. C. a. Rep., 1), that
ands owned and used by carrers for hosptas are cassfed as car-
rer ands. Whe t may be argued that the words for common-
carrer purposes do not have the same meanng as the words In
connecton wth the transportaton of passengers or property by
raroad, nevertheess the decded cases furnsh persuasve authorty
for the vew that under the crcumstances stated, the assocaton n
queston s performng servces n connecton wth the transportaton
of passengers or property by raroad. urthermore, t s obvous
that the heath and we-beng of raway empoyees bear a fary
cose reatonshp to the safety and effcency of raway transporta-
ton. Low cost treatment, such as that afforded by the assocaton,
tends to nsure mmedate dscosure of nesses and n|ures whch
may resut n genera transportaton neffcency and proper hosp-
tazaton heps to promote the eary return of ncapactated empoy-
ees to ther posts of duty.
In vew of the foregong, t s hed that the furnshng of hospta-
zaton and treatment for the n|ures and sckness of raway em-
poyees under the crcumstances above descrbed consttutes the per-
formance of a servce n connecton wth the transportaton of pas-
sengers or property by raroad wthn the meanng of the ct.
ccordngy, the M ospta ssocaton s an empoyer wthn
the meanng of secton 1 (a) of the Carrers Ta ng ct of 1937.
Reguatons 100, rtce 3: Who are empoyees. C. T. 15
, an attorney engaged by the M Raway Co. and pad a retaner
fee to serve as counse for the company In the State of R. s not
an empoyee of that company wthn the meanng of the Carrers
Ta ng ct of 1937.
dvce s requested whether , an attorney who renders servces
to the M Raway Co., s an empoyee of that company under the
Carrers Ta ng ct of 1937.
used for
. Under secton 19(a) of the
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319
IRega. 100, rt. 3.
The attorney s engaged n the practce of aw n the State of R,
mantanng hs own offce and suppyng t wth a necessary equp-
ment at hs own e pense. Under a wrtten contract wth the M Ra-
way Co. (herenafter caed the company), he agrees to serve as coun-
se for the company n a ts matters n the State of R as and when
requred by any e ecutve offcer of the company and sub|ect to the
genera drecton of ts genera counse. e receves the amount of a
doars a month to cover retaner, assstance n makng settements,
drawng contracts and other documents, and for other servces e cept
those n connecton wth the prosecuton or defense of tgaton. or
such servces he s pad reasonabe fees to be approved by the company s
genera counse, consderaton beng gven to the fact that he receves
a retaner fee. nforms the genera counse of the company as to
matters handed by hm, keepng a st of a tgaton entered nto,
and must, as and when requested, furnsh the genera counse nforma-
ton showng the status of the same. e s not requred to gve prefer-
ence to the work of the company over the work handed by hm for
others, and s not requred to devote any partcuar amount of tme
to the servce of the company, nor s he requred to conform to f ed
hours of empoyment. The contract s sub|ect to termnaton at any
tme by ether of the partes gvng to the other 10 days wrtten notce.
Secton 1 of the Carrers Ta ng ct of 1937 provdes n part as
foows: (b) The term empoyee means any person n the servce
of one or more empoyers for compensaton . Secton 1(d)
of the ct provdes n part that, n ndvdua s n the servce of
an. empoyer whether hs servce s rendered wthn or wthout the
Unted States f he s sub|ect to the contnung authorty of the em-
poyer to supervse and drect the manner of rendton of hs servce,
whch servce he renders for compensaton .
rtce 3(a) of Reguatons 100 reads n part as foows:
It Is not necessary that the empoyer actuay drect or contro the
manner In whch the servces are performed It s suffcent f the empoyer
has the rght to do so. The rght of an empoyer to dscharge an ndvdua
s aso an mportant factor ndcatng that the ndvdua s an empoyee.
Other factors ndcatng that an ndvdua Is an empoyee are the furnshng
vt toos and the furnshng of a pace to work by the empoyer to the Indvdua
who performs the servces. In genera, f an ndvdua s sub|ect to the con-
tro or drecton of an empoyer merey as to the resut to be accompshed
by the work and not as to the means and methods for accompshng the resut,
he s an Independent contractor. n Indvdua performng servces as an
Independent contractor s not, as to such servces, an empoyee wthn the
meanng of the ct.
Generay, an ndvdua performng servces for an empoyer as defned In
secton 1(a) as a physcan, awyer, dentst, veternaran, contractor, subcon-
tractor, pubc stenographer, or auctoneer, who foows an ndependent pro-
fesson, trade, or busness, In whch he offers hs servces to the pubc, s an
Independent contractor. Indvduas foowng the cangs mentoned may,
however, be empoyees.
Whether or not an Indvdua Is an empoyee w be determned upon an
e amnaton of the partcuar facts of the case.
In the present case t appears that the attorney n queston man-
tans hs own offce and pays a e penses ncdent thereto. The com-
pany has no authorty to reguate hs hours of work or to requre
that he devote a certan amount of tme to the company s busness.
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Regs. 100. rt. 6.
320
e carres on hs own prvate practce n addton to servces ren-
dered by hm for the company, and the company has no authorty to
requre hm to gve preference to the work done for t. It s stated
that the stpuaton n the contract that he s to work sub|ect to the
drecton of the genera counse merey means that the genera counse
w drect hm as to what cases he w hande and advse hm when
the company s wng to compromse n order to avod a sut and
as to other genera questons of pocy. The retenton of ths meas-
ure of contro does not substantay dmnsh hs authorty to work
accordng to hs own methods, usng hs dscreton and e ercsng hs
professona |udgment. It thus appears that the company has not
retaned contro over the manner and method to be empoyed by hm
n dong hs work but the contro retaned reates ony to what sha
be done.
Under the facts presented, t s hed that the M Raway Co. nether
e ercses, nor has the rght to e ercse, the degree of contro over
the actvtes of whch woud consttute hm an empoyee under
the provsons of secton 1(d) of the Carrers Ta ng ct of 19S7 and
artce 3 of Reguatons 100. ccordngy, s not an empoyee of
the M Raway Co. for the purpose of that ct, (Cf. S. S. T. 6,
C. . 1937-1, 462 S. S. T. 240, C. . 1937-2, 403 S. S. T. 271, C. .
193 -1, 409 S. S. T. 291, C. . 193 -1, 416.)
Reguatons 100, ktce 6: Items ncuded as C. T. 14
compensaton.
mounts deducted from the remuneraton of the empoyees of the
M Company to pay for swtchmen s anterns and hand toos pur-
chased by the empoyees and used In nformng ther servces for
the company do not consttute compensaton wthn the meanng
of secton 1(e) of the Carrers Ta ng ct of 1937.
dvce s requested whether amounts deducted from the remunera-
ton of empoyees of the M Company to pay for swtchmen s anterns
and hand toos consttute ta abe compensaton wthn the mean-
ng of secton 1 (e) of the Carrers Ta ng ct of 1937.
The empoyees of the M Company obtan from, and pay the com-
pany for, swtchmen s anterns and hand toos for use n the per-
formance of ther servces. The cost of these tems s deducted
from the empoyee s remuneraton. The toos generay used by the
empoyees are hammers, chses, wrenches, etc. The tota vaue of
such equpment used by each empoyee s appro matey 12a doars,
and the equpment s used about fve years before repacement s
necessary. The ma|orty of the toos are used by the empoyee
e cusvey n the performance of hs servces for the M Company.
These tems are the property of the empoyee and are retaned by
hm upon the termnaton of ns empoyment.
Secton 1(e) of the Carrers Ta ng ct of 1937 provdes n part
as foows:
The term compensaton means any form of money remuneraton
earned by an Indvdua for servces rendered as an empoyee to one or mora
empoyers, .
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321
Regs. 100, rt. 606.
rtce 6 of eguatons 100 provdes n part as foows:
The foowng Items are Incuded In compensaton wth respect to
empoyees and n anaogous stuatons wth respect to empoyee representatves

(c) owance or rembursement for traveng or other e penses ncurred n
the busness of the empoyer to the e tent of the e cess of such amount, f any,
orer such e penses actuay ncurred and accounted for by the empoyee.
It s hed that amounts deducted by the M Company from the re-
muneraton of ts empoyees to pay for the swtchmen s anterns and
hand toos n queston, used n connecton wth ther empoyment
wth that company, do not consttute compensaton wthn the
meanng of secton 1(e) of the Carrers Ta ng ct of 1937.
Secton 7: Coecton and payment of ta es. 1939-2-9GG
Reguatons 100, rtce 506: Payment of ta . Ct. D. 1376
T ON C RRI RS C RRI RS T ING CT OP 1037 R ILRO D R TIR M NT
CTS O 1935 ND 1937 D CISION O SUPR M COURT.
In|uncton n quty nforcement ganst aboad
of Raboad Retrement cts and Carrers Ta ng ct.
The State of Caforna s not entted to an In|uncton to restran
the enforcement of the Raroad Retrement cts of 35 and 1937
and the Carrers Ta ng ct of 1937 aganst a raroad owned and
operated by the State n nterstate commerce. There was adequate
opportunty to test at aw the appcabty and consttutonaty
of these cts of Congress, no danger s shown of Irreparabe n|ury
f that course s pursued, and the b s wthout equty.
The State of Caforna v. Murray . Latmer et a.
305 U. S., 255.
December 6, 193 .
opnon.
Mr. ustce randes devered the opnon of the Court.
Caforna owns the raroad aong the San rancsco water front known as
State et Raroad, and operates t n nterstate commerce. (Sherman v.
nUed tates, 2 2 U. S., 25 Unted States v. Caforna, 297 U. S., 175.) On
eave granted (304 U. S., ), the State fed n ths Court ths b aganst
the members of the Raroad Retrement oard and the Commssoner of Inter-
na Revenue, Indvduay and n ther offca capactes, to en|on them from
enforcng aganst that raroad provsons of the cts of Congress known as the
Raroad Retrement cts of 1935 and 19371 and of the Carrers Ta ng ct of
1937.
The b rectes that Caforna has a State empoyees retrement system sus-
taned by a fund to whch the State and ts empoyees contrbute and that a
the persons empoyed n the operaton of State et Raroad are members of
that retrement system and are entted to pensons thereunder, uness they are
members of a retrement system supported whoy, or n part, by funds of the
Unted States that the three cts of Congress named have for ther soe pur-
Pose the estabshment of a penson system of annutes and other benefts for
empoyees of nterstate raroads and that the edera system Is sustaned by
ta es Imposed by the Carrers Ta ng ct. The b asserts, apparenty, that
as a matter of statutory constructon, the edera system s not appcabe to
te empoyees of State et Raroad and apparenty that f construed as
appcabe to them, the egsaton Is unconsttutona. The b charges that
the Raroad Retrement oard has threatened to requre the companant to
ct of ugust 29, 1935 (ch. 12, 49 Stat., 967), af amended une 24, 1937 (ch. 3 2,
ft I, 0 Stat., 307, 45 U. S. C, secton 22 a-r (1937 Supp.)).
of une 29, 19 7 (ch. 405, 50 Stat, 435, 45 U. S. C, sectons 261-273 (1937
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Regs. 100, rt. 506.1
322
gather and keep records concernng the empoyees of the State et Raroad,
whch woud sub|ect It to great e pense and that the oard w enforce
aganst the companant, ts offcers, agents, and empoyees certan penates If
t refuses to do so. The b charges, aso, that the Commssoner of Interna
Revenue has threatened to enforce ta es, under the Carrers Ta ng ct, and
w sub|ect t to heavy fnes and penates f t fas to pay the same. The
reef prayed Is that the three cts of Congress be decared nappcabe to Stae
et Raroad that the members of the Raroad Retrement oard be en-
|oned, among other thngs, from requrng the raroad to assembe and furnsh
the Informaton requested and that the Commssoner of Interna Revenue be
en|oned from enforcng coecton of the ta es camed.
The defendants moved to dsmss the b, assgnng therefor nne grounds.
We need consder ony the ob|ecton that the b s wthout equty. or we
are of opnon that there was adequate opportunty to test at aw the appcab-
ty and consttutonaty of the cts of Congress and that no danger s shown
of rreparabe n|ury f that course s pursued.
rst. The aeged threat of the Raroad Retrement oard to requre State
ot Raroad to gather and keep records of ts empoyees does not e pose t to
rreparabe n|ury. The Raroad Retrement ct of 1937 provdes:
Sec. . mpoyers sha fe wth the oard, n such manner and form and
at such tmes as the oard by rues and reguatons may prescrbe, returns
under oath of monthy compensaton of empoyees, and, f the oard sha so
requre, sha furnsh empoyees wth statements of ther monthy compensa-
ton as reported to the oard.
Sec. 10(b)4. The oard sha have power to requre a em-
poyers and empoyees and any offcer, board, commsson, or other agency of
the Unted States to furnsh such nformaton and records as sha be necessary
for the admnstraton of such cts. The severa dstrct courts of the Unted
States and the Dstrct Court of the Uuted States for the Dstrct of Coumba
sha have |ursdcton upon sut by the oard to compe obedence to any order
of the oard ssued pursuant to ths secton .
Sec. 13. ny offcer or agent of an empoyer who sha wfuy
fa or refuse to make any report or furnsh any nformaton requred, n ac-
cordance wth the provsons of secton 10(b)4, by the Roard sha
be punshed by a fne of not more than 10,000 or by mprsonment not e ceed-
ng one year.
The ony threats made aganst the companant n connecton wth these
sectons s a rung by the Raroad Retrement oard that the State et
Raroad s sub|ect to the Raroad Retrement cts. No specfc acton In
reaton to that raroad appears to have been taken by the oard. Regua-
tons have been prescrbed under sectons and 10 whch are smpe and of a
type whch can be comped wth argey by transcrptons from pay ros. The
b aeges that compance wth the reguatons woud sub|ect the State to
great e pense. No supportng deta or specfcaton s gven. Such a genera
statement s not an adequate bass for reef on the ground of rreparabe
Ths ob|ecton was the bass of two of the reasons gven In support of the moton
to dsmss. The other seven are.: (1) The Indvdua ctzenshp of defendants can
form no bass for the orgna |ursdcton of the Court. The defendants can and w
act ony as offcas of the Unted States: and as offcas they are ctzens of no State.
(2) The coector of Interna revenue for the frst dstrct of Caforna and the empoyees
of the State et aroad have not been |oned as defendants. They are Indspensabe
partes n whose absence the Court shoud not proceed. (3) The cause s not mantan-
abe In ths Court, snce the coector of nterna revenue for the frst dstrct of Ca-
forna. a ctzen of Caforna, shoud be made a party, and to |on hm wond deprWt
the Court of orgna ursdcton. (4) The cause Is not mantanabe n ths Court,
snce the empoyees of the State et Raroad, ctzens of Caforna, shoud be made
partes, and to |on any of them woud deprve the Court of orgna |ursdcton. (5)
Mantenance of the sut Is prohbted by secton 3224 of the Revsed Statutes. (6) The
Unted States s the rea party In Interest and hence an ndspensabe party. (7) The
Issues presented by companant have been ceary decded aganst It by prevous decsons
of ths Court, and a ree amnaton of those contentons woud serve no usefu purpose.
Compare Daton ddng Machne Go. v. State Corporaton Commsson of the Common-
weath o/ rgna (236 U. ., 699, 701) Contnenta akng Co. v. Woodrno (2S9
. S., 32, 307-36 ) State Corporaton Commsson of ansas v. Wchta Oa Co. (290
u. s.. r 6, r.6s-r 69).
3 edera Regster, page 22 et seq. (promugated December 1, 1937), edera
Regster, page 21 (promugated anuary 17, 193 ), In effect at the tme eave to fe th
b of compant was granted. May 16. 193 , ater superseded by edera Regster, page
147 , 1493 et seq , part 60 (promugated May 1. 193 ).
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323
Regs. 100, rt. 50 .
damages. The trfng e pense of temporary compyng wth the reguaton
unt the appcabty of the ct sha have been |udcay determned, ke
the e pense of the admnstratve hearngs companed of n Myers v. ethehem
Shppng Corporaton (303 U. S., 41, 50, 51), and Petroeum poraton, Inc.,
v. Pubc Servce Commsson (304 U. S., 200, 220, 221), s not suffcent to sup-
port the cam of rreparabe n|ury ndspensabe to nterposton by n|uncton.
(Compare Speman Motor Saes Co. v. Dodge, 295 T . S., 9, 95, 90.)
Moreover, the oard s wthout power to enforce ts reguatons e cept by
resort to ega proceedngs, as provded n secton 10(b)4 and n any sut whch
It may nsttute to enforce the reguatons1 ampe opportunty s afforded to
defeud, on the ground that State et Raroad s not sub|ect to the Raroad
Retrement cts. It Is contended that the possbe penaty, n case of a prosecu-
ton under secton 13, s so serous as to prevent the opportunty to defend from
beng an adequate remedy. (Compare d parte Young, 209 U. S., 123, 165.)
No prosecuton has been Insttuted or threatened. nd authorty to Insttute
such a proceedng rests not wth the Raroad Retrement oard, but wth the
Unted States attorney for the northern dstrct of Caforna, who s not made
defendant n ths sut urthermore, t may be doubted whether a refusa to
compy wth the reguaton woud be deemed wfu, f based on an honest be-
ef that the ct s not appcabe to a raroad operated by the State. (Com-
pare Unted States v. Murdoch, 290 U. S., 3 9, 394-396.)
Second. The aeged threat of the Commssoner of Interna Revenue to re-
qure payment of the ta does not show danger of rreparabe n|ury. The ony
threat aeged s the rung that the Carrers Ta ng ct s appcabe to ths
raroad a rung made n answer to an Inqury by the attorney genera of the
State. The ta for the year s 7, 02.32 payabe by the State et Raroad
and an equa amount payabe by the empoyees to be deducted by t from ther
compensaton. Payment of the ta woud not e pose the State to rreparabe
In|ury, snce the amount pad wth nterest coud be recovered f not due.
Payment foowed by proceedngs to recover the amount woud nvove some
deay, as an acton at aw to recover the sum pad coud not be nsttuted unt
s months after makng the cam for refund, f the Commssoner shoud fa to
act earer upon t.1 Such possbe deay, t s urged, Is a speca crcumstance
whch |ustfes resort to a sut for an n|uncton n order that the queston of
abty may be prompty determned. If the deay ncdent to such proceedngs
ustfed refusa to pay a ta , the edera rue that a sut n equty w not e
to restran coecton on the soe ground that the ta s Iega,11 coud have tte
appcaton. or possbe deay of that character s the common ncdent of
practcay every contest over the vadty of a edera ta .
It Is urged that In order to rase the money wth whch to pay the State s
porton of the ta , It woud be necessary to read|ust the tarffs of State et
Raroad and that the deducton of the empoyees porton from the pay ro
woud resut In a mutpcty of suts by empoyees to recover the amounts and
to reestabsh ther rghts and prveges under the aws of the State. The
meager statements of the b do not convnce us that the apprehenson aeged
Is we founded. The State mpoyees Retrement ct aso requres the State
et Raroad to make deductons from the saares of Its empoyees. The b
does not show the precse reatonshp between the amounts requred to be de-
ducted by the State and edera cts, or even, f the amount of the edera
deducton s greater, that It s mpossbe for the State et Raroad to work
out wth Its empoyees a way of ad|ustng ts affars durng the perod of un-
certanty as to whch ct Is appcabe. Mere Inconvenence to the ta payer n
rasng the money wth whch to pay ta es Is not uncommon, and s not a
speca crcumstance whch enttes one to resort to a sut for an n|uncton n
order to test the vadty or appcabty of the ta . or aught that appears
prompt payment of the ta and cam of refund woud have ed to an eary
determnaton of the abty here contested.
dsmssed.
Compare heton . Patt (139 T . ., 591. 596) Crutc cshank v. dre (176 U. .,
73, 1) Indana Mfg. Co. v. oehne (1 U. S., 0 1, 690) o e rtesan Water Co. v.
oUe Cty (213 T . ., 270, 2 5).
Compare Cavanauh v. honney (24 U. ., 453) enner v. oykn (271 U. ., 240)
wry v. ncad (2 5 . ., 95).
Compare edera Trade Commsson v. Care urnace Co. (274 U. ., 100, 173-174)
Phadepha Co. . ttmson (223 U. .. 605. 620-622).
Does v. Chcago (11 Wa.. 10 ). See aso cases In note 6.
. . secton 3226. as amended by secton 1103, Revenue ct of 1932.
13 See cases under note 6.
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egs. 100. rts. 502. 505.1
324
INT RN L R NU COD .
C PT R 9, SU C PT R . MPLOYM NT Y
C RRI RS.
Secton 1530: Coecton and payment of ta es. 1939-14-97 0
Reguatons 100, rtce 502: na returns. T. D. 4 91
rtce 505: Pace and tme for fng returns.
TITL 26 INT RN L R NU C PT R I UR U OP INT RN L
R NU P RTS 410 ND 405.
mendng artces 502 and 505 of Reguatons 100, as amended,
reatng to the empoyers ta . empoyees ta , and empoyee rep-
resentatves ta under the Carrers Ta ng ct of 1937, and such
artces as made appcabe to the Interna Revenue Code by Treas-
ury Decson 4 5 fpage 39 , ths uetn .
Washngton, D. O.
Reguatons 100, reatng to the empoyers ta , empoyees ta , and
empoyee representatves ta under tne Carrers Ta ng ct of 1937
(Part 410 of Tte 26, Code of edera Reguatons), and those
reguatons as made appcabe to the Interna Revenue Code by
Treasury Decson 4 5, approved ebruary 11, 1939 page 396, ths
uetn (Part 465, Subpart , of such Tte 26), are amended as
foows:
(1) The second sentence of artce 502 (secton 410.502 of such
Tte 26), reatng to fna returns, s amended to read as foows:
Such return sha be fed wth the coector on or before the s teth day
after the date of the fna payment of compensaton wth respect to whch the
ta s mposed, e cept that f .-.uch fna payment was made pror to pr 1,
193 ), the return sha be fed on or before the thrteth day after the date of
such payment.
(2) The frst sentence of the second paragraph of artce 505 (sec-
ton 410.505 of such Tte 26), reatng to the pace and tme for fng
returns, s amended to read as foows:
The return for the perod anuary 1, 1937, to September 30, 1937, ncusve,
sha be fed on or before November 30, 1937 the return for each quartery
perod thereafter up to and ncudng the perod ended December 31. 193 . sha
be fed on or before the ast day of the frst caendar month foowng the perod
for whch t s made: and the return for each quartery perod subsequent to
December 31, 193 . sha be fed on or before the ast day of the second caendar
month foowng the perod for whch t Is made.
sectons of aw: Sectons .r.30(b), 1536. 2701, 2709, 1535, and 3791
of the Interna Revenue Code (53 Stat., Part 1) sectons 7(b), 7(c),
and 12 of the Carrers Ta ng ct of 1937 (50 Stat., 439, 440 45
U. S. C, Sup. I , 267, 272) and sectons 602 and 1102 of the Revenue
ct of 19tf (44 Stat., 94, 112 26 U. S. C, 1121, 1129).)
Gut T. everno,
pproved March 29, 1939. Commssoner of Interna Revenue.
ohn W. anes,
( ed wth the Dvson of the edera Regster March 1, 1939, 12.27 p. m.)
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MISC LL N OUS T RULINGS.
TITL III, S M ND D. ST T T . (1926)
S CTION 302, S M ND D.
Reguatons 0 (1937), rtce 10: auaton 1939-22-9 52
of property. T. D. 4902
TITL 26 INT RN L R NU . C PT R I, P RT 0 ST T T .
rtce 10 of Reguaton 0 (1937 edton) amended. auaton
of stocks and bonds.
Washngton, D. 0.
Subdvson (a) of artce 10 of Reguatons 0, 1937 edton (sec-
ton 0.10 of Tte 26, Code of edera Reguatons , and that artce
as made appcabe to the Interna Revenue Code by Treasury Decson
4SS5, approved ebruary 11.1939 (Part 465, Subpart , of such Tte
26 page 396, ths uetn ), s amended to read as foows:
) Genera. The vaue of every tem of property ncudbe In the grosa
estate s the far market vaue thereof at the tme of the decedent s death: or,
f the e ecutor eects n accordance wth the provsons of artce 11, t s the
far market vaue thereof at the date theren prescrbed or such vaue ad|usted
s theren set forth. The far market vaue Is the prce at whch the property
woud change hands between a wng buyer and a wng seer, nether beng
under any compuson to buy or to se. The far market vaue of a partcuar
knd of property ncudbe In the gross estate s not to be determned by a forced
sae prce. Such vaue s to be determned by ascertanng as a bass the far
market vaue as of the appcabe vauaton date of each unt of the property.
or e ampe. In the case of shares of stock or bonds, such unt of property Is a
share or a bond. reevant facts and eements of vaue as of the appcabe
vauaton date shoud be consdered In every case.
Subdvson (c) of artce 10 of Reguatons 0,1937 edton (secton
0.10 of Tte 26, Code of edera Reguatons), and that artce as
made appcabe to the Interna Revenue Code by Treasury Decson
4 5, approved ebruary 11.1939 (Part 465, Subpart , of such Tte
(o) Stocks and bond s. The vaue of stocks and bonds, wthn the meanng
of the statute, s the far market vaue per share or bond on the appcabe
vauaton date.
In the case of stocks and bonds sted on a stock e change the mean between
the hghest and owest quoted seng prces on the vauaton date sha be
consdered as the far market vaue per share or bond. If there were no saes
on the vauaton date, such vaue sha be determned by takng the mean
between the hghest and owest saes on the nearest date before and the nearest
date after the vauaton date (both such nearest dates beng wthn a reasonabe
(325)
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Regs. 0(1937), rt. 10.
326
perod), and by proratng the dfference between such mean prces to the
vauaton date, and by addng or subtractng, as the case may be, such prorated
porton of the dfference to or from the mean prce obtanng on such nenrcst
d:te before the vauaton date. or e ampe, assume that saes of st ck
nearest the vauaton date ( une 151 occurred two days before ( une 13) and
three days after ( une 1 ) and that on such days the mean sae prces per
share were 10 and 15, respectvey. The prce of 12 sha he taken as repre-
sentng the far market vaue of a sh re of such stock as of the vauaton
date. If. however, on une 13 and une 1 the mean sae prces per share were
15 and 10, respectvey, the prce of 13 sha be taken as representng the far
market vaue of a share of such stock as of the vauaton date. If the securty
was sted on more than one e change, the records of the e change where the
securty s prncpay deat n shoud be empoyed. In vaung sted stocks and
bonds the e ecutor shoud observe care to consut accurate records to obtan
vaues as of the appcabe vauaton date.
In the case of stocks and bonds whch are not sted upon an e change, but
are deat n through brokers, or have a market, the far market vaue sha he
determned by takng the mean between the hghest and owest seng prces
as of the vauaton date or, f there were no saps on that date, such vaue sha
be determned by takng the mean between the hghest and owest saes on the
nearest date before and the nearest date after the vauaton date (both such
nearest dates beng wthn a reasonabe perod), and by proratng the dfference
between such mean prces to the vauaton date, and by addng or subtractng,
as the case may be, such prorated porton of the dfference to or from the monn
prce obtanng on such nearest date before the vauaton date. If quotatons
are obtaned from brokers, or evdence as to the sae of securtes Is obtaned
from the offcers of the ssung companes, the e ecutor shoud preserve In hs
fes the etters furnshng such quotatons or evdence of sae for nspecton
when the return s verfed by an nvestgatng offcer.
If actua saes are not avaabe durng a reasonabe perod begnnng before
and endng after the vauaton date, the far market vaue may be determned
by takng the mean between the bona fde bd and asked prces on the nearest
date before and the nearest date after the vauaton date (both such nearest
dates beng wthn a reasonabe perod), and by proratng the dfference between
such mean prces to the vauaton date, and by addng or subtractng, as the
case may be, such prorated porton of the dfference to or from the mean prce
obtanng on such nearest date before the vauaton date.
If actua sae prces or quoted bona fde bd and asked prces are avaabe
on a date wthn a reasonabe perod pror to the vauaton date, but f no
actua sae prces or bona fde bd and asked prces are avaabe on a date
wthn a reasonabe perod after the vauaton date, or vce versa, then the mean
between such hghest and owest avaabe sae prces or bd and asked prces
may be taken as the vaue.
If actua saes or bona fde bd and asked prces are not avaabe, then,
n the case of corporate or other bonds, the vaue Is to he arrved at by gvng
consderaton to the soundness of the securty, the Interest yed, the date of
maturty, and other reevant factors, and. In the case of shares of stock, upon
the bass of the company s net worth, earnng power, dvdend-payng capacty,
and a other reevant factors havng a bearng upon the vaue of the stock.
Compete fnanca and other data upon whch the vauaton Is based shoud be
submtted wth the return.
In cases n whch t s estabshed that the vaue per bond or share of any
securty determned on the bass of seng or bd and asked prces as heren
provded does not refect the far market vaue thereof, then some reasonabe
modfcaton of such bass or other reevant facts and eements of vaue sha
be consdered n determnng far market vaue.
The fu vaue of securtes pedged to secure an ndebtedness of the decedent
shoud be Incuded n the gross estate. If the decedent had a tradng account
wth the broker, a securtes beongng to the decedent and hed by the broker
at the date of death must be ncuded at ther far market vaue as of the
appcabe vauaton date. Securtes purchased on margn for the decedent s
account and hed by the broker shoud aso be returned at ther far market
vaue as of the appcabe vauaton date. The amount of the decedent s n-
debtedness to the broker or other person wth whom securtes were pedged
w be aowed as a deducton from the gross estate n accordance wth artces
29, 30, and 52. (See artce 12 for manner of stng and descrbng stocks and
bonds.)
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327
IRegs. 0(1934), rt. 25.
sectons of aw: Sectons 11, 037, and 3791 (a)1 of the Interna Rev-
enue Code (53 Stat., Part 1) secton 302 of the Revenue ct of 1926
(44 Stat., 70), as amended by secton 404 of the Revenue ct of 1934
(4 Stat., 754 26 U. S. C, 411) and secton 202 of the Revenue ct
of 1935 (49 Stat., 1022 26 U. S. C, Sup. I , 411 (|)) secton 1101 of
the Revenue ct of 1926 (44 Stat., I 26 U. S. C, 1691) and secton
403 of the Revenue ct of 1932 (47 Stat., 245), as amended by sec-
ton 403(f) of the Revenue ct of 1934 (4 Stat., 753 26 U. S. C,
637).)
Gut T. everno,
pproved May 1 , 1939.
ohn W. anes,
ST T T R NU CT O 1920 D CISION O COURT.
1. Gross statk Lfe Insurance Taken Out on Lfe of Stock-
hoder for eneft of Corporaton Change of enkftcahy.
The decedent, an offcer and stockhoder of a corporaton, was a
party to a contract by whch the corporaton agreed to purchase at
a stpuated prce the stock of any stockhoder who mght de, nsur-
ance poces havng been taken out on the ves of the stockhoders,
wth the corporaton as benefcary, for the purpose of enabng
t to make such purchases wth the proceeds of the nsurance. y
ater agreements the corporaton renqushed Its rght to death
benefts under the poces, and the decedent named hs wfe as
benefcary, reservng the rght to change the benefcary. There-
after the corporaton contnued to pay the premums, treatng the
payments as addtona compensaton for servces rendered and to
be rendered by the decedent. Under these facts, the proceeds of
the poces were propery ncuded n the decedent s gross estate
pursuant to the provsons of secton 302(g) of the Revenue ct
of 1926.
2. Certorar Dened.
Petton for certorar dened November 7, 193 .
Unted States Crcut Court of ppeas for the S th Crcut.
UUe ee rown, ecutr of the W of Guy C. rown, Deceased, pettoner,
v. Commssoner of Interna Revenue, respondent.
95 . (2d), 1 4.
Tetton to revew an order of the Unted States oard of Ta ppeas.
efore cks and Smons, Crcut udges, and Raymond, Dstrct udge.
March 11, 193 .
cks, Crcut udge: Pettoner s the wdow of Guy C. rown and the
e eeutr of hs estate. She s aso the benefcary of the proceeds of 11 nsurance
TITL III. ST T T . (1926)
S CTION 302.
Reguatons 0(1934), rtce 25: Ta abe
nsurance.
1939-5-9696
Ct. D. 13 1
OPINION.
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Regs. 0(1934), rt. 25.
32
poces wrtten upon hs fe and amountng to 326,64 .11. She seeks a revew
of the decson of the oard of Ta ppeas aff rung the acton of the Comms-
soner of Interna Revenue n assessng estate ta es of 17,050. 0 upon the
proceeds of these poces. The queston s, whether the proceeds of the poces
were propery ncuded n decedent s gross estate under the provsons of T
20, secton 411(g) tU. S. C, secton 02(g)) of the Revenue ct of 1926, and
reguatons thereunder. The statute ncudes as one eement of the ta abe gross
estate of the decedent the amount recevabe by a other benefcares as nsur-
ance under poces taken out by the decedent upon hs own fe.
Itacs ours.
Pertnent parts of Treasury Reguatons 0, artce 25, are quoted:
Insurance s consdered to be taken out by the decedent n a
cases, whether or not he makes the appcaton, f he pays the premums ether
drecty or ndrecty, or they are pad by a person other than the benefcary,
or decedent possesses any of the ega ncdents of ownershp n the pocy.
Lega ncdents of ownershp n the pocy ncude, for e ampe: The rght of
the Insured or hs estate to ts economc benefts, the power to change the
benefcary, to surrender or cance the pocy, to assgn t, to revoke an assgn-
ment, to pedge t for a oan, or to obtan from the Insurer a oan aganst the
surrender vaue of the pocy.
or a number of years before hs death on anuary 6, 1931, decedent had been
nn offcer and stockhoder of Campbe- wad Co., an advertsng frm. In
ebruary, 1924, the stock of the corporaton was hed by a few persons actvey
engaged n the busness. On that date the stockhoders made a contract wth
the corporaton whereby t agreed to purchase the stock of any stockhoder who
mght de. One cause of the agreement ponted out that poces of nsurance
had been taken out on the ves of most of the stockhoders ncudng
decedent, wth the corporaton as the benefcary, for the purpose of enabng t
to purchase the stock n the event of the death of any of the nsured stock-
hoders. Ths contract was superseded by another n 1925, whch contaned
modfcatons unmportant here, but both the 1924, and 1925, contracts pro-
vded that the prce to be pad for the stock shoud be book vaue pus a good
w vaue to be determned by arbtraton.
thrd contract dated une 26. 1929, dd away wth the provsons for the
ascertanment of good w vaue, a cause theren readng the prce
at whch sad stock sha be sod to sad company sha be determned by the
company s audtors at the book vaue thereof, wthout takng nto consderaton
anythng for good w and wthout any further apprasa of the propertes or
assets of the company than as shown upon the books of the company at the
date of death of such deceased.
Cause 2 provded the method of payment for the stock. The amount pay-
abe therefor was reduced by the vaue of the Insurance carred by the com-
pany on the fe of the stockhoder to whch t was benefcary and whch t
agreed to turn over to deceased s e ecutor. In cause 3 the amount of nsuranco
that the company agreed to carry on the ves of the cass stockhoders was
sted, ncudng 325. )0 on that of rown, the premums for whch sha he
deemed to be addtona compensaton to sad cass stockhoders for servces
rendered and to be rendered. It was aso provded that sad nsurance shoud
be Nd to deceased s e ecutors or otherwse and sha not nure to the beneft
of sad Campbe- wad Co. In any way.
In the ffteenth cause was an engagement by cass stockhoders not to
dspose of. nor pedge ther stock or otherwse pace t beyond ther contro
wthout the wrtten consent of the board of drectors. In the s teenth they
agreed to make a ast w and testament provdng for the dsposa of the
stock accordng to the terms of the contract and n the seventeenth they ke-
wse bound ther estates.
The eghteenth cause provded that the cash surrender vaues of the poces
transferred to the Indvduas by the company shoud foow the poces,
e cept that 5( .9( .SO accrued to Guy C. rown shoud not he so transferred.
It was provded that ths sum shoud be reduced from tme to tme, unt
qudated, by any dvdends accumuatng on the poces after the e praton of
the necessty for the payment of premums and n the event of hs death pror
to the qudaton, that t shoud be canceed.
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329
Regs. 0(1934), rt. 25.
other dvdends and accrued Interest aowed to accumuate on the poces
pror to the transfer were assgned by the pocy hoders to the company for
credt aganst future premums whch t agreed to pay.
Ths contract was made bndng upon the hers, e ecutors, etc., of the
partes and pettoner |oned theren as the wfe of rown.
fter the contract of une 20, 1929, and pursuant thereto and pror to
December 10, 1930, the company n one form or another renqushed Its rght
to death benefts under the poces.
The thrd contract was foowed by another e ecuted on December 10, 1930.
Many of ts provsons were smar to those of the thrd. Two of the wves,
ncudng pettoner, had by that tme become owners of cass stock, and
they, |onng n the contract, agreed to dspose of ther sock to the company
n case ther husbands ded before them.
Cause 2 set forth the method to be used by the company n payng for stock
oat of nsurance on the ves of deceased stockhoders, of whch It was the
benefcary. Cause 5 was the same as cause n the thrd contract.
Cause 1 read:
ach of partes agrees that be w not at any tme se or ds-
pose of any of hs cass stock n sad company, e cept as heren provded,
and that be w not pedge the same as coatera or pace t beyond hs contro
wthout wrtten consent of sad company actng through ts board of drectors.
Cause 21 s the same as the eghteenth n the thrd contract, wth the add-
tona provsos that rown woud transfer to the company a dvdends and
Interest accrung on the endowment poces and eft wth the Insurance com-
panes unt hs death tat on hs death the face amount of the o -es
shoud be pad to the benefcares as provded theren and further that rown
woud not accept any cash surrender vaue for the endowment poces pror to
hs death or borrow on same wthout the wrtten consent of the company.
It was stpuated that the books of the company dscosed the payment of
72,976.35 n premums on the poces here n controversy, pror to une 26,
1929, the date of the thrd agreement, no porton of whch amount was credted
or charged to the decedent as addtona compensaton and that subsequent
to that date ts books showed the payment of 27,66 .06 n premums the entre
amount of whch was credted to decedent as addtona compensaton, n
accordance wth the anguage of the agreement of that date and of the sub-
sequent agreement of December 10. 1930.
Construng these contracts n reaton to each other. It seems cear enough
that decedent possessed a of the ega ncdents of ownershp In the poces
at the tme of bs death. It was be to whom the company assgned Its Interest
and t was he who was vested wth the power to name the benefcary. Ths
he dd, namng the pettoner, but n every Instance he retaned the prvege of
changng t. It Is true that the cash surrender vaue of the poces was not
transferred to decedent by the contracts but was retaned hy the company as
a sort of charge whch rown had the rght to qudate by the payment to It
of certan accumuated dvdends and Interest, but the obgaton to pay any
remanng baance was automatcay dscharged by the event of hs death.
There Is no record evdence that the decedent repad n cash the 72,070.36
n premums whch the company had pad pror to the date of the thrd con-
tract but the pettoner was unsuccessfu In showng that he dd not. Upon the
other hand there s a cear Inference that he dd. because by the terms of the
thrd and fourth contracts the decedent renqushed any consderaton for the
good w vaues of the stock sod to the company. We can conceve of no
consderaton for ths e cept a renqushment to the decedent of any obga-
ton to repay these premums. (See Yuengng v. Commssoner. 69 ed. (2d),
971 (C. C. . 3).)
It Is apparent, therefore, that when tested by Treasury Reguatons 0,
artce 25, t was not error to Incude the proceeds of the poces n the
decedent s gross estate.
ut pettoner nssts that artce 25 of Treasury Reguatons 0 s nvad
that t makes the possesson by decedent of any of the ega Incdents of owner-
shp n the poces a test of whether the poces were taken out by the dece-
dent upon hs own fe that artce 25 of Reguatons 70 s the proper one to be
apped becanse after the promugaton of Reguatons 70 the statute was
reenacted wthout substanta change and that the courts must therefore adopt
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Regs. 0(1934). rt, 25.
330
the constructon of the statute paced upon It by artce 25 of Treasury Regua-
tons 70. (See Waker v. Unted States, 3 ed. (2d), 103, 106 (C. C. . ).)
ut the facts here nvoved do not ca for a constructon of artce 25,
Reguatons 0. Ths artce specfcay defnes what s ncuded n the term
ega ncdents of ownershp In the pocy. Pettoner has not paced her-
sef beyond the scope of ths defnton, as n the Waker case, where the
premums or at east a porton of them had been pad by the benefcary. In
ths case she pad no premums. We see no reason for strkng down Regua-
tons 0, artce 23, as a whoe because one eement of t has been found
Inappcabe to an entrey dfferent state of facts.
Pettoner admts that the decedent had the power to change the benefcares
In the poces (one of the ega ncdents of ownershp) but mantans that he
deprved hmsef of the rght to e ercse that power by agreeng n the fourth
contract to transfer the nterest and dvdends on the proceeds of the poces
to the company as they accrued. We concur In the concuson of the oard that
there was nothng n these coatera agreements that woud restrct the rght
whch decedent had reserved for hmsef to change the name of the benefcary.
(See evcrng, Commssoner, v. Reybne, 3 ed. (2d), 215 (C. C. . 2).)
Pettoner ne t says that she had an equtabe nterest n the poces whch
negatves the decedent s rght to change the benefcares. Ths cam s based
upon the fact that after the e ecuton of the thrd contract there had been
transferred to her one thousand of the twenty-four hundred aud ffty shares of
cass stock of decedent and that she |oned n the fourth contract to the
end that a cass stock shoud vest In the company. ut there s nothng
In the fourth contract to ndcate that her rghts as benefcary In the poces
became f ed because she |oned n the contract. She knew that even by the
thrd contract the power to change the benefcary was reserved to the decedent
and that he had e ercsed that power n her behaf. She acqured that status
because she had been desgnated as such by decedent and not because of any
equtabe nterest she may have had n the poces.
ut ayng asde Treasury Reguatons 0, artce 25, and testng the case
by the ct tsef as nterpreted by Igehcart v. Commssoner (77 ed. (2d), 704
(C. C. . 5) Ct. D. 10 9, C. . -1, 351 (1936) ), the proceeds of the poces
were sub|ect to the ta . In that case the court sad (page 711):
The manfest purpose of that provson (secton 302(g) of the Revenue
ct of 192 ) Is to ncude n the decedent s estate for purposes of the ta the
proceeds of a nsurance on hs fe recevabe under poces acqured through
e pendture by hm. (Chase Natona ank v. Unted States, supra Ct. D.
40. C. . III-1, 30 (1929) Scott v. Commssoner (C. C. .), 69 . (2d), 444,
92 . L. R., 531.) The poces, under whch the rght to change the benefcares
was reserved, havng orgnay been taken out, for ts own beneft, by a corpo-
raton of whch the decedent was an offcer, the appcatons for whch were
sgned by tfe decedent, are to be regarded as havng been taken out by the
decedent, wthn the meanng of the statute, when he bought those poces from
that corporaton, and had new benefcares, chosen by hmsef, desgnated, he
retanng the rght under each pocy further to change the benefcary.
In recognton of a stpuaton between the partes the defcency Is f ed
at 17,050. 0 nstead of 27,102.91 as determned by the oard, and wth ths
modfcaton the decson of the oard of Ta ppeas s affrmed.
estate ta revenue act op 1926 decson of supreme court.
Gross state Insurance Proceeds of War Rsk Insurance
Pocy Payabe to Deceased eteran s Wdow.
The proceeds of a war rsk Insurance pocy payabe to a deceased
veteran s wdow are propery Incuded n hs gross estate for
edera estate ta purposes, under the provsons of secton 302
(g) of the Revenue ct of 1926.
Reguatons 0 (1934), rtce 25: Ta abe
nsurance.
1939-1 -9 17
Ct. D. 1396
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331 Regs. 0(1034), rt. 5.
StrpR U Ooubt or tot Unted Sta-
Unted States Trust Co. of New York, as tecutor u/w of Oeorge . unker,
Deceased, pettoner, v. Guy T. everng, Commssoner of Interna Revenue.
59 S. Ct., 692.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
Mr. ustce ack devered the opnon of the Court.
The soe queston Is whether proceeds of a war rRk Insurance pocy payabe
to a deceased veteran s wdow were propery Incuded In hs gross estate under
a edera estate ta .
The edera estate ta In queston1 ncuded n a decedent s gross estate
the amount n e cess of 40,000 receved by benefcares other than
hs estate as Insurance under poces taken out by the decedeut upon hs own
fe. Ths veteran s tota fe Insurance for benefcares other than hs estate
e ceeded at death the statutory e empton of 40,000, If bs war rsk nsurance
pocy payabe to hs wdow In the sum of 10,000 Is Incuded. The Comms-
soner assessed an estate ta measured by ths e cess. s decedent s e ecutor,
pettoner camed that proceeds of the war rsk Insurance pocy coud not be
Incuded n the estate because of secton 22 of the Word War eterans ct,
11)24, provdng that such nsurance sha be e empt from a ta a-
ton. The oard of Ta ppeas uphed the determnaton of the Comms-
soner, and the crcut court of appeas affrmed.
Congress has manfested a consstent pocy n the Revenue cts from 101
to 1934, when the veteran ded, by mpostons of estate ta es upon transfers
at death of proceeds of a fe nsurance (not payabe to an nsured s estate)
In e cess of 40,000. Ths has been n harmony wth a genera pan of gradu-
atng ncome aud nhertance ta es to accord wth respectve szes of Incomes
and estates. nd the Treasury reguatons have stated that The statute pro-
vdes for the Incuson n the gross estate of : Insurance not
for the beneft of an estate to the e tent that It e ceeds
40,000 . The term Insurance refers to fe Insurance of every
descrpton, .
ut pettoner nvokes the provson of the Word War eterans ct. 1924,
that nsurance thereunder sha be e empt from a ta aton. n amendment
to that ct of ugust 12. 193. provdes that Payments of benefts due or to
become due sha be e empt from ta aton . owever, ths
amendment served ony to carfy the orgna provson for e empton, wthout
more. Uness resort s had to enargement by Impcaton, ths e empton
means ony that the proceeds or benefts of a war rsk pocy are e empt from
ta aton. emptons from ta aton do not rest upon Impcaton.
n estate ta Is not eved upon the property of whch an estate s composed.
It s an e cse Imposed upon the transfer of or shftng In reatonshps to
property at death. The ta here s no ess an estate ta because the proceeds
1 Secton 302(g), Revenue ct of 192S. as amended.
43 Stat.. 607. 613.
ed. (2d). 734. tate courts have dffered as to whether proceeds of war rsk In-
surance are sub|ect to death dut S Imposed by the States. See. for e ampe. In re ttatt
of arrs (179 Mnn., 450), Tarn Comm on v. Rfe (119 Oh. St.. 3). Wame t tate
(2nr Pa.. 410). Wat kn v. a 1107 W s., 202) (hodng these proceeds not sub|ect
to such e cses) and atter of oon (224 p. Dv., 702) Matter of Dean (131 Msc.,
123) (contra). In vew of ths fact and the mportance of an authortatve Interpreta-
ton of the edera statutes Invoved, we granted certorar. ( U. ., .)
See 44 Stat.. 9, 21. 22 4 Stat . 0 0. 0 4. 7154.
Treasury Reguatons No. 70 (1929 edton), artces 25 and 27 Treasury Reguaton
No. 0 (1934 edton), artces 25 aud 27.
49 Stat., 607. 609.
Lawrence v. Show (300 D. .. 245. 249).
Rapd Transt Corporaton v. Sew York ( 03 T . ., 67 , 592. 59 ) Trotter v. Ten-
nessee (290 U. S., 354, 356. 357) . W. Perry Co. v. Norfok (220 D. .. 47 . 4 0)
Then oacat Semnary v. Inos (1 U. .. 662, 672).
Ren, eke v. Northern Trust Co. (27 U. ., 39, 347 T. D. 4261, C. . III-1. 05
(f2 1) : Chase Natona ank v. Unted States (27 0. ., 27 34 Ct D. 40, C. .
III-1, 30 (1929) ) Unted States . acobs ( . ., Ct D. 1 , page 3 ,
pr 17, 1939.
OPINION.
uetn ).
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Regs. 70(1929), rt. 36.
332
of the pocy were pad by the Government drecty to the benefcary the ta ng
power was nevertheess e ercsed upon the transfer of property procured
through e pendtures by the decedent wth the purpose, effected at hs death,
of havng t pass to another. 10 In an anaogous stuaton. edera bonds
e empt by statute from a ta aton have been hed sub|ect to a edera nher-
tance ta .11 nd State Inhertance ta es can be measured by the vaue of
edera bonds e empted by statute from State ta aton n any form.1 Sm-
ary, the statutory mmunty of war rsk nsurance from ta aton does not
Incude an mmunty from e cses upon the occason of shfts of economc
Interests brought about by the death of an nsured.
Pettoner makes the further pont that the ncuson of proceeds of the war
rsk pocy for purposes of an estate ta amounts to an mparment of the
Government s contract wth the nsured veteran, n voaton of the ffth
amendment to the Consttuton. ut nether the ct of 1924, as amended,
nor any of the provsons of the War Rsk Insurance ct purported to e empt
war rsk nsurance from death dutes. Therefore, no statutory e empton
whch coud be consdered a provson of the nsurance contract has been
affected by the mposton of the estate ta n ths case. The |udgment s affrmed.
S CTION 303.
Reguatons 70(1929), rtce 36: Cams 1939-6-9706
aganst the estate. Ct. D. 13 2
ST T T R NU CT O 192 D CISION O COURT.
1. Deducton Cams oanst the state Notes vdencng
Loans from Trusts Set up by Decedent s Wfe out of unds
Receved from Decedent stoppe.
On uy 17, 1924, the decedent gave to hs wfe a substanta sum
of money, whch on the ne t day she paced n trust wth hersef
as trustee. t the same tme t was arranged between them that
the money shoud be oaned by the trustee to the decedent, who n
return was to e ecute notes payabe n 10 years, wth nterest. On
uy 2 ths pan was curred out, and smar transactons took
pace n May and une, 1926, and n pr, 192 . The husband pad
gft ta es on the amounts gven to hs wfe n 1924. ed, That
there was substanta bass for the fndng of the oard of Ta
ppeas that the notes were not gven for fu consderaton n
money or money s worth and that the amounts thereof were not
deductbe as cams aganst the estate under the provsons of
secton 3d3(a) of the Revenue ct of 1926. cceptance of the
gft ta es and aowance of nterest payments on the notes as
deductons for ncome ta purposes dd not estop the Government
from questonng the reaty of the gfts.
2. Decsons ffrmed.
Decsons of the Unted States oard of Ta ppeas (1937) (35
. T. ., 916, and 36 . T. ., 597) affrmed.
Unted States Crcut Court of ppeas for the Second Crcut.
Guaranty Trust Co. of New York and . Whtney Peterson, ecutors of the Last
W and Testament of onathan Peterson, Deceased, pettoners, v. Comms-
soner of Interna Revenue, respondent.
9 ed. (2d), 62.
ppea from the oard of Ta ppeas.
efore Manton, Swan, and uoustub N. and, Crcut udges.
Petton by the e ecutors of the w of onathan Peterson, deceased, for a re-
Tew of an order of the oard of Ta ppeas entered October 5, 1937, determnng
a defcency n the estate ta of onathan Peterson to the amount of 127,436.06.
ffrmed.
Chase Satona ank . Unted tatet, supra, 3 7.
n Murdock v. Ward (17 U. ., 139).
Pummr v. Coer (17 U. S., 115).
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333
Regs. 70(1929), rt. 36.
uy 5, 193 .
OPINION.
ugustus N. and, Crcut udge: The Commssoner of Interna Revenue de-
termned a defcency In the estate ta of onathan Peterson, deceased, n the
sum of 127,436.06 whch was affrmed by the oard of Ta ppeas. The soe
Issue presented on the appea to ths court from the order of the oard Is whether
the Commssoner erred n refusng to aow as a deducton from the decedent s
gross estate an tem of 1,04 ,000 evdenced by 12 promssory notes e ecuted by
the decedent and payabe to enretta . Peterson, trustee. The pettoners, who
are the e ecutors of decedent s w, contend that the notes represented debts of
the atter whch were enforceabe cams aganst hs estate deductbe under the
provsons of secton 303(a) of the Revenue ct of 1926. Those provsons a-
ow as deductons n computng net ta abe estate cams aganst the
estate to the e tent that such cams, were ncurred or con-
tracted bona fde and for an adequate and fu consderaton n money or money s
worth .
The deducton represented by the notes was dsaowed by the Commssoner on
the ground that the pettoners had faed to show that the obgatons repre-
sented by the notes were contracted bona fde and for an adequate and fu con-
sderaton In money or money s worth. fter the decedent s death the 12 notes
were pad by bs e ecutors and the payments were aowed by the Probate Court
of Connectcut n ther accounts. The decedent had reguary pad nterest on the
notes durng hs fetme and camed and was aowed the nterest payments as
deductons n hs ncome ta returns.
The hstory of the notes s as foows:
On uy 17, 1924, when comng I- to dnner, onathan Peterson, who was pres-
dent of and a arge stockhoder n the Unted States Tobacco Co., sad to hs wfe:
My dear, I have a gft for you. She sad: 1 don t want t. What w I do
wth t They then taked a tte about t and he sad, to use hs own words:
Go out and treat yoursef. It s yours.. ow t. Do what you want to do wth
ft. She testfed that there were uo strngs ted to the gft, that her husband dd
not requre her to do anythng wth It, but sad It was for me to do wth It as I
peased : that, n connecton wth her remark: 1 don t know what to do wth
ft. ow sha I nvest It, there was tak about hs ssters and he sad : You can
make a trust to provde for them, as I have been dong, and added that Mrs.
Peterson coud create one for hersef. Some tme durng the evenng he devered
to hs wfe two checks, one for 225,000 and one for 15,000. She testfed that
durng the same evenng t was arranged between her husband and hersef that
two trusts shoud be set up wth the proceeds of the checks, one for 200,000 for
the beneft of Mrs. Peterson, to whom he had been generous In hs gfts and aow-
ance, and who had no ncome from any other source, and one for 40,000 for the
beneft of Mr. Peterson s two ssters, to whom he had prevousy been makng
reguar contrbutons. It was aso arranged that the money was to be oan d
back by the trustee to Mr. Peterson, who, In return for the oan, was to gve
notes payabe In 10 years wth Interest at the rate of 6 per cent. e sad to
Mrs. Peterson: I w gve you as much as you can get anywhere ese on the
money as an nvestment.
On uy 1 , 1924, Mrs. Peterson deposted two checks n her persona account
n the Guaranty Trust Co. and the checks were credted to her account that day
and were duy pad. The check for 15,000 was drawn by Mr. Peterson on uy
17. 1924, on the Guaranty Trust Co. aganst a baance of 31,42 .31 and the
check for 225,000 was drawn on the Natona Cty ank composed of a prevous
baance of 5,306.31 and the proceeds of a demand oan made from that hank on
the satne day of 225,000. Ths ast check was certfed on uy 17, 1924. e
pad gft ta es on the amount of the checks devered to hs wfe.
On uy 1 Mrs. Peterson e ecuted a forma trust nstrument wth eaborate
provsons coverng eght prnted pages n the record In whch she granted to
hersef as trustee 40,000 for the fe use of Mr. Peterson s ssters an 200,000
for her own fe use wth certan remanders over. On the same day Mrs. Peter-
son drew her own checks for 40,000 and 200,000 to her order as trustee and de-
posted them In the trustee account. It was provded In the trust nstrument
that n makng Investments the trustee shoud not be confned to the usua ega
nvestments for trustees, but was to be at berty to make other Investments and
to end the whoe or any part of the funds of sad trust estate to any person or
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Regs. 70(1929), rt. 36.
334
persons upon such terms and condtons and ether wth or wthout securty as
the trustee sha n her dscreton determne and the sad
trustee sha not be abe or accountabe for any deprecaton n the
vaue thereof.
On uy 25, 1924, Mrs. Peterson as trustee Issued her checks to Mr. Peterson
n the respectve sums of 40,001 and 200,000 and receved from hm two notes
for ke amounts due uy 25, 1934. On uy 26, 1924, he deposted the trustee
checks aggregatng 240,000 to hs own credt and on uy 26, 1924, pad off hs
demand note to the Natona Cty ank pus nterest.
There were three other transactons smar to the one above outned.
T M Y, 1926, TR NS CTION.
On May 14, 1926, Mr. Peterson ssued hs check to hs wfe for 200,000
drawn on the Natona Cty ank aganst a baance of 202,151. 6 composed
of a prevousy e stng baance of 2,151. 6 and the proceeds of a demand oan
from the bank made on the same date of 200,000. Ths check was deposted
n Mrs. Peterson s persona account on May 17, 1926, and pad on that date.
On May 21, 1926, she e ecuted two trust nstruments smar In form to the
one nvoved n the transacton of uy 1 , 1924, In favor of each of her two
chdren and conveyed to hersef as trustee thereunder moneys derved from
the transfer to her by her husband of 200,000. On May 21 as trustee she
ssued to her husband a check for 200,000 and receved from hm hs two notes
for 100,000 each due May 21, 1936. e deposted ths check to hs own credt
on May 22, 1926, and on that day pad off the demand oan of 200,000 pus
nterest to the Natona Cty ank.
T UN , 192 , TR NS CTION.
On May 25, 1926, Mr. Peterson Issued hs check to hs wfe for 200,000
drawn on the Natona Cty ank aganst a prevous e stng baance of
602.26 and a demand oan made on the same date of 200,000. The check
was deposted to the persona credt of Mrs. Peterson n the Guaranty Trust
Co. on May 27, 1926, and was pad on that date. On une 2, 1926, Mrs.
Peterson e ecuted two nstruments smar n form to the trust nstrument
of uy 1 , 1924, grantng to hersef as trustee two trust funds of 100,000
each n favor of each of her two chdren. These funds were pad from her
account out of the 200,000 transferred to her by her husband by hs check of
May 25, 1926. On une 2, 1926, Mr. Peterson gave hs two notes to hs wfe
as trustee, each for 100,000 dated une 2, 1926, and due une 2, 1936, and
receved from her out of her trustee account two checks to hs order n the
sum of 100,000 each whch he deposted to hs own credt. Wth the proceeds
he pad off the demand oan, pus nterest, on une 3, 1926.
T PRIL, 192 , TR NS CTION.
On pr 13, 192 , Mr. Peterson ssued hs check on the Natona Cty ank
to hs wfe for 40 ,000. The baance n bank to hs credt on that date was
411,399.2 . e had a prevousy e stng baance of 6,399.2 and added to
t 340,000 from the proceeds of sae of 4,000 shares of Unted States Tobacco
Co. and aso a check on hs account wth the Guaranty Trust Co. of 15,000
and the proceeds of a demand oan from the Natona Cty ank of 50,000.
The check for 40 ,000 was deposted n Mrs. Peterson s persona account n
the Guaranty Trust Co. on pr 16, 192 . On pr 23, 192 , she e ecuted an
nstrument smar n form to the pror trust nstruments whereby she granted
to hersef as trustee funds aggregatng 40 ,000 and created trusts as foows:
One n her own favor for 100,000 one n favor of her daughter for 100,000
one n favor of her son for 100,000 one n favor of one of Mr. Peterson s
ssters for 40,000 one n favor of hs other sster for 4 ,000, and one n
favor of hs cousn for 20,000. In order to create the trust funds she deposted
40 ,000 on pr 23, 192 , n her trustee account. On the same date she gave
her check as trustee to her husband for that amount and he devered to her
hs s notes dated pr 23, 192 , due pr 23, 193 , and correspondng n
ther severa amounts wth the respectve trust funds. On pr 25, 192 ,
Mr. Peterson pad off the 50,000 demand note and nterest to the Natona
Cty ank.
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335
Regs. 70(1929), rt. 6.
t each tme notes were devered Mr. Peterson assgned stock of the
Dnted States Tobacco Co. as coatera thereto In suffcent amounts to protect
the notes, and notes and coatera were kept by Mrs. Peterson In her Indvdua
safe depost bo and were hed for her account as trustee.
The case was revewed by the whoe oard of Ta ppeas. The ma|orty
reached the concuson that the evdence showed ack of ntenton on Mr. Peter-
sons part to dvest hmsef of compete domnon over the funds transferred
to hs wfe and that the depost of them n the trusts and ther subsequent
return to hm n the form of oans was pursuant to an agreement between
hmsef and bs wfe that the funds were to be used n ony one way, 1. e.,
to set up trusts and then to be returned to hm. The prevang opnon added
that the transacton of uy 17. 11)24, was a pattern for the subsequent trans-
actons whch on three ater occasons two In the same year were carred
out under the same terms and pursuant to ke agreement ccordngy, t was
hed that the notes were not gven for fu consderaton n money or money s
worth and the cams based upon them were not deductbe under secton
03(a of the Revenue ct of 1926.
S members of the oard dssented on the ground that Mr. Peterson gave
hs wfe the gfts uncondtonay reyng on the return of them to hm as
oans, not upon any agreement on her part, but whoy upon her endng n the
e ercse of her absoute dscreton.
The queston s whether gfts were competed before the agreements that
the moneys shoud be oaned to Mr. Peterson were made. If such was the
case, and fu ega and equtabe rghts n the moneys passed to Mrs. Peterson
Indvduay and thereafter to her as trustee of the varous trusts, the trust
estate furnshed fu consderaton In money or money s worth for the
notes upon whch the cams whch the ta payer seeks to deduct rest. ( ud-
ton v. atch. 171 pp. Dv., 24( Matter of endrcks, 163 pp. Dv., 413
Stetcart v. Whttemore. 4 Pac, 41 (Ca.).) On the other hand. If the checks
and proceeds reached Mrs. Peterson upon the condton or under the agreement
that there shoud be oans of dentca amounts to her husband by the trusts
whch she was to set up there were not competed gfts but ony a crcuaton
of funds from Mr. Peterson, or hs banks, to hs wfe, from her Indvduay to
berst f as trustee, from her as trustee to hm, and from hm back to hs banks
to restore hs accounts and wpe out hs borrowngs In cases where he borrowed
n order to carry out the varous transactons. If. because the transfers to Mrs.
Peterson were condtoned upon oans to her husband, the trusts were not n
fact furnshng the moneys, whch came ony from hs own funds, the corpus
of each trust woud consst whoy of a note of Peterson that was no more
than an unenforceabe gratutous promse to make a gft, based upon
nether money nor money s worth. ( ohnson v. Commssoner. 6 . (2d),
710, 713 C. C. . 2) Ct D. 12 , C. . 1937-1. 1 7 omes v. Roper, 141 N. .,
64. mercan Law Insttute, Restatement Trusts, secton 26.)
Couuse for the ta payer argue that the husband frst made a competed gft
and ony afterwards was It arranged that trusts shoud be set up and oans
made to hm out of the proceeds of the checks. We thnk, however, that the
oard was |ustfed n fndng that a the steps taken were component parts
of snge transactons. They foowed one another cosey and the entre
arrangement was agreed upon. The more Mrs. Peterson s testmony Is read
the more apparent It becomes that there was no cear separaton of the dscus-
son cumnatng In the aeged gft and the dscusson about settng up the
trusts and endng the money back to her husband. In the frst pace when
he came n to dnner he ony tod her that he had a gft for her. It does
not appear whether he turned over the checks to her then or ater n the
evenng. oth the suggeston that she set up the trusts and the suggeston
that she end the corpus to her husband were made that evenng and each sug-
geston came from hm. Moreover, he must have made a the pans and ar-
ranged for the draftng of the trust deed prevousy, for the deed was e -
ecuted the day foowng the conversaton, was of consderabe ength and con-
taned eaborate provsons. It s most unkey that a awyer woud have
been empoyed to draft the deed, woud have drafted such an Instrument and
woud have had It e ecuted In a snge day wthout any prevous notce. Such
trusts requre consderaton and revson and are not key to be ordered, com-
peted and e ecuted wthn so short a perod and there s no proof of urgency
or haste.
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Regs. 6 (1924), rt. 22.
336
In addton to a ths the numerous subsequent aeged gfts and oans made
In the foowng years where the funds of the husband were transferred to
hs wfe and used shorty afterwards for advances to hmsef deprve the trans-
actons of reaty. Such a successon of events ndcates strongy that the
transfers were never ntended to be gfts but were mechansms to serve as a
means of gvng the husband ta deductons wthout reay partng wth the
contro of hs money. Whe he doubtess beeved that he successfuy avoded
abty and that hs poston was mmune, hs beef depended on a mstake
of aw and dd not furnsh a bass for a deducton of the amount of hs notea
n computng estate ta es, because the ony consderaton for the notes was
hs own money.
The ta payer had the burden of proof and the questons before the oard
were questons of fact. or the reasons we have stated we are of the opnon
that there was a substanta bass for the fndng that the aeged gfts had no
reaty and for treatng the decson as comng wthn ohnson v. Commssoner
( 6 . (2d), 710 (C. C. . 2)). That decson, upon the facts found, governed
the resut reached.
Counse for the ta payer further contend that the acceptance by the Gov-
ernment of the gft ta es and ts aowance of Interest payments on the notes
as deductons n Mr. Peterson s ncome ta return estopped t from questonng
the reaty of the gfts. There coud be no estoppe n the present case even
f one were ever possbe aganst the Government because t had accepted pay-
ment of ta es that were theoretcay nconsstent wth a abty for others.
ere there s no reason to suppose that the Government offcas knew any-
thng about the crcumstances under whch the aeged gfts were made or
that they dd more than take the representatons of the ta payer that he had
made gfts and was abe for ta es thereon, at ther face vaue. (Utah Power
d Lght Co. v. Unted States, 243 U. S., 9, 409. See aso 49 arv. L. Rev.,
12 1, at 1299 et seq.)
Order affrmed.
Reguatons 6 (1924), rtce 22: Property hed 1939-11-9753
|onty or as tenants by the entrety. Ct. D. 13
( so rtce 22, Reguatons 70(1929).)
ST T T R NU CTS O 1924 ND 1926 D CISION O SUPR M
COURT.
Gross state ont Tenancy Creaton op Tenancy Pror to
dopton of a System or state Ta aton Retroactvty
Consttutonaty.
No. 391. The entre vaue of rea property purchased by the de-
cedent wth hs own funds and hed at hs death, on une 17, 1924,
by hs wfe and hmsef n a |ont tenancy set up pror to the
enactment of the Revenue ct of 1916, Is ncudbe n the decedent s
gross estate under the provsons of secton 302 of the Revenue ct
of 1924. The ta was not retroactvey apped n voaton of the
due process cause of the ffth amendment.
No. 4 2. The entre vaue of persona property hed by the dece-
dent and hs wfe n a ont tenancy created pror to 1916, a porton
of whch property had been contrbuted by the wfe from property
prevousy transferred to her by the decedent wthout consdera-
ton, s consttutonay ncudbe n the decedent s gross estate
under the provsons of secton 302 of the Revenue ct of 1926.
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337
Regs. 6 (1924), rt. 22.
SU M COU T O T UNIT D ST T S.
a 91. The Unted State of merca, pettoner, v. sabeth O. acobs,
recutr of the Last W and Testament of W. rancs acobs. Deceased.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Seventh Crcut.
o. 4 2. dward ordan Dmock, as Substtuted ecutor of the Last W and
Testament of enry 0. oger. Deceased, etc., pettoner, v. Water 0. Gorurtn,
Late Coector of Interna Revenue, rst Dstrct of New York.
Oa wrt of certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
59 S. C 651.
ebruary 27. 1939.
OPINION.
Mr. ustce ack devered the opnon of the Court,
No. 39L
The queston s whether the entre vaue or ony one-haf the yane of rea
property purchased by a decedent wth ba own funds and hed at hs death
by hs wfe and hmsef under a |ont tenancy set up pror to 191 may be
Incuded In the decedent s gross estate under the 1924 Revenue ct.
In 1909, rea estate In Inos was conveyed to W. rauds acobs, the
decedent, and zabeth C. acobs, hs wfe. a ont tenants and ths ont
tenancy contnued unt decedent s death the wfe never contrbuted any purt
of. or consderaton for, the |ont property decedent ded une 17. 1924 (after
the effectve date of the 1924 Revenue ct), and as survvor the wfe became soe
owner n fee of the whoe of the |ont propery.
The Commssoner ncuded the fu vaue of the property In decedent s gross
estate for ta aton under the 1924 ct. s e ecutr , respondent pad the ta ,
and sought recovery n the dstrct court whch hed that the estate ta
coud be mposed ony upon one-haf of the ont property s tota vaue. The
crcut court of appeas affrmed.
Respondent construes the 1 24 Revenue ct as ta ng by ts terms ony
one haf the vaue of the ont property, and contends that ncuson of the
property s entre vaue for estate ta purposes woud as retroactve ta aton
voate the due process cause of the ffth amendment.
rst. It s cear that Congress Intended, b.r secton 02 of the 1924 ct, to
Incude n the gross estate of a decedent the fu vaue at death of a property
owned by hm and any other n ont tenancy or by the entrety Irrespectve
of the date of the tenancy s creaton In so far as the property or consderaton
therefor s traceabe to the decedent. Sudvson (h) of secton 302 specfcay
provded that the provsons of 302 reatng to ont tenances shoud appy
to the transfers, trusts, estates, nterests, rghts, powers, and renqushment of
powers, as descrbed theren, whether made, created, arsng, e stng,
e ercsed, or renqushed before or after the enactment of ths ct. Itacs
supped. Secton 302(h) was enacted n the 1924 ct after ths Court, on Say
1. 1022. had decded that the 1916 ct dd not purport to Impose an estate ta
measured by the vaue of property hed In ont tenances created pror to the
07 (2d), 7 4.
The 1024 ct Imposed a ta (secton 301. ct of 1924. 4 tat., 2 , 303) upon the
transfer of The net estate of every decedent dyng after the rt s enactment, and Incuded
ecton .302) n each gross estate the vaue of the Interest D property
b d as ont tenants by the decedent and any other r-nn. or as tenants by the entrety
by the decedent and spouse. e cept such part thereof as msr be shown to have
orcnay ekmged to surh other person and never to have been receved or acqured by
tbe Ister from the decedent for ess than s far consderaton In money or money s worth:
prortdftf That where such property or nny part thereof, or rt of the consderaton wth
hrh such property a acqured. Is shown to have been at any tme acqured by such
Demon from he decedent for ess than a far consderaton In money or money s worth,
r, .h.n ho e cepted ony such part of the vaue of such property as Is proportonate
tftht consderaton furnshed by such other person .
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Regs. 6 (1924), rt. 22.
33
1916 ct. The cear anguage of the 1924 statute repes the noton that It
has no appcaton to ont tenances created pror to September , 1016. 4
Second. ere, decedent pad the entre purchase prce of the ont property
wth hs own ndvdua funds and, therefore, the 1924 statute requred the
ncuson of the fu vaue of the ont property n hs gross estate. Contendng
that the ta as so apped Is retroactve, respondent Inssts that the due process
cause of the ffth amendment forbds such ta aton. The reasonng s that a
one-haf nterest n the ont property was transferred to, and vested n the
wfe n 1909 that the ta In queston ony appes to transfers and that the
one-haf nterest transferred to the wfe In 1909 coud not thereafter (1924) be
ta ed as a part of decedent s gross estate wthout retroactvey appyng the
ta to the 1909 transfer.
ut the ta was not eved on the 1909 transfer and was not retroactve. t
decedent s death In 1924, ownershp and benefca rghts In the property whch
had e sted n both tenants onty changed nto the snge ownershp of the
survvor. Ths change n ownershp, attrbutabe to the speca character of
ont tenances, was made the occason for an e cse, to be measured by the
vaue of the property n whch the change of ownershp occurred. ad the
tenancy not been created, ths survvorshp and change of ownershp woud
not have taken pace, but the ta does not operate retroactvey merey because
some of the facts or condtons upon whch Its appcaton depends came nto
beng pror to the enactment of the ta .
Death dutes or e cses mposed upon the occason of change n ega rea-
tonshps to property brought about by death are ancent In orgn. Congress
has the power to evy a ta upon the occason of a ont tenant s acqurng
the status of survvor at the death of a co-tenant. In hodng that the fu
vaue of an estate by the entrety may consttutonay be ncuded In a decedent s
gross estate for estate ta purposes, ths Court sad: The queston
s, not whether there has been, n the strct sense of that word, a transfer
of the property by the death of the decedent, or a recept of t by rght of
successon, but whether the death has brought nto beng or rpened for the
survvor, property rghts of such character as to make approprate the mpo-
ston of a ta upon that resut (whch Congress may ca a transfer ta , a
death duty or anythng ese It sees ft), to be measured, n whoe or n part,
by the vaue of such rghts .
t the co-tenant s death, however, and because of t,
the survvor for the frst tme, became entted to e cusve possesson, use
and en|oyment she ceased to hod the property sub|ect to quafcatons Imposed
by the aw reatng to tenancy by the entrety, and became entted to bod
and en|oy t absoutey as her own: and then, and then ony, she acqured the
power, not theretofore possessed, of dsposng of the property by an e ercse of
her soe w. Thus the death of one of the partes to the tenancy became the
generatng source of mportant and defnte accessons to the property rghts
of the other. These crcumstances, together wth the fact, the e stence of
whch the statute requres, that no part of the property orgnay had beonged
to the wfe, are suffcent, n our opnon, to make vad the Incuson of the
property n the gross estate whch forms the prmary base for the measurement
of the ta . T
Thereafter, t was further decded that the fu vaue of the property passng
to a survvor under a tenancy by the entrety created pror to the estate ta
of 1916 coud be ncuded In the gross estate.1 Congress It has been hed
may aso consttutonay appy an estate ta to the whoe of a ont tenancy
created after the 1916 ct, and to haf of a ont tenancy created pror to the
hcab . Doye (2 . ., 629, 535 IT. D. 3339, C. . 1-2, 12 (1922)1) no r.
Uc .nott (25 U. .. 46. 549). Respondent recs upon anguage of the no case to
support the contenton that secton 302 of the 1924 ct Is retroactve In Its effect on ont
tenances such as the one here. owever, the actua udgment of the Court In that case
went no further thnn to hod that the terms of the 191 ct there consdered dd not
requre the Incuson In gross estates of the vaue of property hed n ont tenances
created pror to the enactment of that partcuar aw.
Otcnn v. Commssoner (2 7 . S., 224, 22 ) cf. Phps v. Dme Trust d . D. Co.
(2R4 U. S , 1(10. 16 (Ct. D. 4 6. C. -2, 420 (1931) ).
Cf. Reynods v. Unted States (292 T . .. 443, 449) Coa. v. art (260 D. ., 427, 4 5).
Sec nowton v. Moore (17 U. ., 41. 47), 1 Cooey, Ta aton, secton 4 (4th ed.),
eRman, ssays n Ta aton, Ch. (9th ed., 1921).
Tyer v. I7n(rd States (2 1 U. ., 497. 503, 504 Ct. D. 190. C. . I -1, 3 (1930)1).
Thrd Natona ank f Trust Co. . Whte (46 . (2d), 911 Ct. D. 12. C. . -. 457
(1931)1. affrmed 2 7 U. S.. 577): ffeverng. Commssoner, . owers (303 D. ., 61 ).
oster v. Commssoner (303 U. ., 61 ).
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339
Regs. 6 (1924), rt. 22.
1916 rt, where the decedent aone had furnshed consderaton for the |ont
property.1
t s urged that these decsons do not support the ta here upon the fu
vaue of the ont property, because ths tenancy was created pror to the estate
ta aw of 1916. Respondent rees upon dfferences In the nature of tenances
by the entrety and ont tenances In order to remove the present case from the
appcaton of these pror ad|udcatons. Snce a ont tenant s nterest n
reaty s severabe and sub|ect to sae, the argument s that upon the death of a
co-tenant the survvor actuay receves nothng more than the decedent s one-
haf nterest and therefore no more can be sub|ected to a death duty. On the
other hand, respondent e pans the permssbe ta aton of the whoe of a ten-
ancy by the entrety by reference to the amabe cton u of the common
aw, under whch ownershp of a husband and wfe n tenancy by the entrety
s deemed a snge ndvdua unty and each owns a and every part of the
property so hed. y vrtue of ths feuda cton of compete ownershp n
each of two persons, the survvng tenant by the entrety Is conceved to be
the recpent of a the property upon the death of the co-tenant, and therefore
It s sad a the property can be ta ed.
The consttutonaty of an e ercse of the ta ng power of Congress Is not
to be determned by such shadowy and Intrcate dstnctons of common aw
property concepts and ancent fctons. The Consttuton grants Congress the
ower to ay and coect Ta es, Dutes, Imposts, and cses, to pay the Debts
and provde for the common Defense and genera Wefare. No more essen-
ta or mportant power has been conferred upon the Congress and the pre-
sumpton that an ct of Congress s vad appes wth added force and weght
to a evy of pubc revenue.
In addton, there s suffcent substanta smarty between |ont tenances
and tenances by the entrety to have moved Congress to treat them ake for
purposes of ta aton. Practca necesstes and ta aton s emnenty prac-
tca may we have ed Congress to group dfferent types of ont owner-
shp together for ta aton rather than to afford dfferent treatment to each
varyng shade of such ownershp. tenancy by the entrety s essentay a
|ont tenancy, modfed by the common aw theory that husband and wfe are
one person. Ony a fcton stands between the two. Survvorshp s the
predomnant and dstngushng feature of each. The grand ncdent of ont
estate s the doctrne of survvorshp, by whch, when two or more persons
are sezed of a |ont estate, the entre tenancy upon the decease of
any of them remans to the survvors, and at ength to the ast survvor and
he sha be entted to the whoe estate, whatever t may be.
Whe t s true that unt the death of decedent here each ont tenant
possessed the rght to sever the ont tenancy, each was nevertheess sub|ected
to the hazard of osng the compete estate to the other as survvor. Pror
to decedent s death, hs wfe had no rght to dspose of her Interest by w,
nor coud t pass to her ega hers. She mght survve and thereby obtan
a compete fee to the property wth attendant rghts of possesson and dspos-
ton by w or otherwse. Unt the death of her co-tenant, the wfe coud
have severed the ont tenancy and thus have escaped the appcaton of the
estate ta of whch she compans. Upon the death of her co-tenant she for
the frst tme became possessed of the soe rght to se the entre pro rty
wthout rsk of oss whch mght have resuted from partton or separate sae
rwnn v. Commssoner, supra GrfmroM v. teve ng (290 T . .. 6. 5 ). In the
Grswod case ths Court sad : Whether ths appcaton of the statute gves t a retro-
actve effect s the soe quea nn here Invoved ana wth that we fnd no dffcuty. Under
the statute the death of decedent s the event n respect of whch the ta s ad. It a
the e stence of the |ont tenancy at that tme, and not ts creaton at an earer date,
whch furnshes the bass for the ta .
u Cf. Tuer v. nted States, supra, at 503.
U |ont tenancy n Inos where the property Invoved here a ocated s descrbed
by that Sate s hghest court (as In the common aw) as foows: The propertes of a
ont estate are derved from ts unty whch s fourfod: the unty of Interest, the unty
of tte, the unty of tme and the unty of possesson or. In other words. ont tenants
have one and the same Interest, accrung by one and the same conveyance, commencng at
one and the same tme and hed by one and the same undvded possesson. (Desaurers
v. Senesac, 331 III.. 437, 440.) The earnng In the books merey shows that n case of
a conveyance to husband and wfe, there s a ftth unty, to wt: that of person .
(Toppng v. Sader, ones (No. Car.), 57, 360.) ee note, 0 L. . ., 05.
co v. mes (173 U. S., 509, 515).
Id.. 516
1 Tffany, ea Property (1920), secton 194 see Ltteton s Tenures, secton
291 (Wambaugh. ed., 1905).
reeman, 7 Cotenancy and Partton, 2nd ed., secton 12.
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Regs. 6 (1924), rt. 22. 340
of her nterest whe decedent ved. There was at hs death a dstnct
shftng of economc nterest, a decded change for the survvor s beneft.
Ths termnaton of a |ont tenancy marked by a change n the nature of
ownershp of property was desgnated by Congress as an approprate occason
for the mposton of a ta . Nether the amount of the ta nor ts appcaton
to the survvor s change of status and ownershp, was n any manner dependent
upon the date of the ont tenancy s creaton, whether before, or after, 1916.
It Is mmatera that Congress chose to measure the amount of the ta by
a percentage of the tota vaue of the property, rather than by a part, or by
a set sum for each such change. The wsdom both of the ta and of ts
measurement was for Congress to determne.
No. 432.
No. 4 2 nvoves provsons of the 1926 Revenue ct (44 Stat., 9) substan-
tay dentca to those of the 1924 ct consdered above. ere, aso, a ont
tenancy (n persona property) was created by man and wfe pror to 1916.
owever, not a of the |ont property was contrbuted by the decedent, but a
porton was contrbuted to the tenancy by the wfe who survved. Ths prop-
erty whch she transferred to the tenancy had n turn been prevousy gven
to her wthout consderaton by decedent before the creaton of the |ont
tenancy. t decedent s death n 1930, an estate ta was assessed and pad
upon the fu vaue of the |ont property, ncudng that part contrbuted by
the survvor but utmatey traceabe to the decedent.
The dstrct court hed that the fu vaue of the ont property was ta abe,
and the Crcut Court of ppeas affrmed.1
The contenton that the 1926 ta Is unconsttutona under the ffth amend-
ment because mposed upon the tota vaue of the ont tenancy at decedent s
death s wthout mert, for reasons stated n No. 391.
owever, there s here the further argument that the courts beow erred
n construng the 1926 ct to requre the Incuson n the gross estate of that
part of the |ont property (shares of stock) contrbuted to the |ont tenancy
by the survvor, but whch had been pad for and gven to her by decedent
pror to the creaton of the tenancy.
though subdvson (h) of secton 302 of the 1926 ct specfcay requred
ncuson n the gross estate of the fu vaue of the ont property at death n
proporton to the decedent s contrbuton to the purchase prce, pettoner rees
upon that part of subdvson (e) whch e cepts such part of the |ont
property as may be shown to have orgnay beonged to
(the survvor and never to have been receved or acqured by the atter from
the decedent for ess than an adequate and fu consderaton n money or
money s worth. Pettoner nssts that ths e cepton shoud be read e cept
such parts thereof as may be shown to have orgnay beonged to the sur-
vvor and never after the passage of ths ct to have been receved or acqured
by the atter from the decedent for ess than an adequate and fu consderaton
n money or money s worth.
The survvng |ont tenant n ths case comes squarey wthn the governng
statutory provson because she receved and acqured a of the property
contrbuted by her to the |ont tenancy from the decedent for ess than an
adequate and fu consderaton n money or money s worth. Ths anguage
adopted by Congress ceary and unambguousy ndcates the purpose to ta the
entre vaue of a |ont tenancy under crcumstances shown by ths record. We
are wthout authorty to add anguage to the statute drecty contrary to such
a ceary e pressed purpose.
The |udgment In No. 391 s reversed and that In No. 4 2 s affrmed.
Mr. ustce Stone took no part n the consderaton or decson of these cases.
Cf. Chase af. ank v. Unted States (27 D. S.. 327, 33 Ct. D. 40. C. . 1II-1.
0 (1929)1) Satonsta v. Satonsta (276 U. ., 260, 271).
19 . Supp., 56.
09 . (2). 709.
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341 Regs. 79(1936), rt. 19.
TITL IIL GI T T . (1932)
S CTION 506.
Reguatons 79 (1936), rtce 19: auaton 1939-22-9 53
of property. T. D. 4901
TITL 26 INT RN L R NU . C PT R I. P RT GI T T .
rtce 19 of Reguatons 79 (1936 edton) amended. auaton
of stocks and bonds.
Washngton, D. O.
Subdvson (1) of artce 19 of Reguatons 79, 1936 edton (sec-
ton 5.19 of Tte 26, Code of edera Reguatons), and that artce
as made appcabe to the Interna Revenue Code by Treasury De-
cson 4 5, approved ebruary 11, 1939 (Part 465, Subpart , of
such Tte 26 page 396, ths uetn ), s amended to read as foows:
(1) Genera. The statute provdes that f the gft Is made n property, the
vaue thereof at the date of the gft sha e consdered the amount of the
gft. The vaue of the property s the prce nt whch such property woud
change hands between a wng buyer and a wng eer, nether beng under
any compuson to buy or to se. The vaue of a partcuar knd of proerty
s not to be determned by a forced sae prce. Such vaue Is to be deer-
mned by ascertanng as a bass the far market vaue at the tme of the
gft of each unt of the property. or e ampe. In the case of shares of stock
or bonds, such unt of property s a share or a bond. reevant facts and
eements of vaue us of the tme of the gft shoud be consdered.
Subdvson (3) of artce 19 of Reguatons 79, 1936 edton (sec-
ton 5.19 of Tte 26, Code of ederaReguatons), and that artce
as made appcabe to the Interna Revenue Code by Treasury Decson
4 5, approved ebruary 11, 1939 (Part 465, Subpart , of such Tte
(5) Stocks and bons. The vaue at the date of the gft n the case of stocks
and bonds, wthn the meanng of the statute, s the far market vaue per
share or bond on such date.
In the case of stocks and bonds sted on a stock e change the mean
between the hghest and owest quoted seng prces on the date of the gft
sha be consdered as the far market vaue per share or bond. If there were
no saes on the date of the gft, such vaue sha be determned by hkng the
mean between the hghest and owest saes on the nearest date before and
the nearest date after the date of the gft (both such nearest dates beng
wthn a reasonabe perod), and by proratng the dfference between such
mean prces to the date of the gft, and by addng or subtractng, as the case
may be. such prorated porton of the dfference to or from the mean prce
obtanng on such nearest date before the date of the gft. or e ampe, assume
that saes of stock nearest the date of the gft ( une 15( occurred two days
before ( une 131 and three days after ( une 1 ) and that on such days the
mean sae prces per share were 10 and 15, respectvey. The prce of 12
sha be taken as representng the far market vaue of a share of such stock
as of the date of the gft. If, however, on une 13 and une 1 the mean
tae prces per share were 15 and 10. respectvey, the prce of 13 sha be
taken as representng the far market vaue of a share of such stock as of the
date of the gft. If the securty was sted on more than one e change, the
records of the e change where the securty s prncpay deat n shoud be
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342
empoyed. In vaung sted stocks and bonds the donor shoud observe care
to consut accurate records to obtan vaues as of the date of the gft.
In the case of stocks and bonds whch are not sted upon an e change, but
are deat In through brokers, or have a market, the far market vaue sha
be determned by takng the mean between the hghest and owest seng
prces as of the date of the gft or, If there were no saes on that date,
such vaue sha be determned by takng the mean between the hghest and
owest saes on the nearest date before and the nearest date after the date
of the gft (both such nearest dates beng wthn a reasonabe perod), and
by proratng the dfference between such mean prces to the date of the gft,
and by addng or subtractng, as the case may be, such prorated porton of
the dfference to or from the mean prce obtanng on such nearest date before
the date of the gft. If quotatons are obtaned from brokers, or evdence as
to the sae of securtes s obtaned from the offcers of the ssung companes,
the donor shoud preserve n hs fes the etters furnshng such quotatons
or evdence of sae for nspecton when the return Is verfed by an Investgatng
offcer.
If actua saes are not avaabe durng a reasonabe perod begnnng before
and endng after the date of the gft, the far market vaue may be determned
by takng the mean between the bona fde bd and asked prces on the nearest
date before and the nearest date after the date of the gft (both such nearest
dates beng wthn a reasonabe perod), and by proratng the dfference between
such mean prces to the date of the gft, and by addng or subtractng, as the
case may be, such prorated porton of the dfference to or from the mean prce
obtanng on such nearest date before the date of the gft
If actua sae prces or quoted bona fde bd and asked prces are avaabe
on a date wthn a reasonabe perod pror to the date of the gft, and f no
actua sae prces or bona fde bd and asked prces are avaabe on a date
wthn a reasonabe perod after the date of the gft, or vce versa, then the
mean between such hghest and owest avaabe sae prces or bd and asked
prces may be taken as the vaue.
If actua saes or bona fde bd and asked prces are not avaabe, then, n
the case of corporate or other bonds, the vaue s to be arrved at by gvng
consderaton to the soundness of the securty, the nterest yed, the date of
maturty, and other reevant factors, and, n the case of shares of stock, upon
the bass of the company s net worth, earnng power, dvdend-payng capacty,
and a other reevant factors havng a bearng upon the vaue of the stock.
Compete fnanca and other data upon whch the donor bases hs vauaton
shoud be submtted wth the return.
In cases n whch t Is estabshed that the vaue per bond or share of any
securty determned on the bass of seng or bd and asked prces as heren
provded does not refect the far market vaue thereof, then some reasonabe
modfcaton of such bass or other reevant facts and eements of vaue sha
be consdered n determnng far market vaue.
(53 Stat. Part 1) and sectons 506 and 530 of the Revenue ct of
1932 (47 Stat, 24 , 259 26 U. S. C, 555, 579).)
Gut T. evernq,
pproved May 1 , 1939.
ohn W. anes,
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Regs. 64(1936), rt. 35.
TITL I. INCOM ND C SS-PRO ITS ND
C PIT L STOC T S. (1935)
S CTION 105 O T R NU CT O 1935. S M ND D Y S C-
TION 401 O T R NU CT O 1936. C PIT L STOC T .
The M Corporaton, operated by Its offcers pursuant to an order
of a edera court entered n proceedngs for reorganzaton under
secton 77 of the ankruptcy ct. as amended, was carryng on
or dong busness wthn the meanng of secton 105(a) of the
Itevenue ct of 1935, as amended, and was therefore sub|ect to
capta stock ta .
S. T. 702 (C. . II-2, 405 (1933)) dstngushed.
n opnon s requested whether the M Corporaton, whch, durng
the entre ta abe year ended une 30, 193(5, was operated by ts
offcers under an order of a edera court entered pursuant to a
petton for reorganzaton under secton 77 of the ankruptcy
ct, as amended, was sub|ect to capta stock ta for that ta abe
year under secton 105 of the Revenue ct of 1935, as amended by
secton 401 of the Revenue ct of 1936.
Secton 105, as amended, mposes upon every domestc corporaton,
wth respect to carryng on or dong busness for any part of each
year endng une 30, begnnng wth the year ended une 30, 1936.
an e cse ta of 1 for each 1,000 of the ad|usted decared vaue o
ts capta stock.
The M Corporaton and certan other corporatons on ebruary ,
1935, fed pettons for reorganzaton under secton 77 of the ank-
ruptcy ct, as amended. Pursuant to such pettons, the Dstrct
Court of the Unted States for the Dstrct of Massachusetts on
ebruary , 1935, entered an order provdng n part as foows:
1. That the debtor and other debtors be and they hereby are temporary
contnued n possesson of ther respectve estates.
2. That the debtor and other debtors be and they hereby are authorzed to
conduct and carry on ther respectve busnesses as an entrety unt the fur-
ther order of ths court n the premses and the debtor and other debtors sha
have a the tte to and sha e ercse, consstenty wth the provsons of sad
secton 77 , a the powers of a trustee apponted pursuant to sad secton,
sub|ect at a tmes to the contro of ths court and to such mtatons, restrc-
tons, terms and condtons as ths court may from tme to tme mwse and
prescrbe and, wthout mtng the generaty of the foregong, the debtor nnd
other debtors sha have fu power and authorty to do a thngs necessary or
convenent to conduct and carry on ther respectve busnesses as an entrety
and to mantan and preserve ther respectve estates to coect
and receve a the rents, ssues, ncome, tos and profts and a outstandng
accrued or accrung accounts, thngs n acton nnd credts due or owng to the
debtor and other debtors and to hod and retan a moneys receved to the end
that the same may be apped under ths or the further orders of ths court.
The order further authorzed the debtor and other debtors n ther
dscreton to pay a e penses ncurred n the operaton of the re-
spectve busnesses hereby authorzed and n preservng and man-
tanng the estates of the debtor and other debtors, and gave such
debtor and other debtors power n ther dscreton to sue and defend
n the name of such corporatons. ooks of account were to be kept
and statements fed as requred by secton 77 or as drected from
Reguatons 64 (1936), rtce 35: Return by
custodan.
1939-21-9 45
G. C. M. 2120
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Regs. 64(1936), rt. 35.
344
tme to tme by the court. persons, ncudng stockhoders and
credtors, were en|oned from nsttutng or prosecutng sut aganst
the debtor or other debtors and from dsposng of any of tne property
or assets of the debtor or other debtors durng the pendency of the
proceedngs. The court further reserved the fu rght and |ursdc-
ton to appont a trustee wth the same powers as those e ercsed by
an equty recever to the e tent consstent wth secton 77 . On
March , 1935, the court entered an order permanenty contnung
the debtor and other debtors n possesson of ther respectve estates
and authorzng them to contnue the operatons of ther respectve
busnesses to the same e tent as set out n the order dated ebruary
, 1935, referred to above. The fna decree n the proceedngs was
entered by the court on December , 1937.
The M Company contends that durng the entre ta abe year ended
une 30, 1936, ts property and busness were under the contro and
supervson of the court and that t was not carryng on or dong
busness durng that year wthn the meanng of the aw and regua-
tons. The decson of the Unted States Supreme Court n Unted
States v. Whtrdge (231 U. S., 144) s cted n support of such con-
tenton. It was hed n that case that a corporaton, the busness of
whch was carred on durng the pendency of an equty recevershp,
was not carryng on or dong busness wthn the meanng of the
Corporaton cse Ta ct of 1909.
rtce 35 of Reguatons 64 (1936) provdes n part as foows:
If, at the cose of the ta abe year, a of the property of a corpo-
raton s n the custody of and beng admnstered by a recever or a trustee n
bankruptcy, or s In the custody f a edera or State offcer pendng the ap-
pontment of a recever or trustee n bankruptcy, there sha be attached to the
return a statement showng the date on whch the property was paced n
the custody of such offcer and whether hs custody has been contnuous snce
that date. If, durng any entre year endng une 30, a of the
property of a corporaton s n the hands of such pubc offca, the corporaton
s not sub|ect to the ta for such year, but n order that ts e empt status
may be known to the Commssoner such custodan sha fe wth the coector
of nterna revenue an nformaton return on orm 707, attachng thereto an
affdavt showng the date on whch the property came nto hs custody and the
fact that hs custody was contnuous throughout such entre year.
It was hed n S. T. 702 (C. . II-2, 405 (1933)) that
Where a corporaton s n the hands of a recever, the recever and not the
corporaton s carryng on the busness. Ths s true wth respect to both operat-
ng recevers and qudatng recevers.
Ths offce s of the opnon that the nstant case s dstngushabe
on ts facts from the Whtrdge case. In the Whtrdge case, the
Thrd venue System of Street Raways n the Cty of New York was,
durng the ta abe year, n the hands of one, Whtrdge, as recever
under an order of the edera crcut court. In the order appontng
hm, the recever was gven fu authorty to operate the sad raways
and propertes sub|ect to the supervson of the court. y the same
order, the offcers, agents, and empoyees of the raway company were
requred to turn over to hm a of the property n ther hands or
under ther contro and the company was en|oned from nterferng
n any way wth hs possesson or management. The theory of the
Supreme Court n the Whtrdge case was that, snce the corporaton
e cse ta n queston was mposed on the prvege of dong busness
n a corporate capacty, the ta had no appcaton to a stuaton
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345
Regs. 64(1936), rt. 35.
where the corporaton had been ousted from the management and
contro of ts busness and was deprved of the prvege of e ercsng
ts norma functons as a corporaton. The ta payer has assumed
that the order of ebruary , 1935, contnung the debtor n possesson
sub|ect to the supervson of the court has the same effect as the ap-
pontment of an equty recever or a trustee n bankruptcy. In ths
regard, t may be we to consder |ust what was the pocy of Congress
behnd ths provson under secton 77 of the ankruptcy ct that
the court may contnue the debtor n possesson. Subsecton 7 of the
report of the udcary Commttee of the ouse of Representatves
( . R 5 4) reads as foows:
The court s authorzed to contnue the debtor In possesson and In such case
the saares of offcers must be reasonabe and approved by the |udge. Saares
of offcers w key be ess than fees of trustees. In some cases offcers w
be wng to work for nothng In order to preserve the stuaton and ther
ock Interest theren. Company offcers w aso keep down company counse
fees to a pont ower than counse fees of a trustee. ( ouse Report No. 194,
Seventy-thrd Congress, frst sesson.)
The report of the counse to the speca commttee to nvestgate
recevershp and bankruptcy proceedngs whch ed up to the Chander
ct of une 22,193 , Pubc, No. 696, Seventy-ffth Congress (52 Stat..
40) (whch ct now e pressy mposes on a debtor n possasson a
the dutes of a trustee (see secton 1 ) and further provdes that a
debtor may no onger be contnued n possesson uness the estate s
under 250,000 (see secton 156)), states n part that
Under secton 77 , the opton s gven to retan the debtor n posses-
son. The argument for the retenton of the debtor s that proper admnstraton
n 77 w not resut n an nordnatey ong proceedng, that qudaton s
sot contempated, and that contnuaton of busness must be encouraged and
beray permtted n the Interests of reorganzaton that the nterposton of a
trustee s ordnary unnecessary that a trustee s not sked n the busness
and f he s, he coud ony be taken from the ranks of compettors and may
proft from the nformaton thus ganed. The thought underyng 77 s
the retenton by the debtor of ts busness whe t negotates wth ts credtors
and the contenton that the appontment of a trustee merey ncreases the e pense.
The force of ths argument can not be dened. (Senate Document 20 , Seventy-
fourth Congress, second sesson, page 4 .)
ssumng ths to be a far statement of the pocy of Congress n
provdng under secton 77 that the court may permt the debtor
to contnue n possesson, t seems cear that ths purpose was not
to oust the debtor and to repace corporate management by an out-
ader as trustee or recever, but rather to contnue such corporaton
n the contro of ts busness, sub|ect of course to the supervson of
the court.
or the reasons above set forth, ths offce s of the opnon that the
Whtrdge case has no appcaton to the stuaton presented n the
nstant case where the actvtes of the corporaton and ts manage-
ment, as authorzed by the court, ncude the norma functons of the
corporaton, and ths notwthstandng the fact that the corporaton
durng the ta abe year n queston was under the drect supervson
and contro of the edera court and was mted and restrcted n
certan respects n the conduct of ths busness. ccordngy, t s
concuded that the M Corporaton durng the capta stock ta ta -
abe year ended une 30, 1936, was carryng on or dong busness
172176 39 pt. 1 12
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Regs. 64(193 ), rt. 21.
346
wthn the meanng of secton 105(a) of the Revenue ct of 1935,
as amended, and s, therefore, sub|ect to capta stock ta .
The rung pubshed as S. T. 7u2 (C. . 1I-2, 405 (1933)) pro-
vdng for an e empton from abty for the capta sock ta s
mted to those cases where a corporaton has been ousted from the
management and contro of ts busness and has been deprved of the
prvege of e ercsng ts norma functons as a corporaton, but has
no appcaton where a debtor s contnued n possesson under the
provsons of secton 7713 of the ankruptcy ct and where the actv-
tes of the corporaton and ts management as authorzed by the court
ncude the norma functons of that corporaton.
Ths opnon s equay appcabe under secton 601 of the Revenue
ct of 193 and Chapter 6 of the Interna Revenue Code. Under
the provsons of secton 601(f)6 of the Revenue ct of 193 and
secton 1202(c) of the Interna Revenue Code, a corporaton, n ts
capta stock ta return for a year begnnng wth or wthn an
ncome-ta ta abe year wthn whch reorganzaton proceedngs
under secton 77 of the ankruptcy ct, as amended, are termnated,
sha make a decaraton of vaue for ts capta stock even though a
vaue mght have been decared for a pror year of the same 3-year
perod. (See artce 45, Reguatons 64 (193 ).)
. P. Wence,
TITL IIL C PIT L STOC ND C SS-PRO ITS
T S. (193 )
S CTION 601. C PIT L STOC T .
Reguatons 64(193 ), rtce 21: Defntons. 1939 20-9 36
( so rtces 44 and 74.) C. S. T. 9
The 3-year perods begnnng uy 1, 1037, and endng une 30,
1940, and contnung durng each succeedng perod of three yenrs
thereafter, pre.-crbed by secton 001 (fI of the Revenue ct of :
for capta stock ta purposes, are the same for a corporatons.
dvce s requested whether, under the provsons of secton
601 (f) of the Revenue ct of 193 (secton 1202, Interna Revenue
Code), the phrase 3-year perods theren mentoned means n a
cases the perod begnnng uy 1, 1937, and endng une 30, 1910,
and each perod of three years thereafter, or whether, where corpora-
tons are not sub|ect to the ta for the frst year of a 3-year perod,
ether because of not havng been n e stence durng that year or
because of e empton from the ta , the 3-year perod begns wth
the year for whch the corporaton s frst sub|ect to the ta .
Secton 601(f) of the Revenue ct of 193 provdes n part as
foows:
(1) The ad|usted decared vaue sha be determned wth respect to 3-year
perods begnnng wth the year endng une 30. 193 , and each thrd year
thereafter. The frst year of each such 3-year perod, or, n case of a corporaton
not sub|ect for such year to the ta mposed by ths secton, the frst year of tuch
3-year perod for whch the corporaton s sub|ect to the ta , sha consttute
a decaraton year. Itacs supped.
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347
Regs. 64(193 ), rt. 35.
rtce 21 of Reguatons 64 (193 ) defnes the term 3-year
perod and decaraton year as foows:
(1) The term 3-year perod means the perod begnnng uy 1, 1937, and
endng une 30, 1940, and each perod of three years thereafter.
(m) The term decaraton year means (1) the frst year of each 3-year
perod for whch a corporaton, whether domestc or foregn, s sub|ect to the
ta .
It s cear that under the provsons of the aw and reguatons the
phrase 3-year perods means n a cases a unform statutory perod
begnnng uy 1, 1937, and endng une 30, 1940, and contnung
durng each perod of three years thereafter, regardess of whether
for any reason a corporaton may not be sub|ect to the ta for the
frst or any other year of such 3-year perod. Ths constructon of the
statute conforms wth the ntent of Congress as e pressed n the
report (No. 1 60) dated March 1, 193 , of the Ways and Means
Commttee of the ouse of Representatves, n whch the statement
s made that The 3-year perods are the same for a corporatons.
In some cases, a decaraton of vaue w be made by corporatons
n years other than the frst year of a statutory 3-year perod. In
such cases, the 3-year perod w not consst of three successve
ta abe years. If for any reason a corporaton s not sub|ect to the
capta stock ta for the year 193 , but s sub|ect thereto for the years
1939 and 1940, the corporaton w, nevertheess, make a decaraton
of vaue n 1939, ad|ust such vaue n 1940, and make a new decaraton
of vaue n 1941 for the succeedng 3-year perod. Smary, f for
any reason a corporaton s not sub|ect to the capta stock ta for the
years 193 and 1939, but s sub|ect thereto for the year 1940, the
corporaton w, nevertheess, make a decaraton of vaue n 1940,
and w then make a new decaraton of vaue n 1941 for the suc-
ceedng 3-year perod. Thus, the 3-year perods prescrbed by aw
are the same for a corporatons sub|ect to ta .
Reouatons 64(193 ), rtce 35: Return of 1939-7-9716
corporaton n recevershp. C. S. T.
recever, trustee In bankruptcy, or other ke representatve,
who Is admnsterng the busness of a corporaton and s n charge
of a ts property at the tme for fng a capta stock ta return
under the Revenue ct of 193 must fe such return.
dvce s requested whether, under the crcumstances herenafter
seated, the capta stock ta returns under secton 601(d) of the
Revenue ct of 193 shoud be fed for the M, N, O, and P Corpora-
tons by the recevers or by the responsbe offcers of the respectve
corporatons. dvce s aso requested wth respect to the proper
appcaton of secton 601(f)6 of that ct to the four stuatons
presented.
Secton 601(a) of the Revenue ct of 193 mposes a capta stock
ta upon every domestc corporaton for each year endng une 30,
begnnng wth the year endng une 30,193 , wth respect to carryng
on or dong busness for any part of such year. The ta s measured by
the ad|usted decared vaue of the capta stock of the corporaton.
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Regs. 64(193 ), rt. 35.
34
Secton 601 (d) provdes thnt the return sha be fed under oath wthn
one month after the cose of the year wth respect to whch the ta s
mposed.
Secton 601(f) provdes n part as foows:
(1) The ad|usted decared vaue sha be determned wth respect to 3-year
perods begnnng wth the year endng une 30, 193 , and each thrd year there-
after. The frs year of each such 3-year perod, or. n case of a corporaton not
sub|ect for such year to the ta mposed by ths secton, the frst year of such
3-year perod for whch the corporaton s sub|ect to the ta , shaU consttute
a decaraton year.
(2) or each decaraton year the ad|usted decared vaue sha be the vaue,
as decared by the corporaton n Its return for such decaraton year (whch
decaraton of vaue cannot be amended), as of the cose of ts ast ncome-ta
ta abe year endng wth or pror to the cose of such decaraton year (or as
of the date of organzaton n the case of a corporaton havng no ncome-ta
ta abe year endng wth or pror to the cose of such decaraton year).

(C) The capta-stock ta year begnnng wth or wthn an ncome-ta ta abe
year wthn whch bankruptcy or recevershp, due to nsovency, of a domestc
corporaton, s termnated sha consttute a decaraton year. In such case the
ad|usted decared vaue for any subsequent year of the 3-year perod sha be
determned on the bass of the vaue decared In the return for such decaraton
year.
The foowng stuatons are presented:
(a) The M Corporaton, due to nsovency, was n recevershp from
ebruary 1, 193 , to September 30, 193 . The corporaton fes ts
ncome ta returns on a caendar year bass.
(b) The N Corporaton, due to nsovency, was paced n recever-
shp on November I, 193 . It s contempated that the recevershp
w termnate on October 31, 1939. The corporaton fes ts ncome
ta returns on a caendar year bass.
(c) The O Corporaton, due to nsovency, was paced n recever-
shp on September 1, 1937. It s contempated that the recevershp
w termnate on March 31, 1939. The corporaton fes ts ncome
ta returns on a caendar year bass.
( ) The P Corporaton, due to nsovency, went nto recevershp
on ebruary 1, 193 . It s contempated that the recevershp w
termnate on March 31, 1939. The corporaton fes ts returns on the
bass of a fsca year endng pr 30.
If at the tme for fng a capta stock ta return the admnstra-
ton of the busness of a corporaton and a ts property are n charge
of a recever, the return shoud he fed by such recever. Where the
busness was operated by the corporaton tsef for any part of the
capta stock ta ta abe year, the return so fed sha nevertheess
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
or the capta stock, f the return s made for an ad|ustment year.
If a recever s admnstraton and custody have been contnuous
throughout the entre capta stock ta ta abe year, so that the cor-
poraton tsef dr not operate the busness for any part of the year,
no statement of decared vaue or ad|usted vaue s requred because
no ta s due, but n en thereof, the recever must attach a statement
to the return showng the date on whch the property came nto hs
custody and whether hs custody was contnuous thereafter.
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349
Regs. 64(193 ), rt. 35.
In the case of the M Corporaton, the recever admnsterng ts
busness was n charge of ts property at the tme for fng the cap-
ta stock ta return for the ta abe year ended une 30, 193 , and
was, therefore, requred to fe such return. Snce the corporaton
operated the busness for a part of such ta abe year, namey, from
uy 1, 1937, to anuary 31, 193 , the return fed by the recever
shoud be compete for the entre year, ncudng a decaraton of the
Taue of the capta stock. Under the provsons of secton 601(f)6,
the corporaton w be entted to make a new decaraton of vaue
for ts capta stock for the ta abe year endng une 30, 1939.
Wth respect to the N Corporaton, the return for the capta stock
ta ta abe year endng une 30, 1939, shoud be fed by the recever
snce he was n charge of the corporate affars at the tme for fng
the return, even though the busness was operated by the corporaton
for a part of the ta abe year, namey, from uy 1, 193 , to October
31, 193 . The return by the recever shoud be compete for the
entre year and shoud ncude the vaue decared by the corporaton
for the year ended une 30, 193 , ad|usted as requred by secton
601 (f)3. The return for the capta stock ta ta abe year endng
une 30, 1940, shoud be fed by the responsbe offcers of the cor-
poraton. Under the provsons of secton 601 (f)6, a new decara-
ton of vaue for the corporaton s capta stock shoud be made n
the return for the ta abe year endng une 30, 1940.
In the case of the O Corporaton, the recever was admnsterng
the corporate affars and was n custody of ts books and property
at the tme for fng the return for the ta abe year ended une 30,
193 . e was, therefore, requred to fe the return for that ta abe
year. The busness was operated by the corporaton for a part of the
ta abe year, namey, from uy 1, 1937, to ugust 31, 1937, but the
return shoud cover the entre year, ncudng a decaraton of the
vaue of the capta stock. The capta stock ta return for the ta abe
|ear endng une 30,1939, shoud be fed by the responsbe offcers n
charge of the corporaton at the tme when the return s due, and shoud
show an ad|usted decared vaue for the capta stock, that s, the vaue
decared for the year ended une 30,193 , ad|usted as requred by sec-
ton 601 (f)3, for the reason that the .capta stock ta ta abe year
endng une 30,1939, dd not begn wth or wthn the ncome-ta ta -
abe year n whch the recevershp w be termnated. The capta
stock ta ta abe year endng une 30, 1940, w begn wthn the
ncome-ta ta abe year endng on December 31, 1939. Consequenty,
snce the recevershp w termnate wthn such year, the corporaton
w be entted under the provsons of secton 601(f) 6 to make a new
decaraton of vaue for ts capta stock n ts return for the year
endng une 30, 1940.
The recever of the P Corporaton was n charge of the corporate
affars and had custody of ts property at the tme for fng the return
for the capta stock ta ta abe year ended une 30, 193 , and was,
therefore, requred to fe the capta stock ta return for that year.
Snce the busness was operated by the corporaton for a part of such
ta abe year, namey, from uy 1,1937, to anuary 31,193 , the return
fed by the recever shoud cover the entre year, ncudng a decaraton
of the vaue of the capta stock. The return tor the capta stock ta
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Regs. 64(193 ), rt. 35.)
350
ta abe year endng une 30, 103 ), shoud be fed by the responsbe
offcers n charge of the corporate affars at the tme when the return
s due. In vew of the fact that the recevershp w termnate on
March 31, 1939, a date wthn the ncome-ta fsca year endng pr
30, 1939, the corporaton w he entted under the provsons of sec-
ton G01(f)G to make a new decaraton of vaue for ts capta stock
n ts capta stock ta return for the capta stock ta ta abe year
endng une 30. 1939.
The statements made heren reatve to a recever are equay ap-
pcabe to a trustee n bankruptcy or a ke representatve.
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351 Regs. 46, rt. 12.
TITL rW M NU CTUR RS CIS T S. (1932)
S CTION 619. S L PRIC .
Reguatons 46, rtce 12: cuson of charges 1939-17-9 06
for transportaton, devery, etc. G. C. M. 21114
( so rtce .)
oes governng the Incuson or e cuson of cost of transporta-
ton, devery, nsurance, Instaaton, or other charges n deter-
mnng the prces for whch certan artces ta abe under Tte I
of the Revenue ct of 1932, as amended, are sod by the manu-
facturer, producer, or mporter.
dvce s requested whether, n the stuatons herenafter de-
scrbed, transportaton, devery, nsurance nstaaton, or other
charges shoud be ncuded or e cuded n f ng the prces for whch
certan artces sub|ect to ta under Tte I of the Revenue ct of
1932, as amended, are sod by the manufacturer, producer, or
mporter.
Secton 619 of the Revenue ct of 1932 provdes n part as foows:
(a) In determnng, for the purposes of ths tte, the prce for whch an
artce s sod, there sha be ncuded any charge for coverngs and contaners
of whatever nature, and any charge ncdent to pacng the artce n condton
packed ready for shpment . transportaton, devery, nsurance, n-
staaton, or other charge (not requred by the foregong sentence to be n-
cuded) sha be e cuded from the prce ony f the amount thereof s estab-
shed to the satsfacton of the Commssoner, n accordance wth the reguatons.
(b) If an artce a
(1) sod at reta
(2) sod on consgnment, or
(3) sod (otherwse than through an arm s-ength transacton) at ess
than the far market prce
the ta under ths tte sha (If based on the prce for whch the artce s
sod) be computed on the prce for whch such artces are sod, n the ordnary
course of trade, by manufacturers or producers thereof, as determned by the
Commssoner.
The ta es under consderaton are those mposed under Tte I of
the Revenue ct of 1932, as amended, whch are based upon the prce
for whch the artces specfed are sod by the manufacturer, pro-
ducer, or mporter. Inasmuch as such ta es are based upon the prce
for whch an artce s sod, and snce secton 619 specfes the charges
whch sha be ncuded and those whch sha be e cuded n deter-
mnng such prce, t s evdent that there can be no ncuson or e -
cuson of any charge uness and unt a sae s made. In fact, some
of the charges specfed n secton 619 charges for transportaton,
devery, and nstaaton can not be defntey ascertaned unt the
sae s made and the artces are devered to the purchaser. Many
dfferent tems enter nto the cost of manufactured artces. There
are not ony manufacturng costs but aso tems of oca ta es, n-
surance, overhead, cost of handng, and even transportaton charges
under certan condtons a attrbutabe to the manufacturer and
havng no cose reaton to saes of manufactured artces. Ony n
respect of bona fde saes may the charges specfed n secton 619 be
e cuded. The evdent purpose of secton 619 s to authorze the n-
cuson n the seng prce of certan charges so cosey connected
wth the cost of manufacture or producton of ta abe artces as to
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Regs. 46, rt. 12.
352
consttute a part of the prce for whch they are sod, and to e cude
from the seng prce certan other charges whch, though they n-
crease the cost to the customer of securng the artces, yet form no
ntegra part of ther seng prce.
The questons presented and the answers thereto are as foows:
ueston ( ): If the artces are shpped n case ots from the fac-
tory to the warehouse and are shpped n ess than case ots from the
warehouse to the customer, are the artces n condton packed
ready for shpment, wthn the meanng of secton 619, at the tme
they eave the factory or not unt they are packed n the smaer
quantty to f the customer s order
nswer: Inasmuch as the ta becomes due upon the sae of a ta -
abe artce and s measured by the seng prce thereof, the prov-
sons of secton 619 prescrbng the bass for determnng such prce
n respect of the charges specfed theren must be consdered as hav-
ng some reaton to, or beng connected wth, the sae of the artce.
Ta abe artces are frequenty shpped by a manufacturer from a
factory to a warehouse n buk or n arger quanttes than are nor-
may sod to customers. These shpments are made soey for the
beneft or convenence of the manufacturer before the sae s made.
It s the opnon of ths offce that the term packed ready for shp-
ment, emnoded n secton 619, means the condton whch e sts
when an artce ta abe under the aw s ncosed n a coverng or
contaner ready for devery to a customer upon a bona fde sae
thereof made by the manufacturer, producer, or mporter.
ueston (2): manufacturer makes no saes from the factory,
a deveres beng made from branch warehouses n varous ctes,
the prce to the customer beng the same at a the warehouses. May
he e cude the freght charges ncurred n shppng hs products to
the branch warehouse
nswer: dstncton shoud be drawn n consderng the e cu-
son of freght charges from the seng prce between shpments of
goods for the soe beneft and convenence of the manufacturer and
other shpments consttutng the devery of artces n connecton
wth ther sae. Ony such charges as are connected wth the devery
of artces to a customer pursuant to a sae are to be e cuded.
reght charges ncurred n movng goods from a factory to a ware-
house before a sae s made pertan more cosey to e penses attrbut-
abe to the manufacturer than to deveres made upon a sae to a
customer. Under ths rue freght charges ncurred n shppng
products from a factory to a warehouse before a sae s made may
not he e cuded.
ueston ( ) . manufacturer has warehouses n varous ctes.
avng a surpus stock n one warehouse, he reshps to another ware-
house to ncrease a depeted stock. May the freght charges so
ncurred be e cuded
nswer: or the reasons ndcated n the answer to queston (2),
freght charges ncurred by a manufacturer n reshppng goods from
one of hs warehouses to another before a sae of the artces s made
may not be e cuded.
ue-sfm : manufacturer has a oca warehouse n the cty
where the factory s ocated, the warehouse beng some dstance from
the factory. May the e pense of devery to the warehouse be e -
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353
Regs. 46. rt. 12.
euded (a) f an outsde transfer company s empoyed, and ( ) f the
manufacturer mantans hs own trucks for ths specfc purpose
nswer: It seems mmatera to ths offce, n consderng the e -
cuson of an e pense ncurred for transportaton or devery, whether
such e pense represents a specfc charge made by a transfer com-
pany or whether the e pense arses from the use of trucks man-
taned by the manufacturer n accompshng the same purpose. In
ether event, f the devery s made n competon of a sae to a
customer, the tem represents the cost or charge for transportaton
or devery such as are to be e cuded from the seng prce under
the aw. If, however, the devery s soey for the beneft or con-
venence of the manufacturer, such cost may not be e cuded.
ueston (5): manufacturer receves an order from a customer
n another cty. s warehouse near the customer has not enough
goods on hand to f the order. Part of the goods ordered s shpped
from the factory and part from the warehouse. What freght or
transportaton charges may be e cuded
nswer: earng n mnd that the test of e cuson s whether
or not the shppng cost s ncurred n connecton wth the movement
of goods n competon of a bona fde sae to a customer, t foows
that the freght or transportaton charges to be e cuded n the
e ampe gven are ony those whch are actuay ncurred n the
shpment of the goods to the customer, rrespectve of whether the
shpment s made from the factory, from the warehouse, or n part
from both.
ueston (6): If the transportaton cost from factory to warehouse
s to be e cuded, does the statute contempate the e cuson of other
costs ncurred after the goods are packed ready for shpment, namey,
nsurance at the warehouse, handng and other e penses at the
warehouse, etc.
nswer: The tems of transportaton, devery, nsurance, n-
staaton, or other charge are evdenty used n secton 619 as
beongng to the same genera cass of deductons. Under the rue
of constructon of statutes nosctur e soos, a the tems must there-
fore be treated ake. Certany the tems of transportaton, dev-
ery, and nstaaton have reaton to events occurrng after the goods
eave the factory or the warehouse. manufacturer may protect
hmsef from oss at factory or warehouse by nsurance and nevta-
by ncurs e pense for handng goods at both paces. ut, as
vewed by ths offce, those tems may be e cuded ony when con-
nected wth a sae and may not be e cuded when ncurred by the
manufacturer for hs own use or beneft before a sae s made. or
e ampe, the cost of nsurng goods at the factory or warehouse s
attrbutabe to the manufacturer and shoud be refected n the seng
prce. The cost of nsurng goods after a sae s made and whe
en route to a customer forms no part of the seng prce and may
propery be e cuded n determnng the amount of ta due.
ueston (7): Where the Commssoner, for the purpose of com-
putng ta , determnes the far market prce of a ta payer s product
under the authorty granted hm by secton 619(b) of the evenue
ct of 1932, may any e cuson be aowed from such far market
prce for transportaton charges or any other of the tems enumerated
n secton 619(a)
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Regs. 44, rt. 2 .
354
nswer: There s a cose reaton between te terms of secton
619 (a) and (b) of the aw. Under (a) the Commssoner s author-
zed to determne the seng prce by ncudng or e cudng certan
specfed tems. Under (b) the Commssoner s authorzed to de-
termne the far market prce n transactons where the prces at
whch artces are sod are beow the norma seng prces.
In makng a determnaton of far market prce under secton
619(b), the Commssoner must necessary take nto consderaton
a eements, ncudng the same tems whch woud be ncuded or e -
cuded under authorty of secton 619(a), but once the far market
prce under (b) s fnay determned, the ta must be based on that
prce and the statute does not contempate any further ad|ustments.
. P. Wencte,
S CTION 630 O T R NU CT O 1932. S DD D Y S CnON 5
O TD CT O TTN 16, 1933 (4 ST T., 251), ND S M ND D DY
S CTION 705 O T R NU CT O 193 . MPTION ROM
T O C RT IN SUPPLI S OR SS LS.
Reguatons 44, rtce 2 : empton of cer- 1939-14-9777
tan suppes for certan vesses. S. T. 79
( so rtce 76/2, Reguatons 46.)
oregn countres whch aow, and those whch do not aow,
prveges, wth respect to e empton from e cse ta , whch ore
substantay recproca to those specfed n secton S 0 of the
Revenue ct of 11) 2. as amended, on artces sod for use as fue
suppes, shps stores, sea stores, or egtmate equpment on cv
arcraft.
dvce s requested as to the foregn countres whch cther aow
or do not aow substantay recproca prveges wth respect to the
e empton from e cse ta provded n secton 6 0 of the Revenue ct
of 1932, as added by secton 5 of the ct of une 16, 1933 (4 Stat.,
254), and as amended by secton 705 of the Revenue ct of 193 , on
artces sod for use as fue suppes, shps stores, sea stores, or egt-
mate equpment on cv arcraft.
Secton 630 of the Revenue ct of 1932, as amended, provdes as
foows:
Under reguatons prescrbed by the Commssoner, wth the approva of the
Secretary, no ta under ths tte sha be mposed upon any artce sod for
use as fue suppes, shps stores, sea stores, or egtmate equpment on vesses
of war of the Unted States or of any foregn naton, vesses empoyed n the
fsheres or n the whang busness, or actuay engaged n foregn trade or
trade between the tantc and Pacfc ports of the Unted States or between
the Unted States and any of ts possessons. rtces manufactured or pro-
duced wth the use of artces upon the mportaton of whch ta has been pad
under ths tte, f aden for use as suppes on such vesses, sha be hed to be
e ported for the purposes of secton 601(b). The term vesses as used
n ths secton ncudes cv arcraft empoyed n foregn trade or trade be-
tween the Unted States and any of ts possessons, and the term vesses of
war of the Unted States or of any foregn naton ncudes arcraft owned
by the Unted States or by any foregn naton and consttutng a part of the
armed forces thereof. The prveges granted under ths secton In respect of
cv arcraft empoyed n foregn trade or trade between the Unted States
and any of ts possessons, n respect of arcraft regstered In a foregn country,
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355
Regs. 44, rt. 2 .
tha be aowed ony If the Secretary of the Treasury has been advsed by the
Secretary of Commerce that he has found that such foregn country aows, or
w aow, substantay recproca prveges In respect of arcraft regstered n
the Unted States. If the Secretary of the Treasury s advsed by the Secretary
of Commerce that he has found that a foregn country has dscontnued or w
dscontnue the aowance of such prveges, the prveges granted under ths
secton sha not appy thereafter n respect of cv arcraft regstered In that
foregn country and empoyed In foregn trade or trade between the Unted
States and any of ts possessons.
The Secretary of Commerce has advsed the Secretary of the
Treasury that the foowng foregn countres aow prveges whch
are substantay recproca to those specfed n secton 630 of the
Revenue ct of 1932, as amended, wth respect to ta e empton on
artces sod for use as fue suppes, shps stores, sea stores, or
egtmate equpment on cv arcraft: egum, Canada, Che,
Coomba, Denmark, re, rance, Germany, Netherands, Nether-
ands Indes, New Zeaand, Norway, Sweden, Swtzerand, Unted
ngdom, Uruguay and that the foowng foregn countres do
not aow such recproca ta e empton prveges: rgentna, us-
traa, raz, Cuba, Itay Me co, Panama.
empton under secton 630, as amended, w be aowed n
respect of arcraft regstered n the foregn countres mentoned
herenbefore whch aow substantay recproca ta prveges so
ong as they contnue to aow such prveges, but ony upon com-
pance wth the provsons of artce 2 or Reguatons 44 (1034),
as amended by Treasury Decson 4604 (C. . I -2, 376 (1935))
and Treasury Decson 4 33 (C. . 193 -2, 379), and artce 76y2
of Reguatons 46 (1932), as added by Treasury Decson 43 7 (C. .
II-2,347 (1933)) and as amended by Treastrv Decson 4605 (C. .
P7-2,3 (1935)) and Treasury Decson 4 53 (C. . 193 -2, 3 3).
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Regs. 42.1 356
TITL . MISC LL N OUS T S. (1932)
S CTION 741. L S S O S D POSIT O S.
Reguatons 42. 1939-1 -9 1
S. T. aU
edera credt unons are e empt from the ta mposed by secton
741 of the evenue ct of 1932 on the amount pad for the use of a
safe depost bo .
dvce s requested whether edera credt unons are e empt from
the a mposed by secton 741 of the Revenue ct of 1932 on the
amount pad for the use of a safe depost bo .
Secton 741(a) of the Revenue ct of 1932 mposes a ta equva-
ent to 10 per cent of the amount coected for the use of any safe
depost bo , such ta to be pad by the person payng for the use of
the bo .
Secton 1 of the edera Credt Unon ct, approved une 26,
1934 (4 Stat., 1216), as amended by secton 4 of the ct of December
6,1937 (51 Stat., 4), provdes n part as foows:
Sec. 1 . The edera credt unons organzed hereunder, ther property,
ther franchses, capta, reserves, surpuses, and other funds, and ther ncome
s be e empt from a ta aton tu w or hereafter mposed by the Unted
Sates or by any State, Terrtora, or oca ta ng authorty: e cept that any
m property and any tangbe persona property of such edera credt unons
sha be sub|ect to edera, State. Terrtora, and oca ta aton to the same
e tent as other smar property s ta ed.
111 vew of the foregong provsons of the edera Credt Unon
ct, as amended, t s hed that those credt unons whch are organzed
and operated under the terms of that aw are e empt from the ta
mposed by secton 741 of the Revenue ct of 1932 on the amount pad
for the use of a safe depost bo .
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357 Regs. 71(1932), rt. 35.
INT RN L R NU COD .
C PT R 11. DOCUM NTS, OT R INSTRUM NTS. ND
PL YING C RDS.
S CTION 1 02. C PIT L STOC ( ND SIMIL R INT R STS).
Reguatons 71 (1932), rtce 35: Saes or 1939-11-9755
transfers not sub|ect to ta . T. D. 4
Reguatons 71, reatng to stamp ta es Imposed by the Interna
Revenue Code. rtce 35, amended.
Washngton, D. C.
Reguatons 71, approved uy 16, 1932, as amended, but ony as
prescrbed and made appcabe to the Interna Revenue Code by
Treasury Decson 4 5, approved ebruary 11, 1939 page 396, ths
uetn , under the authorty contaned n secton 3791 of the In-
terna Revenue Code, are amended as foows:
Subparagraph (v) as added to artce 35 by Treasury Decson 4 24,
approved uy 5, 193 C. . 193 -2, 405 , s changed to read as
foows:
(t ) (1) The devery or transfer after ebruary 10, 1939, of shares or certf-
cates from the owner thereof to a custodan, f under a wrtten agreement be-
tween the owner and the custodan, the shares or certfcates so devered or
transferred are to be hed or dsposed of by such custodan for, and sub|ect at
a tmes to the nstructons of, the owner aso from such custodan to such
owner.
(2) The devery or transfer after ebruary 10,1939, from such custodan to a
regstered nomnee of such custodan, or from the owner drect to such regstered
nomnee, or from one such nomnee to another such nomnee, f the shares or
certfcates contnue to be hed by the nomnee for the same purpose for whch
they woud be hed If retaned by such custodan aso from such nomnee to such
custodan or the owner. No e empton sha be granted uness the nomnee s
regstered n the manner provded for the regstraton of nomnees of persons
conductng a stock brokerage busness as specfed n subparagraph (ft) added
to artce 126 by Treasury Decson 4701 C. . -2, 362 (1936) .
(3) The devery or transfer after ebruary 10, 1939, of shares or certfcates
from a custodan of the owner to another custodan of the owner, or from the
regstered nomnee of the frst custodan to the second custodan or the regs-
tered nomnee of the atter, provded that on the facts of the case the transfer
woud have been e empt under (1) or (2) f made by the owner drect to the
second custodan or the regstered nomnee of the atter.
(4) The e emptons specfed n (1), (2), and (3) sha not be granted n any
case uness the devery or transfer Is accompaned by a certfcate, sgned by the
custodan, n substantay the foowng form:
We hereby certfy that the transfer of the attached shares s e empt
from the transfer ta under the provsons of secton 1 02 of the Interna
Revenue Code, that evdence n proof of the e empton s mantaned by
us and s avaabe for Inspecton by Interna revenue offcers.
Sgnature of Custodan.
(5) The custodan contempated by ths subparagraph (v) Is a mere custodan
and does not ncude a trustee. mere custodan Is a person to whom there are
devered or transferred shares or certfcates of stock to be hed or dsposed of
by the custodan for, and sub|ect at a tmes to the Instructons of, the owner
and not otherwse.
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Regs. 71(1932), rt. 35. 35
Ths Treasury decson s ssued under authorty contaned n secton
3791 of the Interna Revenue Code.
Gut T. k vf.rno,
Commssoner of 1 rUernu Revenue.
pproved March 9. 1939.
ohn W. anes,
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359
Regs. , rt. 4.
TITL III. ST MP T S. (1926 CT)
SC DUL - O TITL III O T R NU CT O 1926, D DD D
Y S CTION 725 O T R NU CT O 1932. CON Y NC S.
Reguatons 71, rtce 4: What consttutes 1939-21-9 46
rea property determnabe by aw of State S. T. 1
where ocated.
n o and gas ease for an Indefnte perod and a mnera
deed, both coverng and In Inos, consttute conveyances of
reaty sub|ect to stamp ta .
n nstrument desgnated ssgnment and conveyance of o
and gas royaty, whch conveys a royaty nterest n an o and
gas ease coverng ands n rzona, Nebraska, and South Da-
kota, and aso an nterest n a of the o and gas In or under such
ands, consttutes a conveyance of reaty sub|ect to stamp ta .
dvce s requested whether an o and gas ease for an ndefnte
perod and a mnera deed, both coverng and n Inos, and an
nstrument, desgnated ssgnment and conveyance of o and gas
royaty, whch conveys a rovaty nterest n an o and gas ease
coverng ands n rzona, Nebraska, and South Dakota, and aso an
nterest n a of the o and gas n or under such ands, consttute
convevances of reaty sub|ect to stamp ta under Schedue - of
Tte III of the Revenue ct of 1926, as added by secton 725 of the
Revenue ct of 1932.
That aw mposes a stamp ta on any Deed, nstrument,
or wrtng whereby any ands, tenements, or other reaty
od sha be granted, assgned, transferred, or otherwse conveyed to,
or vested n, the purchaser or purchasers when the consd-
eraton or vaue of the nterest or property conveyed, e cusve of the
vaue of any en or encumbrance remanng thereon at the tme of
sae, e ceeds 100 . What consttutes ands, tenements, or
other reaty s determnabe by the aw of the State n whch the
property s stuated. ( rtce 4, Reguatons 71.)
Under the terms of the o and gas ease coverng ands n Inos,
the essor granted, demsed, eased and et unto the essee certan
and for the soe purpose of mnng and operatng for o and gas and
ayng ppe nes for a term of 10 years, and as ong thereafter as
o or gas s produced from the and by the essee. The essor receves
a specfed porton of the o and gas produced. Under the mnera
deed the grantor conveys to the grantee forever an undvded
nterest n and to a of the o and gas, together wth the rght of
ngress, egress and regress for the fu deveopment of the premses
heren conveyed, n, under and upon certan and stuated n I-
nos, sub|ect to an e stng o and gas ease coverng the and. The
grantor grants and conveys to the grantee, hs hers, and assgns the
rght to coect and receve the royates payabe under the ease.
In Guffey v. ames . Smth (237 U. ., 101 (1915)), whch was
a sut n equty brought by the hoders of an o and gas ease cover-
ng a tract of and n Inos to en|on mnng operatons under a
ater and smar ease on the same property, the court used the
foowng anguage on pages 112 and 113:
It s setted by the decsons of the Supreme Court of Inos that an o
and gas ease ke that of the companants passes to the essee, hs hers and
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360
assgns, a present rested rght a freehod Interest In the premses, that
ths nterest s ta abe as rea property, and that the cause gvng the essee
an opton to surrender the ease at any tme s vad, does not create a tenancy
at w or gve the esser an opton to compe a surrender, and does not make
the ease vod as wantng n mutuaty. (Itruver v. cks. 230 Inos. 536,
MO, 542: Watford O t Oat Co. v. Rhpman. 233 Inos, 9, 13, 14 Poe v.
Urey. d., 5:, 62. 64 Urey v. eth, 237 Inos, 2 4, 29 Peope v. e, d.,
32, 33 Daughetee v. Oho O Co., 263 Inos, 51 , 524.)
Snce the court had before t n that case an o and gas ease cover-
ng a perod of fve years from the date of ts e ecuton and as ong
thereafter as o or gas or ether of them s produced from the
premses, and snce a the Inos cases cted concern o and gas
eases wth thereafter causes, the above-quoted anguage must be
nterpreted as reatng ony to eases wth smar causes.
The reason for hodng an o and gas ease wth a thereafter
cause to be a freehod nterest s set forth by the Supreme Court
of Inos n Tran contmenta O Co. v. mmerson (29 111., 394,
131 N. ., 645) wheren that court used the foowng anguage:
We have hed n accordance wth what we regard as the better
reason as we as the weght of authorty, that an nstrument of the character
of that n queston Uere contanng a thereafter cause , whch s a form
of o and gas ease n common use n ths State, conveys a freehod nterest n
the rea estate to whch It appes, and Is. n effect, a sae of a part of the
and. O and gas n the earth can not be the sub|ect of an ownershp dstnct
from the so. They beong to the owner of the and ony so ong as they re-
man under the and, and hs grant of them to another s a grant ony of such
o and gns as the grantee may fnd, and no tte to t vests n the grantee
unt t s actuay found. The conveyance, however, of the rght to enter upon
the and for the purpose of prospectng and operatng for o and gas, ayng
ppe nes, and budng powers, statons, and structures to produce, save, and
care for the products s a conveyance of an nterest n the and tsef, whch, If
of Indefnte duraton, s a freehod estate n the and.
It foows that n Inos an o or gas ease wth a thereafter
c anse, creatng an nterest n and of ndefnte duraton, conveys a
freehod es ae n and. mnera deed ke that n the nstant cas9
coverng property ocated n that State aso creates a freehod nter-
est n the and snce t grants a permanent rght of entry upon the
and for the purpose of prospectng and operatng for o and gas,
a rght not ordnary sub|ect to forfeture. Such a deed, even though
t s sub|ect to a pror o and gas ease for a term of years, or one
wth a thereafter cause, conveys the reversonary nterest of the
essor (grantor), and aso grants the rght to unaccrued royates
durng the remanng term of the ease. ence, t s a conveyance
of reaty (Ms and Wngham, O and Gas, secton 13 .)
Under an nstrument coverng ands n rzona, Nebraska, and
South Dakota, desgnated ssgnment nd conveyance of o and
gas royaty, the grantor qut-camed, granted, barganed, sod,
conveyed and set over unto the grantee, hs hers and assgns for-
ever, an undvded nterest n a of the rents and royates payabe
uer an e stng o and gas ease, or whch became payabe under
any subsequent ease coverng such ands. The grantor aso conveyed
to the grantee and Ins hers and assgns forever an undvded nterest
n a of the o, gas, coa and other mneras now, or at any tme
hereafter, yng n or under the foregong ands
The nstrument n queston s not merey a conveyance of a royaty
nterest. y t the grantor aso conveys to the grantee an undvded
nterest n a of the o, gas, coa and other mneras n or under
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Regs. 71, rt. 4.
the partcuar tracts of and. The hghest courts of rzona, Ne-
braska, and South Dakota have not as yet had occason to pass upon
the nature of the nterest conveyed by such an nstrument. owever,
t s the we-setted genera rue that a deed whch conveys an nter-
est n fee n mneras n pace s a conveyance of rea estate. (Dabney-
ohnst n O Corporaton v. Waden. 4 Caf. (2d), C37, 52 P. (2d),
237 In re Coby, 1 4 Iowa, 1104,1G9 N. W., 443 Rchards v. Shearer,
145 ansas, , 64 P. (2d), 50 euah Coa Mnng Co. v. Uehn
et u ., 46 N. D., 646, 1 0 N. W., 7 7 Cuff v. oto ky, 165 Oka., 135,
25 P. (2d), 2 ) Stephens County et a. v. M - an as O Gas
Co., 113 Te as, 160, 254 S. W., 290 Summers, O Gas (193 ), sec-
tons 131, 133, 600-606.) (See a so secton 76-101, chapter 76, Com-
ped Statutes of Nebraska (1929), defnng the term rea estate
sectons 25G and 257, Comped Laws of South Dakota (1929). defn-
ng the terms rea property and and and sectons 3040 and
3067, Revsed Code of rzona (192 ), reatng to the terms rea
property and rea estate. )
In vew of the foregong, t s hed that the o and gas ease and
mnera deed, both coverng and n Inos and the nstrument
desgnated ssgnment and conveyance of o and gas royaty,
coverng ands n rzona Nebraska, and South Dakota, consttute
convevances of reaty sub|ect to stamp ta under Schedue - of
Tte III of the Revenue ct of 19o, as added by secton 725 of
the Revenue ct of 1932.
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362
TITL 1 O T UNIT D ST T S COD .
S CTION 261 (CRIMIN L COD , S CTION 147. O LIG TION OR
OT R S CURITY OP T UNIT D ST T S D IN D. LSO
S CTION 264 (CRIMIN L COD , S CTION 150).
1939-22-9 54
S. T. 2
The reproducton of canceed or uncanceed Unted States revenue
stamps, n whoe or n part, by photographc or photostatc process
Is prohbted by secton 150 of the Crmna Code, and s not per-
mssbe under the ct of anuary 27,193 ( 52 Stat., 6).
dvce s requested whether t s permssbe to reproduce canceed
or uncanceed Unted States revenue stamps by photographc or
photostatc process.
Secton 264 of Tte 1 of the Unted States Code (secton 150 of
the Crmna Code) provdes that
whoever sha prnt, photograph, or n any other manner make or
e ecute, or cause to be prnted, photographed, made, or e ecuted, or sha ad n
prntng, photographng, makng, or e ecutng any engravng, photograph, prnt,
or mpresson n the keness of any such obgaton or other securty obga-
ton or other securty of the Unted States or any part thereof sha
be fned not more than 5,000, or mprsoned not more than 15 years, or both.
Secton 261 of Tte 1 of the Unted States Code (secton 147 of
the Crmna Code) defnes the term obgaton or other securty of
the Unted States as foows:
The words obgaton or other securty of the Unted States sha be hed
to mean a bonds, certfcates of ndebtedness, stamps and other
representatves of vaue, whch have been or may be ssued under
any ct of Congress.
Secton 3 of the ct of anuary 27, 193 (52 Stat., 6), amends
secton 147 of the Crmna Code and provdes as foows:
Secton 147 of the Crmna Code Is hereby amended by strkng out
the perod at the end thereof and addng a comma and the foowng: and
canceed Unted States stamps.
The effect of the foregong amendment s to make canceed Unted
States revenue stamps obgatons of the Unted States.
The ttorney Genera has hed that the word stamps, as used
n secton 261, supra (secton 147 of the Crmna Code, pror to the
amendment above ndcated), ncudes nterna revenue documentary
stamps. (14 Opn. tty. Gen., 52 .) Under that opnon and for
the purposes of the ct, a revenue stamp s an obgaton or other
securty of the Unted States, and snce the effectve date of the ct
of anuary 27, 193 , supra, both canceed and uncanceed edera
revenue stamps are obgatons of the Unted States.
Secton 2 of the ct of anuary 27,193 , amends the Crmna Code
to permt the prntng or pubshng for phatec purposes
of back and whte ustratons of
(1) foregn revenue stamps f from pates so defaced as to Indcate that the
ustratons are not adapted or ntended for use as stamps
(2) foregn postage stamps or
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(3) such porton of the border of a stamp of the Unted States as may be
necessary to show mnor dstnctve features of the stamp so ustrated, but a
such ustratons sha be at east four tmes as arge as the porton of the
orgna Unted States stamp so ustrated.
The queston arses whether the word prntng, as used n secton
2 of the ct of anuary 27, 193 , may be construed as ncudng photo-
graphng or photostatng. The wordng of secton 150 of the
Crmna Code makng t an offense to reproduce obgatons of the
Unted States s comprehensve n ts scope. It prohbts prntng,
photographng, makng, or e ecutng any such obgaton. The
wordng of the ct of anuary 27 193 , s much ess comprehensve.
It permts the prntng, pubshng, or mportaton or the back
and whte ustratons specfed n secton 2 wthout consttutng a
voaton of the Crmna Code. In that ct the word photograph-
ng s absent from the specfcaton of acts not sub|ect to the terms
of the sad Code. In the case of Wood v. bbott (30 ed. Cases, 424)
the queston was consdered whether a pcture made by the art of
photography was a prnt, cut, or engravng, wthn the meanng of the
Copyrght ct of ebruary 3,1 31 (4 Stat., 436). In referrng to the
photographc process, the court sad:
It s an entrey orgna and ndependent method of producng and
mutpyng pctures an art, not of prntng or engravng, but of securng the
deneaton of pctures by ght operatng on senstve surfaces.
In the reproducton of pctures or engravngs by the process of
prntng, the art of photography s sometmes used as one functon of
such process. The photograph s merey a snge step n that process.
Ths ncdenta use of photography s not deemed to be suffcent to
consttute a voaton of secton 150 of the Crmna Code.
It s hed that the reproducton of canceed or uncanceed Unted
States revenue stamps, n whoe or n part, by the photographc or
photostatc process (e cept as used ncdentay as a step n the repro-
ducton of stamps Dy prntng) s prohbted by secton 150 of the
Crmna Code and s not permssbe under the provsons of the ct
of anuary 27, 193 .
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364
D R L IR RMS CT. (193 )
1939-19-9 29
T. D. 4 9
Reguatons reatng to the censng under the edera re-
ams ct of manufacturers of, and deaers n, frearms or ammun-
ton.
Washngton, D. C, May 1,1939.
Tabe of Contents,
subpart a. federa frearms act.
Secton.
315.0. Introductory.
SU P RT . D INITIONS.
15.1. Defntons.
SU P RT O. LIC NS S.
15. 2. Persons requred to procure censes.
315.3. Persons not entted to a cense.
315. 4. ppcaton for a cense.
315. 5. Lcense fees.
315. 6. Issuance of cense.
315. 7. Scope and duraton of cense.
15. . Remova of censee.
315.9. Suspenson and revocaton of cense.
SU P RT D. R CORDS.
15.10. Records.
SU P RT . MPTIONS.
15.11. emptons.
SU P RT . MISC LL N OUS PRO ISIONS.
15.12. Reaton to other provsons of aw.
315.13. Penates.
15.14. ffectve date.
SU P RT . D R L IR RMS CT.
Sec. 315.0 Introductory. The edera rearms ct (52 Stat., 1250
15 U. S. C, Sup. I , 901-909), provdes:
That as used n ths ct
(1) The term person ncudes an ndvdua, partnershp, assoca-
ton, or corporaton.
(2) The term nterstate or foregn commerce means commerce
between any State, Terrtory, or possesson (ncudng the Phppne
Isands but not Incudng the Cana Zone), or the Dstrct of Coumba,
and any pace outsde thereof or between ponts wthn the same State,
Terrtory, or possesson (ncudng the Phppne Isands but not n-
cudng the Cana Zone), or the Dstrct of Coumba, but through any
pace outsde thereof or wthn any Terrtory or possesson or the
Dstrct of Coumba.
(3) The term frearm means any weapon, by whatever name
known, whch s desgned to e pe a pro|ecte or pro|ectes by the
acton of an e posve and a frearm muffer or frearm sencer, or any
part or parts of such weapon.
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IMso.
(4) The term manufacturer means any person engaged In the
manufacture or mportaton of frearms, or ammunton or cartrdge
cases, prmers, buets, or propeent powder for purposes of sae or
dstrbuton and the term censed manufacturer means any such
person censed under tbe provsons of ths ct.
(5) Tbe term deaer means any person engaged n the busness
of seng frearms or ammunton or cartrdge cases, prmers, buets
or propeent powder, at whoesae or reta, or any person engaged
n tbe busness of reparng such frearms or of manufacturng or
fttng speca barres, stocks, trgger mechansms, or breach mech-
ansms to frearms, and the term censed deaer means any such
person censed under the provsons of ths ct.
(6) Tto term crme of voence means murder, mansaughter,
rape, mayhem, kdnapng, burgary, housebreakng: assaut wth ntent
to k, commt rape, or rob assaut wth a dangerous weapon, or
assaut wth ntent to commt any offense punshabe by Imprsonment
for more than one year.
(7) The term fugtve from ustce means any person who has
fed from any State, Terrtory, the Dstrct of Coumba, or possesson
of the Unted States to avod prosecuton for a crme of voence or
to avod gvng testmony In any crmna proceedng.
( ) The term ammunton sha Incude a psto or revover
ammunton e cept .22-caber rm-tre ammunton.
Sec. 2. (a) It sha be unawfu for any manufacturer or deaer,
e cept a manufacturer or deaer havng a cense ssued under the
provsons of ths ct, to transport, shp, or receve any frearm or am-
munton n nterstate or foregn commerce.
(b) It sha be unawfu for any person to receve any frearm or am-
munton transported or shpped n nterstate or foregn commerce n
voaton of subdvson (a) of ths secton, knowng or havng reason-
abe cause to beeve such frearms or ammunton to have been trans-
ported or shpped n voaton of subdvson (a) of ths secton.
(c) It sha be unawfu for any censed manufacturer or deaer to
transport or shp any frearm n nterstate or foregn commerce to any
person other than a censed manufacturer or deaer n any State the
aws of whch requre that a cense be obtaned for the purchase of
such frearm, uness such cense s e hbted to such manufacturer
or deaer by the prospectve purchaser.
(d) It sha be unawfu for any person to shp, transport, or cause
to be shpped or transported n nterstate or foregn commerce any
frearm or ammunton to any person knowng or havng reasonabe
cause to beeve that such person Is under Indctment or has been
convcted n any court of the Unted States, the severa States. Terr-
tores, possessons (ncudng the Phppne Isands), or the Dstrct of
Coumba of a crme of voence or s a fugutve1 from |ustce.
(e) It sha be unawfu for any person who Is under ndctment or
who has been convcted of a crme of voence or who Is a fugutve 1 from
|ustce to shp, transport, or cause to be shpped or transported In
nterstate or foregn commerce any frearm or ammunton.
(f) It sha be unawfu for any person who has been convcted of
a crme of voence or s a fugutve1 from |ustce to receve any frearm
or ammunton whch has been shpped or transported In Interstate
or foregn commerce, and the possesson of a frearm or ammunton
by any such person sha be presumptve evdence that such frearm
or ammunton was shpped or transported or receved, as the case may
be, by such person n voaton of ths ct.
(g) It sha be unawfu for nny person to transport or shp or
cause to be transported or shpped In Interstate or foregn commerce
any stoen frearm or ammunton, knowng, or havng reasonabe cause
to beeve, same to have been stoen.
(h) It sha be unawfu for any person to receve, concea, store,
barter, se, or dspose of any frearm or ammunton or to pedge or
accept as securty for a oan any frearm or ammunton movng n or
whch Is a part of nterstate or foregn commerce, and whch whe so
movng or consttutng such part has been stoen, knowng, or havng
reasonabe cause to beeve the same to have been stoen.
So n orgna.
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(1) It sha be unawfu for any person to transport, shp, or know-
ngy receve n Interstate or foregn commerce any frearm from whch
the manufacturer s sera number has been removed, obterated, or
atered, and the possesson of any such frearm sha be presumptve
evdence that such frearm was transported, shpped, or receved, as
the case may be, by the possessor n voaton of ths ct
Sec. . (a) ny manufacturer or deaer desrng a cense to trans-
port, shp, or receve frearms or ammunton n nterstate or foregn
commerce sha make appcaton to the Secretary of the Treasury,
who sha prescrbe by rues and reguatons the nformaton to be con-
taned n such appcaton. The appcant sha, f a manufacturer,
pay a fee of 25 per annum and, f a deaer, sha pay a fee of 1
per annum.
(b) Upon payment of the prescrbed fee, the Secretary of the Treas-
ury sha Issue to such appcant a cense whch sha entte the
censee to transport, shp, and receve frearms and ammunton n
nterstate and foregn commerce uness and unt the cense Is sus-
pended or revoked n accordance wth the provsons of ths ct:
Provded, That no cense sha be ssued to any appcant wthn two
years after the revocaton of a prevous cense.
(c) Whenever any censee s convcted of a voaton of any of the
provsons of ths ct, t sha be the duty of the cerk of the court
to notfy the Secretary of the Treasury wthn 4 hours after such con-
vcton and sad Secretary sha revoke such cense: Provded, That
In the case of appea from such convcton the censee may furnsh
a bond n the amount of 1,000, and upon recept of such bond accept-
abe to the Secretary of the Treasury he may permt the censee to
contnue busness durng the perod of the appea, or shoud the censee
refuse or negect to furnsh such bond, the Secretary of the Treasury
sha suspend such cense unt he s notfed by the cerk of the court
of ast appea as to the fna dsposton of the case.
(d) Lcensed deaers sha mantan such permanent records of Im-
portaton, shpment, and other dsposa of frearms and ammunton as
the Secretary of the Treasury sha prescrbe.
Sec. 4. The provsons of ths ct sha not appy wth respect to the
transportaton, shpment, recept, or mportaton of any frearm, or
ammunton, sod or shpped to, or ssued for the use of, (1) the Unted
States or any department, Independent estabshment, or agency thereof
(2) any State, Terrtory, or possesson, or the Dstrct of Coumba,
or any department, Independent estabshment, agency, or any potca
subdvson thereof (3) any duy commssoned offcer or agent of the
Unted States, a State, Terrtory, or possesson, or the Dstrct of Coum-
ba, or any potca subdvson thereof (4) or to any hank, pubc
carrer, e press, or armored-truck company organzed and operatng
In good fath for the transportaton of money and vauabes (5) or to
any research aboratory desgnated by the Secretary of the Treasury:
Provded, That such bank, pubc carrers, e press, and armored-truck
companes are granted e empton by the Secretary of the Treasury
nor to the transportaton, shpment, or recept of any antque or unserv-
ceabe frearms, or ammunton, possessed and hed as curos or
museum peces: Provded, That nothng heren contaned sha be con-
strued to prevent shpments of frearms and ammunton to nsttutons,
organzatons, or persons to whom such frearms and ammunton may
be awfuy devered by the Secretary of War, nor to prevent the trans-
portaton of such frearms and ammunton so devered by ther awfu
possessors whe they are engaged n mtary tranng or In compettons.
Sec. 5. ny person voatng any of the provsons of ths ct or any
rues and reguatons promugated hereunder, or who makes any state-
ment In appyng for the cense or e empton provded for n ths ct,
knowng such statement to be fase, sha, upon convcton thereof,
be fned not more than 2,000, or Imprsoned for not more than fve
years, or both.
Sec. 6. Ths ct sha take effect 30 days after ts enactment.
Sec. 7. The Secretary of the Treasury may prescrbe such rues and
reguatons as he deems necessary to carry out the provsons of ths
ct.
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367
Msc.
Sec. . Shoud any spcton or subsecton of ths ct be decared uncon-
sttutona, the remanng porton of the ct sha reman n fu force
and effect.
Sec. 9. Ths ct may be cted as the edera rearms ct.
The foowng reguatons are hereby prescrbed under the edera
rearms ct, reatve to the censng of manufacturers of, and dea-
ers n, frearms or ammunton to the records to be mantaned by
censed manufacturers and deaers and to transactons and deangs
n frearms or ammunton specfcay e empted from the provsons
of the ct:
SU P RT . D INITIONS.
Seo. 315.1. Defntons. s used n these reguatons
(a) The term ct means the edera rearms ct.
(6) The term frearm means (1) any weapon, by whatever name known,
whch s desgned to e pe a pro|ecte or pro|ectes by acton of an e po-
sve, (2) any part or parts of such weapon, and (3) a frearm muffer or frearm
sencer.
(c) The term ammunton ncudes a ammunton for frearms. Incud-
ng cartrdge cases, prmers, buets, and propeent powder, but does mot n-
cude .22-caber rm-fre ammunton.
(d) The term nterstate or foregn commerce means
(1) Commerce between any State, Terrtory, or possesson of the Unted
States (ncudng the Phppne Isands, but not ncudng the Cana Zone),
or the Dstrct of Coumba, and any pace outsde thereof
(2) Commerce between ponts wthn the same State, Terrtory, or
possesson of the Unted States (ncudng the Phppne Isands, hut not
ncudng the Cana Zoue), or the Dstrct of Coumba, but through any
pace outsde thereof or
(3) Commerce wthn any Terrtory, or possesson of the Unted States
(ncudng the Cana Zone, but not ncudng the Phppne Isands), or the
Dstrct of Coumba.
(e) The term person ncudes an ndvdua, partnershp, assocaton, or
corporaton.
(/) The term manufacturer means any person engaged In the manufac-
ture or mportaton of frearms, or ammunton, for purposes of sae or ds-
trbuton.
g The term censed manufacturer means a manufacturer censed under
secton 3 of the ct.
(h) The term deaer means any person engaged In the busness of se-
ng frearms or ammunton at whoesae or reta, or any person engaged n
the busness of reparng such frearms or of manufacturng or fttng speca
barres, stocks, trgger mechansms, or breech mechansms to frearms.
() The term censed deaer means a deaer censed under secton 3
of the ct.
( ) The term cense means a cense Issued under authorty of secton
(b) of the ct.
(k) The term cense fee means the annua fee payabe by a manufac-
turer of, or deaer In, frearms or ammunton.
(/) The term Secretary means the Secretary of the Treasury.
(m) The terra Commssoner means the Commssoner of Interna Revenue.
( ) The term coector means coector of nterna revenue.
(o) The terms ncudes and ncudng when used In a defnton or
statement n these reguatons sha not be deemed to e cude other thngs
otherwse wthn the scope thereof.
U P T C LIC NS S.
Seo. 315.2 Persons requred to procure censes. Under secton 2(a) of the
ct, It s unawfu for any manufacturer or deaer, e cept a manufacturer or
deaer havng a cense ssued under the provsons of the ct, to transport,
shp, or receve any frearms or ammunton n nterstate or foregn commerce.
Therefore, every manufacturer or deaer wthn the meanng of the ct and
these reguatons (see secton 315.1 (f) and (h)) must frst procure a cense
under secton of the ct before he may, on or after uy 30, 193 , a-rfuy
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36
transport, shp, or receve any frearms or ammunton In Interstate or foregn
commerce.
It s not necessary n any case for a person censed as a manufacturer aso
to procure a cense as a deaer. The cense as manufacturer enttes the
censee, wthn the mtatons of the ct, to transport, shp, or receve, n
nterstate or foregn commerce, frearms or ammunton, whether of hs own
producton or produced by another. owever, a person requred to be censed
as a manufacturer does not compy wth the provsons of the ct by procurng
a cense as deaer.
person engaged n the mportaton of frearms or ammunton for sae or
dstrbuton s requred to be censed as a manufacturer even though he may
not perform any manufacturng operatons.
person engaged n the busness of reparng frearms, or of manufacturng
or fttng speca barres, stocks, trgger mechansms, or breach mechansms to
frearms, f not otherwse requred to be censed as a manufacturer, must be
censed as a deaer before he may, on or after uy 30, 193 , awfuy transport,
shp, or receve any frearm, ncudng any part of a weapon (see secton 315.1
(6)), or ammunton n nterstate or foregn commerce.
Sec. 315.3. Persons not entted to a cense. cense sha not be ssued to
any person who s under ndctment for, or has been convcted of, a crme
of voence as defned n secton 1(6) of the ct, or who s a fugtve from
|ustce as defned n secton 1(7) of the ct. Nor sha a cense be ssued
to any appcant wthn two years after the revocaton of a prevous cense.
Sec. 315.4. ppcaton for a cense. The appcaton for a cense sha be
made on orm 7 ( rearms), copes of whch may be procured from coectors.
The appcaton sha be fed wth the coector for the dstrct wthn whch the
prncpa pace of busness of the appcant s ocated. The appcaton must
be under oath and contan a the nformaton requred by the form.
Sec. 315.5. Lcense fees. In the case of a manufacturer the cense fee s 25
per annum, and n the ease of a deaer the cense fee s 1 per annum.
Sec. 315.6. Issuance of cense. If an appcaton on orm 7 ( rearms) has
been fed wth the coector, propery e ecuted by a person awfuy entted
to a cense and accompaned by the requred cense fee, there sha be ssued
to the appcant a cense on orm ( rearms).
Sec. 315.7. Scope and duraton of cense. The cense sha entte the person
to whom ssued to transport, shp, or receve frearms or ammunton n nter-
state or foregn commerce for a perod of one year from the date of ssuance,
sub|ect, however, to suspenson or revocaton of the cense at any tme f the
censee s convcted of voaton of any of the provsons of the ct. (See
secton 315.9.)
cense sha not be ssued n any case for a perod of ess than one year.
No refund of any part of the amount pad as a cense fee sha be made where,
for any reason, a censee dscontnues operatons pror to the e praton of
the perod covered by the cense. Nor sha any refund be made If the cense s
suspended or revoked because of voaton by the censee of any provson of
the ct.
When a cense has e pred, or s about to e pre, a new cense, f desred,
may be obtaned by fng wth the coector an appcaton on orm 7 ( re-
arms), accompaned by the requred cense fee, provded the appcant s
otherwse entted to a cense (see secton 315.3).
The cense under secton 3 of the ct s not assgnabe or transferabe un-
der any crcumstances and s vad ony wth respect to the operatons of the
person to whom ssued.
The cense appes to the operatons of the censee and not to any partcu-
ar pace at whch busness s carred on. ccordngy, ony one cense s
requred, regardess of the number of paces at whch the censee operates.
If the busness s carred on at more than one ocaton, the cense sha be
hed avaabe for nspecton at the prncpa pace of busness and an appro-
prate record mantaned at a other ocatons showng where the cense s
so hed.
The cense confers no rght or prvege to conduct busness contrary to
State or other aw. The hoder of a cense s not, by reason of such cense,
mmune from punshment for deang n frearms or ammunton n voaton
of the provsons of any State or other aw. Smary, compance wth the
provsons of any other aw affords no mmunty under the ct (See secton
15.12.)
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369
Msc.
sc. 15. . Remova of censee. censee may remove hs bnsness to a
new ocaton wthout procurng a new cense. owever, n every case, whether
or not the remova s from one dstrct to another, prompt no tnea on of the
new ocaton of the busness must be gven to
(1) the coector for the dstrct where the cense was Issued
(2) the coector for the dstrct from whch or wthn whch the re-
mova Is made and
(3) the coector for the dstrct to whch the remova s m:de.
Sec 315-9. Suspenson and revocaton of cense. Secton 3(c) of the ct
provdes u part that the cense of any person convcted of voaton of any
provson of the ct sha be suspended unt fna dsposton of the case, ut
whch tme, f the convcton has not been set asde, the cense sha be re-
voked. Secton 3(c) further provdes that a censee convcted of voaton of
any provson of the ct may be permtted to contnue n busness durng the
pendency of an appea from such convcton upon furnshng a bond of 1,000
acceptabe to the Secretary.
Upon recept by the Secretary of notce of the convcton of a censee of
voaton of any provson of the ct, the cense of such person sha be
mmedatey suspended n accordance wth the provsons of secton 3c) of
the ct. and the Commssoner sha mmedatey notfy such person thereof
by regstered etter addressed to hs ast known address.
person whose cense s suspended on account of a convcton of voaton
of any provson of the ct and who desres permsson to contnue n busness
durng the pendency of an appea from such convcton sha fe an appca-
ton wth the Commssoner for such permsson. The appcaton sha be
under oath and fuy set forth the grounds on whch the appcaton Is based.
The appcaton sha be accompaned by a bond, runnng to the Unted States,
n the pena sum of 1,000. The condton of the bond sha be that, unt
fna dsposton of the appea, the censee w compy In every respect wth
a the provsons of the ct. s soon as possbe after the recept of the
appcaton and bond, the Commssoner sha notfy the appcant that, by
drecton of the Secretary, hs appcaton has been granted or dened, as the
case may be.
n appcaton for permson to contnue In busness durng the pendency of
an appea from a convcton of voaton of any provson of the ct sha
not be granted If on the facts of the case the appcant woud not then be
entted to a cense were he appyng for a cense. (See secton 315.3.1
In every case, the suspenson of a cense sha reman In effect unt fna
acton Is taken upon the appcaton, f made, for permsson to contnue In
busness durng the pendency of an appea from the convcton. If such app-
caton s granted, the suspenson Is set asde unt fna acton upon the appea
from the convcton, at whch tme the case w be dsposed of accordng to the
outcome of the appea. If the appcaton for permsson to contnue n busness
L dened, or f no such appcaton s made, the suspenson of the cense
remans n effect throughout the pendency of the appea and fna acton w
then be taken In the case as may be requred by the outcome of the appea.
The grantng of an appcaton to contnue n busness durng the (tendency
of an appea from a convcton of voaton of any provson of the ct does not
e tend the term of the cense. If a cense e pres by apse of tme before the
appea s decded, the censee must procure a new cense If he desres to con-
tnue to transport, shp, or receve frearms or ammunton In Interstate or
foregn commerce. The new cense sha stand In pnce of. and be sub|ect to
the same condtons as. the od cense, that Is, the new cense sha be sub|ect
to revocaton f the convcton s not set asde.
If upon appea the convcton of a censee of voaton of any provsons of
the ct s not set asde, or f no appea s fed, hs cense sha be mmedatey
revoked pursuant to the provsons of secton 3(c) of the ct. and the Com-
mssoner sha mmedatey notfy such person thereof by regstered etter
addressed to hs ast known address.
The forfeture of a cense for voaton of any provson of the ct Is a
separate and dstnct penaty In addton to any other penates whch may
appy n the case, whether mposed under secton 5 of the ct or under any other
provson of aw.
person whose cense has been revoked for voaton of any provson of
the ct may. f otherwse entted to a cense (see secton 315.3), agan be
censed to transport, shp, or receve frearms or ammunton n Interstate
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Msc.
370
or foregn commerce, but not unt the e praton of two years from the date
of the revocaton of the prevous cense. In such case, the appcaton for
the new cense sha be fed wth the coector In accordance wth the pro-
vsons of secton 315.4,
SU P RT D. R CORDS.
Sbo. 315.10. Records. (a) Manufacturers. ach censed manufacturer
sha mantan compete and adequate records of a frearms and ammunton
dsposed of n the course of hs busness, Incudng any frearms or ammunton
acqured from other manufacturers or deaers. The records sha show and
ncude:
(1) the number of the frearms of each type, together wth a fu and
adequate descrpton thereof, ncudng the sera numbers If such weapons
are numbered
(2) the types, and quantty of each type, of ammunton
(3) the name and address of each person from whom the frearms or
ammunton, f not the manufacturer s own product, was acqured, and the
date of acquston and
(4) the dsposton made of the frearms or ammunton, ncudng the
name and prncpa address of each transferee, the address to whch de-
vered, and date of dsposton.
(6) Deaers. ach censed deaer sha mantan compete and adequate
records of a frearms acqured or dsposed of In the course of hs busness.
The records sha show and Incude:
(1) the number of the frearms of each type, together wth a fu and
adequate descrpton thereof, ncudng the sera numbers f such weapons
are numbered
(2) the name and address of each person from whom frearms are
acqured, and the date of acquston
(3) the dsposton made of the frearms, ncudng the name and prn-
cpa address of each transferee, the address to whch devered, and date of
dsposton.
(c) Genera. The records prescrbed by ths secton sha be In permanent
form and sha be retaned for a perod of not ess than s years from the
date of the transactons to whch the records reate. Such records must be
hed avaabe for nspecton durng busness hours by any authorzed offcer
or agent of the Unted States engaged n the performance of hs dutes under
the ct
SU P RT . MPTIONS.
Sec. 315.11. emptons. (a) Genera. Under secton 4 of the ct, the pro-
vsons of the ct do not appy wth respect to the transportaton, shpment,
recept, or Importaton of any frearm, or ammunton, sod or shpped to, or
Issued for the use of
(1) the Unted States or any department, ndependent estabshment, or
agency thereof
(2) any State, Terrtory, or possesson, or the Dstrct of Coumba, or
any department, Independent estabshment, agency, or any potca subd-
vson thereof
(3) any duy commssoned offcer or agent of the Unted States, a State,
Terrtory, or possesson, or the Dstrct of Coumba, or any potca sub-
dvson thereof
(4) any bank, pubc carrer, e press, or armored-truck company
organzed and operatng n good fath for the transportaton of money and
vauabes, provded e empton s granted as prescrbed n subdvson (b)
of ths secton and
(5) any research aboratory desgnated under subdvson (o) of ths
secton and granted e empton thereunder.
Secton 4 of the ct further e empts from the provsons of the ct
(6) the transportaton, shpment, or recept of any antque or un-
servceabe frearms, or ammunton, possessed and hed as curos or
museum peces and
(7) shpment of frearms and ammunton to nsttutons, organzatons,
or persons to whom such frearms and ammunton may be awfuy de-
vered by the Secretary of War, and the transportaton of such frearms
and ammunton by ther awfu possessors whe they are engaged n
mtary tranng or In compettons.
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371
Mso.
(b) nnk. pubc carrer, e press, or armored-truck company. ny bank,
pubc carrer, e press, or armored-truck company organzed and operatng n
g d fath for the transportaton of money and vauabes, may procure an e -
empton under staton 4 of the ct upon appcaton to the coector for the ds-
trct wthn whch the prnt.pa pace of busness s ocated. Such appcaton
sha be submtted under oath and show the character of the busness of the ap-
pcant and the purposes for whch the e empton s requested. If the app-
caton and the purposes stated are bona fde, the e empton sha be granted. In
a cases, as soon as possbe after the recept of the appcaton, the coector
sha notfy the appcant by etter that, by drecton of the Secretary, the
e empton s granted or dened, as the case may be.
(c) Research aboratory. research aboratory desrng to procure an e -
empton under s. cton 4 of the ct sha te an appcaton wth the Com-
mssoner. The appcaton sha be under oath and sha show (1) by whom
and Ue purpose for whch the aboratory was organzed, (2) the source of the
funds e pended for the mantenance and operatons of the aboratory, (3) the
servces performed by, and operatons of, the aboratory, and (4) the pur-
poses for whch the e empton s requested. The Commssoner sha notfy
the appcant that, by drecton of the Secretary, the appcaton s granted,
or dened, as the case may be.
SU P RT . MISC LL N OUS PRO ISIONS.
Sec 315.12. Reaton to other provsons of aw. The provsons of the ct
and of these reguatons are n addton to, and not n eu of, any other pro-
vson of aw, or reguatons, respectng the manufacture or Importaton of, or
deang n. frearms or ammunton.
Sec. 315.13. Penates. Secton 5 of the ct provdes certan penates for
voaton of the provsons of the ct or these reguatons, and for knowngy
makng any fase statement n appyng for a cense or e empton. Wth
respect to transactons and deangs decared unawfu and In voaton of the
ct, see secton 2 of the ct.
Sec. 315.14. ffectve date. These reguatons, wth the e cepton of Sub-
part D whch reates to records, sha take effect upon the date approved
Subpart D sha take effect 30 days after the date of approva. ffectve as of
Op date approved, these reguatons supersede the provsons of Treasury
Decson 4S34, approved uy 25, 193 C. . 193 -2, 465 .
ohn W. anes,
( ed wth the Dvson of the edera Regster May 3, 1939, 12.01 p. m.)
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372
D R L IR RMS CT, PPRO D UN 30, 1933
(PU LIC, NO. 7 5, S NTY- I T CONGR SS).
Cty ordnances are not State aws wthn the meanng of
secton 2(c) of the edera rearms ct
dvce s requested whether the words any State the aws of
whch requre, as used n secton 2(c) of the edera rearms ct
(Pubc, No. 7 5. Seventy-ffth Congress), ncude cty ordnances.
Secton 2(c) of the ct provdes as foows:
It sha be unawfu for any censed manufacturer or deaer to transport or
shp any frearm n nterstate or foregn commerce to any person other than a
censed manufacturer or deaer n any State the aws of whch requre that a
cense be obtaned for the purchase of such frearm, uness such cense a
e hbted to such manufacturer or deaer by the prospectve purchaser.
It s hed that the word State s used n that secton n contra-
dstncton to the words cty, county, and other potca sub-
ton 2(c) the word State s not used n con|uncton wth the words
or any potca subdvson thereof, as appear n secton 4 of the
ct. urthermore, the statute s n effect a pena statute, and shoud,
therefore, be strcty construed. ccordngy, the words any State
the aws of whch requre, as used n secton 2(c), are hed to mean
ony those aws enacted by the State egsature (or by State comms-
sons, etc., whch are egsatve n ther nature), the effcacy of whch
s, as a genera rue, coe tensve wth the boundares of the State.
In vew of the foregong, t s hed that cty ordnances are not
State aws wthn the meanng of secton 2(c) of the edera
rearms ct.
Secton 2(c)
1939-4-96
S. T. 7
dvsons of a State. Ths
orted by the fact that n sec-
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373
Rega. .
N TION L IR RMS CT. (1934)
S CTION 1L
muatons . 1939-22-9RM
Ct. D. 14U0
T S ON C RT IN IR RMS ND M C IN GUNS N TION L IR RMS
CT D CISION O SUPR M COURT.
Transportng of rearms n Interstate Commerce Constt0-
tonautt of statute.
Secton 11 of the Natona rearms ct, approved une 26, 1934,
whch makes t unawfu to transport n Interstate commerce any
frearm as defned n secton 1(a) of the ct wthout havng regs-
tered such frearm or wthout possessng a stamp aff ed order there-
for, as provded n sectons 5 and 4, respectvey, of the ct. does
not voate the second amendment deang wth the rght to keep and
bear arms nor Is the ct unconsttutona as an attempt to usurp
the poce power reserved to the States.
Supreme Court of the Unteo States.
The Unted States of merca, appeant, v. ack Mer and rank Layton,
59 S. CL, 16.
ppea from the Dstrct Court of the Unted States for the Western Dstrct of rkansas.
May I , 1939.
OPINION.
Mr. ustce McRbtno-ds devered the opnon of the Court,
n ndctment In the Dstrct Court Western Dstrct rkansas, charged
that ack Mer and rank Layton
dd unawfuy, knowngy, wfuy, and feonousy transport n Interstate
commerce from the town of Caremore In the State of Okahoma to the town
of Soam Sprngs In the State of rkansas a certan frearm, to-wt, a doube
barre 12-gauge Stevens shotgun havng a barre ess than 1 Inches In
ength, bearng Identfcaton number 76230, sad defendants, at the tme of so
transportng sad frearm In Interstate commerce as aforesad, not hnvng
regstered sad frearm as requred by secton 1132d of Tte 26. Unted States
Code ( ct of une 26. 1034. ch. 737 secton 5. 4 Stat.. 1237), and not havng
n tber possesson a stamp-aff ed wrtten order for sad frearm as provded
by secton 1132c. Tte 26. Unted States Code ( une 26, 1934. ch. 737. secton
4. 4 Stat., 1237), and the reguatons ssued under authorty of the sad ct
of Congress known as the Natona rearms ct approved une 20. 1034,
contrary to the form of the statute In such case made and provded, and
aganst the peace and dgnty of the Unted States. 1
ct of une 2 . 1934 (ch. 757. 4 Stat., 1236-1240, 26 U. S. C. ., secton 1132).
That for the purposes of ths ct
(a The terra nrennn means a shotgun or rfe havng a barre of ess than 1
Inches n ength, or any other weapnn. e cept a psto or revover, from whch a shot Is
dscharged by an p p osrp If such weapon Is capbe of beng conceaed on the person, or a
machne sun. and Incudes a muffer or sencer for any frearm v hether or not tch frearm
a Incuded wthn the foregong defnton The ct of pr 10 1936. ch. 169 49 Stat.,
11 2. ad ed the words hut does not ncude any rfe whch Is wthn the focegnng pro-
vsons soey by reason of the ength of Its barre If the caber of auch rfe a .22 or
smaer and If Its barre Is 16 Inches or more In engh.
S C. 3. (a) There sha be eved, coected, and pad upon frearms transferred In th
contnenta Unted States a ta at the rate of 00 for each frearm, such ta to he pad
by the transferor, and to be represented by approprate stamps to be provded by ha
Commssoner, wth the anprovat of the Secretary and the stamps heren provded sha
be aff ed to the order for such frearm, herenafter provded for. The ta Imposed by
tb secton sha be In addton to any Import duty Imposed on such frearm.
Sac. 4. (a) It sha be unawfu for any person to transfer a frearm e cept In pursuance
of a wrtten order from the person seekng to obtan such artce, on an appcaton
form ssued In bank n dupcate for that purpose by the Commssoner. Such order
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Regs. .
374
duy Interposed demurrer aeged: The Natona rearms ct Is not a
revenue measure but an attempt to usurp poce power reserved to the States,
and s therefore unconsttutona. so, t offends the nhbton of the second
amendment to the Consttuton we reguated Mta, beng necessary to
the securty of a free State, the rght of peope to keep and bear rms, sha
not be Infrnged.
The dstrct court hed that secton 11 of the ct voates the second amend-
ment. It accordngy sustaned the demurrer and quashed the ndctment.
The cause s here by drect appea.
Consderng Sonznsky v. Unted States (1937) (300 U. S., 506, 513) and
what was rued n sundry causes arsng under the arrson Narcotc ct
Unted States v. n uey Moy (1916), 241 U. S., 394 Unted States v. Doremus
(1919), 249 U. S., 6, 94 Under v. Unted States (1925), 26 U. S., 5 ston
v. Unted States (1927), 274 U. S., 2 9 Ngro v. Unted States (192 ), 276 U. S.,
32) the ob|ecton that the ct usurps poce power reserved to the States s
pany untenabe.
In the absence of any evdence tendng to show that possesson or use of a
shotgun havng a barre of ess than 1 nches n ength at ths tme has
some reasonabe reatonshp to the preservaton or effcency of a we reguated
mta, we can not say that the second amendment guarantees the rght to
keep and bear such an nstrument. Certany t s not wthn |udca notce
that ths weapon s any part of the ordnary mtary equpment or that ts
use coud contrbute to the common defense. ( ymette v. The State, 2 um-
phreys (Tenn.), 154, 15 .)
The Consttuton as orgnay adopted granted to the Congress power To
provde for cang forth the Mta to e ecute the Laws of the Unon, suppress
Insurrectons and repe Invasons To provde for organzng, armng, and
dscpnng, the Mta, and for governng such Part of them as may be
empoyed n the Servce of the Unted States, reservng to the States respec-
tvey, the ppontment of the Offcers, and the uthorty of tranng the
Mta accordng to the dscpne prescrbed by Congress. Wth obvous
purpose to assure the contnuaton and render possbe the effectveness of
such forces the decaraton and guarantee of the second amendment were made.
It must be nterpreted and apped wth that end n vew.
The mta whch the States were e pected to mantan and tran s set In
contrast wth troops whch they were forbdden to keep wthout the consent of
ha Identfy the appcant by such means of Identfcaton as may be prescrbed by regu-
atons under ths ct: Provded, That, f the appcant s an Indvdua, such dentfcaton
ha ncude fngerprnts and a photograph thereof.
(c) very person so transferrng a frearm sha set forth In each copy of such order
the manufacturer s number or other mark dentfyng such frearm, and sha forward a
copy of such order to the Commssoner. The orgna thereof wth tamps aff ed, sha be
returned to the appcant.
(d) No person sha transfer a frearm whch has prevousy been transferred on or
after the effectve date of ths ct, uness such person. In addton to compyng wth
subsecton (c), transfers therewth the stamp-aff ed order provded for n ths secton
for each such pror transfer, n compance wth such reguatons as may be prescrbed
under ths ct for proof of payment of a ta es on such frearms.
Sec. 5. (a) Wthn 60 days after the effectve date of ths ct every person possessng a
frearm sha regster, wth the coector of the dstrct n whch he resdes, the number
or other mark Identfyng such frearm, together wth hs name, address, pace where such
frearm s usuay kept, and pace of busness or empoyment, and, f such person s other
than a natura person, the name and home address of an e ecutve offcer thereof:
Provded. That no person sha be requred to regster under ths secton wth respect
to any frearm acqured after the effectve date of, and In conformty wth the provsons of,
ths ct.
Sec. 6. It sha be unawfu for any person to receve or possess any frearm whch has
at any tme been transferred n voaton of secton or 4 of ths ct.
Sec. 11. It sha be unawfu for any person who s requred t6 regster as provded
In secton 5 hereof and who sha not have so regstered, or any other person who has not
n hs possesson a stamp-aff ed order aa provded n secton 4 hereof, to shp, carry, or
dever any frearm n Interstate commerce.
Sec. 12. The Commssoner, wth the approva of the Secretary, sha prescrbe such
rues and reguatons as may be necessary for carryng the provsons of ts ct Into
effect.
Sec 14. ny person who voates or fas to compy wth any of the requrements of ths
ct sha, upon convcton, be fned not more than 2,000 or be Imprsoned for not more
than fve years, or both, n the dscreton of the court.
Sec. 16. If any provson of ths ct. or the appcaton thereof to any person or
crcumstance. Is hed nvad, the remander of the ct. and the appcaton of such
provson to other persons or crcumstances, ha not be affected thereby.
Sec. 1 . Ths ct may be cted as the Natona rearms ct.
ct December 17, 1914 (ch. 1, Stat., 7 5) ebruary 24, 1919 (ch. 1 , 40 Stat.
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375
Regs.
Congress. The sentment of the tme strongy dsfavored standng armes the
cuuunou vew w.,s that adequate defense of country and aws coud be secured
through the mta cvans prmary, soders on occason.
The ssrfU-uton attrbuted to the term mta appears from the debates
m the Conventon, the hstory and egsaton of Coones and States, and the
vrt.ugs of approved commentators. These show pany enough that the
mta comprsed a mues physcay capabe of actng In concert for the
common defense. body of ctzens enroed for mtary dscpne. nd
further, that ordnary when caed for servce these men were e pected to
appear bearng arms supped by themseves and of the knd n common use at
the tme.
ackstone s Commentares, voume 2, chapter 13, page 409 ponts out that
ug fred frst setted a natona mta n ths kngdom and traces the
suu-equeut deveopment and use of such forces.
dam Smth s Weath of Natons, ook , chapter 1, contans an e tended
account of the mta. It s there sad: Men of repubcan prncpes have
been |eaous of a standng army as dangerous to berty. In a mta, the
character of the abourer, arteer, or tradesman, predomnates over that of
the soder: n a standng army, that of the soder predomnates over every
other character and n ths dstncton seems to consst the essenta dfference
between those two dfferent speces of mtary force.
The mercan Coones n The 17th Century, Osgood, oume 1, Chapter
III, a Mnns n reference to the eary system of defense n New ngand
In a the coones, as n ngand, the mta system was based on the
prncpe of the assze of arms. Ths mped the genera obgaton of a
adut mae nhabtants to possess arms, and, wth certan e ceptons, to
t-oopera.e n the work of defence. The possesson of arms aso Imped the
possesson of ammunton, and the authortes pad qute as much attenton
to the atter as to the former. year ater 1632 t was ordered that any
snge man who had not furnshed hmsef wth arms mght be put out to
servce, and ths became a permanent part of the egsaton of the coony
I Massachusetts .
so Causes ntended to nsure the possesson of arms and ammunton
by a who were sub|ect to mtary servce appear n a the mportant enact-
ments concern g mtary ffars. nes were the penaty for denquency,
whether of towns or ndvduas. ccordng to the usage of the tmes, the
Infantry of Massachusetts conssted of pkemen and musketeers. The aw,
as enacted n 101 ) and thereafter, provded that each of the former shoud bo
armed wth a pke, corseet, head-pece, sword, and knapsack. The musketeer
rtoud carry a good f ed musket, not under bastard musket bore, not ess
than three feet, nne nches, nor more than four feet three Inches In ength,
a prmng wre, scourer, and moud, a sword, rest, bandoeers, one pound of
powder, twenty buets, and two fathoms of match. The aw aso requred
that two-thrds of each company shoud be musketeers.
The Genera Court of Massachusetts, anuary sesson 17 4, provded for the
organzaton and government of the mta. It drected that the tran band
shoud contan a abe-boded men, from s teen to forty years of age, and
the aarm st, a other men under s ty years of age, . so, That
p pry noncommssoned offcer and prvate soder of the sad mta not under
the contro of parents, masters or guardans, and beng of suffcent abty
therefor n the |udgment of the seectmen of the town n whch he sha dwe,
sha equp hmsef, and be constanty provded wth a good frearm. c.
y an act passed pr 4, 17 (5, the New York Legsature drected: That
every abe-boded mae person, beng a ctzen of ths State, or of any of the
Unted States, and resdng In ths State (e cept such persons as are heren
afrer e cepted), and who are of the age of s teen, and under the age of
forty-fve years, sha, by the captan or commandng offcer of the beat n whch
such ctzen sha resde, wthn four months after the passng of ths act,
be enroed In the company of such beat. That every ctzen so en-
roed and notfed, sha, wthn three months thereafter, provde hmsef, at
hs own e pense, wth a good musket or freock, a suffcent bayonet and bet,
a pouch wth a bo theren to contan not ess than twenty-four cartrdges
suted to the bore of hs musket or freock, each cartrdge contanng a proper
quantty of powder and ha, two spare fnts, a banket and knapsack .
The Genera ssemby of rgna, October, 17 5 (12 enng s Statutes),
decared, The defense and safety of the Commonweath depend upon havng Its
ctzens propery armed and taught the knowedge of mtary duty.
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Regs. .
76
It further provded for organzaton and contro of the mta and drected
that free mae persons between the ages of eghteen and ffty years,
wth certan e ceptons, sha be nroed or formed nto companes. There
sha be a prvate muster of every company once n two months.
so that very offcer and soder sha appear at hs respectve muster-
fed on the day apponted, by eeven o cock n the forenoon, armed, equpped,
and accoutred, as foows: every noncommssoned offcer and pr-
vate wth a good, cean musket carryng an ounce ba, and three feet eght
Inches ong n the barre, wth a good bayonet and ron ramrod we ftted
thereto, a cartrdge bo propery made, to contan and secure twenty cartrdges
ftted to hs musket, a good knapsack and canteen, and moreover, each non-
commssoned offcer and prvate sha have at every muster one pound of good
powder, and four pounds of ead, ncudng twenty bnd cartrdges and each
Ser|eant sha have a par of mouds ft to cast bas for ther respectve com-
panes, to be purchased by the commandng offcer out of the mones arsng
on denquences. Provded, That the mta of the countes westward of the
ne Rdge, and the countes beow ad|oung thereto, sha not be obged to
be armed wth muskets, but may have good rfes wth proper accoutrements,
n eu thereof. nd every of the sad offcers, noncommssoned offcers, and
prvates, sha constanty keep the aforesad arms, accoutrements, and ammu-
nton, ready to be produced whenever caed for by hs commandng offcer.
If any prvate sha make t appear to the satsfacton of the court hereafter
to be apponted for tryng denquences under ths act that he s so poor that he
can not purchase the arms heren requred, such court sha cause them to be
purchased out of the money arsng from denquents.
Most f not a of the States have adopted provsons touchng the rght to
keep and bear arms. Dfferences n the anguage empoyed n these have nat-
uray ed to somewhat varant concusons concernng the scope of the rght
guaranteed. ut none of them seem to afford any matera support for the
chaenged rung of the court beow.
In the margn some of the more mportant opnons and comments by wrters
are cted.
We are unabe to accept the concuson of the court beow and the cha-
enged udgment must be reversed. The cause w be remanded for further
proceedngs.
Mr. ustce Dougas took no part n the consderaton or decson of ths
cause.
Concernng The Mta Preser v. Inos (116 U. S., 252) Robertson v. adrn
(165 U. ., 275) fe v. State (31 rk., 455) efers v. ar (33 Georga, 347) Sana
. akseu (72 an.. 230) Peope v. rorn (253 Mch., 537) ymette v. State (2
umphr. (Tenn.). 154) Sfat v. Duke (42 Te as, 455) State v. Workman (35 W. a.,
67) Cooey s Consttutona Lmtatons, voume .pace 72 ) Story on The Consttuton,
5th d., oume 2, page 646 ncycopaeda of the Soca Scences, oume , pages 471,
474.
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377 Regs. 6(193 ).
DISTILL D SPIRITS.
Rh|uatk ns 6 (193 ), Sectons 19, 2 , 30(a),
ND 44.
1939-14-9774
T. D. 4 90
mendng Reguatons No. 6.
Washngton, D. G.
To Dstrct Supervsors and Others Concerned:
Sectons 19, 2 (thrd paragraph), and 30(a), of Reguatons No. 6,
ottng of Dsted Sprts n ond, are hereby amended, and secton
44 added to the end thereof, to read as foows:
Sac 19. (a) Overprntng of stamps. otted-n-bond stumps must be over-
prnted, such overprntng to be n the bank spaces provded therefor. t such
tme as the propretor of the warehouse desres to have stamps overprnted and
cut the storekeeper-gaugor w dever the stamps to hm. The overprntng of
stamps may be done by any prnter seected by the propretor of the warehouse
and approved by the supervsor. Overprntng w be done n red nk wth not
ess than -pont type. The season when the sprts were made and the season
when botted w be overprnted In the bank spaces on the end of the stamp
bearng the sera number, e cept n the case of stamps of Less than Pnt
denomnaton, whch do not have sera numbers, the season when made and the
season when botted w be paced on the rght-hand end of the stamp. In the
bank space on the other end of the stamp w be paced the name of the actua
bona fde dster, or the name of the ndvdua, frm, partnershp, corporaton,
or assocaton n whose name the sprts were produced and warehoused.
Overprntng of the stamp w be In the foowng form:
(o) Stamps for dsted sprts botted In bond, whch the propretor can
not use n the season for whch they were overprnted, or on whch an error
was made n overprntng the season of producton or bottng, may be agan
overprnted. The season when made or when botted, or both, overprnted
on the stamps may be obterated and the desred seasons of producton and
bottng substtuted. One overprntng ony w be permtted after the frst
or orgna overprntng. The name of the dster or any data other than
the season of producton or bottng may not be changed after the frst or
orgna overprntng.
3- 2 (thrd paragraph). The manufacturer s ont of the case sha be
ternred by adhesve coth tape or renforced paper tape, meta fastenngs of
tapea. or sttchng wre made of stee, treated to resst rust, and not ess
than one-haf an nch ong. The stapes or sttches sha be spaced not more
than 2 nches apart, sha pass through a the peces to be fastened, and sha
be cnched on the Insde.
ko. 30. (a) Marks and brands. On the Government sde of cases of ds-
ted sprts botted In bond there sha be pany burned, embossed, or prnted,
In etters and fgures not ess than one-haf of an nch n heght, the number
and State of the warehouse at whch the sprts are botted, and the quantty
and proof of the sprts. There sha aso be pany burned, embossed, prnted,
or stenced on the Government sde of each case, In etters and fgures not ess
than one-haf nch n heght, the rea name of the actua bona fde dster
or of the ndvdua, frm, partnershp, corporaton or assocaton n whose
17MT 0 pt. 13
PRODUC D Y
O N RL YCORN CO.
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Regs. 6(193 ).
37
name the sprts were produced and warehoused, the number and ocaton (cty
or town and State) of the dstery at whch the sprts were produced, aud
the season and year of producton and bottng. The sera number of the
case and the date of bottng (nspecton) sha aso be marked on each case.
marks on cases, whether embossed, prmed or stenced, must be made
wth permanent back nk. No marks, brands, abes, cauton notces, or
other devces whatever, other than those requred by aw and reguatons, w
be permtted on the Government sde of the case.
Sec. 44. Rebottng, reabeng, and restampng of botted sprt . Warehouse-
men desrng to rebotte. reabe, and restamp sprts botted n bond w make
appcaton to the dstrct supervsor of the dstrct n whch the work s to be
performed. The appcaton w state spectcay the reasons why such Is
necessary, gvng the sera numbers of the cases, the name of the dster pro-
ducng the sprts, date of producton, by whom the sprts were orgnay
botted, date of orgna bottng and whether or not the sprts have been
contnuousy In possesson of the appcant. If the sprts were orgnay
botted by a dster or warehouseman other than the appcant, the app-
caton must he accompaned by a statement from the orgna botter consentng
to the recondtonng thereof by the appcant.
Upon recept of such appcaton, the dstrct supervsor w have the store-
keeper-gauger n charge at the warehouse, or an Inspector, or other Govern-
ment offcer, e amne the condton of the sprts and verfy the data con-
taned In the appcaton. The offcer w make a fu report of hs nspecton
to the dstrct supervsor. If the dstrct supervsor fnds that the recond-
tonng, rebottng. reabeng, or restampng of the sprts Is necessary, he w
approve the appcaton.
Cases of ta -pad botted-n-bond sprts whch have eft the premses of
the warehouseman, but have never been opened, may be rebotted. restampod. or
reabeed, provded the dstrct supervsor s satsfed, upon nvestgaton, that
the sprts have not been tampered wth In any manner and are of the requred
proof for botted-n-bond sprts. Where ta -pad botted-n-bond sprts have
eft the premses of the warehouseman and Investgaton dscoses that the
cases have been opened, or where the dstrct supervsor s doubtfu as to
the proper acton to be taken, rebottng, reabeng, or restampng shoud not
be authorzed unt the matter has been referred to the Commssoner for con-
sderaton and advce.
New botted-n-bond strp stamps w be requred whenever sprts are re-
botted. The new stamps w bear the same data as to seasons when pro-
duced and botted, the name of the dster or the name of the ndvdua, frm,
partnershp, corporaton, or assocaton In whose name the sprts were produced
and warehoused The regstered dstery number, and the number and ds-
trct of the warehouse at whch orgnay botted w not be prnted on new
stamps where stamps of pror Issues bearng such data are aff ed to the
bottes. The bottes must bear the Indca, and conform to the standards of
f, requred by Reguatons 13. The recondtoned sprts may be rebotted
In the same bottes from whch removed If such bottes contanng the sprts
orgnay bear the proper ndca and have not been offered for sae at reta.
If the sprts are to be reabeed and have not eft the possesson of the
orgna botter, the new abe to be used must be covered by an approprate
certfcate of abe approva, Issued by the edera coho dmnstraton, or
a certfcate of e empton from abe approva, procured from that dmns-
traton. uthorzaton to reabe sprts whch have eft the possesson of the
orgna botter must be obtaned from the edera coho dmnstraton
and must be submtted to the supervsor wth the appcaton to rebotte or
reabe.
rebottng, reabeng, and restampng of sprts must be conducted n a
bottng-n-bond warehouse under the supervson of a Government offcer.
Sprts of two or more dsters or of dfferent seasons producton or bottng
may not be recondtoned at the same tme and rebottng operatons must be
conducted at a tme when no other sprts are In the process of bottng. Ware-
housemen may remove by stranng through coth, fet, or other ke matera,
any charcoa, sedment, or other ke substances found n the sprts. In the
process of rebottng, the sprts may not be sub|ected to any treatment deemed
to be rectfcaton as defned n Reguatons 15.
ppcaton w be made on orm 151 for the remova of botted sprts
from an Interna revenue bonded warehouse for rebottng. ntres w be
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379
Regs. 6(193 ).
made In the proper coumns of the Storekeeper-Gauger s Monthy Return, orm
1513, aowng the remova of the cases for rebottng and, after rebottng, the
return of the cases fed to the bonded warehouse. ppcaton w be made
on orm 1515 (Part I) to the storekeeper-gauger In charge of the warehouse
for strp stamps suffcent to cover the quantty of sprts botted. ntres
for rebottng unta -pad sprts w be made on orms 1516 and 1517 n the
same manner as sprts are entered for orgna bottng before ta payment.
Ta w be pad on a osses sustaned In rebottng unta -pad sprts n
accordance wth secton 39.
Sprts rebotted, reabeed, or restamped after ta payment w not be en-
tered on orms 1515, 1516, or 1517.
Warehousemen and supervsors w bear n mnd that the rebottng, re-
abeng, and res tampng of botted-n-bond sprts may be done ony when
necessary. The work must be done at such tme and In such manner as w
requre no unnecessary supervson or assgnment of addtona offcers for
that purpose.
Gut T. everng,
pproved March 29, 1939.
ohn W- anbs,
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Regs. 13, rt. 7. 3 0
TR IC IN CONT IN RS O DISTILL D SPIRITS.
Reguatons 13, rtce 7: Purchase, sae, and 1939-1 -9T94
possesson of used bottes. T. D. 4693
mendment of Reguatons 13.
Offce of the Secretary of the Treasury,
Washngtan, D. O.
Pursuant to the authorty n secton 2 71, Interna Revenue Code,
paragraph (1) of artce 7, Reguatons 13, approved May 24, 1937,
s hereby amended to read as foows:
(a) The purchase or sae of used quor bottes, e cept as provded In these
reguatons, s prohbted.
b) No quor botte sha be reused for the packagng of dsted sprts, nor
sha the orgna contents, or any porton of such orgna contents, remanng
In a quor botte be ncreased by the addton of any substance.
pproved pr 7, 1939.
ohn W. anes,
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3 1
LI UOR L W R P L ND N ORC M NT CT. (1935)
1939-23-9 65
a. D. 1402
T ON DISTILL D SPIRITS LI UOR L W R P L ND N ORC M NT CT-
decson of supreme court.
orfeture of utomobe foe Unawfu Transportaton of
Lquor Remsson of orfeture Requrements of Statute.
In a proceedng under secton 204 of the Lquor Law Repea and
nforcement ct of ugust 27, 1935, for mtgaton of the for-
feture of an automobe sezed for unawfu transportaton of ds-
ted sprts upon whch the edera ta had not been pad, an
automobe fnancng company Is not requred to prove that n
acceptng assgnment of a condtona saes contract t made actua
nqury concernng the record or reputaton for voatng the quor
aws of a person whose name dd not appear n connecton wth
the condtona saes contract or to determne whether the ostensbe
purchaser under such contract was n reaty a straw purchaser.
Unted States of merca v. One 1936 Mode ord - De Lu e Coach, Motor
No. 1 S306511, Commerca Credt Co., Camant.
Wrt of certorar to the Unted States Crcut Court of ppeas for the ourth Crcut
Unted States of merca v. utomobe nancng, Inc.
59 S. Ct, 61.
Wrt of certorar to the Unted States Crcut Court of ppeas for the fth Crcut.
May 22, 1939.
OPINION.
Mr. ustce McRetnods devered the opnon of the Court.
In each of these causes the dstrct court, proceedng under the Lquor Law
Repea and nforcement ct of ugust 27,1935 (ch. 740, 49 Stat., 72, 7 , Tte
27, U. S. C. ., secton 40a), mtgated the forfeture of an automobe sezed for
unawfu transportaton of dsted sprts upon whch the edera ta had not
been pad. (One was sezed December 3, 1930 the other, March 15, 1937.) The
forfeture was decreed n a proceedng based upon secton 3450 R. S. (Tte 26,
U. S. C. ., secton 1441). The crcut courts of appeas rghty approved and
ther udgments must be affrmed.
The facts, undspute, are essentay ake n both causes. The ponts of aw
are the same. statement based on record No. 10 w suffce.
The repea enforcement ct provdes
Seo. 204. (a) Whenever, n any proceedng n court for the forfeture, under
the nterna-revenue aws, of any vehce or arcraft sezed for a voaton of the
nterna-revenue aws reatng to quors, such forfeture Is decreed, the court
sha have e cusve |ursdcton to remt or mtgate the forfeture.
(b) In any such proceedng the court sha not aow the cam of any
camant for remsson or mtgaton uness and unt he proves (1) that he
has an Interest n such vehce or arcraft, as owner or otherwse, whch he
acqured n good fath, (2) that he had at no tme any knowedge or reason to
beeve that t was beng or woud be used n the voaton of aws of the
Unted States or of any State reatng to quor, and (3) f t appears that
the nterest asserted by the camant arses out of or s n any way sub|ect to
any contract or agreement under whch any person havng a record or reputa-
ton for voatng aws of the Unted States or of any State reatng to quor
has a rght wth respect to such vehce or arcraft, that, before such camant
acqured hs nterest, or such other person acqured hs rght under such con-
tract or agreement, whchever occurred ater, the camant, hs offcer or agent,
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was Informed n answer to hs nqury, at the headquarters of the sherff, chef
of poce, prncpa edera Inferna-revenue offcer engaged n the enforcement
of the quor aws, or other prncpa oca or edera aw-enforcement otf er
of the ocaty n whch such other person acqured hs rght under such con-
tract or agreement, of the ocaty n whch such other person then resded, and
of each ocaty In whch the camant has made any other nqury as to the
character or fnanca standng of such other person, that such other person
had no such record or reputaton.
The foowng fndngs by the dstrct court, t s agreed, correcty set out
the facts n ths case
The ord automobe n queston was sod by the Greenve uto Saes. Inc.
(the deaer), October 3, 1936. through Its agent, rod, to Guy Waker, who n
part payment e changed an od car pad for by hm, but regstered n hs wfe s
name. e was gven terms for payment under a condtona saes contract,
drawn by an agent of the deaer, n the name of hs brother, I au Waker,
who formay e ecuted the agreement Guy Waker had the condtona saes
contract drawn and e ecuted n the name of hs brother In order to pace the
tte where hs wfe coud not reach t. Pau Waker had no Interest n the
transacton e cept to compy wth hs brother s request. Guy Waker made the
transacton wth the deaer. e seected the car. made the agreement and
handed the transacton hmsef. Pau Waker drove the car from the deaer s
pace of busness. Guy Waker at the tme, and for two or three weeks after
the purchase, was vng at hs brother s house. Ony one payment was made
on the condtona saes contract before the sezure, and that by Guy Waker
to the deaer.
It was admtted that Guy Waker had a prevous record and reputaton for
voatng both State and edera aws reatng to quor. Pau Waker was
convcted of voatng the Natona Prohbton ct n 1029, and was duy
sentenced therefor, but hs record and reputaton snce servng the sentence
were good.
On the date when the sae was consummated the deaer submtted the con-
tract to the Commerca Credt Co., the camant here, who accepted by tee-
phone, and subsequenty on October 5. In the usua course of busness the
deaer assgned the contract to the camant nnd receved a check therefor.
The camant before acceptng assgnment of the saes contract made an n-
vestgaton of Pau Waker by Inqurng at the headquarters of the sherff of
Greenve County, and at the headquarters of the chef of poce of Greenve,
the county and cty where the Interest was acqured and the ocaty where
Pau Waker resded, as to hs record and reputaton for voaton of the quor
aw. Informaton was receved from these offces that he had no such record
or reputaton. Informaton was gven, however, from the sherffs offce that
Guy Waker had both record and reputaton as voator of State and edera
aws reatng to quor. No Inqury or nvestgaton was made at the head-
quarters of the prncpn edera Interna-revenue offcer engaged n the en-
forcement of the quor aws n that ocaty, or at the headquarters of any other
prncpa oca or edera aw enforcement offcer of the ocaty as to Pau
Waker, and no Inqury or nvestgaton whatsoever was mode of Guy Waker,
the admtted rea owner and purchaser of the automobe.
The camant had Pau Waker nvestgated n ugust, 1936, by the usness
Servce ureau of Greenve, . C, n connecton wth the purchase of a
refrgerator. No Investgaton at that tme was made as to hs reputaton or
record for voatng the quor aws the nvestgaton dd dscose that he hnd
a good reputaton n the communty where he ved, and ths was the reputaton
gven hm by hs empoyer at that tme.
The camant purchased the condtona saes contract n good fath, beevng
that Pau Waker was the purchaser and owner of the automobe. It had no
knowedge. Informaton or suspcon of the true facts unt after the automobe
had been sezed by edera offcers.
Pettoner chaenges the udgment beow because of camant s faure to
estabsh compance wth the condtons Imposed by subsecton (b) secton 204.
specay because camant faed to show that It had no reason to beeve the
automobe was beng used or woud be used to voate the quor aws aso
because t made no adequate nqury concernng the record and reputaton of the
rea purchaser Guy Waker.
Respondent s nterest In the automobe Is not questoned. It purchased
the condtona saes contract In good fath, beevng that Pau Waker was
the purchaser and owner of the automobe. It had no knowedge, Informaton
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or suspcon of the true facta unt after the automobe had been sezed. Ths
g enough to show compance wth subsecton (b)(1). There was an nterest
acqured In good fath.
fter nvestgaton of the record and reputaton of Pau Waker, foowed by
favorabe reports, and beevng hm to be purchaser and owner of the automo-
be, camant n good fath acqured the saes contract It had no knowedge,
Informaton or suspcon that Pau Waker was ony a straw purchaser.
Toa s enough to show compance wth subsecton (b) (2). The suggeston that
nce respondent knew automobes were frequenty used for voaton of quor
aws It therefore had reason to beeve that the one n queston woud be so
used s not we founded. The fndngs postvey affrm that t entertaned no
nch beef or suspcon.
The dffcut phrasng of subsecton (b) (3) has produced dvergent vews
concernng ts meanng.
In edera Motor nance v. Unted States ( . (2d), 90, 93), the Crcut
Court of ppeas ghth Crcut sad
We thnk the far Intendment of the anguage of subsecton (3) concernng
remsson of forfeture Is that the appeant coud not rey entrey upon a
course of busness whereby t acqured an nterest n the car so neary appro -
matng the tota vaue thereof wthout takng care to ascertan who the rea
owner was n possesson of and usng the car.
In the causes now before us (93 . (2d), 771, 773 99 . (2d), 49 , 500), the
crcut court of appeas accepted the vew that
The nvoved anguage of subsecton (b)(3) of the ct does permt the
possbe nterpretaton that the enor Is charged wth the duty of makng
nqury as to everyone, bearng a bad reputaton or record, who may have a rght
under the contract of sae, whether or not t appears on the face of the nstru-
ment (See edera Motor nance v. Unted States, Cr., . (2d), 90.)
ut n our vew Congress dd not Intend to mpose upon the enor the obgaton
to ascertan at hs per the dentty of every person havng an nterest In the
property and to make nqury of the aw enforcement offcers as to the prevous
record and reputaton of every such person, uness from the documents them-
seves or other surroundng crcumstances the enor possesses Informaton
whch woud ead a reasonaby prudent and aw-abdng person to make a
further nvestgaton.
(See aso O. I. T. Corporaton v. Unted States ( ourth Crcut), 6 . (2d),
11, and Unted States v. 0. I. T. Corporaton (Second Crcut), 93 . (2d),
469.)
Counse for pettoner now mantan: That under the anguage of the statute
(b)(3) the camant Is requred to nvestgate the rea purchaser at ts per
and that f t fas to do so, as between t and the Government, the camant
assumes the rsk of fraud perpetrated upon t by the deaer and the bootegger.
In any event the camant shoud have been requred to show that t at east
made a reasonabe effort to ascertan who the rea purchaser and user of the
car was so that he coud be Investgated as requred by the statute.
Manfesty, secton 204 s a remeda measure. It empowers the courts, e er-
csng sound dscreton, to afford reef to nnocent partes havng nterests n
condemned property where the cam s reasonabe and |ust. Its prmary pur-
pose s not to protect the revenues but ths s proper matter for consderaton
whenever remsson s sought. The secton must be beray construed to carry
out the ob|ectve. The pont to be sought s the ntent of the aw-makng powers.
orfetures are not favored they shoud be enforced ony when wthn both
etter and sprt of the aw. ( armers , etc., Natona ank v. earng, 91
T . ., 29, 33-35.) If any camant has been neggent or In good conscence
ought not be reeved, the court shoud deny hs appcaton.
Consderaton of the statutory provsons reatve to remssons pror to
secton 204 and the crcumstances of ts adopton w enghten the purpose
entertaned by Congress.
Sectons 3450 and 3453, Revsed Statutes (Tte 26, U. S. C. ., sectons 1441,
1620-1621) derved from cts une 30, 1 64, and uy 13, 1 66 provde that
whenever any commodty In respect of whch a ta s mposed, s removed wth
ntent to defraud the Unted States, t sha be forfeted and every vesse, boat
cart carrage, or other conveyance whatsoever, and a horses or other anmas,
and a thngs used n the remova or for the depost or conceament thereof,
respectvey, sha be forfeted. The proceedngs to enforce such forfetures
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sha be In the nature of a proceedng n rem In the crcut court or dstrct court
of the Unted States for the dstrct where such sezure Is made.
Sectons 3-1 GO and 3401 (Tte 26, U S. C. ., secton 1( .24 derved from cta
uy 13, hft. and une 6. 1 7- provde that when goods, wares, or merchandse
przed as sub|ects of forefoture. do not e ceed r 00 n vaue, they my be re-
stored to the camant upon the e ecuton of a bond and ths sha be devered
to the dstrct attorney for proper proceedngs If no bond, the artces sha
be sod und the proceeds pad nto the Treasury. Wthn a year any camant
may appy to the Secretary for remsson whch may be granted upon sats-
factory proof, to be furnshed n such manner as he sha prescrbe: Provdrd,
That t sha be satsfactory shown that the sad forfeture was
Incurred wthout wfu neggence or any Intenton of fraud on the part of the
owner of sad property.
Where the vaue e ceeds . )0 or bond Is gven, forfeture must he sought In
court through a be In rem. (Unted States v. Tro ay Mue . tc., 36 ed.,
4: Unted States v. Mmren. 2r 4 ed.. 2 7: Loan v. Unted States, 260 ed-,
746: Unted tates v. One ay orse, 270 ed., 590.)
1 . S., secton 3450 ( ct uy 13. 1 66. ch. 1 4. secton 14, 14 Stat.. 9 . 1S1 2 U. .
C. ., secton 1441 )
(n) very person who removes, deposts, or conceas, or Is concerned In removng. de-
posttn or corn-en ng nny goods or commodtes for or In respect whereof n| ta a
Imposed, wth ntent to defraud the I ned States of sucb ta on any part thereof, sha
be abe to a fue or penaty or not more than 500.

(3) very veRse, boat, cart, carrage, or other conveyance whatsoever, and a horses
or o her anmas, and n tngs used n the remova or for the depost or conceament
thereof, respectvey, sha he forfeted.
Ths secton was amended hy ct nne 26. 1936 (eh. 30. Tte III, secton 25. 49
Stat.. 1030. nr.5), whch chmeed the provson for 500 penaty to a fne of not more
than 5,000 or e Imprsoned or not more than three years, or both.
evsed Statutes secton 3453 ( c une 30, 1 64. ch. 173. secton 4 , 13 Stat., 223,
240 ct uy 13, 1 66. ch. 1 4. secton . 14 Stat.. 9 . I 26 U. . C. ., sectone
1620-1021)
(roods, wares, merchandse, artces, or ob|ects, on whch ta es are Imposed, whch
sha be found In the possesson, or custody, or wthn the contro of any person, for the
Surpose of beng sod or removed by h n n fraud of the Interna-revenue aws, or wth
es _rn to avod ayment of sad ta es, may he sezed by the coector or deputy coector
of the proper dstrct, or by such other coector or deputy coector as may e secay
authorzed by the Commssoner of Interna Revenue for that purpose, and sha be for-
feted to the T nted States nd a raw materas found n the possesson of any person
Intendng to manufacture the same Into artces of a knd sub|ect to ta for the purpose of
frauduenty seng such manufactured artces, or wth desgn to evade the payment of
ad ta : and n toos. Impements. Instruments, and persona property whatsoever. In the
pace or budng, or wthn any ynrd or Incosure where such artces or raw materas are
found, mny aso be sezed hy nny coector or deputy coector as aforesad, and sha he
forfeted as arorcsad. The proceedngs to enforce such forfetures sha he In the nature
of a proceedng n rem n the crcut court or dstrct court of the Unted States for the
dstrct where such sezure s made.
Revsed Statutes sectons 3400 and 3461 ( ct uy IS. 1 06, ch. 1 4. secton 63, 14
Stat., ) , 100 ct une 6. 1 72. ch. 315. secton 40. 17 Stat.. 230. 257: 20 D. S. C. ,
secton 1024
c .C .TOO. In a cases of sezure of any goods, wares, or merchandse, as beng sub|ect
to forfeture under any provson of the Interna-revenue aws, whch. In the opnon of the
coector or deputy coector makng the sezure, are of the apprnsed vaue of . 00 or ess,
the sad coector or deputy coector sha, e cept n cases otherwse provded, proceed ae
foows:

Second. If the sfd goods are found by the sad apprasers to be of the vaue of . 00 or
ess, the sad coector or deputy coector sha pubsh s notce, for three weeks, n some
newspaper of the dstrct where the sezure was made, descrbng the artces, and statng
the tme, pace, and cause of ther sezure, and requrng any vrson camng them to
appear tm make such cam wthn 30 days from the dae of the frst pubcaton of such
notce.
Th rd. ny person camng the .-oods, wares, or merchandse so sezed, wthn the tme
spcc ed n the notce, may te Mfh the snd coector or deputy coector a cum. statng
hs nterest n the artces sezed and may e ecute a bond to the T nted States n the
pena sum of 2- 0. wth suretes to he approved hy the sad coector or deputy coector,
condtoned that, n case of condemnaton of the artces so sezed, the obgors sha pay
a the costs and e penses o e proceedngs to obtan such condemnaton and on
devery of such bond to the coector or deputy coector, he sha transmt the same, wth
the dupcate st or de crpton of the goods sezed, to the Tnted States dstrct attorney
for the dstrct, and sad attorney sha proceed thereon In the ordnary manner prescrbed
by aw.
ourth. If no cam s Interposed and no bond a gven wthn the tme above specfed,
the coector or deputy coector, as the case may be. sha gve 10 days notce of the sae of:
the goods, wares, or merchandse hy pubcaton, and. at the tme and pace specfed In the
notce, sha se the artces so sezed at pubc aucton, and after deductng the e pense
of apprasement and sae, he sha depost the proceeds to the credt of the Secretary of
the Treasury.
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Secton S229 Revsed Statutes ( ct uy 20, 1 6 , ch. 1 6, secton 102, 15
Stat., 125, 166 26 U. S. C. ., secton 1661) provdes
The Commssoner of Interna Revenue, wth the advce and consent of
the Secretary of the Treasury, may compromse any cv or crmna case
arsng under the nterna-revenue aws Instead of commencng sut thereon
and, wth the advce and consent of the sad Secretary and the recommenda-
ton of the ttorney-Genera, he may compromse any such case after a sut
thereon has been commenced. Whenever a compromse s made n any case
there sha be paced on fe n the offce of the Commssoner the opnon
of the Soctor of Interna Revenue, or of the offcer actng as such, wth hs
reasons therefor, wth a statement of the amount of ta assessed, the amount
of addtona ta or penaty mposed by aw n consequence of the negect or
denquency of the person aganst whom the ta s assessed, and the amount
actuay pad n accordance wth the terms of the compromse.
( mended, cts ebruary 26, 1926, ch. 27, secton 1201, 44 Stat., 0, 126
May 10. 1934, ch. 277, secton 512(b), 4 Stat., 6 0, 759 May 2 , 193 , ch. 2 9,
secton 15. 52 Stat., 447, 57 .)
Wson Motor Co. v. Unted States (Nnth Crcut) ( 4 . (2d), 630, 632),
states The Government s bref advses that pror to the ct of ugust 27,
1S55, the procedure of the Government to afford reef to these nnocent owners
was under the provsons of compromse powers gven the ttorney Genera and
the Treasury under secton 1661, 26 U. S. C. .
In connecton wth the sectons referred to above the Unted States Code
nnotated ponts to ther orgn and hstory.
The Natona Prohbton ct (October 2 , 1919, ch. 5, Tte II, secton 26,
41 Stat.. 305, 315, Tte 27, U. S. C. ., secton 40) provded that whenever n-
to catng quors transported or possessed Iegay sha be sezed by an of-
fcer he sha take possesson of the vehce and team or automobe, boat, ar
or water craft, or any other conveyance, and sha arrest any person n charge
thereof. The person arrested sha be proceeded aganst but the vehce or
conveyance sha be returned upon e ecuton of a bond. Upon hs convcton
the court sha order the quor destroyed and uness good cause to the
contrary s shown by the owner, sha order a sae by pubc aucton of the
property sezed, (See Rchbourg Motor Co. v. Unted States, 2 1 U. S., 52 .)
Ths was repeaed by The Repea and nforcement ct, supra.
Sec. 34C1. Wthn one year after the sae of any goods, wares, or merchandse, as pro-
Tded In the precedng secton, any person camng to be Interested In the property sod
may appy to the Secretary of the Treasury for u remsson of the forfeture thereof, or
any part thereof, and a restoraton of the proceeds of the sae and the sad Secretary may
grant the same upon satsfactory proof, to be furnshed n such manner as he sha pre-
scrbe: Provded, That It sha be satsfactory shown that the appcant, at the tme of
the sezure aud sae of the sad property, and durng the ntervenng tme, was absent,
oat of the I nted States, or In such crcumstances as prevented hm from knowng of the
sezure and that he dd not know of the same: and aso that the sad forfeture was n-
curred wthout wfu neggence or any Intenton of fraud on the part of the owner of
sad property. If no appcaton for such restoraton s made wthn one year, as heren-
before prescrbed, the Secretary of the Treasury sha, at the e praton of the sad tme,
cause the proceeds of the sae of the sad property to be dstrbuted accordng to aw, as
Id the case of goods, wares, or merchandse condemned and sod pursuant to the decree
of a competent court.
When the Commssoner, hs assstants, Inspectors, or any offcer of the aw sha ds-
cover any person In the at of transportng n voaton of the aw. Into catng quors In
any wagon, buggy, automobe, water or ar craft, or other vehce. It sha be hs duty to
seze any and a nto catng quors found theren beng transported contrary to aw.
Whenever Into catng quors transported or possessed egay sha he sezed by an
offcer he sha take possesson of the vehce and team or automobe, boat, ar or water
craft, or any other conveyance, and sha arrest any person In charge thereof. Such off-
cer sha at once proceed aganst the person arrested under the provsons of ths tte n
any court havng competent |ursdcton but the sad vehce or conveyance sha be
returned to the owner upon e ecuton by hm of a good and vad bond, wth suffcent
snretes. In a sum doube the vaue of the property, whch sad bend sha be approved by
sad offcer and sha be condtoned to return sad property to the custody of sad offcer
on the day of tra to abde the |udgment of the court. The court upon convcton of the
person so arrested sha order the quor destroyed, and uness good cause to the contrary
Is shown by the owner, ha order a sae by pubc aucton of the property sezed, and the
offcer makng the sae, after deductng the e penses of keepng the property, the fee for
the sezure, and the cost of the sae, sha pay a ens, accordng to ther prortes, whch
are estabshed, by nterventon or otherwse at sad hearng or n other proceedng brought
for sad purpose, as beng bona fde and as havng been created wthout the enor havng
any notce that the carryng vehce was beng used or was to be used for Iega transpor-
taton of quor, and sha pay the baance of the proceeds nto the Treasury of the Unted
States as msceaneous recepts. ens aganst property sod under the provsons of
ths secton sha be transferred from the property to the proceeds of the sae of the
property.
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The ct of September 21, 1922 (ch. 356, secton 61 , 42 Stat. 5 . 9 7)
provdes
Whenever any person nterested n any vesse, vehce, merchandse, or
baggage sezed under the provsons of ths ct, or who has ncurred, or s a-
eged to have Incurred, any ne or penaty thereunder, tes wth the Secretary of
the Treasury f under the customs aws, and wth the Secretary of Commerce
If under the navgaton aws, before the sae of such vesse, vehce, merchandse,
or baggage a petton for the remsson or mtgaton of such fne, penaty, or
forfeture, the Secretary of the Treasury, or the Secretary of Commerce. If
he fnds that such fne, penaty, or forfeture was Incurred wthout wfu
neggence or wthout any Intenton on the part of the pettoner to defraud the
revenue or to voate the aw, or fnds the e stence of such mtgatng crcum-
stances as to |ustfy the remsson or mtgaton of such fne, penaty, or for-
feture, may remt or mtgate the same upon such terms and condtons as he
deems reasonabe and ust, or order dscontnuance of any prosecuton reatng
thereto.
Reenacted by ct uy 17, 1030, ch. 407, secton 61 , 46 Stat, 590, 757 19
U. S. C. ., secton 161 .
The ct May 20. 192 (ch. T.2. secton 709. 45 Stat, 791. 2, 26 U. S. C. .,
secton 1626), e tended the provsons of aw appcabe to the remsson or
mtgaton by the Secretary of rhe Treasury of forfetures under the customs
aws to forfetures ncurred or aeged to have been Incurred, before or
after the enactment of ths ct, under the nterna-revenue aws.
In the stuaton dscosed by the foregong summary. Congress came to
consder the ct of ugust 27. 193.Y The udcary Commttees of Senate and
ouse made reports (Senate Report No. 1330. ouse Report No. 1601. Seventy-
fourth Congress, frst sesson). In each the paragraphs reatve to secton 204
(a) and (b) are the same n substance.
ouse Reports, oume 4, Seventy-fourth Congress, rst Sesson, 1935. Report No.
1C01, page e
Secton 204(d) of secton 204 provdes that In any court proceedng for the forfeture
under the Interna-revenue aws of any vehce or arcraft sezed for a voaton of the
Interna-revenue aws reatng to quor, the court sha, upon decree of forfeture, have
e cusve ursdcton to remt or mtgate the forfeture. t the present tme, the court
has authorty on y to decree the forfeture, and remsson or mtgaton s dependent upon
admnstratve acton. Secton 204 e tends to the court whch determnes whether the
vehce or arcraft sha he forfeted by reason of havng been used In the voaton of
nterna-revenue aws reatng to qnor, the power to determne whether the cam of any
person havng an Interest In the vehce or arcraft shoud be aowed after forfeture.
Thus, n a -ases where the vaue of the sezed property e ceeds . 00. and In a casoe
where the vaue s . 00 or ess, but a bond Is posted In order to brng the forfeture pro-
ceedng Into court, the court w111 have e cusve ursdcton to remt or mtgate the for-
feture. In the event that a bond Is not fed In cases where the property Is of the vaue
of 500 or ess, the power to remt or mtgate w reman In the Secretary of the
Treasury.
Certan standards are gven to the court to gude It n ths determnaton. Thus, under
subsecton (b). the camant must prove that he acqured bs Interest In good fath, that
he had no knowedge or reason to beeve that the vehce or arcraft was beng or woud
be used n voatng edera or State quor aws and that. If hs Interest arses out of,
or Is sub|ect to, any agreement under whch any person havng a record or reputaton for
voatng edera or State quor aws has a rght wth reswt to the vehce or arcraft,
the camant before he acqured hs Interest, or before the other person ncqured hs rght,
whchever of these events occurred ater. Inqured of the aw enforcement offcers In the
ocaty where such other person acqured hs rght, of the ocaty In whch such other
person then resded, and of each ocaty where the camant made Inqury as to the char-
acter or credt standng of such other person, whether the other person had such a record
or reputaton, and was Informed he had not. Ths ast requrement Is predcated upon
the recognton of the booteg hazard as an eement to he consdered In Investgatng a
person as a credt rsk. s a matter of sound busness practce, automobe deaers, fnance
companes, and prospectve enhoders on automobes e amne records, and make Inqury
of references and credt ratng agences as to the owner s or prospectve purchaser s repu-
taton for payng hs debts and hs abty to do so. Ths subsecton merey requres that
In the makng of such nqury, the booteg hazard ao be e amned aa one aspect of
the credt rsk.
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representatve of the Treasury Department made a statement to the Senate
udcary Commttee. n e tract from ths appears n the margn.
rearrangement of the words of subsecton (b) (3) w enghten ts
The court sna not aow the request cam of any camant for rems-
son or mtgaton, f t appears that the nterest asserted by hm the
camant arses out of or s n any way sub|ect to any contract or agreement
vnder whch any person havng a record or reputaton for voatng aws of
the Unted States or of any State reatng to quor has a rght wth respect
to such vehce or arcraft, uness and unt he the camant proves that before
he each camant acqured hs nterest, or such other person acqured hs
rght under such contract or agreement, whchever occurred ater, he the
camant hs offcer or agent, was nformed n answer to hs nqury, at
certan headquarters specfed n the aternatve as to the character or fnan-
ca standng of such other person, that such other person had no such record
or reputaton.
If the words of secton 204(b)3 be taken teray, wthout regard to
hstory or purpose of the enactment, they nhbt remsson by the court uness
one who cams an nterest made actua nqury concernng every person wth
record or reputaton for voatng the quor aws who n fact (athough whoy
unsuspected) had acqured some rght to the vehce. There woud be absoute
forfeture athough the camant acqured hs nterest n the utmost good
fath and wthout suspcon of any undscosed nterest athough ndeed, he
had dgenty but unsuccessfuy sought nformaton concernng a the facts
from every person connected wth the transacton. Thus construed the pro-
vson woud requre absoute forfeture notwthstandng the camant coud
not by the utmost dgence ascertan the true stuaton. No greater reason
e sts for sayng a camant shoud be reeved f he made unsuccessfu nqury
of the seer concernng undscosed matters than there s for reef when he
had no cause to suspect the e stence of an undscosed nterest no cause to
queston appearances. measure requrng absoute forfeture under such
crcumstances probaby woud be e pressed In anguage suffcenty pan to
admt no reasonabe doubt.
Durng many years nnocent camants had a cear remedy ether by appea
to the dscreton of the Secretary of the Treasury or by appcaton for compro-
mse addressed to the ttorney Genera and Treasury offcas (Wson Motor Co.
v. Unted States, supra) or under the Prohbton ct, to the court (Rrhbourg
fotor Co. v. Unted States, supra). Ths stuaton was caed to the attenton
of the Senate Commttee by the representatve of the Treasury. e aso
ponted out that before restorng a car the Secretary requred that the camant
must prove that he made an nvestgaton as to whether or not the purchaser
Senate Commttee earngs, 1035, oume 495, No. 4, page 13
ecron 204 reates to proceedng In court for the forfeture of vehces or
Ircraft sezed for voatons of nterna-revenue aws. t the present tme, camants of
f T a| In vehces or arcraft that have been sezed and forfeted for voaton of nter-
na revenue aws, petton the Secretary of the Treasury for the remsson or mtgaton of
the forfeture, and the Secretary, under the aw, requres the person camng to have an
Innocent nterest to show that he had no knowedge of the unawfu use of the vehce or
treraft What ths secton w do. In the case of any court proceedng for the forfeture
f vehces or arcraft, s to gve the court ursdcton to determne whether or not the
.nne to have an Innocent Interest actuay had such an nterest. Under the
STont nractce the Secretary of the Treasury requres ouch a showng. Ths
I T r, nf partcuar mportance n connecton wth the dscountng by a fnance com-
v ,,f Un automobe deaer s paper.
, h nresent tme, the Secretary of the Treasury consders that the booteg hazard Is
monf nvoved n the credt rsk, and s |ust aa much a part of the Investgaton b|r
an eement mpany 0f a person as a credt rsk as s hs fnanca standng In the eom-
rue nnanct- Tm mmm tnat tefOTe a oar bp returned to the person camng an nnocent
monty. )atter must prove that he made an nvestgaton as to whether or not the.
porcbaser Tad a bootegger record, and found that he had none.
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had a bootegger record and found that he had none. The Secretary con-
sders tha the booteg hazard f an eement Invoved n the cred rsk, and
s ust as much a. part of rhe nvestgaton by the fnance company of a person
as a credt rsk as s bs fnanca standng n the communty. The commttee
reported n respect of 2 4(b)3 Ths ast requement s predcated upou the
recognton of the booteg hazard as an eement to be consdered In Invest-
gatng a person as a credt rsk.
These facts ndcate that Congress Intended a reasonabe Inqury concernng
the booteg rsk shoud be made n connecton wth (he nvestgaton of fnanca
responsbty. They negatve the noton that whoy nnocent camant at hs
per must show Inqury concernng somethng unknown and of whch he had
no suspcon. Deaers do not nvestgate what they have no cause to suspect.
The forfeture cts are e ceedngy drastc. They were ntended for protecton
of the revenues, not to punsh wthout faut. It woud requre uncouded an-
guage to compe the concuson that Congress abandoned the equtabe pocy,
observed for a very ong tme, of reevng those who act n good fath and wth-
out neggence, and adopted an oppressve amendment not demanded by the
ta offcas or ponted out n the reports of ts commttees.
Subsecton (b)(3) was ntended to prevent remsson to a camant who had
faed to nqure when he shoud have done so. to one chargeabe wth wfu
neggence or purpose of fraud. It woud be e cessvey harsh, unreasonabe
nde d, to say that one deang n entre good fath must, at hs per, frst dscover
and then make Inqury concernng somebody of whose e stence he has no
knowedge or suspcon. We can not thnk Congress ntended thus to burden
deang n a vehces capabe of transportng quor.
It shoud be observed that the foowng tngs are possbe sub|ects of sezure
and forfeture because of quor aw voatons: very vesse, boat, cart,
carrage, or other conveyance whatsoever, and a horses or other anmas, and
a thngs used n the remova or for the depost or conceament, etc. ehce
s thus defned That In or on whch a person or thng s or may be carred
from one pace to another. wheebarrow, a covered wagon, a Ros-Itoyce,
the patent mue, a Man of War, and possby a Puman car or ocean ner
s a vehce. ( od mth-Orant Co. v Unted State . 254 U. S., 505 Unted State
v. Two uy Mues, supra Unted States v. One ay orse, supra.)
Subsecton (b)(3) appes not ony to transactons by fnanca concerns ke
respondent but to those of ndvduas and corporatons great or sma. It
contempates an nvestgaton and ths presupposes some reason at east to suspect
the e stence of the sub|ect of nvestgaton. Congress took away from e ecutve
offcers the power to mtgate forfetures where the property e ceeds 000 n
vaue, and gave ths to the court famar wth the crcumstances but t eft
wth the Secretary of the Treasury dscreton to remt when the vaue wns
beow 500. The ntent was to requre the courts to e act proof of nqures
ke those demanded by the Treasury Department practce, and dscosed by Its
representatve before the Senate commttee. The pettoner s vew, f adopted,
woud sancton one standard of remsson for a vehce worth 500, another
when apprased at a doar more.
The chaenged decrees must be affrmed.
Mr. ustce uter and Mr. ustce Stone took no part In the consderaton
or decson of these causes.
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LI UOR T ING CT OP 1934.
S CTION 201.
1939-1-965
Ct. D. 1374
LI UOR T U DO T ING CT O NU RY 11. 1934 D CISION O
supreme court.
Indctment Possesson and Transportaton of Dsted Sprts
Wthout Revenue Stamps Search and rrest.
Pettoner was found guty under an Indctment whch charged
voatons of secton 201, Tte II, Lquor Ta ng ct of anuary
11, 1934, by possessng and transportng dsted sprts n contan-
ers wantng requste revenue stamps. edera offcers, reyng
upon confdenta nformaton that quor woud be transported n
a desgnated automobe from a certan dweng at a certan day
and hour, kept the dweng under observaton, saw and heard the
movements of the descrbed car and the oadng of heavy parces,
and foowed the car nto an open garage upon pettoner s prem-
ses, where they found a quantty of dsted sprts n unstamped
contaners n the trunk of the car, and arrested the pettoner.
The tra court dd not err n sustanng ob|ectons to the queston-
ng of the offcers reatve to the source of the nformaton whch
ed them to observe the pettoner s actons. In the crcumstances,
the source of the nformaton was unmportant to pettoner s
defense. The egaty of the offcers acton does not depend upon
the credbty of somethng tod but upon what they saw and
heard what took pace n ther presence. Moreover, pubc pocy
forbds dscosure of an nformer s dentty uness essenta to the
defense. Passage of the car nto the garage dd not destroy the
rght to search and arrest No search was made of the garage,
e amnaton of the car accompaned an arrest wthout ob|ecton
and upon admsson of probabe gut, and the offcers dd nothng
ether unreasonabe or oppressve.
uman cher, aas Wam cher, pettoner, v. The Unted State .
305 U. S., 251.
Certorar to the Unted States Crcut Court of ppeas for the S th Crcut.
December 5, 193 .
opnon.
Mr. ustce McRet:sod devered the opnon of the Court.
Pettoner Scher was found guty under two counts of an ndctment whch
charged voatons of secton 201 Tte II Lquor Ta ng ct, anuary 11, 1934,
by possessng and transportng dsted sprts n contaners1 wantng requste
revenue stamps. e was sentenced for a year and a day, etc. The crcut
court of appeas affrmed the udgment.
No ob|ectons to the udge s charge s urged and the evdence submtted
to the ury s adequate to support the verdct.
Ch. 1, secton 201 (4 Stat., 13, 316 (U. S. C, Tte 20. secton 1152n, 2g))
No person sha transport, possess, buy, se, or transfer anv dsted
sprts, uness the Immedate contaner thereof has aff ed thereto a stamp denotng the
quantty of dsted sprts contaned theren and evdencng payment of a Interna-
revenue ta es mposed on uch sprts. The provsons of ths tte sha not appy to

(f) Dsted sprts not Intended for sae or for use n the manufacture or producton
of any artce ntended for sae
Secton 207: ny person who voates any provson of ths tte, sha on
convcton be punshed by a fne not e ceedng 1,000, or by mprsonment at hard abor
not e ceedng fve years, or by both.
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390
The matera facts are not In serous dspute. bref summaton w suffce
for the ponts to be consdered.
edera offcers receved confdenta nformaton thought to be reabe that
about mdnght. December 30, 1935. a Dodge automobe wth specfed cense
pate woud transport phony whsky from a specfed dweng n Ceveand,
Oho. bout 9.30 offcers posted uear by saw the descrbed automobe stop
n front of the bouse and reman there for an hour. man wth three women
and a package then entered the car and drove away. It returned shorty he-
fore mdnght, stopped at the rear of the house aud remaned for buf an hour.
The headghts were e tngushed the offcers heard wbat seemed to be heavy
paper packages passng over wood. Doors sammed: pettoner drove the car
away, apparenty heavy oaded. The offcers foowed n another car. fter
gong a few bocks pettoner stopped brefy at a fng staton theu he drove
towards hs own resdence two or three bocks farther aong. The offcers fo-
owed. e turned nto a garage a few feet back of hs resdence and wthn
the curtage. One of the pursung offcers eft ther car and foowed. s
pettoner was gettng out of hs car ths offcer approached, announced hs off-
ca character, and stated he was nformed that the car was haung booteg
quor. Pettoner reped, |ust a tte for a party. sked whether the
quor was ta -pad, he reped that t was Canadan whsky aso, he sad t
was n the trunk at the rear of the car. The offcer opened the trunk and
found bottes of dsted sprts In unstamped contaners. e arrested pe-
ttoner and sezed both car and quor. The offcer had no search warrant.
t the tra counse undertook to queston the arrestng offcers reatve to the
source of the nformaton whch ed them to observe pettoner s actons. Ob-
|ectons to these questons were sustaned and ths s now assgned as error.
efore tra pettoner s counse moved to suppress a of the evdence ob-
taned by the search made by the revenue agents n the above entted cause,
together wth a Informaton obtaned by reason of such search, and to grant
an order requrng the agents to return a artces sezed by reason of sad
search . In support of ths he reed upon the facts above stated.
Dena of ths moton Is sad to be error.
The e cepton In respect of transportng quor not ntended for sae found
In the statute affords matter for affrmatve defense. ueen v. Unted, 77 .
(2d). 7 0.)
In the crcumstances the source of the Informaton whch caused hm to be
observed was unmportant to pettoner s defense. The egaty of the offcers
acton does not depend upon the credbty of somethng tod hut upon what
they saw and heard what took pace n ther presence. ustfcaton Is not
sought because of honest beef based upon credbe nformaton as n Unted
States v. ch (45 . (2d), C27).
Moreover, as often ponted out, pubc pocy forbds dscosure of an n-
former s Identty uness essenta to the defense as for e ampe where ths turns
upon an offcer s good fath. (Seguroa v. Unted States. 10 . (2d), 563, 565
Shore v. Unted States, 49 . (2d), 519, 522 cnes v. Unted States, 02 . (2d),
1 0.)
Consderng the doctrne of Carro et a. v. Unted States (267 U. S., 132)
(see Iusty v. Unted States, 2 2 U. S., 694), and the appcaton of ths to the
facts there dscosed. It seems pan enough that ust before he entered the
garage the foowng offcers propery coud have stopped pettoner s car. made
search and put hm under arrest So much was not serousy controverted at
the argument.
Passage of the car nto the open garage cosey foowed by the observng
offcer dd not destroy ths rght. No search was mare of the garage. am-
naton of the automobe accompaned an arrest, wthout ob|ecton and upon
admsson of probabe gut The offcers dd nothng ether unreasonabe or
oppressve. ( gneo v. Unted States, 269 U. S., 20, 0 Wsnewsk v. Unted
States, 47 . (2d), 25. 26.)
The chaenged |udgment Is affrmed.
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MISC LL N OUS RULINGS.
INT RN L R NU COD .
1939-19-9 26
Mm. 4906
Interna Revenue Code.
Washngton, D. C, pr IS, 1939.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
eads of ed Dvsons of the Technca Staff, and Other
Offcers and mpoyees of the ureau of Interna Revenue
Concerned:
Reference s made to the Interna Revenue Code (53 Stat., Part 1)
whch was approved by the Presdent on ebruary 10, 1939.
The nterna revenue tte of the Code s dvded nto 46 chapters
(numbered 1 to 4 , wth no chapters numbered 19 or 20), and con-
tans a of the aws of a genera and permanent character reatng
e cusvey to nterna revenue n force on anuary 2, 1939, and n
addton t contans the nterna revenue aws reatng to certan
temporary ta es.
Secton 4(a) of the enactng causes of the Code provdes that a
aws and parts of aws ncuded n the nterna revenue tte of the
Code, to tne e tent that they reate e cusvey to nterna revenue,
are repeaed, effectve, e cept as provded n secton 5 of such causes,
on the day foowng the date of the enactment of the Code. Sec-
ton 4(b) provdes that such repea sha not affect any act done or
any rght accrung or accrued, or any sut or proceedng had or
commenced n any cv cause before such repea, but that a rghts
and abtes under the cts repeaed sha contnue and may be
enforced n the same manner as f such repea had not been made.
Secton 5 provdes that any provson of aw n force on anuary 2,
1939, correspondng to a provson contaned n the nterna revenue
tte sha reman n force unt the correspondng provson of the
nterna revenue tte takes effect.
The appcaton of the Code, n genera, s prospectve ony. Sec-
ton 3 of the enactng causes of the Code provdes that e cept as
otherwse provded theren the Code sha take effect on the day
foowng the date of ts enactment. Such e ceptons are contaned
n certan chapters of the nterna revenue tte as w be shown
herenafter. or e ampe, n the case of the ncome ta , chapter 1
of the nterna revenue tte appes ony to ta abe years begnnng
after December 1, 193 , and. has no appcaton to ta abe years
begnnng pror to anuary 1, 1939. s to such pror ta abe years
(391)
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Msc.
394
by the Secretary of the Treasury, appcabe under any provson of
aw on the date of the enactment of the Interna Revenue Code, to the
e tent such provson s superseded by the Code, are hereby pre-
scrbed and made appcabe under the provsons of the Code corre-
spondng to the provson of aw so superseded n so far as any such
form s not nconsstent wth the Code.
Correspondence regardng ths mmeograph shoud refer to the
number thereof and to the symbos IT: R .
Guy T. everno,
Commssoner.
1939-26-9 93
T. D. 4905
mendng the Gaugng Manua.
Washngton, D. O.
Pursuant to the authorty n sectons 2 0 (a) and 3176(a), Inter-
na Revenue Code, paragraph 100 of the Gaugng Manua, approved
November 21, 193 , s hereby amended to read as foows:
Par. 100. When determnng the Increase In tare on reused packages seected
for the purpose of ascertanng the average, f t s found that the ncrease n
tare vares more than s pounds as between any two packages weghed, average
Increase n tare w not be aowed on the packages to be regnuged, aud actua
tare must be taken on a such packages.
Guy T. everno,
pproved une 16, 1939.
ohn W. anes,
1939-17-9 11
T. D. 4 96
TITL 2 INT RN L R NU . C PT R I, P RT 465, SU P RT .
Makng certan Interna revenue forms appcabe under the
Washngton, D. 0.
Interna revenue forms prescrbed by the Commssoner of Inter-
na Revenue and specfcay approved by the Secretary of the
Treasury, appcabe under any provson of aw on the date of the
enactment of the Interna Revenue Code ( ebruary 10, 1939), to
the e tent such provson of aw s superseded by the Code, are
hereby prescrbed and made appcabe under the provsons of the
Code correspondng to the provson of aw superseded, n so far
as any such form s not nconsstent wth the Code.
Ths Treasury decson s ssued under authorty of the provsons
of secton 3791 of the Interna Revenue Code (53 Stat., Part 1) and
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395 Msc
under such other provsons of the Code as correspond wth the
severa provsons of uw under whch any form hereby prescrbed
and made appcabe was ssued.
Gut T. evernq,
pproved pr 17,1939.
ohn W. anes,
( ed wth the Dvson of the edera Regster pr 1 , 1939, 3.56 p. m.)
1939-11-9756
T. D. 4 9
Prescrbng reguatons under the Interna Revenue Code.
Washngton, D. 0.
reguatons (ncudng a Treasury decsons), prescrbed
|onty by the Commssoner of Interna Revenue and the Comms-
soner of Customs and approved by the Secretary of the Treasury,
appcabe under any provson of aw on the date of the enactment o
the Interna Revenue Code, to the e tent such provson of aw s su-
perseded by the Code, are hereby prescrbed under, and made app-
cabe to, the provsons of the Code correspondng to the provson of
aw so superseded, n so far as any such reguaton s not nconsstent
wth the Code.
These reguatons are ssued under authorty of the provsons of sec-
ton 3791 of the Interna Revenue Code and under such other prov-
sons of the Code as correspond wth the severa provsons of aw
under whch any reguaton or Treasury decson hereby prescrbed
Gut T. eveftng,
ames . Moye,
pproved March ,1939. Commssoner of Customs.
ohn W. anes,
( ed wth the Dvson of the edera Regster March 10,1939, 12.07 p. m.)
1939- -9725
T. D.4 4
Treasurt Department,
Offce of the Secretary,
Washngton, D. C, ebruary 11,1939.
reguatons (ncudng a Treasury decsons), prescrbed by,
or under authorty duy deegated by, the Secretary of the Treasury,
appcabe under any provson of aw on the d te of the enactment o
the Interna Revenue Code, to the e tent such provson of aw s
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Msc.
396
superseded by the Code, are hereby prescrbed under, and made app-
cabe to, the provsons of the Code correspondng to the provson
of aw so superseded, n so far as any such reguaton s not ncon-
sstent wth the Code.
These reguatons are ssued under authorty of the provsons of
sectons 192 , 2559 and 2606 of the Interna Revenue Code and under
such other provsons of the Code as correspond wth the severa
provsons of aw under whch any reguaton or Treasury decson
hereby prescrbed and made appcabe was ssued.
. MoRG NT U, r.,
( ed wth the Dvson of the edera Regster ebruary 11, 1939, 1.53 p. no.)
1939- -9726
T. D. 4 5
Trea t|ry Department,
Washngton, D. C.
reguatons (ncudng a Treasury decsons), prescrbed by
the Commssoner of Interna Revenue and approved by the Secretary
of the Treasury, appcabe under any provson of aw on the date
of the enactment of the Interna Revenue Code, to the e tent such
provson of aw s superseded by the Code, are hereby prescrbed
under, and made appcabe to, the provsons of the Code correspond-
ng to the provson of aw so superseded, n so far as any such regua-
ton s not nconsstent wth the Code.
secton 3791 of the Interna Revenue Code and under such other
rovsons of the Code as correspond wth the severa provsons of
aw under whch any reguaton or Treasury decson hereby pre-
scrbed and made appcabe was ssued.
Gut T. everno,
pproved ebruary 11, 1939. Commssoner.
. MoRG NT U, r.,
( ed wth the Dvson of the edera Regster ebruary 11, 1939, 1.53 p. m.)
1939- -9727
T. D.4 6
Prescrbng reguatons reatng to ta es on oeomargarne,
aduterated butter, and process or renovated butter, under the
Washngton, D. C.
Reguatons 9, revsed pr, 1936, as amended, reatng to the
ta es on oeomargarne, aduterated butter, and process or renovated
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397
Msc.
butter, prescrbed by the Commssoner of Interna Revenue, and
approved by the Secretary of the Treasury and the Secretary of
grcuture, are hereby prescrbed under, and made appcabe to,
capter 16, subchapter and subchapter 13, and chapter 27, sub-
chapter , Parts I and II, of the Interna Revenue Code n so far as
such reguatons are not nconsstent wth the Code.
Ths Treasury decson s ssued under authorty of the provsons
of sectons 2325 and 3791 of the Interna Revenue Code and under
such other provsons of the Code as correspond wth the severa
provsons of aw under whch any reguaton or Treasury decson
hereby prescrbed and made appcabe was ssued.
Gut T. everno,
pproved as to Treasury Department ebruary 11, 1939.
. MoRG NT U, r.,
pproved as to Department of grcuture ebruary 11, 1939.
. . Waace,
Secretary of grcuture.
1939- -972
T. D. 4 7
Oftce of the Secretart,
Washngton, D. C.
Reguatons 5, as amended, ssued under the provsons of secton
of the Sver Purchase ct of 1934, are hereby prescrbed under,
and made appcabe to, the provsons of the Interna Revenue Code
correspondng to the provsons of sad secton of the Sver Purchase
ct of 1934 superseded by the Code, namey secton 1 05 of the Code,
n so far as such reguatons are not nconsstent wth the Code.
secton 1 05 of the Interna Revenue Code and under such other pro-
vsons of the Code as correspond wth the severa provsons of aw
under whch any reguaton or Treasury decson hereby prescrbed
. Moroenthau, r.,
pproved ebruary 11, 1939.
rankun D. Roosevet.
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Msc. 39
UNIT D ST T S O RD O T PP LS.
1939-7-9715
Washngton, anuary 30,1939.
The Unted States oard of Ta ppeas announces the foowng
amendments to the rues of practce, fourteenth edton, dated uy 1,
193 C. . 193 -1, 596 to become effectve on and after ebruary
1, 1939:
Rue 6. Intaton of a Proceedng Petton.
(Paragraph (h), as amended.)
(ft) verfcaton by the pettoner provded that where the pettoner s
so|ournng outsde the Unted States or s a nonresdent aen, the petton
may be verfed by a duy apponted attorney In 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 4, ch. 2, D. C. Code, and 26 Op. . O., 236.)
The verfcaton sha contan a statement that the fducares sgnng and
verfyng have authorty to act for the ta payer.
Where the pettoner s a corporaton, the person verfyng sha state n hs
verfcaton that he has authorty to act for the corporaton.
The sgnature and the verfcaton to the petton sha be consdered the
certfcate of those performng these acts that there Is good ground for the
petton, the proceedng has not been nsttuted merey for deay, and It s not
frvoous.
Rue 7. ng or Petton.
( s amended.)
n orgna and four cear copes of the petton, ether prnted or typewrtten
as provded by rue 4, sha be fed wth the oard. (See rue 9.) The copes
of the petton sha be conformed to the orgna by the pettoner.
aure to fe a suffcent number of copes, as provded n ths rue, or to
conform to the requrements of rues 4, 5, and , sha be ground for the ds-
mssa of the proceedng.
Rue 9. ng.
(New.)
ny document to be fed wth the oard, must be fed at the offce of the
oard n Washngton, D. C, durng busness hours provded, that a dvson
hearng a proceedng may permt documents pertanng thereto to be fed at the
hearng.
Rue 35. ref
( rst paragraph, as amended.)
The partes shoud be prepared to make ora arguments at the concuson of
the hearng or to fe wrtten ctatons of authortes at that tme If the case
s one n whch the presdng member mght reasonaby ca for such. The fng
of brefs and the makng of ora arguments sha be In accordance wth the
drectons of the member presdng at the hearng. If the member does not drect
otherwse, each party sha have 45 days after the day on whch the hearng was
concuded wthn whch to fe a bref and ether party may fe a repy bref
wthn 15 days after the fng of the orgna bref by hs opponent. fter a
bref has been fed, the cerk w serve a copy upon the opposte party, uness
the bref bears a notaton that a copy has aready been served.
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PU LIC S L RY T CT O 1939.
1939-25-9 7
T. D. 4 U4
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 1 .
INCOM T .
Refunds under secton 203 of the Pubc Saary Ta ct of 1030.1
Washngton, D. C.
Secton 1 .0. Introductory. a) Sectons 203 204, 205, 206, and
210 of the Pubc Saary Ta ct of 1939 (Pubc, No. 32, Seventy-
s th Congress, frst sesson I. It. . 193 )-17, 1 ), whch waa
approved by the Presdent on pr 12, 1939, provde:
bc. 203. ny amount of ncome ta (Incudng Interest, addtons to ta ,
and addtona amounts) coected on, before, or after the date of the enact-
ment of ths ct for any tumbe year begnnng pror tu anuary 1, 1939, to
the e tent attrbutabe to compensaton for persona servce as an offcer or
empoyee of a State, or any potca subdvson thereof, or any agency or
nstrumentaty of any one or more of the foregong, sha he credted or re-
funded n the same manner as h the case of an ncome ta erroneousy co-
ected, f cam for refund wth respect thereto Is fed after anuary 1 , 1039,
and the Commssoner of Interna Revenue, under reguatons p-escrbed by
hm wth the approva of the Secretary of the Treasury, fbds that dsaow-
ance of uch cam woud resut n the appcaton of the doctrnes n the
cases of Ieverng aganst Therre (.303 U. S. - IS), everng ngtnst Gerhardt
(304 U. S. 405). and Graves et a. aganst New York e re. O eefe, decded
March 27. 1939, e tendng the casses of offcers and empoyees sub|ect to
edera ta aton.
Sec. 204. Nether secton 201 nor secton 203 sha appy n any case where
the cam for refund, of the Insttuton of the sut, or the fng of the petton
wth the oard, was, at the tme fed or begun, barred by the statute of m-
tatons propery appcabe thereto.
Sec. 205. Compensaton sha not be consdered as compensaton wthn the
meanng of sectons 201, 202. and 203 to the e tent that t Is pad drecty or
ndrecty by the Unted States or any agency or nstrumentaty thereof.
Src. 200. The terms used In ths ct sha have the same meanng as when
used In Chapter I of the Interna Revenue Code.
Sec. 210. or the purposes of ths ct, the term offcer or empoyee n-
cudes a member of a egsatve body and a |udge or offcer of a court.
(b) In Ieverng v. Therre (193 ) (303 T . S., 21 ) (Ct. D. 1316,
C. . 193 -1, 243), the Supreme Court hed that compensaton pad
to ndvduas actng as qudators and attorneys for nsovent State
bankng and nsurance corporatons was sub|ect to edera ncome
ta where such compensaton was pad from corporate assets and not
from funds beongng to the State. In Ieverng v. Gerhardt (193 )
(304 U. S., 405) (Ct. D. 1343, C. . 193 -1, 246), the Court hed that
compensaton of empoyees of the Port of New York uthorty, a
b-State corporaton created by a compact between New York and
New ersey and approved by Congress, was sub|ect to edera ncome
Secton 1 .0 to secton 1 . sm|ed under the authorty contaned In secton 203 of th#
Pubc Saary Ta ct of 1939 (Pubc, No. 32, Seventy-eztb Congress, frst sesson).
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400
ta . In Grams et a. v. New York e re. CT eefe (1939) (59 S. Ct.,
595) (Ct. D. 1390, page 129, ths uetn) the Court overrued Co-
ector v. Day (11 Wa., 113), n so far as that case recognzed an m-
ped consttutona mmunty from edera ncome ta aton of the
compensaton of offcers and empoyees of State and oca governments
or ther nstrumentates. ach of those decsons e tended the casses
of State and oca offcers and empoyees sub|ect to edera ncome
ta aton on ther compensaton. Under pror Supreme Court dec-
sons the ta abty of compensaton of a State or oca offcer or
empoyee depended upon the nature of hs offce or empoyment, . e.,
whether he was engaged n the e ercse of an essenta governmenta
functon or a propretary functon. (See everng v. Poucrs et a.
(1934) (293 U. S., 214, Ct. D. 900, C. . III-2, 213) and nsh v.
Commssoner (1937) (300 U. S., 352, Ct. D. 1212, C. . 1937-1, 217).)
Pursuant to the authorty contaned n the above-quoted provsons
of the Pubc Saary Ta ct of 1939, the foowng reguatons are
prescrbed:
Secton 1 .1. Defntons. s used n these reguatons
(1) The term ct means the Pubc Saary Ta ct of 1939.
(2) The term Sate empoyee means an offcer or empoyee of a State,
or any potca subdvson thereof, or any agency or nstrumentaty of one or
more States or potca subdvsons and ncudes a member of a State or
oca egsatve body and a udge or offcer of a State or oca court.
(3) The term compensaton does not ncude any amount pad drecty or
ndrecty by the Unted States or any agency or Instrumentaty thereof.
(4) The term cam means a cam for refund tmey fed wthu the
perod of mtatons provded by the appcabe revenue aw.
Sec. 1 .2. Cams fed after anuary IS, 103 ). Secton 203 of the ct descrbes
the crcumstances under whch a cam fed after anuary 1 , 1939, by a State
empoyee for refund of ta attrbutabe to hs compensaton for persona servces
as a State empoyee for any ta abe year begnnng pror to anuary 1, 1939,
sha be aowed. If, under these reguatons, the Commssoner of Interna
Revenue fnds that a dsaowance of such cam woud resut n the appca-
ton of the doctrnes announced n everng v. Thcrrc (193 ) (303 U. S., 21 )
(Ct. D. 1310, C. . 193 -1, 243), everng v. Oerhardt (19: ) (304 U. S., 405)
(Ct D. 1343. C. . 193 -1, 240), and Graves et a. v. New York e re. O ccfe
(1939) (59 S. Ct, 595) (Ct. D. 1390, page 129, ths uetn), e tendng the casses
of State empoyees sub|ect to edera ncome ta , then such cam sha be
aowed. If, under Supreme Court decsons rendered pror to 193 on the
queston of the consttutona mmunty of compensaton of State empoyees
from edera ncome ta aton, a dsaowance of such cam woud be proper,
then the cam sha be dsaowed but f under such decsons a dsaow-
ance of such cam woud not be proper, then the cam sha be aowed. The
aowance of a cam under secton 203 of the ct w, therefore, be made f,
under these reguatons, the Commssoner of Interna Revenue fnds that such
compensaton was for persona servces rendered n the e ercse of an essenta
governmenta functon as dstngushed from a propretary functon.
cam under secton 203 of the ct sha not be dsaowed soey because
of the provsons of secton 322(c) of the Revenue ct of 193 and correspond-
ng sectons of pror Revenue cts reatng to the prohbton aguust the aow-
ance of n credt or refund.
mounts propery refundabe under secton 203 of the ct ncude nterest,
addtons to ta , and addtona amounts pad wth respect to the ta . Such
amounts sha be credted or refunded n the same manner as n the case of
an erroneousy coected Income ta .
Secton 203 of the ct has no appcaton to a case In whch a State empoyee
fes a cam pror to anuary 19, 1939, for refund of ta attrbutabe to bs
compensaton for any ta abe year begnnng pror to anuary 1, 1939.
Sec. 1 .3. ppcaton of secton 203. The appcaton of secton 203 of the
ct may be ustrated as foows:
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Cams sha he aowed If fed, for e ampe, by Stnfe pubc-schoo teachers,
recevers and masters apponted by State courts, qudators of hanks md
Insurance compnne taken over by a State, and offcers and empoyees of a
cry engaged mantenance, operaton or reguaton of pubc parks and pay-
ground.- , or of water suppy.
Cams sha nor be aowed f fed, for e ampe, by State quor store em-
poyees or muncpa raway empoyees.
Gut T. e-verno,
pproved .Tune 13, 1939,
ohn W. anes,
.ctng Secretary of the Treasury.
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402
S CTION 3 O T INSON CT (4 ST T., 503), S
M ND D Y T CT O UN 25, 1936 (49 ST T
1926).
1939-9-97 36
L T. 3257
Deducton of dscounts In determnng the true tota contract
prce and the cost of performng a contract or subcontract sub|ect
to the provsons of secton of the nson ct
dvce s requested wth respect to the meanng of certan provsons
of artce 7 of Treasury Decson 4723 (C. . 1937-1, 519) and artce
(g) of that Treasury decson, as amended by Treasury Decson 4741
(C. . 1937-1, 531) and Treasury Decson 4 61 (C. . 193 -2, 4 0),
promugated under secton of the nson ct, as amended.
The provsons n queston pertan to the deducton of dscounts
n determnng (1) the true tota contract prce of a partcuar con-
tract or subcontract under the ct, and (2) n determnng the cost
of performng such a contract or subcontract. The pertnent pro-
vsons of the reguatons and the meanng thereof as nterpreted by
the ureau are set forth beow.
rtce 7, Treasury Decson 4723, supra, provdes n part:
Trade or other dscounts are aso to be deducted n determnng
the true tota contract prce.
ny dscount whch s aowed (from the prce stated n the con-
tract) n the payment of the contract prce must be deducted from the
stated contract prce n determnng the true tota contract prce (to
be used n computng proft and/or e cess proft for the purposes of
secton 3 of the nson ct). Ths s true regardess of whether such
dscount s aowed by vrtue of trade practce or otherwse.
rtce (g), Treasury Decson 4723, supra, as amended by Treasury
Decson 4741, supra, and Treasury Decson 4 61, supra, provdes n
part:
mong the tems whch sha not be Incuded as a part of the cost of perform-
ng a contract or subcontract or consdered n determnng such cost, are the
foowng: cash dscount earned up to 1 per cent of the amount of the
purchase, e cept that a dscounts on subcontracts sub|ect to the ct w be
consdered .
Cash dscounts whch do not e ceed 1 per cent of the nvoce or
purchase prce whch are aowed to the contractor or subcontractor n
connecton wth a purchase or purchases for the purposes of the con-
tract or subcontract w not be taken nto consderaton n determnng
the cost of performng the contract or subcontract provded, however,
that such purchase or purchases do not themseves consttute a sub-
contract whch s sub|ect to secton 3 of the nson ct. In other
words, n the case of a purchase of suppes needed n connecton wth
the performance of a contract or subcontract, but whch does not tsef
consttute a subcontract sub|ect to secton of the nson ct, ony
cash dscount, f any, whch e ceeds 1 per cent of the purchase prce
of the suppes w be taken nto consderaton n computng proft
and/or e cess proft on the contract or subcontract, whereas n the case
of a smar purchase whch consttutes a subcontract sub|ect to secton
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403
of the nson ct, any dscount (. e., regardess of whether or not n
e cess of 1 per cent) w be taken nto consderaton n computng
proft and/or e cess proft by the contractor or subcontractor who
made the purchase.
1939-17-9 07
L T.3275
C SS PRO ITS ON N Y CONTR CTS.
The term competon of the contract as used In secton 3 of
the nson ct. as amended, means the date of devery of the vesse,
arcraft or porton thereof covered by the contract or subcontract,
even though the contract contans a cause provdng that for the
purpose of the ct the contract sha be consdered compete upon
fna payment
dvce s requested as to what consttutes date of competon of
a Navy contract sub|ect to secton 3 of the nson ct, as amended,
for the purpose of makng annua reports, orm 949, of proft and e -
cess proft on such contracts competed wthn the ncome-ta abe year
of the contractor.
The Navy contracts sub|ect to secton 3 of the nson ct, as
amended, whch were awarded to the M Company, heren referred to
as the contractor, durng 1934 and the eary part of 1935 contaned no
speca cause deang wth the date of competon, whereupon the
contractor assumed that the date of devery estabshed the date of
ther competon for the purpose of preparng the reports of proft
and/or e cess proft requred by the ct.
Later n 1935 and n subsequent years contracts were awarded to the
contractor by the Navy Department whch contaned a cause provd-
ng substantay as foows: or the purpose of ths ct ( nson)
the contract sha be consdered compete upon fna payment.
statement s submtted coverng a number of representatve nson
ct contracts awarded the contractor, showng wth respect to each,
the amount of the contract, unpad baance (f any), date of fna n-
voce, and date of fna payment. Those contracts whch contan the
cause referred to n the prevous paragraph and those whch do not
contan such cause are ndcated.
In connecton wth the foregong, the contractor states that n pre-
parng the annua report of contracts competed by t durng the n-
come-ta abe years 1936 and 1937, t foowed a tera nterpretaton
of the anguage of the contracts whch, n ts opnon, appeared to be
|ustfed by artce 5 of Treasury Decson 4723 (C. . 1937-1, 519).
but that f such treatment s erroneous, t desres to correct the annua
reports fed for prevous years and be prepared to fe a correct
annua report coverng contracts competed durng the current year.
The contractor ponts out that n an opnon rendered by the ctng
Comptroer Genera of the Unted States to the Secretary of the Navy
on uy 25, 193 (1 Comp. Gen., 4), the vew was e pressed that
w There appears no reason to suppose that the Congress used the term
competon of the contract n any other than ts usua sense of com-
peton by the contractor of the contract work, whereupon the cost of
performance coud be ascertaned. the matter s governed
by the tme the partcuar contractng party competes the contract
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404
work, and not by the tme, possby much ater, when fna payment
s made by the Government.
Such opnon, after quotng n fu artce 5(a) of Treasury Decson
4723 (supra), contnues: Thus, the admnstratve reguatons under
the ct defne competon of the contract for the purposes of the
egsaton as meanng prmary the date of devery of the vesse,
arcraft, or porton thereof covered by the contract or subcontract,
whch s generay tantamount to competon by the contractor of the
contract work. Reguatons no more than contracts may modfy a
statute, but where, as here, the reguatons appear to set forth the
correct nterpretaton of the statutory purpose, there woud be no
authorty to vary that purpose by contract or by an admnstratve de-
termnaton otherwse n ndvdua cases. That s, no ad-
mnstratve acton s authorzed whch purports to e tend the tme
to a ater and dfferent date or whch puts the obgaton on
a dfferent bass, and any purported agreement or admnstratve de-
termnaton to such effect must be vewed as nvad because contrary
to the statute. See bv anaogy Gobe Indemnty Co. v. Unted States
(291 U. S., 476, 4 3):
It s hed that a of the contracts, the data on whch were submtted,
are. to be consdered as competed for the purpose of secton 3 of the
nson ct, as amended, as of the date of the devery of the artces
specfed n the contracts. Ths concuson concdes wth the opnon
e pressed n I. T. 30 9 (C. . 1937-1, 629) as we as wth the above-
mentoned opnon of the ctng Comptroer Genera of the Unted
States.
Under the crcumstances descrbed above, amended annua reports,
orm 949, together wth supportng schedues on orm 937, shoud be
fed by contractors who fed orgna reports on the bass of a tera
nterpretaton of such a cause n ther contracts as s herenbefore
quoted and showed a dfferent e cess proft abty.
1939-1 -9 14
T. D.4 97
cess profts on Navy contracts. mendng Treasury Decson
4723 C. . 1937-1, 610 , as amended.
Offce of the Secretary of the Treasury,
Washngton, D. O.
Navy Department,
Offce of the Secretary of the Navy,
Washngton, D. C.
To Offcers and mpoyees of the Treasury Department, the Navy
Department, and Others Concerned:
Treasury Decson 4723, approved December 31, 1936, by the ctng
Secretary of the Treasury and approved anuary 6, 937, by the
ctng Secretary of the Navy (C. . 1937-1, 519), as amended by
Treasury Decson 4741, approved une 1, 1937. by the ctng Sec-
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405
(Msc.
retary of the Treasury and approved une 3, 1937, by the Secretary
of the Navy (C. . 1937-1, 531), and as further amended by Treasury
Decson 4 61, approved September 16, 193 , by te ctng Secretary
of the Treasury and approved September 19, 193 , by the ctng
Secretary of the Navy (C. . 193 -2, 4 0) (Part 5 of Tte 26,
Code of edera Reguatons), s further amended as foows:
(1) rtce 10 (secton 5.10 of Tte 26, Code of edera Regua-
tons), reatng to credt for edera ncome ta es, s amended to read
as foows:
Credt for edera neome tares. or the purpose of computng the amount
of e cess prof to be pad to the Unted States, a credt s aowabe aganst
the e cess proft for the amount of edera ncome ta es pad or remanng
to be pad on the amount of such e cess proft. The edera ncome ta es
n respect of whch ths credt s aowabe Incude the ncome ta es mposed
by Ttes I and I of the Revenue ct of 1934. Ttes 1 and I of the Revenue
ct of 1936. and Ttes I and I of the Revenue ct of 103 , and the e cess-profts
ta es mposed by secton 702 of the Revenue ct of 1934. secton 106 of the
Revenue ct of 1935, as amended by secton 402 of the Revenue ct of 1936,
and secton 602 of the Revenue ct of 193 . Ths credt s aowabe for
these ta es ony to the e tent that It s affrmatvey shown that they have been
fnay determned and pad or reman to be pad and that they were nawed
upon the e cess proft aganst whch the credt Is to be made. In case such a
credt has been aowed and the amount of edera Income ta es mposed upon
the e cess proft Is redetermned, the credt prevousy aowed sha be ad|usted
accordngy.
(2) rtce 13 (secton 5.13 of Tte 26, Code of edera Regua-
tons) s amended by addng at the end thereof a new paragraph
readng as foows:
books, records, and orgna evdences of costs (ncudng, among other
thngs, producton orders, bs or schedues of materas, purchase requstons,
purchase orders, vouchers, requstons for materas, standng e pense orders,
nventores, abor tme cards, pay ros, cost dstrbuton sheets) pertnent to
the determnaton of the true proft, e cess proft or net oss from the performance
of a contract or subcontract sha be kept at a tmes avaabe for nspecton
by nterna-revenue offcers, and sha be carefuy preserved and retaned so
ong as the contents thereof may become matera n the admnstraton of the
ct. Ths provson Is not confned to hooks, records, and orgna evdences
pertanng to tems whch may be consdered to be a part of the cost of per-
formng a contract or subcontract. It s appcabe to a books, records, and
orgna evdences of costs of each pant, branch or department Invoved n the
performance of a contract or su cotract or n the aocaton or dstrbuton
of costs to the contract or subcontract.
(Ths Treasury decson s prescrbed pursuant to secton 3 of the
ct of March 27, 1934 (4 Stat., 505 34 U. S. C, 496), as amended
by the ct of une 25,1936 (49 Stat., 1926 34 U. S. C, Sup. T , 496).)
Gut T. Ir v RNo,
pproved pr 5,1939.
ohn W. anes,
pproved pr 24, 1939.
. O. Rchardson,
ctng Secretary of the Navy.
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406
1939-22-9 56
I. T. 32 2
Where the award of a contract under the nson ct e ceeds
10,000, the contract Is and remans sub|ect to secton of the
ct (as amended), even though by vrtue of deductons, provded
for In the contract, for cash dscounts and ate devery damages
the net amount utmatey receved thereunder does not e ceed
10,000.
dvce s requested whether a certan Navy contract, wheren the
contractor e pressy agreed to make a report and pay nto the
Treasury e cess proft as provded n secton 3 of the nson ct, s
and/or remans sub|ect to such secton (as amended) where, athough
the award thereof e ceeded 10,000, the net amount utmatey
receved thereunder was ess than 10,000 by vrtue of deductons,
provded for theren, for cash dscounts and ate devery damages.
The contract was awarded n 1935 by the Navy Department under
the nson ct of March 27, 1934 (4 Stat., 503), to the M Company
for the suppyng of certan nava vesse nstrument matera, and.
the amount of the award was 10,175. ccordngy, the company
e pressy agreed theren to make a report and pay nto the Treasury
e cess proft as provded n secton 3 of the ct. The contract con-
taned certan provsons for cash dscounts and for qudated dam-
ages n the event the matera was not devered wthn specfed tme.
The cash dscounts provded for, f a taken, woud have made the
net amount to whch the company woud have been entted upon,
competon of the contract 9,975. ecause of deay n checkng
matera devered to one navy yard, cash dscounts were actuay
taken n the amount of ony 75. ut, because of faure of the
company to dever some of the matera wthn the tme specfed n
the contract, qudated damages were ncurred by t n the amount
of 105. ccordngy, the net amount utmatey receved by the
company under the contract, whch was competed n 1936, was 9,995
( 10,175 ess 75 and 105).
It s contended that nasmuch as the net amount receved there-
under dd not e ceed 10,000, the contract s not sub|ect to the mta-
ton on proft prescrbed by secton 3, supra (as amended). Such
secton, as amended by the ct of une 25, 1936 (49 Stat., 1926),
provdes n part:
That no contract sha be made by the Secretary of the Navy for the
constructon and/or manufacture of any compete nava vesse or arcraft, or
any porton thereof, heren, heretofore, or hereafter authorzed uness the
contractor agrees
(a) To make a report, as herenafter descrbed, under oath, to the Secretary
of the Navy upon the competon of the contract
(b) To pay nto the Treasury proft as herenafter provded sha be deter-
mned by the Treasury Department n e cess of 10 per centum of the tota
contract prces, of such contracts wthn the scope of ths secton as are com-
peted by the partcuar contractng party wthn the Income ta abe year, such
amount to become the property of the Unted States .

The contract or subcontracts referred to heren are mted to those whero
the atoard e ceeds 10,000. Itacs supped.
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407
Msc.
rtce 2 of reguatons prescrbed by Treasury Decson 4723
(C. . 1937-1, 519) under secton 3 of the ct, as amended, provdes
n part:
rt 2. Contract and ubrontracts under whch ewcet proft abty may be
ncurred. cept as otherwse provded wth resect to contract for
certan scentfc equpment (see artce 3 of these reguatons), every contract
awarded for an amount e ceedng 10,000 and entered nto after the enactment
of the ct of March 27. 1034. for the constructon or manufacture of any com-
pete nava vesse or arcraft, or any porton thereof. Is sub|ect to the provsons
of the ct reatng to e cess profts abty.
In vew of the foregong, t s hed that nasmuch as the award
nvoved n the contract of the M Company wth the Navy Depart-
ment e ceeded 10,000, such contract s and remans sub|ect to the
provsons of secton 3, supra (as amended). ccordngy, the M
Company s requred to pay nto the Treasury the amount, f any, of
e cess proft reazed thereon.
ttenton s nvted to the fact that the provsons of artce 7 of
Treasury Decson 4723 (C. . 1937-1, 519), reatve to certan ad|ust-
ments of the orgna contract prce, s n connecton wth the compu-
taton of e cess-proft abty on contracts whch are sub|ect to the
provsons of secton 3 of the ct, as amended.
1939-23-9 G6
I. T. 3 4
Navy contract awarded after March 27, 1034, the date of the
enactment of the nson ct, s sub|ect to secton 3 of that ct
even though no provson was ncuded n the contract for agreement
by the contractor to the mtaton on proft provded n that secton.
dvce s requested whether a certan contract for the constructon
of four arpanes for the N:tvy Department s sub|ect to secton 3 of
the nson ct (4 Stat., 503).
schedue cang for bds for the constructon of four nava ar-
panes was ssued by the Navy Department pror to the date of the
enactment of the nfon ct on March 27,1934. The bds were opened
on pr , 1934. The bd of the M Company was accepted and on
pr , 1934, t was awarded a contract for the constructon of four
arpanes, the tota contract prce beng O doars. though the
contract was made after the enactment of the nson ct, no prov-
son was ncuded n the contract for agreement by the contractor to
the mtaton on proft provded n secton 3 of that ct. The con-
tract was competed on ebruary , 1935, and fu payment of the
tota contract prce of 10a doars was made by the Government to the
contractor on May , 1935. The M Company derved a proft of 3a
doars on the performance of the contract, whch s 2 doars n
e cess of 10 per cent of the contract prce.
Secton 3 of the nson ct of March 27, 1934, provdes n part as
foows:
That no contract sha be made by the Secretary of the Navy for tho
constructon and/or manufacture of any compete nava vesse or arcraft, or
any porton thereof, heren, heretofore, or hereafter authorzed uness the
contractor agrees
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40
(a) To make a report, aa herenafter descrbed, under oath, to the Secretary
of the Navy upon the competon of the contract
(b) To pay nto the Treasury proft, as herenafter provded sha be deter-
mned by the Treasury Department, n e cess of 10 per centum of the tota
contract prce, such amount to become the property of the Unted States:
Provded, That f such amount s not vountary pad the Secretary of the
Treasury may coect the same under the usua methods empoyed under the
nterna revenue aws to coect edera Income ta es.
(c) To make no subdvsons of any contract or subcontract for the same
artce or artces for the purpose of evadng the provsons of ths ct, but any
subdvson of any contract or subcontract Invovng an amount n e cess of
10,000 sha be sub|ect to the condtons heren prescrbed.
(d) That the manufacturng spaces and books of ts own pant, affates,
and subdvsons sha at a tmes be sub|ect to nspecton and audt by any
person desgnated by the Secretary of the Navy, the Secretary of the Treasury,
and/or by a duy authorzed commttee of Congress.
(e) To make no subcontract uness the subcontractor agrees to the foregong
condtons.
The report sha be n form prescrbed by the Secretary of the Navy and
sha state the tota contract prce, the cost of performng the contract, the net
ncome, and the per centum such net ncome bears to the contract prce. copy
of such report sha be transmtted to the Secretary of the Treasury for con-
sderaton n connecton wth the edera ncome ta returns of the contractor
for the ta abe year or years concerned.
The method of ascertanng the amount of e cess proft to be pad nto the
Treasury sha be determned by the Secretary of the Treasury n agreement wth
the Secretary of the Navy and made avaabe to the pubc. The method ntay
f ed upon sha be so determned on or before une 30, 1934: Provded, That In
any case where an e cess proft may be found to be owng to the Unted States
n consequence hereof, the Secretary of the Treasury sha aow credt for any
edera Income ta es pad or remanng to be pad upon the amount of such
e cess proft.
The contract or subcontracts referred to heren are mted to those where
the award e ceeds 10,000.
Snce the contract nvoved n ths case was made subsequent to the
passage of the nson ct of March 27, 1934 the M Company can not
avod abty under the provsons of that ct merey on the ground
that provson for payment of the e cess proft under such ct was
not ncuded n the contract n queston. It s stated that the omsson
of such provson was an nadvertence by the partes. It s a we-
estabshed prncpe that the aws subsstng at the tme and pace of
makng a contract enter nto and form a part of t, the same as f they
were e pressy referred to or ncorporated n ts terms. ( ammon on
Contracts, secton 39 .) It s commony sad that e stng aws form
part of a contract and are ncorporated n t. (Wston on Contracts,
secton 615, revsed edton, 1936, oume III.
It s hed, therefore, that the present contract s sub|ect to the mta-
ton on proft prescrbed by secton 3 of the nson ct, and that the M
Company s requred to pay nto the Treasury the amount of proft
reazed by t on such contract n e cess of 10 per cent of the tota
contract prce, ess the amount of ncome ta es pad or remanng to be
pad on such e cess proft.
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S CTION 3 O T INSON CT (4 ST T., 503), S
M ND D Y CT O UN 25, 1936 ( 49 ST T., 1926),
ND Y CT O PRIL 3,1939 (PU LIC, NO. 1 , S NTY-
SI T CONGR SS).
1939-24-9 75
I. T. 32 9
Procedure n connecton wth determnng the aowance for
obsoescence of speca factes as part of the cost of performng a
contract or subcontract sub|ect to the provsons of secton S of the
nson ct of March 27, 1934 (4 Stat., 503), as amended by the
ct of une 25. 1936 (49 Stat., 1326), and as further amended by
the ct of pr 3, 1939 (Pubc, No. 1 , Seventy-s th Congress).
The reguatons ssued under secton 3 of the nson ct contan a
genera provson for the aowance of recurrng charges wth respect
to property used for manufacturng purposes under a contract or sub-
contract comng wthn the scope of such secton. ( rtce ( |)5(D)
of the reguatons n Treasury Decson 4723, C. . 1937-1, 519.)
Ths provson s suffcenty broad to permt proper aowance for
deprecaton and obsoescence of such property. The determnaton
of an aowance under such provson w be made by the Comms-
soner of Interna Revenue pursuant to hs duty of determnng the
correct amount of e cess proft abty on contracts and subcontracts
comng wthn the scope of secton 3 of the nson ct. ( rtce
19 of the reguatons, Treasury Decson 4723, supra.)
Wth respect to speca factes, nasmuch as t s not reasonaby
certan unt a Navy contract s competed or otherwse termnated
whether such speca factes necessary acqured to perform t w
be used n performng other contracts or works, the determnaton of
a proper a owance under secton 3 of the nson ct for obsoescence
(other than norma and n addton to ordnary e hauston and gen-
era wear and tear of such factes n connecton wth a partcuar
contract) must awat the competon or other termnaton of the con-
tract and be based upon reevant condtons then e tant. (I. T. 2 61,
C. . T -1, 530 (1935).) If upon the competon of a contract or
subcontract sub|ect to the provsons of secton 3 of the nson ct.
the Commssoner of Interna Revenue determnes that addtona
and/or speca factes were necessary requred n the performance
of the partcuar contract or subcontract, that such factes are not
then beng used n connecton wth any other operatons, and that
there s no prospectve further use for such factes ether for Gov-
ernment contracts or for any other operatons, then
(1) If the Commssoner deterannes that such factes were used
soey n the performance of the partcuar contract or subcontract,
ther entre and reasonabe cost, ess savage vaue, w be generay
accepted as part of the cost of performng the partcuar contract or
subcontract or
(2) If the Commssoner determnes that such factes were not
used soey n performance of the partcuar contract or subcontract,
aowances for e hauston, wear and tear, and obsoescence sha be
made n accordance wth a reasonaby consstent pan, on a bass
whch w return to the contractng party the reasonabe cost of such
172176 pt 1 14
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410
factes at the end of ther e pected economc term of usefuness,
and sha be ncuded as part of the ndrect factory e pense a-
ocabe to a operatons n connecton wth whch such factes are
used. The part of the cost, f any, remanng after deductng such
aowances and the savage vaue of such factes w be generay
accepted as a part of the cost of performng the partcuar contract
or subcontract.
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MISC LL N OUS.
1939-3-967
Ct. D. 1377
btatb ncomb ta act op wsconsn egsature decson op
supreme court.
1. const u tonautt cassfcaton retboactvtk graduated
Income Ta on Dvdends.
The act of the Wsconsn Legsature of March 27, 1935, Imposng
an emergency ta for reef purposes upon dvdends receved n 1933
from Wsconsn corporatons at dfferent rates and wth dfferent
deductons from those apped n that year to other types of ncome,
does not nfrnge the equa protecton and due process causes of the
fourteenth amendment. The seecton of such ncome for ta aton at
rates and wth deductons not shown to be unreated to an equtabe
dstrbuton of the ta burden s not a dena of the equa protecton
commanded by the fourteenth amendment, and the retroactve m-
poston of the ta s not a dena of due process where the statute
was enacted at the frst opportunty after the ta year n whch
the recept of ncome occurred.
2. Rehearng Dened.
Rehearng dened December 19, 193 .
(Note. Whe ths decson nvoves the vadty of a State ta ng
statute, t s pubshed because the dscusson reatng to cassfca-
ton and to retroactvty s equay appcabe to edera ncome
ta aton and s therefore of genera Interest)
Supreme Court of thb Unted States.
are S. Wech, appeant, v. Robert . enry and Soomon Levtan, State
Treasurer of the State of Wsconsn.
59 S. Ct., 121.
ppea from the Supreme Court of the State of Wsconsn.
November 21, 193 .
opnon.
Mr. ustce Stone devered the opnon of the Court
Ths appea presents the queston whether the act of the Wsconsn Legsature
of March 27, 1935, whch mposed a ta on corporate dvdends receved by
appeant n 1933 at rates dfferent from those appcabe n that year to other
types of ncome and wthout deductons whch were aowed n computng
the ta on other ncome nfrnges the equa protecton and due process causes
of the fourteenth amendment.
The statute of Wsconsn n force n 1933 and snce mposes a ta on net
Income at graduated rates. (Wsconsn Stat., 1933, ch. 71.) ppeant, a
resdent of Wsconsn, receved In 1933 gross ncome of 13,3 3.26, of whch
12,156.10 was dvdends receved from corporatons whose prncpa busness
was attrbutabe to Wsconsn wthn the meanng of the ta ng statute.
y secton 71.04(4), Wsconsn Stat., 1933,1 such dvdends were deductbe
from gross Income n computng net ta abe ncome, together wth other tems,
ncudng ta es, nterest pad, busness e penses, osses from the sae of secur-
tes, and donatons, aggregatng, n the case of appeant, 11,101.97, so that he
had no ta abe net Income for the year 1933.
1 Secton 71.04(4) permts the deducton from gross ncome of dvdends receved from
corporatons whose prncpa busness s attrbutabe to Wsconsn any cor-
poraton sha be consdered as havng ts prncpa busness attrbutabe to Wsconsn f
O oer cent or more of the entre net ncome or oss of such corporaton. (tor
the year precedng the payment of such dvdends) was used In computng the average
Urabe ncome provded by chapter 71.
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412
Pettoner s ncome ta return was due and fed March 15, 1034. year
ater chapter 15 of the Laws of Wsconsn for 1935, effectve March 27. 11)35,
ad new ta es for the years 15)33 and 1934 upon varous ta abe sub|ects.
Secton 6. wth whch we are aone concerned. Imposed a graduated ta . wth
no deducton e cept the sum of 750. on a dvdends receved n 1933 whch,
when receved, were deductbe from gross ncome under secton 71.04(4). The
statute decared that the evy was an emergency ta to provde revenue for
reef purposes and drected that the proceeds shoud be pad nto the State
treasury to be used for unempoyment reef purposes. ppeant pad the
ta , amountng to 545.71, under protest, on May 13. 1935, and brought the
present sut to compe ts resttuton as e acted n voaton of the tate const-
tuton and the equa protecton and due process causes of the fourteenth amend-
ment. rom the |udgment of the Supreme Court of Wsconsn sustanng the
ta (226 Ws., 595), the case comes here on appea. (Secton 237 of the
udca Code, 2 D. S. C, secton 44.)
rst. ppeant assas the statute as a dena of equa protecton because
the dvdends whch It seected for ta aton as a speca cass were sub|ected
rataby to a ta burden dfferent from that borne by other types of Income
for the same year by reason of the fact that the dvdends were ta ed at a
dfferent rate from that apped to other ncome -and were gven the beneft
of but a snge deducton of 750. whe recpents of other types of Income
n that year were permtted to deduct specfed tems of Interest, ta es, busness
osses and donatons. It Is not contended that the recept of dvdends from
corporatons s not sub|ect to ta . or that apart from the retroactve appcaton
of the ta they coud not he ncuded n gross ncome for the purpose of
arrvng at net ta abe ncome, but t a nssted that dspartes n the ta
burdens whch may resut from the dfferent rates and deductons nfrnge the
consttutona Immunty.
Wsconsn ncome ta egsaton has from the begnnng treated dvdends
receved from corporatons dervng a substanta part of ther Income from
busness carred on wthn the State, on whch the corporatons have pad a
ta to the State, as a dstnct cass of Income for ta purposes. t frst com-
pete ta Immunty was granted to them. (Secton 1, ch. 65 . Laws of Wscon-
sn, 1911.) Later the Immunty was aowed rataby In the same proporton
that the ncome of the corporaton had been sub|ected to State ncome ta .
(Secton 1, ch. 31 . Laws of Wsconsn. 1923.) nd. fnay, by amendment
adopted n 1927 and n force In 1933 compete Immunty of dvdends from
ncome ta was aowed If 50 per ceut or more of the tota net Income of the
corporaton payng them was Incuded n the computaton of the Wsconsn
ta on corporate ncome.
When n 1935 the State was confronted wth the necessty of rasng revenue
to meet the demand for unempoyment reef, and of dstrbutng the cost
among Its ta payers, the egsature found one cass of unta ed Income, dv-
dends receved from a specfed category of corporatons. It aso coud have
concuded that a substanta part of ths Income had borne no ta burden at Its
source n the earnngs of the corporatons, snce, by secton 71.02 3 d). cor-
poratons are not requred to pay ta on that part of ther ncome aocabe
to busness carred on or property ocated wthout the State.
We thnk that the seecton of such Income for ta aton at rates and wth
deductons not shown to be unreated to an equtabe dstrbuton of the ra
burden s not a dena of tbe equa protecton commanded by the fourteenth
amendment. It can not be doubted that the recept of dvdends from a cor-
poraton Is an event whch may consttutonay be ta ed ether wth or wthout
deductons (Lynch v. urnbp, 247 S.. 339: see fcrcrng v. Independent Lfe
Inn. Co.. 2 )2 U. S.. 371. 3 1 Ct. I) 39. C . III 1. 302 (1934) ). even thourh
the corporate ncome whch Is ther source has aso been ta ed. (See Tennes-
see v. Whtworth. 117 U. .. 129. 136 en v. foor of Taw Supervsors, 2 2
U. S., 19. 23: Cogate arvey. 29 U. S., 404. 420.) The fact that the dv-
dends of corporatons whch have to some e tent borne the burden of State
ta aton consttute a dstnct cass for purposes of ta e empton (Cogate v.
InrvP , supra compare Traveer Insurance Co. v. Connectcut, 1 5 U. S., 3 4,
67 dd v. abama, 1 T . S., 730 Darne v. Indana, 226 D. S., 390, 9 ).
Chapter 63 . secton 4, Laws of Wsconsn of 1027.
ee note 1, supra.
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413
Msc.
and that n consequence such dvdends have borne no ta burden, Is equay a
tests for ther seecton for ta aton. Watson v. State Comptroer, 254 U. S.,
122, 124, 125 en v. oard of Ta Supervsors, supra.) ny cassfcaton of
ta aton s permssbe whch has reasonabe reaton to a egtmate end of
governmenta acton. Ta aton s but the means by whch government ds-
trbutes the burdens of ts cost among those who en|oy ts benefts. nd the
dstrbuton of a ta burden by pacng t n part on a speca cass whch by
reason of the ta ng pocy of the State has escaped a ta durng the ta abe
perod s not a dena of equa protecton. (See Watson v. Comptroer, supra,
125.) Nor s the ta any more a dena of equa protecton because retroactve.
If the 1933 dvdends dffered suffcenty from other casses of ncome to admt
of the ta aton, n that year, of one wthout the other, apse of tme dd not
remove that dfference so as to compe equaty of treatment when the Income
sas ta ed at a ater date. Seecton then of the dvdends for the new ta aton
can hardy be thought to be hoste or nvdous when the bass of seecton s
the fact that the ta ed ncome s of the cass whch has borne no ta burden.
The equa protecton cause does not precude the egsature from changng
ts mnd n makng an otherwse permssbe choce of sub|ects of ta aton.
The very fact that the dvdends were reeved of ta , when the need for revenue
was ess, s bass for the egsatve udgment that they shoud bear some of
the added burden when the need s greater.
Numerous retroactve revsons of the edera revenue aws, presenty to
be dscussed, have mposed ta es on sub|ects prevousy unta ed and shfted
the burden of od ta es by changes n rates, e emptons and deductons. It has
never been thought that the equa protecton cause precudes such changes f
the new ta es coud have been ncuded n the earer act when adopted. If
some retroactve ateraton n the scheme of a ta act s permssbe, as s con-
ceded, t seems pan that vadty, so far as equa protecton s concerned, must
be determned, as n the case of any other ta , by ascertanng whether the
thng ta ed fas wthn a dstnct cass whch may ratonay be treated dffer-
enty from other casses. If such changes are forbdden n the name of equa
protecton, egsatures In ayng new ta es woud be eft poweress to rectfy
to any e tent a prevous dstrbuton of ta burdens whch e perence had
shown to be nequtabe, even though consttutona.
The bare fact that the present ta s mposed at dfferent rates and wth
dfferent deductons from those apped to other types of ncome does not estab-
sh unconsttutonaty. It s a commonpace that the equa protecton cause
does not requre a State to mantan rgd rues of equa ta aton, to resort
to cose dstnctons, or to mantan a precse scentfc unformty. Possbe
dfferences n ta burdens, not shown to be substanta, or whch are based on
dscrmnaton not shown to be arbtrary or caprcous, do not fa wthn the
consttutona prohbton. (Lawrence v. State Tatt Commsson, 2 U. S., 276,
2S4, 2S5, and cases cted.)
ust what the dfferences are n the ta burdens cast upon the two types of
ncome by the dvergence n rates and deductons apped to them does not
appear. The burden paced on dvdeuds by the ta ng act mght have been
greater f they had been Incuded n gross ncome and ta ed on the same bass
as other ncome snce, n that case, the resutng ncrease n net ncome woud
be ta ed at the rates appcabe to the hgher brackets. When the chaenged
statute was enacted there were avaabe to the egsature the returns for
the ta abe year showng the dfferent casses of ncome, the appcaton to them
I of the e stng aw, and the effect of e stng rates and deductons. There were
f aso data to be derved from the corporaton ta returns showng what part
of the e empted dvdends had ther source n corporate ncome whch had
been ta ed to the corporaton and what part was attrbutabe to corporate
Income not smary ta ed. The egsature was free to take nto account
a these factors n prescrbng rates and deductons to be apped to the newy
ta ed dvdends so as to arrve at an equtabe dstrbuton of the added ta
burden. In the absence of any facts tendng to show that the ta ng act, n ts
purpose or effect, s a hoste or oppressve dscrmnaton aganst the recpents
I of dvdends who have been htherto fortunate enough to escape a ta aton
we can not say the ta ng statute denes equa protecton.
Second. The ob|ecton chefy urged to the ta ng statute s that t s a dena
of due process of aw because In 1935 It mposed a ta on ncome receved n
1933. ut a ta s not necessary unconsttutona because retroactve. (M-
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414
ken Unted States, 2 3 U. S., 15, 21 tCt D. 320, O. . -, 472 (19 1) and
cases cted.) Ta aton s nether a penaty mposed on the ta payer nor a
abty whch be assumes by contract. It s but a way of apportonng the cost
of government among those who n some measure are prveged to en|oy ts
benefts and must hear ts burdens. Snce no ctzen en|oys mmunty from that
burden, Its retroactve Imposton does not necessary nfrnge due process, and
to chaenge the present ta t s not enough to pont out that the ta abe event,
the recept of ncome, anedated the statute.
In the cases n whch ths Court has hed nvad the ta aton of gfts made
and competey vested before the enactment of the ta ng statute, decson was
rested on the ground that the nature or amount of the ta coud not reasonaby
have been antcpated by the ta payer at the tme of the partcuar vountary
act whch the statute ater made the ta abe event. (Nchos v. Coodge, 274
U. a, 531. 542 TT. D. 4072. C . I-2. 351 (102711 Untermyer v. nderson, Sd70
U. S., 440, 445 IT. D. 4157. C. . IM, 320 (192 )1 (ctng odgett v. od ,
275 U. 9.. 142, 147 (T. D. 4117. C. . I1-1, 324 (102 ) ) Coodge v. Long, 2 2
U. S.. 5 2.) Snce, n each of these cases, the donor mght freey have chosen
to gve or not to gve, the ta aton, after the choce was made, of a gft whch he
mght we have refraned from makng bad he antcpated the ta , was thought
to be so arbtrary and oppressve as to be a dena of due process. ut there
are other forms of ta aton whose retroactve mposton can not be sad to be
smary offensve. Iecause ther Incdence s not on the vountary act of the
ta payer. nd even a retroactve gft ta has been hed vad where the donor
was forwarned by the statute books of the possbty of such a evy (Mken
v. vted States, supra). In each case t s necessary to consder the nature of
the ta and the crcumstances n whch t Is ad before t can be sad that ts
retroactve appcaton s so harsh and oppressve as to transgress the con-
sttutona mtaton.
Property tu es and beneft assessments of rea estate, retroactvey apped,
are not o en to the ob|ecton successfuy urged n the gft cases. (See Waqner
v. atmore, 239 0. S.. 207 Seatte v. eeher, 195 U. S., 351 compare Ctzens
atona ank v. entucky. 217 U. S.. 443. 454 ngs v. Unted States, 232 D. S.,
261. 2 2.) Smary, a ta on the recept of ncome s not comparabe to a gft
ta . We can not assume that stockhoders woud refuse to receve corporate
dvdends even f they knew that ther recept woud ater be sub|ected to a new
ta or to the ncrease of an od one. The ob|ecton to the present ta s of a
dfferent character and Is addressed ony to the partcuar nconvenence of the
ta payer n beng caed upon, after the customary tme for evy and payment
of the ta has passed, to bear a governmenta burden of whch t s sad he bad
no warnng and whch be dd not antcpate.
ssumng that a ta may attempt to reach events so far n the past as to
render that ob|ecton vad, we thnk that no such case s presented here.
or more than 75 years It has been the famar egsatve practce of Congress
In the enactment of revenue aws to ta retroactvey ncome or profts receved
durng the year of the sesson n whch the ta ng statute s enacted, and n
some nstances durng the year of the precedng sesson. (See Untermyer v.
nderson, supra, footnote 1.) These statutes not ony ncreased the ta burden
by ayng new ta es and ncreasng the rates of od ones or both, but they
redstrbuted retroactvey the ta burdens mposed by pree stng aws. Ths
was notaby the case wth the Revenue ct of 191 , enacted ebruary 24,
1919 (40 Stat, 1057), and made appcabe to the caendar year 191 , whch cut
down e emptons and deductons. Increased, n varyng degrees, ncome, e cess
profts and capta stock ta es, atered the bass of surta es, and ncreased n
progressve rato the rates appcabe to the hgher brackets. Smary the
speca munton manufacturer s ta , Imposed on profts derved from saes of
muntons. ct of September . 1916 (ch. 463, 9 Stat, 750, 7 0), was apped
to the 12 months endng December 31, 1916. (Cf. Carbon Sce Co. v. Leweyn,
251 D. S., 501 Unted States v. nderson, 209 D. S., 422, 435 T. D. 3 39, C. .
-. 179 (1926) .) The contenton that the retroactve appcaton of the
Revenue cts s a dena of the due process guaranteed by the ffth amendment
has been unformy re|ected. (Storkdate v. Insurance Companes, 20 Wa,
323 Raroad Co. v. Rose, 95 T . S., 7 , 0: nt v. Stone Tracy Co.. 220 U. .,
107 ngs v. Unted States, 232 D. S., 261, 2 2 rushaber v. Unon Paefo
Raroad Co., 240 U. S., 1, 20 Lynch v. ornby. 247 U. S., 39, 343 La ettt)
Iron Works v. Unted States, 256 U. S., 77 T. D. 31 1, C. . 4. 73 (1921) .)
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415
Mao.
The Uke practce of the Legsature of Wsconsn has been approved by ta
courts.
The equtabe dstrbuton of the costs of government through the medum
of an ncome ta s a decate and dffcut task. In ts performance e perence
has shown the mportance of reasonabe opportunty for the egsatve body,
In the revson of ta aws, to dstrbute ncreased costs of government among
Its ta payers n the ght of present need for revenue and wth knowedge of
the sources and amounts of the varous casses of ta abe ncome durng the
ta abe perod precedng revson. Wthout that opportunty accommodaton
ot the egsatve purpose to the need may be serousy obstructed f not defeated.
We can not say that the due process whch the Consttuton e acts denes that
opportunty to egsatures that It wthhods from them, more than In the
ease of a prospectve ta , authorty to dstrbute the Increased ta burden n
the ght of e perence and In conformty wth accepted notons of the requre-
ments of equa protecton or that n vew of we estabshed egsatve prac-
tce, both State and Natona, ta payers can usty assert surprse or compan
of arbtrary acton n the retroactve apportonment of ta burdens to ncome
at the frst opportunty after knowedge of the nature and amount of the ncome
s avaabe. nd we thnk that the recent transactons to whch ths Court
has decared a ta aw may be retroactvey apped (Cooper v. Unted State ,
2 0 U. ., 409, 411 Ct D. 163, C. . I -1, 272 (1930) ) must be taken to
ncude the recept of ncome durng the year of the egsatve sesson precedng
that of Its enactment
The ont resouton of Congress of uy 4, 1 64, No. 77 (13 Stat, 417), Im-
posed an addtona ta on Incomes earned durng the caendar year 1 63, ths
ta beng mposed after the ta es for the year had been pad. In Stockdae v.
Insurance Companes, supra, 331, Mr. ustce Mer sad of t: The rght of
Congress to have mposed ths ta by a new statute, athough the measure of
t was governed by the ncome of the past year, can not be doubted. no
one doubted the vadty of the ta or attempted to resst t The ct of
ebruary 24, 1919 (ch. 1 , Tte 2, 40 tat, 1057, 105 -10 ), whch ta ed
ncomes for the caendar year 191 , was apped wthout queston as to ts
consttutonaty n Unted States v. Robbns (209 U. S., 15 T. D. 3 17, C. .
-, 1 (1926) ) and n other cases.
In the present case the returns of Income receved n 1933 were fed and
became avaabe In March, 1934. (Wsconsn Stat, 1933, secton 71.09(4).)
The ne t succeedng sesson of the egsature at whch ta egsaton coud
be consdered was n 1935, when the chaenged statute was passed. y sec-
ton 4, rtce , of the Wsconsn Consttuton, and secton 13.02 Wsconsn
Statutes, 1935, reguar sessons of the egsature are hed n each odd-numbered
year. Speca sessons of the egsature may be hed on ca of the governor,
at whch no busness can be transacted e cept as sha be necessary to ac-
compsh the speca purposes for whch It was convened. (Secton 11, rtce
rv, Wsconsn Consttuton.) speca sesson was caed by the governor In
1934, but for purposes unreated to ta aton. (Procamatons of the Governor of
Wsconsn December 2, 2 , 1933, anuary 1 , 22, 30, 1934.) Thus the egsature
n 1935, at the frst opportunty after the ta year n whch the ncome was
receved, made ts revson of the ta aws appcabe to 1933 ncome, as dd
Congress n the ont resouton of uy 4, 1 64, commented on n Stockdae T.
Insurance Companes, supra.
Whe the Supreme Court of Wsconsn thought that the present ta mght
approach or reach the mt of permssbe retroactvty, we can not say
that t e ceeds t
ffrmed,
Income Ta Cases (1912) (14 Ws., 4 , 614): tate em re. Oote Tubes Co. v.
Lvotu (1924) (1 3 Ws., 107, 124) Cffs Chemca Co. v. Wsconsn Ta Comm. (1927)
(193 Ws 295. 302) West v. To Comm. (1932) (207 Ws., 657. 662) anDyke. v. Taa
Comm. (1935) (217 W .. 62 ).
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416
OL OM RG RIN .
1939-1-9660
MS. 20
Schedue of oeomargarne produced and materas wted durng the month of
November, 19S , at compared u-th November. 1931.
Tota producton of uncoored
Tota wthdrawn ta-pad
Ingredent schedue of uncoored oeomargarne:
ahassue o -
Coconut o-
Corn o.
Cottonseed o.
Mk....
Neutra ard...
Oeo o
Oena
Oeo st.
Pam kerne ou
Peanut U
Sat.
Soda (hentnate oO.
Soya bean o.
Sova bean
tamn I
Tota-
Tota producton of coored oeomargarne.
Ingredent schedue of
ahassue o
Cncnnu o
Coor
Corn o
Cottonseed o
Dervatve of gycerne.
Lecthn
Mk
Neutra ard..
Oen o
Oen stearne.
Oen stock
Pam kerne o
Peanut o
Sut
Soda (henoate of)
Soya bean o ...
Sova bean stearn
tamn concentrate
Tota
November,
193
Pound .
130 m . ow
46. 29
141
13,356
911
29. 131
a. w
17. d
L164
66
5
e. u
4
1 .557
r.
I
13 .
November.
1037
Pound .
37. 3t.0f
3 . 007. 2 4
499.9 9
6.976, 1 9
6.601.30
113. 343
10 . IS
10, 703. 497
20. 2 7. 3 4
73 7t
11 . 001
. 7 2
I7
6, 09.056
7,009 137
10 . M2
15a 2 1
922. 302
62
260.927
07 9
107.9 3
5 . 190
1 . 23)
M.75
24. M2
239.753
1.3 4. M
L73I. 173
11.616
16.333
4. 5 4 572
t177. 161
7.349
1.21.1
31.649. 6
39. ZZ 020
122. DM
113. 7
37 4
61 354
27. 421
3 733
20.017
, no
LOU
929
5
.934
43
9.415
136.515
Of the amount produced, 24,163 pounds were reworked,
Of the amount produced. 1 .339 pounds were reworked.
Of the amount produced. 77 pounds were reworked.
Of the amount produced, 2 pounds were reworked
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417
Mso.
1939-5-9699
MS. 209
Schedue of oeomargarne produced and materoU used durng the month of
December, 19S , as compared wth December, 1937.
December,
193 .
Tota producton of uncoored oeomargarne.
wthdrawn ta-pad
schedue of uncoored
o
Coconut o
Corn o
Cottonseed o... -
Dervatve of gycerne
Lecthn.
Pam kerne o
Peanut o
at
oda (benzoatc of)
Soya bean o
tamn concentrate
Tota
Tota producton of coored oeomargarne.
Tota wthdrawn ta -pad
Ingredent schedue of coored oeomargarno:
Coconut o
Coor .
Corn o
Cottonseed o-
Dervatve of gycerne
Lecthn
Mk
Neutra ar L_
Oeo o .
Oeo stearne...
Oeo stock..
Pam kerne o.
Peanut o.
6at
oda (benzoate o0-
oya bean o..
tamn concentrate..
Tota
1 Of the amount produced, 40,311 pounds were reworked.
Of the amount produced, 25,335 pounds wcro reworked.
01 the amount produced, 1,696 pounds were reworked.
Pounds.
I 30, 252, 565
29,956,607
614.791
7. 160. 309
134, 763
10, 563, 1
74, 90
9.714
6, 04,222
urn. sua
994.400
231, 979
116,609
9 .472
231. 26
1,23 .503
12.4
4, 174, 633
1,2 2
31. 56 , 739
120, 5
34. 35
43,063
153
54
12. 56
3 0
3
25,97
3.621
14, 936
719
21
37
6,921
65
23,7 5
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1939-9-973
MS. 210
chedute of oeomargarne produced and materas used durng the month of
anuary. 19S9. as compared wth anuary, 19S .
anuary,
1939.
anuary,
193 .
Prmnts.
Pounds.
4U 125.000
I 30. IY. 61W
3n.31s.mo
40. 74a751
712 M
. 137. 77
4. 3 3. 110
20 T27
19. 510 nn
Coconut o .
7. 2T 0 -
Corn o
r. 4
9, 71 4 0
76. y
10 913
C 410
T,31 . 3
1 W
Lecthn
. 43
Mk
. 2 .7 6
102 T .
Oeo o
, W. 224
232 OTP
n 6)4
Oeo ctearne .
2
55 516
917. r|6
236.031
1. 47 403
16.15
4. 200.314
545
Oeo stock
12 an
Pam kerne o
121.434
21 .940
I, 2 9. 047
13.0 2
4, 793 2
L 173
at
Soda fbenzoate of)
ova bean o
tamn concentrate
Tota
1. 0.910
42 141. 7
Tota producton of coored oeomargarne
us. m
150 949
34. 05
61 160
Ingredent schedue of coored oeomargarne:
2
196
Coor
97.2 5
11
7,326
114
1
Corn o
n
1 .0
9. 44
460
32
II
Mk
97.634
95.109
5230
22.5 6
Neutra ard
. 52
91.042
Oeo o .-
Oeo stearne - - -
126
6O0
Pam kerne o
62
3
Moo
Sat
1
10,213
4
tamn concentrate
1T.2S7
19.171
Tota
129,5 1
170,927
Of the amount produced. 29 307 pounds were reworked.
Of the amount produced. 20,1M pounds wore reworked.
Of the amount produced, 160 pounds were reworked.
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419
(Msc.
1939-9 9739
MS- 211
mended schedue of oeomarftarne produced and matera used durng the
month of December, 193S, as compared wth December, 1037.
December,
193 .
December,
1937.
T. U.. . I n f n.....
Povndt.
I30.252.5SS
29.9.56.607
39.65 ,1 9
Insm Ient schedue of uncoored oeomargarne:
614, 791
7, 160. 309
134. 763
10,563. 96
74, 90
9,714
5, 04.222
100. 962
991.400
236.979
116.609
9 .472
231. 26
664.345
, 5 7,16
213.194
20, 57.046
111,993
6.092
7.236,60
1 6.92
717,060
2 4.66
9.103
15,277
227.35
1, 43.702
16.739
2,93 .395
49
Coconut o
Cottonseed of , .
Lecthn
M
Neutra ard
Oeoo
Oeo stearne .
Oeo stock..
1, 23 .503
12,4
4,174.633
1.2 2
ods fbenzoate oO
fcya bean o..
Tota
31. 56 , 739
42,465.060
Tota producton of coored oeomarearne
1 120 5S
132.493
34,35
69.6
In|redent schedue of coored oeomargarne:
Coconut o
43,663
153
.11
,722
133
13
Coor
Corn on _
12. 56
3 0
3
3,214
Dervatve of gycerne
295
Lecthn
Mk
25. 97
3.624
14,936
2.066
4.335
23.621
1.002
1,1 9
975
11
Neutra ard
Oeo o
Oeo stearne
Oeo stock
719
21
7
6.921
Pam kerne o
55
To
23. 7 5
3
9.675
133,3 5
152.691
1 Of the amount produced, 40,31 pounds were reworked.
1 Of the amount produced, 20, 45 pounds were reworked.
Of the amount produced, 1.696 pounds were reworked.
Or the amount produced, 5 pounds were reworked.
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420
1939-14-9779
MS. 212
Schedue of oeomargarne produced and materas wed durng the month of
ebruary. 19S9, a compared wth ebruary. 19S .
Tota producton of unooored oeomargarne..
Tota wthdrawn
ta -pad.
abassue o..
Coconut o..
Corn o
Cottonseed o.
Dervatve of gycerne
Lecthn
Mk ,
Neutra ard..
Oen o.
Oeo stearne
Oeo stock .
Pam kerne o-
Peanut o.
Sat
Soda fnenmteof)..
ova hean o
tamn concentrate..
Tota producton of coored oeomargarne
ahassu oL
Coconut o
Coor
Corn o.
Cottonseed o
DerWatre of gycerne.
ecthn...
Mk
Neutra ard
Oeo o
Oeo stearn ----
Oeo stock
Pam kerne o
Peanut o
Sat. --
ode fhenmate of)
cva hean o
tamn
Tota...
ebruary.
1939
Pounds
27. 674. 196
27 744. 210
1, 1M. 916
6.262. 1 9
61. MIS
9.397 1ft
77.61ft
7.059
6, m 467
110. 21
1.2T. n
22 . 63
136 6 1
43. 9S0
193 R S
L sn. 19
II 133
4.365.90S
1.724
2 73. 36
12 n
13 173
Of the amount produced. 14.747 pounds were reworked,
Of the amount produced. 66.396 pounds were reworked.
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421
Msc.
1939-1 -9 20
MS. 213
Schedue of oeomargarne produced and materas used durng the month of
March, 1939. as compared wth March, 193S.
March. 1939.
March, 193 .
Poundt.
Pound:
40.7S .99
29. 279, 377
Tota wthdrawn ta -pad _
2 ,999.5 5
39.621.927
1,5 9,377
4,702.759
51.431
S, 663,677
73,3 5
7.274
6, 27.131
10 .615
1,307, 171)
270,334
93,7 7
171, 522
202,511
1,129, 02
9,532, 94
4,150
16,2 6.04
11 ,933
9,709
7, 567,479
147, 764
1,324. 03
26Z994
107.374
1,236. 740
625.342
17,420
1,617, 4 0
16. 775
2,49 , 550
1,732
Mk
Rce o
at
1,213,216
11,603
6,411,040
1,2 9
30,706,121
42. 402. 6 9
137.202
160. 72
32. 93
62.292
Coor _
7,103
26, 1
137
9
14,541
60
303
7
15.065
22,344
1 9
40,647
379
14
Mk
3, 465
3,63
1 , 431
1, 100
1.2S7
1,123
107
,612
63
40,956
3
7,600
7,23
2 ,443
652
1,6 6
1,2 3
0
9,01
33
16,94
2
Oeo o
oU::::::::::::::::::::::::::::::::::::::::::::::::::::::
at
TotaL
156.915
1 1,401
1 Of the amount produced, 19,106 pounds were reworkod.
Of the amount produced, 72,140 pounds were reworked.
Of the amount produced. 64 pounds wore reworked
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422
1939-22-9 5
MS. 214
Schedue of oeomargarne produced and matera u e4 durng the month of
pr, /9SS. a compared wth pr, 19,1 .
pr. 1039.
Tota producton of uncoored oeomargarne
Ingredent schedue of uncoorod oeomargarne:
aba sue o
Coconut o
Corn o
Cottonseed o
Dervatve of gycerne
I thn
Mk
Neutra ard
Oeo o
Oeostearne -
Oeo stock
Pam kerne o
Peanut o
Rce o
Sat
Soda (benzoate of)
Soya bean o
tamn concentrate
Tota
Tota producton of coored oeomargarne...
abassue o _._
Coconut o
Coor
Corn o
Cottonseed o
Derhatheof gycerne
Lecthn
Mk
Neutra ard
Oeo o
Oeo stenrne
Oeo sock
Pam kerne o
Peanut o
Sat
Soda (benzoate of)
Soya bean oL
tamn concentrate -.
Tota
Poundt
23 229. 37
1,241.331
9 9,721
3,4tr7. 4 7
.05| o
27. 23
4 . 1
7,472, 545
11,3 0, M4
69.774
9 . 12
5.911
6. 17
4. M. 279
,030 973
90. O S
131 35
1.017, (122
1,3 09
235, 979
239 274
0. 149
1 2.601
125.75
659.514
177.709
275.462
33.97
995.907
1,31 .704
9,3 3
11,792
1 95. 7
2, 347, 153
1,311
1.37
24. 300. 263
33.95 .010
95, 70
134 153
27, 051
49. 9.10
473
1,1 4
20,260
25.543
90
167
4
10,992
291
41.20
333
3
1
19.34
2.357
3 554
, 90
14.204
24
900
500
0
417
46
495
34
2
, 1
1,011
33
34
2 ,961
. 00
1
1
107. 03
150.92
Of the amount produced, 32,112 pounds were reworked.
: O the amount produced, 62,141 pounds were reworked.
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Mso.
TO CCO.
Reguatons , rtce 24: orm 774, tobacco 1939-3-96 2
nvoce or notce of shpment. T. D. 4 1
ORM 774. TO CCO IN OIC O NOTIC O S IPM NT. Y D L RS IN L 1
TO CCO.
Reguatons No. , reatng to the ta es on tobacco, snuff, cgars,
and cgarettes, aso on cgarette papers and tubes and purchase and
sae of eaf tobacco, amended.
Washngton, D. O.
The frst paragraph of subdvson (4) (a) of artce 24 of Regua-
tons No. , as revsed and approved November 12, 1934, s amended
to read as foows:
(a) ports. In the case of e ports, the deaer sha show on both the
orgna (whte) and dupcate (yeow) orm 774 under approprate headng,
the type number of the tobacco to be e ported accordng to the offca cassf-
caton of eaf tobacco by the Unted States Department of grcuture, uetn
. R. . . No. 11 , ssued November, 11)29.
The orgna (whte) orm 774 sha be attached to a copy of Shpper s
port Decaraton on Customs or Commerce orm 7523. Ths copy sha be
marked, or nterna revenue purposes, and wth orgna (whte) Invoces
on orm 774 attached sha be forwarded at the cose of each mouth by the
coector of customs, at the port of e portaton, to the Commssoner of Interna
Revenue, Tobacco Dvson, Washngton, D. O.
Ths Treasury decson s promugated under the authorty con-
taned n secton 1101 of the Revenue ct of 1926.
Mton . Carter,
ohn W. anes,
( ed wth the Dvson of the edera Regster anuary 13, 1939, 11.09 a. m.)
1939 2 9670
T. 54
Statement of manufactured tobacco produced, by casses, durng the month of
October, 193 , as compared ctth October, 7.9. 7.1
1
October, 193 .
October, 1937.
Phn .
Pounds.
4.344.30(1
411.
Pound .
4, 767, 93
691 009
3S4. 66
3. 51, 022
I . 412, 747
Scrap chewng
3.1 ,365
2,151,43
17,670. 745
ookng
Tota.
24.969, 190
26,011,436
These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
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424
1939-6-9707
T. 55
November, 193 , a compared wth November, 1937.
November,
193 .
November,
1937.
Scran chewng
Pound .
4. 2 . 312
414.774
3nR3
4.663.403
1 .603. 40
Pound .
4,460,10)
492.937
4 1. 3
,223.541
IS. 56. 161
Smokng .
Tota
2 . 110.732
24. 614.371
1939-10-9747
T. 66
December, 193 , as compared wth December, 19ST
-
December.
193 .
December,
1937.
Ptw
Pounds.
4,2 ). 930
44a 33.1
3 2. 04 2
4.132. 633
15.5 0.2W
Pound .
3, 40.61
4 Z 12
372,434
.350.267
14.465,190
Scrap chewng
Smokng.... . .
Tota
24. 25. 133
21 4 0.61
anuary. 1939. as compared wth anuary, 193 .
1939-15-97 9
T. 57
anuary,
193 .
1939.
Pug
Pound .
.41 .. 751
399.664
371.902
.419.4S0
15. 50.411
Pound:
,731.620
437.425
T 5t
361. 0 2
Scrap chewng..... .
.1 . M
14 72 .061
Smokng
Tota
23. 260. 20
22.394.302
These fgures are sub|ect to revson unt pubshed a the Commssoner s annua report.
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Msc.
1939-19-9 27
T. 5
ebruary. 1939. as compared wth ebruary. 19.1
ebruary.
ebruary,
1939.
193 .
: :::::::::::::
Pound .
4. US. 496
470.912
19.040
2.923,992
14.7.479
Ptmnd.
4.W7.32S
450.620
336.200
3. 104. 550
14.261.942
1 ::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
Smokng
Tota
22. 67tt 919
22.739.63
1939-22-9 59
T. 59
March, 19S9. a compared wth March, 19.1 .
March, 1939.
March. 193 .
Pound.
4.321. 19
491, 139
423. 113
3.365. 273
17.4 1. I S
Pounds.
4. M, 006
411.557
501,923
3.373.31
1 . 155. 47
Tota
26.052.212
27.24 .27
1 These fcurea are sub|ect to revson unt pubshed In the Commssoner s annua
report.
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426
MISC LL N OUS.
1939-24-9 76
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.
1939 mendment. Department Crcuar No. 230 of 1936 (revsed). Commttee on
nroment and Dsbarment.
Washngton, May 11,1939.
Secton 3 of Department Crcuar No. 230 (revsed) of October 1,
1936, s revsed to read as foows:
Seo. 10.3. uafcatons for enroment. ( ) Persons of the foowng casses
who are found, upon consderaton of ther appcatons, to possess the quaf-
catons 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, n 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 n good re-
pute, 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. (Tte 5, secton 261, Unted
Staes Code.) The burden s upon appcants to estabsh ceary ther rght
to enroment by showng that they possess (1) a good character and reputaton,
(2) an adequate educaton, and (3) a knowedge of the aws and reguatons
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 s determned by the appcant s actua quates the atter depends
u on the opnon entertaned of the appcant by those who have had the oppor-
tunty of knowng hm n 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 ntegrty or untrustworthness or other quates
reprehensbe 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
appcant has come n contact n hs professon or busness.
(6) mong the causes suffcent to ustfy dena of an appcaton for en-
roment are: ny conduct, or practces, or proposed practces, whch woud
consttute a voaton of any of the provsons of these reguatons If 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 n commerca transactons by accepted
standards or a bad reputaton Imputng to an appcant conduct of a crmna,
dshonest, or unethca knd.
The Commttee on nroment and Dsbarment w endeavor to ascertan a
the facts deemed necessary by It to pass upon any appcaton wthout e pense
or undue nconvenence 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 t for the purpose of undergong addtona wrtten or
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Mac.
ora e amnaton as to hs ftness for enroment The Commttee may grant
a bearng on an appcaton at the appcant s request.
(c) ppcaton for enroment may be dened In any case n whch t appears
that the appcant has termnated hs empoyment wrh the Treasury Depart-
ment In voaton of an obgaton assumed aa a condton of such empoyment
to reman In the servce of the Deparuneut 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 take the oath of
aegance, and to support the Consttuton of the Unted tates, as requred
of persons prosecutng cams aganst the Unted States by Tte 31, secton
2 . Unted States Code, can not be enroed.
(e) Corporaton and partnershps are Inegbe for enroment.
/ Offcers and empoyees of any State, or su vson (hereof, whose dutes
requre them to pass upon. Investgate, or dea wth ta matters of such State
or su vson, sha e negbe for enroment provded such empoyment may
dscose facts or Informaton appcabe to edera ta matters.
(p .uges of courts of record sha be Inegbe for enroment
(a) persons to whom secton 19 or secton 203 of Tte 1 of the Unted
Sates Code appes, a persons prohbted by other aw from representng
camants aganst the Unted States, a persons reguary empoyed by corpora-
ton owned whoy by the Unted States, and a persona reguary empoyed
by the Dstrct of Coumba sha be negbe for enroment.
ohn W. anes,
Mat 11, 1939.
1939-5-909
The symbos to be used on etters orgnatng n the Practce and
Procedure Dvson of the Income Ta Unt w be as foows:
IT: P ead of dvson.
IT: P: 1R ureau Informaton and Rungs Secton.
IT:P:C Coordnatng and dvsory Secton.
IT: Y: T Ta payers Rungs Secton.
1T:P:T: 1 Croup 1.
IT: I :T: 2 Croup 2.
1T P:T:3 Group 3.
1939-16-97 7
Symbos to be used on etters orgnatng n the Cearng Dvson
of the Income Ta Unt w be as foows:
IT: a ead of dvson.
IT: CI . CO Cams Contro Secton.
IT:C1:D Returns Dstrbuton Secton.
IT:C1:P Provng Secton.
IT: CI: St Statstca Secton.
These reguaton anpersede secton 10.S, Chapter 1, Tte 31 of the Code of edera
umons ssued under authorty contaned In vecUon S, 23 Stat, 26 , Ttto , D. S. C,
(Ore. 230, Sec. Treaa., Sept I , 1936).
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42
L GISL TION.
1939-17-9 09
. R. 3700. PU LIC, NO. 32, S NTY-SI T CONGR SS. C PT R 59,
IRST S SSION.
n ct reatng to the ta aton of the compensaton of pubc
offcers and empoyees.
e t enacted by the Senate and ome of Representatves of the
Unted States of merca n Congress assembed, That ths ct may
be cted as the Pubc Saary Ta ct of 1939.
TITL L
Secton 1. Secton 22(a) of the Interna Revenue Code (reatng
to the defnton of gross ncome ) s amended by nsertng after the
words compensaton for persona servce the foowng: ( ncud-
ng persona servce as an offcer or empoyee of a State, or any
potca subdvson thereof, or any agency or nstrumentaty of
any one or more of the foregong) .
Sec. 2. Secton 116(b) or the Interna Revenue Code (e emptng
compensaton of teachers n aska and awa from ncome ta )
s repeaed.
Sec. 3. Secton 22(a) of the Interna Revenue Code s amended
by addng at the end thereof a new sentence to read as foows:
In the case of |udges of courts of the Unted States who took offce
on or before une 6, 1932, the compensaton receved as such sha
be ncuded n gross ncome.
Sec. 4. The Unted States hereby consents to the ta aton of com-
pensaton, receved after December 31, 193 , for persona servce aS
an offcer or empoyee of the Unted States, any Terrtory or posses-
son or potca subdvson thereof, the Dstrct of Coumba, or any
agency or nstrumentaty of any one or more of the foregong, by
any duy consttuted ta ng authorty havng |ursdcton to ta such
compensaton, f such ta aton does not dscrmnate aganst such
offcer or empoyee because of the source of such compensaton.
TITL II.
Sec. 201. ny amount of ncome ta (ncudng nterest, addtons
to ta , and addtona amounts) for any ta abe year begnnng pror
to anuary 1, 193 , to the e tent attrbutabe to compensaton for
persona servce as an offcer or empoyee of a State, or any potca
subdvson thereof, or any agency or nstrumentaty of any one or
more of the foregong
(a) sha not be assessed, and no proceedng n court for the coec-
ton thereof sha be begun or prosecuted (uness pursuant to an
assessment made pror to anuary 1, 1939)
(b) f assessed after December 31, 193 , the assessment sha be
abated, and any amount coected n pursuance of such assessment
sha be credted or refunded n the same manner as n the case of
an ncome ta erroneousy coected and
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429
(Mso.
(c) sha, f coected on or before the date of the enactment of ths
ct, be credted or refunded n the same manner as n the case of an
ncome ta erroneousy coected, n the foowng cases
(1) Where a cam for refund of such amount was fed before
anuary 19, 1939, and was not dsaowed on or before the date
of the enactment of ths ct
(2) Where such cam was so fed but has been dsaowed and
the tme for begnnng sut wth respect thereto has not e pred
on the date of the enactment of ths ct
(3) Where a sut for the recovery of such amount s pendng
on the date of the enactment of ths ct and
(4) Where a petton to the oard of Ta ppeas has been
fed wth respect to such amount and the oard s decson has
not become fna before the date of the enactment of ths ct.
Sec. 202. In the case of any ta abe year begnnng after December
31,1937, and before anuary 1, 1939, compensaton for persona serv-
ce as an offcer or empoyee of a State, or any potca subdvson
thereof, or any agency or nstrumentaty of any one or more of the
foregong, sha not be ncuded n the gross ncome of any ndvdua
under Tte I of the Revenue ct of 193 and sha be e empt from
ta aton under such tte, f such ndvdua ether
(a) dd not ncude n hs return for a ta abe year begnnng after
December 31, 1936. and before anuary 1, 193 , any amount as com-
pensaton for persona servce as an offcer or empoyee of a State, or
any potca subdvson thereof, or any agency or nstrumentaty of
any one or more of the foregong or
(b) dd ncude any such amount n such return, but s entted
under secton 201 of ths ct to have the ta attrbutabe thereto
credted or refunded.
Sec. 203. ny amount of ncome ta (ncudng nterest, addtons
to ta , and addtona amounts) coected on, before, or after the date
of the enactment of ths ct for any ta abe year begnnng pror to
anuary 1, 1939, to the e tent attrbutabe to compensaton for per-
sona servce as an offcer or empoyee of a State, or any potca
subdvson thereof, or any agency or nstrumentaty of any one or
more of the foregong, sha be credted or refunded n the same
manner as n the case of an ncome ta erroneousy coected, f
cam for refund wth res|)ect thereto s fed after anuary 1 . 1939,
and the Commssoner of Interna Revenue, under reguatons pe-
scrbed by hm wth the approva of the Secretary of the Treasury,
fnds that dsaowance of such cam woud resut n the appcaton
of the doctrnes n the cases of everng aganst Therre (303 U. S.
21 ), everng aganst Gerhardt (304 U. S 405), and Graves et a.
aganst New York e re. O eefe, decded March 27, 1939. e tendng
the casses of offcers and empoyees sub|ect to edera ta aton.
Sec. 204. Nether secton 201 nor secton 203 sha appy n any
case where the cam for refund, or the nsttuton of the sut, or the
fng of the petton wth the oard, was, at the tme fed or begun,
barred by the statute of mtatons propery appcabe thereto.
Sec. 205. Compensaton sha not he consdered as compensaton
wthn the meanng of sectons 201, 202, and 203 to the e tent that
t s pad drecty or ndrecty by the Unted Sates or any agency
or nstrumentaty thereof.
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430
Sec. 206. The terms used n ths ct sha have the same meanng
as when used n Chapter I of the Interna Revenue Code.
Sec. 207. No coecton of any ta (ncudng nterest, addtons
to ta , and penates) mposed by any State, Terrtory, possesson,
or oca ta ng authorty on the compensaton, receved before anu-
ary 1, 1939, for persona servce as an offcer or empoyee of the
Unted States or any agency or nstrumentaty thereof whch s
e empt from edera ncome ta aton and, f a corporate agency or
nstrumentaty, s one (a) a ma|orty of the stock of whch s
owned by or on behaf of the Unted States, or (b) the power to
appont or seect a ma|orty of the board or drectors of whch s
e ercsabe by or on behaf of the Unted States, sha be made after
the date of the enactment of ths ct.
Sec. 20 . Ths tte sha not appy wth respect to any offcer or
empoyee of a State, or any potca subdvson thereof, or any
agency or nstrumentaty of any one or more of the foregong, after
the Secretary of the Treasury has determned and procamed that
t s the pocy of such State to coect from any ndvdua any ta ,
nterest, addtons to ta , or penates, on account of compensaton
receved by such ndvdua pror to anuary 1, 1939, for persona
servce as an offcer or empoyee of the Unted States or any agency
or nstrumentaty thereof. In makng such determnaton the Sec-
retary of the Treasury sha dsregard the ta aton of offcers and
empoyees of any corporate agency or nstrumentaty whch s not
e empt from edera ncome ta aton, or whch f so e empt s one
(a) a ma|orty of the stock of whch s not owned by or on behaf
of the Unted States and (b) the power to appont or seect a
ma|orty of the board of drectors of whch s not e ercsabe by or
on behaf of the Unted States.
Sec. 209. In the case of the |udges of the Supreme Court, and of
the nferor courts of the Unted States created under rtce III of
the Consttuton, who took offce on or before une 6 1932, the
compensaton receved as such sha not be sub|ect to ncome ta
under the Revenue ct of 193 or any pror Revenue ct.
Sec. 210. or the purposes of ths ct, the term offcer or em-
poyee ncudes a member of a egsatve body and a |udge or
offcer of a court.
Sec. 211. If ether tte of ths ct, or the appcaton thereof to
any person or crcumstances, s hed nvad, the other tte of the ct
sha not be affected thereby.
pproved, pr 12, 1939.
1939-20-9 37
. R. 3791. PU LIC, NO. 1 , S NTY-SI T CONGR SS. C PT R 35,
IRST S SSION.
n ct to provde more effectvey for the natona defense by
carryng out the recommendatons of the Presdent In hs message
of anuary 12, 1939, to the Congress.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed,

Sec. 14. the provsons of secton 3 of the ct of March 27,
1934, as amended (4 Stat, 505 49 Stat, 1926), and as amended by
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431
Msc.
ths secton sha be appcabe wth respect to contracts for arcraft
or any porton thereof for the rmy to the same e tent and n the
same manner that such provsons are appcabe wth respect to con-
tracts for arcraft, or any porton thereof for the Navy: Provded,
That the Secretary of War sha e ercse a functons under such
secton wth respect to arcraft for the rmy whch are e ercsed by
the Secretary of the Navy wth respect to arcraft for the Navy:
Provded further, That secton 3b of the ct of March 27, 1934 (4
Stat., 505), as amended (49 Stat., 1920 4 U. S. C. Supp. I , 49G),
s hereby further amended by nsertng n the frst sentence after the
words u n e cess of 10 per centum of the tota contract prces the
words for the constructon and/or manufacture of any compete
nava vesse or porton thereof, and n e cess of L2 er centum of the
tota contract prces for the constructon and/or manufacture of any
compete a-craft or | rton thereof by nsertng n the frst pro-
vso after the words That f there s a net oss on a such contracts
or subcontracts the words for the constructon and/or manufacture
of any compete nava vesse or porton thereof and by nsertng
at the end of the frst provso after the words ncome ta abe year
a comma and the words and that f there s a net oss, or a net
proft ess than 12 per centum, as aforesad on a such contracts or
subcontracts for the constructon and/or manufacture of any com-
pete arcraft or porton thereof competed by the partcuar con-
oss or defcency n proft sha be aowed as a credt n determnng
the e cess proft, f any, durng the ne t succeedng four ncome ta -
abe years, and that the method of ascertanng the amount of e cess
proft, ntay f ed upon sha be determned on or before une 30,
1939 : Pronded further, That when arcraft are procured by the
Secretary of War as a resut of compettve bds requrng the sub-
msson of sampe arcraft wth bd, the Secretary s authorzed, n
hs dscreton, to purchase sampe arcraft of compettors to whom
an award s not made, not more than one each from not more than
three such compettors, n order of mert, at prces not e ceedng 75,
0, and 50 per centum, res|ectvey, of the cost appcabe n the opn-
on of the Secretary to the deveopment and manufacture of such
sampe arcraft.
pproved pr 3, 1939.
tractor or subcontractor wth
ta abe year, such net
_ r I . -
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IND .
.
grcutura d|ustment ct:
dvances to corn producers
ng of cams for refund, assgnment by operaton of nw__
rcraft, fue suppes, etc., foregn couutres whch aow recp-
roca prveges
mendments:
Gaugng Manua, paragraph 100
Reguatons 6
Sectons 19, 2 , and 30(a)
Secton 44 (added)
Reguatons , artce 24
Reguatons 13, artce 7, paragraph 1
Reguatons G9, artces 1293 and 1294
Reguatons 71 (1932), artce 36, subparagraph (v)
Reguatons 74, artces 1191 and 1192
Reguatons 77. artces 1191 and 1192
Reguatons 79 (1936), artce 19.
Reguatons 0 (1937), artce 10
Reguatons 6
rtce 22(a)-
rtce 119-14 --
rtce 119-15 (added)- -
rtces 274-1 and 274-2
rtces 01-5 and 01-6
Reguatons 94
rtce 22(a)-
rtce 44 5
rtce 119-14
rtce 119-15 (added) -
rtces 274-1 and 274-2
rtces 1001-6 and 1001-6 -
Reguatons 100, artces 502 and 505
Reguatons 101
rtces 22 (a)-2 and 116-2
rtce 44-5
rtce- 901-5 and 901-6
Treasury decsons
4430, revoked -
4723
4 34, superseded
mercan Natona Red Cross, e empton
nnutes:
rench ctzens, e empton from wthhodng
Natona bank e amner
Payments to nonresdent aens by domestc company s
branch offce n Chna
rmy, retred ensted men. aowances for quarters, ta abty
ssessments n bankruptcy and recevershp cases, reguatons
amended
ssocatons, trust dstngushed
ttornevs and agents, reguatons governng recognton by
Treasury Department (1939 amendment)
Rur
N- .
9 61
1
97
2 0
9777
354
9 93
394
9774
377
9774
377
96 2
423
9794
3 0
9791
204
9755
357
9791
203
9791
203
9 53
341
9 52
325
9674
159
9656
190
9656
190
9791
203
979
79
9674
159
9 39
7
9656
190
9656
190
9791
203
979
79
97 0
324
9 6
75
9 39
7
979
79
9 10
225
9 14
404
9 29
364
9741
123
9 13
141
9 9
4
9 42
197
9 01
3
9791
203
9 73
274
9 76
426
(433)
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434
utomobes:
Coson damage, oss deducton, bass
nance charges, deductbty as nterest
Sezure under Lquor Law Repea and nforcement ct.
.
ad debts, banks, recovery after deducton n pror years
ankruptcy and recevershp proceedngs, reguatons amended...
anks:
ad debts, recovery of debts deducted n pror year, ta abty.
Insovent
ssessment and coecton of ta es, reguatons
Soca securty ta es
oat and boat house, destructon by storm, oss deducton, bass..
onds:
Interest, |ont ownershp ncudng tendency by entretes,
ownershp certfcates
Redempton of
Capta gans
Merger of parent and subsdares, unamortzed dscount
and e pense, deducton
Rung
No.
96 0
9730
9 65
9731
9733
9791
1/9731
9733
9691
9745
90 0
auaton of, stocks, reguatons amended
ureau of Interna Revenue, correspondence symbos
usness e penses:
ccrued saares, deducton
udng ease, ega fees, commssons, and ateratons
Contrbutons to State unempoyment compensaton fund,
Mchgan
arm and racng stabe, operaton for proft
Insurance poces purchased for empoyees
C.
Caforna, n|uncton to restran enforcement of Raroad Retre-
ment and Carrers Ta ng cts
Canada:
Income ta conventon wth, reguatons, ta on nonresdent
aens
Ta on dvdends, credt for, camed as deducton on orgna
return
Capta gans and osses:
ond redempton
Capta assets, hodng perod, dates of purchase and sae
Determnaton of contrbuton deducton
Sae of mproved rea property, appontment of proceeds to
and and deprecabe mprovements . _.
Capta net oss, net ncome computaton, chartabe contrbutons,
deducton
Capta stock ta :
Carryng on or dong busness, corporaton s offcers operatng
under court order, reorganzaton proceedngs
Recevershp, return under 193 ct
Returns, nspecton of, reguatons
Three-year perods, same for a corporatons sub|ect to ta ..
9 32
97 6
9795
19796
(9 52
19 53
969
197 7
9664
9710
9764
9 90
9773
966
9690
97 6
9 71
9793
96 5
96 1
9 45
9716
9 41
9 36
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435
Carrers Ta ng ct of 1937:
Compensaton, what consttutes, swtchncn a anterns and
hand toos purchased by empoyee
mpoyees, who are, attorney engaged by raroad company..
mpoyers, who are, hospta assocaton mantaned by
carrer --
In|uncton to restran enforcement, Caforna
Returns, reguatons amended
Cergymen, renta from house furnshed by church, ta abty
Commssons, sae of stock, restoraton n ater year, ta abty
Commttee reports. Revenue cts of 1913 to 1939, ncusve.
(See Part 2.)
Communty property and ncome, Caforna resdents vng n
New York
Coupensat on:
ddtona, purchase of fe nsurance poces for empoyees,
empoyer deducton.
Commssons on stocks sae, restoraton In ater year
Customs Servce, empoyees statoned In Canada, overtme
e empton
Decedent s servces rendered n pror year, when reported
edera and State offcers and empoyees, ta abty
udges, Unted States courts, ta abty
Payments under edera Compensaton ct, e empton
Retred ensted men, aowances for quarters, ta abty
State offcers and empoyees, ta abty
Consent dvdends credt, sharehoder s consents, tme for fng.
Contracts, Navy. (See nson ct.)
Contrbutons:
Chartabe
mercan Natona Red Cross and branches
Determnaton of deducton where capta gan or oss..
raterna benefcary socety, grand odge and home
Net ncome computaton, capta net osses
mpoyees penson trusts
New York unempoyment nsurance fund, deducton
Potca organzaton
State unempoyment fund, Mchgan
Conventon, recproca ta , between Unted States and Canada,
reguatons, ta on nonresdent aens
Conveyances. (See Msceaneous ta es: Stamp ta es.)
Corn producers, advances receved under grcutura d|ust-
ment ct
Corporatons:
cquston or dsposton of ts own capta stock, gan or oss.
Chartabe contrbutons, mercan Natona Red Cross and
branches
Credts
Dvdends pad
asc surta credt, net operatng oss for 1937
Dvdend notes devered to snkng fund trustee
Preferenta dstrbutons n parta qudaton
Net operatng oss for 1937
Informaton returns, contempated dssouton or qudaton..
Purchase and resae of corporaton s own stock, gan, gross
ncome
Correspondence symbos, ureau of Interna Revenue
Court decsons:
utomobe nancng, Inc. Unted States v
erteUen Petersen ngneerng Co. Unted States v
att Co. v. Unted Staes..
rown v. Commssoner
Rung
No.
9677
9716
9735
966
97 0
9675
9 3
9720
9773
9 3
9742
9744
9 4
9 63
9 49
9 01
97 3
9709
9741
9793
9750
96 1
9765
9 31
9 22
9764
9690
9 61
9 10
9741
9 0
97 5
9676
9 0
9704
/9712
19713
969
9 65
9752
9657
9696
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436
Court decsons Contnued.
Commssoner rown v
Commssoner rst Chrod Corporaton v
Commssoner v. ood Industres, Inc
Commssoner Genera Gas ectrc Corporaton v
Commssoner Groves v
Commssoner Guaranty Trust Co. of New York et a. v
Commssoner udson v
Commssoner Morse v
Commssoner Perce v
Commssoner Saunders v
Commssoner Thomas v
Commssoner Thrash Lease Trust v
Contnenta Natona ank Trust Co. Unted States v
Corwn Dmock v
Dmock v. Corwn
khorn Coa Co. everng v
arbanks v. Unted States
rst Chrod Corporaton v. Commssoner
ood Industres, Inc. Commssoner v
Genera Gas ectrc Corporaton v. Commssoner
Graves et a. v. Peope of the State of New York
Groves v. Commssoner
Guaranty Trust Co. of New York et a. v. Commssoner
eme Co. v. Unted States
everng v. khorn Coa Co
everng v. Metropotan dson Co
everng Natona Cty ank of New York v
everng Obc v
everng v. Owens
everng v. Pennsyvana Water Power Co
everng v. Reynods Tobacco Co
everng Unted States Trust Co. of New York v
enry et a. Wech v
udson v. Commssoner
acobs Unted Stntes v
nffray et a Unted States v
Latmer et a. State of Caforna v
Lews v. Unted States .
McCrone v. Unted Sates
Metropotan dson Co. everng v
Mer et a. Unted States v
Morse v. Commssoner
Natona Cty ank of New York v. everng
Obc v. everng
O Maey v. Woodrough
One 1036 Mode ord - De Lu e Coach, Motor No. 1 - 306
611, Commerca Credt Co. Unted States v
Owens everng v
Pennsyvana Water Power Co. everng v
Peope of the State of New York Graves et a. v
Perce v. Commssoner
Peasants Unted States v
Reynods Tobacco Co. everng v
Saunders v Commssoner
Saunders v. Unted States
Scher v. Unted States
Stae of Caforna v. Latmer et a
Thomas v. Commssoner
Thrash Lease Trust v. Commssoner
Unted Staes v. utomobe nancng, Inc
Unted Sates v. eresen fc Petersen ngneerng Co
Rung
No.
Page.
9696
327
9713
22
9 24
253
9796
233
9766
215
9706
332
9 43
257
9 92
235
9 34
246
9 3
219
9 04
263
9 73
274
96 6
267
9753
336
9753
336
9721
24
97 6
260
9713
22
9 24
253
9796
233
97S3
129
9766
215
9706
332
9666
262
9721
24
9795
229
9734
211
96 0
234
96 0
234
9795
229
9712
225
9 17
330
967
411
9 43
257
9753
336
9752
271
966
321
9 3
219
9 15
277
9795
229
9 55
373
9 92
235
9734
211
96 0
234
9 63
160
9 65
3 1
96 0
234
9795
229
97 3
129
9 34
246
96 1
239
9712
225
9SS3
219
9 3
219
965
3 9
966
21
9 04
263
9 73
274
9 65
3 1
9752
271
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437
Court decsons Contnued.
Unted States at Co. v
Unted States v. Contnenta Natona ank Trust Co
Unted States arbanks v
Unted States eme Co. v
Unted Sates v. acobs
Unted States v. affray et a
Unted Staes Lews v
Unted Staes McCrone v.
Unted Staes v. Mer et a.
Unted States v. One 19S6 Mode ord -S De Lu e Coach,
Motor No. 1 - 906511, Commerca Credt Co
Unted States v. Peasants - -
Unted States Saunders v
Unted States Scher v -.
Unted States Trust Co. of New York v. everng
Unted States Westcott v..
Wech v. enry et a
Westcott v. Unted States
Woodrouah O Maey v
Credt or refund:
grcutura d|ustment ct, fng of cams where assgn-
ment by operaton of aw
Contrbutons to New York unempoyment nsurance fund,
ncome
Credts:
Consent dvdends, sharehoder s consents, tme for fng
Corporatons
Dvdends pad
asc surta credt, net operatng oss for 1937
Dvdend notes devered to snkng fund trustee
Preferenta dstrbutons n parta qudaton
Reducton of earnngs or profts by unaowabe
capta oss
Net operatng oss for 1937
oregn ta es
Canadan dvdend ta , camed as deducton on orgna
return -
Me can ta on revenue of dstrbutors of movng pcture
fms
Repubc of Panama ncome ta
State ncome ta es pad by domestc corporatons
Credts aganst net ncome:
Dependents, credt for
Contrbutons not chef support
ead of famy, mother soe dependent
Mnor chdren vng wth mother, amony payments
means of support
Persona e empton
Dvson between husband and wfe where ta abe years
not concurrent -
ead of famy, reht to e ercse famy contro
Mantenance of home and support of dependent mother.
Customs Servce, empoyees statoned n Canada, overtme com-
pensaton, e empton
Deductons, unpad e penses and nterest, dsaowance
Dependents, credt for. (Sre Credts aganst net ncome.)
Dscount, bonds. (See onds.)
Rung
No.
9057
96 6
97 6
9666
9753
9752
9 3
9 15
9 55
9 65
96 1
9 3
905
9S17
9 3
967
9 3
9 63
97
9 31
9709
9 0
97 5
9076
9719
9 0
9 72
90 4
9666
9605
9770
9 03
9 23
9605
9770
9742
9664
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43
Dsted sprts:
otted n bond, reguatons amended
Lquor bottes, used, purchase, 6ae, and possesson of, regu-
atons amended
Dvdends:
Corporate resouton chargng off cash wthdrawas by stock-
hoders
Dstrbutons n e cess of earnngs, stockhoders of dfferent
casses
Income ta on, Wsconsn
Pad, credt for. (See Credts: Corporatons.)
Stock receved n reorganzaton
Doube ta aton, conventon and protoco, Unted States and
rance, reguatons .
.
arned ncome from sources wthout Unted States, compensaton,
Customs Servce empoyees statoned n Canada
mpoyees penson trusts:
mpoyer e cuded as benefcary
Lump-sum and current annua contrbutons to
mpoyment ta es. (See Carrers Ta ng ct of 1937 and Soca
Securty ct.)
state ta :
Deductons, cams aganst estate, notes e ecuted by decedent
and payabe to wfe as trustee
Gross estate
Insurance pocy on fe of corporate offcer, change of
benefcary
ont tenancy, created pror to enactment of 1916 Reve-
nue ct
Proceeds of war rsk nsurance pocy payabe to wdow.
Reguatons 0 (1937) amended
states and trusts, compensaton, decedent s servces rendered n
pror year, when reported
amnaton of books and wtnesses, faure to testfy before n-
terna revenue agents, contempt proceedngs
cess proft, nava contracts, nson ct. (See nson ct.)
change rates, foregn
changes, gan or oss, reorganzaton, separate transactons parts
of snge pan
empt corporatons:
mercan Natona Red Cross and branches
usness eague, members representng varous busnesses
Company organzed for protecton of rver banks from eroson
raterna benefcary socety, grand odge and home
odng company, stock hed by others than e empt organ-
zaton
Nurses busness eague
Soca cub, ma|or part of ncome from ease of property
empt ncome:
Compensaton
Customs Servce empoyees statoned n Canada
Payments under edera Compensaton ct
edera and State offcers and empoyees, compensaton of...
Interest
Treasury bonds, trust and benefcary
Unted States savngs bonds
Potca contrbutons
Renta from house furnshed to mnster
State offcers and empoyees, compensaton of
Rung
No. 1
9774
9794
9 43
9771
967
9 24
9672
9742
9773
9765
9706
9696
9753
9 17
9 52
9744
9 15
9702
9721
9741
97 2
9 70
9750
9760
9694
9693
9742
9 49
9 43
97 4
975
9S22
9675
97 3
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439
Rung
No.
.
arms, operaton of farm and racng stabe for proft, busness
e pense deducton
edera Compensaton ct, payments under, e empton
edera credt unons, e empton from safe depost bo ta
edera rearms ct:
Cty ordnances not State aws
Reguatons
edera offcers and empoyees, compensaton, ta abty
ducares, returns, 193 ct..
rearms. (See Msceaneous ta es: Stamp ta es.)
oren corporatons:
Sae of products n Unted States, domestc corporaton soe
agent, ta aton
Ta aton of, reguatons, ncome ta conventon, Canada
Tradng n securtes through resdent brokers, ta aton of
oregn e change, rates prevang December 31, 193
oregn ta es, credt for, State ncome ta es pad by domestc cor-
poraton
orms, nterna revenue, appcabty under Interna Revenue
Code -
rance:
Ctzen of, annuty payments and Interest on nsurance pro-
ceeds, e empton from wthhodng
Doube ta aton, conventon and protoco wth Unted States,
reguatons
raud, ta evason, omsson from returns of profts on saes
G.
Gan or oss:
Instament obgatons, dsposton of, reguatons amended..
changes, reorganzaton
Separate transactons parts of snge pan
Stock for stock, debentures and cash dvdends
Gft ta , Reguatons 79 (1936), amended
Gum turpentne and gum rosn producers, advances receved from
cooperatve assocaton under marketng agreement
. .
usband and wfe:
Caforna resdents vng n New York, ega resdence,
communty property
Dvson of persona e empton where ta abe years not con-
current
ont return, stock gans and osses, offset
L
Informaton at source, dstrbutons to trust benefcares, fducary
returns
Inspecton of returns. (See Returns.)
Insta men t obgatons:
Gan or oss upon dsposton, reguatons amended .
Transfer to wfe and husband-wfe partnershp, gan or oss..
Insurance, nstaaton, etc., charges, ncuson n or e cuson
from sae prce
Interest:
ond, |ont ownershp ncudng tenancy by entretes, owner-
shp certfcates -
mpton
Treasury bonds, trust and benefcary
Unted States savngs bonds
9 00
9 49
9 1
90.
9 29
9 4
9703
9 2
9690
9743
9702
9606
9 11
9 13
9672
9734
9 39
9721
9 24
9 53
9 69
9720
9 23
9 34
9703
9 39
9 91
9 06
9 32
97 4
975
164
97
350
372
364
71
140
201
147
1 9
113
262
394
141
5
211
7
24
2: 3
341
2
243
109
246
140
7
1 3
51
143
16S
90
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440
Interest Contnued.
nance charges, purchase of automobe, deducton
Proceeds of fe nsurance pocy payabe to rench ctzen,
e empton from wthhodng
Interna Revenue Code:
ppcaton of
Gaugng Manua amended
Interna revenue forms, appcabty under
Reguatons prescrbed under.
udges, Unted States courts, compensaton, ta abty
L.
Leases:
Improvements by essee, ncome of essor
Lega fees, commssons, and budng ateratons, deducton..
Legsaton:
Natona defense
Pubc Saary Ta ct of 1939
Lquor Law Repea and nforcement ct, forfeture of automobe
under .
Lquor Ta ng ct of 1934, possesson and transportaton of ds-
ted sprts wthout revenue stamps
Loans, advances to:
Corn producers under grcutura d|ustment ct
Gum turpentne and gum rosn producers from Commodty
Credt Corporaton .
Losses:
Casuaty, deprecabe nonbusness property, deducton, bass.
urrcane, resdenta estate
Insovency of nsurance company, rrevocabe desgnaton of
benefcares
Raroad company s dscarded roadway property, deducton..
Stock-
Lmtaton on deducton, |ont return
Unpad purchase prce of stock becomng worthess,
when deductbe
Worthess, forecosure sae of corporaton s ony asset
M.
Manufacturers e cse ta es:
rcraft, fue suppes, etc., foregn countres whch aow
recproca prveges .
Transportaton, devery, etc., charges, ncuson n: or e r-
cuson from sae prce .-
Me co, ta on revenue of dstrbutor of movng pcture fms,
credt
Mchgan, unempoyment compensaton fund, contrbutons to
Msceaneous ta es:
Safe depost bo es, e empton, edera credt unons
Stamp ta es
Conveyances
O and gas ease and mnera deed, Inos
O and gas royaty assgnment, rzona, Nebraska,
South Dakota
rearms, transportng n nterstate commerce, consttu-
tonaty of statute
Rung
No.
Pegu.
9730
9
9 13
141
9 26
391
9 93
39
9 11
394
(9725
395
9726
96
9727
396
972
397
19756
395
9 63
160
9657
221
9710
113
9 37
430
9 09
42
9 65
3 1
965
9
9 61
1
9 69
2
96 0
234
9 62
101
9 92
235
9 50
169
9 34
246
9711
1 2
9732
171
9777
354
9 06
351
9 72
139
9764
97
9 1
356

9 46
359
9 46
359
9 55
73
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2
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441
Itunn
No.
Pace.
Msceaneous ta es Contnued.
Stamp ta es Contnued.
Reguatons 71 (1932), artce 35, amended
Stamps, reproducton by photographc or photostatc
process
N.
Natona bank e amner, annuty payments
Natona defense egsaton
Nava contracts under nson ct. ( See nson ct.)
New York unempoyment nsurance fund, contrbutons to, de-
ducton
Nonresdent aens:
nnutes from domestc company s branch offce n Chna,
ncome, wthhodng
Ta aton of, reguatons, ncome ta conventon, Canada
Word War veteran, payments to estate of, wthhodng
Nurses busness eague, e empton
0.
Oeomargarne:
Reguatons, Interna Revenue Code
Schedue of producton and materas used
November, 193 and 1937-
December, 193 and 1937- -
December, 193 and 1937 (amended)
anuarv, 1939 and 193
ebruary, 1939 and 193
March, 1939 and 193
pr, 1939 and 193 .. -
Ownershp certfcates, |ont ownershp of bonds
P.
Panama ncome ta , credts
Partnershps, mted, cassfcaton, reguatons amended
Pennsyvana property ta , deducton
Persona e empton. (See Credts aganst net ncome.)
Potca contrbutons, deducton, ncome
Processng ta es, fng of cams for refund where assgnment by
operaton of aw
Property ta es:
Pennsyvana, deducton
rgna, deducton
Pubc Saary Ta ct of 1939
Refunds, reguatons prescrbed
Reguatons 101 amended to conform to
-
uarters, aowances for, retred ensted men, ta abty.
R.
Raroad company s dscarded roadway property, oss deducton..
Raroad Retrement cts, 1935 and 1937, n|uncton to restran
enforcement, Caforna
Rates of e change, foregn
Rea estate, mproved, sae of, capta gan, apportonment to and
and deprecabe mprovements
17217 39 pt 1 15
9755
9 54
9 9
9 37
9 31
9 42
9690
9759
9694
9727
9600
9699
9739
973
9779
9 20
9 5
9 32
96 4
979
9 02
9 22
97
9 02
9661
9 09
9 7
9 6
9 01
9 50
966
9702
96 5
357
362
4
430
76
197
147
193
1 6
396
416
417
419
41
420
421
422
142
112
79
99
10
2 0
99
16
42
399
75
3
169
321
113
137
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442
Refunds:
Contrbutons to New York unempoyment nsurance fund,
ncome
Pubc Saary Ta ct of 1939, reguatons
Reguatons:
mendments. (See mendments: Reguatons.)
Doube ta aton, conventon and protoco, Unted States and
rance
edera rearms ct
Insovent banks and trust companes, assessment and coec-
tons of ta es
Inspecton of returns
Interna Revenue Code. (See Interna Revenue Code.)
Nonresdent aens, ta aton of, ncome ta conventon,
Canada
Recognton of attorneys, agents, and others by Treasury
Department (1939 amendment)
Refunds, Pubc Saary Ta ct of 1939..
Rentas, ease of house furnshed to mnster, ncome used to pay
apartment rent
Reorganzaton, gan or oss, e change of stock for stock, deben-
tures and cash dvdends
Retred ensted men, aowances for quarters, ta abty
Returns:
Capta stock ta , recevershp, 193 ct 1
Carrers Ta ng ct of 1937, reguatons amended
ducary, trusts, 193 ct
usband and wfp, Caforna resdents vng n New York,
communty property
Indvdua, omsson of profts on saes, fraud, ta evason...
Informaton
Corporatons, contempated dssouton or qudaton
ducary, dstrbutons to trust benefcares
Inspecton of, reguatons .
ont, stock gans and osses, offset
Revenue cts of 1913 to 1939, ncusve, commttee reports. (See
Part 2.)
S.
Safe depost bo ta . (See Msceaneous ta es.)
Sae, stock:
Proceeds from saes of shares gven n e change for empoy-
ment contracts, ncome
ncome
Soca cubs, ma|or part of ncome from ease of property, e emp-
ton
Soca Securty ct:
anks, nsovent, ta abty, secton 22, ct of March 1,
1 79
Credt of contrbutons aganst ta , empoyee contrbutons
pad by empoyer
mpoyees, who are
Gof professona
gh schoo students paced n vocatona tranng
onorary and rtuastc offcers
Physcans, assocate, engaged by cnc
Shearng crews
Theater empoyees, members of the cast
Truckers and crew members harvestng vegetabes
Rung
No.
9 31
9 7
9672
9 29
9691
19673
19 41
9690
9 76
9 7
9675
9 24
9 01
9716
97 0
9703
9720
9734
9704
9703
1/9673
9 41
9 34
9766
/9712
(9713
9745
9724
9 64
9762
9722
9 25
9797
96 7
9695
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443
Soca Securty ct Contnued.
mpoyers, who are, partnershp n dssouton
cepted servces
grcutura abor
Dary farms
arm propertes, repar and mantenance of
Threshng of gran
Truckers and crew members harvestng vegetabes..
Water cress, growng and shppng of
Government servce, State, nstructors of tranng casses
organzed pursuant to vocatona educaton pan, Oho.
Martme servce:
Lghter captans, scow captans, bargemen, etc., on
nonsef-propeed barges
Members of crew on vesse durng ay-up and
ft-out seasons
Returns, separaton date, reeased empoyee
Computaton of
Saesman, e penses e ceedng commssons durng
ast quarter of caendar year
Shortages and overages n accounts of mk
devery men
What consttutes
onus, payment n Unted States savngs bonds
Cash aowances for unches pad by empoyer.
Renstatement payments by order of Natona
Labor Reatons oard.
Stamps, revenue, reproducton by photographc or photostatc
process
Stamp ta es. (See Msceaneous ta es.)
States:
Offcers and empoyees, compensaton, ta abty
Ta es. (See Ta es: State.)
Unempoyment compensaton fund, contrbutons to, Mch-
gan
Stock:
Corporaton s acquston or dsposton of ts own capta
stock, gan or oss
Lmtaton on deducton, |ont return
Unpad purchase prce of stock becomng worthess, when
deductbe
ncome
Saes, proceeds from saes of shares gven n e change for
empoyment contracts, ncome
auaton of, bonds, reguatons amended
Worthess, forecosure sae of corporaton s ony asset, oss
deducton
Suts:
Coectons of ta es, |eopardy assessment, testamentary
transferees of deceased transferee, mtaton perod
Recovery of ta es, overpayment of ta , credt aganst def-
cency, court s |ursdcton
Symbos, correspondence, ureau of Interna Revenue
Ta es:
ssessment and coecton, nsovent banks and trust com-
panes, reguatons .
Rung
No.
9746
9767
9 74
9775
9695
9 35
9 16
9 51
9 05
9705
9 44
9754
9667
9662
9776
9 54
/97 3
19 4
9764
9 10
9 34
9711
9712
9713
9766
9 52
9 53
9732
96 6
9752
969
197 7
9091
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444
Ta es Contnued.
oregn, credt for
Canadan dvdend ta , camed as deducton on orgna
return
Me can ta on revenue of dstrbutors of movng pcture
fms
Repubc of Panama ncome ta
State ncome ta es pad by domestc corporaton
State-
Contrbutons to New York unempoyment nsurance
fund, deducton, treatment of ater refund
Income ta on dvdends, Wsconsn
Income ta es pad by domestc corporaton, credt
aganst ta
Property ta es
Pennsyvana, deducton
rgna, deducton
Tobacco:
ports, reguatons amended
Statement of manufactured, produced, by casses
October, 193 and 1937 -
November, 193 and 1937 - -
December, 193 and 1937
anuary, 1939 and 193 -
ebruary, 1939 and 193 - -
March, 1939 and 193
Transferred assets, |eopardy assessment, sut, testamentary trans-
ferees of deceased transferee, mtaton perod
Transportaton, devery, etc., charges, ncuson n or e cuson
from sae prce .
Treasury bonds, nterest e empton, trust and benefcary
Trust companes, assessment and coecton of ta es, reguatons..
Trusts:
ssocaton dstngushed
Created pursuant to separaton agreement, ncome ta abe
to benefcary
ducary returns, 193 ct
Income aocabe to shares of deceased benefcary, ta abty-
Treasury bond e empton
Unted States oard of Ta ppeas:
Decsons of, st of acquescences and nonacquescences
Rues of Practce, revsed uy 1, 193 , rues 6, 7, 9 (new),
and 35, amended
Unted States savngs bonds, nterest e empton
Unpad e penses and nterest, dsaowance of deductons
eterans, Word War, nonresdent aens, payments to estate of,
wthhodng
nson ct, e cess proft on Nava contracts:
ward, but not net amount receved, n e cess of 10,000
Competon date, determnaton of.
Contract or subcontract cost, dscount deductons
Determnaton of obsoescence of speca factes as part of
contract cost - -
Omsson n contract of agreement to mtaton on proft
Reguatons amended
rgna, rea estate ta es
Rung
No.
9 33
9 72
96 4
9666
9 31
967
9666
9 02
9661
6 2
9670
9707
9747
97 9
9 27
9 59
96 6
9 06
97 4
9691
9 73
9 04
9703
9772
97 4

9715
975
9664
9759
9 56
9 07
9736
9 75
9 66
9 14
9661
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445
W.
Wsconsn ncome ta on dvdends
Wthhodng ta at source:
nnuty payments
Domestc company s branch offce n Chna
Interest on nsurance proceeds, rench ctzen
Conventon, Unted States and Canada, dvdend payments
to Canadan ctzen resdng n ngand
oregn corporatons tradng n securtes through resdent
brokers
ont ownershp of bonds ncudng tenancy by entretes, own-
ershp certfcates
Payments to estate of nonresdent aen Word War veteran.-
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Bureau of Internal Revenue Cumulative Bulletin 1939-1 Part 1

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